UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q10-Q
(Mark One)
[X]
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017 ORMarch 31, 2024
[]
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001‑35589001-35589
FS BANCORP,INC.
(Exact name of registrant as specified in its charter)
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Washington |
| ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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6920 220th Street SW, Mountlake Terrace, Washington98043
(Address of principal executive offices; Zip Code)
(425) 771‑771‑5299
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.01 per share | FSBW | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b‑2 of the Exchange Act.
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Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes [ ]☐ No [X]☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 3, 2017,May 8, 2024, there were 3,674,9027,796,048 outstanding shares of the registrant’s common stock.
Form 10‑10‑Q
When we refer to “FS Bancorp” in this report, we are referring to FS Bancorp, Inc. When we refer to “Bank” or “1st Security Bank” in this report, we are referring to 1st Security Bank of Washington, the wholly owned subsidiary of FS Bancorp. As used in this report, the terms “we,” “our,” “us,”
FS BANCORP,INC. AND SUBSIDIARY (Dollars in thousands, except shares and per share amounts) (Unaudited)
See accompanying notes to these consolidated financial statements.
FS BANCORP,INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except shares and per share amounts) (Unaudited)
See accompanying notes to these consolidated financial statements.
FS BANCORP,INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)
See accompanying notes to these consolidated financial statements. FS BANCORP,INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2024 and 2023
See accompanying notes to these consolidated financial statements.
FS BANCORP,INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF (
FS BANCORP,INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In thousands) (Unaudited)
See accompanying notes to these consolidated financial statements.
FS BANCORP, INC. AND SUBSIDIARY
(Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Amounts) NOTE1 Nature of Operations
Financial Statement Presentation The results for the three Amounts presented in the consolidated financial statements and footnote tables are rounded and presented Principles of Consolidation Segment Reporting
items and assets to each responsible operating segment. This process is dynamic and is based on management’s view of the Company’s operations. See Subsequent Events 9 RECENT ACCOUNTING PRONOUNCEMENTS In In
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the effect that ASU In Those amendments require disclosure of the
10 The ASU is effective for Application of New Accounting Guidance Adopted in 2024 On January 1, 2024, the Company adopted ASU On January 1, 2024, the Company adopted ASU 2023-02,Investments - Equity Method and Joint Ventures (Topic 323):Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the
NOTE 2 On 11 The Branch Purchase was accounted for under the acquisition method of accounting and accordingly, the assets and liabilities were recorded at
assets and liabilities is a complicated process involving significant The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition:
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| (2) | The fair value adjustment represents the value of the core deposit base assumed in the Branch Purchase based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as an expense on an accelerated basis over the average life of the core deposit base, which is estimated to be |
| (3) | The fair value adjustment represents the value of the goodwill calculated from the purchase based on the purchase price, less the fair value of assets acquired net of liabilities assumed. The goodwill of $1.3 million is attributable to the workforce and customer relationships associated with the branches. All the goodwill is deductible for tax purposes and will be amortized over a 15-year period. The goodwill was assigned to the Commercial and Consumer Banking segment. |
Goodwill - The acquired goodwill represents the excess purchase price over the estimated fair value of the net assets acquired and was recorded at $2.3 million on January 22, 2016.
12
(4) | The fair value of time deposits was calculated using a discounted cash flow analysis that calculated the present value of the projected cash flows from the portfolio versus the present value of a similar portfolio with a similar maturity profile at current market rates. This adjustment represents a difference in interest rates from the time deposits acquired and the estimated wholesale funding rates used in the application of fair value accounting. The discounted amount will be amortized into expense as an increase in interest expense over the maturity profile of the acquired time deposits. |
The disclosures regarding pro-forma data and the results of operations after the acquisition date are omitted as this information is not practical to obtain. The branches’ financial information is not reported on a stand-alone basis.
The following table summarizes the aggregate amount recognized for each major class of assets acquired and liabilities assumed by 1st Security Bank in the Branch Purchase:
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| At January 22, | |
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| 2016 | |
Purchase price (1) |
| $ | 6,015 |
Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value: |
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Cash and cash equivalents |
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| 186,371 |
Acquired loans |
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| 417 |
Premises and equipment, net |
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| 964 |
Accrued interest receivable |
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| 2 |
Core deposit intangible |
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| 2,239 |
Other assets |
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| 103 |
Deposits |
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| (186,364) |
Accrued interest payable |
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| (7) |
Other liabilities |
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| (22) |
Total fair value of identifiable net assets |
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| 3,703 |
Goodwill |
| $ | 2,312 |
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Core deposit intangible
The core deposit intangible represents the fair value of the acquired core deposit base. The core deposit intangible will be amortized on an accelerated basis over approximately nine years. Total amortization expense was $100,000 and $300,000 for the three and nine months ended September 30, 2017, and $140,000 and $382,000 for the same periods in 2016. Amortization expense for core deposit intangible is expected to be as follows at September 30, 2017:
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Fourth Quarter 2017 |
| $ | 100 |
2018 |
|
| 307 |
2019 |
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| 235 |
2020 |
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| 181 |
2021 |
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| 166 |
Thereafter |
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| 428 |
Total |
| $ | 1,417 |
NOTE3 – INVESTMENTS
13
NOTE 3 - SECURITIES AVAILABLE-FOR-SALE
The following tables present the amortized costs, unrealized gains, unrealized losses, and estimated fair values of securities available-for-sale and held-to-maturity, and the ACL on securities available-for-sale and held-to-maturity at September 30, 2017March 31, 2024 and December 31, 2016:2023:
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| September 30, 2017 | ||||||||||
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| Estimated | |
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| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
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| Cost |
| Gains |
| Losses |
| Values | ||||
SECURITIES AVAILABLE-FOR-SALE |
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U.S. agency securities |
| $ | 6,086 |
| $ | 59 |
| $ | (23) |
| $ | 6,122 |
Corporate securities |
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| 7,123 |
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| 29 |
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| (77) |
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| 7,075 |
Municipal bonds |
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| 11,342 |
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| 213 |
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| (116) |
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| 11,439 |
Mortgage-backed securities |
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| 39,733 |
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| 85 |
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| (344) |
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| 39,474 |
U.S. Small Business Administration securities |
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| 14,018 |
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| 43 |
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| (68) |
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| 13,993 |
Total securities available-for-sale |
| $ | 78,302 |
| $ | 429 |
| $ | (628) |
| $ | 78,103 |
March 31, 2024 | ||||||||||||||||||||
Estimated | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||
SECURITIES AVAILABLE-FOR-SALE | Cost | Gains | Losses | Values | ACL | |||||||||||||||
U.S. agency securities | $ | 21,151 | $ | 45 | $ | (3,298 | ) | $ | 17,898 | $ | — | |||||||||
Corporate securities | 16,000 | 90 | (890 | ) | 15,200 | — | ||||||||||||||
Municipal bonds | 86,257 | 18 | (12,722 | ) | 73,553 | — | ||||||||||||||
Mortgage-backed securities | 131,594 | 172 | (11,964 | ) | 119,802 | — | ||||||||||||||
U.S. Small Business Administration securities | 54,957 | — | (1,767 | ) | 53,190 | — | ||||||||||||||
Total securities available-for-sale | 309,959 | 325 | (30,641 | ) | 279,643 | — | ||||||||||||||
SECURITIES HELD-TO-MATURITY | ||||||||||||||||||||
Corporate securities | 8,500 | — | (715 | ) | 7,785 | 45 | ||||||||||||||
Total securities held-to-maturity | 8,500 | — | (715 | ) | 7,785 | 45 | ||||||||||||||
Total securities | $ | 318,459 | $ | 325 | $ | (31,356 | ) | $ | 287,428 | $ | 45 |
December 31, 2023 | ||||||||||||||||||||
Estimated | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||
SECURITIES AVAILABLE-FOR-SALE | Cost | Gains | Losses | Values | ACL | |||||||||||||||
U.S. agency securities | $ | 21,151 | $ | 46 | $ | (3,179 | ) | $ | 18,018 | $ | — | |||||||||
Corporate securities | 13,000 | 613 | (741 | ) | 12,872 | — | ||||||||||||||
Municipal bonds | 138,803 | 42 | (19,398 | ) | 119,447 | — | ||||||||||||||
Mortgage-backed securities | 112,855 | 238 | (11,845 | ) | 101,248 | — | ||||||||||||||
U.S. Small Business Administration securities | 42,886 | — | (1,538 | ) | 41,348 | — | ||||||||||||||
Total securities available-for-sale | 328,695 | 939 | (36,701 | ) | 292,933 | — | ||||||||||||||
SECURITIES HELD-TO-MATURITY | ||||||||||||||||||||
Corporate securities | 8,500 | — | (834 | ) | 7,666 | 45 | ||||||||||||||
Total securities held-to-maturity | 8,500 | — | (834 | ) | 7,666 | 45 | ||||||||||||||
Total securities | $ | 337,195 | $ | 939 | $ | (37,535 | ) | $ | 300,599 | $ | 45 |
The following table presents the activity in the ACL on securities held-to-maturity by major security type for the three months ended March 31, 2024 and 2023:
SECURITIES HELD-TO-MATURITY | For the Three Months Ended March 31, | |||||||
Corporate Securities | 2024 | 2023 | ||||||
Beginning ACL balance | $ | 45 | $ | 31 | ||||
Provision for (recapture of) credit losses | — | — | ||||||
Total ending ACL balance | $ | 45 | $ | 31 |
Management measures expected credit losses on held-to-maturity debt securities on an individual basis. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held-to-maturity debt securities totaled $117,000 and $116,000 at March 31, 2024 and December 31, 2023, and was $1.9 million and $1.5 million on available-for-sale debt securities as of March 31, 2024 and December 31, 2023, respectively. Accrued interest receivable on securities is reported in “Accrued interest receivable” on the Consolidated Balance Sheets and is excluded from the calculation of the ACL.
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| December 31, 2016 | ||||||||||
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| Estimated | |
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| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
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| Cost |
| Gains |
| Losses |
| Values | ||||
SECURITIES AVAILABLE-FOR-SALE |
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U.S. agency securities |
| $ | 8,150 |
| $ | 12 |
| $ | (94) |
| $ | 8,068 |
Corporate securities |
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| 7,654 |
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| 14 |
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| (168) |
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| 7,500 |
Municipal bonds |
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| 15,183 |
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| 164 |
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| (83) |
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| 15,264 |
Mortgage-backed securities |
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| 45,856 |
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| 52 |
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| (713) |
|
| 45,195 |
U.S. Small Business Administration securities |
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| 5,862 |
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| 27 |
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| (41) |
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| 5,848 |
Total securities available-for-sale |
| $ | 82,705 |
| $ | 269 |
| $ | (1,099) |
| $ | 81,875 |
The Company monitors the credit quality of debt securities held-to-maturity quarterly using credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:
March 31, | December 31, | |||||||
Corporate securities | 2024 | 2023 | ||||||
BBB/BBB- | $ | 7,000 | $ | 7,000 | ||||
BB+ | 1,500 | 1,500 | ||||||
Total | $ | 8,500 | $ | 8,500 |
At September 30, 2017, the Bank hadMarch 31, 2024 and December 31, 2023, there were no debt securities held-to-maturity that were classified as either nonaccrual or 90 days or more past due and still accruing interest.
The following table presents, as of March 31, 2024, investment securities which were pledged nine securities held at the FHLB of Des Moines with a carrying value of $10.9 million to secure Washington Stateborrowings, public deposits of $5.2 million with a $2.0 million collateral requirementor other obligations as permitted or required by the Washington Public Deposit Protection Commission.law:
March 31, 2024 | ||||||||||||
Purpose or beneficiary | Carrying Value | Amortized Cost | Fair Value | |||||||||
State and local government public deposits | $ | 34,703 | $ | 40,783 | $ | 34,703 | ||||||
Federal Reserve Bank - Bank Term Funding Program facility ("BTFP") | 76,161 | 89,834 | 76,161 | |||||||||
Total pledged securities | $ | 110,864 | $ | 130,617 | $ | 110,864 |
Investment securities that were in an unrealized loss position at September 30, 2017 and December 31, 2016the dates indicated are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. Management believes that these securities are only temporarily impaired due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral.
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| September 30, 2017 | ||||||||||||||||
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| Less than 12 Months |
| 12 Months or Longer |
| Total | ||||||||||||
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| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
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| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
SECURITIES AVAILABLE-FOR-SALE |
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U.S. agency securities |
| $ | 3,014 |
| $ | (23) |
| $ | — |
| $ | — |
| $ | 3,014 |
| $ | (23) |
Corporate securities |
|
| — |
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| — |
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| 1,919 |
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| (77) |
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| 1,919 |
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| (77) |
Municipal bonds |
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| 4,834 |
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| (116) |
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| — |
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| — |
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| 4,834 |
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| (116) |
Mortgage-backed securities |
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| 22,266 |
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| (247) |
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| 4,773 |
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| (97) |
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| 27,039 |
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| (344) |
U.S. Small Business Administration securities |
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| 9,425 |
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| (68) |
|
| — |
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| — |
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| 9,425 |
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| (68) |
Total |
| $ | 39,539 |
| $ | (454) |
| $ | 6,692 |
| $ | (174) |
| $ | 46,231 |
| $ | (628) |
March 31, 2024 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
SECURITIES AVAILABLE-FOR-SALE | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
U.S. agency securities | $ | — | $ | — | $ | 15,853 | $ | (3,298 | ) | $ | 15,853 | $ | (3,298 | ) | ||||||||||
Corporate securities | 7,846 | (154 | ) | 4,263 | (736 | ) | 12,109 | (890 | ) | |||||||||||||||
Municipal bonds | 1,279 | (7 | ) | 71,256 | (12,715 | ) | 72,535 | (12,722 | ) | |||||||||||||||
Mortgage-backed securities | 25,189 | (63 | ) | 66,593 | (11,901 | ) | 91,782 | (11,964 | ) | |||||||||||||||
U.S. Small Business Administration securities | 45,560 | (592 | ) | 7,630 | (1,175 | ) | 53,190 | (1,767 | ) | |||||||||||||||
Total securities available-for-sale | 79,874 | (816 | ) | 165,595 | (29,825 | ) | 245,469 | (30,641 | ) | |||||||||||||||
SECURITIES HELD-TO-MATURITY | ||||||||||||||||||||||||
Corporate securities | — | — | 7,785 | (715 | ) | 7,785 | (715 | ) | ||||||||||||||||
Total securities held-to-maturity | — | — | 7,785 | (715 | ) | 7,785 | (715 | ) | ||||||||||||||||
Total securities | $ | 79,874 | $ | (816 | ) | $ | 173,380 | $ | (30,540 | ) | $ | 253,254 | $ | (31,356 | ) |
14
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| December 31, 2016 | ||||||||||||||||
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| Less than 12 Months |
| 12 Months or Longer |
| Total | ||||||||||||
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| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
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| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
SECURITIES AVAILABLE-FOR-SALE |
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U.S. agency securities |
| $ | 6,998 |
| $ | (94) |
| $ | — |
| $ | — |
| $ | 6,998 |
| $ | (94) |
Corporate securities |
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| 5,048 |
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| (106) |
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| 1,438 |
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| (62) |
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| 6,486 |
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| (168) |
Municipal bonds |
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| 6,741 |
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| (83) |
|
| — |
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| — |
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| 6,741 |
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| (83) |
Mortgage-backed securities |
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| 39,373 |
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| (713) |
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| — |
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| — |
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| 39,373 |
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| (713) |
U.S. Small Business Administration securities |
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| 2,963 |
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| (41) |
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| — |
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| — |
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| 2,963 |
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| (41) |
Total |
| $ | 61,123 |
| $ | (1,037) |
| $ | 1,438 |
| $ | (62) |
| $ | 62,561 |
| $ | (1,099) |
December 31, 2023 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
SECURITIES AVAILABLE-FOR-SALE | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
U.S. agency securities | $ | — | $ | — | $ | 15,972 | $ | (3,179 | ) | $ | 15,972 | $ | (3,179 | ) | ||||||||||
Corporate securities | 959 | (41 | ) | 4,300 | (700 | ) | 5,259 | (741 | ) | |||||||||||||||
Municipal bonds | 3,922 | (23 | ) | 113,577 | (19,375 | ) | 117,499 | (19,398 | ) | |||||||||||||||
Mortgage-backed securities | 20,662 | (113 | ) | 67,376 | (11,732 | ) | 88,038 | (11,845 | ) | |||||||||||||||
U.S. Small Business Administration securities | 33,211 | (460 | ) | 8,137 | (1,078 | ) | 41,348 | (1,538 | ) | |||||||||||||||
Total securities available-for-sale | 58,754 | (637 | ) | 209,362 | (36,064 | ) | 268,116 | (36,701 | ) | |||||||||||||||
SECURITIES HELD-TO-MATURITY | ||||||||||||||||||||||||
Corporate securities | — | — | 7,666 | (834 | ) | 7,666 | (834 | ) | ||||||||||||||||
Total securities held-to-maturity | — | — | 7,666 | (834 | ) | 7,666 | (834 | ) | ||||||||||||||||
Total securities | $ | 58,754 | $ | (637 | ) | $ | 217,028 | $ | (36,898 | ) | $ | 275,782 | $ | (37,535 | ) |
There were 28 investments withno held-to-maturity debt securities in an unrealized lossesloss position of less than one year and five investments withseven held-to-maturity debt securities in an unrealized lossesloss position of more than one year at September 30, 2017. March 31, 2024.
There were 48 investments with34 available-for-sale securities in an unrealized lossesloss position of less than one year, and two investments with128 available-for-sale securities in an unrealized lossesloss position of more than one year at DecemberMarch 31, 2016.2024. The unrealized losses associated with these investmentssecurities are believed to be caused by changes inchanging market interest rates that areconditions and considered to be temporary, and the Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity. No other-than-temporaryManagement monitors the published credit ratings of the issuers of the debt securities for material ratings or outlook changes. Substantially all the Company’s municipal bond portfolio is comprised of obligations of states and political subdivisions located within the Company’s geographic footprint that are monitored through quarterly or annual financial review utilizing published credit ratings. All the municipal bond securities are investment grade.
All the available-for-sale mortgage-backed securities and U.S. Small Business Administration securities in an unrealized loss position are issued or guaranteed by government-sponsored enterprises, and the available-for-sale corporate securities are all investment grade and monitored for rating or outlook changes. Based on the Company’s evaluation of these securities, no credit impairment was recorded for the ninethree months ended September 30, 2017,March 31, 2024, or for the year ended December 31, 2016.2023.
15
The contractual maturities of securities available-for-sale and held-to-maturity at September 30, 2017 and December 31, 2016the dates indicated are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.
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| September 30, 2017 |
| December 31, 2016 | ||||||||
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| Amortized |
| Fair |
| Amortized |
| Fair | ||||
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| Cost |
| Value |
| Cost |
| Value | ||||
U.S. agency securities |
|
|
|
|
|
|
|
|
|
|
|
|
Due after one year through five years |
| $ | — |
| $ | — |
| $ | 4,000 |
| $ | 3,956 |
Due after five years through ten years |
|
| 4,086 |
|
| 4,141 |
|
| 4,150 |
|
| 4,112 |
Due after ten years |
|
| 2,000 |
|
| 1,981 |
|
| — |
|
| — |
Subtotal |
|
| 6,086 |
|
| 6,122 |
|
| 8,150 |
|
| 8,068 |
Corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
Due after one year through five years |
|
| 5,127 |
|
| 5,156 |
|
| 5,659 |
|
| 5,625 |
Due after five years through ten years |
|
| 1,996 |
|
| 1,919 |
|
| 1,995 |
|
| 1,875 |
Subtotal |
|
| 7,123 |
|
| 7,075 |
|
| 7,654 |
|
| 7,500 |
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
| — |
|
| — |
|
| 509 |
|
| 513 |
Due after one year through five years |
|
| 2,013 |
|
| 2,059 |
|
| 5,326 |
|
| 5,386 |
Due after five years through ten years |
|
| 3,297 |
|
| 3,420 |
|
| 7,476 |
|
| 7,492 |
Due after ten years |
|
| 6,032 |
|
| 5,960 |
|
| 1,872 |
|
| 1,873 |
Subtotal |
|
| 11,342 |
|
| 11,439 |
|
| 15,183 |
|
| 15,264 |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (“FNMA”) |
|
| 22,287 |
|
| 22,187 |
|
| 23,522 |
|
| 23,197 |
Federal Home Loan Mortgage Corporation (“FHLMC”) |
|
| 11,123 |
|
| 10,970 |
|
| 14,950 |
|
| 14,662 |
Government National Mortgage Association (“GNMA”) |
|
| 6,323 |
|
| 6,317 |
|
| 7,384 |
|
| 7,336 |
Subtotal |
|
| 39,733 |
|
| 39,474 |
|
| 45,856 |
|
| 45,195 |
U.S. Small Business Administration securities |
|
|
|
|
|
|
|
|
|
|
|
|
Due after five years through ten years |
|
| 12,069 |
|
| 12,051 |
|
| 5,862 |
|
| 5,848 |
Due after ten years |
|
| 1,949 |
|
| 1,942 |
|
| — |
|
| — |
Subtotal |
|
| 14,018 |
|
| 13,993 |
|
| 5,862 |
|
| 5,848 |
Total |
| $ | 78,302 |
| $ | 78,103 |
| $ | 82,705 |
| $ | 81,875 |
March 31, | December 31, | |||||||||||||||
2024 | 2023 | |||||||||||||||
SECURITIES AVAILABLE-FOR-SALE | Amortized | Fair | Amortized | Fair | ||||||||||||
U.S. agency securities | Cost | Value | Cost | Value | ||||||||||||
Due within one year | $ | 917 | $ | 914 | $ | 922 | $ | 914 | ||||||||
Due after one year through five years | 3,951 | 3,537 | 3,947 | 3,544 | ||||||||||||
Due after five years through ten years | 11,973 | 10,067 | 11,972 | 10,139 | ||||||||||||
Due after ten years | 4,310 | 3,380 | 4,310 | 3,421 | ||||||||||||
Subtotal | 21,151 | 17,898 | 21,151 | 18,018 | ||||||||||||
Corporate securities | ||||||||||||||||
Due within one year | — | — | 1,000 | 1,004 | ||||||||||||
Due after one year through five years | 10,000 | 9,985 | 6,000 | 6,609 | ||||||||||||
Due after five years through ten years | 4,000 | 3,822 | 4,000 | 3,839 | ||||||||||||
Due after ten years | 2,000 | 1,393 | 2,000 | 1,420 | ||||||||||||
Subtotal | 16,000 | 15,200 | 13,000 | 12,872 | ||||||||||||
Municipal bonds | ||||||||||||||||
Due within one year | 1,006 | 1,000 | 1,013 | 1,003 | ||||||||||||
Due after one year through five years | 82 | 81 | 757 | 751 | ||||||||||||
Due after five years through ten years | 4,037 | 3,836 | 7,603 | 7,101 | ||||||||||||
Due after ten years | 81,132 | 68,636 | 129,430 | 110,592 | ||||||||||||
Subtotal | 86,257 | 73,553 | 138,803 | 119,447 | ||||||||||||
Mortgage-backed securities | ||||||||||||||||
Federal National Mortgage Association (“FNMA”) | 83,863 | 73,301 | 76,369 | 66,275 | ||||||||||||
Federal Home Loan Mortgage Corporation (“FHLMC”) | 36,178 | 35,532 | 32,311 | 31,376 | ||||||||||||
Government National Mortgage Association (“GNMA”) | 11,553 | 10,969 | 4,175 | 3,597 | ||||||||||||
Subtotal | 131,594 | 119,802 | 112,855 | 101,248 | ||||||||||||
U.S. Small Business Administration securities | ||||||||||||||||
Due within one year | 42 | 41 | 198 | 196 | ||||||||||||
Due after one year through five years | 1,656 | 1,584 | 1,860 | 1,824 | ||||||||||||
Due after five years through ten years | 27,916 | 27,317 | 21,420 | 20,929 | ||||||||||||
Due after ten years | 25,343 | 24,248 | 19,408 | 18,399 | ||||||||||||
Subtotal | 54,957 | 53,190 | 42,886 | 41,348 | ||||||||||||
Total securities available-for-sale | 309,959 | 279,643 | 328,695 | 292,933 | ||||||||||||
SECURITIES HELD-TO-MATURITY | ||||||||||||||||
Corporate securities | ||||||||||||||||
Due after five years through ten years | 8,500 | 7,785 | 8,500 | 7,666 | ||||||||||||
Total securities held-to-maturity | 8,500 | 7,785 | 8,500 | 7,666 | ||||||||||||
Total securities | $ | 318,459 | $ | 287,428 | $ | 337,195 | $ | 300,599 |
The proceeds and resulting gains and losses computed using specific identification, from sales of securities available-for-sale for the three and nine months ended September 30, 2017 and 2016March 31, 2024:
March 31, 2024 | |||||||||
Gross | Gross | ||||||||
Proceeds | Gains | (Losses) | |||||||
Securities available-for-sale | $ | 44,036 | $ | — | $ | (7,998) |
There were as follows:no sales proceeds, or gains or losses for the sale of securities available-for-sale for the three months ended March 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
|
| September 30, 2017 |
| September 30, 2017 | ||||||||||||||
|
|
|
| Gross |
| Gross |
|
|
| Gross |
| Gross | ||||||
|
| Proceeds |
| Gains |
| (Losses) |
| Proceeds |
| Gains |
| (Losses) | ||||||
Securities available-for-sale |
| $ | 9,115 |
| $ | 143 |
| $ | - |
| $ | 39,103 |
| $ | 413 |
| $ | (33) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
|
| September 30, 2016 |
| September 30, 2016 | ||||||||||||||
|
|
|
| Gross |
| Gross |
|
|
| Gross |
| Gross | ||||||
|
| Proceeds |
| Gains |
| (Losses) |
| Proceeds |
| Gains |
| (Losses) | ||||||
Securities available-for-sale |
| $ | 13,577 |
| $ | 149 |
| $ | (3) |
| $ | 13,577 |
| $ | 149 |
| $ | (3) |
NOTE4 - – LOANS RECEIVABLE AND ALLOWANCE FOR LOANCREDIT LOSSES– LOANS
The composition of the loan portfolio was as follows at September 30, 2017the dates indicated:
March 31, | December 31, | |||||||
REAL ESTATE LOANS | 2024 | 2023 | ||||||
Commercial ("CRE") | $ | 359,055 | $ | 366,328 | ||||
Construction and development | 301,346 | 303,054 | ||||||
Home equity | 73,323 | 69,488 | ||||||
One-to-four-family (excludes loans held for sale) | 580,050 | 567,742 | ||||||
Multi-family | 222,410 | 223,769 | ||||||
Total real estate loans | 1,536,184 | 1,530,381 | ||||||
CONSUMER LOANS | ||||||||
Indirect home improvement | 568,802 | 569,903 | ||||||
Marine | 73,921 | 73,310 | ||||||
Other consumer | 3,409 | 3,540 | ||||||
Total consumer loans | 646,132 | 646,753 | ||||||
COMMERCIAL BUSINESS LOANS | ||||||||
Commercial and industrial | 256,429 | 238,301 | ||||||
Warehouse lending | 8,113 | 17,580 | ||||||
Total commercial business loans | 264,542 | 255,881 | ||||||
Total loans receivable, gross | 2,446,858 | 2,433,015 | ||||||
ACL on loans | (31,479 | ) | (31,534 | ) | ||||
Total loans receivable, net | $ | 2,415,379 | $ | 2,401,481 |
Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $7.5 million as of March 31, 2024 and $8.4 million as of December 31, 2016:2023. Net loans include unamortized net discounts on acquired loans of $2.4 million and $2.6 million as of March 31, 2024 and December 31, 2023, respectively. Net loans do not include accrued interest receivable. Accrued interest receivable on loans was $11.6 million and $11.5 million as of March 31, 2024 and December 31, 2023, respectively, and was reported in “Accrued interest receivable” on the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
REAL ESTATE LOANS | �� |
|
|
|
|
|
Commercial |
| $ | 63,180 |
| $ | 55,871 |
Construction and development |
|
| 129,407 |
|
| 94,462 |
Home equity |
|
| 24,026 |
|
| 20,081 |
One-to-four-family (excludes loans held for sale) |
|
| 170,187 |
|
| 124,009 |
Multi-family |
|
| 43,408 |
|
| 37,527 |
Total real estate loans |
|
| 430,208 |
|
| 331,950 |
CONSUMER LOANS |
|
|
|
|
|
|
Indirect home improvement |
|
| 124,387 |
|
| 107,759 |
Solar |
|
| 40,082 |
|
| 36,503 |
Marine |
|
| 35,173 |
|
| 28,549 |
Other consumer |
|
| 2,032 |
|
| 1,915 |
Total consumer loans |
|
| 201,674 |
|
| 174,726 |
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
Commercial and industrial |
|
| 83,221 |
|
| 65,841 |
Warehouse lending |
|
| 50,468 |
|
| 32,898 |
Total commercial business loans |
|
| 133,689 |
|
| 98,739 |
Total loans receivable, gross |
|
| 765,571 |
|
| 605,415 |
Allowance for loan losses |
|
| (10,598) |
|
| (10,211) |
Deferred costs, fees, premiums, and discounts, net |
|
| (1,119) |
|
| (1,887) |
Total loans receivable, net |
| $ | 753,854 |
| $ | 593,317 |
Most of the Company’s commercialCRE and multi-family real estate, construction, residential, and/or commercial business lending activities are with customers located in Western Washington, the greater Puget Sound areaOregon Coast, and near our one loan production office locatedoffices in Vancouver and the Tri-Cities, Washington. The Company originates real estate, consumer, and commercial business loans and has concentrations in these areas, however, indirect home improvement loans, including solar-related home improvement loans, are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and California. The Company also originates solar loans through contractors and dealers in the state of California.New Hampshire. Loans are generally secured by collateral and rights to collateral vary and are legally documented to the extent practicable. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms.
At March 31, 2024, the Bank held approximately $1.09 billion in loans that are pledged as collateral for FHLB advances, compared to approximately $1.07 billion at December 31, 2023. The Bank held approximately $632.8 million in loans that are pledged as collateral for the Federal Reserve Bank of San Francisco (the “FRB”) line of credit at March 31, 2024, compared to approximately $631.1 million at December 31, 2023.
The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company’s strategic plan and the manner in whichway management monitors performance and credit quality. The three loan portfolio segments are: (a) Real Estate Loans,real estate, (b) Consumer Loansconsumer, and (c) Commercial Business Loans.commercial business. Each of these segments is disaggregated into classes based on the risk characteristics of the borrower and/or the collateral type securing the loan. The following is a summary of each of the Company’s loan portfolio segments and classes:
Real Estate Loans
Commercial Real Estate (“CRE”) Lending. Loans originated by the Company primarily secured by income producingincome-producing properties, including retail centers, warehouses, and office buildings located in our market areas.
Construction and Development Lending. Loans originated by the Company for the construction of, and secured by, commercial real estate, one-to-four-family,one-to-four-family, and multi-family residences and tracts of land for development that are
17
generally not pre-sold. A portion of the one-to-four-familyone-to-four-family construction portfolio areis custom construction loans to the intended occupant of the residence.
Home Equity Lending. Loans originated by the Company secured by second mortgages on one-to-four-familyone-to-four-family residences, including home equity lines of credit in our market areas.
One-to-Four-Family Real Estate Lending. One-to-four-familyOne-to-four-family residential loans include owner occupied properties (including second homes), and non-owner occupied properties.non-owner-occupied properties with four or less units. These loans originated by the Company or periodically purchased from banks are secured by first mortgages on one-to-four-familyone-to-four-family residences in our market areas that the Company intends to hold (excludes loans held for sale).
Multi-Family Lending. Apartment term lending (five(five or more units) to current banking customers and community reinvestment loans for low to moderate income individuals in the Company’s footprint.
Consumer Loans
Indirect Home Improvement. Fixture secured loans for home improvement are originated by the Company through its network of home improvement contractors and dealers and are secured by the personal property installed in, on, or at the borrower’s real property, and may be perfected with a UCC‑2 financing statement filed in the county of the borrower’s residence. These indirect home improvement loans include replacement windows, siding, roofing, spas, and other home fixture installations.
Solar. Fixture secured loans forinstallations, including solar related home improvement projects are originated by the Company through its network of contractors and dealers, and are secured by the personal property installed in, on, or at the borrower’s real property, and which may be perfected with a UCC‑2 financing statement filed in the county of the borrower’s residence.projects.
Marine. Loans originated by the Company, secured by boats, to borrowers primarily located in its market areas.states where the Company originates consumer loans.
Other Consumer.Consumer. Loans originated by the Company to consumers in our retail branch footprint, including automobiles, recreational vehicles, direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit.credit and credit cards.
Commercial Business Loans
Commercial and Industrial Lending. Loans(“C&I”) Lending. C&I loans originated by the Company to local smallsmall- and mid-sized businesses in our Puget Sound market area are secured primarily by accounts receivable, inventory, or personal property, and plant and equipment. Commercial and industrialSome C&I loans purchased by the Company are outside of the greater Puget Sound market area. C&I loans are made based on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.
Warehouse Lending. Loans originated to non-depository financial institutions and secured by notes originated by the non-depository financial institution. The Company has two distinct warehouse lending divisions: commercial warehouse re-lending secured by notes on construction loans and mortgage warehouse re-lending secured by notes on one-to-four-family loans. The Company’s mortgage andcommercial construction warehouse lines are secured by notes on construction loans and typically guaranteed by principals with experience in construction lending. Mortgage warehouse lending programloans are funded through whichthird-party residential mortgage bankers. Under this program the Company funds third-party lendersprovides short-term funding to the mortgage banking companies for the purpose of originating residential mortgage and construction loans for sale into the secondary market and speculative construction loans for residential properties built for sale to single family households. These loans are secured by the notes and assigned deeds of trust associated with the residential mortgage and construction loans on properties primarily located in the Company’s market areas.market.
18
Allowance for Credit Losses
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe main drivers of the provision for credit losses on loans recorded in the first three months of 2024 were net charge-offs recorded during the period.
The following tables detail activity in the allowance for loan lossesACL on loans by loan categories at or for the three and nine months ended September 30, 2017 March 31, 2024 and 2016:2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or For the Three Months Ended September 30, 2017 | |||||||||||||
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
| |
|
| Real Estate |
| Consumer |
| Business |
| Unallocated |
| Total | |||||
ALLOWANCE FOR LOAN LOSSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 4,144 |
| $ | 2,669 |
| $ | 2,453 |
| $ | 877 |
| $ | 10,143 |
Provision for loan losses |
|
| 481 |
|
| 65 |
|
| (130) |
|
| 34 |
|
| 450 |
Charge-offs |
|
| (55) |
|
| (152) |
|
| (33) |
|
| — |
|
| (240) |
Recoveries |
|
| 35 |
|
| 208 |
|
| 2 |
|
| — |
|
| 245 |
Net (charge-offs) recoveries |
|
| (20) |
|
| 56 |
|
| (31) |
|
| — |
|
| 5 |
Ending balance |
| $ | 4,605 |
| $ | 2,790 |
| $ | 2,292 |
| $ | 911 |
| $ | 10,598 |
Period end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 4,605 |
|
| 2,790 |
|
| 2,292 |
|
| 911 |
|
| 10,598 |
Ending balance |
| $ | 4,605 |
| $ | 2,790 |
| $ | 2,292 |
| $ | 911 |
| $ | 10,598 |
LOANS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 210 |
| $ | — |
| $ | 551 |
| $ | — |
| $ | 761 |
Loans collectively evaluated for impairment |
|
| 429,998 |
|
| 201,674 |
|
| 133,138 |
|
| — |
|
| 764,810 |
Ending balance |
| $ | 430,208 |
| $ | 201,674 |
| $ | 133,689 |
| $ | — |
| $ | 765,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended September 30, 2017 | |||||||||||||
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
| |
|
| Real Estate |
| Consumer |
| Business |
| Unallocated |
| Total | |||||
ALLOWANCE FOR LOAN LOSSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 3,547 |
| $ | 2,082 |
| $ | 2,675 |
| $ | 1,907 |
| $ | 10,211 |
Provision for loan losses |
|
| 1,077 |
|
| 726 |
|
| (357) |
|
| (996) |
|
| 450 |
Charge-offs |
|
| (55) |
|
| (536) |
|
| (33) |
|
| — |
|
| (624) |
Recoveries |
|
| 36 |
|
| 518 |
|
| 7 |
|
| — |
|
| 561 |
Net charge-offs |
|
| (19) |
|
| (18) |
|
| (26) |
|
| — |
|
| (63) |
Ending balance |
| $ | 4,605 |
| $ | 2,790 |
| $ | 2,292 |
| $ | 911 |
| $ | 10,598 |
Period end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 4,605 |
|
| 2,790 |
|
| 2,292 |
|
| 911 |
|
| 10,598 |
Ending balance |
| $ | 4,605 |
| $ | 2,790 |
| $ | 2,292 |
| $ | 911 |
| $ | 10,598 |
LOANS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 210 |
| $ | — |
| $ | 551 |
| $ | — |
| $ | 761 |
Loans collectively evaluated for impairment |
|
| 429,998 |
|
| 201,674 |
|
| 133,138 |
|
| — |
|
| 764,810 |
Ending balance |
| $ | 430,208 |
| $ | 201,674 |
| $ | 133,689 |
| $ | — |
| $ | 765,571 |
At or For the Three Months Ended March 31, 2024 | ||||||||||||||||||||
Real | Commercial | |||||||||||||||||||
ACL ON LOANS | Estate | Consumer | Business | Unallocated | Total | |||||||||||||||
Beginning balance | $ | 14,107 | $ | 13,357 | $ | 4,070 | $ | — | $ | 31,534 | ||||||||||
Provision for credit losses on loans | 146 | 644 | 631 | — | 1,421 | |||||||||||||||
Charge-offs | — | (1,486 | ) | (408 | ) | — | (1,894 | ) | ||||||||||||
Recoveries | — | 418 | — | — | 418 | |||||||||||||||
Net charge-offs | — | (1,068 | ) | (408 | ) | — | (1,476 | ) | ||||||||||||
Total ending ACL balance | $ | 14,253 | $ | 12,933 | $ | 4,293 | $ | — | $ | 31,479 |
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or For the Three Months Ended September 30, 2016 | |||||||||||||
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
| |
|
| Real Estate |
| Consumer |
| Business |
| Unallocated |
| Total | |||||
ALLOWANCE FOR LOAN LOSSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 3,477 |
| $ | 2,039 |
| $ | 1,823 |
| $ | 1,612 |
| $ | 8,951 |
Provision for loan losses |
|
| 242 |
|
| 1 |
|
| 252 |
|
| 105 |
|
| 600 |
Charge-offs |
|
| (65) |
|
| (232) |
|
| — |
|
| — |
|
| (297) |
Recoveries |
|
| 64 |
|
| 262 |
|
| 6 |
|
| — |
|
| 332 |
Net (charge-offs) recoveries |
|
| (1) |
|
| 30 |
|
| 6 |
|
| — |
|
| 35 |
Ending balance |
| $ | 3,718 |
| $ | 2,070 |
| $ | 2,081 |
| $ | 1,717 |
| $ | 9,586 |
Period end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 3,718 |
|
| 2,070 |
|
| 2,081 |
|
| 1,717 |
|
| 9,586 |
Ending balance |
| $ | 3,718 |
| $ | 2,070 |
| $ | 2,081 |
| $ | 1,717 |
| $ | 9,586 |
LOANS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 209 |
| $ | — |
| $ | — |
| $ | — |
| $ | 209 |
Loans collectively evaluated for impairment |
|
| 316,309 |
|
| 170,576 |
|
| 117,124 |
|
| — |
|
| 604,009 |
Ending balance |
| $ | 316,518 |
| $ | 170,576 |
| $ | 117,124 |
| $ | — |
| $ | 604,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended September 30, 2016 | |||||||||||||
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
| |
|
| Real Estate |
| Consumer |
| Business |
| Unallocated |
| Total | |||||
ALLOWANCE FOR LOAN LOSSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,874 |
| $ | 1,681 |
| $ | 1,396 |
| $ | 1,834 |
| $ | 7,785 |
Provision for loan losses |
|
| 794 |
|
| 519 |
|
| 604 |
|
| (117) |
|
| 1,800 |
Charge-offs |
|
| (65) |
|
| (801) |
|
| — |
|
| — |
|
| (866) |
Recoveries |
|
| 115 |
|
| 671 |
|
| 81 |
|
| — |
|
| 867 |
Net recoveries (charge-offs) |
|
| 50 |
|
| (130) |
|
| 81 |
|
| — |
|
| 1 |
Ending balance |
| $ | 3,718 |
| $ | 2,070 |
| $ | 2,081 |
| $ | 1,717 |
| $ | 9,586 |
Period end amount allocated to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Loans collectively evaluated for impairment |
|
| 3,718 |
|
| 2,070 |
|
| 2,081 |
|
| 1,717 |
|
| 9,586 |
Ending balance |
| $ | 3,718 |
| $ | 2,070 |
| $ | 2,081 |
| $ | 1,717 |
| $ | 9,586 |
LOANS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment |
| $ | 209 |
| $ | — |
| $ | — |
| $ | — |
| $ | 209 |
Loans collectively evaluated for impairment |
|
| 316,309 |
|
| 170,576 |
|
| 117,124 |
|
| — |
|
| 604,009 |
Ending balance |
| $ | 316,518 |
| $ | 170,576 |
| $ | 117,124 |
| $ | — |
| $ | 604,218 |
At or For the Three Months Ended March 31, 2023 | ||||||||||||||||||||
Real | Commercial | |||||||||||||||||||
ACL ON LOANS | Estate | Consumer | Business | Unallocated | Total | |||||||||||||||
Beginning balance | $ | 12,123 | $ | 12,109 | $ | 3,760 | $ | — | $ | 27,992 | ||||||||||
Provision for credit losses on loans | 459 | 1,691 | 205 | — | 2,355 | |||||||||||||||
Charge-offs | (10 | ) | (709 | ) | (1 | ) | — | (720 | ) | |||||||||||
Recoveries | — | 310 | — | — | 310 | |||||||||||||||
Net charge-offs | (10 | ) | (399 | ) | (1 | ) | — | (410 | ) | |||||||||||
Total ending ACL balance | $ | 12,572 | $ | 13,401 | $ | 3,964 | $ | — | $ | 29,937 |
Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are automatically placed on nonaccrual once the loan is 90 days past due or sooner if, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, or as required by regulatory authorities.
20
Loan Modifications to Borrowers Experiencing Financial Difficulty
The Company may modify the contractual terms of a loan to a borrower experiencing financial difficulty as a part of ongoing loss mitigation strategies. These modifications may result in an interest rate reduction, term extension, an other-than-insignificant payment delay, or a combination thereof. The Company typically does not offer principal forgiveness. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses on loans because of the measurement methodologies used to estimate the allowance.
The following tables present the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty at the end of the reporting period by loan class and modification type.
Payment Deferral | |||||
Amortized Cost | % of Total Loan | ||||
For the three months ended March 31, 2024 | Basis | Type | Financial Effect | ||
CRE | $ | 1,102 | 0.3% | Deferred payments and capitalized interest for adding a weighted-average period of 1.7 years to the life of the loans. | |
Combination - Term Extension and Interest Rate Reduction | |||||
Amortized Cost | % of Total Loan | ||||
For the three months ended March 31, 2023 | Basis | Type | Financial Effect | ||
C&I | $ | 3,709 | 1.7 | % | Reduced weighted-average contractual interest rate from 7.5% to 4.1%, and added a weighted-average period of 5.0 years to the life of the loans. |
At March 31, 2024, and March 31,2023, the loans were in compliance with their modified terms, but were classified as current and nonaccrual and individually evaluated in the determination of the associated ACL for loans. For the three months ended March 31, 2024, and March 31, 2023, no loans experienced a default subsequent to being granted a modification in the last twelve months. There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of March 31,2024.
Nonaccrual and Past Due Loans
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables provide information pertaining to the aging analysis of contractually past due loans and nonaccrual loans at September 30, 2017March 31, 2024 and December 31, 2016:2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | |||||||||||||||||||
|
| 30-59 |
| 60-89 |
|
|
|
|
|
|
|
|
|
| |||||||
|
| Days |
| Days |
| 90 Days |
| Total |
|
|
| Total |
|
| |||||||
|
| Past |
| Past |
| or More |
| Past |
|
|
| Loans |
| Non- | |||||||
|
| Due |
| Due |
| Past Due |
| Due |
| Current |
| Receivable |
| Accrual | |||||||
REAL ESTATE LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 63,180 |
| $ | 63,180 |
| $ | — |
Construction and development |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 129,407 |
|
| 129,407 |
|
| — |
Home equity |
|
| 111 |
|
| 16 |
|
| 138 |
|
| 265 |
|
| 23,761 |
|
| 24,026 |
|
| 154 |
One-to-four-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 170,187 |
|
| 170,187 |
|
| 142 |
Multi-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 43,408 |
|
| 43,408 |
|
| — |
Total real estate loans |
|
| 111 |
|
| 16 |
|
| 138 |
|
| 265 |
|
| 429,943 |
|
| 430,208 |
|
| 296 |
CONSUMER LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect home improvement |
|
| 261 |
|
| 77 |
|
| 174 |
|
| 512 |
|
| 123,875 |
|
| 124,387 |
|
| 316 |
Solar |
|
| 83 |
|
| 22 |
|
| 81 |
|
| 186 |
|
| 39,896 |
|
| 40,082 |
|
| 81 |
Marine |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 35,173 |
|
| 35,173 |
|
| 9 |
Other consumer |
|
| 7 |
|
| — |
|
| 1 |
|
| 8 |
|
| 2,024 |
|
| 2,032 |
|
| 11 |
Total consumer loans |
|
| 351 |
|
| 99 |
|
| 256 |
|
| 706 |
|
| 200,968 |
|
| 201,674 |
|
| 417 |
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 83,221 |
|
| 83,221 |
|
| 551 |
Warehouse lending |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 50,468 |
|
| 50,468 |
|
| — |
Total commercial business loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 133,689 |
|
| 133,689 |
|
| 551 |
Total loans |
| $ | 462 |
| $ | 115 |
| $ | 394 |
| $ | 971 |
| $ | 764,600 |
| $ | 765,571 |
| $ | 1,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
|
| December 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
|
| 30-59 |
| 60-89 |
|
|
|
|
|
|
|
|
|
| March 31, 2024 | ||||||||||||||||||||||||||||||||||
|
| Days |
| Days |
| 90 Days |
| Total |
|
|
| Total |
|
| 30-59 | 60-89 | |||||||||||||||||||||||||||||||||
|
| Past |
| Past |
| or More |
| Past |
|
|
| Loans |
| Non- | Days | Days | 90 Days | Total | Total | ||||||||||||||||||||||||||||||
|
| Due |
| Due |
| Past Due |
| Due |
| Current |
| Receivable |
| Accrual | Past | Past | or More | Past | Loans | Non- | |||||||||||||||||||||||||||||
REAL ESTATE LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due | Due | Past Due | Due | Current | Receivable | Accrual (1) | |||||||||||||||||||||
Commercial |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 55,871 |
| $ | 55,871 |
| $ | — | ||||||||||||||||||||||||||||
CRE | $ | — | $ | — | $ | — | $ | — | $ | 359,055 | $ | 359,055 | $ | 1,102 | |||||||||||||||||||||||||||||||||||
Construction and development |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 94,462 |
|
| 94,462 |
|
| — | 4,737 | — | — | 4,737 | 296,609 | 301,346 | 4,737 | |||||||||||||||||||||
Home equity |
|
| 34 |
|
| — |
|
| 210 |
|
| 244 |
|
| 19,837 |
|
| 20,081 |
|
| 210 | 16 | 26 | 137 | 179 | 73,144 | 73,323 | 170 | |||||||||||||||||||||
One-to-four-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 124,009 |
|
| 124,009 |
|
| — | — | — | 80 | 80 | 579,970 | 580,050 | 173 | |||||||||||||||||||||
Multi-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 37,527 |
|
| 37,527 |
|
| — | — | — | — | — | 222,410 | 222,410 | — | |||||||||||||||||||||
Total real estate loans |
|
| 34 |
|
| — |
|
| 210 |
|
| 244 |
|
| 331,706 |
|
| 331,950 |
|
| 210 | 4,753 | 26 | 217 | 4,996 | 1,531,188 | 1,536,184 | 6,182 | |||||||||||||||||||||
CONSUMER LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Indirect home improvement |
|
| 268 |
|
| 278 |
|
| 167 |
|
| 713 |
|
| 107,046 |
|
| 107,759 |
|
| 435 | 1,657 | 717 | 651 | 3,025 | 565,777 | 568,802 | 2,195 | |||||||||||||||||||||
Solar |
|
| 92 |
|
| — |
|
| 69 |
|
| 161 |
|
| 36,342 |
|
| 36,503 |
|
| 69 | ||||||||||||||||||||||||||||
Marine |
|
| 8 |
|
| — |
|
| — |
|
| 8 |
|
| 28,541 |
|
| 28,549 |
|
| — | 295 | 86 | 85 | 466 | 73,455 | 73,921 | 385 | |||||||||||||||||||||
Other consumer |
|
| 3 |
|
| 2 |
|
| 4 |
|
| 9 |
|
| 1,906 |
|
| 1,915 |
|
| 7 | 22 | 2 | 1 | 25 | 3,384 | 3,409 | 3 | |||||||||||||||||||||
Total consumer loans |
|
| 371 |
|
| 280 |
|
| 240 |
|
| 891 |
|
| 173,835 |
|
| 174,726 |
|
| 511 | 1,974 | 805 | 737 | 3,516 | 642,616 | 646,132 | 2,583 | |||||||||||||||||||||
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Commercial and industrial |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 65,841 |
|
| 65,841 |
|
| — | ||||||||||||||||||||||||||||
C&I | 167 | — | 2,257 | 2,424 | 254,005 | 256,429 | 3,341 | ||||||||||||||||||||||||||||||||||||||||||
Warehouse lending |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 32,898 |
|
| 32,898 |
|
| — | — | — | — | — | 8,113 | 8,113 | — | |||||||||||||||||||||
Total commercial business loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 98,739 |
|
| 98,739 |
|
| — | 167 | — | 2,257 | 2,424 | 262,118 | 264,542 | 3,341 | |||||||||||||||||||||
Total loans |
| $ | 405 |
| $ | 280 |
| $ | 450 |
| $ | 1,135 |
| $ | 604,280 |
| $ | 605,415 |
| $ | 721 | $ | 6,894 | $ | 831 | $ | 3,211 | $ | 10,936 | $ | 2,435,922 | $ | 2,446,858 | $ | 12,106 |
December 31, 2023 | ||||||||||||||||||||||||||||
30-59 | 60-89 | |||||||||||||||||||||||||||
Days | Days | 90 Days | Total | Total | ||||||||||||||||||||||||
Past | Past | or More | Past | Loans | Non- | |||||||||||||||||||||||
REAL ESTATE LOANS | Due | Due | Past Due | Due | Current | Receivable | Accrual (1) | |||||||||||||||||||||
CRE | $ | — | $ | — | $ | — | $ | — | $ | 366,328 | $ | 366,328 | $ | 1,088 | ||||||||||||||
Construction and development | — | — | — | — | 303,054 | 303,054 | 4,699 | |||||||||||||||||||||
Home equity | 79 | 25 | 136 | 240 | 69,248 | 69,488 | 173 | |||||||||||||||||||||
One-to-four-family | — | 96 | — | 96 | 567,646 | 567,742 | 96 | |||||||||||||||||||||
Multi-family | — | — | — | — | 223,769 | 223,769 | — | |||||||||||||||||||||
Total real estate loans | 79 | 121 | 136 | 336 | 1,530,045 | 1,530,381 | 6,056 | |||||||||||||||||||||
CONSUMER LOANS | ||||||||||||||||||||||||||||
Indirect home improvement | 1,759 | 1,248 | 777 | 3,784 | 566,119 | 569,903 | 1,863 | |||||||||||||||||||||
Marine | 373 | 243 | 137 | 753 | 72,557 | 73,310 | 342 | |||||||||||||||||||||
Other consumer | 57 | 18 | 6 | 81 | 3,459 | 3,540 | 8 | |||||||||||||||||||||
Total consumer loans | 2,189 | 1,509 | 920 | 4,618 | 642,135 | 646,753 | 2,213 | |||||||||||||||||||||
COMMERCIAL BUSINESS LOANS | ||||||||||||||||||||||||||||
C&I | — | — | 2,514 | 2,514 | 235,787 | 238,301 | 2,683 | |||||||||||||||||||||
Warehouse lending | — | — | — | — | 17,580 | 17,580 | — | |||||||||||||||||||||
Total commercial business loans | — | — | 2,514 | 2,514 | 253,367 | 255,881 | 2,683 | |||||||||||||||||||||
Total loans | $ | 2,268 | $ | 1,630 | $ | 3,570 | $ | 7,468 | $ | 2,425,547 | $ | 2,433,015 | $ | 10,952 |
(1) | Includes loans less than 90 days past due as applicable. |
There were no loans 90 days or more past due and still accruing interest at September 30, 2017both March 31, 2024 and December 31, 2016.2023.
21
The following tables provide additional information about our impaired loans that have been segregated to reflect loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided at September 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | ||||||||||
|
| Unpaid |
|
|
|
|
|
|
|
|
| |
|
| Principal |
| Write- |
| Recorded |
| Related | ||||
|
| Balance |
| downs |
| Investment |
| Allowance | ||||
WITH NO RELATED ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
| $ | 154 |
| $ | — |
| $ | 154 |
| $ | — |
One-to-four-family |
|
| 68 |
|
| (12) |
|
| 56 |
|
| — |
Total real estate loans |
|
| 222 |
|
| (12) |
|
| 210 |
|
| — |
WITH AN ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
| 551 |
|
| — |
|
| 551 |
|
| 88 |
Total |
| $ | 773 |
| $ | (12) |
| $ | 761 |
| $ | 88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||
|
| Unpaid |
|
|
|
|
|
|
|
|
| |
|
| Principal |
| Write- |
| Recorded |
| Related | ||||
|
| Balance |
| downs |
| Investment |
| Allowance | ||||
WITH NO RELATED ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
| $ | 137 |
| $ | — |
| $ | 137 |
| $ | — |
One-to-four-family |
|
| 69 |
|
| (12) |
|
| 57 |
|
| — |
Total |
| $ | 206 |
| $ | (12) |
| $ | 194 |
| $ | — |
The following tables present the average recorded investment in loans individually evaluated for impairment and the interest income recognized and received for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||||||||
|
| September 30, 2017 |
| September 30, 2016 | ||||||||
|
| Average Recorded |
| Interest Income |
| Average Recorded |
| Interest Income | ||||
|
| Investment |
| Recognized |
| Investment |
| Recognized | ||||
WITH NO RELATED ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
| $ | 201 |
| $ | — |
| $ | 152 |
| $ | — |
One-to-four-family |
|
| 56 |
|
| 1 |
|
| 58 |
|
| 1 |
Total real estate loans |
|
| 257 |
|
| 1 |
|
| 210 |
|
| 1 |
WITH AN ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
| 551 |
|
| 23 |
|
| — |
|
| — |
Total |
| $ | 808 |
| $ | 24 |
| $ | 210 |
| $ | 1 |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||||||||
|
| September 30, 2017 |
| September 30, 2016 | ||||||||
|
| Average Recorded |
| Interest Income |
| Average Recorded |
| Interest Income | ||||
|
| Investment |
| Recognized |
| Investment |
| Recognized | ||||
WITH NO RELATED ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
| $ | 220 |
| $ | — |
| $ | 154 |
| $ | 2 |
One-to-four-family |
|
| 56 |
|
| 3 |
|
| 58 |
|
| 2 |
Total real estate loans |
|
| 276 |
|
| 3 |
|
| 212 |
|
| 4 |
WITH AN ALLOWANCE RECORDED |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
| 551 |
|
| 23 |
|
| — |
|
| — |
Total |
| $ | 827 |
| $ | 26 |
| $ | 212 |
| $ | 4 |
Credit Quality Indicators
As part of the Company’s on-going monitoring of credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grading of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans, and (v) the general economic conditions in the Company’s markets.
The Company utilizes a risk grading matrix to assign a risk grade to its real estate and commercial business loans. Loans are graded on a scale of 1 to 10, with loans in risk grades 1 to 6 considered reported as “Pass” and loans in risk grades 7 to 10 are reported as classified loans in the Company’s allowance for loan lossACL analysis.
A description of the 10 risk grades is as follows:
Grades 1 and 2 - These grades include loans to very high quality borrowers with excellent or desirable business credit.
● | Grades 1 and 2- These grades include loans to very high-quality borrowers with excellent or desirable business credit. |
Grade 3 - This grade includes loans to borrowers of good business credit with moderate risk.
● | Grade 3- This grade includes loans to borrowers of good business credit with moderate risk. |
Grades 4 and 5 - These grades include “Pass” grade loans to borrowers of average credit quality and risk.
● | Grades 4 and 5- These grades include “Pass” grade loans to borrowers of average credit quality and risk. |
Grade 6 - This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term.
● | Grade 6- This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term. |
Grade 7 - This grade is for “Other Assets Especially Mentioned” (“OAEM”) in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected.
● | Grade 7- This grade is for “Other Assets Especially Mentioned (“OAEM”)” or “Special Mention” in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected. |
Grade 8 - This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected.
● | Grade 8- This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected. |
Grade 9 - This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable.
● | Grade 9- This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable. |
Grade 10 - This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.
● | Grade 10- This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off. |
Consumer, Home Equity and One-to-Four-Family Real Estate Loans
Homogeneous loans are risk rated based upon the FDIC’sFederal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy. Loans classified under this policy at the Company are consumer loans which include indirect home improvement,
23
solar, marine, other consumer, and one-to-four-family one-to-four-family first and second liens. Under the Uniform Retail Credit Classification and Account Management Policy, loans that are current or less than 90 days past due are graded “Pass” and risk rated “4”“4” or “5”“5” internally. Loans that are past due more than 90 days are classified “Substandard” and risk rated “8”graded “8” internally until the loan has demonstrated consistent performance, typically six months of contractual payments. Closed-end loans that are 120 days past due and open-end loans that are 180 days past due are charged off based on the value of the collateral less cost to sell. Management may choose to conservatively risk rate credits even if paying in accordance with the loan’s repayment terms.
CRE, construction and development, multi-family and commercial business loans are evaluated individually for their risk classification and may be classified as “Substandard” even if current on their loan payment obligations. We regularly review our credits for accuracy of risk grades whenever we receive new information. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk, and complexity. In addition, nonowner-occupied CRE borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.
The following tables summarize risk rated loan balances and total current period gross charge-offs by category, at September 30, 2017 and December 31, 2016:as of the dates indicated. Term loans that were renewed or extended for periods longer than 90 days are presented as new originations in the year of the most recent renewal or extension.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | |||||||||||||||||||
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
| |||||||
|
| Pass |
| Watch |
| Mention |
| Substandard |
| Doubtful |
| Loss |
|
| |||||||
|
| (1 - 5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| Total | |||||||
REAL ESTATE LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 56,533 |
| $ | 5,072 |
| $ | 1,575 |
| $ | — |
| $ | — |
| $ | — |
| $ | 63,180 |
Construction and development |
|
| 129,407 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 129,407 |
Home equity |
|
| 23,872 |
|
| — |
|
| — |
|
| 154 |
|
| — |
|
| — |
|
| 24,026 |
One-to-four-family |
|
| 169,352 |
|
| — |
|
| 693 |
|
| 142 |
|
| — |
|
| — |
|
| 170,187 |
Multi-family |
|
| 43,408 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 43,408 |
Total real estate loans |
|
| 422,572 |
|
| 5,072 |
|
| 2,268 |
|
| 296 |
|
| — |
|
| — |
|
| 430,208 |
CONSUMER LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect home improvement |
|
| 124,071 |
|
| — |
|
| — |
|
| 316 |
|
| — |
|
| — |
|
| 124,387 |
Solar |
|
| 40,001 |
|
| — |
|
| — |
|
| 81 |
|
| — |
|
| — |
|
| 40,082 |
Marine |
|
| 35,164 |
|
| — |
|
| — |
|
| 9 |
|
| — |
|
| — |
|
| 35,173 |
Other consumer |
|
| 1,961 |
|
| — |
|
| — |
|
| 71 |
|
| — |
|
| — |
|
| 2,032 |
Total consumer loans |
|
| 201,197 |
|
| — |
|
| — |
|
| 477 |
|
| — |
|
| — |
|
| 201,674 |
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 76,302 |
|
| 306 |
|
| 828 |
|
| 5,785 |
|
| — |
|
| — |
|
| 83,221 |
Warehouse lending |
|
| 44,969 |
|
| 5,499 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 50,468 |
Total commercial business loans |
|
| 121,271 |
|
| 5,805 |
|
| 828 |
|
| 5,785 |
|
| — |
|
| — |
|
| 133,689 |
Total loans |
| $ | 745,040 |
| $ | 10,877 |
| $ | 3,096 |
| $ | 6,558 |
| $ | — |
| $ | — |
| $ | 765,571 |
March 31, 2024 | ||||||||||||||||||||||||||||||||||||
Revolving Loans | ||||||||||||||||||||||||||||||||||||
REAL ESTATE LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
CRE | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 3,034 | $ | 46,629 | $ | 85,321 | $ | 60,749 | $ | 45,012 | $ | 84,134 | $ | — | $ | 73 | $ | 324,952 | ||||||||||||||||||
Watch | — | 3,185 | 10,843 | 12,835 | — | 2,665 | 244 | — | 29,772 | |||||||||||||||||||||||||||
Special mention | — | — | — | — | — | 404 | — | — | 404 | |||||||||||||||||||||||||||
Substandard | — | — | — | — | 1,641 | 2,286 | — | — | 3,927 | |||||||||||||||||||||||||||
Total CRE | 3,034 | 49,814 | 96,164 | 73,584 | 46,653 | 89,489 | 244 | 73 | 359,055 | |||||||||||||||||||||||||||
Construction and development | ||||||||||||||||||||||||||||||||||||
Pass | 21,765 | 133,438 | 74,758 | 40,355 | 15,220 | 526 | 10,547 | — | 296,609 | |||||||||||||||||||||||||||
Substandard | — | — | 4,737 | — | — | — | — | — | 4,737 | |||||||||||||||||||||||||||
Total construction and development | 21,765 | 133,438 | 79,495 | 40,355 | 15,220 | 526 | 10,547 | — | 301,346 | |||||||||||||||||||||||||||
Home equity | ||||||||||||||||||||||||||||||||||||
Pass | 4,095 | 4,364 | 381 | 1,573 | 6,397 | 1,971 | 54,372 | — | 73,153 | |||||||||||||||||||||||||||
Substandard | — | — | — | — | — | 33 | 137 | — | 170 | |||||||||||||||||||||||||||
Total home equity | 4,095 | 4,364 | 381 | 1,573 | 6,397 | 2,004 | 54,509 | — | 73,323 | |||||||||||||||||||||||||||
One-to-four-family | ||||||||||||||||||||||||||||||||||||
Pass | 18,276 | 102,210 | 172,463 | 124,529 | 80,342 | 79,296 | — | — | 577,116 | |||||||||||||||||||||||||||
Substandard | — | — | 862 | — | — | 2,072 | — | — | 2,934 | |||||||||||||||||||||||||||
Total one-to-four-family | 18,276 | 102,210 | 173,325 | 124,529 | 80,342 | 81,368 | — | — | 580,050 | |||||||||||||||||||||||||||
Multi-family | ||||||||||||||||||||||||||||||||||||
Pass | 93 | 7,087 | 20,328 | 90,820 | 42,296 | 61,786 | — | — | 222,410 | |||||||||||||||||||||||||||
Total multi-family | 93 | 7,087 | 20,328 | 90,820 | 42,296 | 61,786 | — | — | 222,410 | |||||||||||||||||||||||||||
Total real estate loans | $ | 47,263 | $ | 296,913 | $ | 369,693 | $ | 330,861 | $ | 190,908 | $ | 235,173 | $ | 65,300 | $ | 73 | $ | 1,536,184 |
March 31, 2024 | ||||||||||||||||||||||||||||||||||||
Revolving Loans | ||||||||||||||||||||||||||||||||||||
CONSUMER LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
Indirect home improvement | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 31,369 | $ | 160,726 | $ | 201,319 | $ | 88,557 | $ | 33,947 | $ | 50,684 | $ | 5 | $ | — | $ | 566,607 | ||||||||||||||||||
Substandard | — | 385 | 799 | 469 | 205 | 337 | — | — | 2,195 | |||||||||||||||||||||||||||
Total indirect home improvement | 31,369 | 161,111 | 202,118 | 89,026 | 34,152 | 51,021 | 5 | — | 568,802 | |||||||||||||||||||||||||||
Indirect home improvement gross charge-offs | — | 211 | 499 | 183 | 45 | 225 | — | — | 1,163 | |||||||||||||||||||||||||||
Marine | ||||||||||||||||||||||||||||||||||||
Pass | 3,780 | 13,093 | 22,512 | 9,685 | 12,679 | 11,787 | — | — | 73,536 | |||||||||||||||||||||||||||
Substandard | — | — | 55 | — | 126 | 204 | — | — | 385 | |||||||||||||||||||||||||||
Total marine | 3,780 | 13,093 | 22,567 | 9,685 | 12,805 | 11,991 | — | — | 73,921 | |||||||||||||||||||||||||||
Marine gross charge-offs | — | — | 75 | 51 | — | 105 | — | — | 231 | |||||||||||||||||||||||||||
Other consumer | ||||||||||||||||||||||||||||||||||||
Pass | 50 | 237 | 491 | 143 | 59 | 143 | 2,283 | — | 3,406 | |||||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 3 | — | 3 | |||||||||||||||||||||||||||
Total other consumer | 50 | 237 | 491 | 143 | 59 | 143 | 2,286 | — | 3,409 | |||||||||||||||||||||||||||
Other consumer gross charge-offs | — | 33 | 6 | — | — | 16 | 37 | — | 92 | |||||||||||||||||||||||||||
Total consumer loans | $ | 35,199 | $ | 174,441 | $ | 225,176 | $ | 98,854 | $ | 47,016 | $ | 63,155 | $ | 2,291 | $ | — | $ | 646,132 |
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||||||||||||||
|
|
|
|
|
| Special |
|
|
|
|
|
|
|
| |||||||
|
| Pass |
| Watch |
| Mention |
| Substandard |
| Doubtful |
| Loss |
|
| |||||||
|
| (1 - 5) |
| (6) |
| (7) |
| (8) |
| (9) |
| (10) |
| Total | |||||||
REAL ESTATE LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 53,234 |
| $ | 2,637 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 55,871 |
Construction and development |
|
| 94,462 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 94,462 |
Home equity |
|
| 19,871 |
|
| — |
|
| — |
|
| 210 |
|
| — |
|
| — |
|
| 20,081 |
One-to-four-family |
|
| 124,009 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 124,009 |
Multi-family |
|
| 37,527 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 37,527 |
Total real estate loans |
|
| 329,103 |
|
| 2,637 |
|
| — |
|
| 210 |
|
| — |
|
| — |
|
| 331,950 |
CONSUMER LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect home improvement |
|
| 107,324 |
|
| — |
|
| — |
|
| 435 |
|
| — |
|
| — |
|
| 107,759 |
Solar |
|
| 36,434 |
|
| — |
|
| — |
|
| 69 |
|
| — |
|
| — |
|
| 36,503 |
Marine |
|
| 28,549 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 28,549 |
Other consumer |
|
| 1,813 |
|
| — |
|
| — |
|
| 102 |
|
| — |
|
| — |
|
| 1,915 |
Total consumer loans |
|
| 174,120 |
|
| — |
|
| — |
|
| 606 |
|
| — |
|
| — |
|
| 174,726 |
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
| 58,105 |
|
| 525 |
|
| — |
|
| 7,211 |
|
| — |
|
| — |
|
| 65,841 |
Warehouse lending |
|
| 32,898 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 32,898 |
Total commercial business loans |
|
| 91,003 |
|
| 525 |
|
| — |
|
| 7,211 |
|
| — |
|
| — |
|
| 98,739 |
Total loans |
| $ | 594,226 |
| $ | 3,162 |
| $ | — |
| $ | 8,027 |
| $ | — |
| $ | — |
| $ | 605,415 |
March 31, 2024 | ||||||||||||||||||||||||||||||||||||
COMMERCIAL | Revolving Loans | |||||||||||||||||||||||||||||||||||
BUSINESS LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
C&I | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 9,500 | $ | 21,168 | $ | 32,498 | $ | 18,602 | $ | 10,837 | $ | 13,158 | $ | 120,156 | $ | 25 | $ | 225,944 | ||||||||||||||||||
Watch | — | 4,458 | — | 758 | 2,224 | 931 | 9,305 | — | 17,676 | |||||||||||||||||||||||||||
Special mention | — | — | — | 575 | — | 701 | 942 | — | 2,218 | |||||||||||||||||||||||||||
Substandard | — | 2,915 | — | 2,302 | 1,342 | 1,933 | 2,099 | — | 10,591 | |||||||||||||||||||||||||||
Total C&I | 9,500 | 28,541 | 32,498 | 22,237 | 14,403 | 16,723 | 132,502 | 25 | 256,429 | |||||||||||||||||||||||||||
C&I gross charge-offs | — | — | — | — | — | — | 408 | — | 408 | |||||||||||||||||||||||||||
Warehouse lending | ||||||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 8,111 | — | 8,111 | |||||||||||||||||||||||||||
Watch | — | — | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||
Total warehouse lending | — | — | — | — | — | — | 8,113 | — | 8,113 | |||||||||||||||||||||||||||
Total commercial business loans | $ | 9,500 | $ | 28,541 | $ | 32,498 | $ | 22,237 | $ | 14,403 | $ | 16,723 | $ | 140,615 | $ | 25 | $ | 264,542 | ||||||||||||||||||
TOTAL LOANS RECEIVABLE, GROSS | ||||||||||||||||||||||||||||||||||||
Pass | $ | 91,962 | $ | 488,952 | $ | 610,071 | $ | 435,013 | $ | 246,789 | $ | 303,485 | $ | 195,474 | $ | 98 | $ | 2,371,844 | ||||||||||||||||||
Watch | — | 7,643 | 10,843 | 13,593 | 2,224 | 3,596 | 9,551 | — | 47,450 | |||||||||||||||||||||||||||
Special mention | — | — | — | 575 | — | 1,105 | 942 | — | 2,622 | |||||||||||||||||||||||||||
Substandard | — | 3,300 | 6,453 | 2,771 | 3,314 | 6,865 | 2,239 | — | 24,942 | |||||||||||||||||||||||||||
Total loans receivable, gross | $ | 91,962 | $ | 499,895 | $ | 627,367 | $ | 451,952 | $ | 252,327 | $ | 315,051 | $ | 208,206 | $ | 98 | $ | 2,446,858 | ||||||||||||||||||
Total gross charge-offs | $ | — | $ | 244 | $ | 580 | $ | 234 | $ | 45 | $ | 346 | $ | 445 | $ | — | $ | 1,894 |
December 31, 2023 | ||||||||||||||||||||||||||||||||||||
Revolving Loans | ||||||||||||||||||||||||||||||||||||
REAL ESTATE LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
CRE | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 48,551 | $ | 91,144 | $ | 61,689 | $ | 46,117 | $ | 27,957 | $ | 61,764 | $ | 499 | $ | — | $ | 337,721 | ||||||||||||||||||
Watch | 3,201 | 5,446 | 12,894 | — | 453 | 2,226 | 45 | — | 24,265 | |||||||||||||||||||||||||||
Special mention | — | — | — | — | 409 | — | — | — | 409 | |||||||||||||||||||||||||||
Substandard | — | — | — | 1,650 | — | 1,957 | — | 326 | 3,933 | |||||||||||||||||||||||||||
Total CRE | 51,752 | 96,590 | 74,583 | 47,767 | 28,819 | 65,947 | 544 | 326 | 366,328 | |||||||||||||||||||||||||||
Construction and development | ||||||||||||||||||||||||||||||||||||
Pass | 120,155 | 106,168 | 46,989 | 15,219 | — | 540 | 9,284 | — | 298,355 | |||||||||||||||||||||||||||
Substandard | — | 4,699 | — | — | — | — | — | — | 4,699 | |||||||||||||||||||||||||||
Total construction and development | 120,155 | 110,867 | 46,989 | 15,219 | — | 540 | 9,284 | — | 303,054 | |||||||||||||||||||||||||||
Home equity | ||||||||||||||||||||||||||||||||||||
Pass | 4,583 | 398 | 1,584 | 6,525 | 11 | 2,137 | 54,077 | — | 69,315 | |||||||||||||||||||||||||||
Substandard | — | — | — | — | — | 36 | 137 | — | 173 | |||||||||||||||||||||||||||
Total home equity | 4,583 | 398 | 1,584 | 6,525 | 11 | 2,173 | 54,214 | — | 69,488 | |||||||||||||||||||||||||||
Home equity gross charge-offs | 10 | 10 | ||||||||||||||||||||||||||||||||||
One-to-four-family | — | |||||||||||||||||||||||||||||||||||
Pass | 103,165 | 175,412 | 122,406 | 80,815 | 30,595 | 52,008 | — | 472 | 564,873 | |||||||||||||||||||||||||||
Substandard | — | 866 | — | — | — | 2,003 | — | — | 2,869 | |||||||||||||||||||||||||||
Total one-to-four-family | 103,165 | 176,278 | 122,406 | 80,815 | 30,595 | 54,011 | — | 472 | 567,742 | |||||||||||||||||||||||||||
Multi-family | ||||||||||||||||||||||||||||||||||||
Pass | 7,106 | 20,404 | 91,047 | 42,511 | 37,990 | 24,711 | — | — | 223,769 | |||||||||||||||||||||||||||
Total multi-family | 7,106 | 20,404 | 91,047 | 42,511 | 37,990 | 24,711 | — | — | 223,769 | |||||||||||||||||||||||||||
Total real estate loans | $ | 286,761 | $ | 404,537 | $ | 336,609 | $ | 192,837 | $ | 97,415 | $ | 147,382 | $ | 64,042 | $ | 798 | $ | 1,530,381 |
Troubled Debt Restructured Loans
December 31, 2023 | ||||||||||||||||||||||||||||||||||||
Revolving Loans | ||||||||||||||||||||||||||||||||||||
CONSUMER LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
Indirect home improvement | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 171,208 | $ | 212,661 | $ | 93,664 | $ | 36,032 | $ | 23,977 | $ | 30,492 | $ | 6 | $ | — | $ | 568,040 | ||||||||||||||||||
Substandard | 212 | 663 | 448 | 141 | 258 | 141 | — | — | 1,863 | |||||||||||||||||||||||||||
Total indirect home improvement | 171,420 | 213,324 | 94,112 | 36,173 | 24,235 | 30,633 | 6 | — | 569,903 | |||||||||||||||||||||||||||
Indirect home improvement gross charge-offs | 204 | 1,386 | 567 | 290 | 145 | 336 | — | — | 2,928 | |||||||||||||||||||||||||||
Marine | ||||||||||||||||||||||||||||||||||||
Pass | 13,619 | 23,963 | 9,987 | 13,082 | 5,267 | 7,050 | — | — | 72,968 | |||||||||||||||||||||||||||
Substandard | — | — | 52 | 85 | — | 205 | — | — | 342 | |||||||||||||||||||||||||||
Total marine | 13,619 | 23,963 | 10,039 | 13,167 | 5,267 | 7,255 | — | — | 73,310 | |||||||||||||||||||||||||||
Marine gross charge-offs | — | 47 | 93 | — | 7 | 256 | — | — | 403 | |||||||||||||||||||||||||||
Other consumer | ||||||||||||||||||||||||||||||||||||
Pass | 309 | 559 | 175 | 69 | 3 | 159 | 2,258 | — | 3,532 | |||||||||||||||||||||||||||
Substandard | — | — | — | — | — | — | 8 | — | 8 | |||||||||||||||||||||||||||
Total other consumer | 309 | 559 | 175 | 69 | 3 | 159 | 2,266 | — | 3,540 | |||||||||||||||||||||||||||
Other consumer gross charge-offs | — | 2 | 12 | — | — | — | 120 | — | 134 | |||||||||||||||||||||||||||
Total consumer loans | $ | 185,348 | $ | 237,846 | $ | 104,326 | $ | 49,409 | $ | 29,505 | $ | 38,047 | $ | 2,272 | $ | — | $ | 646,753 |
December 31, 2023 | ||||||||||||||||||||||||||||||||||||
COMMERCIAL | Revolving Loans | |||||||||||||||||||||||||||||||||||
BUSINESS LOANS | Term Loans by Year of Origination | Converted | ||||||||||||||||||||||||||||||||||
C&I | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | to Term | Total Loans | |||||||||||||||||||||||||||
Pass | $ | 13,971 | $ | 32,334 | $ | 19,634 | $ | 11,537 | $ | 5,122 | $ | 9,707 | $ | 119,844 | $ | 145 | $ | 212,294 | ||||||||||||||||||
Watch | 2,322 | — | 1,382 | 2,366 | — | 953 | 5,754 | — | 12,777 | |||||||||||||||||||||||||||
Special mention | 143 | — | — | — | 498 | 253 | 1,345 | — | 2,239 | |||||||||||||||||||||||||||
Substandard | 2,940 | — | 2,321 | 1,391 | 1,766 | 169 | 2,005 | — | 10,592 | |||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | 399 | — | 399 | |||||||||||||||||||||||||||
Total C&I | 19,376 | 32,334 | 23,337 | 15,294 | 7,386 | 11,082 | 129,347 | 145 | 238,301 | |||||||||||||||||||||||||||
C&I gross charge-offs | — | — | 1 | — | — | — | — | — | 1 | |||||||||||||||||||||||||||
Warehouse lending | ||||||||||||||||||||||||||||||||||||
Pass | — | — | — | — | — | — | 17,003 | — | 17,003 | |||||||||||||||||||||||||||
Watch | — | — | — | — | — | — | 577 | — | 577 | |||||||||||||||||||||||||||
Total warehouse lending | — | — | — | — | — | — | 17,580 | — | 17,580 | |||||||||||||||||||||||||||
Total commercial business loans | $ | 19,376 | $ | 32,334 | $ | 23,337 | $ | 15,294 | $ | 7,386 | $ | 11,082 | $ | 146,927 | $ | 145 | $ | 255,881 | ||||||||||||||||||
TOTAL LOANS RECEIVABLE, GROSS | ||||||||||||||||||||||||||||||||||||
Pass | $ | 482,667 | $ | 663,043 | $ | 447,175 | $ | 251,907 | $ | 130,922 | $ | 188,568 | $ | 202,971 | $ | 617 | $ | 2,367,870 | ||||||||||||||||||
Watch | 5,523 | 5,446 | 14,276 | 2,366 | 453 | 3,179 | 6,376 | — | 37,619 | |||||||||||||||||||||||||||
Special mention | 143 | — | — | — | 907 | 253 | 1,345 | — | 2,648 | |||||||||||||||||||||||||||
Substandard | 3,152 | 6,228 | 2,821 | 3,267 | 2,024 | 4,511 | 2,150 | 326 | 24,479 | |||||||||||||||||||||||||||
Doubtful | — | — | — | — | — | — | 399 | — | 399 | |||||||||||||||||||||||||||
Total loans receivable, gross | $ | 491,485 | $ | 674,717 | $ | 464,272 | $ | 257,540 | $ | 134,306 | $ | 196,511 | $ | 213,241 | $ | 943 | $ | 2,433,015 | ||||||||||||||||||
Total gross charge-offs | $ | 204 | $ | 1,435 | $ | 673 | $ | 290 | $ | 152 | $ | 592 | $ | 130 | $ | — | $ | 3,476 |
The following table presents the amortized cost basis of loans on nonaccrual status as of the dates indicated:
Troubled debt restructured (“TDR”) loans are loans for which the Company, for economic or legal reasons related to the borrower’s financial condition, has granted a significant concession to the borrower that it would otherwise not consider.
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Nonaccrual with | Nonaccrual with | Total | Nonaccrual with | Nonaccrual with | Total | |||||||||||||||||||
REAL ESTATE LOANS | No ACL | ACL | Nonaccrual | No ACL | ACL | Nonaccrual | ||||||||||||||||||
CRE | $ | 1,102 | $ | — | $ | 1,102 | $ | 1,088 | $ | — | $ | 1,088 | ||||||||||||
Construction and development | — | 4,737 | 4,737 | — | 4,699 | 4,699 | ||||||||||||||||||
Home equity | 170 | — | 170 | 173 | — | 173 | ||||||||||||||||||
One-to-four-family | 173 | — | 173 | 96 | — | 96 | ||||||||||||||||||
1,445 | 4,737 | 6,182 | 1,357 | 4,699 | 6,056 | |||||||||||||||||||
CONSUMER LOANS | ||||||||||||||||||||||||
Indirect home improvement | — | 2,195 | 2,195 | — | 1,863 | 1,863 | ||||||||||||||||||
Marine | — | 385 | 385 | — | 342 | 342 | ||||||||||||||||||
Other consumer | — | 3 | 3 | — | 8 | 8 | ||||||||||||||||||
— | 2,583 | 2,583 | — | 2,213 | 2,213 | |||||||||||||||||||
COMMERCIAL BUSINESS LOANS | ||||||||||||||||||||||||
C&I | 292 | 3,049 | 3,341 | — | 2,683 | 2,683 | ||||||||||||||||||
Total | $ | 1,737 | $ | 10,369 | $ | 12,106 | $ | 1,357 | $ | 9,595 | $ | 10,952 |
The Company had one TDR loanrecognized interest income on accruala cash basis for nonaccrual loans of $111,000 and included in impaired loans at both September 30, 2017 and December 31, 2016, with a balance of $56,000 and $57,000, respectively, which was a one-to-four-family loan. The Company had no commitments to lend additional funds on this TDR loan at September 30, 2017.
For$62,000 during the three and nine months ended September 30, 2017 March 31, 2024 and 2016, there were no TDR2023, respectively.
The following table presents the amortized cost basis of collateral dependent loans that were modified inby class of loans as of the previous 12 months that subsequently defaulted in the reporting period.dates indicated:
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
Commercial | Residential | Other | Commercial | Residential | Other | |||||||||||||||||||||||||||
REAL ESTATE LOANS | Real Estate | Real Estate | Non-Real Estate | Total | Real Estate | Real Estate | Non-Real Estate | Total | ||||||||||||||||||||||||
CRE | $ | 1,102 | $ | — | $ | — | $ | 1,102 | $ | 1,088 | $ | — | $ | — | $ | 1,088 | ||||||||||||||||
Construction and development | 4,737 | — | — | 4,737 | 4,699 | — | 4,699 | |||||||||||||||||||||||||
Home equity | — | 170 | — | 170 | — | 173 | — | 173 | ||||||||||||||||||||||||
One-to-four-family | — | 173 | — | 173 | — | 96 | — | 96 | ||||||||||||||||||||||||
5,839 | 343 | — | 6,182 | 5,787 | 269 | — | 6,056 | |||||||||||||||||||||||||
CONSUMER LOANS | ||||||||||||||||||||||||||||||||
Indirect home improvement | — | — | 2,195 | 2,195 | — | — | 1,863 | 1,863 | ||||||||||||||||||||||||
Marine | — | — | 385 | 385 | — | — | 342 | 342 | ||||||||||||||||||||||||
— | — | 2,580 | 2,580 | — | — | 2,205 | 2,205 | |||||||||||||||||||||||||
COMMERCIAL BUSINESS LOANS | ||||||||||||||||||||||||||||||||
C&I | — | — | 3,341 | 3,341 | — | — | 2,683 | 2,683 | ||||||||||||||||||||||||
Total | $ | 5,839 | $ | 343 | $ | 5,921 | $ | 12,103 | $ | 5,787 | $ | 269 | $ | 4,888 | $ | 10,944 |
NOTE5 - – MORTGAGE SERVICING RIGHTS
Loans serviced for others are not included on the Consolidated Balance Sheets. The unpaid principal balancesbalance of permanent loans serviced for others were $662.0 millionwas $1.56 billion and $977.1 million$2.83 billion at September 30, 2017March 31, 2024 and December 31, 2016, respectively, and are carried at the lower of cost or market.2023, respectively.
During the quarter ended June 30, 2017, the Company sold a portion of its mortgage servicing rights (“MSR”) with a book value of $4.8 million, generating an associated gain of $958,000. During the third quarter of 2017, a $38,000 adjustment was made to mortgage servicing rights resulting in a revised gain of $996,000 due to better than expected prepayments.
25
The following tables summarize servicing rightstable summarizes MSRs activity and the respective book value at or for the three and nine months ended September 30, 2017 and 2016:dates indicated:
|
|
|
|
|
|
|
|
| At or For the Three Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Beginning balance |
| $ | 4,899 |
| $ | 6,751 |
Additions |
|
| 1,326 |
|
| 1,095 |
Servicing rights amortized |
|
| (414) |
|
| (408) |
Recovery on servicing rights |
|
| — |
|
| 216 |
Ending balance |
| $ | 5,811 |
| $ | 7,654 |
At or For the Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Beginning balance, at the lower of cost or fair value | $ | 17,176 | $ | 18,017 | ||||
Additions | 576 | 405 | ||||||
Sales | (7,953 | ) | — | |||||
MSRs amortized | (697 | ) | (821 | ) | ||||
Impairment of MSRs | (93 | ) | (2 | ) | ||||
Ending balance, at the lower of cost or fair value | $ | 9,009 | $ | 17,599 |
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
Beginning balance |
| $ | 8,459 |
| $ | 5,811 |
Additions |
|
| 3,569 |
|
| 2,927 |
Sales |
|
| (4,751) |
|
| — |
Servicing rights amortized |
|
| (1,465) |
|
| (1,086) |
(Impairment) recovery on servicing rights |
|
| (1) |
|
| 2 |
Ending balance |
| $ | 5,811 |
| $ | 7,654 |
The fair market value of the permanent servicing rights’MSRs’ assets was $7.3$20.3 million and $11.7$38.2 million at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. Fair value adjustments to servicing rightsMSRs are mainly due to market basedmarket-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the servicingMSRs portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of servicing rights.MSRs.
The following provides valuation assumptions used in determining the fair value of MSRMSRs at the dates indicated:
|
|
|
|
|
|
|
| At September 30, |
| ||
|
| 2017 |
| 2016 |
|
Key assumptions: |
|
|
|
|
|
Weighted average discount rate |
| 9.5 | % | 9.5 | % |
Conditional prepayment rate (“CPR”) |
| 11.3 | % | 16.4 | % |
Weighted average life in years |
| 6.8 |
| 5.2 |
|
26
At March 31, | At December 31, | |||||||
Key assumptions: | 2024 | 2023 | ||||||
Weighted average discount rate | 9.9 | % | 9.4 | % | ||||
Conditional prepayment rate (“CPR”) | 8.9 | % | 7.2 | % | ||||
Weighted average life in years | 7.9 | 8.4 |
Key economic assumptions and the sensitivity of the current fair value for single family MSR to immediate adverse changesMSRs are presented in those assumptions at September 30, 2017 and December 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Aggregate portfolio principal balance |
|
|
|
| $ | 658,599 |
| $ | 973,139 |
|
Weighted average rate of note |
|
|
|
|
| 4.0 | % |
| 3.9 | % |
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017 |
| Base |
| 0.5%Adverse Rate Change |
| 1.0%Adverse Rate Change |
| |||
Conditional prepayment rate |
|
| 11.3 | % |
| 18.2 | % |
| 25.4 | % |
Fair value MSR |
| $ | 7,283 |
| $ | 5,764 |
| $ | 4,682 |
|
Percentage of MSR |
|
| 1.1 | % |
| 0.9 | % |
| 0.7 | % |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
| 9.5 | % |
| 10.0 | % |
| 10.5 | % |
Fair value MSR |
| $ | 7,283 |
| $ | 7,139 |
| $ | 7,000 |
|
Percentage of MSR |
|
| 1.1 | % |
| 1.1 | % |
| 1.1 | % |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 |
| Base |
| 0.5%Adverse Rate Change |
| 1.0%Adverse Rate Change |
| |||
Conditional prepayment rate |
|
| 8.8 | % |
| 12.8 | % |
| 20.2 | % |
Fair value MSR |
| $ | 11,735 |
| $ | 9,991 |
| $ | 7,808 |
|
Percentage of MSR |
|
| 1.2 | % |
| 1.0 | % |
| 0.8 | % |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
| 9.5 | % |
| 10.0 | % |
| 10.5 | % |
Fair value MSR |
| $ | 11,735 |
| $ | 11,480 |
| $ | 11,235 |
|
Percentage of MSR |
|
| 1.2 | % |
| 1.2 | % |
| 1.2 | % |
The abovethe table showsbelow. Also presented is the sensitivity to market rate changes for the par rate coupon for a conventional one-to-four-family FNMA/FHLMC/GNMA/one-to-four-family FNMA, FHLMC, GNMA, or FHLB serviced home loan. The above table below references a 50 basis point and 100 basis point decrease in note rates.adverse rate change and the impact on prepayment speeds and discount rates at the dates indicated:
March 31, 2024 | December 31, 2023 | |||||||
Aggregate portfolio principal balance | $ | 1,562,287 | $ | 2,832,016 | ||||
Weighted average rate of loans in MSRs portfolio | 4.0 | % | 3.6 | % |
At March 31, 2024 | Base | 0.5% Adverse Rate Change | 1.0% Adverse Rate Change | |||||||||
Conditional prepayment rate | 8.9 | % | 10.4 | % | 12.6 | % | ||||||
Fair value MSRs | $ | 20,315 | $ | 19,706 | $ | 18,953 | ||||||
Percentage of MSRs | 1.3 | % | 1.3 | % | 1.2 | % | ||||||
Discount rate | 9.9 | % | 10.4 | % | 10.9 | % | ||||||
Fair value MSRs | $ | 20,315 | $ | 19,877 | $ | 19,456 | ||||||
Percentage of MSRs | 1.3 | % | 1.3 | % | 1.2 | % |
At December 31, 2023 | Base | 0.5% Adverse Rate Change | 1.0% Adverse Rate Change | |||||||||
Conditional prepayment rate | 7.2 | % | 8.0 | % | 9.3 | % | ||||||
Fair value MSRs | $ | 38,163 | $ | 37,268 | $ | 35,819 | ||||||
Percentage of MSRs | 1.3 | % | 1.3 | % | 1.3 | % | ||||||
Discount rate | 9.4 | % | 9.9 | % | 10.4 | % | ||||||
Fair value MSRs | $ | 38,163 | $ | 37,301 | $ | 36,476 | ||||||
Percentage of MSRs | 1.3 | % | 1.3 | % | 1.3 | % |
These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of MSRMSRs which is highlyextremely sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on MSRthe fair value.value of MSRs. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of the MSRMSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to refinance;refinance, however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of MSRthe fair value of MSRs is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.
The Company recorded $430,000$1.4 million and $534,000$1.8 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of mortgage and commercial loans for the three months ended September 30, 2017 March 31, 2024 and 2016, respectively, and $1.8 million and $1.4 million for the nine months ended September 30, 2017 and 2016,2023, respectively. The income, net of amortization of MSRs, is reported in noninterest income“Service charges and fee income” on the Consolidated Statements of Income.
NOTE6 - – DERIVATIVES
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain borrowings, brokered deposits, investment securities, forward sales contracts, and commitments to extend credit associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.
Mortgage Banking Derivatives Not Designated as Hedges
The Company regularly enters into commitments to originate and sell loans held for sale. The Company has established a hedging strategyexposure to protect itself againstmovements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one-to four-family loans that are intended to be sold and for closed one-to-four-family mortgage loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of losschanging interest rates associated with interest rate movements onthese mortgage loan commitments. The Company enterscommitments by entering into forward sales contracts to sell one-to-four-family mortgage loans or into contracts to sell forward To-Be-Announced (“TBA”) mortgage-backed securities. These commitments and contracts are considered derivatives but have not been designated as hedging instruments for reporting purposes under U.S. GAAP. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes
27
in the fair value of the derivatives reported in noninterest income.income or noninterest expense. The CompanyBank recognizes all derivative instruments as either other assets“Other assets” or other liabilities“Other liabilities” on the Consolidated Balance Sheets and measures those instruments at fair value.
Customer Swaps Not Designated as Hedges
The Company also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of clients desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. To economically hedge the interest rate risk associated with offering this product, the Company simultaneously enters into derivative contracts with third parties to offset the customer contracts such that the Company minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts reduce over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to clients.
Cash Flow Hedges
The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted Secured Overnight Financing Rate (“SOFR”) based brokered deposits. These derivative instruments are designated as cash flow hedges. The hedged item is the SOFR portion of the series of future adjustable-rate borrowings and deposits over the term of the interest rate swap. Accordingly, changes to the amount of interest payment cash flows for the hedged transactions attributable to a change in credit risk are excluded from management’s assessment of hedge effectiveness. The Company tests for hedging effectiveness on a quarterly basis. The accumulated other comprehensive income is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company has not recorded any hedge ineffectiveness since inception.
The Company expects that approximately $3.7 million will be reclassified from accumulated other comprehensive loss as a decrease to interest expense over the next 12 months related to these cash flow hedges.
Fair Value Hedges
The Company is exposed to changes in the fair value of certain of its pools of prepayable fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, the SOFR. Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
The following amounts were recorded on the balance sheet related to cumulative-basis adjustment for fair value hedges for the dates indicated:
Cumulative Amount of Fair Value | ||||||||
Line item in the statement of financial | Hedging Adjustment Included in | |||||||
position in which the hedged Item is | Carrying Amount of the | the Carrying Amount of the | ||||||
included | Hedged Assets | Hedged Assets | ||||||
March 31, 2024 | ||||||||
Investment securities (1) | $ | 55,560 | $ | 4,440 | ||||
Total | $ | 55,560 | $ | 4,440 | ||||
December 31, 2023 | ||||||||
Investment securities (1) | $ | 56,785 | $ | 3,215 | ||||
Total | $ | 56,785 | $ | 3,215 |
(1) | These amounts include the amortized cost basis of closed portfolios used in designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $184.9 million; the cumulative basis adjustments associated with these hedging relationships was $4.4 million; and the amounts of the designated hedged items was $60.0 million. |
The following tables summarize the Company’s derivative instruments at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | |||||||
|
|
|
|
| Fair Value | ||||
|
| Notional |
| Asset |
| Liability | |||
Fallout adjusted interest rate lock commitments with customers |
| $ | 59,741 |
| $ | 1,131 |
| $ | — |
Mandatory and best effort forward commitments with investors |
|
| 33,491 |
|
| 4 |
|
| — |
Forward TBA mortgage-backed securities |
|
| 77,000 |
|
| 104 |
|
| — |
TBA mortgage-backed securities forward sales paired off with investors |
|
| 32,500 |
|
| — |
|
| 140 |
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||
|
|
|
|
| Fair Value | ||||
|
| Notional |
| Asset |
| Liability | |||
Fallout adjusted interest rate lock commitments with customers |
| $ | 33,289 |
| $ | 818 |
| $ | — |
Mandatory and best effort forward commitments with investors |
|
| 23,536 |
|
| 177 |
|
| — |
Forward TBA mortgage-backed securities |
|
| 53,000 |
|
| 495 |
|
| — |
TBA mortgage-backed securities forward sales paired off with investors |
|
| 44,000 |
|
| 747 |
|
| — |
indicated. The fair value of derivatives was impacted during the third quarter of 2017 by an increaseCompany recognizes derivative assets and liabilities in notional asset value partially offset by a decrease in the fair value on the derivative asset, specifically loan locks“Other assets” and loan commitments.
At September 30, 2017 and 2016, the Company had $77.0 million and $99.5 million of TBA trades with counterparties that required margin collateral of $485,000 and $872,000, respectively. This collateral is included in interest-bearing deposits at other financial institutions“Other liabilities,” respectively, on the Consolidated Balance Sheets.Sheets, as follows:
March 31, 2024 | ||||||||||||
Fair Value | ||||||||||||
Cash flow hedges: | Notional | Asset | Liability | |||||||||
Interest rate swaps - brokered deposits | $ | 190,000 | $ | 4,960 | $ | — | ||||||
Fair value hedges: | ||||||||||||
Interest rate swaps - securities | 60,000 | 4,420 | — | |||||||||
Non-hedging derivatives: | ||||||||||||
Fallout adjusted interest rate lock commitments with customers | 29,238 | 251 | — | |||||||||
Mandatory and best effort forward commitments with investors | 36,310 | — | 73 | |||||||||
Forward TBA mortgage-backed securities | 38,000 | — | 78 | |||||||||
Interest rate swaps - customer swap positions | 801 | — | 73 | |||||||||
Interest rate swaps - dealer offsets to customer swap positions | 801 | 73 | — |
December 31, 2023 | ||||||||||||
Fair Value | ||||||||||||
Cash flow hedges: | Notional | Asset | Liability | |||||||||
Interest rate swaps - brokered deposits | $ | 250,000 | $ | 3,233 | $ | 375 | ||||||
Fair value hedges: | ||||||||||||
Interest rate swaps - securities | 60,000 | 3,198 | — | |||||||||
Non-hedging derivatives: | ||||||||||||
Fallout adjusted interest rate lock commitments with customers | 22,334 | 329 | — | |||||||||
Mandatory and best effort forward commitments with investors | 10,070 | — | 188 | |||||||||
Forward TBA mortgage-backed securities | 33,000 | — | 284 | |||||||||
Interest rate swaps - customer swap positions | 801 | — | 63 | |||||||||
Interest rate swaps - dealer offsets to customer swap positions | 801 | 64 | — |
The following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31, | ||||||||||||||||
2024 | 2023 | |||||||||||||||
Interest | Interest | Interest | Interest | |||||||||||||
Expense | Income | Expense | Income | |||||||||||||
Deposits | Securities | Deposits | Securities | |||||||||||||
Total amounts presented on the Consolidated Statements of Income | $ | 12,882 | $ | 3,883 | $ | 6,624 | $ | 2,620 | ||||||||
Net gains (losses) on fair value hedging relationships: | ||||||||||||||||
Interest rate swaps - securities | ||||||||||||||||
Recognized on hedged items | $ | — | $ | (1,225 | ) | $ | — | $ | 1,495 | |||||||
Recognized on derivatives designated as hedging instruments | — | 1,225 | — | (1,495 | ) | |||||||||||
Net interest income recognized on cash flows of derivatives designated as hedging instruments | — | 418 | — | 293 | ||||||||||||
Net income recognized on fair value hedges | $ | — | $ | 418 | $ | — | $ | 293 | ||||||||
Net gain on cash flow hedging relationships: | ||||||||||||||||
Interest rate swaps - brokered deposits and borrowings | ||||||||||||||||
Realized gains (pre-tax) reclassified from AOCI into net income | $ | 1,722 | $ | — | $ | 907 | $ | — | ||||||||
Net income recognized on cash flow hedges | $ | 1,722 | $ | — | $ | 907 | $ | — |
Changes in the fair value of the non-hedging derivatives recognized in other noninterest income“Noninterest income” on the Consolidated Statements of Income and included in gain on sale of loans resulted in net gains of $374,000$201,000 and $697,000$424,000 for the three months ended September 30, 2017 March 31, 2024 and 2016, respectively,2023, respectively.
The following tables present a summary of amounts outstanding in derivative financial instruments, including those entered into in connection with the same counter-party under master netting agreements at the dates indicated. While these agreements are typically over-collateralized, GAAP requires disclosures in this table to limit the amount of such collateral to the amount of the related asset or liability for each counter-party.
Gross Amounts | Net Amounts of Assets | Gross Amounts Not Offset | ||||||||||||||||||||||
Gross Amounts | Offset in the | Presented in the | in the Statement of Financial Position | |||||||||||||||||||||
of Recognized | Statement of | Statement of | Financial | Cash Collateral | ||||||||||||||||||||
Offsetting of derivative assets | Assets | Financial Position | Financial Position | Instruments | Received | Net Amount | ||||||||||||||||||
At March 31, 2024 | ||||||||||||||||||||||||
Interest rate swaps | $ | 9,628 | $ | 175 | $ | 9,453 | $ | — | $ | (1,070 | ) | $ | 8,383 | |||||||||||
At December 31, 2023 | ||||||||||||||||||||||||
Interest rate swaps | $ | 6,648 | $ | 153 | $ | 6,495 | $ | — | $ | — | $ | 6,495 |
Gross Amounts | Net Amounts of | Gross Amounts Not Offset | |||||||||||||||||
Gross Amounts | Offset in the | Liabilities | in the Statement of Financial Position | ||||||||||||||||
of Recognized | Statement of | Presented in the Statement | Financial | Cash Collateral | |||||||||||||||
Offsetting of derivative liabilities | Liabilities | Financial Position | of Financial Position | Instruments | Posted | Net Amount | |||||||||||||
At March 31, 2024 | |||||||||||||||||||
Interest rate swaps | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
At December 31, 2023 | |||||||||||||||||||
Interest rate swaps | $ | (722 | ) | $ | (347 | ) | $ | (375 | ) | $ | — | $ | 270 | $ | (105 | ) |
CreditRisk–Related Contingent Features
The Company has derivative contracts with its derivative counterparties that contain a provision to post collateral to the counterparties when these contracts are in a net liability position. At March 31, 2024, the Company had no collateral posted due to this provision. Receivables related to cash collateral that has been paid to counterparties is included in “Cash and net (loss) gaincash equivalents” on the Consolidated Balance Sheets. In certain cases, the Company will have posted excess collateral, compared to total exposure due to initial margin requirements or day-to-day rate volatility.
NOTE 7– LEASES
The Company has operating leases for retail bank and home lending branches, loan production offices, and certain equipment. The Company’s leases have remaining lease terms of ($7,000)six months to six years and $1.7 millionnine months, some of which include options to extend the leases for up to five years.
The components of lease cost (included in occupancy expense on the Consolidated Statements of Income) for the ninethree months ended September 30, 2017 March 31, 2024 and 2016, respectively.2023 are as follows:
Three Months Ended | Three Months Ended | |||||||
Lease cost: | March 31, 2024 | March 31, 2023 | ||||||
Operating lease cost | $ | 474 | $ | 409 | ||||
Short-term lease cost | 3 | 4 | ||||||
Total lease cost | $ | 477 | $ | 413 |
The following tables provide supplemental information related to operating leases at or for the three months ended March 31, 2024 and 2023:
At or For the | At or For the | |||||||
Three Months Ended | Three Months Ended | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | March 31, 2024 | March 31, 2023 | ||||||
Operating cash flows from operating leases | $ | 490 | $ | 424 | ||||
Weighted average remaining lease term- operating leases (in years) | 3.8 | 4.6 | ||||||
Weighted average discount rate- operating leases | 2.97 | % | 2.83 | % |
The Company’s leases typically do not contain a discount rate implicit in the lease contract. As an alternative, the discount rate used in determining the lease liability for each individual lease was the FHLB of Des Moines’ fixed-advance rate.
Maturities of operating lease liabilities at March 31, 2024 for future periods are as follows:
Remainder of 2024 | $ | 1,446 | ||
2025 | 1,628 | |||
2026 | 1,475 | |||
2027 | 1,173 | |||
2028 | 428 | |||
Thereafter | 954 | |||
Total lease payments | 7,104 | |||
Less imputed interest | (694 | ) | ||
Total | $ | 6,410 |
NOTE 7 -8– OTHER REAL ESTATE OWNED (“OREO”)
There was no OREO activity for the three months ended September 30, 2017 and 2016.
The following table presents the activity related to OREO at or for the ninethree months ended September 30, 2017 March 31, 2024 and 2016:2023:
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended | ||||
|
| September 30, | ||||
|
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Beginning balance |
| $ | — |
| $ | — |
Net loans transferred to OREO |
|
| — |
|
| 525 |
Capitalized costs |
|
| — |
|
| 7 |
Gross proceeds from sale of OREO |
|
| — |
|
| (682) |
Gain on sale of OREO |
|
| — |
|
| 150 |
Ending balance |
| $ | — |
| $ | — |
At or For the Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Beginning balance | $ | — | $ | 570 | ||||
Additions | — | — | ||||||
Loans transferred to OREO | — | — | ||||||
Ending balance | $ | — | $ | 570 |
There were no OREO properties at September 30, 2017March 31, 2024 and September 30, 2016. Forone OREO property (a closed branch in Centralia, Washington) at March 31, 2023. There were no OREO holding costs for the three and nine months ended September 30, 2017, March 31, 2024 and for the three months ended September 30, 2016, the Company recorded no net gain or loss on the disposal of OREO. For the nine months ended September 30, 2016, the Company recorded a $150,000 net gain on the2023.
28
disposal of OREO. There were no holding costs associated with OREO for the three and nine months ended September 30, 2017 and 2016.
There were no$80,000 and $96,000 in portfolio mortgage loan propertiesloans collateralized by residential real estate in the process of foreclosureat September 30, 2017. At March 31, 2024 and at December 31, 2016, there was a $43,000 mortgage loan collateralized by residential real estate property in the process of foreclosure.2023, respectively.
NOTE 8 -9 – DEPOSITS
Deposits are summarized as follows at September 30, 2017 and December 31, 2016:the dates indicated:
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017(1) |
| 2016(1) | ||
Noninterest-bearing checking |
| $ | 156,017 |
| $ | 143,236 |
Interest-bearing checking |
|
| 115,775 |
|
| 66,119 |
Savings |
|
| 72,974 |
|
| 54,995 |
Money market(4) |
|
| 236,036 |
|
| 242,849 |
Certificates of deposit less than $100,000(2) |
|
| 143,169 |
|
| 93,791 |
Certificates of deposit of $100,000 through $250,000 |
|
| 73,733 |
|
| 74,832 |
Certificates of deposit of $250,000 and over(3) |
|
| 31,927 |
|
| 27,094 |
Escrow accounts related to mortgages serviced |
|
| 10,947 |
|
| 9,677 |
Total |
| $ | 840,578 |
| $ | 712,593 |
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Noninterest-bearing checking | $ | 618,526 | $ | 654,048 | ||||
Interest-bearing checking (1) | 188,050 | 244,028 | ||||||
Savings | 153,025 | 151,630 | ||||||
Money market (2) | 364,944 | 359,063 | ||||||
Certificates of deposit less than $100,000 (3) | 579,153 | 587,858 | ||||||
Certificates of deposit of $100,000 through $250,000 | 424,463 | 429,373 | ||||||
Certificates of deposit greater than $250,000 | 108,763 | 79,540 | ||||||
Escrow accounts related to mortgages serviced (4) | 28,373 | 16,783 | ||||||
Total | $ | 2,465,297 | $ | 2,522,323 |
| (1) | Includes |
|
|
|
|
| (2) | Includes |
(3) | Includes $331.3 million and $361.3 million of brokered deposits at |
(4) | Noninterest-bearing accounts. |
Federal Reserve regulations require that the Bank maintain reserves in the form of cash on hand and deposit balances with the Federal Reserve Bank, based on a percentage of deposits. The amounts of such balances at September 30, 2017 and December 31, 2016 were $19.3 million and $10.7 million, respectively.
Scheduled maturities of timecertificates of deposits at September 30, 2017March 31, 2024 for future periods ending are as follows:
|
|
|
|
|
| At September 30, 2017 | |
Maturing in 2017 |
| $ | 81,162 |
Maturing in 2018 |
|
| 75,057 |
Maturing in 2019 |
|
| 45,868 |
Maturing in 2020 |
|
| 14,980 |
Maturing in 2021 |
|
| 15,816 |
Thereafter |
|
| 15,946 |
Total |
| $ | 248,829 |
Maturing in 2024 | $ | 776,564 | ||
Maturing in 2025 | 267,538 | |||
Maturing in 2026 | 44,267 | |||
Maturing in 2027 | 21,324 | |||
Maturing in 2028 | 2,258 | |||
Thereafter | 428 | |||
Total | $ | 1,112,379 |
Interest expense by deposit category for the three and nine months ended September 30, 2017 and 2016periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Interest-bearing checking |
| $ | 44 |
| $ | 7 |
| $ | 66 |
| $ | 20 |
Savings and money market |
|
| 356 |
|
| 257 |
|
| 937 |
|
| 757 |
Certificates of deposit |
|
| 645 |
|
| 544 |
|
| 1,790 |
|
| 1,634 |
Total |
| $ | 1,045 |
| $ | 808 |
| $ | 2,793 |
| $ | 2,411 |
29
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Interest-bearing checking | $ | 784 | $ | 98 | ||||
Savings and money market | 1,661 | 1,198 | ||||||
Certificates of deposit | 10,437 | 5,328 | ||||||
Total | $ | 12,882 | $ | 6,624 |
FS BANCORP, INC.NOTE10 – COMMITMENTS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENCIES
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Commitments - – The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The following table provides a summary of the Company’s commitments at September 30, 2017 and December 31, 2016:the dates indicated:
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
COMMITMENTS TO EXTEND CREDIT |
|
|
|
|
|
|
REAL ESTATE LOANS |
|
|
|
|
|
|
Commercial |
| $ | 108 |
| $ | 108 |
Construction and development |
|
| 82,115 |
|
| 57,016 |
One-to-four-family (includes loans held for sale) |
|
| 117,997 |
|
| 79,870 |
Home equity |
|
| 31,258 |
|
| 26,129 |
Multi-family |
|
| 418 |
|
| 426 |
Total real estate loans |
|
| 231,896 |
|
| 163,549 |
CONSUMER LOANS |
|
| 10,025 |
|
| 8,527 |
COMMERCIAL BUSINESS LOANS |
|
|
|
|
|
|
Commercial and industrial |
|
| 46,912 |
|
| 31,775 |
Warehouse lending |
|
| 58,231 |
|
| 51,102 |
Total commercial business loans |
|
| 105,143 |
|
| 82,877 |
Total commitments to extend credit |
| $ | 347,064 |
| $ | 254,953 |
COMMITMENTS TO EXTEND CREDIT | March 31, | December 31, | ||||||
REAL ESTATE LOANS | 2024 | 2023 | ||||||
Commercial | $ | 2,637 | $ | 3,472 | ||||
Construction and development | 168,195 | 154,611 | ||||||
One-to-four-family (includes locks for saleable loans) | 29,238 | 23,751 | ||||||
Home equity | 94,228 | 94,026 | ||||||
Multi-family | 2,881 | 2,945 | ||||||
Total real estate loans | 297,179 | 278,805 | ||||||
CONSUMER LOANS | 29,345 | 29,517 | ||||||
COMMERCIAL BUSINESS LOANS | ||||||||
C&I | 163,801 | 164,873 | ||||||
Warehouse lending | 76,323 | 61,837 | ||||||
Total commercial business loans | 240,124 | 226,710 | ||||||
Total commitments to extend credit | $ | 566,648 | $ | 535,032 |
Commitments to extend credit are agreements to lend to a customer as long asprovided there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the amount of the total commitments do does not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon an extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.
Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Company is committed. The Company’s ACL – unfunded loan commitments at both March 31, 2024 and December 31, 2023 was $1.5 million. The Company has established reserves for estimated lossesrecorded a recovery from the ACL – unfunded loan commitments of $237,000 at September 30, 2017 and $179,000 at December$22,000 for the three months ended March 31, 2016. One-to-four-family commitments included in2024, as compared to a recovery of $249,000 for the table above are accounted for as fair value derivatives and do not carry an associated loss reserve.three months ended March 31, 2023.
The Company also sells one-to-four-familyone-to-four-family loans to the FHLB of Des Moines that require a limited level of recourse if the loans default and exceed a certain loss exposure. Specific to that recourse, the FHLB of Des Moines established a first loss account (“FLA”) related to the loans and required a credit enhancement (“CE”) obligation by the Bank to be utilized after the FLA is used. Based on loans sold through September 30, 2017, theMarch 31, 2024, total loans sold toserviced on behalf of the FHLB of Des Moines were $40.5$8.9 million with the FLA being $433,000totaling $581,000 and the CE obligation at $1.1 million$389,000 or 2.6%4.4% of the loans outstanding. Management has established a holdback of 10% of the outstanding CE, or $110,000,$39,000, which is a part of the off-balance sheet holdback for loans sold.
30
There At both March 31, 2024 and December 31, 2023, there were no outstanding delinquencies on the loans sold toand serviced on behalf of the FHLB of Des Moines at September 30, 2017 and December 31, 2016.that were greater than 90 days past their contractual payment due date.
Contingent liabilities for loans held for sale - – In the ordinary course of business, loans are sold with limited recourse against the Company and may have to subsequently be repurchased due to defects that occurred during the origination of the loan. The defects are categorized as documentation errors, underwriting errors, early payoff, early payment defaults, breach of representation or warranty, servicing errors, and/or fraud. When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred. If a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no such defects, the Company has no commitment to repurchase the loan. The Company has recorded reservesa holdback reserve of $1.0$1.9 million and $955,000$2.1 million to cover loss exposure related to these guarantees for one-to-four-familyone-to-four-family loans sold into the secondary market at September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively, which is included in other liabilities“Other liabilities” on the Consolidated Balance Sheets.
The Company has entered into a severance agreement with its Chief Executive Officer.Officer (“CEO”). The severance agreement, subject to certain requirements, generally includes a lump sum payment to the Chief Executive OfficerCEO equal to 24 months of base compensation in the event his employment is involuntarily terminated, other than for cause or the executive terminates his employment with good reason, as defined in the severance agreement.
The Company has entered into change of control agreements with its Chief Financial Officer, Chief Operating Officer, Chief Lending Officer,executives and two Executive Vice Presidents of Home Lending.select key personnel. The change of control agreements, subject to certain requirements, generally remain in effect until canceled by either party upon at least 24 months prior written notice. Under the change of control agreements, the executive generally will be entitled to a change of control payment from the Company if the executive is involuntarily terminated within six months preceding or 12 months after a change in control (as defined in the change of control agreements). In such an event, the executives would each be entitled to receive a cash payment in an amount equal to 12 months of their then current salary, subject to certain requirements in the change of control agreements.
The Bank received 7,158 shares of Class B common stock in Visa, Inc. as
As a result of the Visa initial public offering (“IPO”) in March 2008. These Class B shares of stock held by the Bank could be converted to Class A shares at a conversion rate of 1.6483 when all litigation pending as of the date of the IPO is concluded. However, at September 30, 2017, the date that litigation will be concluded cannot be determined. Until such time, the stock cannot be redeemed or sold by the Bank; therefore, it is not readily marketable and has a current carrying value of $0. Visa, Inc. Class A stock’s market value at September 30, 2017 and December 31, 2016 was $105.24 per share and $77.73 per share, respectively.
Due to the nature of our activities, the Company is subject to various pending and threatened legal actions, which arise in the ordinary course of business. From time to time, subordination liens may create litigation which requires us to defend our lien rights. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on our financial position. The Company had no material pending legal actions at September 30, 2017.March 31, 2024.
NOTE 10 -11 – FAIR VALUE OF FINANCIAL INSTRUMENTSMEASUREMENTS
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, thedetermines fair value ofbased on the Company’s consolidated financial instruments will change when interest rate levels change and that change may either be favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed interest rate obligations are less likely to prepayrequirements established in a rising interest rate environment and more likely to prepay in a falling interest rate environment. Conversely, depositors who are receiving fixed interest rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors interest rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans and deposits, and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
31
Accounting guidance regarding fair value measurements defines fair value and establishesStandards Codification (“ASC”) Topic 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. GAAP. FairGAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 defines fair value isas the exchangeexit price, or the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. date under current market conditions.
The following definitions describe the levels of inputs that may be used to measure fair value:
Level 1 - – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Determination
The following methods were used to estimate the fair value of certain assets and liabilities on a recurring and nonrecurring basis:
Securities Available-for-Sale - –The fair value of securities available-for-sale are recorded on a recurring basis. The fair value of investments and mortgage-backed securities are provided by a third-partythird-party pricing service. These valuations are based on market data using pricing models that vary by asset class and incorporate available current trade, bid, and other market information, and for structured securities, cash flow, and loan performance data. The pricing processes utilize benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. Option adjusted spread models are also used to assess the impact of changes in interest rates and to develop prepayment scenarios.scenarios (Level 2). Transfers between the fair value hierarchy are determined through the third-partythird-party service provider which, from time to time will transfer between levels based on market conditions per the related security. All models and processes used take into accountconsider market convention (Level 2).convention.
Mortgage and Nonmortgage Loans Held for Sale - –The fair value of loans held for sale reflects the value of commitments with investors and/or the relative price as delivered into a TBA mortgage-backed security (Level 2)2).
Loans Receivable– Certain residential mortgage loans were initially originated for sale and measured at fair value; after origination, the loans were transferred to loans held for investment. As of March 31, 2024 and December 31, 2023, there were $15.0 million and $15.1 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from held for sale, at fair value to loans held for investment. The aggregate unpaid principal balance of these loans was $16.2 million and $16.3 million as of March 31, 2024 and December 31, 2023, respectively. Gains and losses from changes in fair value for these loans are reported in earnings as a component of “Other noninterest income” on the Consolidated Statements of 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. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans (Level 2).
Derivative Instruments - – Fair values for derivative assets and liabilities are measured on a recurring basis. The primary use of derivative instruments is related to the mortgage banking activities of the Company. The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-throughpull-though rate assumptions based on historical information, where appropriate. TBA mortgage-backed securities are fair valued on similar contracts in active markets (Level 2)2), while locks and forwards with customers and investors are fair valued using similar contracts in the market and changes in the market interest rates (Levels (Level 2 and 3)3). Derivative instruments not related to mortgage banking activities include interest rate swap agreements. The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of the market inputs we use are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.
Impaired Loans -
Other Real Estate Owned – Fair value adjustments to impairedOREO are recorded at the lower of carrying amount of the loan or fair value of the collateral less selling costs. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the ACL on loans. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell (Level 3).
Collateral Dependent Loans–Expected credit losses on collateral dependent loans are recorded to reflect partial write-downsmeasured based on the current appraisedfair value of collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral or internally developed models, which contain management’s assumptions. Managementis less than the amortized cost basis of the loan, the Company will utilize discounted cash flow impairment for TDRs whenrecognize an allowance as the change in terms results in a discount to the overall cash flows to be received (Level 3).
The following tables present securities available-for-sale measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:
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|
|
|
|
|
|
|
|
|
|
|
|
|
| Securities Available-for-Sale | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
At September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
| $ | — |
| $ | 6,122 |
| $ | — |
| $ | 6,122 |
Corporate securities |
|
| — |
|
| 7,075 |
|
| — |
|
| 7,075 |
Municipal bonds |
|
| — |
|
| 11,439 |
|
| — |
|
| 11,439 |
Mortgage-backed securities |
|
| — |
|
| 39,474 |
|
| — |
|
| 39,474 |
U.S. Small Business Administration securities |
|
| — |
|
| 13,993 |
|
| — |
|
| 13,993 |
Total |
| $ | — |
| $ | 78,103 |
| $ | — |
| $ | 78,103 |
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Securities Available-for-Sale | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
At December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities |
| $ | — |
| $ | 8,068 |
| $ | — |
| $ | 8,068 |
Corporate securities |
|
| — |
|
| 7,500 |
|
| — |
|
| 7,500 |
Municipal bonds |
|
| — |
|
| 15,264 |
|
| — |
|
| 15,264 |
Mortgage-backed securities |
|
| — |
|
| 45,195 |
|
| — |
|
| 45,195 |
U.S. Small Business Administration securities |
|
| — |
|
| 5,848 |
|
| — |
|
| 5,848 |
Total |
| $ | — |
| $ | 81,875 |
| $ | — |
| $ | 81,875 |
The following table presents mortgage loans held for sale measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:
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|
|
| Mortgage Loans Held for Sale | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
September 30, 2017 |
| $ | — |
| $ | 65,055 |
| $ | — |
| $ | 65,055 |
December 31, 2016 |
| $ | — |
| $ | 52,553 |
| $ | — |
| $ | 52,553 |
The following tables presentdifference between the fair value of interest rate lock commitments with customers, individual forward sale commitments with investors, and paired off commitments with investors measured at their fair value on a recurring basis at September 30, 2017 and December 31, 2016:
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|
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|
|
|
|
|
|
| Interest Rate Lock Commitments with Customers | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
September 30, 2017 |
| $ | — |
| $ | — |
| $ | 1,131 |
| $ | 1,131 |
December 31, 2016 |
| $ | — |
| $ | — |
| $ | 818 |
| $ | 818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Individual Forward Sale Commitments with Investors | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
September 30, 2017 |
| $ | — |
| $ | 104 |
| $ | 4 |
| $ | 108 |
December 31, 2016 |
| $ | — |
| $ | 495 |
| $ | 177 |
| $ | 672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Paired Off Commitments with Investors | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
September 30, 2017 |
| $ | — |
| $ | (140) |
| $ | — |
| $ | (140) |
December 31, 2016 |
| $ | — |
| $ | 747 |
| $ | — |
| $ | 747 |
The following table presents impaired loans measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded at September 30, 2017 and December 31, 2016. The amounts disclosed below represent the fair valuescollateral, less costs to sell (if applicable) at the timereporting date and the nonrecurring fair value measurements were evaluated.
|
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|
|
|
|
|
|
|
|
|
|
|
| Impaired Loans | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
September 30, 2017 |
| $ | — |
| $ | — |
| $ | 761 |
| $ | 761 |
December 31, 2016 |
| $ | — |
| $ | — |
| $ | 194 |
| $ | 194 |
33
Tableamortized cost basis of Contents
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quantitative Information about Level 3 Fair Value Measurements - Shown in the table below isloan. If the fair value of financial instruments measured underthe collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off by the subsequent changes in the expected credit losses on collateral dependent loans. Subsequent adjustments in the expected credit losses for collateral-dependent loans are included within the provision for credit losses in the same way the expected credit loss initially was recognized or as a Level reduction in the provision that would otherwise be reported (Level 3 unobservable input on a recurring and nonrecurring basis at September 30, 2017:).
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An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitments with customers and forward sale commitments with investors will result in positive fair value adjustments (and an increase in the fair value measurement). Conversely, a decrease in the pull-through rate will result in a negative fair value adjustment (and a decrease in the fair value measurement).
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2017 and 2016:
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|
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| Net change in fair | |
|
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|
|
|
|
|
|
|
|
|
| value for gains/ | ||
|
|
|
|
| Purchases |
|
|
|
|
|
|
| (losses) relating to | ||
|
| Beginning |
| and |
| Sales and |
| Ending |
| items held at end of | |||||
Three Months Ended September 30, |
| Balance |
| Issuances |
| Settlements |
| Balance |
| period | |||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments with customers |
| $ | 1,212 |
| $ | 3,891 |
| $ | (3,972) |
| $ | 1,131 |
| $ | (81) |
Individual forward sale commitments with investors |
|
| 83 |
|
| 40 |
|
| (119) |
|
| 4 |
|
| (79) |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments with customers |
| $ | 2,058 |
| $ | 5,763 |
| $ | (5,971) |
| $ | 1,850 |
| $ | (208) |
Individual forward sale commitments with investors |
|
| (3) |
|
| (60) |
|
| 23 |
|
| (40) |
|
| (37) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net change in fair | |
|
|
|
|
|
|
|
|
|
|
|
|
| value for gains/ | ||
|
|
|
| Purchases |
|
|
|
|
| (losses) relating to | |||||
|
| Beginning |
| and |
| Sales and |
| Ending |
| items held at end of | |||||
Nine Months Ended September 30, |
| Balance |
| Issuances |
| Settlements |
| Balance |
| period | |||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments with customers |
| $ | 818 |
| $ | 11,440 |
| $ | (11,127) |
| $ | 1,131 |
| $ | 313 |
Individual forward sale commitments with investors |
|
| 177 |
|
| (49) |
|
| (124) |
|
| 4 |
|
| (173) |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments with customers |
| $ | 698 |
| $ | 14,039 |
| $ | (12,887) |
| $ | 1,850 |
| $ | 1,152 |
Individual forward sale commitments with investors |
|
| 74 |
|
| (267) |
|
| 153 |
|
| (40) |
|
| (114) |
Gains (losses) on interest rate lock commitments carried at fair value are recorded in other noninterest income. Gains (losses) on forward sale commitments with investors carried at fair value are recorded within other noninterest income.
34
Fair Values of Financial Instruments - The following methods and assumptions were used by the Company in estimating the fair values of financial instruments disclosed in these financial statements:
Cash, and Cash Equivalents and Certificates of Deposit at Other Financial Institutions - The carrying amounts of cash and short-term instruments approximate their fair value (Level 1).
Federal Home Loan Bank stock - The par value of FHLB stock approximates its fair value (Level 2).
Bank-owned Life Insurance - The estimated fair value is equal to the cash surrender value of policies, net of surrender charges (Level 1).
Accrued Interest - The carrying amounts of accrued interest approximate its fair value (Level 2).
Loans Receivable, Net - For variable rate loans that re-price frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers or similar credit quality (Level 3).
Mortgage Servicing Rights - –The fair value of mortgage, commercial, and consumer servicing rights areMSRs is estimated using net present value of expected cash flows using a third party-party model that incorporates assumptions used in the industry to value such rights, adjusted for factors such as weighted average prepayments speeds based on historical information where appropriate (Level 3)3).
Deposits -
The following tables present securities available-for-sale, mortgage loans held for sale, loans receivable, at fair value, and derivative assets and liabilities measured at fair value on a recurring basis at the dates indicated:
Financial Assets | At March 31, 2024 | |||||||||||||||
Securities available-for-sale: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. agency securities | $ | — | $ | 17,898 | $ | — | $ | 17,898 | ||||||||
Corporate securities | — | 15,200 | — | 15,200 | ||||||||||||
Municipal bonds | — | 73,553 | — | 73,553 | ||||||||||||
Mortgage-backed securities | — | 119,802 | — | 119,802 | ||||||||||||
U.S. Small Business Administration securities | — | 53,190 | — | 53,190 | ||||||||||||
Mortgage loans held for sale, at fair value | — | 49,957 | — | 49,957 | ||||||||||||
Loans receivable, at fair value | — | 15,003 | — | 15,003 | ||||||||||||
Derivatives: | ||||||||||||||||
Interest rate lock commitments with customers | — | — | 251 | 251 | ||||||||||||
Interest rate swaps - cash flow and fair value hedges | — | 9,380 | — | 9,380 | ||||||||||||
Interest rate swaps - dealer offsets to customer swap positions | — | 73 | — | 73 | ||||||||||||
Total assets measured at fair value | $ | — | $ | 354,056 | $ | 251 | $ | 354,307 | ||||||||
Financial Liabilities | ||||||||||||||||
Derivatives: | ||||||||||||||||
Interest rate swaps - customer swap positions | $ | — | $ | (73 | ) | $ | — | $ | (73 | ) | ||||||
Mandatory and best effort forward commitments with investors | — | — | (73 | ) | (73 | ) | ||||||||||
Forward TBA mortgage-backed securities | — | (78 | ) | — | (78 | ) | ||||||||||
Total liabilities measured at fair value | $ | — | $ | (151 | ) | $ | (73 | ) | $ | (224 | ) |
Financial Assets | At December 31, 2023 | |||||||||||||||
Securities available-for-sale: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. agency securities | $ | — | $ | 18,018 | $ | — | $ | 18,018 | ||||||||
Corporate securities | — | 12,872 | — | 12,872 | ||||||||||||
Municipal bonds | — | 119,447 | — | 119,447 | ||||||||||||
Mortgage-backed securities | — | 101,248 | — | 101,248 | ||||||||||||
U.S. Small Business Administration securities | — | 41,348 | — | 41,348 | ||||||||||||
Mortgage loans held for sale, at fair value | — | 25,668 | — | 25,668 | ||||||||||||
Loans receivable, at fair value | — | 15,088 | — | 15,088 | ||||||||||||
Derivatives: | ||||||||||||||||
Interest rate lock commitments with customers | — | — | 329 | 329 | ||||||||||||
Interest rate swaps- cash flow and fair value hedges | — | 6,431 | — | 6,431 | ||||||||||||
Interest rate swaps - dealer offsets to customer swap positions | — | 64 | — | 64 | ||||||||||||
Total assets measured at fair value | $ | — | $ | 340,184 | $ | 329 | $ | 340,513 | ||||||||
Financial Liabilities | ||||||||||||||||
Derivatives: | ||||||||||||||||
Mandatory and best effort forward commitments with investors | $ | — | $ | — | $ | (188 | ) | $ | (188 | ) | ||||||
Forward TBA mortgage-backed securities | — | (284 | ) | — | (284 | ) | ||||||||||
Interest rate swaps - cash flow and fair value hedges | — | (375 | ) | — | (375 | ) | ||||||||||
Interest rate swaps - customer swap positions | — | (63 | ) | — | (63 | ) | ||||||||||
Total liabilities measured at fair value | $ | — | $ | (722 | ) | $ | (188 | ) | $ | (910 | ) | |||||
The following table presents financial assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy at March 31, 2024 and December 31, 2023.
March 31, 2024 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
MSRs | $ | — | $ | — | $ | 20,315 | $ | 20,315 |
December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
MSRs | $ | — | $ | — | $ | 38,163 | $ | 38,163 |
Quantitative Information about Level 3 Fair Value Measurements – Shown in the table below is the fair value of deposits with no stated maturity date is includedfinancial instruments measured under a Level 3 unobservable input on a recurring and nonrecurring basis at the amount payable on demand. Fair values for fixeddates indicated:
Level 3 | Significant | Weighted Average Rate | ||||||||||||||
Fair Value | Valuation | Unobservable | March 31, | December 31, | ||||||||||||
Instruments | Techniques | Inputs | Range | 2024 | 2023 | |||||||||||
RECURRING | ||||||||||||||||
Interest rate lock commitments with customers | Quoted market prices | Pull-through expectations | 80% - 99% | 89.4 | % | 90.5 | % | |||||||||
Individual forward sale commitments with investors | Quoted market prices | Pull-through expectations | 80% - 99% | 89.4 | % | 90.5 | % | |||||||||
NONRECURRING | ||||||||||||||||
MSR | Industry sources | Pre-payment speeds | 0% - 50% | 8.9 | % | 7.2 | % |
The pull-through rate certificates of deposit are estimated using a discounted cash flow calculation on interest rates currently offered on similar certificates (Level 2).
Borrowings - The carrying amounts of advances maturing within 90 days approximate their fair values. The fair values of long-term advances are estimated using discounted cash flow analysesis based on the Bank’s current incremental borrowinghistorical loan closing rates for similar types of borrowing arrangements (Level 2).
Subordinated Note - The fair value of the Subordinated Note is based upon the average yield of debt issuances for similarly sized issuances (Level 2).
Off-Balance Sheet Instruments - The fair value of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the customers. The majority of the Company’s off-balance sheet instruments consist of non-fee producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value. The fair value of loan lock commitments with customers and investors reflect an estimate of value based upon the interest rate lock date,commitments. An increase or decrease in the expected pull-through percentage for the commitment, and the interest rate at year end (Level 2 and 3).would have a corresponding positive or negative fair value adjustment.
35
The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the dates indicated:
FS BANCORP, INC. AND SUBSIDIARY
Purchases | Net change in | Net change in | ||||||||||||||||||||||
Three Months Ended | Beginning | and | Sales and | Ending | fair value for | fair value for | ||||||||||||||||||
March 31, 2024 | Balance | Issuances | Settlements | Balance | gains/(losses) (1) | gains/(losses) (2) | ||||||||||||||||||
Interest rate lock commitments with customers | $ | 329 | $ | 965 | $ | (1,043 | ) | $ | 251 | $ | (78 | ) | $ | — | ||||||||||
Individual forward sale commitments with investors | (188 | ) | (15 | ) | 130 | (73 | ) | 115 | — | |||||||||||||||
March 31, 2023 | ||||||||||||||||||||||||
Interest rate lock commitments with customers | $ | 107 | $ | 994 | $ | (536 | ) | $ | 565 | $ | 458 | $ | — | |||||||||||
Individual forward sale commitments with investors | (38 | ) | 222 | (197 | ) | (13 | ) | 25 | — |
(1) Relating to items held at end of period included in income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(2) Relating to items held at end of period included in other comprehensive income (loss).
Gains on interest rate lock commitments and on forward sale commitments with investors carried at fair value are recorded in “Gain on sale of loans held for sale” on the Consolidated Statements of Income.
The following table provides estimated fair values of the Company’s financial instruments at September 30, 2017 and December 31, 2016:the dates indicated, whether recognized at fair value or not on the Consolidated Balance Sheets:
March 31, | December 31, | |||||||||||||||
2024 | 2023 | |||||||||||||||
Financial Assets | Carrying | Fair | Carrying | Fair | ||||||||||||
Level 1 inputs: | Amount | Value | Amount | Value | ||||||||||||
Cash and cash equivalents | $ | 45,406 | $ | 45,406 | $ | 65,691 | $ | 65,691 | ||||||||
Certificates of deposit at other financial institutions | 23,222 | 23,222 | 24,167 | 24,167 | ||||||||||||
Level 2 inputs: | ||||||||||||||||
Securities available-for-sale, at fair value | 279,643 | 279,643 | 292,933 | 292,933 | ||||||||||||
Securities held-to-maturity, gross | 8,500 | 7,785 | 8,500 | 7,666 | ||||||||||||
Loans held for sale, at fair value | 49,957 | 49,957 | 25,668 | 25,668 | ||||||||||||
FHLB stock, at cost | 2,909 | 2,909 | 2,114 | 2,114 | ||||||||||||
Loans receivable, at fair value | 15,003 | 15,003 | 15,088 | 15,088 | ||||||||||||
Interest rate swaps - cash flow and fair value hedges | 9,380 | 9,380 | 6,431 | 6,431 | ||||||||||||
Accrued interest receivable | 14,455 | 14,455 | 14,005 | 14,005 | ||||||||||||
Interest rate swaps - dealer offsets to customer swap positions | 73 | 73 | 64 | 64 | ||||||||||||
Level 3 inputs: | ||||||||||||||||
Loans receivable, net | 2,400,376 | 2,284,273 | 2,417,927 | 2,276,397 | ||||||||||||
MSRs, held at lower of cost or fair value | 9,009 | 20,315 | 9,090 | 20,552 | ||||||||||||
MSRs held for sale, held at lower of cost or fair value | — | — | 8,086 | 17,611 | ||||||||||||
Fair value interest rate locks with customers | 251 | 251 | — | — | ||||||||||||
Financial Liabilities | ||||||||||||||||
Level 2 inputs: | ||||||||||||||||
Deposits | 2,465,297 | 2,453,676 | 2,522,323 | 2,515,026 | ||||||||||||
Borrowings | 129,940 | 129,474 | 93,746 | 93,416 | ||||||||||||
Subordinated notes, excluding unamortized debt issuance costs | 50,000 | 43,812 | 50,000 | 43,480 | ||||||||||||
Accrued interest payable | 6,966 | 6,966 | 5,473 | 5,473 | ||||||||||||
Interest rate swaps - cash flow and fair value hedges | — | — | 375 | 375 | ||||||||||||
Forward TBA mortgage-backed securities | 78 | 78 | 284 | 284 | ||||||||||||
Interest rate swaps - customer swap positions | 73 | 73 | 63 | 63 | ||||||||||||
Level 3 inputs: | ||||||||||||||||
Mandatory and best effort forward commitments with investors | 73 | 73 | 188 | 188 |
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| September 30, |
| December 31, | ||||||||
|
| 2017 |
| 2016 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Amount |
| Value |
| Amount |
| Value | ||||
Financial Assets |
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Level 1 inputs: |
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|
|
|
|
Cash and cash equivalents |
| $ | 31,295 |
| $ | 31,295 |
| $ | 36,456 |
| $ | 36,456 |
Certificates of deposit at other financial institutions |
|
| 18,108 |
|
| 18,108 |
|
| 15,248 |
|
| 15,248 |
Level 2 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale, at fair value |
|
| 78,103 |
|
| 78,103 |
|
| 81,875 |
|
| 81,875 |
Loans held for sale, at fair value |
|
| 65,055 |
|
| 65,055 |
|
| 52,553 |
|
| 52,553 |
FHLB stock, at cost |
|
| 3,047 |
|
| 3,047 |
|
| 2,719 |
|
| 2,719 |
Accrued interest receivable |
|
| 3,217 |
|
| 3,217 |
|
| 2,524 |
|
| 2,524 |
Individual forward sale commitments with investors |
|
| 104 |
|
| 104 |
|
| 495 |
|
| 495 |
Paired off commitments with investors |
|
| — |
|
| — |
|
| 747 |
|
| 747 |
Level 3 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, gross |
|
| 765,571 |
|
| 779,284 |
|
| 605,415 |
|
| 670,183 |
Servicing rights, held at lower of cost or fair value |
|
| 5,811 |
|
| 7,289 |
|
| 8,459 |
|
| 11,741 |
Fair value interest rate locks with customers |
|
| 1,131 |
|
| 1,131 |
|
| 818 |
|
| 818 |
Individual forward sale commitments with investors |
|
| 4 |
|
| 4 |
|
| 177 |
|
| 177 |
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 inputs: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 840,578 |
|
| 844,288 |
|
| 712,593 |
|
| 718,970 |
Borrowings |
|
| 10,270 |
|
| 9,049 |
|
| 12,670 |
|
| 12,660 |
Subordinated note |
|
| 9,840 |
|
| 9,805 |
|
| 9,825 |
|
| 9,805 |
Accrued interest payable |
|
| 217 |
|
| 217 |
|
| 192 |
|
| 192 |
Paired off commitments with investors |
|
| 140 |
|
| 140 |
|
| — |
|
| — |
NOTE12 – EARNINGS PER SHARE
NOTE 11 - EMPLOYEE BENEFITS
Employee Stock Ownership Plan
On January 1, 2012, theThe Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank are eligible to participate in the ESOP if they have been credited with at least 1,000 hours of service during the employees’ first 12‑month period and based on anniversary date will be vested into the ESOP. After two years of working at least 1,000 hours in each of those two years, the employee will be 100% vested in the ESOP.
The ESOP borrowed $2.6 million from FS Bancorp, Inc. and used those funds to acquire 259,210 shares of FS Bancorp, Inc. common stock in the open market at an average price of $10.17 per share during the second half of 2012. It is anticipated that the Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to FS Bancorp, Inc. over a period of 10 years, bearing interest at 2.30%. Intercompany expenses associated with the ESOP are eliminated in consolidation. Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to FS Bancorp, Inc. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank’s discretionary contributions to the ESOP and earnings on the ESOP assets. Payments of principal and interest are due annually on December 31, the Company’s fiscal year end. On December 31, 2016, the ESOP paid the fifth annual installment of principal in the amount of $257,000, plus accrued interest of $38,000 pursuant to the ESOP loan agreement.
36
As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares at September 30, 2017 for the prior 90 days. These shares become outstanding forcomputes earnings per share computations. The compensation expenseusing the two-class method, which is accrued monthly throughout the year. Dividends on allocated ESOP shares are recordedan earnings allocation method for computing earnings per share that treats a participating security as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.
Compensation expense relatedhaving rights to the ESOP for the three months ended September 30, 2017 and 2016 was $360,000 and $204,000, respectively, and $914,000 and $529,000 for the nine months ended September 30, 2017 and 2016, respectively.
Shares held by the ESOP at September 30, 2017 and 2016 were as follows (shown as actual):
|
|
|
|
|
|
|
|
| Balances |
| Balances | ||
|
| at September 30, 2017 |
| at September 30, 2016 | ||
Allocated shares |
|
| 126,589 |
|
| 102,359 |
Committed to be released shares |
|
| 19,441 |
|
| 19,441 |
Unallocated shares |
|
| 110,164 |
|
| 136,085 |
Total ESOP shares |
|
| 256,194 |
|
| 257,885 |
|
|
|
|
|
|
|
Fair value of unallocated shares (in thousands) |
| $ | 5,180 |
| $ | 3,703 |
NOTE 12 - EARNINGS PER SHARE
earnings that would otherwise have been available to common shareholders. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Unvested share-based awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For earnings per share calculations, the ESOP shares committed to be released are included as outstanding shares for both basic and diluted earnings per share.Company.
The following table presents a reconciliation of the components used to compute basic and diluted earnings per share at or for the three end nine months ended September 30, 2017 and 2016:dates indicated:
At or For the Three Months Ended March 31, | ||||||||
Numerator | 2024 | 2023 | ||||||
Net income | $ | 8,397 | $ | 8,212 | ||||
Dividends and undistributed earnings allocated to participating securities | (131 | ) | (147 | ) | ||||
Net income available to common shareholders | $ | 8,266 | $ | 8,065 | ||||
Denominator (shown as actual): | ||||||||
Basic weighted average common shares outstanding | 7,703,789 | 7,623,580 | ||||||
Dilutive shares | 120,671 | 154,838 | ||||||
Diluted weighted average common shares outstanding | 7,824,460 | 7,778,418 | ||||||
Basic earnings per share | $ | 1.07 | $ | 1.06 | ||||
Diluted earnings per share | $ | 1.06 | $ | 1.04 | ||||
Potentially dilutive weighted average share options that were not included in the computation of diluted earnings per share because to do so would be anti-dilutive. | 28,102 | 37,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At or For the Three Months Ended September 30, |
| At or For the Nine Months Ended September 30, | ||||||||
Numerator: |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net income (in thousands) |
| $ | 3,454 |
| $ | 3,457 |
| $ | 10,406 |
| $ | 7,953 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 3,051,744 |
|
| 2,851,147 |
|
| 2,949,092 |
|
| 2,901,572 |
Dilutive shares |
|
| 187,584 |
|
| 87,292 |
|
| 192,685 |
|
| 84,102 |
Diluted weighted average common shares outstanding |
|
| 3,239,328 |
|
| 2,938,439 |
|
| 3,141,777 |
|
| 2,985,674 |
Basic earnings per share |
| $ | 1.13 |
| $ | 1.21 |
| $ | 3.53 |
| $ | 2.74 |
Diluted earnings per share |
| $ | 1.07 |
| $ | 1.18 |
| $ | 3.31 |
| $ | 2.66 |
NOTE13 – STOCK-BASED COMPENSATION
NOTE 13 - STOCK-BASED COMPENSATION
Stock Options and Restricted Stock
In September 2013,
On May 17, 2018, the shareholders of FS Bancorp Inc. approved the FS Bancorp, Inc. 20132018 Equity Incentive Plan (“(the “2018Plan”). that authorized 1.3 million shares of the Company’s common stock to be awarded. The2018 Plan provides for the grant of incentive stock options, nonqualified stock options, and up to 326,000 shares as restricted stock awards.awards (“RSAs”) to directors, emeritus directors, officers, employees or advisory directors of the Company. At March 31, 2024, there were 265,532 stock option awards and 80,622 RSAs available for future grants under the 2018 Plan.
Total share-based compensation expense was $395,000 and $654,000 for the Plan was $138,000 and $496,000 for the three and nine months ended September 30, 2017, respectively, March 31, 2024 and $195,000 and $588,000 for the three and nine months ended September 30, 2016,2023, respectively.
37
Stock Options
The 2018Plan authorizes the grantconsists of stock options totaling 324,013 shares to Company directors and employees in which 322,000 option share awards under the Plan were granted with an exercise price equal to the market price of FS Bancorp’s common stock at the grant date of May 8, 2014, of $16.89 per share. These option share awards werethat may be granted as non-qualifiedincentive stock options havingor nonqualified stock options. Stock option awards generally vest over a vestingone-year period of for independent directors or over a five years,-year period for employees and officers with 20% vesting on the anniversary date of each grant date and a contractual lifeas long as the award recipient remains in service to the Company. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years. Any unexercised stock options will expire 10 years after the grant date or sooner in the event of the award recipient’s termination of service with the Company or the Bank. At September 30, 2017, 2,013 option share awards are available to be granted.
The fair value of each stock option award is estimated on the grant date using a Black-Scholes Option pricing model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The Company became a publicly held company in July 2012, therefore historical data was not available to calculate the volatility for FS Bancorp stock. Management utilized a proxy to determine the expected volatility of FS Bancorp’s stock at grant date for the majority of stock options granted in 2014. The proxy chosen was the NASDAQ Bank Index, or NASDAQ Bank (NASDAQ symbol: BANK). This index provides the volatility of the banking sectorCompany's stock price over a specified period of time is used for NASDAQ traded banks.the expected volatility. The majority of smaller banks are tradedCompany bases the risk-free interest rate on the NASDAQ given the costs and daily interaction required with trading on the New York Stock Exchange. The Company utilized the comparable U.S. Treasury rate for the discount rate associated with the stock options granted.in effect on the date of the grant. The Company elected to use Staff Accounting Bulletin 107, simplified expected term calculation for the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at 5.5 years for one-year vesting and 6.5 years.years for five-year vesting.
The following table presents a summary of the Company’s stock option plan awards during the nine months ended September 30, 2017dates indicated (shown as actual):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
|
|
|
|
|
|
| Weighted- |
| Remaining |
|
|
| |
|
|
|
| Average |
| Contractual Term In |
| Aggregate | ||
|
| Shares |
| Exercise Price |
| Years |
| Intrinsic Value | ||
Outstanding at January 1, 2017 |
| 295,850 |
| $ | 16.89 |
| 7.36 |
| $ | 5,638,901 |
Granted |
| — |
|
| — |
| — |
|
| — |
Less exercised |
| 34,363 |
| $ | 16.89 |
| — |
| $ | 919,380 |
Forfeited or expired |
| — |
|
| — |
| — |
|
| — |
Outstanding at September 30, 2017 |
| 261,487 |
| $ | 16.89 |
| 6.61 |
| $ | 9,089,288 |
|
|
|
|
|
|
|
|
|
|
|
Expected to vest, assuming a 0.31% annual forfeiture rate |
| 261,053 |
| $ | 16.89 |
| 6.61 |
| $ | 9,074,192 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017 |
| 134,687 |
| $ | 16.89 |
| 6.61 |
| $ | 4,681,720 |
Weighted-Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual Term In | Aggregate | ||||||||||||||
Shares | Exercise Price | Years | Intrinsic Value | |||||||||||||
Outstanding at January 1, 2024 | 662,279 | $ | 28.12 | 6.69 | $ | 5,852,975 | ||||||||||
Granted | — | $ | — | — | — | |||||||||||
Less exercised | 17,612 | $ | 8.45 | — | $ | 507,344 | ||||||||||
Less forfeited | 12,000 | 30.73 | — | — | ||||||||||||
Outstanding at March 31, 2024 | 632,667 | $ | 28.62 | 6.56 | $ | 3,923,645 | ||||||||||
Expected to vest, assuming a 0.31% annual forfeiture rate at March 31, 2024 (1) | 623,800 | $ | 28.62 | 6.48 | $ | 3,873,086 | ||||||||||
Exercisable at March 31, 2024 | 365,850 | $ | 27.83 | 5.52 | $ | 2,549,465 |
(1) | Forfeiture rate has been calculated and estimated to assume a forfeiture of 3.1% of the options over 10 years. |
At September 30, 2017,March 31, 2024, there was $368,000$1.5 million of total unrecognized forfeiture adjusted compensation cost related to nonvested stock options granted under the2018 Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.63.2 years.
Restricted Stock Awards
The Plan authorizesRSAs’ fair value is equal to the value of the market price of FS Bancorp’s common stock on the grant of restricted stock awards totaling 129,605 shares to Company directorsdate and employees, and 125,105 shares were granted on May 8, 2014 at a grant date fair value of $16.89 per share. The remaining 4,500 restricted stock awards were granted January 1, 2016 at a grant date fair value of $26.00 per share. Compensationcompensation expense is recognized over the vesting period of the awards based on the fair value of the restricted stock. The restricted stock awards’ fair value is equal toShares granted under the value2018 Plan generally vest over a one-year period for independent directors and a five-year period for employees and officers beginning on the grant date. Shares awarded as restricted stock vest ratably over a three-year period for directors and a five-year period for employees, beginning at the grant date. Any unvested restricted stock awardsnonvested RSAs will expire after vesting or soonerbe forfeited in the event of the award recipient’s termination of service with the Company or the Bank.
38
The following table presents a summary of the Company’s nonvested awards during the nine months ended September 30, 2017dates indicated (shown as actual):
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
|
|
| |
|
|
|
| Grant-Date Fair Value |
| Weighted-Average | ||
Nonvested Shares |
| Shares |
| Per Share |
| Grant-Date Fair Value | ||
Nonvested at January 1, 2017 |
| 68,763 |
| $ | 17.49 |
| $ | 1,202,401 |
Granted |
| — |
|
| — |
|
| — |
Less vested |
| 31,921 |
| $ | 17.32 |
| $ | 552,810 |
Forfeited or expired |
| — |
|
| — |
|
| — |
Nonvested at September 30, 2017 |
| 36,842 |
| $ | 17.63 |
| $ | 649,591 |
Weighted-Average | ||||||||
Grant-Date Fair Value | ||||||||
Nonvested Shares | Shares | Per Share | ||||||
Nonvested at January 1, 2024 | 102,144 | $ | 29.61 | |||||
Granted | — | — | ||||||
Less vested | — | — | ||||||
Less forfeited | 4,000 | 30.73 | ||||||
Nonvested at March 31, 2024 | 98,144 | $ | 29.57 |
At September 30, 2017,March 31, 2024, there was $508,000$2.2 million of total unrecognized forfeiture adjusted compensation costscost related to nonvested shares granted under the 2018 Plan as restricted stock awards.RSAs. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.63.1 years.
NOTE14 - – REGULATORY CAPITAL
The Company and the Bank areis subject to various regulatory capital requirements administered by the federal banking agencies.Federal Reserve and the FDIC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative
Under the risk-based capital adequacy framework, quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 total capital (as defined) and common equity Tier 1 (“CET 1”) capital to risk-weighted assets (as defined).
The Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and Tier CET 1 leverage capital ratios as set forth in the table below to be categorized as well capitalized. At September 30, 2017 and DecemberMarch 31, 2016,2024, the Bank was categorized as well capitalized under applicable regulatory requirements. There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes, at September 30 2017,March 31, 2024, that the Company and the Bank met all capital adequacy requirements.
39
The following table comparestables compare the Bank’s actual capital amounts and ratios at September 30, 2017 and December 31, 2016 to their minimum regulatory capital requirements and well capitalized regulatory capital at thosethe dates (dollars in thousands):indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| To be Well Capitalized |
| |||
|
|
|
|
|
|
|
|
|
|
|
| Under Prompt |
| |||
|
|
|
|
|
|
| For Capital |
| Corrective |
| ||||||
|
| Actual |
| Adequacy Purposes |
| Action Provisions |
| |||||||||
Bank Only |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
At September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 130,246 |
| 16.14 | % | $ | 64,556 |
| 8.00 | % | $ | 80,696 |
| 10.00 | % |
Tier 1 risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 120,150 |
| 14.89 | % | $ | 48,417 |
| 6.00 | % | $ | 64,556 |
| 8.00 | % |
Tier 1 leverage capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets) |
| $ | 120,150 |
| 12.50 | % | $ | 38,459 |
| 4.00 | % | $ | 48,074 |
| 5.00 | % |
CET 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 120,150 |
| 14.89 | % | $ | 36,313 |
| 4.50 | % | $ | 52,452 |
| 6.50 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 93,309 |
| 13.87 | % | $ | 53,813 |
| 8.00 | % | $ | 67,266 |
| 10.00 | % |
Tier 1 risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 84,876 |
| 12.62 | % | $ | 40,360 |
| 6.00 | % | $ | 53,813 |
| 8.00 | % |
Tier 1 leverage capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets) |
| $ | 84,876 |
| 10.33 | % | $ | 32,862 |
| 4.00 | % | $ | 41,078 |
| 5.00 | % |
CET 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
| $ | 84,876 |
| 12.62 | % | $ | 30,270 |
| 4.50 | % | $ | 43,723 |
| 6.50 | % |
To be Well Capitalized | ||||||||||||||||||||||||||||||||
Under Prompt | ||||||||||||||||||||||||||||||||
For Capital | For Capital Adequacy | Corrective | ||||||||||||||||||||||||||||||
Actual | Adequacy Purposes | with Capital Buffer | Action Provisions | |||||||||||||||||||||||||||||
Bank Only | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
At March 31, 2024 | ||||||||||||||||||||||||||||||||
Total risk-based capital | ||||||||||||||||||||||||||||||||
(to risk-weighted assets) | $ | 346,551 | 13.72 | % | $ | 202,098 | 8.00 | % | $ | 265,253 | 10.50 | % | $ | 252,622 | 10.00 | % | ||||||||||||||||
Tier 1 risk-based capital | ||||||||||||||||||||||||||||||||
(to risk-weighted assets) | $ | 314,938 | 12.47 | % | $ | 151,573 | 6.00 | % | $ | 214,729 | 8.50 | % | $ | 202,098 | 8.00 | % | ||||||||||||||||
Tier 1 leverage capital | ||||||||||||||||||||||||||||||||
(to average assets) | $ | 314,938 | 10.61 | % | $ | 118,727 | 4.00 | % | $ | N/A | N/A | $ | 148,408 | 5.00 | % | |||||||||||||||||
CET 1 capital | ||||||||||||||||||||||||||||||||
(to risk-weighted assets) | $ | 314,938 | 12.47 | % | $ | 113,680 | 4.50 | % | $ | 176,835 | 7.00 | % | $ | 164,204 | 6.50 | % |
To be Well Capitalized | ||||||||||||||||||||
Under Prompt | ||||||||||||||||||||
For Capital | For Capital Adequacy | Corrective | ||||||||||||||||||
Actual | Adequacy Purposes | with Capital Buffer | Action Provisions | |||||||||||||||||
Bank Only | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
At December 31, 2023 |
|
|
|
|
|
|
|
| ||||||||||||
Total risk-based capital |
|
|
|
|
|
|
|
| ||||||||||||
(to risk-weighted assets) | $ | 339,436 | 13.37% | $ | 203,094 | 8.00% | $ | 266,561 | 10.50% | $ | 253,868 | 10.00% | ||||||||
Tier 1 risk-based capital |
|
|
| |||||||||||||||||
(to risk-weighted assets) | $ | 307,686 | 12.12% | $ | 152,321 | 6.00% | $ | 215,787 | 8.50% | $ | 203,094 | 8.00% | ||||||||
Tier 1 leverage capital |
|
|
| |||||||||||||||||
(to average assets) | $ | 307,686 | 10.39% | $ | 118,488 | 4.00% | $ | N/A | N/A | $ | 148,109 | 5.00% | ||||||||
CET 1 capital |
|
|
| |||||||||||||||||
(to risk-weighted assets) | $ | 307,686 | 12.12% | $ | 114,240 | 4.50% | $ | 177,707 | 7.00% | $ | 165,014 | 6.50% |
In addition to the minimum CET 1, Tier 1, total capital and total capitalleverage ratios, the Bank hasis required to maintain a capital conservation buffer consisting of additional CET 1 capital greater than 2.5% of risk-weighted assets above the required minimum capital levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount equal to 2.5% of risk-weighted assets in January 2019. At September 30, 2017,March 31, 2024, the Bank’s CET1 capital exceeded the minimum required capital with the required conservation buffer of 1.25%.buffer.
FS Bancorp, Inc.
The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to the capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. ForBank holding companies with less than $3.0 billion in assets are generally not subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company with less than $1.0 billion in assets,is required to serve as a source of financial and managerial strength to the capital guidelines apply on aholding company’s subsidiary bank only basis and the Federal Reserve expects the holding company’s subsidiary banksbank to be well capitalized under the prompt corrective action regulations. If FS Bancorp, Inc. wasthe Company were subject to regulatory guidelines for bank holding companies with $1.0$3.0 billion or more in assets at September 30, 2017, the CompanyMarch 31, 2024, it would have exceeded all regulatory capital requirements. For informational purposes, the regulatory capital ratios calculated for the Company at March 31, 2024 were 9.2% for Tier 1 leverage-based capital, 10.9% for Tier 1 risk-based capital, 14.1% for total risk-based capital, and 10.9% for CET 1 capital ratio. The regulatory capital ratios calculated for FS Bancorp, Inc.the Company at September 30, 2017December 31, 2023 were 11.9%9.0% for Tier 1 leverage-based capital, 14.2%10.5% for Tier 1 risk-based capital, 15.5%13.7% for total risk-based capital, and 14.2%10.5% for CET 1 capital ratio.
NOTE15 - – BUSINESS SEGMENTS
The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the manner in whichway financial information is currently evaluated by management. This process is dynamic and is based on management’s current view of the Company’s operations and is not necessarily comparable with similar information for other financial institutions. We define ourThe Company defines its business segments by
40
product type and customer segment which we haveit has organized into two lines of business: commercial and consumer banking and home lending.
We use
The Company uses various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:
a funds transfer pricing (“FTP”) system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets;
● | a funds transfer pricing (“FTP”) system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets. The FTP methodology is based on management's estimated cost of originating funds including the cost of overhead for deposit generation; |
a cost per loan serviced allocation based on the number of loans being serviced on the balance sheet and the number of loans serviced for third parties;
● | a cost per loan serviced allocation based on the number of loans being serviced on the balance sheet and the number of loans serviced for third parties; |
an allocation based upon the square footage utilized by the home lending segment in Company owned locations;
● | an allocation based upon the approximate square footage utilized by the home lending segment in Company owned locations; |
an allocation of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on the number of full time employees (“FTEs”) in each segment; and
● | an allocation of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on the number of full-time employees (“FTEs”) in each segment; and |
an allocation of the Company’s consolidated income taxes which are based on the effective tax rate applied to the segment’s pretax income or loss.
● | an allocation of the Company’s consolidated income taxes which are based on the effective tax rate applied to the segment’s pretax income or loss. |
The FTP methodology is based on management’s estimated cost of originating funds including the cost of overhead for deposit generation.
A description of the Company’s business segments and the products and services that they provide is as follows:
Commercial and Consumer Banking Segment
The commercial and consumer banking segment provides diversified financial products and services to our commercial and consumer customers through Bank branches, ATMs, online banking platforms, mobile banking apps, and telephone banking. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. We originateThe Company originates consumer loans, commercial and multi-family real estate loans, construction loans onfor residential and multi-family construction, and commercial business loans. At September 30, 2017, ourMarch 31, 2024, the Company’s retail deposit branch network consisted of 1127 branches in the Pacific Northwest. At September 30, 2017 and December 31, 2016, our deposits totaled $840.6 million and $712.6 million, respectively. This segment is also responsible for the management of ourthe investment portfolio and other assets of the Bank.
Home Lending Segment
The home lending segmentoriginates one-to-four-familyone-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as originating adjustable rate mortgage (“ARM”) loans held for investment. TheA majority of ourthese mortgage loans are sold to or securitized by FNMA, FHLMC, GNMA, or the FHLB of Des Moines, while we retainthe Company generally retains the right to service these loans. Loans originated under the guidelines of the Federal Housing Administration or FHA,(“FHA”), US Department of Veterans Affairs or VA, and United States Department of Agriculture or USDA are generally sold servicing released to a correspondent bank or mortgage company. We haveThe Company has the option to sell loans on a servicing-released or servicing-retained basis to securitizers and correspondent lenders. A small percentage of ourits loans are brokered to other lenders. On occasion, we the Company may sell a portion of our MSRits MSRs portfolio and may sell small pools of loans initially originated to be held in the loan portfolio. We manageThe Company manages the loan funding and the interest rate risk associated with the secondary market loan sales and the retained one-to-four-family mortgage servicing rightsone-to-four-family MSRs within this business segment. One-to-four-familyOne-to-four-family loans originated for investment and held in this segment are allocated to the home lending segment with a corresponding provision expense and FTP for cost of funds.
41
Segment Financial Results
The tables below summarize the financial results for each segment based primarily on the number of FTEs and assetsfactors mentioned above within each segment for the three and nine months ended September 30, 2017 March 31, 2024 and 2016:2023:
|
|
|
|
|
|
|
|
|
|
|
| At or For the Three Months Ended September 30, 2017 | |||||||
|
| Home Lending |
| Commercial and Consumer Banking |
| Total | |||
Condensed income statement: |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
| $ | 812 |
| $ | 10,210 |
| $ | 11,022 |
Provision for loan losses |
|
| (127) |
|
| (323) |
|
| (450) |
Noninterest income |
|
| 5,014 |
|
| 1,413 |
|
| 6,427 |
Noninterest expense |
|
| (4,586) |
|
| (7,003) |
|
| (11,589) |
Income before provision for income taxes |
|
| 1,113 |
|
| 4,297 |
|
| 5,410 |
Provision for income taxes |
|
| (407) |
|
| (1,549) |
|
| (1,956) |
Net income |
| $ | 706 |
| $ | 2,748 |
| $ | 3,454 |
Total average assets at period end |
| $ | 220,898 |
| $ | 744,820 |
| $ | 965,718 |
FTEs |
|
| 119 |
|
| 204 |
|
| 323 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| At or For the Three Months Ended September 30, 2016 | |||||||||||||||||||
|
| Home Lending |
| Commercial and Consumer Banking |
| Total | At or For the Three Months Ended March 31, 2024 | ||||||||||||||
Condensed income statement: |
|
|
|
|
|
|
|
|
| Commercial and Consumer Banking | Home Lending | Total | |||||||||
Net interest income (1) |
| $ | 793 |
| $ | 7,957 |
| $ | 8,750 | $ | 28,086 | $ | 2,260 | $ | 30,346 | ||||||
Provision for loan losses |
|
| (16) |
|
| (584) |
|
| (600) | ||||||||||||
Noninterest income |
|
| 5,982 |
|
| 1,266 |
|
| 7,248 | ||||||||||||
Noninterest expense |
|
| (3,861) |
|
| (6,451) |
|
| (10,312) | ||||||||||||
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 |
|
| 2,898 |
|
| 2,188 |
|
| 5,086 | 10,220 | 309 | 10,529 | |||||||||
Provision for income taxes |
|
| (948) |
|
| (681) |
|
| (1,629) | (2,069 | ) | (63 | ) | (2,132 | ) | ||||||
Net income |
| $ | 1,950 |
| $ | 1,507 |
| $ | 3,457 | $ | 8,151 | $ | 246 | $ | 8,397 | ||||||
Total average assets at period end |
| $ | 168,722 |
| $ | 634,735 |
| $ | 803,457 | ||||||||||||
FTEs |
|
| 110 |
|
| 195 |
|
| 305 | ||||||||||||
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) |
42
|
|
|
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended September 30, 2017 | |||||||
|
| Home Lending |
| Commercial and Consumer Banking |
| Total | |||
Condensed income statement: |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
| $ | 1,857 |
| $ | 28,105 |
| $ | 29,962 |
Provision for loan losses |
|
| (324) |
|
| (126) |
|
| (450) |
Noninterest income |
|
| 14,863 |
|
| 3,941 |
|
| 18,804 |
Noninterest expense |
|
| (12,985) |
|
| (19,924) |
|
| (32,909) |
Income before provision for income taxes |
|
| 3,411 |
|
| 11,996 |
|
| 15,407 |
Provision for income taxes |
|
| (1,107) |
|
| (3,894) |
|
| (5,001) |
Net income |
| $ | 2,304 |
| $ | 8,102 |
| $ | 10,406 |
Total average assets at period end |
| $ | 196,765 |
| $ | 706,017 |
| $ | 902,782 |
FTEs |
|
| 119 |
|
| 204 |
|
| 323 |
|
|
|
|
|
|
|
|
|
|
|
| At or For the Nine Months Ended September 30, 2016 | |||||||
|
| Home Lending |
| Commercial and Consumer Banking |
| Total | |||
Condensed income statement: |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
| $ | 1,706 |
| $ | 22,959 |
| $ | 24,665 |
Provision for loan losses |
|
| (142) |
|
| (1,658) |
|
| (1,800) |
Noninterest income |
|
| 14,852 |
|
| 3,273 |
|
| 18,125 |
Noninterest expense |
|
| (10,593) |
|
| (18,246) |
|
| (28,839) |
Income before provision for income taxes |
|
| 5,823 |
|
| 6,328 |
|
| 12,151 |
Provision for income taxes |
|
| (2,012) |
|
| (2,186) |
|
| (4,198) |
Net income |
| $ | 3,811 |
| $ | 4,142 |
| $ | 7,953 |
Total average assets at period end |
| $ | 147,873 |
| $ | 642,283 |
| $ | 790,156 |
FTEs |
|
| 110 |
|
| 195 |
|
| 305 |
(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, respectively. As of March 31,2024 and 2023, there was $15.0 million and $15.1 million, respectively, 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. |
NOTE16 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and certain other intangibles generally arise from business combinations accounted for under the acquisition method of accounting. Goodwill totaled $3.6 million at both March 31, 2024, and December 31, 2023, and represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in the Branch Purchase on February 24, 2023, and the purchase of four retail bank branches from Bank of America on January 22, 2016. Goodwill is not amortized but is evaluated for impairment on an annual basis at December 31 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performed an impairment analysis at March 31, 2024, and determined that no impairment of goodwill existed.
Core deposit intangible (“CDI”) is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. As of March 31, 2024, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.
The following table summarizes the changes in the Company’s other intangible assets comprised solely of CDI for the year ended December 31, 2023, and the three months ended March 31, 2024.
Other Intangible Assets | ||||||||||||
Accumulated | ||||||||||||
Gross CDI | Amortization | Net CDI | ||||||||||
Balance, December 31, 2022 | $ | 7,490 | $ | (4,121 | ) | $ | 3,369 | |||||
Additions as a result of the Branch Purchase | 17,438 | — | 17,438 | |||||||||
Amortization | — | (3,464 | ) | (3,464 | ) | |||||||
Balance, December 31, 2023 | 24,928 | (7,585 | ) | 17,343 | ||||||||
Amortization | — | (941 | ) | (941 | ) | |||||||
Balance, March 31, 2024 | $ | 24,928 | $ | (8,526 | ) | $ | 16,402 |
The CDI represents the fair value of the intangible core deposit base acquired in business combinations. The CDI will be amortized on an accelerated basis over 10 years for the CDI related to the Branch Purchase, on a straight-line basis over 10 years for the CDI related to the Anchor Bank acquisition in November 2018 (“Anchor Acquisition”) and on an accelerated basis over approximately nine years for the CDI related to the purchase of four retail bank branches from Bank of America on January 22, 2016. Total amortization expense was $941,000 for the three months ended March 31, 2024, and $459,000 for the same period in 2023.
Amortization expense for CDI is expected to be as follows at March 31, 2024:
Remainder of 2024 | $ | 2,692 | ||
2025 | 3,191 | |||
2026 | 2,846 | |||
2027 | 2,500 | |||
2028 | 2,110 | |||
Thereafter | 3,063 | |||
Total | $ | 16,402 |
NOTE 17– REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
All the Company’s revenue from contracts with customers in-scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope and/or immaterial to Topic 606, for the dates indicated.
At or For the Three Months Ended March 31, | ||||||||
Noninterest income | 2024 | 2023 | ||||||
In-scope of Topic 606: | ||||||||
Debit card interchange fees | $ | 763 | $ | 639 | ||||
Deposit service and account maintenance fees | 364 | 275 | ||||||
Noninterest income (in-scope of Topic 606) | 1,127 | 914 | ||||||
Noninterest income (out-of-scope and/or immaterial to Topic 606) | 3,984 | 4,305 | ||||||
Total noninterest income | $ | 5,111 | $ | 5,219 |
Deposit Service and Account Maintenance Fees
The Bank earns fees from its deposit customers for account maintenance, transaction-based services, and overdraft charges. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts monthly. The performance obligation is satisfied, and the fees are recognized monthly as the service period is completed. Transaction-based fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as wire fees, as well as charges against the account, such as fees for non-sufficient funds and overdrafts. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.
Debit and ATM interchange income represent fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied, and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card.
Item2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Forward–Looking Statements
This report may containcontains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions. Forward-looking statements include, but are not limited to:
| ● | statements of our goals, intentions, and expectations; |
| ● | statements regarding our business plans, prospects, growth, and operating strategies; |
| ● | statements regarding the quality of our loan and investment portfolios; and |
● |
|
estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
● | potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages, the effects of inflation, a potential recession or slowed economic growth; | |
● |
| |
● |
|
● | the effects of any federal government shutdown; | ||
| ● | the credit risks of lending activities, including changes in the level and trend of loan delinquencies, write offs, changes in our allowance for |
| ● | secondary market conditions and our ability to originate loans for sale and sell loans in the secondary market; |
| ● | fluctuations in the demand for loans, the number of unsold homes, land and other properties, and fluctuations in real estate values in our market area; |
● |
|
|
| ● | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
| ● | changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; |
| ● | increased competitive pressures among financial services companies; |
| ● | our ability to execute our plans to grow our residential construction lending, our home lending operations, our warehouse lending, and the geographic expansion of our indirect home improvement lending; |
| ● | our ability to attract and retain deposits; |
| ● | our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
| ● | our ability to control operating costs and expenses; |
● |
|
● | changes in consumer spending, borrowing, and savings habits; |
| ● | our ability to successfully manage our growth; |
● |
|
● | legislative or regulatory changes that adversely affect our business including |
● |
| |
● | the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets; |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards |
| ● | costs and effects of litigation, including settlements and judgments; |
● |
| disruptions, security breaches, or other adverse events, failures, or interruptions in, or attacks on, our |
| ● | inability of key third-party vendors to perform their obligations to us; |
● |
|
● | other economic, competitive, governmental, bank regulatory, consumer and technical factors affecting our operations, pricing, products and services, and |
● | other risks described elsewhere in this Form 10‑Q and our other reports filed with |
44
Any of the forward-looking statements made in this Form 10‑Q and in other public statements may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. The Company undertakes no obligation to update or revise any forward-looking statement included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
Overview
FS Bancorp Inc. and its subsidiary bank, 1st Security Bank, of Washington have been serving the Puget Sound area since 1936. Originally chartered as a credit union, known as Washington’s Credit Union,1907, including its bank acquisitions, when the credit union served various select employment groups. On April 1, 2004, the credit union convertedpredecessor to a Washington state-chartered mutual savings bank.Anchor Bank was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp, Inc.Bancorp.
The Company is relationship-driven, delivering banking and financial services to local families, local and regional businesses and industry niches within distinctin suburban communities in the greater Puget Sound area, communities, and one loan production office located inthe Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, Washington. Goldendale, Vancouver, and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook and Waldport, Oregon.
On January 22, 2016,February 24, 2023, the Company completed the Branch Purchaseits purchase of seven retail bank branches from Columbia State Bank (the “Branch Acquisition”) and acquired $186.4approximately $425.5 million in deposits and $419,000$66.1 million in loans based on financial information at that date.loans. The fourseven acquired branches acquired are located in the communities of Port Angeles, Sequim, Port Townsend,Goldendale, and Hadlock, Washington.White Salmon, Washington, and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. The Branch PurchaseAcquisition expanded our Puget Sound-focused retail footprint ontointo southeast Washington and the Olympic Peninsula and providedstate of Oregon as well as providing an opportunity to extend our unique brand of community banking into those communities.
The Company also maintains its long-standing indirect consumer lending platform which operates primarily throughout the West Coast.Western United States. The Company emphasizes long-term relationships with families and businesses within the communities served, working with them to meet their financial needs. The Company is also actively involved in community activities and events within these market areas, which further strengthens our relationships within those markets.
The Company focuses onCompany's strategic focus involves diversifying revenues, expanding lending channels, and growingenhancing the banking franchise. Management remains focused on building diversifiedis committed to establishing varied revenue streams based uponconsidering credit, interest rate, and concentration risks. OurThe business plan remains as follows:includes:
| ● | Growing and diversifying our loan portfolio; |
| ● | Maintaining strong asset quality; |
| ● | Emphasizing lower cost core deposits to reduce the costs of funding our loan growth; |
| ● | Capturing |
| ● | Expanding |
The Company is
As a diversified lender, with a focus on the origination of indirect home improvement loans, also referred to as fixture securedCompany specializes in originating one-to-four-family loans, commercial real estate mortgage(“CRE”) mortgages, second mortgages, consumer loans, homemarine lending, and commercial business loans.
At March 31, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 62.8%, 26.3%, and second mortgage/home equity loan products. Consumer loans, in particular indirect home improvement10.9% of the portfolio, respectively.
Fixture secured loans to finance window, replacement, gutter, replacement, siding replacement, solar panels, spas, and other improvement renovations represent the largest portionare a large segment of the consumer loan portfolio and have traditionally been the mainstay of our lending strategy. At September 30, 2017,portfolio. These fixture-secured consumer loans represented 26.3% of the Company’s total gross loan portfolio, down from 28.9% at December 31, 2016, as real estate and commercial business loan originations have increased at a faster pace than consumer loan originations.
Indirect home improvement lending isare dependent on the Bank’s relationships with home improvement contractorsCompany’s contractor/dealer network of 77 active dealers located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and dealers.New Hampshire. Five of these contractor/dealers were responsible for 77.1% of the dollar volume of funded loans for the three months ended March 31, 2024. The Company funded $24.6$34.9 million or 1,490approximately 1,600 loans in the fixture-secured consumer loan category during the quarter ended September 30, 2017, using its indirect home improvement contractor/dealer network located throughout Washington, Oregon, Idaho, and California with four contractors/dealers responsibleMarch 31, 2024.
The following table details fixture secured loan originations by state for 45.5% of the funded loans dollar volume. During the nine months ended September 30,periods indicated:
45
(Dollars in thousands) | For the Three Months Ended | For the Year Ended | ||||||||||||||
March 31, 2024 | December 31, 2023 | |||||||||||||||
State | Amount | Percent | Amount | Percent | ||||||||||||
Washington | $ | 12,555 | 35.9 | % | $ | 72,166 | 35.1 | % | ||||||||
Oregon | 7,723 | 22.1 | 48,831 | 23.8 | ||||||||||||
California | 3,530 | 10.1 | 34,219 | 16.7 | ||||||||||||
Idaho | 2,198 | 6.3 | 13,787 | 6.7 | ||||||||||||
Colorado | 2,069 | 5.9 | 7,442 | 3.6 | ||||||||||||
Arizona | 1,328 | 3.8 | 5,846 | 2.8 | ||||||||||||
Nevada | 1,251 | 3.6 | 4,697 | 2.3 | ||||||||||||
Minnesota | 623 | 1.8 | 8,312 | 4.0 | ||||||||||||
Texas | 514 | 1.5 | 1,685 | 0.8 | ||||||||||||
Utah | 1,661 | 4.8 | 5,062 | 2.5 | ||||||||||||
Massachusetts | 401 | 1.1 | 778 | 0.4 | ||||||||||||
Montana | 819 | 2.3 | 2,200 | 1.1 | ||||||||||||
New Hampshire | 273 | 0.8 | 322 | 0.2 | ||||||||||||
Total fixture secured loans | $ | 34,945 | 100.0 | % | $ | 205,347 | 100.0 | % |
2017, the Company originated $15.5 million in the state of California, and at September 30, 2017, held $42.9 million in California originated consumer loans. Management has established a concentration limit of no more than 100% of the Bank’s total risk-based capital for loans originated in California. At September 30, 2017, the limit was $130.2 million.
The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Walk-inRetail banking customers are also an important source of the Company’s loan originations. During the nine months ended, theThe Company originated $603.4$151.4 million of one-to-four-family loans which includes(which included loans held for sale, (“HFS”), loans held for investment and fixed seconds, andseconds) in addition to $2.6 million of loans brokered to other institutions through the home lending segment including brokered loans of $5.7 million. Duringduring the ninethree months ended September 30, 2017, $511.8March 31, 2024, of which $93.9 million of the loans originated were sold to investors. Of the loans sold to investors, of which $321.3$55.5 million were sold to the FNMA, FHLMC, FHLB, and/or GNMA with servicing rights retained for the purpose of further developing these customer relationships. At September 30, 2017,March 31, 2024, one-to-four-family residential mortgage loans held for investment which excludes loans held for sale of $65.1 million, totaled $170.2$580.1 million, or 22.2%23.7%, of the total gross loan portfolio.portfolio, while loans held for sale totaled $50.0 million and home equity loans totaled $73.3 million at that date.
The Company generally underwrites
For the three months ended March 31, 2024, one-to-four-family loan originations and refinancing activity increased compared to the prior quarter as a result of slightly decreased market interest rates. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, based on the applicant’s abilitycontinues to repay. This includes employmentbe an important element in our total loan portfolio, and credit history and the appraised value of the subject property. The Company lends up to 100% of the lesser of the appraised value or purchase price for one-to-four-family first mortgage loans. For first mortgage loans with a loan-to-value ratio in excess of 80%, the Company generally requires either private mortgage insurance or government sponsored insurance in order to mitigate the higher risk level associated with higher loan-to-value loans. Fixed-rate loans secured by one-to-four-family residences have contractual maturities of up to 30 years and are generally fully amortizing, with payments due monthly. Adjustable-rate mortgage loans may pose different credit risks than fixed-rate loans, primarily because as interest rates increase, the borrower’s payments rise, increasing the potential for default. Properties securing the one-to-four-family loans are appraised by independent fee appraisers who are selected in accordance with industry and regulatory standards. The Company requires borrowers to obtain title and hazard insurance, and flood insurance, if necessary. Loans are generally underwritten to the secondary market guidelines with additional requirements as determined by the internal underwriting department.
Since 2012, the Company has had an emphasis on diversifying lending products by expanding commercial real estate, commercial business and residential lending, while maintaining the current volume of production and historical growth of the consumer loan portfolio. The Company’s lending strategies are intendedwe continue to take advantage of: (1) historical strengtha disciplined approach by concentrating our efforts on loans to builders and developers in indirect consumer lending, (2) recentour market consolidation that has created new lending opportunities and the availabilityareas known to us. These short-term loans typically have a maturity period of experienced bankers, and (3) strengthsix to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in relationship lending. Retail deposits will continue to serve as an important funding source.net loans receivable.
The Company is significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs. Retail deposits serve as an important funding source. Deposit flows are influenced by a number of factors, including interest rates paid on time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles. Sources of funds for lending activities include primarily deposits, including brokered deposits, borrowings, payments on loans, and income provided from operations.
The Company’s earnings are primarily dependent upon net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on these deposits and borrowings. Another significant influence on the Company’s earnings is fee income from home lending activities.
The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for loan(recapture of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes. Most notable of these factors, the Company recorded a provision for credit losses of $1.4 million for the three months ended March 31, 2024, compared to $2.1 million for the same period one year ago. The decreased provision for credit losses in the current period was primarily due to a decrease in net loan growth, particularly in consumer loans, partially offset by an increase in provision for credit losses due to higher net charge-offs in commercial business, indirect home improvement, and marine loans.
Critical Accounting PoliciesEstimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and Estimates
Certainassumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the Company’s accounting policies are important totime the portrayal of the Company’s financial condition, since they require management to make difficult, complex, or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to,
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changes in interest rates, changes in the performance of the economy,estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of borrowers.operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Management believes that its critical accounting policies include the following:
Allowance
ACL on Held-to-MaturitySecurities. Management measures expected credit losses on held-to-maturity securities by individual security. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for Loancurrent conditions and Lease Losses. reasonable and supportable forecasts.
The allowance for loan and lease losses (“ALLL”)held-to-maturity portfolio consists entirely of corporate securities. Securities are generally rated investment grade or higher. Securities are analyzed individually to establish a reserve.
ACL on Available-for-Sale Securities. For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell, or is more likely than not to be required to sell, the amount estimated by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. A high degreesecurity before recovery of judgment is necessary when determining the amountits amortized cost basis. If either of the allowance for loan losses. Amongcriteria regarding intent or requirement to sell is met, the material estimates requiredsecurity’s amortized cost basis is written down to establishfair value through income. For debt securities available-for-sale that do not meet the allowance are: loss exposure at default;aforementioned criteria, the amount and timing of future cash flows on impacted loans;Company evaluates whether the decline in fair value of collateral; and determination of loss factorshas resulted from credit losses or other factors. In making this assessment, management considers the extent to be appliedwhich fair value is less than amortized cost, any changes to the various elementsrating of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterlysecurity by a rating agency, and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economicadverse conditions and other factorsspecifically related to the collectability of the loan portfolio. Although the Company believes it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. As the Company adds new products to the loan portfolio and expands the Company’s market area, management intends to enhance and adapt our methodology to keep pace with the size and complexity of the loan portfolio. Changes in any of the above factors could havesecurity, among other factors. If this assessment indicates that a significant effect on the calculation of the allowance for loan losses in any given period. Management believes that its systematic methodology continues to be appropriate given the Company’s increased size and level of complexity.
Troubled Debt Restructured Loans. TDRs are loans whose terms have been modified or restructured due to a borrower’s financial difficulty, including but not limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals and renewals. TDR loans are considered impaired loans and are individually evaluated for impairment. TDR loans can be classified as either accrual or non-accrual. TDR loans are classified as non-performing loans unless they have been performing in accordance with their modified terms for a period of at least six months in which case they are placed on accrual status.
Servicing Rights. Servicing assets are recognized as separate assets when rights are acquired through the purchase or through the sale of financial assets. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For sales of mortgage, commercial and consumer loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage, commercial, or consumer servicing contracts, when available, or alternatively, is based on a valuation model that calculatescredit loss exists, the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such ascash flows expected to be collected from the security are compared to the amortized cost to service,basis of the discount rate,security. If the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses.
Servicing assets are evaluated quarterly for impairment based upon the fairpresent value of cash flows expected to be collected is less than the rights as compared to amortized cost. Impairmentcost basis, a credit loss exists and an ACL is determinedrecorded, limited by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type, and investor type. Impairment is recognized through a valuation allowance to the extentamount that the fair value is less than the capitalized amount. Ifamortized cost basis.
Changes in the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may beACL are recorded as a recovery andprovision for (recapture of) credit losses. Losses are charged against the ACL when management believes the uncollectibility of an increaseavailable-for-sale security is confirmed or when either of the criteria regarding intent or requirement to income. Capitalized servicing rights are stated separatelysell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses.
ACL on Loans. The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the Consolidated Balance Sheetsloans. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed and recaptures are amortizedcredited to the ACL when received. In the case of recaptures, amounts may not exceed the aggregate of amounts previously charged off.
Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from 2009 to present. Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Accrued interest receivable is excluded from the estimate of credit losses on loans.
The ACL on loans is measured on a collective cohort basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then risk-grade grouping. Risk grade is grouped within each call report code by pass, watch, special mention, substandard, and doubtful. Other loan types are separated into noninterest incometheir own cohorts due to specific risk characteristics for that pool of loans.
The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology. The vintage methodology measures the expected loss calculation for future periods based on historical performance by the origination period of loans with similar life cycles and risk characteristics. Guaranteed portions of loans are measured with zero risk due to cash collateral and full guaranty.
The PD calculation looks at the historical loan portfolio at points in proportiontime (each month during the lookback period) to anddetermine the probability that loans in a certain cohort will default over the periodnext 12-month period. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. In cohorts where the Company’s historical data is insufficient due to a minimal amount of default activity or zero defaults, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the estimated future net servicing incomeCompany’s historical PDs. Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria.
The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e., nonaccrual or charge-off). Due to limited charge-off history, management uses index LGDs comprised of rates derived from the LGD experience of other community banks in place of the underlying financial assets.Company’s historical LGDs.
Derivatives
The Company utilizes reasonable and Hedging Activity. ASC 815, “Derivatives and Hedging,” requires that derivativessupportable forecasts of future economic conditions when estimating the ACL on loans. The calculation includes a 12-month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over a 12-month period. Due to limited default history, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company be recorded in the consolidated financial statements at fair value. Management considers its accounting policy for derivatives to be critical because these instruments have certain interest rate risk characteristics that change in value based upon changes in the capital markets. The Company’s derivatives are primarily the result of its home lending activities in the form of commitments to extend credit, commitments to sell loans, TBA MBS trades and option contracts to mitigate the risk of the commitments to extend credit. Estimates of the percentage of commitments to extend credit on loans to be held for sale that may not fund are based upon historical data and current market trends. The fair value adjustments of the derivatives are recorded on the Consolidated Statements of Income with offsets to other assets or other liabilities on the Consolidated Balance Sheets.PDs.
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Income TaxesThe Company recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by qualitative and environmental adjustments to incorporate all significant risks to form a sufficient basis to estimate the credit losses.
Loans classified as nonaccrual, are reviewed quarterly for potential individual assessment. Any loan classified as a nonaccrual that is not determined to need individual assessment is evaluated collectively within its respective cohort.
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.). Income taxesEstimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are reflected inordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by the Company’s consolidated financial statementsinternal appraisal reviewer.
Where the primary and/or expected source of repayment of a specific loan is believed to showbe the tax effectsreceipt of principal and interest payments from the borrower and/or the refinancing of the operationsloan by another creditor, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate. Expected refinancing proceeds may be estimated from review of term sheets received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and transactions reported inmodifications. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.
ACL on Unfunded Commitments. The Company estimates expected credit losses over the consolidated financial statements and consist of taxes currently payable plus deferred taxes. Accounting Standards Codification, ASC 740, “Accounting for Income Taxes,” requires the asset and liability approach for financial accounting and reporting for deferred income taxes. Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities. They are reflected at currently enacted income tax rates applicable to thecontractual period in which the deferred tax assets or liabilities areCompany is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The ACL for unfunded commitments is adjusted through a provision for (recapture of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be realizedfunded over its estimated life. The estimate utilizes the same factors and assumptions as the ACL on loans and is applied at the same collective cohort level.
Business Combinations and Goodwill. Pursuant to applicable accounting guidance, the Company recognizes assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date. Transaction costs related to the acquisition are expensed in the period incurred. The determination of fair values involves estimates based on internal or settledthird-party valuations, including appraisals, discounted cash flow analysis, and other techniques incorporating factors such as attrition, inflation, asset growth rates, discount rates, credit risk, and multiples of earnings. The determination of fair value may require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
In whole bank or bank branch acquisitions, the primary identifiable intangible asset recorded is the value of the core deposit intangibles, representing the estimated value of the long-term deposit relationships acquired. The determination involves assumptions and estimates, typically determined through discounted cash flow analysis, considering customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. Amortization of core deposit intangibles occurs over estimated useful lives reviewed periodically for reasonableness. These estimated useful lives, typically ranging from seven to 10 years with an accelerated rate of amortization are periodically reviewed for reasonableness. Identifiable intangible assets, including core deposit intangibles, are assessed for impairment when events or changes suggest the carrying value may not be recoverable. The Company's policy dictates recognition of an impairment loss equal to the difference between the asset’s carrying amount and its fair value if the expected undiscounted future cash flows are less than the carrying amount. Estimating future cash flows involves the use of multiple estimates and assumptions, as previously mentioned.
The ACL on purchase credit deteriorated (“PCD”) assets is recognized within business combination accounting with no initial impact to net income. Subsequent changes in estimates of expected credit losses on PCD loans are recognized through a provision for (recapture of) credit losses in subsequent periods as they arise. The ACL on non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions that were described previously in the section above entitled, “Allowance for Credit Losses on Loans.”
Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with differences from contractual unpaid principal balances referred to as “discounts.” These discounts are accreted to interest income over the loans' estimated remaining lives.
Similar adjustments are made for premiums or discounts on acquired debt impacting interest expense over their remaining lives. Actual accretion or amortization may differ materially from our estimates impacting our operating results.
Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. ASC 350–10 establishes standards for an impairment assessment of goodwill.
The initial recognition of goodwill and other intangible assets, along with subsequent analyses, necessitates subjective judgments from management. These judgements involve estimating how acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Additionally, the challenge arises as estimated cash flows may extend beyond 10 years, making them difficult to determine over an extended timeframe. Significant events and factors influencing these estimates include competitive forces, customer behaviors, attrition, changes in revenue growth trends, cost structures, technology, alterations in discount rates, and specific industry and market conditions. To validate assumptions in its estimates, the Company reviews the historical performance of underlying or similar assets, ensuring the reasonableness of cash flow estimates.
The Company’s annual assessment of potential goodwill impairment was completed during the fourth quarter of 2023. Based on the results of this assessment, no goodwill impairment was recognized. Because of current economic conditions the Company continues to monitor goodwill and other intangible assets for impairment indicators throughout the year.
On an on-going basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liability methodliabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company’s accounting policies are discussed in detail in “Note 1 – Basis of accounting. The deferred income provision represents the difference between net deferred tax asset/liability at the beginningPresentation and endSummary” of the reported period. In formulating the deferred tax asset, the Company is requiredNotes to estimate incomeConsolidated Financial Statements included in Item 8. “Financial Statement and taxes in the jurisdiction in which the Company operates. This process involves estimating the actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatmentSupplementary Data” of items, such as depreciation and the provision for loan losses, for tax and financial reporting purposes.Form 10–K.
Deferred tax liabilities occur when taxable income is smaller than reported income on the income statements due to accounting valuation methods that differ from tax, as well as tax rate estimates and payments made quarterly and adjusted to actual at the end
Comparison of Financial Condition at September 30, 2017March 31, 2024 and December 31, 20162023
Assets. Total assets increased $166.0 million, or 20.0%, to $993.9 millionwere $2.97 billion at September 30, 2017, from $827.9 million atboth March 31, 2024 and December 31, 2016, primarily as a result2023. The changes in total assets at March 31, 2024, compared to December 31, 2023, included increases of a $160.5$24.3 million or 27.1% increasein loans held for sale, $13.9 million in loans receivable, net, a $12.5and $3.6 million or 23.8% increase in loans HFS, a $2.9 million, or 18.8% increase in certificates of deposit at other financial institutions, and a $1.3 million, or 27.1% increase in other assets, partially offset by a $5.2decreases of $20.3 million or 14.2% decrease in total cash and cash equivalents, a $3.8$13.3 million or 4.6% decrease in securities available-for-sale, $8.1 million in MSRs held for sale, and a $2.6$1.9 million or 31.3% decrease in servicing rights.deferred tax asset, net.
Loans receivable, net increased $160.5$13.9 million or 27.1% to $753.9 million$2.42 billion at September 30, 2017,March 31, 2024, from $593.3 million$2.40 billion at December 31, 2016. The increase in2023, Total real estate loans receivable, net was primarily a result ofincreased $5.8 million to $1.54 billion at March 31, 2024, compared to December 31, 2023, reflecting increases in real estate and commercial business loans. Real estate loan increases included one-to-four-family loans (excluding loans held for investmentsale) of $46.2$12.3 million and home equity loans of $3.8 million, partially offset by decreases in CRE loans of $7.3 million, construction and development loans of $34.9$1.7 million, commercial real estate loans of $7.3 million,and multi-family loans of $5.9$1.4 million. Undisbursed construction and development loan commitments increased $13.6 million, and home equity loans of $3.9 million. Changes in commercial business lending included a $17.6to $168.2 million increase inat March 31, 2024, as compared to $154.6 million at December 31, 2023. Similarly, commercial business loans associated with our warehouse lending program andincreased $8.7 million to $264.5 million at March 31, 2024, compared to December 31, 2023, as a $17.4 millionresult of an increase in commercial and industrial loans. Growthlending of $18.1 million, partially offset by a decrease in consumerwarehouse lending was $26.9of $9.5 million. Consumer loans decreased $621,000 to $646.1 million reflecting growthat March 31, 2024, compared to December 31, 2023, primarily due to a decrease of $1.1 million in the Bank’s long established indirect home improvement lending platform.loans and $131,000 in other consumer loans, partially offset by an increase of $611,000 in marine loans.
Loans HFS,held for sale, consisting of one-to-four-family loans, and one commercial and industrial loan, increased by $12.5$24.3 million or 23.8% to $65.1$50.0 million at September 30, 2017,March 31, 2024, from $52.6$25.7 million at December 31, 2016 due to increased loan originations.2023. The Company will continue selling one-to-four-family loans intocontinues to invest in its home lending operations and strategically manage production capacity in the secondary market for asset/liability management purposes.markets we serve.
One-to-four-family loan originations for the three months ended March 31, 2024, included $110.5 million of loans originated through the home lending segment which includesfor sale, $40.9 million of portfolio loans HFS, loans held for investment, fixed seconds,including first and second liens, and $2.6 million of loans brokered to other institutions increased $27.3 million, or 12.6% to $244.1 million during the quarter ended September 30, 2017, compared to $232.9 million for the same quarter one year ago. One-to-four-family loans originated through the home lending segment increased $19.3 million, or 3.3% to $603.4 million during the nine months ended September 30, 2017, compared to $584.1 million during the nine months ended September 30, 2016. institutions.
Originations of one-to-four-family loans to purchase a home (purchase production) increased by $68.0 million, or 17.2% with $464.3 million in loan purchase production closing duringfor the nineperiods indicated were as follows:
(Dollars in thousands) | For the Three Months Ended March 31, | |||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||
Amount | Percent | Amount | Percent | $ Change | % Change | |||||||||||||||||||
Purchase | $ | 135,577 | 88.1 | % | $ | 102,489 | 92.3 | % | $ | 33,088 | 32.3 | % | ||||||||||||
Refinance | 18,371 | 11.9 | 8,535 | 7.7 | 9,836 | 115.2 | % | |||||||||||||||||
Total | $ | 153,948 | 100.0 | % | $ | 111,024 | 100.0 | % | $ | 42,924 | 38.7 | % |
During the three months ended September 30, 2017, up from $396.3 million for the nine months ended September 30, 2016. One-to-four-family loan originations for refinance (refinance production) decreased $58.9 million, or 30.1% with $136.6 million in refinance production closing during the nine months ended September 30, 2017, down from $195.5 million for the nine months ended September 30, 2016. During the quarter ended September 30, 2017,March 31, 2024, the Company sold $204.3$93.9 million of one-to-four-family loans compared to sales of $205.1$77.3 million for the same quarterperiod one year ago. In addition,Gross margin on home loan sales increased to 3.43% for the three months ended March 31, 2024, compared to 3.05% for the three months ended March 31, 2023. Gross margin is defined as the margin on loans sold increased to 2.53% for(cash sales) without the nine months ended September 30, 2017, from 2.48% for the nine months ended September 30, 2016.impact of deferred costs.
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Purchase production was 76.1% of the total one-to-four-family loan originations versus 23.9% for refinance production during the third quarter of 2017, compared to 60.9% in purchase production versus 39.1% in refinance production during the same period 2016. Purchase production for the nine months ended September 30, 2017 was 77.3% of the total one-to-four-family loan originations versus 22.7% for refinance production, compared to 67.0% in purchase volume versus 33.0% in refinances for the nine months ended September 30, 2016. The increase in originations and purchase activity was primarily associated with the strong home purchase demand in the Pacific Northwest, while the decline in refinance activity reflects the rise in mortgage interest rates over the past year.
The ALLL at September 30, 2017 increased to $10.6ACL on loans totaled $31.5 million or 1.4%1.29% of gross loans receivable excluding(excluding loans HFS,held for sale), at March 31, 2024, compared to $10.2$31.5 million or 1.7%1.30% of gross loans receivable excluding(excluding loans HFS,held for sale, at December 31, 2016. Non-performing loans, consisting of non-accrual loans, increased to $1.32023. The ACL on unfunded loan commitments was $1.5 million at September 30, 2017, from $721,000both March 31, 2024 and December 31, 2023.
Liabilities. Total liabilities decreased $1.5$16.4 million or 18.3%, to $6.6$2.69 billion at March 31, 2024, from $2.71 billion at December 31, 2023, primarily due to a decrease of $57.0 million in deposits, offset by increases of $36.2 million in borrowings and $4.8 million in other liabilities.
Total deposits decreased $57.0 million to $2.47 billion at September 30, 2017,March 31, 2024, from $2.52 billion at December 31, 2023. CDs, which include retail and non-retail CDs, increased $15.6 million to $1.11 billion at March 31, 2024, from $1.10 billion at December 31, 2023, with non-retail CDs representing 31.0% and 34.2% of total CDs at such dates, respectively. At March 31, 2024, non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $30.0 million to $344.5 million, compared to $8.0$374.5 million at December 31, 2016,2023, primarily due to the transfera decrease of $1.9$30.0 million in substandard shared national credits to loans HFS sold at a slight discount to market early in October 2017. The Company recorded the expected discount based on the sales price as a loan charge-off during the third quarter of 2017. The Company had no OREO at September 30, 2017, or at December 31, 2016.brokered CDs.
The Company sold $9.0 million of securities AFS during the third quarter of 2017 realizing a gain of $143,000. Those sales primarily provided additional funds for loan growth during the quarter. The sales of lower coupon investments enabled us to capitalize on the lower Treasury rates for a gain during the third quarter of 2017. The average yield on sold securities AFS during the quarter was 2.48%.
Liabilities. Total liabilities increased $128.8 million, or 17.2%, to $875.7 million at September 30, 2017, from $746.9 million at December 31, 2016, due primarily to an increase in deposits. Total deposits increased $128.0 million, or 18.0%, to $840.6 million at September 30, 2017, from $712.6 million at December 31, 2016. Relationship-based transactionalTransactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) increased $63.7decreased $79.9 million or 29.1%, to $282.7$834.9 million at September 30, 2017,March 31, 2024, from $219.0$914.9 million at December 31, 2016.2023, due to decreases of $56.0 million in interest-bearing checking and $35.5 million in noninterest-bearing checking, partially offset by an increase of $11.6 million in escrow accounts related to mortgages serviced. Money market and savings accounts increased $11.2$7.3 million or 3.7%, to $309.0$518.0 million at September 30, 2017,March 31, 2024, from $297.8$510.7 million at December 31, 2016. Time2023.
Deposits are summarized as follows at the dates indicated:
(Dollars in thousands) | March 31, | December 31, | ||||||
2024 | 2023 | |||||||
Noninterest-bearing checking | $ | 618,526 | $ | 654,048 | ||||
Interest-bearing checking (1) | 188,050 | 244,028 | ||||||
Savings | 153,025 | 151,630 | ||||||
Money market (2) | 364,944 | 359,063 | ||||||
CDs less than $100,000 (3) | 579,153 | 587,858 | ||||||
CDs of $100,000 through $250,000 | 424,463 | 429,373 | ||||||
CDs greater than $250,000 (4) | 108,763 | 79,540 | ||||||
Escrow accounts related to mortgages serviced (5) | 28,373 | 16,783 | ||||||
Total | $ | 2,465,297 | $ | 2,522,323 |
(1) | Includes $0.0 and $70.2 million of brokered deposits at March 31, 2024 and December 31, 2023, respectively. |
(2) | Includes $8.0 million and $1,000 of brokered deposits at March 31, 2024 and December 31, 2023, respectively. |
(3) | Includes $331.3 million and $361.3 million of brokered CDs at March 31, 2024 and December 31, 2023, respectively. |
(4) | CDs that meet or exceed the FDIC insurance limit. |
(5) | Noninterest-bearing checking. |
The Bank had uninsured deposits increased $53.1of approximately $614.1 million or 27.1%,24.9% of total deposits, at March 31, 2024, compared to $248.8approximately $606.5 million or 24.0% of total deposits at December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.
At March 31, 2024, borrowings totaled $129.9 million and were comprised of advances from the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”) of $89.9 million, FRB overnight borrowings of $23.0 million, and FHLB fixed-rate advances of $17.1 million. Borrowings increased $36.2 million to $129.9 million at September 30, 2017,March 31, 2024, from $195.7$93.7 million at December 31, 2016. Non-retail certificates of deposit which includes brokered certificates of deposit, online certificates of deposit, and public funds2023. The increased $39.4borrowings were partially attributable to a decrease in total deposits.
Stockholders’ Equity. Total stockholders’ equity increased $13.4 million or 65.5%, to $99.7$277.9 million at September 30, 2017, compared to $60.2March 31, 2024, from $264.5 million at December 31, 2016. Wholesale funding (brokered deposits) were utilized to bridge short-term asset growth such as loans HFS and pay down higher cost short-term Federal Home Loan Bank (“FHLB”) Fed Funds advances. Approximately $138.2 million of the acquired deposits from the Branch Purchase remain at 1st Security Bank at September 30, 2017. These branch locations have attracted new deposits with an aggregated total of $220.8 million, including public funds at September 30, 2017. Management remains focused on growth in lower cost relationship-based deposits to fund long-term asset growth.
Borrowings decreased $2.4 million, or 18.9%, to $10.3 million at September 30, 2017, from $12.7 million at December 31, 2016, primarily due to the repayment of FHLB Fed Funds advances.
Stockholders’ Equity. Total stockholders’ equity increased $37.2 million, or 45.9% to $118.2 million at September 30, 2017, from $81.0 million at December 31, 2016.2023. The increase in stockholders’ equity during the nine months ended September 30, 2017, was primarily due to the issuance during the third quarter of 2017 of 587,234 shares of common stock at a price of $47.00 per share for net proceeds of $25.6 million and net income of $10.4$8.4 million, partially offset by dividends paid of $2.0 million. In addition, stockholders’ equity was positively impacted by decreases in unrealized net losses in securities available-for-sale of $4.3 million, net of tax, and unrealized net gains on fair value and cash flow hedges of $2.6 million, net of tax, reflecting sales of investment securities in unrealized loss positions and changes in market interest rates benefiting hedges during the quarter, resulting in a $6.9 million improvement in accumulated other comprehensive loss.
Book value per common share was $33.52$36.06 at September 30, 2017,March 31, 2024, compared to $28.32$34.36 at December 31, 2016.
Net proceeds received from the stock offering were used to fund the majority2023. The calculation of a $26.0 million contribution to the Bankbook value per share at the end of the third quarter 2017 to provide additional Tier 1 capital for growth planned over the next 24 months. Management expects continued lending growth due to strong economic factors in the Pacific Northwest and, specifically, the communities we serve.
49
We haveMarch 31, 2024, was based on 7,707,651 common shares, outstanding of 3,527,896 that were calculated using shares outstanding of 3,674,902 at September 30, 2017, less 36,842after deducting the 98,144 unvested restricted stock shares and 110,164 unallocated ESOP shares. Commonfrom the 7,805,795 reported common shares outstanding as of 2,861,135 were calculated using shares outstandingthat date. Similarly, the book value per share at December 31, 2016 of 3,059,503, less 68,7632023, was calculated based on 7,698,401 common shares, after deducting the 102,144 unvested restricted stock shares and 129,605 unallocated ESOP shares.from the 7,800,545 reported common shares outstanding as of that date.
Comparison of Results of Operations for the Three and Nine Months Ended September 30, 2017March 31, 2024 and 20162023
General. Net income was $8.4 million for the three months ended March 31, 2024, compared to $8.2 million for the three months ended March 31, 2023. The increase in net income was primarily due to a $709,000 or 33.6% decrease in the provision for credit losses, partially offset by a $316,000 or $1.0% decrease in net interest income, a $108,000 or 2.1% decrease in noninterest income and a $95,000 or 4.7% increase in provision for income taxes. Total noninterest expense remained relatively unchanged at $3.5$23.5 million for the three months ended March 31, 2024, compared to the same period in 2023.
Average Balances, Interest and Average Yields/Cost
The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at for the periods presented. Average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield. The yields on tax-exempt municipal bonds have not been computed on a tax equivalent basis.
(Dollars in thousands) | For the Three Months Ended | For the Three Months Ended | ||||||||||||||||||||||
March 31, 2024 | March 31, 2023 | |||||||||||||||||||||||
Average Balances | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Loans receivable, net and loans held for sale (1) | $ | 2,464,602 | $ | 40,997 | 6.69 | % | $ | 2,292,364 | $ | 35,992 | 6.37 | % | ||||||||||||
Taxable AFS mortgage-backed securities (2) | 114,799 | 1,121 | 3.93 | % | 81,796 | 345 | 1.71 | % | ||||||||||||||||
Taxable AFS investment securities (2) | 94,731 | 1,162 | 4.93 | % | 59,037 | 743 | 5.10 | % | ||||||||||||||||
Tax-exempt AFS investment securities (2) | 121,883 | 754 | 2.49 | % | 129,843 | 635 | 1.98 | % | ||||||||||||||||
Taxable HTM investment securities | 8,500 | 108 | 5.11 | % | 8,500 | 108 | 5.15 | % | ||||||||||||||||
FHLB stock | 2,174 | 31 | 5.74 | % | 6,335 | 97 | 6.21 | % | ||||||||||||||||
Interest-bearing deposits at other financial institutions | 59,514 | 707 | 4.78 | % | 69,664 | 692 | 4.03 | % | ||||||||||||||||
Total interest-earning assets | 2,866,203 | 44,880 | 6.30 | % | 2,647,539 | 38,612 | 5.91 | % | ||||||||||||||||
Noninterest-earning assets | 92,344 | 94,486 | ||||||||||||||||||||||
Total assets | $ | 2,958,547 | $ | 2,742,025 | ||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Savings and money market | $ | 506,786 | 1,661 | 1.32 | % | $ | 692,841 | 1,198 | 0.70 | % | ||||||||||||||
Interest-bearing checking | 188,979 | 784 | 1.67 | % | 145,434 | 98 | 0.27 | % | ||||||||||||||||
Certificates of deposit | 1,137,002 | 10,437 | 3.69 | % | 849,762 | 5,328 | 2.54 | % | ||||||||||||||||
Borrowings | 101,150 | 1,167 | 4.64 | % | 79,339 | 841 | 4.30 | % | ||||||||||||||||
Subordinated notes | 49,533 | 485 | 3.94 | % | 49,467 | 485 | 3.98 | % | ||||||||||||||||
Total interest-bearing liabilities | 1,983,450 | 14,534 | 2.95 | % | 1,816,843 | 7,950 | 1.77 | % | ||||||||||||||||
Noninterest-bearing accounts | 657,083 | 620,071 | ||||||||||||||||||||||
Other noninterest-bearing liabilities | 43,246 | 34,434 | ||||||||||||||||||||||
Total liabilities | $ | 2,683,779 | $ | 2,471,348 | ||||||||||||||||||||
Net interest income | $ | 30,346 | $ | 30,662 | ||||||||||||||||||||
Net interest rate spread | 3.35 | % | 4.14 | % | ||||||||||||||||||||
Net earning assets | $ | 882,753 | $ | 830,696 | ||||||||||||||||||||
Net interest margin | 4.26 | % | 4.70 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 144.51 | % | 145.72 | % |
(1) | Includes net deferred fee recognition of $1.3 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. |
(2) | Available for sale (“AFS”) and held to maturity (“HTM”) securities are shown at amortized cost. |
Net Interest Income. Net interest income decreased $316,000 to $30.3 million for the three months ended March 31, 2024, from $30.7 million for the three months ended March 31, 2023, due to an increase in interest expense on deposits and, to a lesser extent, borrowings, partially offset by an increase in interest and dividend income. Total interest income increased $6.3 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to an increase of $5.0 million in interest income on loans receivable, including fees, impacted primarily as a result of new loans being originated at higher rates and variable-rate loans repricing higher following increased market interest rates during the first six months of 2023. In addition, interest income on investment securities, excluding FHLB stock, increased $1.3 million, and interest-bearing deposits at other financial institutions increased $15,000, during the three months ended March 31, 2024, compared to the same period in 2023, primarily due to recent increases in market interest rates. Total interest expense increased $6.6 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily as a result of higher market interest rates, higher utilization of borrowings and a shift in deposit mix from transactional accounts to higher cost CDs.
Net interest margin (“NIM”) decreased 44 basis points to 4.26% for the three months ended March 31, 2024, from 4.70% for the same quarter the prior year. The change in NIM reflects the increased costs of deposits and borrowings which outpaced the increased yields earned on interest-earning assets.
Interest Income. Interest income for the three months ended March 31, 2024, increased $6.3 million to $44.9 million, from $38.6 million for the three months ended March 31, 2023. The increase was primarily attributable to a $218.7 million increase in the average balance of total interest-earning assets and a 39-basis point increase in the average yield on total interest-earning assets.
The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the three months ended March 31, 2024 and 2023:
(Dollars in thousands) | Three Months Ended March 31, | |||||||||||||||||||
2024 | 2023 | |||||||||||||||||||
Average | Average | $ Change | ||||||||||||||||||
Balance | Balance | in Interest | ||||||||||||||||||
Outstanding | Yield | Outstanding | Yield | Income | ||||||||||||||||
Loans receivable, net and loans held for sale (1) (2) | $ | 2,464,602 | 6.69 | % | $ | 2,292,364 | 6.37 | % | $ | 5,005 | ||||||||||
Taxable AFS mortgage-backed securities (3) | 114,799 | 3.93 | 81,796 | 1.71 | 776 | |||||||||||||||
Taxable AFS investment securities (3) | 94,731 | 4.93 | 59,037 | 5.10 | 419 | |||||||||||||||
Tax-exempt AFS investment securities (3) | 121,883 | 2.49 | 129,843 | 1.98 | 119 | |||||||||||||||
Taxable HTM investment securities | 8,500 | 5.11 | 8,500 | 5.15 | — | |||||||||||||||
FHLB stock | 2,174 | 5.74 | 6,335 | 6.21 | (66 | ) | ||||||||||||||
Interest-bearing deposits at other financial institutions | 59,514 | 4.78 | 69,664 | 4.03 | 15 | |||||||||||||||
Total interest-earning assets | $ | 2,866,203 | 6.30 | % | $ | 2,647,539 | 5.91 | % | $ | 6,268 |
(1) | The average loans receivable, net balances include nonaccrual loans. |
(2) | Includes net deferred fee recognition of $1.3 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. |
(3) | Shown at amortized cost. |
Interest Expense. Interest expense increased $6.6 million to $14.5 million for the three months ended March 31, 2024, from $8.0 million for the comparable quarter in 2023, primarily due to an increase of interest expense on deposits of $6.3 million and on borrowings of $326,000. The average cost of funds for total interest-bearing liabilities increased 118 basis points to 2.95% for the three months ended March 31, 2024, from 1.77% for the three months ended March 31, 2023. The increase in interest expense was predominantly due to an increase in cost for deposits and borrowings as well as an increase in the average balances of CDs and borrowings. The average cost of total interest-bearing deposits increased 124 basis points to 2.83%, for the three months ended March 31, 2024, compared to 1.59%, for the three months ended March 31, 2023. The average balance of total interest-bearing deposits increased $144.7 million to $1.83 billion for the three months ended March 31, 2024, compared to $1.69 billion for the three months ended March 31, 2023. The average cost of funds, including noninterest-bearing checking, increased 89 basis points to 2.21% for the three months ended March 31, 2024, from 1.32% for the three months ended March 31, 2023.
The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the three months ended March 31, 2024 and 2023:
(Dollars in thousands) | Three Months Ended March 31, | |||||||||||||||||||
2024 | 2023 | |||||||||||||||||||
Average | Average | $ Change | ||||||||||||||||||
Balance | Balance | in Interest | ||||||||||||||||||
Outstanding | Rate | Outstanding | Rate | Expense | ||||||||||||||||
Savings and money market | $ | 506,786 | 1.32 | % | $ | 692,841 | 0.70 | % | $ | 463 | ||||||||||
Interest-bearing checking | 188,979 | 1.67 | 145,434 | 0.27 | 686 | |||||||||||||||
Certificates of deposit | 1,137,002 | 3.69 | 849,762 | 2.54 | 5,109 | |||||||||||||||
Borrowings | 101,150 | 4.64 | 79,339 | 4.30 | 326 | |||||||||||||||
Subordinated note | 49,533 | 3.94 | 49,467 | 3.98 | — | |||||||||||||||
Total interest-bearing liabilities | $ | 1,983,450 | 2.95 | % | $ | 1,816,843 | 1.77 | % | $ | 6,584 |
Provision for Credit Losses. For the three months ended March 31, 2024, the provision for credit losses was $1.4 million, consisting of a $1.4 million provision for credit losses on loans, partially offset by a $22,000 recapture of the ACL on unfunded loan commitments, compared to $2.1 million provision for credit losses for the three months ended March 31, 2023, consisting of a $2.4 million provision for credit losses on loans, offset by a $249,000 recapture of the ACL on unfunded loan commitments. The provision for credit losses on loans reflects the increase in the loan portfolio, as well as an increase in nonperforming loans and higher net charge-offs.
During the three months ended March 31, 2024, net loan charge-offs totaled $1.5 million, compared to $410,000 during the three months ended March 31, 2023. The increase was primarily due to increases in net charge-offs of $441,000 in indirect home improvement loans, $408,000 in commercial business loans, and $169,000 in marine loans. A further decline in national and local economic conditions, as a result the effects of inflation, a potential recession or slowed economic growth, among other economic factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.
Noninterest Income. Noninterest income decreased $108,000 to $5.1 million for the three months ended March 31, 2024, from $5.2 million for the three months ended March 31, 2023. The decrease reflects an $8.0 million loss on sale of investment securities resulting from management's strategic decision to increase the yields earned on and reduce the duration of the securities portfolio, and a $650,000 decrease in other noninterest income, primarily due to fair value adjustments to loans in the loan portfolio, partially offset by an $8.2 million increase in gain on sale of MSRs and a $362,000 gain on sale of loans. Gross margin on home loan sales increased to 3.43% for the three months ended March 31, 2024, from 3.05% for the three months ended March 31, 2023.
Noninterest Expense. Noninterest expense was $23.5 million for both the three months ended September 30, 2017March 31, 2024 and 2016 as the $2.4 million increase in net interest income, after provision for loan losses was offset by a decline in noninterest income, an increase2023. The variations in noninterest expense and an increase in provision for income taxes. Net income for the nine months ended September 30, 2017, increased $2.5 million, or 30.8%, to $10.4 million, from $8.0 million for the nine months ended September 30, 2016. The increase in net income was primarily a result of a $6.6 million, or 29.1% increase in net interest income, after provision for loan losses, partially offset by a $4.1 million, or 14.1% increase in noninterest expense.
The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities to calculate the comparison of results of operations for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, | ||||||||
Average Balances |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net (1) |
| $ | 803,399 |
| $ | 643,989 |
| $ | 725,247 |
| $ | 600,343 |
Securities available-for-sale, at fair value |
|
| 79,377 |
|
| 83,643 |
|
| 90,206 |
|
| 80,214 |
Interest-bearing deposits and certificates of deposit at other financial institutions |
|
| 42,990 |
|
| 36,744 |
|
| 46,153 |
|
| 74,573 |
FHLB stock, at cost |
|
| 4,034 |
|
| 1,407 |
|
| 3,658 |
|
| 2,004 |
Total interest-earning assets |
|
| 929,800 |
|
| 765,783 |
|
| 865,264 |
|
| 757,134 |
Noninterest-earning assets (2) |
|
| 35,868 |
|
| 37,674 |
|
| 37,501 |
|
| 33,022 |
Total assets |
| $ | 965,668 |
| $ | 803,457 |
| $ | 902,765 |
| $ | 790,156 |
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing accounts |
| $ | 642,811 |
| $ | 532,069 |
| $ | 603,449 |
| $ | 517,625 |
Borrowings |
|
| 34,372 |
|
| 20,239 |
|
| 27,994 |
|
| 28,660 |
Subordinated note |
|
| 9,837 |
|
| 9,817 |
|
| 9,832 |
|
| 9,812 |
Total interest-bearing liabilities |
|
| 687,020 |
|
| 562,125 |
|
| 641,275 |
|
| 556,097 |
Noninterest-bearing accounts |
|
| 169,367 |
|
| 153,209 |
|
| 163,079 |
|
| 147,848 |
Other noninterest-bearing liabilities |
|
| 13,966 |
|
| 12,048 |
|
| 11,318 |
|
| 11,222 |
Stockholders’ equity |
|
| 95,315 |
|
| 76,075 |
|
| 87,093 |
|
| 74,989 |
Total liabilities and stockholders’ equity |
| $ | 965,668 |
| $ | 803,457 |
| $ | 902,765 |
| $ | 790,156 |
|
|
|
|
Net Interest Income. Net interest income increased $2.3 million, or 26.0%, to $11.0 million for the three months ended September 30, 2017, from $8.8 million for the three months ended September 30, 2016. The increase in net interest income was primarily due to a $2.5 million, or 26.8% increase in loans receivable interest income, due to an increase in the average loans receivable, net balance.
Net interest income increased $5.3 million, or 21.5%, to $30.0 million for the nine months ended September 30, 2017, from $24.7 million for the nine months ended September 30, 2016. The increase in net interest income was primarily due to a $5.5 million, or 21.0% increase in loans receivable interest income, due to an increase in the average loans receivable, net balance.
50
The net interest margin (“NIM”) increased 15 basis points to 4.70% for the three months ended September 30, 2017, from 4.55% for the three months ended September 30, 2016, and increased 27 basis points to 4.63% for the nine months ended September 30, 2017, from 4.36% for the nine months ended September 30, 2016. The increased NIM reflects growth in higher yielding loans, compared to short term investments and cash. Management remains focused on matching deposit duration with the duration of earning assets where appropriate.
Interest Income. Interest income for the three months ended September 30, 2017, increased $2.6 million, or 26.3%, to $12.4 million, from $9.8 million for the three months ended September 30, 2016. The increase during the period was primarily attributable to the increase in the average balance of loans receivable to $803.4 million for the three months ended September 30, 2017, compared to $644.0 million for the three months ended September 30, 2016. The average yield on interest-earning assets increased 18 basis points to 5.27% for the three months ended September 30, 2017, compared to 5.09% for the three months ended September 30, 2016. The increase in average yield on interest-earning assets compared to the same period a year earlier primarily reflects the growth in the loan portfolio and the proportionally larger level of loans in the average interest-earning asset mix.
Interest income for the nine months ended September 30, 2017, increased $5.8 million, or 20.7%, to $33.5 million, from $27.8 million for the nine months ended September 30, 2016. The increase during the period was primarily attributable to the increase in the average balance of loans receivable to $725.2 million for the nine months ended September 30, 2017, compared to $600.3 million for the nine months ended September 30, 2016. The average yield on interest-earning assets increased 27 basis points to 5.18% for the nine months ended September 30, 2017, compared to 4.91% for the nine months ended September 30, 2016. The increase in average yield on interest-earning assets compared to the same period a year earlier primarily reflects the growth in the loan portfolio and the proportionally larger level of loans in the average interest-earning asset mix.
Interest Expense. Interest expense increased $301,000, or 29.3%, to $1.3 million for the three months ended September 30, 2017, from $1.0 million for the same period of the prior year. The average cost of funds increased four basis points to 0.61% for the three months ended September 30, 2017, compared to 0.57% for the three months ended September 30, 2016were primarily due to the growthabsence of acquisition costs in interest-bearing deposits. The average cost of deposits increased four basis pointsthe current period, in contrast to 0.51% for the three months ended September 30, 2017, compared to 0.47% for the three months ended September 30, 2016, reflecting rising interest rates over the last year and the increase$1.5 million incurred in non-retail certificates of deposit.
Interest expense increased $460,000, or 14.8%, to $3.6 million for the nine months ended September 30, 2017, from $3.1 million for the same period of the prior year, primarily due to growth in deposits. The average cost of funds was unchanged at 0.59% for the nine months ended September 30, 2017 and 2016. The average cost of deposits was also unchanged at 0.48% for both the nine months ended September 30, 2017 and 2016, reflecting steady deposit interest rates year over year. Management remains focused on matching deposit duration with the duration of earning assets where appropriate.
Provision for Loan Losses For the three and nine months ended September 30, 2017, the provision for loan losses was $450,000, compared to $600,000 and $1.8 million, for the three and nine months ended September 30, 2016, respectively. The reduced provision for loan losses for the three and nine months ended September 30, 2017Additionally, there was a resultdecrease of the low level of charge-offs and the relatively low level of delinquent, nonperforming and classified loans, as well as the increasing percentage of real estate loans and improving real estate values in our market areas. Management also reviewed during the quarter the historical loss activity over the past 17 quarters and incorporated the decrease in the level of historical loss as a factor in determining a reduction in the required unallocated allowance for loan and lease losses at September 30, 2017. During the three months ended September 30, 2017, net recoveries totaled $5,000 compared to $35,000 during the three months ended September 30, 2016. Net charge-offs totaled $63,000 during the nine months ended September 30, 2017, compared to net recoveries of $1,000 during the nine months ended September 30, 2016.
Noninterest Income. Noninterest income decreased $821,000, or 11.3%, to $6.4 million for the three months ended September 30, 2017, from $7.2 million for the three months ended September 30, 2016. The decrease during the period was due to an $897,000 reduction in gain on sale of loans, primarily associated with a decrease in the volume of loans/locks fair valued, and a reduction of gain on sale margins associated with the product mix in the Pacific Northwest, partially offset by a $64,000 increase in other noninterest income.
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Noninterest income increased $679,000, or 3.7%, to $18.8 million for the nine months ended September 30, 2017, from $18.1 million for the nine months ended September 30, 2016. The increase during the period was primarily due to increases in gain on sale of servicing rights of $996,000, service charges and fee income of $254,000, and gain on sale of investment securities of $234,000, primarily offset by a decrease in gain on sale of loans of $882,000 primarily associated with a decrease in the volume of loans/locks fair valued, and a reduction of gain on sale margins associated with the product mix in the Pacific Northwest.
Noninterest Expense. Noninterest expense increased $1.3 million, or 12.4%, to $11.6 million for the three months ended September 30, 2017, from $10.3 million for the three months ended September 30, 2016. The increase in noninterest expense was primarily a result of an $853,000 increase$307,000 in salaries and benefits, which included $42,000partially offset by increases of $482,000 in incentives and commissions for the loan production staff associated with continued strong loan production growth, a $216,000 decrease in recoveryamortization of mortgage servicing rights, a $127,000 increase in operations, and a $114,000 increasecore deposit intangible, $390,000 in data processing, partially offset by a $124,000 decrease$316,000 in operations, $245,000 in professional and board fees.
Noninterest expense increased $4.1 million 14.1%, to $32.9 million for the nine months ended September 30, 2017, from $28.8 million for the nine months ended September 30, 2016. The increase in noninterest expense was primarily a result of a $3.7 million increase in salaries and benefits, which included $935,000 in incentives and commissions for the loan production staff, a $285,000 increase in operations, a $235,000 increase in data processing, a $188,000 increase in loan costs, and a $164,000 increasefees, $185,000 in occupancy expense, partially offset by a $389,000 decreaseand $115,000 in acquisition costs and a $229,000 decrease in professional and board fees.loan costs.
The efficiency ratio, which is calculated by dividing noninterest expense as a percentage ofby total net interest income and noninterest income, weakened slightlyworsened to 66.4%66.36% for the three months ended September 30, 2017,March 31, 2024, compared to 64.5%65.56% for the three months ended September 30, 2016, and 67.5% for the nine months ended September 30, 2017, comparedMarch 31, 2023, primarily due to 67.4% for the nine months ended September 30, 2016, representing a greater increasedecreases in noninterest expense as compared to a smaller increase innet interest income and noninterest income.
Provision for Income Tax. Taxes.For the three months ended September 30, 2017,March 31, 2024, the Company recorded a provision for income tax expensetaxes of $2.0$2.1 million on pre-tax income as compared to $1.6$2.0 million for the three months ended September 30, 2016.March 31, 2023. The increase in the income taxes provision was primarily due to a $280,000 increase in pre-tax income during the three months ended March 31, 2024, as compared to the same quarter last year. The effective corporate income tax rates for the three months ended September 30, 2017March 31, 2024 and 20162023 were 36.2%20.2% and 32.0%19.9%, respectively. ForThe increase in the nine months ended September 30, 2017, the Company recorded a provision foreffective corporate income tax rate was attributable to a decrease in nontaxable income between periods, to include an increase in non-deductible interest expense of $5.0 million on pre-tax income as comparedattributable to $4.2 million for the nine months ended September 30, 2016. The effective tax rates for the nine months ended September 30, 2017 and 2016 were 32.5% and 34.5%, respectively.related assets.
Liquidity
Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit runoff that may occur in the normal course of business. The Company relies on a number ofseveral different sources in order to meet its potential liquidity demands. The primary sources are increases in deposit accounts, FHLB advances, purchases of Fed Funds,federal funds, sale of securities available-for-sale, cash flows from loan payments, sales of one-to-four-family loans HFS,held for sale, and maturing securities. While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund its operations. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At September 30, 2017,March 31, 2024, the Bank’s total borrowing capacity was $247.1$698.7 million with the FHLB of Des Moines, with unused borrowing capacity of $235.8$681.2 million. The FHLB borrowing limit is based on certain categories of loans, primarily real estate loans that qualify as collateral for FHLB advances. At September 30, 2017,March 31, 2024, the Bank held approximately $320.1 million$1.09 billion in loans that qualify as collateral for FHLB advances.
In addition to the availability of liquidity from the FHLB of Des Moines, the Bank maintainedmaintains a short-term borrowing line with the Federal Reserve Bank,FRB with a current limit of $96.0$269.3 million and a combined credit limit of $43.0$101.0 million in written Fed Fundsfederal funds lines of credit through correspondent banking relationships at September 30, 2017.March 31, 2024. The Federal Reserve BankFRB borrowing limit is based on certain categories of loans, primarily consumer loans that qualify as collateral for Federal Reserve BankFRB line of credit. At September 30, 2017,March 31, 2024, the Bank held approximately $195.3$632.8 million in loans that qualify as collateral for the Federal Reserve BankFRB line of credit.
At September 30, 2017, $10.3 Additionally, securities with a carrying value of $76.2 million in FHLB advances were outstanding, and no advances were outstanding againstpledged primarily to provide contingent liquidity through the BTFP at the Federal Reserve Bank lineat March 31, 2024, with a current limit of credit, or$90.1 million and no unused borrowing capacity. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the Fed Funds linesfuture to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of credit. investment opportunities to the extent feasible.
The Bank’s Asset and Liability Management Policy permits management to utilize brokered deposits up to 20% of Bank deposits or $168.8$494.9 million at September 30, 2017.
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March 31, 2024. Total brokered deposits at September 30, 2017March 31, 2024 were $102.2$339.3 million. Management utilizes brokered deposits to mitigate interest rate risk and to enhance liquidity risk exposure when appropriate.
Liquidity management is both a daily and long-term function of Companythe Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and Fed Funds.federal funds. On a longer termlonger-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and federalU.S. agency securities. The Company uses sources of funds primarily to meet ongoing commitments, pay maturing deposits, fund withdrawals, and to fund loan commitments. At September 30, 2017, the approvedMarch 31, 2024, outstanding loan commitments, including unused lines of credit amounted to $347.1totaled $566.6 million. The Company purchased $38.0 million including undisbursed constructionin securities during the three months ended March 31, 2024. The Company purchased no securities during the three months ended March 31, 2023. Proceeds from securities repayments, maturities and developmentsales were $48.3 million and $2.5 million during the three months ended March 31, 2024 and 2023, respectively.
The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the three months ended March 31, 2024 and 2023, the Bank sold $93.9 million and $77.3 million in process totaling $82.1loans, respectively.
Total deposits decreased $57.0 million during the three months ended March 31, 2024 primarily driven by a net decrease in brokered deposits of $92.2 million. Certificates of depositCDs scheduled to mature in three months or less at September 30, 2017,March 31, 2024, totaled $81.2$336.0 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, the Companymanagement believes that a majority of maturing relationship deposits will remain with the Bank.
For the remainder of 2024, we project that fixed commitments will include $1.4 million of operating lease payments. For information regarding our operating leases, see “Note 7 – Leases” of the Notes to Consolidated Financial Statements included in this report. FHLB advances of $1.1 million are scheduled to mature within the next twelve months.
As a separate legal entity from the Bank, FS Bancorp, Inc. must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to the Bank), FS Bancorp is responsible for paying for any stock repurchases, dividends declared to its stockholders, interest and principal on outstanding debt, and other general corporate expenses. Sources of capital and liquidity for FS Bancorp Inc. include distributions from the Bank and the issuance of debt or equity securities. securities, although there are regulatory restrictions on the ability of the Bank to make distributions.
Dividends and other capital distributions from the Bank are subject to regulatory notice. At September 30, 2017,notice and certain restrictions. The unrestricted cash of FS Bancorp Inc. had $3.7held at the Bank on an unconsolidated basis totaled $9.3 million at March 31, 2024. The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.26 per share, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to meet liquidity needs.
Commitments and Off-Balance Sheet Arrangements
The Company is a party to financial instruments with off-balance sheet risk inour shareholders. Assuming continued payment during 2024 at this rate of $0.26 per share, our total dividends paid each quarter would be approximately $2.0 million based on the normal course of business in order to meet the financing needs of its customers. For information regarding our commitments and off-balance sheet arrangements, see Note 9number of the Notes to Consolidated Financial Statements includedcurrent outstanding shares as of March 31, 2024.
Under FS Bancorp’s existing stock repurchase program, approximately $3.0 million remained available for future repurchases as of March 31, 2024. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Item 2, Part I. Item 1II of this report.Form 10-Q for additional information relating to stock repurchases.
Capital Resources
The Bank is subject to minimum capital requirements imposed by the FDIC. Based on its capital levels at September 30, 2017,March 31, 2024, the Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a well capitalizedwell-capitalized status under the capital categories of the FDIC. Based on capital levels at September 30, 2017,March 31, 2024, the Bank was considered to be well capitalized. At September 30, 2017,March 31, 2024, the Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 capital ratios of 10.6%, 12.5%, 14.9%, 16.1%13.7%, and 14.9%12.5%, respectively.
As a bank holding company registered with the Federal Reserve, the Company is subject to the capital adequacy requirements of the Federal Reserve. Bank holding companies with less than $3.0 billion in assets are generally not subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to the holding company’s subsidiary bank and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations. If FS Bancorp were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at March 31, 2024, FS Bancorp would have exceeded all regulatory capital requirements. For informational purposes, the regulatory capital ratios calculated for FS Bancorp at March 31, 2024 were 9.2% for Tier 1 leverage-based capital, 10.9% for Tier 1 risk-based capital, 14.1% for total risk-based capital, and 10.9% for CET 1 capital ratio. For additional information regarding the Bank’s regulatory capital compliance, see the discussion included in Note“Note 14 – Regulatory Capital” to the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.
For a bank holding company with less than $1 billion in consolidated assets, such as FS Bancorp, Inc., the capital guidelines apply on a bank only basis and the Federal Reserve requires the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If FS Bancorp, Inc. was subject to regulatory guidelines for bank holding companies with $1 billion or more in assets, at September 30, 2017, FS Bancorp, Inc. would have exceeded all regulatory capital requirements.
Item3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the market risk disclosures contained in FS Bancorp’s 2023 Form 10-K.
Not required for smaller reporting companies.
Item4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
An evaluation of the disclosure controls and procedures (asas defined in Rule 13a‑15(e) of the Securities Exchange Act of 1934 (the “Act”)) at September 30, 2017 was carried out as of March 31, 2024, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) and several other members of the Company’s senior management. The Company’s Chief Executive OfficerIn designing and Chief Financial Officer concluded thatevaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in effect at September 30, 2017designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based upon the foregoing evaluation, the Company’s CEO and CFO concluded that as of March 31, 2024, the Company’s disclosure controls and procedures were effective in ensuring that the information we are required to be disclosed by the Companydisclose in the reports it fileswe file or submitssubmit under the Exchange Act is: (i) accumulated and communicated to the Company’s
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management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii)is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to FS Bancorp management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.
(b)Changes in Internal Controls
There have beenwere no changes in the Company’s internal control over financial reporting (as defined in Rule 13a‑15(f) of the Act) that occurred during the three months ended September 30, 2017,March 31, 2024, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
There have been no material changes toin the risk factors set forthRisk Factors previously disclosed in Part I. Item 1A of the Company’s Annual Report onFS Bancorp’s 2023 Form 10‑K for the year ended December 31, 2016.10-K.
Item2.Unregistered Sales of Equity Securities and Use of Proceeds
(a) | Not applicable |
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(b) | Not applicable |
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(c) | The following table summarizes common stock repurchases during the three months ended March 31, 2024: |
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Maximum | ||||||||||||||||
Total Number | Dollar Value of | |||||||||||||||
of Shares | Shares that | |||||||||||||||
Average | Repurchased as | May Yet Be | ||||||||||||||
Total Number | Price | Part of Publicly | Repurchased | |||||||||||||
of Shares | Paid per | Announced | Under the | |||||||||||||
Period | Purchased | Share | Plan or Program | Plan or Program | ||||||||||||
January 1, 2024 - January 31, 2024 (1) | 17,612 | $ | 37.25 | 17,612 | $ | 3,023,630 | ||||||||||
February 1, 2024 - February 29, 2024 | — | — | — | — | ||||||||||||
March 1, 2024 - March 31, 2024 | — | — | — | — | ||||||||||||
Total for the quarter | 17,612 | $ | 37.25 | 17,612 | $ | 3,023,630 |
____________________________
(1) Includes 3,653 shares internally repurchased by the Company to pay for the option exercise price for participants exercising options.
On August 15, 2023, the Company publicly announced that its Board of Directors approved a stock repurchase program, authorizing the repurchase up to $5.0 million shares of Company common stock, representing approximately 2.5% of its outstanding shares as of that date. The repurchases may be executed, from time to time, in the open market, through privately negotiated transactions, or by withholding shares upon the exercise of equity awards over a 12-month period until July 31, 2024.
The actual timing, price, and number of shares repurchased under the program will depend on a number of factors, including constraints specified pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, price, general business and market conditions, and alternative investment opportunities. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.
Item3.Defaults Upon Senior Securities
Not applicable.
Item4. Mine Safety Disclosures
Not applicable.
Not applicable.
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(a) | None. |
(b) | None. |
(c) | Trading Plans. During the three months ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
4.3 | ||
10.1 | Severance Agreement between 1st Security Bank of Washington and Joseph C. Adams (1) | |
10.2 | ||
10.3 | FS Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”) | |
10.4 | Form of Incentive Stock Option Agreement under the 2013 Plan | |
10.5 | Form of Non-Qualified Stock Option Agreement under the 2013 Plan | |
10.6 | ||
10.9 | ||
10.10 | ||
10.11 | Form of Incentive Stock Option Award Agreement under the 2018 Equity Incentive Plan (6) | |
10.12 | Form of Non-Qualified Stock Option Award Agreement under the 2018 Equity Incentive Plan (6) | |
10.13 | Form of Restricted Stock Award Agreement under the 2018 Equity Incentive Plan (6) | |
10.14 | ||
10.15 | Form of Enrollment/Change Form under the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (7) | |
10.16 | Form of Change of Control Agreement with Shana Allen, Stephanie Nicklaus, and Benjamin Crowl (8) | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | The following materials from the Company’s Quarterly Report on Form 10‑Q for the quarter ended | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
(1) | Filed as an exhibit to the Registrant’s Registration Statement on Form S‑1 (333‑177125) filed on October 3, 2011, and incorporated by reference. | |
(2) | Filed as an exhibit to the Registrant’s Current Report on Form 8‑K filed on July 10, 2013 (File No. 001‑ | |
(3) | Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 11, 2021 (File No. 001-35589). | |
(4) | Filed as an exhibit to the Registrant’s Registration Statement on Form | |
(5) | Filed as an exhibit to the Registrant’s Current Report on Form | |
| ||
| ||
(6) | Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-22513) filed on May 23, 2018. | |
(7) | Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-265729) filed on June 21, 2022. | |
(8) | Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2024 (File No. 001-35589). |
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Exhibit Index
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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FS BANCORP, INC. | |||
Date: | By: | /s/Joseph C. Adams | |
Joseph C. Adams, | |||
Chief Executive Officer | |||
( | |||
Date: | By: | /s/Matthew D. Mullet | |
Matthew D. Mullet | |||
Secretary, Treasurer and | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
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