0000939057-15-000391.txt : 20150807 0000939057-15-000391.hdr.sgml : 20150807 20150807132255 ACCESSION NUMBER: 0000939057-15-000391 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150807 DATE AS OF CHANGE: 20150807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FS Bancorp, Inc. CENTRAL INDEX KEY: 0001530249 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 454585178 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35589 FILM NUMBER: 151036411 BUSINESS ADDRESS: STREET 1: 6920 220TH STREET SW STREET 2: SUITE 300 CITY: MOUNTLAKE TERRACE STATE: WA ZIP: 98043 BUSINESS PHONE: 800-683-0973 MAIL ADDRESS: STREET 1: 6920 220TH STREET SW STREET 2: SUITE 300 CITY: MOUNTLAKE TERRACE STATE: WA ZIP: 98043 10-Q 1 fsbw-2015630x10q.htm 10-Q FSBW-2015.6.30-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-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 June 30, 2015    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: 333-177125
FS BANCORP, INC.
(Exact name of registrant as specified in its charter)

Washington
 
45-4585178
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

6920 220th Street SW, Mountlake Terrace, Washington 98043
(Address of principal executive offices; Zip Code)

(425) 771-5299
(Registrant's telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)

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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]
 
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
 
Smaller reporting company [ 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 August 5, 2015, there were 3,240,620 outstanding shares of the registrant's common stock.




FS Bancorp, Inc.
Form 10-Q
Table of Contents
 
 
Page Number
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited)
2

 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)
3

 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)
4

 
 
 
 
Consolidated Statements of Changes in Stockholders' Equity as of June 30, 2015 and 2014 (Unaudited)
5

 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited)
6

 
 
 
 
Notes to Consolidated Financial Statements
7 - 39

 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
40 - 48

 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
48

 
 
 
Item 4.
Controls and Procedures
48 - 49

 
 
 
PART II
OTHER INFORMATION
49

 
 
 
Item 1.
Legal Proceedings
49

 
 
 
Item 1A.
Risk Factors
49

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49

 
 
 
Item 3.
Defaults Upon Senior Securities
49

 
 
 
Item 4.
Mine Safety Disclosures
50

 
 
 
Item 5.
Other Information
50

 
 
 
Item 6.
Exhibits
50

 
 
 
SIGNATURES
 
51

As used in this report, the terms "we," "our," and "us," and "Company" refer to FS Bancorp, Inc. and its consolidated subsidiary, unless the context indicates otherwise. When we refer to "Bank" in this report, we are referring to 1st Security Bank of Washington, the wholly owned subsidiary of FS Bancorp, Inc.





Item 1. Financial Statements
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts) (Unaudited)

 
June 30,
2015
 
December 31, 2014
ASSETS
 
 
 
Cash and due from banks
$
2,114

 
$
10,799

Interest-bearing deposits at other financial institutions
11,688

 
9,299

Securities available-for-sale, at fair value
50,414

 
48,744

Loans held for sale, at fair value
41,039

 
25,983

Loans receivable, net
432,265

 
387,174

Accrued interest receivable
1,772

 
1,558

Premises and equipment, net
13,953

 
13,584

Federal Home Loan Bank ("FHLB") stock, at cost
1,412

 
1,650

Bank owned life insurance ("BOLI")
6,650

 
6,556

Servicing rights, held at the lower of cost or fair value
4,569

 
3,061

Other assets
2,713

 
1,346

TOTAL ASSETS
$
568,589

 
$
509,754

 
 
 
 
LIABILITIES
 
 
 

Deposits
 
 
 

Noninterest-bearing accounts
$
68,558

 
$
56,734

Interest-bearing accounts
401,950

 
363,710

Total deposits
470,508

 
420,444

Borrowings
20,269

 
17,034

Other liabilities
6,957

 
6,440

Total liabilities
497,734

 
443,918

COMMITMENTS AND CONTINGENCIES (NOTE 9)


 


STOCKHOLDERS' EQUITY
 
 
 
Preferred stock, $.01 par value; 5,000,000 shares authorized; None issued or outstanding

 

Common stock, $.01 par value; 45,000,000 shares authorized; 3,240,620 shares issued and outstanding at June 30, 2015, and 3,235,625 at December 31, 2014
                            
32

 
32

Additional paid-in capital
30,011

 
29,450

Retained earnings
42,592

 
38,125

Accumulated other comprehensive (loss) income, net of tax
(24
)
 
117

Unearned shares - Employee Stock Ownership Plan ("ESOP")
(1,756
)
 
(1,888
)
Total stockholders' equity
70,855

 
65,836

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
568,589

 
$
509,754


See accompanying notes to these consolidated financial statements.


 
 
2










FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share amounts) (Unaudited)
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
 INTEREST INCOME
 
 
 
 
 
 
 
Loans receivable including fees
$
7,494

 
$
5,493

 
$
14,312

 
$
10,674

Interest and dividends on investment securities, cash and cash equivalents, and interest-bearing deposits at other financial institutions
281

 
356

 
545

 
686

Total interest and dividend income
7,775

 
5,849

 
14,857

 
11,360

 INTEREST EXPENSE
 
 
 

 
 
 
 
Deposits
812

 
594

 
1,559

 
1,144

Borrowings
72

 
63

 
139

 
121

Total interest expense
884

 
657

 
1,698

 
1,265

 NET INTEREST INCOME
6,891

 
5,192

 
13,159

 
10,095

 PROVISION FOR LOAN LOSSES
600

 
450

 
1,200

 
900

 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
6,291

 
4,742

 
11,959

 
9,195

 NONINTEREST INCOME
 
 
 

 
 
 
 
Service charges and fee income
500

 
446

 
924

 
844

Gain on sale of loans
4,606

 
1,794

 
7,933

 
3,302

Gain on sale of investment securities

 
10

 
76

 
10

Earnings on cash surrender value of BOLI
48

 
46

 
95

 
92

Other noninterest income
124

 
160

 
321

 
260

Total noninterest income
5,278

 
2,456

 
9,349

 
4,508

 NONINTEREST EXPENSE
 
 
 

 
 
 
 
Salaries and benefits
4,216

 
3,240

 
8,166

 
6,363

Operations
1,128

 
926

 
2,091

 
1,472

Occupancy
456

 
403

 
891

 
801

Data processing
393

 
300

 
751

 
588

Other real estate owned ("OREO") fair value impairments, net of (gain) loss on sales

 
(1
)
 

 
30

OREO (income) expense

 
(29
)
 

 
3

Loan costs
417

 
391

 
750

 
696

Professional and board fees
423

 
298

 
790

 
602

FDIC insurance
82

 
62

 
160

 
125

Marketing and advertising
145

 
125

 
275

 
232

Impairment (recovery) on servicing rights
1

 
(1
)
 

 
(1
)
Total noninterest expense
7,261

 
5,714

 
13,874

 
10,911

 INCOME BEFORE PROVISION FOR INCOME TAXES
4,308

 
1,484

 
7,434

 
2,792

 PROVISION FOR INCOME TAXES
1,514

 
498

 
2,570

 
931

 NET INCOME
$
2,794

 
$
986

 
$
4,864

 
$
1,861

Basic earnings per share
$
0.94

 
$
0.33

 
$
1.65

 
$
0.62

Diluted earnings per share
$
0.93

 
$
0.33

 
$
1.63

 
$
0.62


See accompanying notes to these consolidated financial statements.

 
 
3










FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net Income
$
2,794

 
$
986

 
$
4,864

 
$
1,861

Other comprehensive (loss) income, net of tax:

 

 

 

Unrealized (loss) gain on securities available-for-sale:

 

 

 

Unrealized holding (loss) gain arising during period
(474
)
 
802

 
(138
)
 
1,344

Income tax benefit (provision) related to unrealized (loss) gain
161

 
(272
)
 
47

 
(457
)
Reclassification adjustment for realized gains included in net income

 
(10
)
 
(76
)
 
(10
)
Income tax provision related to reclassification for realized gains

 
3

 
26

 
3

Other comprehensive (loss) income, net of tax
(313
)
 
523

 
(141
)
 
880

COMPREHENSIVE INCOME
$
2,481

 
$
1,509

 
$
4,723

 
$
2,741


See accompanying notes to these consolidated financial statements.


 
 
4









 
 
 
 
 
 


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share amounts) (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Other Comprehensive
(Loss) Income
 
Unearned ESOP Shares
 
Total Stockholders'
Equity
BALANCE, January 1, 2014
3,240,125

 
$
32

 
$
30,097

 
$
35,215

 
$
(898
)
 
$
(2,133
)
 
$
62,313

Net income

 

 

 
1,861

 

 

 
1,861

Dividends paid ($0.11 per share)

 

 

 
(341
)
 

 

 
(341
)
Share-based compensation

 

 
110

 

 

 

 
110

Restricted stock awards
125,105

 

 
(1
)
 

 

 

 
(1
)
Common stock repurchased
(129,605
)
 

 
(1,295
)
 
(927
)
 

 

 
(2,222
)
Other comprehensive
income, net of tax

 

 

 

 
880

 

 
880

ESOP cash distribution

 

 
(35
)
 

 

 

 
(35
)
ESOP shares allocated

 

 
87

 

 

 
132

 
219

BALANCE, June 30, 2014
3,235,625

 
$
32

 
$
28,963

 
$
35,808

 
$
(18
)
 
$
(2,001
)
 
$
62,784

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, January 1, 2015
3,235.625

 
$
32

 
$
29,450

 
$
38,125

 
$
117

 
$
(1,888
)
 
$
65,836

Net income

 

 

 
4,864

 

 

 
4,864

Dividends paid ($0.12 per share)

 

 

 
(397
)
 

 

 
(397
)
Share-based compensation

 

 
373

 

 

 

 
373

Common stock repurchased
(4,605
)
 

 
(101
)
 

 

 

 
(101
)
Stock options exercised
9,600

 

 
162

 

 

 

 
162

Other comprehensive
loss, net of tax

 

 

 

 
(141
)
 

 
(141
)
ESOP shares allocated

 

 
127

 

 

 
132

 
259

BALANCE, June 30, 2015
3,240,620

 
$
32

 
$
30,011

 
$
42,592

 
$
(24
)
 
$
(1,756
)
 
$
70,855

 
See accompanying notes to these consolidated financial statements.


 
 
5










FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 
 
 
 
 
Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES
2015
 
2014
Net income
$
4,864

 
$
1,861

Adjustments to reconcile net income to net cash from operating activities

 

Provision for loan losses
1,200

 
900

Depreciation, amortization and accretion
957

 
1,677

Compensation expense related to stock options and restricted stock awards
373

 
110

ESOP compensation expense for allocated shares
259

 
219

Provision for deferred income taxes

 
816

Increase in cash surrender value of BOLI
(95
)
 
(92
)
Gain on sale of loans held for sale
(7,933
)
 
(2,741
)
Gain on sale of portfolio loans

 
(561
)
Origination of loans held for sale
(296,744
)
 
(103,425
)
Proceeds from sale of loans held for sale
287,763

 
100,887

Gain on sale of investment securities
(76
)
 
(10
)
Gain on sale of OREO

 
(10
)
Recovery of loss on servicing rights

 
(1
)
Impairment loss on other real estate owned

 
40

Changes in operating assets and liabilities

 

Accrued interest receivable
(214
)
 
(105
)
Other assets
(1,365
)
 
(461
)
Other liabilities
589

 
708

Net cash used by operating activities
(10,422
)
 
(188
)
CASH FLOWS FROM INVESTING ACTIVITIES

 

Activity in securities available-for-sale:


 


Proceeds from sale of investment securities
4,178

 
11,720

Maturities, prepayments, sales, and calls
2,727

 
7,964

Purchases
(8,907
)
 
(20,673
)
Maturities of interest-bearing time deposits
248

 

Purchase of interest-bearing time deposits
(3,224
)
 
(250
)
Loan originations and principal collections, net
(46,120
)
 
(58,734
)
Proceeds from sale of portfolio loans

 
12,849

Proceeds from sale of OREO

 
2,454

Purchase of premises and equipment, net
(952
)
 
(447
)
FHLB stock purchased
(1,226
)
 

FHLB stock redeemed
1,464

 
32

Net cash used by investing activities
(51,812
)
 
(45,085
)
CASH FLOWS FROM FINANCING ACTIVITIES

 

Net increase in deposits
50,064

 
14,768

Proceeds from borrowings
199,737

 
30,207

Repayments of borrowings
(196,502
)
 
(29,319
)
Dividends paid
(397
)
 
(341
)
Proceeds from stock options exercised
162

 

Common stock repurchased
(101
)
 
(2,222
)
Net cash from financing activities
52,963

 
13,093

NET DECREASE IN CASH AND CASH EQUIVALENTS
(9,271
)
 
(32,180
)
CASH AND CASH EQUIVALENTS, beginning of period
15,555

 
38,459

CASH AND CASH EQUIVALENTS, end of period
$
6,284

 
$
6,279

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

 

Cash paid during the year for:

 

Interest
$
1,700

 
$
1,262

Income taxes
$
2,151

 
$
175

SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES


 


Change in unrealized (loss) gain on investment securities
$
(214
)
 
$
1,334

Property received in settlement of loans
$

 
$
445

See accompanying notes to these consolidated financial statements.

 
 
6









 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 









NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – FS Bancorp, Inc. (the “Company”) was incorporated in September 2011 as the proposed holding company for 1st Security Bank of Washington (the “Bank”) in connection with the Bank's conversion from the mutual to stock form of ownership which was completed on July 9, 2012. The Bank is a community-based savings bank with seven branches and four loan production offices in suburban communities in the greater Puget Sound area, and one loan production office in the most recently entered market area of the Tri-Cities, Washington. The Bank provides loan and deposit services to customers who are predominantly small and middle-market businesses and individuals.

Financial Statement Presentation – The accompanying unaudited consolidated interim financial statements do not contain all necessary disclosures required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission ("SEC") on March 27, 2015.  These unaudited consolidated financial statements include all normal and recurring adjustments that management believes are necessary in order to conform to U.S. GAAP and have been reflected as required by Article 10 of Regulation S-X as promulgated by the SEC.  The results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, or any other future period. Amounts presented in the financial statements and footnote tables are rounded and presented in thousands of dollars except per share amounts. In the narrative footnote discussion, amounts are rounded and presented in millions of dollars to one decimal point if the amounts are above $1.0 million.  Amounts below $1.0 million are rounded and presented in dollars to the nearest thousands. Certain prior year amounts have been reclassified to conform to the 2015 presentation with no change to net income or stockholders' equity previously reported.

Conversion and Change in Corporate Form – On July 9, 2012, in accordance with a Plan of Conversion (the "Plan") adopted by its Board of Directors and as approved by its depositors and borrower members, the Bank (i) converted from a mutual savings bank to a stock savings bank, and (ii) became the wholly-owned subsidiary of FS Bancorp, Inc., a bank holding company registered with the Board of Governors of the Federal Reserve System ("Federal Reserve"). In connection with the conversion, FS Bancorp, Inc. issued an aggregate of 3,240,125 shares of common stock at an offering price of $10.00 per share for gross proceeds of $32.4 million. From the proceeds, the Company made a capital contribution of $15.5 million to the Bank. The Bank is using this additional capital for lending and investment activities and for general and other corporate purposes subject to regulatory limitations. The cost of conversion and the issuance of capital stock was approximately $2.5 million, which was deducted from the proceeds of the offering.

Pursuant to the Plan, the Company's Board of Directors adopted an employee stock ownership plan ("ESOP") plan which purchased 8% of the common stock in the open market or 259,210 shares. As provided for in the Plan, the Bank also established a liquidation account in the amount of retained earnings as of December 31, 2011. The liquidation account will be maintained for the benefit of eligible savings account holders as of June 30, 2007, and supplemental eligible account holders as of March 31, 2012, who maintain deposit accounts at the Bank after the conversion. The conversion was accounted for as a change in corporate form with the historic basis of the Company’s assets, liabilities, and equity unchanged as a result.

Use of Estimates – The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. Material estimates that are particularly susceptible to change in the near term are allowances for loan losses, fair value of measurements, servicing assets, and the estimated accounting for deferred income taxes.

Principles of Consolidation – The consolidated financial statements include the accounts of FS Bancorp, Inc. and its wholly owned subsidiary, 1st Security Bank of Washington. All material intercompany accounts have been eliminated in consolidation.


 
 
7









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Segment Reporting – The Company’s major line of business is community banking. Management has determined that the Company operates as a single operating segment based on U. S. GAAP.

Subsequent Events – The Company has evaluated events and transactions subsequent to June 30, 2015, for potential recognition or disclosure.

Cash and Cash Equivalents – Cash and cash equivalents include cash and due from banks, and interest-bearing balances due from other banks and the Federal Reserve Bank of San Francisco ("Federal Reserve Bank"). Cash and cash equivalents with a cost basis of $6.3 million and $15.6 million as of June 30, 2015 and December 31, 2014, respectively, have a maturity of 90 days or less at the time of purchase. As of June 30, 2015 the Company had no cash deposits at other financial institutions in excess of Federal Deposit Insurance Corporation ("FDIC") insured limits and as of December 31, 2014, the Company had cash deposits at other financial institutions in excess of FDIC insured limits. However, as the Company places these deposits with major financial institutions and monitors the financial condition of these institutions, management believes the risk of loss to be minimal.

The Company held interest-bearing deposits at other financial institutions with a cost basis of $11.7 million, including $3.9 million at the Federal Reserve Bank, as of June 30, 2015, and $9.3 million, including $4.7 million at the Federal Reserve Bank, as of December 31, 2014. Certificates of deposits in the amount of $7.5 million and $4.5 million with original maturity dates greater than 90 days were excluded from cash and cash equivalents as of June 30, 2015 and December 31, 2014, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20). The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 with early adoption permitted. The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on simplifying the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities by reducing the number of consolidation model from four to two, among other changes.  The ASU will be effective for periods beginning after December 31, 2015, while early adoption is permitted.  The Company does not expect this ASU to have a material impact on the Company's consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. ASU No 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  ASU No. 2015-03 should be applied on a retrospective basis.  The Company is currently evaluating the impacts of this ASU on the Company's consolidated financial statements.


 
 
8









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this ASU provide guidance to customers in cloud computing arrangements about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement does include a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. This ASU is not expected to have a material effect on the Company's consolidated financial statements.

In June 2015, FASB issued ASU No. 2015-10, Technical Corrections and Improvements. On November 10, 2010 FASB added a standing project that will facilitate the FASB Accounting Standards Codification (‘Codification”) updates for technical corrections, clarifications, and improvements. These amendments are referred to as Technical Corrections and Improvements. Maintenance updates include non-substantive corrections to the Codification, such as editorial corrections, various link-related changes, and changes to source fragment information. This update contains amendments that will affect a wide variety of Topics in the Codification. The amendments in this ASU will apply to all reporting entities within the scope of the affected accounting guidance and generally fall into one of four categories: amendments related to differences between original guidance and the Codification, guidance clarification and reference corrections, simplification, and minor improvements. In summary, the amendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice. Transition guidance varies based on the amendments in this ASU. The amendments in this ASU that require transition guidance are effective for fiscal years and interim reporting periods after December 15, 2015. Early adoption is permitted including adoption in an interim period. All other amendments are effective upon the issuance of this ASU. ASU 2015-10 did not have a material impact on the Company's consolidated financial statements.








 
 
9









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 2 – SECURITIES AVAILABLE-FOR-SALE
 
The following tables present the amortized costs, unrealized gains, unrealized losses, and estimated fair values of securities available-for-sale at June 30, 2015 and December 31, 2014:

 
June 30, 2015
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Values
 
SECURITIES AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Federal agency securities
$
6,075

 
$

 
$
(153
)
 
$
5,922

Municipal bonds
16,927

 
262

 
(58
)
 
17,131

Corporate securities
4,495

 
6

 
(58
)
 
4,443

Mortgage-backed securities
19,928

 
77

 
(146
)
 
19,859

  Small Business Administration securities
3,026

 
33

 

 
3,059

Total securities available-for-sale
$
50,451

 
$
378

 
$
(415
)
 
$
50,414

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Values
 
SECURITIES AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
Federal agency securities
$
5,998

 
$
3

 
$
(156
)
 
$
5,845

Municipal bonds
15,886

 
326

 
(51
)
 
16,161

Corporate securities
4,495

 

 
(58
)
 
4,437

Mortgage-backed securities
20,169

 
132

 
(57
)
 
20,244

    Small Business Administration securities
2,019

 
38

 

 
2,057

Total securities available-for-sale
$
48,567

 
$
499

 
$
(322
)
 
$
48,744

 





















 
 
10









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 2 - SECURITIES AVAILABLE-FOR-SALE (Continued)

Investment securities that were in an unrealized loss position as of June 30, 2015 and December 31, 2014 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. In the opinion of management, these securities are considered 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. 

 
June 30, 2015
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
SECURITIES AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$
2,031

 
$
(48
)
 
$
3,891

 
$
(105
)
 
$
5,922

 
$
(153
)
Municipal bonds
4,202

 
(38
)
 
286

 
(20
)
 
4,488

 
(58
)
Corporate securities
1,989

 
(11
)
 
1,454

 
(47
)
 
3,443

 
(58
)
Mortgage-backed securities
9,994

 
(91
)
 
2,266

 
(55
)
 
12,260

 
(146
)
Total securities available-for-sale
$
18,216

 
$
(188
)
 
$
7,897

 
$
(227
)
 
$
26,113

 
$
(415
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
SECURITIES AVAILABLE-FOR-SALE
 
 
 
 
 
 
 
 
 
 
 
Federal agency securities
$

 
$

 
$
4,840

 
$
(156
)
 
$
4,840

 
$
(156
)
Municipal bonds
950

 
(2
)
 
2,266

 
(49
)
 
3,216

 
(51
)
Corporate securities
2,977

 
(18
)
 
1,460

 
(40
)
 
4,437

 
(58
)
Mortgage-backed securities
3,776

 
(2
)
 
3,648

 
(55
)
 
7,424

 
(57
)
Total securities available-for-sale
$
7,703

 
$
(22
)
 
$
12,214

 
$
(300
)
 
$
19,917

 
$
(322
)
 
 
 
 
 
 
 
 
 
 
 
 

There were 19 investments with unrealized losses of less than one year, and eight investments with unrealized losses of more than one year at June 30, 2015. There were eight investments with unrealized losses of less than one year, and 13 investments with unrealized losses of more than one year as of December 31, 2014. The unrealized losses associated with these investments are believed to be caused by changing market conditions that are 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. No other-than-temporary impairment was recorded for the three and six months ended June 30, 2015 and 2014.
 












 
 
11









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 2 - SECURITIES AVAILABLE-FOR-SALE (Continued)

The contractual maturities of securities available-for-sale at June 30, 2015 were as follows:
 
June 30, 2015
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
1,000

 
$
999

Due after one year through five years
6,279

 
6,297

Due after five years through ten years
19,065

 
18,965

Due after ten years
24,107

 
24,153

Total
$
50,451

 
$
50,414

 

The proceeds and resulting gains, computed using specific identification, from sales of securities available-for-sale for the three and six months ended June 30, 2015 and 2014 were as follows:  
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
 
Proceeds
 
Gross Gains
 
Gross (Losses)
 
Proceeds
 
Gross Gains
 
Gross (Losses)
Securities available-for-sale
$

 
$

 
$

 
$
4,178

 
$
76

 
$

 
 
 
 
 
 
 
 
 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
 
Proceeds
 
Gross Gains
 
Gross (Losses)
 
Proceeds
 
Gross Gains
 
Gross (Losses)
Securities available-for-sale
$
11,720

 
$
64

 
$
(54
)
 
$
11,720

 
$
64

 
$
(54
)
 
 
 
 
 
 
 
 
 
 
 
 


 
 
12









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


NOTE 3 – LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio at June 30, 2015 and December 31, 2014 was as follows:
 
June 30,
 
December 31,
 
2015
 
2014
REAL ESTATE LOANS
 
 
 
Commercial
$
44,813

 
$
42,970

Construction and development
63,624

 
57,813

Home equity
16,411

 
15,737

One-to-four-family (excludes held for sale loans)
67,143

 
46,801

Multi-family
22,851

 
16,201

Total real estate loans
214,842

 
179,522

CONSUMER LOANS
 
 
 
Indirect home improvement
101,791

 
99,304

Solar
24,713

 
18,162

Marine
20,572

 
16,713

Automobile
643

 
674

Recreational
386

 
441

Home improvement
251

 
329

Other
1,175

 
1,184

Total consumer loans
149,531

 
136,807

COMMERCIAL BUSINESS LOANS
75,595

 
77,881

Total loans receivable, gross
439,968

 
394,210

Allowance for loan losses
(6,927
)
 
(6,090
)
Deferred costs, fees, and discounts, net
(776
)
 
(946
)
Total loans receivable, net
$
432,265

 
$
387,174


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 which management monitors performance and credit quality. The three loan portfolio segments are: (a) Real Estate Loans, (b) Consumer Loans and (c) Commercial Business Loans. 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 Lending. Loans originated by the Company primarily secured by income 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, and multi-family residences and tracts of land for development that are not pre-sold.

Home Equity Lending. Loans originated by the Company secured by second mortgages on one-to-four-family residences in our market areas.


 
 
13









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

One-to-Four-Family Real Estate Lending. Loans originated by the Company secured by first mortgages on one-to-four-family residences in our market areas that the Company intends to hold (excludes held for sale loans). 

Multi-Family Lending. Apartment term lending (more than four 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 are originated by the Company for home improvement 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, and other home fixture installations.

Solar. Fixture secured loans are originated by the Company for home improvement 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.

Marine, Automobile and Recreational. Loans originated by the Company secured by boats, automobiles, and RVs to borrowers primarily located in its market areas.
 
Other Consumer and Home Improvement. Loans originated by the Company, including direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit.
 
Commercial Business Loans
 
Commercial Business Lending. Commercial business loans originated by the Company to local small and mid-sized businesses in our Puget Sound market area are secured primarily by accounts receivable, inventory, or personal property, plant and equipment. Commercial business loans are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.






















 
 
14









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables detail activity in the allowance for loan losses by loan categories at or for the three and six months ended June 30, 2015 and 2014:
 
At or For the Three Months Ended June 30, 2015
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
2,125

 
$
1,438

 
$
2,134

 
$
708

 
$
6,405

   Provision for loan losses
119

 
187

 
45

 
249

 
600

   Charge-offs
(57
)
 
(328
)
 
(34
)
 

 
(419
)
   Recoveries
191

 
147

 
3

 

 
341

Net recoveries (charge-offs)
134

 
(181
)
 
(31
)
 

 
(78
)
Ending balance
$
2,378

 
$
1,444

 
$
2,148

 
$
957

 
$
6,927

Period end amount allocated to:
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Loans collectively evaluated for impairment
2,378

 
1,444

 
2,148

 
957

 
6,927

Ending balance
$
2,378

 
$
1,444

 
$
2,148

 
$
957

 
$
6,927

LOANS RECEIVABLE
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$
1,468

 
$

 
$

 
$

 
$
1,468

Loans collectively evaluated for impairment
213,374

 
149,531

 
75,595

 

 
438,500

Ending balance
$
214,842

 
$
149,531

 
$
75,595

 
$

 
$
439,968

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Six Months Ended June 30, 2015
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
1,872

 
$
1,431

 
$
1,184

 
$
1,603

 
$
6,090

   Provision for loan losses
563

 
290

 
993

 
(646
)
 
1,200

   Charge-offs
(248
)
 
(745
)
 
(34
)
 

 
(1,027
)
   Recoveries
191

 
468

 
5

 

 
664

Net charge-offs
(57
)
 
(277
)
 
(29
)
 

 
(363
)
Ending balance
$
2,378

 
$
1,444

 
$
2,148

 
$
957

 
$
6,927

Period end amount allocated to:
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Loans collectively evaluated for impairment
2,378

 
1,444

 
2,148

 
957

 
6,927

Ending balance
$
2,378

 
$
1,444

 
$
2,148

 
$
957

 
$
6,927

LOANS RECEIVABLE
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$
1,468

 
$

 
$

 
$

 
$
1,468

Loans collectively evaluated for impairment
213,374

 
149,531

 
75,595

 

 
438,500

Ending balance
$
214,842

 
$
149,531

 
$
75,595

 
$

 
$
439,968





 
 
15









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

 
At or For the Three Months Ended June 30, 2014
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
1,465

 
$
1,462

 
$
1,036

 
$
1,280

 
$
5,243

   Provision for loan losses
(76
)
 
503

 
662

 
(639
)
 
450

   Charge-offs
(3
)
 
(386
)
 

 

 
(389
)
   Recoveries
61

 
183

 

 

 
244

Net recoveries (charge-offs)
58

 
(203
)
 

 

 
(145
)
Ending balance
$
1,447

 
$
1,762

 
$
1,698

 
$
641

 
$
5,548

Period end amount allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$

 
$
4

 
$

 
$
4

Loans collectively evaluated for impairment
1,447

 
1,762

 
1,694

 
641

 
5,544

Ending balance
$
1,447

 
$
1,762

 
$
1,698

 
$
641

 
$
5,548

LOANS RECEIVABLE
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
627

 
$

 
$
45

 
$

 
$
672

Loans collectively evaluated for impairment
138,541

 
128,492

 
64,539

 

 
331,572

Ending balance
$
139,168

 
$
128,492

 
$
64,584

 
$

 
$
332,244

 
 
 
 
 
 
 
 
 
 
 
At or For the Six Months Ended June 30, 2014
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
1,963

 
$
1,512

 
$
800

 
$
817

 
$
5,092

   Provision for loan losses
(449
)
 
552

 
973

 
(176
)
 
900

   Charge-offs
(147
)
 
(637
)
 
(75
)
 

 
(859
)
   Recoveries
80

 
335

 

 

 
415

Net charge-offs
(67
)
 
(302
)
 
(75
)
 

 
(444
)
Ending balance
$
1,447

 
$
1,762

 
$
1,698

 
$
641

 
$
5,548

Period end amount allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$

 
$
4

 
$

 
$
4

Loans collectively evaluated for impairment
1,447

 
1,762

 
1,694

 
641

 
5,544

Ending balance
$
1,447

 
$
1,762

 
$
1,698

 
$
641

 
$
5,548

LOANS RECEIVABLE
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
627

 
$

 
$
45

 
$

 
$
672

Loans collectively evaluated for impairment
138,541

 
128,492

 
64,539

 

 
331,572

Ending balance
$
139,168

 
$
128,492

 
$
64,584

 
$

 
$
332,244








 
 
16









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (Continued)

Information pertaining to the aging analysis of past due loans at June 30, 2015 and December 31, 2014 is summarized as follows:
 
 
June 30, 2015
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days or More Past Due and Non-Accrual
 
Total
Past Due
 
Current
 
Total Loans
Receivable
REAL ESTATE LOANS
 
 
 
 
 
 
 
 
 
 
 
Commercial
$

 
$

 
$
544

 
$
544

 
$
44,269

 
$
44,813

 Construction and development

 

 

 

 
63,624

 
63,624

Home equity
43

 
100

 
197

 
340

 
16,071

 
16,411

One-to-four-family

 

 
55

 
55

 
67,088

 
67,143

Multi-family

 

 

 

 
22,851

 
22,851

Total real estate loans
43

 
100

 
796

 
939

 
213,903

 
214,842

CONSUMER LOANS
 

 
 

 
 

 
 

 
 

 
 

Indirect home improvement
430

 
223

 
194

 
847

 
100,944

 
101,791

Solar

 

 
38

 
38

 
24,675

 
24,713

Marine
31

 

 

 
31

 
20,541

 
20,572

Automobile
26

 

 

 
26

 
617

 
643

Recreational

 

 

 

 
386

 
386

Home improvement

 

 

 

 
251

 
251

Other
2

 
11

 

 
13

 
1,162

 
1,175

Total consumer loans
489

 
234

 
232

 
955

 
148,576

 
149,531

COMMERCIAL BUSINESS LOANS

 

 

 

 
75,595

 
75,595

Total loans
$
532

 
$
334

 
$
1,028

 
$
1,894

 
$
438,074

 
$
439,968

 
 
 
 
 
 
 
 
 
 
 
 






 
 
17