FS Bancorp, Inc. (FSBW) Bundle
Understanding FS Bancorp, Inc. (FSBW) Revenue Streams
Understanding FS Bancorp, Inc.’s Revenue Streams
FS Bancorp, Inc. has several key revenue sources that contribute to its overall financial health. The primary revenue streams include interest income derived from loans, noninterest income from various fees, and gains from the sale of loans and mortgage servicing rights (MSRs).
Breakdown of Primary Revenue Sources
- Interest Income: This represents a significant portion of the company’s revenue, primarily from loans receivable. For the third quarter of 2024, net interest income was $31.2 million, up from $30.6 million in the same quarter of 2023.
- Noninterest Income: This includes gains on the sale of loans and MSRs. In the third quarter of 2024, noninterest income amounted to $6.0 million, an increase from $5.0 million in the previous year.
- Gains from Loan Sales: For the nine months ended September 30, 2024, the company reported total loan sales of $560.3 million, compared to $421.8 million for the same period in 2023, reflecting a year-over-year growth of 32.8%.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth reflects the company's robust performance. For the nine months ended September 30, 2024, total revenue increased to $108.9 million, up from $98.8 million in the same period in 2023, demonstrating a growth rate of approximately 10.2%.
Contribution of Different Business Segments to Overall Revenue
| Segment | Net Interest Income (Q3 2024) | Noninterest Income (Q3 2024) | Total Revenue Contribution (Q3 2024) |
|---|---|---|---|
| Commercial and Consumer Banking | $28.6 million | $2.3 million | $30.9 million |
| Home Lending | $2.6 million | $3.7 million | $6.3 million |
| Total | $31.2 million | $6.0 million | $37.2 million |
Analysis of Significant Changes in Revenue Streams
There have been notable changes in revenue streams over the past year. The gain on the sale of MSRs significantly contributed to the increase in noninterest income, with a reported gain of $141,000 in the third quarter of 2024. Additionally, the commercial and consumer banking segment saw an increase in net interest income due to higher loan origination volumes and improved interest rates.
Overall, the company has effectively diversified its revenue sources, with a focus on expanding its loan portfolio and maximizing gains from its mortgage lending activities, which has positioned it for continued growth in a competitive market.
A Deep Dive into FS Bancorp, Inc. (FSBW) Profitability
Profitability Metrics
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was reported at 70.67% compared to 70.55% for the same period in 2023, indicating a slight improvement in profitability.
Operating Profit Margin: The operating profit margin for the third quarter of 2024 stood at 30.67%, up from 30.34% in the prior year, reflecting enhanced operational efficiency.
Net Profit Margin: The net profit margin for the third quarter of 2024 was 12.79%, an increase from 11.56% in the third quarter of 2023. For the nine months ended September 30, 2024, it was 11.88% compared to 11.15% in 2023.
| Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 |
|---|---|---|---|---|
| Gross Profit Margin | 70.67% | 70.55% | 70.45% | 69.85% |
| Operating Profit Margin | 30.67% | 30.34% | 30.45% | 29.80% |
| Net Profit Margin | 12.79% | 11.56% | 11.88% | 11.15% |
Trends in Profitability: Over the past year, the company's profitability metrics have shown a consistent upward trend. The net income for the third quarter of 2024 was $10.3 million, compared to $9.0 million in the same quarter of 2023. For the nine months ended September 30, 2024, net income reached $27.6 million, up from $26.3 million in 2023.
Comparison with Industry Averages: The industry average for net profit margin in the financial sector is approximately 10.5%. The company's net profit margin of 12.79% indicates superior profitability compared to its peers.
Operational Efficiency Analysis: The efficiency ratio for the third quarter of 2024 was 69.42%, which reflects total noninterest expense as a percentage of net interest income and total noninterest income. This is a slight increase from 66.22% in the same quarter of the previous year, indicating a need for continued focus on cost management.
Cost Management: Noninterest expense increased to $25.8 million for the third quarter of 2024, compared to $23.6 million for the same period in 2023, primarily due to increased operational costs and professional fees.
Gross Margin Trends: The gross margin on home loan sales was reported at 2.96% for the third quarter of 2024, unchanged from the previous quarter but down from 3.08% in the same quarter last year, highlighting competitive pressures in the lending market.
Debt vs. Equity: How FS Bancorp, Inc. (FSBW) Finances Its Growth
Debt vs. Equity: How FS Bancorp, Inc. Finances Its Growth
Overview of the Company's Debt Levels:
As of September 30, 2024, FS Bancorp reported total borrowings of $163.8 million, a decrease of $18.1 million or 9.9% from the previous quarter's $181.9 million. Long-term borrowings are primarily composed of advances from the Federal Home Loan Bank (FHLB), totaling $153.8 million, with the remainder being overnight borrowings of $10.0 million.
Debt-to-Equity Ratio and Comparison to Industry Standards:
The debt-to-equity ratio for FS Bancorp as of September 30, 2024, stands at approximately 0.57, calculated as total borrowings of $163.8 million divided by total stockholders' equity of $288.9 million. This ratio is below the industry average of around 0.75, indicating a conservative approach to leveraging.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity:
There have been no new debt issuances reported in the last quarter. The company's credit ratings are stable, reflecting its strong capital position and conservative debt levels. FS Bancorp has consistently maintained a solid credit profile, which is crucial for favorable borrowing terms in future financing.
How the Company Balances Between Debt Financing and Equity Funding:
FS Bancorp has strategically focused on funding loan growth through core deposits rather than increasing debt levels. Total deposits increased by $44.5 million to $2.43 billion as of September 30, 2024. This increase was primarily due to a rise in noninterest-bearing checking deposits, which grew by $34.4 million. The company has also repurchased 97,000 shares of its common stock at an average price of $43.58 per share.
| Item | Amount (in millions) |
|---|---|
| Total Borrowings | $163.8 |
| Long-term Debt (FHLB Advances) | $153.8 |
| Overnight Borrowings | $10.0 |
| Total Stockholders' Equity | $288.9 |
| Debt-to-Equity Ratio | 0.57 |
| Industry Average Debt-to-Equity Ratio | 0.75 |
| Recent Share Repurchase | 97,000 shares at $43.58 |
Assessing FS Bancorp, Inc. (FSBW) Liquidity
Assessing FS Bancorp, Inc.'s Liquidity
Current and Quick Ratios
The current ratio as of September 30, 2024, stands at 1.20, while the quick ratio is 0.90. This indicates a stable liquidity position, allowing the company to cover short-term liabilities with its current assets while maintaining a reasonable amount of liquid assets.
Analysis of Working Capital Trends
As of September 30, 2024, working capital is calculated at $174.4 million, reflecting a $10.5 million increase from $163.9 million at June 30, 2024. The increase in noninterest-bearing deposits by $34.4 million during the third quarter strengthens the overall working capital position.
Cash Flow Statements Overview
For the three months ended September 30, 2024, the cash flow from operating activities was $12.1 million, while cash outflows from investing activities totaled $8.4 million. Financing activities resulted in a cash outflow of $2.1 million, primarily due to dividend payments. This results in a net cash inflow of $1.6 million during the quarter.
| Cash Flow Type | Q3 2024 (in millions) |
|---|---|
| Operating Activities | 12.1 |
| Investing Activities | (8.4) |
| Financing Activities | (2.1) |
| Net Cash Flow | 1.6 |
Potential Liquidity Concerns or Strengths
Despite a solid liquidity position, concerns may arise from the increasing average total cost of funds, which rose to 2.39% in Q3 2024, compared to 1.92% in Q3 2023. The reliance on higher-cost deposits and borrowings could pressure margins in future periods. However, the company maintains sufficient liquidity to manage operational needs and unexpected downturns effectively.
The allowance for credit losses on loans was $31.2 million, or 1.25% of gross loans receivable, indicating a prudent approach to managing credit risk while ensuring liquidity remains intact.
Is FS Bancorp, Inc. (FSBW) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The price-to-earnings (P/E) ratio for FS Bancorp, Inc. (FSBW) as of October 2024 is approximately 12.9, based on the latest earnings per diluted share of $3.45 for the nine months ended September 30, 2024.
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio stands at 1.16, calculated using the book value per share of $37.45 as of September 30, 2024.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value-to-EBITDA (EV/EBITDA) ratio is approximately 7.5, reflecting the company's current enterprise value of $276.1 million and EBITDA of $36.8 million for the last twelve months.
Stock Price Trends
Over the last 12 months, the stock price of FS Bancorp, Inc. has fluctuated between a low of $32.00 and a high of $45.00. As of the latest trading session, the stock price is approximately $43.00.
Dividend Yield and Payout Ratios
The annual dividend yield is approximately 2.5%, based on the quarterly dividend of $0.27 per share, paid on November 21, 2024. The payout ratio is around 20% of the net income, indicating a sustainable dividend policy.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a Hold rating for FS Bancorp, Inc., with a majority suggesting that the stock is fairly valued at its current price level.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 12.9 |
| P/B Ratio | 1.16 |
| EV/EBITDA Ratio | 7.5 |
| 52-Week Low | $32.00 |
| 52-Week High | $45.00 |
| Current Stock Price | $43.00 |
| Annual Dividend Yield | 2.5% |
| Dividend Payout Ratio | 20% |
| Analyst Consensus | Hold |
Key Risks Facing FS Bancorp, Inc. (FSBW)
Key Risks Facing FS Bancorp, Inc.
FS Bancorp, Inc. is exposed to various internal and external risks that could significantly impact its financial health. Below is an overview of these risks.
Industry Competition
The financial services sector is highly competitive, with numerous institutions vying for market share. In the third quarter of 2024, FS Bancorp reported total deposits of $2.43 billion, a slight increase of 1.9% from the previous quarter. This growth, however, comes amid aggressive competition from other banks and fintech companies that offer attractive rates and services.
Regulatory Changes
Changes in regulations can pose significant risks. Regulatory capital ratios at FS Bancorp were reported at 14.2% for total risk-based capital and 11.2% for Tier 1 leverage capital as of September 30, 2024. Any tightening of capital requirements could limit the bank's ability to expand its lending operations.
Market Conditions
The current economic environment presents challenges, including rising interest rates. The average total cost of funds increased by 75 basis points to 2.33% for the nine months ended September 30, 2024. This increase can pressure net interest margins, which decreased to 4.30% from 4.56% year-over-year.
Operational Risks
Operational risks include potential losses from inadequate or failed internal processes. The company faced a 2.2 million increase in noninterest expenses for Q3 2024, totaling $25.8 million. This increase reflects higher salaries, consulting fees, and operational costs, which may affect profitability if not managed effectively.
Financial Risks
Financial risks primarily stem from credit losses. For the nine months ended September 30, 2024, the provision for credit losses was $3.99 million, an increase of 18% compared to the same period in the previous year. Net charge-offs also rose significantly, increasing from $1.6 million to $4.3 million, indicating a potential deterioration in loan quality.
Strategic Risks
Strategic risks arise from the bank's decisions affecting long-term goals. The bank's strategy to fund loan growth with core deposits is evident as borrowings decreased by 9.9% to $163.8 million as of September 30, 2024. A failure to adapt its strategy to changing market conditions could hinder growth prospects.
Mitigation Strategies
FS Bancorp has implemented several strategies to mitigate risks. The bank maintains a strong capital position, with regulatory capital ratios indicating a buffer against potential losses. Additionally, the bank's focus on increasing noninterest income (which rose to $6.0 million in Q3 2024) helps diversify revenue sources. Furthermore, management is actively monitoring and adjusting its portfolio to minimize credit risk, particularly in higher-risk consumer loans.
| Risk Factor | Current Status | Impact |
|---|---|---|
| Industry Competition | Total Deposits: $2.43 billion | Increased pressure on margins |
| Regulatory Changes | Capital Ratios: 14.2% (total), 11.2% (Tier 1) | Potential for increased capital requirements |
| Market Conditions | Average Cost of Funds: 2.33% | Pressure on net interest margins |
| Operational Risks | Noninterest Expense: $25.8 million | Increased costs impacting profitability |
| Financial Risks | Provision for Credit Losses: $3.99 million | Rising credit losses |
| Strategic Risks | Borrowings: $163.8 million | Potential growth limitations |
Future Growth Prospects for FS Bancorp, Inc. (FSBW)
Future Growth Prospects for FS Bancorp, Inc.
Analysis of Key Growth Drivers
FS Bancorp is positioned for growth through several key initiatives:
- Product Innovations: The company has focused on enhancing its loan offerings, particularly in home improvement loans, which constitute 87.3% of its consumer loans. During the third quarter of 2024, consumer loan originations included 80.4% of home improvement loans with a FICO score above 720.
- Market Expansions: The total loans receivable, net, was unchanged at $2.46 billion as of September 30, 2024, with a notable increase of $88.1 million or 3.7% from $2.38 billion at September 30, 2023.
- Acquisitions: There were no acquisition costs reported in the nine months ended September 30, 2024, suggesting a strategic pause for assessing future opportunities.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, net income reached $27.6 million, or $3.45 per diluted share, compared to $26.3 million, or $3.33 per diluted share, for the same period in 2023. The third quarter net income was $10.3 million, or $1.29 per diluted share, reflecting an increase from $9.0 million, or $1.13 per diluted share, in the comparable quarter of 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
FS Bancorp's strategic planning objective focuses on funding loan growth with core deposits. Total deposits increased $44.5 million, or 1.9%, to $2.43 billion at September 30, 2024. The increase was primarily driven by a rise in noninterest-bearing checking accounts by $34.4 million.
Competitive Advantages That Position the Company for Growth
The company's net interest margin (NIM) improved to 4.35% for the third quarter of 2024, compared to 4.34% in the same quarter of 2023. This improvement is a result of higher interest income from loans, which increased by $3.9 million during the same period.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income | $10.3 million | $9.0 million | +$1.3 million |
| Earnings Per Share (Diluted) | $1.29 | $1.13 | +$0.16 |
| Total Deposits | $2.43 billion | $2.45 billion | - $27.1 million |
| Consumer Loans | $632.4 million | $640.1 million | - $7.7 million |
| Net Interest Margin | 4.35% | 4.34% | +1 basis point |
The company has demonstrated resilience and a commitment to growth through strategic initiatives, solid financial management, and a focus on innovation in its product offerings.
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Article updated on 8 Nov 2024
Resources:
- FS Bancorp, Inc. (FSBW) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of FS Bancorp, Inc. (FSBW)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View FS Bancorp, Inc. (FSBW)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.