A gong features prominently in the conference room at FS Bancorp.
Bank leaders bang the gong to celebrate individual and team accomplishments at the $2.2 billion bank, but it’s actually not the first gong that Chief Financial Officer Matthew Mullet purchased; the first one wasn’t big enough.
“He loves that thing,” jokes CEO Joseph Adams. “It’s a symbol of who he is and how he wants to celebrate individual and team [achievements].” It’s also an indicator of the culture that the bank’s leadership team has spent about a decade building.
Looking back 10 years ago, “bank profitability wise, we had difficulty attracting top talent in our market,” says Adams. Around that time, the Mountlake Terrace, Washington-based bank converted from a mutual to a stock company, and Adams charged Chief Human Resources Officer Vickie Jarman and a select group of employees with establishing the bank’s vision. “It’s one sentence: to build a truly great place to work and bank,” says Adams. “We believe if you build a great place to work, it will be a great place to bank. We intentionally put those words in that order.”
That drives who they want to hire and promote: “smart, driven, nice” people who want to work in a collaborative environment. “We don’t just seek to fill seats here,” says Jarman. “We want to make sure we’re building a really strong team.”
FS Bancorp scored best among the community banks below $5 billion in assets in the RankingBanking study, rating well for its strong leadership team — No. 1 among the 50 banks in our analysis. In terms of financial metrics, the bank performed well across the board, and generated a five-year total shareholder return of 125% from 2015 to 2020. Ann Arbor, Michigan-based University Bancorp ranked second. Its model — focused heavily on mortgage subservicing — launched it to the top of the growth category. It also earned a return on average assets (ROAA) of 7.85% as of year-end 2020, and a return on average equity (ROAE) of 64.21%.
Having a clear vision and empathetic leaders can have a tremendous impact on a bank’s success. “When people care about the company that they work in — because [they’re] cared for by [their] leadership team — they are so much more invested in making the success happen,” says Crowe LLP Partner Rick Childs.
FS Bancorp focuses on five business areas: indirect consumer lending, centered around home improvement; home lending, as a portfolio originator and seller to Fannie Mae
and Freddie Mac; commercial and industrial (C&I) lending; commercial real estate, specializing in infill development in the Seattle area; and deposits. Consistent with the mortgage lending boom, the bank’s home loan and home improvement areas proved particularly robust in 2020-21.
Bank Director selected the top 10 banks in each peer group based on a number of metrics provided by S&P Global Market Intelligence as of year-end 2020. A profitability score was calculated based on ROAA and ROAE, and received a double weight. Year-over-year growth in pre-provision net revenue (PPNR) from 2019 to 2020 was also examined, and PPNR was ranked to provide a balance against growth from a low base. Five-year total shareholder return, from 2015 to 2020, was ranked as a nod to building long-term value, and credit quality was examined, based on net charge offs and non-performing loans as a percentage of total loans.
Once the top 10 were selected, Bank Director studied each bank further for its performance in the four subcategories that contribute to overall performance: leadership, board, innovation and growth. (The methodologies about each specific subcategory can be found later in this report.) Each institution’s within-peer rank for these categories was factored into the final scoring, with the growth category receiving double weight due to its potential to drive future earnings.
How They Ranked: Best Community Banks
| Ticker | Score | ROAA, YE 2020 | TSR, 2015-2020 | ||
| Category Winner: FS Bancorp | FSBW | 3.29 | 2.02% | 124.91% | |
|---|---|---|---|---|---|
| 2 | University Bancorp | UNIB | 3.71 | 7.85% | 99.13% |
| 3 | Communities First Financial Corp. | CFST | 4.14 | 1.60% | 205.22% |
| 4 | Oregon Bancorp (TIE) | ORBN | 5.00 | 8.57% | 1,076.98% |
| 4 | CF Bankshares (TIE) | CFBK | 5.00 | 2.59% | 144.20% |
| 6 | BNCCORP | BNCC | 5.86 | 4.21% | 175.91% |
| 7 | Waterstone Financial | WSBF | 6.00 | 3.77% | 73.58% |
| 8 | Hingham Institution for Savings | HIFS | 7.14 | 1.88% | 91.09% |
| 9 | NASB Financial | NASB | 7.29 | 4.49% | 165.07% |
| 10 | First Bancorp | FBLV | 7.57 | 1.47% | 112.26% |
SOURCE: S&P Global Market Intelligence and other public information
With the merger between two prominent Pacific Northwest banks — Umpqua Holdings Corp. and Columbia Banking System — announced in October 2021, Janney Montgomery Scott’s Timothy Coffey believes FS Bancorp is well positioned for growth. “They’ve got longevity and a runway [because] they’ve got a very good culture over there,” he says. That “lowers attrition, improves the institutional knowledge and ultimately improves customer service [so they’ll] be a place that customers want to bank.”
Fresno, California-based Communities First Financial Corp., which ranked third, generated a strong TSR at 205%. This is second only to fourth-ranked Oregon Bancorp, with a TSR exceeding 1,000%. Salem-based Oregon Bancorp, which operates as Willamette Valley Bank, boasted a 8.57% ROAA at year-end 2020, and 60.2% ROAE. Placing fifth, CF Bankshares in Worthington, Ohio, rated well for growth, ranking second overall in the Growth Strategy subcategory.