FS Bancorp(FSBW) - 2024 Q4 - Annual Report

Loan Portfolio and Lending Activities - As of December 31, 2024, the total loan portfolio amounted to $2.1 billion, with$1.27 billion in fixed-rate loans and $831.7 million in adjustable-rate loans[41]. - Commercial real estate (CRE) loans totaled$590.5 million, representing 23.3% of the gross loan portfolio, including $245.2 million in multi-family residential loans[47]. - The Company has a lending authority limit of$35 million, with the largest lending relationship at $42.6 million, secured by multi-family real estate property[45]. - The Company originated$715.7 million of one-to-four-family mortgages in 2024, with $564.8 million sold to investors[64]. - One-to-four-family residential mortgage loans represented 24.4$617.3 million as of December 31, 2024[64]. - The commercial business loan portfolio totaled $299.9 million, or 11.7$330.7 million in 2024, up from $303.1 million in 2023, representing an increase of 9.1$330.7 million, accounting for 13.1% of the total gross loan portfolio, with $223.3 million allocated to speculative residential projects[218]. - The Company processed approximately 162 loans and funded about$85.6 million under its mortgage warehouse lending program during the year ended December 31, 2024[77]. - The residential mortgage warehouse lending program had an outstanding balance of $2.2 million as of December 31, 2024, compared to$573,000 at the end of 2023[223]. Financial Performance and Credit Quality - Total loans originated in 2024 amounted to $1,304,785,000, an increase of 7.4$1,214,485,000 in 2023[85]. - The allowance for credit losses (ACL) on loans was $31.9 million, or 1.26$31.5 million, or 1.30% in 2023[105]. - The provision for credit losses on loans for 2024 was $5.6 million, slightly down from$5.8 million in 2023, attributed to an increase in net charge-offs[105]. - Total net charge-offs for the year were $5,299 thousand, compared to$2,228 thousand in 2023, reflecting a 138.5% increase[108]. - Nonaccrual loans as a percentage of total loans outstanding increased to 0.54% in 2024 from 0.45% in 2023[108]. - The percentage of ACL on loans as a percentage of nonaccrual loans decreased to 234.32% in 2024 from 287.93% in 2023[108]. - The allocation of ACL for real estate loans was $14,441 thousand, accounting for 63.8$182.9 million, or 7.25%, to $2.339 billion as of December 31, 2024, compared to$2.522 billion in 2023[119]. - Brokered deposits decreased by $288.2 million, with total brokered deposits accounting for 6.1$143.4 million as of December 31, 2024[117][119]. - Approximately $652.7 million of the deposit portfolio was uninsured as of December 31, 2024, indicating a significant portion of deposits exceeding FDIC insurance limits[121]. - The company’s total transaction and savings deposits were$1.311 billion, representing 56.02% of total deposits as of December 31, 2024[119]. - The company’s interest credited on deposits increased to $53.2 million in 2024 from$36.8 million in 2023[119]. - The company plans to consider additional leverage strategies within regulatory requirements to fund loan originations and increase net interest income[124]. Regulatory Compliance and Capital Ratios - The Company is regulated by the Washington State Department of Financial Institutions and the Federal Deposit Insurance Corporation[29]. - At December 31, 2024, 1st Security Bank's total risk-based capital ratio was 14.18%, exceeding the required minimum of 8.00%[167]. - The Tier 1 risk-based capital ratio was 12.93%, above the required minimum of 6.00%[167]. - The CET1 capital ratio stood at 12.93%, surpassing the minimum requirement of 4.50%[167]. - 1st Security Bank was categorized as "well capitalized" under the prompt corrective action regulations of the FDIC as of December 31, 2024[171]. - The capital conservation buffer required for 1st Security Bank is an additional CET1 capital greater than 2.5% of risk-weighted assets[165]. - The Federal Reserve requires all depository institutions to maintain reserves at specified levels, and 1st Security Bank was in compliance with these requirements as of December 31, 2024[188]. Employee and Community Engagement - The company has hired 118 new employees in 2024, increasing the total employee count to 567 as of December 31, 2024[152]. - Employee health benefits have not increased in employee contribution costs since 2014, demonstrating a commitment to employee welfare[148]. - The company provided approximately 6,000 volunteer hours in both 2024 and 2023, reflecting its dedication to community engagement[153]. - The 401k plan matches up to the first 5% of contributions for up to 4% of total salary, enhancing employee retirement benefits[148]. - The average tenure for management positions is eight years and two months, indicating stability within the leadership team[151]. - The company emphasizes a flexible work schedule to support work-life balance for employees[149]. Market Position and Competition - The Company focuses on relationship lending and aims to capitalize on new lending opportunities arising from recent market consolidations[39]. - The company faces strong competition in real estate loans from various financial institutions and aims to differentiate through high-quality, personalized service[132]. - As of June 30, 2024, 1st Security Bank holds a 1% share of aggregate deposits in its market area across 12 counties[133]. Risk Management - Risks associated with commercial and multi-family loans include higher delinquency rates and the need for detailed collateral evaluations[215]. - The company’s construction loans often include interest reserves, allowing borrowers to defer payments, which increases repayment risk[219]. - The commercial and industrial business loans are primarily based on borrower cash flow, which may be unpredictable, increasing credit risk[217]. - FS Bancorp's loan portfolio is predominantly secured by real estate, which may be adversely affected by economic downturns, impacting borrowers' repayment capabilities[206].