8-K: FS Bancorp Reports $9.0 Million Net Income for Second Quarter, Announces Share Repurchase Plan and Dividend Increase

FS Bancorp announced a second quarter net income of $9.0 million, a new share repurchase plan, and a 3.8% increase in its quarterly dividend.

Summary

• FS Bancorp reported a net income of $9.0 million, or $1.13 per diluted share, for the second quarter of 2024, slightly down from $9.1 million, or $1.16 per diluted share, in the same quarter last year.
• For the first six months of 2024, net income was $17.4 million, or $2.20 per diluted share, compared to $17.3 million, or $2.19 per diluted share, for the same period in 2023.
• The company's net interest margin (NIM) increased to 4.29% for the second quarter of 2024, up from 4.26% in the previous quarter, but down from 4.66% in the same quarter last year.
• FS Bancorp repurchased 73,000 shares of its common stock at an average price of $32.84 per share during the second quarter and authorized a new share repurchase plan of up to $5.0 million.
• Loans receivable, net, increased by $41.8 million, or 1.7%, to $2.46 billion at June 30, 2024, compared to $2.42 billion at March 31, 2024.
• Total deposits decreased by $82.5 million, or 3.3%, to $2.38 billion at June 30, 2024, primarily due to a reduction in brokered deposits.
• Book value per share increased to $37.15 at June 30, 2024, up from $36.06 at March 31, 2024.
• The company's regulatory capital ratios remain strong, with a total risk-based capital ratio of 13.9% and a Tier 1 leverage capital ratio of 10.9% at June 30, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company reported a slight decrease in net income compared to the same quarter last year, there are positive aspects such as increased book value, a dividend increase, and a new share repurchase plan. The company is also facing challenges such as increased interest expenses and a decrease in deposits.

Positives

• Net income for the second quarter was $9.0 million, an increase from $8.4 million in the previous quarter.
• The net interest margin increased to 4.29% in the second quarter, up from 4.26% in the previous quarter.
• The company increased its quarterly cash dividend by $0.01 to $0.27 per common share.
• The company's book value per share increased by $1.09 to $37.15.
• The company's tangible book value per share increased by $1.19 to $34.66.
• The company's regulatory capital ratios remain strong and exceed requirements.
• The company sold $164.5 million of one-to-four-family loans during the quarter, up from $93.9 million in the previous quarter.

Negatives

• Net income for the second quarter was slightly lower than the $9.1 million reported in the same quarter last year.
• The net interest margin decreased from 4.66% in the second quarter of 2023 to 4.29% in the second quarter of 2024.
• Total deposits decreased by $82.5 million, or 3.3%, during the quarter.
• Nonperforming loans increased by $2.1 million compared to the same quarter last year.
• Net interest income decreased by $1.2 million compared to the same period last year.
• The average total cost of funds increased to 2.38% for the three months ended June 30, 2024, from 1.48% for the same period in 2023.
• Gross margins on home loan sales decreased to 2.96% for the quarter ended June 30, 2024, compared to 3.43% in the previous quarter.

Risks

• The company faces potential adverse impacts from economic conditions, including inflation and potential recession.
• Changes in the interest rate environment could negatively affect revenues, expenses, and asset values.
• Increased competitive pressures could impact the company's performance.
• The company faces risks related to expanding into new geographic markets and product lines.
• Fluctuations in deposits and liquidity issues could pose challenges.
• Disruptions or security breaches in information technology systems could negatively impact operations.
• The company is exposed to risks from climate change, severe weather events, and other external events.

Future Outlook

The company's forward-looking statements indicate that future results may differ materially from current expectations due to various factors, including economic conditions, interest rate changes, and competitive pressures. The company does not undertake any obligation to revise forward-looking statements.

Management Comments

• Joe Adams, CEO, stated he is pleased with the financial results for the second quarter.
• Joe Adams, CEO, expressed excitement about Matthew D. Mullet's promotion to Bank President.
• Joe Adams, CEO, noted the Board of Directors increased the quarterly cash dividend and expanded the share repurchase plan.
• Management remains focused on matching deposit/liability duration with the duration of loans/assets where feasible.

Industry Context

The results reflect the challenges faced by many banks in the current environment, including increased interest expenses and a shift in deposit mix. The company's focus on maintaining strong capital ratios and managing asset and liability durations is consistent with industry best practices.

Comparison to Industry Standards

• FS Bancorp's net interest margin of 4.29% is within the range of regional banks, but lower than some higher performing institutions.
• The company's loan growth of 1.7% is moderate compared to some peers experiencing more aggressive expansion.
• The decrease in deposits of 3.3% is a common trend in the current environment as customers seek higher yields.
• The company's capital ratios are strong, exceeding regulatory requirements, which is a positive sign compared to some banks facing capital concerns.
• The increase in nonperforming loans is a concern, but the company's allowance for credit losses appears adequate.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the increased dividend and share repurchase plan.
• Employees may be impacted by the management change with Matthew D. Mullet's promotion.
• Customers may see changes in loan and deposit rates due to the current interest rate environment.
• Creditors may be impacted by the company's borrowing activities.

Next Steps

• The company will continue to execute its share repurchase plan.
• The company will pay a cash dividend of $0.27 per common share on August 21, 2024.
• Management will continue to focus on matching deposit/liability duration with the duration of loans/assets.

Key Dates

Keywords

FS Bancorp, 1st Security Bank, Net Income, Share Repurchase, Dividend, Net Interest Margin, Loans, Deposits, Capital Ratios, Financial Results