FS Bancorp Inc
For the period ended Sep 30, 2024. Filed Nov 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 8, 2024
FSBW$43.55-0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001437749-24-025823
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-08.
0001437749-24-034233
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 111 previous paragraphs and 104 current paragraphs.
48 unchanged; 52 reworded; 4 added; 10 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 18 previous and 18 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
***General.***Net income was $10.3 million for the three months ended September 30, 2024, compared to $9.0 million for the three months ended September 30, 2023. The increase in net income was primarily due to a $2.9 million, or 116.6%, decrease in provision for income tax expense due to energy tax credits purchased during the current quarter and a $985,000, or 19.8%, increase in total noninterest income, partially offset by a $2.2 million, or 9.5%, increase in noninterest expense.
Current report
***Noninterest Expense.***Noninterest expense increased $2.2 million to $25.8 million for the three months ended September 30, 2024, from $23.6 million for the three months ended September 30, 2023. The increase was primarily due to increases of $506,000 in impairment of MSRs due to changes in mortgage interest rates and higher estimated prepayment rates, $482,000 in salaries and benefits due to competitive wage adjustments, additional staffing to support growth, and higher overall benefit costs, $557,000 in professional and board fees, which included $571,000 in nonrecurring consulting charges and legal fees related to application/system upgrades and tax credit work, $418,000 in operations, and $315,000 in data processing. These increases were slightly offset by a decrease of $105,000 in amortization of CDI.
Current report
Provision for Income Taxes.* *For the three months ended September 30, 2024, the Company recorded a benefit for income taxes of $420,000, as compared to a provision for income taxes of $2.5 million for the three months ended September 30, 2023. The tax benefit was due to the purchase during the quarter ended September 30, 2024, of alternative energy tax credits available under the Inflation Reduction act of 2022, resulting in a gain of $2.3 million, which was partially offset by the $1.8 million provision for income taxes recorded on the net income for the three months ended September 30, 2024. The Inflation Reduction Act of 2022 introduced several energy tax credits designed to promote clean energy investments, reduce carbon emissions, and accelerate the transition to renewable energy. The effective corporate income tax rates for the three months ended September 30, 2024 and 2023 were (4.3)%, which was reduced by 2,300 basis points due to the energy tax credits discussed above, and 22.0%, respectively. The decrease in the effective corporate income tax rate, excluding the effects of the energy tax credits, was attributable to tax benefits derived from the exercises of employee stock options during the current quarter.
Current report
***Noninterest Expense.***Noninterest expense increased $1.9 million to $73.2 million for the nine months ended September 30, 2024, from $71.3 million for the nine months ended September 30, 2023. This increase was primarily due to increases of $1.1 million in data processing, $1.0 million in professional and board fees which included $824,000 in nonrecurring consulting charges and legal fees for the reasons stated above, $610,000 operations expense, and $545,000 in impairment of MSRs due to increases in estimated prepayment rates, partially offset by a decrease of $1.6 million in acquisition costs as a result of no acquisition costs during the current period.
Removed paragraphs (10)
Previous report
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.
Previous report
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.”
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
***General.***Net income was $9.0 million for the three months ended June 30, 2024, compared to $9.1 million for the three months ended June 30, 2023. The slight decrease in net income was primarily due to a $1.2 million, or 3.6% decrease in net interest income and a $361,000, or 50.4% increase in the provision for loan losses, partially offset by a $1.0 million or 21.4% increase in noninterest income and a $347,000, or 1.4% decrease in noninterest expense.
Previous report
***Noninterest Expense.***Noninterest expense decreased $347,000 to $23.9 for the three months ended June 30, 2024, from $24.2 million for the three months ended June 30, 2023. The decrease was primarily due to decreases of $390,000 in loans costs, $141,000 in FDIC insurance, $135,000 in salaries and benefits, $124,000 in operations, and $104,000 in amortization of core deposit intangible, partially offset by increases of $375,000 in data processing, $231,000 in professional and board fees, and $107,000 in occupancy expense.
Previous report
***Noninterest Expense.***Noninterest expense decreased $342,000 to $47.4 million for the six months ended June 30, 2024, from $47.7 million for the six months ended June 30, 2023. The decrease was primarily due to the absence of acquisition costs in the current period, in contrast to $1.6 million incurred in the prior year. Additionally, there was a decrease of $442,000 in salaries and benefits and $275,000 in loan costs, partially offset by increases of $765,000 in data processing primarily related to the Branch Purchase, $476,000 in professional and board fees, $378,000 in amortization of core deposit intangible, $292,000 in occupancy expense, and $192,000 in operations.
Reworded paragraphs (52)
Previous wording
1st Security Bank, has been serving the Puget Sound area since 1907, including its bank acquisitions, when the predecessor to 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.
Current wording
1st Security Bank has been serving the Puget Sound area since 1907, which includes when the predecessor to Anchor Bank, one of its banking acquisitions, was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp.
Previous wording
At June 30, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 61.7%, 25.8%, and 12.5% of the portfolio, respectively.
Current wording
At September 30, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 62.1%, 25.4%, and 12.5% of the portfolio, respectively.
Previous wording
Fixture secured loans to finance window, gutter, siding replacement, solar panels, spas, and other improvement renovations are a large segment of the consumer loan portfolio. These fixture-secured consumer loans are dependent on the Company’s contractor/dealer network of 84 active fixture dealerships that funded a loan during the three months ended June 30, 2024, located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and New Hampshire. Five of these contractor/dealers were responsible for 74.8% of the dollar volume of funded loans for the three months ended June 30, 2024. The Company funded $32.6 million, consisting of approximately 1,500 loans in the fixture-secured consumer loan category during the quarter ended June 30, 2024.
Current wording
Fixture secured loans to finance window, gutter, siding replacement, solar panels, spas, and other improvement renovations are a large segment of the consumer loan portfolio. These fixture-secured consumer loans are dependent on the Company’s contractor/dealer network of 75 currently active fixture dealerships located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and New Hampshire. Five of these contractor/dealers were responsible for 68.5% of the dollar volume of funded loans for the three months ended September 30, 2024. The Company funded $27.2 million, consisting of 1,230 loans in the fixture-secured consumer loan category during the quarter ended September 30, 2024.
Previous wording
The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $206.1 million of one-to-four-family loans (which included loans held for sale, loans held for investment and fixed seconds) in addition to $3.8 million of loans brokered to other institutions through the home lending segment during the three months ended June 30, 2024, of which $164.5 million were sold to investors. Of the loans sold to investors, $68.3 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 June 30, 2024, one-to-four-family residential mortgage loans held for investment totaled $589.0 million, or 23.7%, of the total gross loan portfolio, while loans held for sale totaled $53.8 million and residential home equity loans totaled $73.7 million at that date.
Current wording
The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $196.2 million of one-to-four-family loans (which included loans held for sale, loans held for investment and fixed seconds) in addition to $6.7 million of loans brokered to other institutions through the home lending segment during the three months ended September 30, 2024, of which $167.6 million were sold to investors. Of the loans sold to investors, $61.7 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, 2024, one-to-four-family residential mortgage loans held for investment totaled $591.7 million, or 23.7%, of the total gross loan portfolio, while loans held for sale totaled $49.4 million and residential home equity loans totaled $75.1 million at that date.
Previous wording
The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for (recapture of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes.
Current wording
The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for (recovery of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes.
Previous wording
***Assets.***Total assets decreased $31.3 million to $2.94 billion at June 30, 2024, from $2.97 billion at December 31, 2023, primarily due to decreases of $71.8 million in securities available-for-sale, $32.7 million in total cash and cash equivalents, and $11.5 million in certificates of deposit at other financial institutions, partially offset by increases of $55.7 million in loans receivable, net, $28.1 million in loans held for sale, and $8.2 million in FHLB stock.
Current wording
***Assets.***Total assets were relatively unchanged at $2.97 billion at September 30, 2024, and December 31, 2023. There were, however, shifts in a number of categories including decreases of $64.7 million in securities available-for-sale, $25.4 million in total cash and cash equivalents, and $12.2 million in certificates of deposit at other financial institutions, partially offset by increases of $62.2 million in loans receivable, net, $23.7 million in loans held for sale, and $21.2 million in other assets consisting primarily of a federal income tax receivable of $25.7 million.
Previous wording
Loans receivable, net increased $55.7 million to $2.46 billion at June 30, 2024, from $2.40 billion at December 31, 2023, Total real estate loans increased $5.6 million to $1.54 billion at June 30, 2024, compared to December 31, 2023, reflecting increases in one-to-four-family loans (excluding loans held for sale) of $21.2 million, multi-family loans of $15.9 million, and home equity loans of $4.3 million, partially offset by decreases in construction and development loans of $28.8 million and CRE loans of $6.9 million. Undisbursed construction and development loan commitments increased $41.2 million to $195.8 million at June 30, 2024, as compared to $154.6 million at December 31, 2023. Similarly, commercial business loans increased $54.9 million to $310.7 million at June 30, 2024, compared to December 31, 2023, as a result of increases in C&I loans of $46.9 million and in warehouse lending of $8.0 million. Consumer loans decreased $5.1 million to $641.7 million at June 30, 2024, compared to December 31, 2023, primarily due to a decrease of $6.3 million in indirect home improvement loans, partially offset by an increase of $1.3 million in marine loans.
Current wording
Loans receivable, net increased $62.2 million to $2.46 billion at September 30, 2024, from $2.40 billion at December 31, 2023. Total real estate loans increased $20.1 million to $1.55 billion at September 30, 2024, compared to December 31, 2023, reflecting increases in one-to-four-family loans (excluding loans held for sale) of $23.9 million, multi-family loans of $14.7 million, and home equity loans of $5.6 million, partially offset by decreases in CRE loans of $13.4 million and construction and development loans of $10.7 million. Undisbursed construction and development loan commitments increased $19.3 million to $174.0 million at September 30, 2024, as compared to $154.6 million at December 31, 2023. Commercial business loans increased $56.1 million to $312.0 million at September 30, 2024, compared to December 31, 2023, as a result of increases in C&I loans of $58.5 million, slightly offset by a decrease in warehouse lending of $2.3 million. Consumer loans decreased $14.3 million to $632.4 million at September 30, 2024, compared to December 31, 2023, primarily due to a decrease of $17.7 million in indirect home improvement loans, partially offset by an increase of $3.5 million in marine loans.
Previous wording
Loans held for sale, consisting of one-to-four-family loans, increased by $28.1 million to $53.8 million at June 30, 2024, from $25.7 million at December 31, 2023. The Company continues to invest in its home lending operations and strategically manage production capacity in the markets we serve.
Current wording
Loans held for sale, consisting of one-to-four-family loans, increased by $23.7 million to $49.4 million at September 30, 2024, from $25.7 million at December 31, 2023. The Company continues to invest in its home lending operations and strategically manage production capacity in the markets we serve.
Previous wording
One-to-four-family loan originations for the six months ended June 30, 2024, included $271.2 million of loans originated for sale, $86.3 million of portfolio loans including first and second liens, and $6.4 million of loans brokered to other institutions.
Current wording
One-to-four-family loan originations for the nine months ended September 30, 2024, included $426.7 million of loans originated for sale, $120.2 million of portfolio loans including first and second liens, and $13.4 million of loans brokered to other institutions.
Previous wording
During the six months ended June 30, 2024, the Company sold $258.4 million of one-to-four-family loans compared to $204.3 million for the same period one year ago. Gross margin on home loan sales increased to 3.14% for the six months ended June 30, 2024, compared to 3.06% for the six months ended June 30, 2023. Gross margin is defined as the margin on loans sold (cash sales) without the impact of deferred costs.
Current wording
During the nine months ended September 30, 2024, the Company sold $426.0 million of one-to-four-family loans compared to $320.9 million for the same period one year ago. Gross margin on home loan sales decreased to 3.06% for the nine months ended September 30, 2024, compared to 3.07% for the nine months ended September 30, 2023. Gross margin is defined as the margin on loans sold (cash sales) without the impact of deferred costs.
Previous wording
The ACL on loans totaled $31.2 million or 1.26% of gross loans receivable (excluding loans held for sale) at June 30, 2024, compared to $31.5 million or 1.30% of gross loans receivable (excluding loans held for sale, at December 31, 2023. The ACL on unfunded loan commitments was $1.6 million and $1.5 million at June 30, 2024 and December 31, 2023, respectively.
Current wording
The ACL on loans totaled $31.2 million or 1.25% of gross loans receivable (excluding loans held for sale) at September 30, 2024, compared to $31.5 million or 1.30% of gross loans receivable (excluding loans held for sale) at December 31, 2023. The ACL on unfunded loan commitments was $1.5 million at both September 30, 2024 and December 31, 2023.
Previous wording
Classified loans totaled $24.3 million at June 30, 2024, all of which were classified as substandard, compared to $24.9 million at December 31, 2023, of which $24.5 million were classified as substandard and $399,000 were classified as doubtful. Nonperforming loans, consisting solely of nonaccrual loans, increased $454,000 to $11.4 million at June 30, 2024, from $11.0 million at December 31, 2023, primarily due to an increase in indirect home improvement loans of $456,000. The ratio of nonperforming loans to total gross loans was 0.46% at June 30, 2024, compared to 0.45% at December 31, 2023. There were no OREO properties at both June 30, 2024 and December 31, 2023.
Current wording
Classified loans totaled $23.2 million at September 30, 2024, all of which were classified as substandard, compared to $24.9 million at December 31, 2023, of which $24.5 million were classified as substandard and $399,000 were classified as doubtful. Nonperforming loans, consisting solely of nonaccrual loans, decreased $180,000 to $10.8 million at September 30, 2024, from $11.0 million at December 31, 2023, primarily due to decreases in marine loans of $109,000, commercial business loans of $108,000, and indirect home improvement loans of $93,000, partially offset by increases in one-to-four-family loans of $70,000, CRE of $42,000, and construction and development loans of $38,000. The ratio of nonperforming loans to total gross loans was 0.43% at September 30, 2024, compared to 0.45% at December 31, 2023. There were no OREO properties at both September 30, 2024 and December 31, 2023.
Previous wording
Liabilities. Total liabilities decreased $50.8 million to $2.66 billion at June 30, 2024, from $2.71 billion at December 31, 2023, primarily due to a decrease of $139.5 million in deposits, offset by increases of $88.1 million in borrowings and $1.4 million in other liabilities.
Current wording
Liabilities. Total liabilities decreased $26.9 million to $2.68 billion at September 30, 2024, from $2.71 billion at December 31, 2023, primarily due to a decrease of $95.0 million in deposits, offset by an increase of $70.1 million in borrowings.
Previous wording
Transactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) decreased $124.7 million to $790.2 million at June 30, 2024, from $914.9 million at December 31, 2023, due to decreases of $77.2 million in interest-bearing checking and $40.9 million in noninterest-bearing checking and decrease of $6.6 million in escrow accounts related to mortgages serviced. Money market and savings accounts decreased $15.3 million to $495.4 million at June 30, 2024, from $510.7 million at December 31, 2023.
Current wording
Total deposits decreased $95.0 million to $2.43 billion at September 30, 2024, from $2.52 billion at December 31, 2023, reflecting decreases in all deposit categories except CDs. Transactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) decreased $91.2 million to $823.7 million at September 30, 2024, from $914.9 million at December 31, 2023, due to decreases of $78.1 million in interest-bearing checking and $12.8 million in noninterest-bearing checking and decrease of $300,000 in escrow accounts related to mortgages serviced. Money market and savings accounts decreased $19.3 million to $491.4 million at September 30, 2024, from $510.7 million at December 31, 2023.
Previous wording
Total deposits decreased $139.5 million to $2.38 billion at June 30, 2024, from $2.52 billion at December 31, 2023. CDs, which include retail and non-retail CDs, increased $451,000 to $1.10 billion at June 30, 2024, from December 31, 2023, with non-retail CDs representing 24.9% and 34.2% of total CDs at such dates, respectively. At June 30, 2024, non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $101.1 million to $273.4 million, compared to $374.5 million at December 31, 2023, primarily due to a decrease of $100.3 million in brokered CDs. The decrease in brokered CDs primarily relates to the utilization of FHLB Advances due to overall better rates and factoring FHLB Activity Stock Dividends.
Current wording
CDs, which include both retail and non-retail CDs, increased $15.5 million to $1.11 billion at September 30, 2024, from December 31, 2023, as customers shifted funds from lower-yielding transaction and savings accounts to higher-yielding CDs. Retail CDs increased $127.0 million to $849.3 million at September 30, 2024, from $722.3 million at December 31, 2023, while non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $111.6 million to $262.9 million, compared to $374.5 million at December 31, 2023. The decrease in non-retail CDs was primarily due to a decrease of $111.0 million in brokered CDs, as management shifted its funding source to FHLB borrowings for more favorable rates. Non-retail CDs represented 23.6% and 34.2% of total CDs at September 30, 2024 and December 31, 2023, respectively.
Previous wording
The Bank had uninsured deposits of approximately $586.6 million or 24.6% of total deposits, at June 30, 2024, compared to approximately $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.
Current wording
The Bank had uninsured deposits of approximately $644.9 million or 26.6% of total deposits, at September 30, 2024, compared to approximately $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.
Previous wording
Borrowings increased $88.1 million to $181.9 million at June 30, 2024, from $93.7 million at December 31, 2023. The increased borrowings were primarily attributable to a decrease in total brokered deposits. At June 30, 2024, borrowings totaled $181.9 million and were comprised of FHLB advances of $154.9 million and overnight borrowings of $27.0 million.
Current wording
Borrowings increased $70.1 million to $163.8 million at September 30, 2024, from $93.7 million at December 31, 2023. The increased borrowings were primarily attributable to a decline in total brokered deposits. At September 30, 2024, borrowings were comprised of FHLB term borrowings of $153.8 million and overnight borrowings of $10.0 million.
Previous wording
Stockholders’*** Equity.*** Total stockholders’ equity increased $19.5 million to $284.0 million at June 30, 2024, from $264.5 million at December 31, 2023. The increase in stockholders' equity reflects net income of $17.4 million, partially offset by cash dividends totaling $4.1 million and stock repurchases totaling $2.4 million during the six months ended June 30, 2024. Additionally, stockholders' equity was positively impacted by decreases in unrealized net losses in securities available-for-sale of $4.9 million, net of tax, and unrealized net gains on fair value and cash flow hedges of $2.8 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 $7.8 million decline in accumulated other comprehensive loss.
Current wording
Stockholders’*** Equity.*** Total stockholders’ equity increased $24.4 million to $288.9 million at September 30, 2024, from $264.5 million at December 31, 2023. The increase in stockholders' equity reflects net income of $27.6 million, partially offset by cash dividends totaling $6.2 million and stock repurchases totaling $4.2 million, which included $1.7 million of shares repurchased in connection with withholding taxes paid on the vesting of restricted stock awards, and the net exercise of stock options during the nine months ended September 30, 2024. Stockholders' equity was also impacted by decreases in unrealized net losses in securities available-for-sale of $9.2 million, net of tax, and by increases in unrealized net losses on fair value and cash flow hedges of $4.2 million, net of tax, reflecting sales of investment securities in unrealized loss positions and changes in market interest rates benefiting hedges during the nine months ended September 30, 2024 , resulting in a $5.0 million net decline in accumulated other comprehensive loss, net of tax.
Previous wording
Book value per common share was $37.15 at June 30, 2024, compared to $34.36 at December 31, 2023. The calculation of book value per share at June 30, 2024, was based on 7,764,463 common shares, after deducting the 98,144 unvested restricted stock shares from the 7,742,607 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2023, was calculated based on 7,698,401 common shares, after deducting the 102,144 unvested restricted stock shares from the 7,800,545 reported common shares outstanding as of that date.
Current wording
Book value per common share was $37.45 at September 30, 2024, compared to $34.36 at December 31, 2023. The calculation of book value per share at September 30, 2024, was based on 7,713,359 common shares, after deducting the 103,813 unvested restricted stock shares from the 7,817,172 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2023, was calculated based on 7,698,401 common shares, after deducting the 102,144 unvested restricted stock shares from the 7,800,545 reported common shares outstanding as of that date.
Previous wording
***Net Interest Income.***Net interest income decreased $1.2 million to $30.4 million for the three months ended June 30, 2024, from $31.6 million for the three months ended June 30, 2023, due to increases in interest expense on deposits and borrowings outpacing increases in interest and dividend income. Total interest income increased $5.1 million for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase of $4.2 million in interest income on loans receivable, including fees, impacted primarily as a result of 33 basis point increase in the average yield earned on loans receivable due to new loans being originated at higher rates and variable-rate loans repricing higher, and a higher average balance of loans outstanding. Total interest expense increased $6.2 million for the three months ended June 30, 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.
Current wording
***Net Interest Income.***Net interest income increased $610,000 to $31.2 million for the three months ended September 30, 2024, from $30.6 million for the three months ended September 30, 2023, primarily due to an increase in interest income of $3.8 million, partially offset by an increase in interest expense of $3.2 million. The $3.8 million increase in interest income was primarily due to an increase of $3.9 million in interest income on loans receivable, including fees, driven primarily by a 34-basis point increase in the average yield earned on loans receivable as new loans were originated at higher rates and variable-rate loans repriced higher, and a higher average balance of loans outstanding. The $3.2 million increase in total interest expense was primarily the result of higher market interest rates, higher utilization of borrowings, and a shift in deposit mix from transactional accounts to higher cost CDs.
Previous wording
Net interest margin (“NIM”) decreased 37 basis points to 4.29% for the three months ended June 30, 2024, from 4.66% for the same period 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.
Current wording
Net interest margin (“NIM”) increased one basis point to 4.35% for the three months ended September 30, 2024, from 4.34% for the same period the prior year. The change in NIM reflects the increase in yields earned on interest-earning assets, along with higher average capital relative to the prior period.
Previous wording
***Interest Income.***Interest income for the three months ended June 30, 2024, increased $5.1 million to $45.9 million, from $40.9 million for the three months ended June 30, 2023. The increase was primarily attributable to a $138.7 million increase in the average balance of total interest-earning assets and a 44-basis point increase in the average yield on total interest-earning assets.
Current wording
***Interest Income.***Interest income for the three months ended September 30, 2024, increased $3.8 million to $47.0 million, from $43.3 million for the three months ended September 30, 2023. The increase was attributable to a $55.5 million increase in the average balance of total interest-earning assets and a 43-basis point increase in the average yield on total interest-earning assets, particularly on loans receivable, net.
Previous wording
***Interest Expense.***Interest expense increased $6.2 million to $15.5 million for the three months ended June 30, 2024, from $9.3 million for the comparable quarter in 2023, due to an increase of interest expense on deposits of $5.6 million and on borrowings of $582,000. The average cost of funds for total interest-bearing liabilities increased 111 basis points to 3.15% for the three months ended June 30, 2024, from 2.04% for the three months ended June 30, 2023. The increase 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 115 basis points to 2.97%, for the three months ended June 30, 2024, compared to 1.82%, for the three months ended June 30, 2023. The average balance of total interest-bearing deposits increased $113.8 million to $1.79 billion for the three months ended June 30, 2024, compared to $1.68 billion for the three months ended June 30, 2023. The average cost of funds, including noninterest-bearing checking, increased 90 basis points to 2.38% for the three months ended June 30, 2024, from 1.48% for the three months ended June 30, 2023.
Current wording
***Interest Expense.***Interest expense increased $3.2 million to $15.8 million for the three months ended September 30, 2024, from $12.6 million for the comparable quarter in 2023, due to an increase of interest expense on deposits of $3.0 million and on borrowings of $139,000. The average cost of total interest-bearing liabilities increased 58 basis points to 3.18% for the three months ended September 30, 2024, from 2.60% for the three months ended September 30, 2023. The increase was predominantly due to higher deposit costs and an increase in the average balances of higher-cost CDs. The average cost of total interest-bearing deposits increased 71 basis points to 3.09%, for the three months ended September 30, 2024, compared to 2.38%, for the three months ended September 30, 2023. While the average balance of total interest-bearing deposits was virtually unchanged at $1.74 billion for the three months ended September 30, 2024 and 2023, there was a shift within the deposit mix: the average balance of higher-cost CDs increased $88.0 million, whereas the average balance of lower-cost transaction and savings accounts decreased $91.5 million. The average cost of funds, including noninterest-bearing checking, increased 47 basis points to 2.39% for the three months ended September 30, 2024, from 1.92% for the three months ended September 30, 2023.
Previous wording
Provision for Credit Losses. For the three months ended June 30, 2024, the provision for credit losses was $1.1 million, consisting of a $1.0 million provision for credit losses on loans, and a $77,000 provision for credit losses on unfunded loan commitments, compared to $716,000 provision for credit losses for the three months ended June 30, 2023, consisting of a $1.1 million provision for credit losses on loans, offset by a $347,000 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.
Current wording
Provision for Credit Losses. For the three months ended September 30, 2024, the provision for credit losses was $1.5 million, consisting of a $1.6 million provision for credit losses on loans, partially offset by a $79,000 reversal of the ACL on unfunded loan commitments, compared to $548,000 provision for credit losses for the three months ended September 30, 2023, consisting of a $684,000 provision for credit losses on loans and a $14,000 provision for credit losses on securities held-to-maturity, partially offset by a $149,000 reversal of the ACL on unfunded loan commitments. The provision for credit losses on loans reflects the increase in charge-off activity and increases in the loan portfolio.
Previous wording
During the three months ended June 30, 2024, net loan charge-offs totaled $1.2 million, compared to $650,000 during the three months ended June 30, 2023. This increase was the result of increased net charge-offs of $648,000 in C&I loans and $42,000 in indirect home improvement loans, partially offset by a net recovery of $105,000 in marine loans. A 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.
Current wording
During the three months ended September 30, 2024, net loan charge-offs totaled $1.6 million, compared to $533,000 during the three months ended September 30, 2023. This increase was the result of increased net charge-offs of $996,000 in indirect home improvement loans and $82,000 in marine loans, partially offset by a net recovery of $8,000 in other consumer loans. A decline in national and local economic conditions, as a result the effects of inflation, a 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.
Previous wording
***Noninterest Income.***Noninterest income increased $1.0 million to $5.9 million for the three months ended June 30, 2024, from $4.8 million for the three months ended June 30, 2023. The increase reflects a $736,000 increase in other noninterest income is partially due to a favorable $704,000 of fair value option for loan income, and a $120,000 VISA incentive, a $516,000 increase in gain on sale of loans primarily due to the increased volume of loans sold, and a $151,000 increase in gain on sale of investment securities, partially offset by a $383,000 decrease in service charges and fee income. Gross margin on home loan sales decreased to 2.96% for the three months ended June 30, 2024, from 3.07% for the three months ended June 30, 2023.
Current wording
***Noninterest Income.***Noninterest income increased $985,000 to $6.0 million for the three months ended September 30, 2024, from $5.0 million for the three months ended September 30, 2023. The increase reflects a $648,000 increase in gain on sale of loans primarily as a result of the increased volume of loans sold, and an increase of $566,000 in other noninterest income, primarily due to fair value changes on loans. Noninterest income during the three months ended September 30, 2024, also reflects a $141,000 gain on the sale of MSRs, with no similar transaction occurring in the comparable quarter last year. These increases were partially offset by a $400,000 decrease in service charges and fee income, primarily due to the sale of MSRs in the first quarter of 2024. Gross margin on home loan sales decreased to 2.96% for the three months ended September 30, 2024, from 3.08% for the three months ended September 30, 2023.
Previous wording
The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, improved to 65.78% for the three months ended June 30, 2024, compared to 66.52% for the three months ended June 30, 2023, due to a slight decline in noninterest expense as total revenues remained relatively unchanged.
Current wording
The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, weakened to 69.42% for the three months ended September 30, 2024, compared to 66.22% for the three months ended September 30, 2023, due to an increase in noninterest expense that outpaced total revenue growth.
Previous wording
Comparison of Results of Operations for the Six Months Ended June 30, 2024 and 2023
Current wording
Comparison of Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Previous wording
***General.***Net income was $17.4 million for the six months ended June 30, 2024, compared to $17.3 million for the six months ended June 30, 2023. The increase in net income was primarily due to a $927,000 or 9.2% increase in noninterest income, a $348,000 or 12.3% decrease in the provision for loan losses, and a $342,000 or 0.70% decrease in noninterest expense, partially offset by a $1.5 million, or 2.4% decrease in net interest income and a $122,000 or 2.8% increase in the provision for income taxes.
Current wording
***General.***Net income increased $1.4 million to $27.6 million for the nine months ended September 30, 2024, compared to $26.3 million for the nine months ended September 30, 2023. The increase in net income was primarily due to a $2.8 million decrease in the provision for income taxes and a $1.5 million, or 1.6%, increase in noninterest income, partially offset by a $1.9 million increase in noninterest expense and a $617,000 increase in provision for credit losses.
Previous wording
***Net Interest Income.***Net interest income decreased $1.5 million to $60.7 million for the six months ended June 30, 2024, from $62.2 million for the six months ended June 30, 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 $11.3 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase of $9.2 million in interest income on loans receivable, including fees, impacted primarily as a result of a 32 basis point increase in the average yield earned on loans receivable due to new loans being originated at higher rates and variable-rate loans repricing higher, and a higher average balance of loans outstanding. In addition, interest income on investment securities, excluding FHLB stock, increased $2.3 million, partially offset by a decrease in interest-bearing deposits at other financial institutions of $177,000, during the six months ended June 30, 2024, compared to the same period in 2023. The increase in interest income on investment securities, excluding FHLB stock, was primarily due to higher market interest rates generally, while the decrease in interest income on interest-bearing deposits at other financial institutions was due to a decrease in the average balance outstanding of such deposits. Total interest expense increased $12.8 million for the six months ended June 30, 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.
Current wording
***Net Interest Income.***Net interest income decreased $857,000 to $92.0 million for the nine months ended September 30, 2024, from $92.8 million for the nine months ended September 30, 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 expense increased $16.0 million for the nine months ended September 30, 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 lower-cost transactional accounts to higher-cost CDs. Total interest income increased $15.1 million for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to an increase of $13.1 million in interest income on loans receivable, including fees, impacted primarily as a result of a 33 basis point increase in the average yield earned on loans receivable, as new loans were originated at higher rates and variable-rate loans repriced higher, and a higher average balance of loans outstanding. In addition, interest income on investment securities, excluding FHLB stock, increased $2.2 million, partially offset by a decrease in interest-bearing deposits at other financial institutions of $426,000, during the nine months ended September 30, 2024, compared to the same period in 2023. The increase in interest income on investment securities, excluding FHLB stock, was primarily due to higher market interest rates generally, while the decrease in interest income on interest-bearing deposits at other financial institutions was due to a decrease in the average balance outstanding of such deposits.
Previous wording
Net interest margin (“NIM”) decreased 41 basis points to 4.27% for the six months ended June 30, 2024, from 4.68% for the same period in 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, as well as an increase in the average balance of interest-earning assets, as well as an increase in the average balance of interest-earning assets.
Current wording
Net interest margin (“NIM”) decreased 26 basis points to 4.30% for the nine months ended September 30, 2024, from 4.56% for the same period in 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, as well as an increase in the average balance of interest-earning assets.
Previous wording
***Interest Income.***Interest income for the six months ended June 30, 2024, increased $11.3 million to $90.8 million, from $79.5 million for the six months ended June 30, 2023. The increase was primarily attributable to a $178.5 million increase in the average balance of total interest-earning assets and a 41-basis point increase in the average yield on total interest-earning assets.
Current wording
***Interest Income.***Interest income for the nine months ended September 30, 2024, increased $15.1 million to $137.9 million, from $122.7 million for the nine months ended September 30, 2023. The increase was primarily attributable to a $137.1 million increase in the average balance of total interest-earning assets and a 41 basis points increase in the average yield on total interest-earning assets.
Previous wording
The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the six months ended June 30, 2024 and 2023:
Current wording
The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the nine months ended September 30, 2024 and 2023:
Previous wording
***Interest Expense.***Interest expense increased $12.8 million to $30.1 million for the six months ended June 30, 2024, from $17.3 million for the comparable quarter in 2023, primarily due to an increase of interest expense on deposits of $11.9 million and on borrowings of $908,000. The average cost of funds for total interest-bearing liabilities increased 114 basis points to 3.05% for the six months ended June 30, 2024, from 1.91% for the six months ended June 30, 2023. The increase in interest expense was due to both an increase in cost for deposits and borrowings, and as an increase in the average balances of CDs and borrowings. The average cost of total interest-bearing deposits increased 120 basis points to 2.90%, for the six months ended June 30, 2024, compared to 1.70%, for the six months ended June 30, 2023. The average balance of total interest-bearing deposits increased $129.3 million to $1.81 billion for the six months ended June 30, 2024, compared to $1.68 billion for the six months ended June 30, 2023. The average cost of funds, including noninterest-bearing checking, increased 90 basis points to 2.30% for the six months ended June 30, 2024, from 1.40% for the six months ended June 30, 2023.
Current wording
***Interest Expense.***Interest expense increased $16.0 million to $45.9 million for the nine months ended September 30, 2024, from $29.9 million for the comparable period in 2023, primarily due to an increase of interest expense on deposits of $14.9 million and on borrowings of $1.0 million. The average cost of total interest-bearing liabilities increased 94 basis points to 3.09% for the nine months ended September 30, 2024, from 2.15% for the nine months ended September 30, 2023. The increase was due to both an increase in cost for deposits and borrowings, and an increase in the average balances of CDs and borrowings. The average cost of total interest-bearing deposits increased 102 basis points to 2.96%, for the nine months ended September 30, 2024, compared to 1.94%, for the nine months ended September 30, 2023. The average balance of total interest-bearing deposits increased $84.6 million to $1.79 billion for the nine months ended September 30, 2024, compared to $1.70 billion for the nine months ended September 30, 2023, as a result of a $215.8 million increase in the average balance of higher-cost CDs and a $131.2 million decrease in the average balance of lower-cost transaction and savings accounts. The average cost of funds, including noninterest-bearing checking, increased 75 basis points to 2.33% for the nine months ended September 30, 2024, from 1.58% for the nine months ended September 30, 2023.
Previous wording
The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the six months ended June 30, 2024 and 2023:
Current wording
The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the nine months ended September 30, 2024 and 2023:
Previous wording
Provision for Credit Losses. For the six months ended June 30, 2024, the provision for credit losses was $2.5 million, consisting of a $2.4 million provision for credit losses on loans and a $54,000 provision for credit losses on unfunded loan commitments, compared to $2.8 million provision for credit losses for the six months ended June 30, 2023, consisting of a $3.4 million provision for credit losses on loans, offset by a $596,000 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.
Current wording
Provision for Credit Losses. For the nine months ended September 30, 2024, the provision for credit losses was $4.0 million, consisting of a $4.0 million provision for credit losses on loans, compared to $3.4 million provision for credit losses for the nine months ended September 30, 2023, consisting of a $4.1 million provision for credit losses on loans, partially offset by a $745,000 reversal of the ACL on unfunded loan commitments. The provision for credit losses on loans reflects the increase in charge-off activity and increases in the loan portfolio.
Previous wording
During the six months ended June 30, 2024, net loan charge-offs increased $1.6 million to $2.7 million, compared to $1.1 million during the six months ended June 30, 2023. This increase included $1.1 million in C&I loan charge-offs, along with net charge-off increases of $482,000 in indirect home improvement loans, $65,000 in other consumer loans, and $64,000 in marine loans. A decline in national and local economic conditions, as a result the effects of inflation, a 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.
Current wording
During the nine months ended September 30, 2024, net loan charge-offs increased $2.7 million to $4.3 million, compared to $1.6 million during the nine months ended September 30, 2023. This increase included $1.5 million in indirect home improvement loan charge-offs, along with net charge-off increases of $1.0 million in C&I loans, $146,000 in marine loans, and $117,000 in other consumer loans. Management attributes the increase in net charge-offs over the year primarily to volatile economic conditions. A decline in national and local economic conditions, as a result the effects of inflation, a 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.
Previous wording
***Noninterest Income.***Noninterest income increased $927,000 to $11.0 million for the six months ended June 30, 2024, from $10.1 million for the six months ended June 30, 2023. The increase was primarily the result of an $8.2 million increase in gain on sale of MSRs recorded during the first six months of 2024 with no similar transaction occurring in the comparable six month period in 2023, and an $878,000 in gain on sale of loans, partially offset by a $7.8 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 by selling $98.5 million of lower-yielding securities, and a $439,000 decrease in service charges and fee income. Gross margin on home loan sales increased to 3.14% for the six months ended June 30, 2024, from 3.06% for the six months ended June 30, 2023.
Current wording
***Noninterest Income.***Noninterest income increased $1.9 million to $16.9 million for the nine months ended September 30, 2024, from $15.0 million for the nine months ended September 30, 2023. This increase was primarily the result of an $8.4 million increase in gain on sale of MSRs recorded during the first nine months of 2024 with no similar transaction occurring in the comparable nine month period in 2023,and a $1.5 million increase in gain on sale of loans, partially offset by a $7.8 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 by selling lower-yielding securities, and an $839,000 decrease in service charges and fee income due to a reduction of loan servicing fees due to the sale of MSRs in the first quarter of 2024. Gross margin on home loan sales decreased to 3.06% for the nine months ended September 30, 2024, from 3.07% for the nine months ended September 30, 2023.
Previous wording
The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, remained relatively unchanged at 66.07% for the six months ended June 30, 2024, compared to 66.04% for the six months ended June 30, 2023.
Current wording
The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, weakened to 67.21% for the nine months ended September 30, 2024, compared to 66.10% for the nine months ended September 30, 2023.
Previous wording
Provision for Income Taxes.* *For the three months ended June 30, 2024, the Company recorded a provision for income taxes of $2.4 million as compared to $2.3 million for the three months ended June 30, 2023. The increase in the income taxes provision was primarily due to a decrease in nontaxable income between periods, which included an increase in non-deductible interest expense attributable to the related assets due to rising funding cost. during the three months ended June 30, 2024, as compared to the same quarter last year. The effective corporate income tax rates for the three months ended June 30, 2024 and 2023 were 21.0% and 20.5%, respectively.
Current wording
Provision for Income Taxes.* *For the nine months ended September 30, 2024, the Company recorded a provision for income taxes of $4.1 million as compared to $6.9 million for the nine months ended September 30, 2023, primarily due to the purchase of alternative energy tax credits resulting in a gain of $2.3 million. Excluding the effects of tax credits, the effective corporate income tax rates for the nine months ended September 30, 2024 and 2023 were 20.0% and 22.0%, respectively. The decrease in the effective corporate income tax rate was attributable to tax benefits derived from the exercises of employee stock options.
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Previous report — wording carried elsewhere
Provision for Income Taxes.* *For the six months ended June 30, 2024, the Company recorded a provision for income taxes of $4.5 million as compared to $4.4 million for the six months ended June 30, 2023. The effective corporate income tax rates for the six months ended June 30, 2024 and 2023 were 20.6% and 20.2%, respectively.