MOUNTLAKE TERRACE, Wash., April 24, 2024 (GLOBE NEWSWIRE) -- FS Bancorp, Inc. (NASDAQ:FSBW) (the "Company"), the holding company for 1st Security Bank of Washington (the "Bank" or "1st Security Bank") today reported 2024 first quarter net income of $8.4 million, or $1.06 per diluted share, compared to $8.2 million, or $1.04 per diluted share, for the comparable quarter one year ago.  "We are proud to report a $1.83 increase in our tangible book value per share, a stabilization of our net interest margin, and our continued focus on growing our award-winning culture during the first quarter," stated Joe Adams, CEO. "We are also pleased that our Board of Directors approved our forty-fifth consecutive quarterly cash dividend of $0.26 per share, demonstrating our continued commitment to enhancing shareholder value.  The cash dividend will be paid on May 23, 2024, to shareholders of record as of May 9, 2024," concluded Adams. 2024 First Quarter Highlights Net income was $8.4 million for the first quarter of 2024, compared to $9.8 million in the previous quarter, and $8.2 million for the comparable quarter one year ago; As an investment strategy to mitigate realized investment losses noted below, during the first quarter of 2024, the Company sold a portion of its mortgage servicing rights ("MSRs") resulting in a pre-tax gain of $8.2 million. The MSRs related to mortgages with Fannie Mae and Freddie Mac serviced loans with an aggregate principal balance of approximately $1.29 billion; Offsetting the gain noted above, the Company sold longer duration investment securities with amortized cost of $52.0 million in the first quarter of 2024, resulting in an $8.0 million pre-tax loss. The proceeds were utilized to purchase securities and other liquid assets; Net interest margin ("NIM") expanded to 4.26% for the first quarter of 2024, compared to 4.24% in the previous quarter, and compressed from 4.70% for the comparable quarter one year ago; Loans receivable, net increased $13.9 million, or 0.6%, to $2.42 billion at March 31, 2024, compared to $2.40 billion at December 31, 2023, and increased $115.7 million, or 5.0%, from $2.30 billion at March 31, 2023; Consumer loans, of which 88.0% are home improvement loans, were relatively static in the first quarter of 2024 with a total of $646.1 million at March 31, 2024, compared to $646.8 million in the previous quarter, and increased $39.5 million, or 6.5%, from $606.7 million in the comparable quarter one year ago. Yields on consumer loans improved 0.17% to 7.22% from 7.05% at the end of the fourth quarter 2023. During the three months ended March 31, 2024, consumer loan originations included 74.1% of home improvement loans originated with a Fair Isaac Corporation ("FICO") score above 720 and 86.4% of home improvement loans with a UCC-2 security filing; The allowance for credit losses on loans ("ACLL") was $31.5 million, or 1.29% of gross loans receivable at March 31, 2024, compared to $31.5 million, or 1.30% at December 31, 2023, and $29.9 million, or 1.29% at March 31, 2023; Total deposits decreased $57.0 million, or 2.3%, to $2.47 billion at March 31, 2024 compared to $2.52 billion at December 31, 2023 and increased $22.0 million, or 0.9%, from $2.44 billion at March 31, 2023. Noninterest-bearing deposits were $646.9 million at March 31, 2024, $670.8 million at December 31, 2023, and $746.9 million at March 31, 2023; Total deposits, excluding brokered deposits, increased $35.2 million for the three months ended March 31, 2024, compared to $9.8 million of growth in the prior quarter, and $8.2 million of growth in the first quarter of 2023 (less acquired deposits from the acquisition of seven bank branches from Columbia State Bank in the first quarter of 2023). See "Non-GAAP Financial Measures;" Segment reporting in the first quarter of 2024 reflected net income of $8.2 million for the Commercial and Consumer Banking segment and $246,000 for the Home Lending segment, compared to net income of $10.0 million and a net loss of $254,000 in the prior quarter, and net income of $7.3 million and $873,000 in the first quarter of 2023, respectively. The gain on sale of MSRs and offsetting loss on sale of investment securities were allocated to the Commercial and Consumer Banking segment; The percentage of available unencumbered cash and secured borrowing capacity at the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank to uninsured deposits was 223% at March 31, 2024, compared to 224% in the prior quarter. The average deposit size per FDIC-insured account at the Bank was $33,000 for both March 31, 2024 and December 31, 2023; Regulatory capital ratios at the Bank were 13.7% for total risk-based capital and 10.6% for Tier 1 leverage capital at March 31, 2024, compared to 13.4% for total risk-based capital and 10.4% for Tier 1 leverage capital at December 31, 2023; and Tangible book value per share increased $1.83 to $33.47 at March 31, 2024, compared to $31.64 at December 31, 2023, and increased $4.92 from $28.55 at March 31, 2023. See, "Non-GAAP Financial Measures." Segment Reporting The Company reports two segments: Commercial and Consumer Banking and Home Lending. The Commercial and Consumer Banking segment provides diversified financial products and services to our commercial and consumer customers. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. This segment is also responsible for the management of the investment portfolio and other assets of the Bank. The Home Lending segment originates one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as loans held for investment. The Company reflected the sale of servicing rights as a gain to the Commercial and Consumer Bank segment to offset the realized loss on investment securities and, over the next 48 months, will allocate the gain as intercompany income from the Commercial and Consumer Banking segment to the Home Lending segment on a straight-line basis. The tables below provide a summary of segment reporting at or for the three months ended March 31, 2024 and 2023 (dollars in thousands):     At or For the Three Months Ended March 31, 2024   Condensed income statement:   Commercial and Consumer Banking     Home Lending     Total   Net interest income (1)   $ 28,086     $ 2,260     $ 30,346   Provision for credit losses     (1,251 )     (148 )     (1,399 ) Noninterest income (2)     2,393       2,718       5,111   Noninterest expense (3)     (19,008 )     (4,521 )     (23,529 ) Income before provision for income taxes     10,220       309       10,529   Provision for income taxes     (2,069 )     (63 )     (2,132 ) Net income   $ 8,151     $ 246     $ 8,397   Total average assets for period ended   $ 2,401,864     $ 556,683     $ 2,958,547   Full-time employees ("FTEs")     440       130       570                                 At or For the Three Months Ended March 31, 2023   Condensed income statement:   Commercial and Consumer Banking     Home Lending     Total   Net interest income (1)   $ 27,500     $ 3,162     $ 30,662   (Provision) recovery for credit losses     (2,122 )     14       (2,108 ) Noninterest income (2)     2,380       2,839       5,219   Noninterest expense (3)     (18,610 )     (4,914 )     (23,524 ) Income before provision for income taxes     9,148       1,101       10,249   Provision for income taxes     (1,809 )     (228 )     (2,037 ) Net income   $ 7,339     $ 873     $ 8,212   Total average assets for period ended   $ 2,250,052     $ 491,974     $ 2,742,026   FTEs     445       141       586     _______________ (1)    Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of assigned liabilities to fund segment assets.       (2)   Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value, and subsequently transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of noninterest income. For the three months ended March 31, 2024, the Company recorded a net increase in fair value of $2,000, as compared to a net increase in fair value of $577,000 for the three months ended March 31, 2023. As of both March 31, 2024 and 2023, there was $15.0 million in residential mortgage loans recorded at fair value as they were previously transferred from loans held for sale to loans held for investment.       (3)   Noninterest expense includes allocated overhead expense from general corporate activities. Allocation is determined based on a combination of segment assets and FTEs.  For the three months ended March 31, 2024 and 2023, the Home Lending segment included allocated overhead expenses of $1.5 million and $1.6 million, respectively.     Asset Summary Total assets were $2.97 billion at both March 31, 2024, and December 31, 2023, and increased $186.9 million, or 6.7%, from $2.78 billion at March 31, 2023.  The changes in total assets at March 31, 2024, compared to December 31, 2023, included increases of $24.3 million in loans HFS, $13.9 million in loans receivable, net, and $3.6 million in other assets, partially offset by decreases of $20.3 million in total cash and cash equivalents, $13.3 million in securities available-for-sale, $8.1 million in MSRs HFS, and $1.9 million in deferred tax asset, net.  The increase in total assets at March 31, 2024, compared to March 31, 2023, was primarily due to increases in loans receivable, net of $115.7 million, securities available-for-sale of $47.3 million, loans HFS of $26.6 million, certificates of deposit at other financial institutions of $18.5 million, and other assets of $6.2 million. These increases were partially offset by decreases in total cash and cash equivalents of $12.8 million, MSRs of $8.6 million, core deposit intangible, net of $3.9 million, premises and equipment of $1.5 million, operating lease right-of-use of $1.2 million and deferred tax asset, net of $1.0 million. LOAN PORTFOLIO                                                 (Dollars in thousands)   March 31, 2024     December 31, 2023     March 31, 2023       Amount     Percent     Amount     Percent     Amount     Percent   REAL ESTATE LOANS                                                 Commercial   $ 359,055       14.7 %   $ 366,328       15.1 %   $ 339,794       14.6 % Construction and development     301,346       12.3       303,054       12.5       337,452       14.5   Home equity     73,323       3.0       69,488       2.9       60,625       2.6   One-to-four-family (excludes HFS)     580,050       23.7       567,742       23.3       501,100       21.5   Multi-family     222,410       9.1       223,769       9.2       232,201       10.0   Total real estate loans     1,536,184       62.8       1,530,381       63.0       1,471,172       63.2                                                     CONSUMER LOANS                                                 Indirect home improvement     568,802       23.2       569,903       23.4       531,632       22.8   Marine     73,921       3.0       73,310       3.0       70,994       3.0   Other consumer     3,409       0.1       3,540       0.1       4,042       0.2   Total consumer loans     646,132       26.3       646,753       26.5       606,668       26.0                                                     COMMERCIAL BUSINESS LOANS                                                 Commercial and industrial ("C&I")     256,429       10.6       238,301       9.8       223,702       9.6   Warehouse lending     8,113       0.3       17,580       0.7       28,044       1.2   Total commercial business loans     264,542       10.9       255,881       10.5       251,746       10.8   Total loans receivable, gross     2,446,858       100.0 %     2,433,015       100.0 %     2,329,586       100.0 %                                                   Allowance for credit losses on loans     (31,479 )             (31,534 )             (29,937 )         Total loans receivable, net   $ 2,415,379             $ 2,401,481             $ 2,299,649                                                             Loans receivable, net increased $13.9 million to $2.42 billion at March 31, 2024, from $2.40 billion at December 31, 2023, and increased $115.7 million from $2.30 billion at March 31, 2023. Total real estate loans increased $5.8 million to $1.54 billion at March 31, 2024, compared to December 31, 2023, reflecting increases in one-to-four-family loans (excluding loans HFS) of $12.3 million and home equity loans of $3.8 million, partially offset by decreases in commercial real estate ("CRE") loans of $7.3 million, construction and development loans of $1.7 million, and multi-family loans of $1.4 million. Similarly, commercial business loans increased $8.7 million to $264.5 million at March 31, 2024, compared to December 31, 2023, resulting from an increase of $18.1 million in C&I loans and a decrease of $9.5 million in warehouse lending.  Consumer loans decreased $621,000 to $646.1 million at March 31, 2024, compared to December 31, 2023, resulting from a $1.1 million decrease in indirect home improvement loans and $131,000 in other consumer loans, partially offset by an increase of $611,000 in marine loans. A breakdown of CRE loans at the dates indicated were as follows: (Dollars in thousands)                             March 31, 2024     December 31, 2023     March 31, 2023   CRE by Type:   Amount     Amount     Amount   Agriculture   $ 3,744     $ 3,799     $ 3,983   CRE Non-owner occupied:                         Office     41,625       42,739       45,864   Retail     38,712       38,691       38,483   Hospitality/restaurant     24,751       28,007       29,756   Self storage     21,383       21,381       17,287   Mixed use     19,186       19,331       16,547   Industrial     17,475       16,978       14,418   Senior housing/assisted living     8,446       8,505       8,626   Other (1)     6,785       8,365       5,765   Land     3,151       3,936       3,465   Education/worship     2,595       2,620       2,692   Total CRE non-owner occupied     184,109       190,553       182,903   CRE owner occupied:                         Industrial     63,683       66,048       57,187   Office     41,652       41,495       30,446   Retail     21,836       22,020       23,548   Hospitality/restaurant     10,933       11,065       14,457   Other (2)     8,438       8,522       6,770   Car wash     7,713       7,767       7,908   Automobile related     7,479       7,530       8,298   Education/worship     4,604       4,606       1,300   Mixed use     4,864       2,923       2,994   Total CRE owner occupied     171,202       171,976       152,908   Total   $ 359,055     $ 366,328     $ 339,794   __________________________________ (1)     Primarily includes loans secured by mobile home parks totaling $789,000, $2.3 million, and $2.4 million, RV parks totaling $696,000, $699,000, and $709,000, automobile-related collateral totaling $604,000, $608,000, and $0.0, and other collateral totaling $4.7 million, $4.4 million, and $2.7 million, at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.       (2)   Primarily includes loans secured by gas stations totaling $1.7 million, $1.7 million and $1.8 million, non-profit organization totaling $915,000, $922,000 and $941,000, and other collateral totaling $5.8 million, $5.5 million and $4.1 million, at March 31, 2024, December 31, 2023, and March 31, 2023, respectively. The following tables includes CRE loans repricing or maturing within the next two years, excluding loans that reprice simultaneously with changes to the prime rate: (Dollars in thousands)     For the Quarter Ended           CRE by type:   June 30,2024   September 30,2024   December 31,2024   March 31,2025   June 30,2025   September 30,2025   December 31,2025   March 31,2026   Total   Current Weighted  Average Rate Agriculture   $ 810   $ 52   $ 192   $ —   $ —   $ —   $ 325   $ 181   $ 1,560   6.89 % Apartment     950     5,956     29,913     1,763     4,775     401     10,158     3,029     56,945   4.45 % Auto related     —     —     —     —     2,122     —     —     —     2,122   4.18 % Hotel / hospitality     —     141     —     591     1,230     1,357     —     121     3,440   4.22 % Industrial     405     —     —     909     593     —     10,592     2,209     14,708   4.41 % Mixed use     —     950     807     1,772     3,509     256     322     —     7,616   4.93 % Office     —     938     4,779     1,048     —     4,295     1,010     536     12,606   3.96 % Other     126     —     1,213     —     118     1,283     250     3,510     6,500   4.91 % Retail     1,023     1,149     1,291     2,040     —     693     —     493     6,689   4.62 % Senior housing and assisted living     —     —     —     —     —     —     —     2,213     2,213   4.75 % Total   $ 3,314   $ 9,186   $ 38,195   $ 8,123   $ 12,347   $ 8,285   $ 22,657   $ 12,292   $ 114,399   4.49 %                                                               A breakdown of construction loans at the dates indicated were as follows: (Dollars in thousands)                                     March 31, 2024     December 31, 2023   Construction Types:   Amount     Percent     Amount     Percent   Commercial construction - retail   $ 8,290       2.8 %   $ 7,445       2.5 % Commercial construction - office     4,737       1.6       4,699       1.5   Commercial construction - self storage     10,000       3.3       10,000       3.3   Commercial construction - car wash     7,807       2.6       7,742       2.6   Multi-family     53,288       17.7       56,065       18.5   Custom construction - single family residential and single family manufactured residential     50,674       16.8       47,230       15.6   Custom construction - land, lot and acquisition and development     6,455       2.1       6,377       2.1   Speculative residential construction - vertical     134,047       44.5       131,336