FS Bancorp(FSBW) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements This section presents FS Bancorp, Inc.'s unaudited consolidated financial statements for the three and six-month periods ended June 30, 2025 Consolidated Balance Sheets - Total assets increased to $3.18 billion as of June 30, 2025, from $3.03 billion at December 31, 2024, driven by growth in loans and investment securities[10] Consolidated Balance Sheet Highlights (in thousands of dollars) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,176,013 | $3,029,177 | | Total cash and cash equivalents | $33,195 | $31,635 | | Loans receivable, net | $2,582,272 | $2,501,951 | | Total Liabilities | $2,878,810 | $2,733,410 | | Total deposits | $2,553,375 | $2,339,418 | | Borrowings | $234,305 | $307,806 | | Total Stockholders' Equity | $297,203 | $295,767 | Consolidated Statements of Income - Net income for the second quarter of 2025 was $7.7 million, a decrease from $9.0 million in the second quarter of 2024. For the six-month period, net income was $15.7 million in 2025, down from $17.4 million in 2024[12] Key Income Statement Data (in thousands of dollars, except per share data) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $32,112 | $30,401 | $63,093 | $60,747 | | Provision for Credit Losses | $2,021 | $1,077 | $3,613 | $2,476 | | Noninterest Income | $5,170 | $5,868 | $10,296 | $10,979 | | Noninterest Expense | $25,502 | $23,857 | $50,556 | $47,386 | | Net Income | $7,728 | $8,959 | $15,749 | $17,356 | | Diluted EPS | $0.99 | $1.13 | $1.99 | $2.20 | Consolidated Statements of Comprehensive Income - Comprehensive income was $4.9 million for Q2 2025, significantly lower than $9.8 million in Q2 2024. The decrease was driven by net income decline and an other comprehensive loss of $2.8 million, primarily from unrealized losses on securities and derivative instruments[14] Consolidated Statements of Changes in Stockholders' Equity - For the six months ended June 30, 2025, stockholders' equity increased by $1.4 million to $297.2 million. The increase was driven by net income of $15.7 million, offset by common stock repurchases of $9.0 million and dividends paid of $4.4 million[17] Stock Repurchase and Dividend Activity (Six Months Ended June 30, in thousands of dollars) | Activity | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Common stock repurchased | $(8,988) | $(2,361) | | Dividends paid | $(4,353) | $(4,059) | Consolidated Statements of Cash Flows Net Cash Flow Summary (Six Months Ended June 30, in thousands of dollars) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $15,322 | $10,185 | | Net cash (used by) from investing activities | $(141,507) | $14,964 | | Net cash from (used by) financing activities | $127,745 | $(57,829) | | Net increase (decrease) in cash | $1,560 | $(32,680) | - For the first six months of 2025, the company experienced a net cash outflow from investing activities of $141.5 million, primarily due to net portfolio loan originations and security purchases. This was funded by a net cash inflow from financing activities of $127.7 million, driven by a significant increase in deposits which more than offset repayments of borrowings and stock repurchases[20] Notes to Consolidated Financial Statements - The Company operates in two business segments: commercial and consumer banking, and home lending. The Bank provides loan and deposit services primarily to small- and middle-market businesses and individuals in the greater Puget Sound area and other parts of Washington and Oregon[23][28] Loan Portfolio Composition (in thousands of dollars) | Loan Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial Real Estate (CRE) | $916,137 | $871,337 | | Residential Real Estate | $779,518 | $742,371 | | Consumer Loans | $606,291 | $620,181 | | Commercial Business Loans | $312,515 | $299,932 | | Total loans receivable, gross | $2,614,461 | $2,533,821 | - The Allowance for Credit Losses (ACL) on loans was $32.2 million at June 30, 2025, up from $31.9 million at year-end 2024. The increase in provision for credit losses was mainly due to loan growth and elevated net charge-offs in the consumer loan portfolio, particularly indirect home improvement loans[62] - Nonaccrual loans increased to $19.0 million at June 30, 2025, from $13.6 million at December 31, 2024. The increase was primarily in CRE construction and development loans, and consumer loans[68][69][82] - The Bank was categorized as 'well capitalized' under regulatory requirements as of June 30, 2025, with a Total risk-based capital ratio of 14.06% and a Tier 1 leverage capital ratio of 11.18%[144][145] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting decreased net income for Q2 and H1 2025 due to higher expenses and credit provisions, despite asset and deposit growth Comparison of Financial Condition - Total assets grew by $146.8 million to $3.18 billion at June 30, 2025, from year-end 2024, primarily due to an $80.3 million increase in net loans receivable and a $44.6 million increase in total securities[183] - Total deposits increased by $214.0 million, largely driven by a $148.8 million increase in CDs, including a $137.7 million rise in brokered CDs. This influx of deposits allowed the company to reduce borrowings by $73.5 million[190][191][192] - Asset quality weakened, with nonperforming loans increasing to $19.0 million (0.73% of total loans) from $13.6 million (0.54% of total loans) at year-end 2024. The increase was concentrated in commercial construction and indirect home improvement loans[189] - Stockholders' equity increased by $1.4 million to $297.2 million, as net income of $15.7 million was largely offset by $9.0 million in share repurchases and $4.3 million in dividends[198] Comparison of Results of Operations Q2 2025 vs Q2 2024 Performance Summary (in thousands of dollars) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $32,112 | $30,401 | $1,711 | | Provision for Credit Losses | $2,021 | $1,077 | $944 | | Noninterest Income | $5,170 | $5,868 | $(698) | | Noninterest Expense | $25,502 | $23,857 | $1,645 | | Net Income | $7,728 | $8,959 | $(1,231) | - Net interest margin (NIM) for Q2 2025 was 4.30%, a slight increase of one basis point from 4.29% in Q2 2024, as higher yields on interest-earning assets were largely offset by increased funding costs[206] - The provision for credit losses increased by $944,000 in Q2 2025 compared to Q2 2024, reflecting loan portfolio growth, an increase in nonperforming loans, and higher net charge-offs, particularly in the consumer loan portfolio[213][214] - Noninterest expense rose by $1.6 million year-over-year for the quarter, primarily due to a $710,000 increase in salaries and benefits from competitive wage adjustments and higher benefit costs[216] Liquidity and Capital Resources - The Bank maintains multiple liquidity sources, including deposit growth, FHLB borrowings, and the sale of securities and loans. As of June 30, 2025, the Bank had $438.2 million in unused borrowing capacity with the FHLB of Des Moines[237][238] - The Bank also has a $262.8 million borrowing line with the Federal Reserve Bank and $101.0 million in federal funds lines with correspondent banks. At quarter-end, $25.0 million was outstanding with the FRB[239] - The Bank is considered 'well capitalized' and exceeded all regulatory capital requirements as of June 30, 2025. The holding company, FS Bancorp, Inc., also exceeded all applicable regulatory capital requirements[248][249] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risk disclosures from its 2024 Annual Report on Form 10-K - There have been no material changes in the market risk disclosures contained in FS Bancorp's 2024 Form 10-K[250] Controls and Procedures Management concluded the company's disclosure controls were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the Company's disclosure controls and procedures were effective[252] - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[253] PART II OTHER INFORMATION Legal Proceedings The company is involved in routine legal proceedings, with management expecting no material adverse effect on financial condition - In the opinion of management, any liability from legal proceedings in the normal course of business would not have a material adverse effect on the Company's financial condition[255] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - There have been no material changes in the Risk Factors previously disclosed in FS Bancorp's 2024 Form 10-K[256] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased common shares in Q2 2025, with remaining repurchase capacity and a new $5.0 million program approved Common Stock Repurchases (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 34,921 | $37.90 | | May 2025 | 49,623 | $39.99 | | June 2025 | 47,738 | $38.55 | | Total for Quarter | 132,282 | $38.92 | - As of June 30, 2025, $724,772 remained available for repurchase under existing plans[257] - On July 9, 2025, the Board of Directors approved an additional stock repurchase program, authorizing the repurchase of up to $5.0 million of common stock[259] Defaults Upon Senior Securities Not applicable - Not applicable[261] Mine Safety Disclosures Not applicable - Not applicable[262] Other Information The company reports no other material information, with no director or officer trading arrangement changes during Q2 2025 - During the three months ended June 30, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[263] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and certifications