Update: FS Bancorp Q2 2014 Earnings

| About: FS Bancorp (FSBW)


FS Bancorp reported Q2 '14 earnings.

The results confirm previous view that excess capital and undervalued shares would benefit from management's repurchase program.

The bank's size continues to allow management to make material changes that all point towards higher future earnings.

For Q2 2014, FS Bancorp (NASDAQ:FSBW) reported net income up 12% from the first quarter of 2014, but down 10% from the comparable quarter one year ago. Helping the bank's sequential earnings growth was a significant increase in the loan portfolio (up 12.8% from the 1st quarter), coupled with an increase in net interest margins (up 2.4% to 5.08%). This small bank continues to benefit from its size, adding assets with ease despite the weak demand seen at other banks.

For the quarter, the company earned $0.33 per share, compared to $0.36 per share earned in the same quarter last year. Management was able to repurchase 129,605 shares at an average price of $17.15, well below the company's reported book value of $21.53. Shares haven't yet reacted to the earnings report and higher book value, which means the discount on book value has increased to ~20%, from the 17% discount that shares were trading for at the time of my last review.

Also helping earnings was improvement on the bank's already incredibly low balance of nonperforming assets. At 0.09% of all assets, FSBW has one of the lowest nonperforming asset ratios that I've seen, and this is directly adding to both revenues and net income, due to decreases in expenses tied to foreclosed real estate and other related charges. This quarter gave a glimpse into what the bank's core is capable of producing, but I expect to see additional benefits from future loan sales. Management has been methodical with its allocation of capital to certain products, and this quarter's balance of solar loans came in fairly high at $17 million. A very positive sign considering that the bank made $507 thousand in the first quarter on the sale of $12.8 million solar loans. With this in mind, hopefully management can continue to buy back shares because we could see a significant increase in earnings next quarter, and there is no telling when the market will catch on to how well the bank is performing.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in FSBW over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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