UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023        

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: 001-35589

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	FSBW	The NASDAQ Stock Market LLC

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 ☒          No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).    Yes ☒          No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).    Yes ☐          No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 3, 2023, there were 7,797,923 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 at September 30, 2023 (Unaudited) and December 31, 2022	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (Unaudited)	8 - 9
	Notes to Consolidated Financial Statements	10 - 47
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48 - 65
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4.	Controls and Procedures	65
PART II	OTHER INFORMATION	66
Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	66
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
SIGNATURES		69

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

2

Item 1. Financial Statements

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

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

	September 30,			December 31,
ASSETS	2023			2022
Cash and due from banks	$	18,137		$	10,525
Interest-bearing deposits at other financial institutions		62,536			30,912
Total cash and cash equivalents		80,673			41,437
Certificates of deposit at other financial institutions		17,636			4,712
Securities available-for-sale, at fair value		251,917			229,252
Securities held-to-maturity, net of allowance for credit losses of $45 and $31, respectively (fair value of $7,424 and $7,929, respectively)		8,455			8,469
Loans held for sale, at fair value		18,636			20,093
Loans receivable, net (includes $15,176 and $14,035, at fair value, respectively)		2,375,572			2,190,860
Accrued interest receivable		13,925			11,144
Premises and equipment, net		30,926			25,119
Operating lease right-of-use (“ROU”) assets		7,042			6,226
Federal Home Loan Bank (“FHLB”) stock, at cost		3,696			10,611
Other real estate owned (“OREO”)		570			570
Deferred tax asset, net		7,424			6,670
Bank owned life insurance (“BOLI”), net		37,480			36,799
Servicing rights, held at the lower of cost or fair value		17,657			18,017
Goodwill		3,592			2,312
Core deposit intangible, net		18,323			3,369
Other assets		26,548			17,238
TOTAL ASSETS	$	2,920,072		$	2,632,898
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	670,158		$	554,174
Interest-bearing accounts		1,784,286			1,573,567
Total deposits		2,454,444			2,127,741
Borrowings		121,895			186,528
Subordinated notes:
Principal amount		50,000			50,000
Unamortized debt issuance costs		(489	)		(539	)
Total subordinated notes less unamortized debt issuance costs		49,511			49,461
Operating lease liabilities		7,269			6,474
Other liabilities		36,288			30,997
Total liabilities		2,669,407			2,401,201
COMMITMENTS AND CONTINGENCIES (NOTE 10)
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; 7,796,095 and 7,736,185 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		78			77
Additional paid-in capital		57,464			55,187
Retained earnings		222,532			202,065
Accumulated other comprehensive loss, net of tax		(29,409	)		(25,632	)
Total stockholders’ equity		250,665			231,697
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,920,072		$	2,632,898

See accompanying notes to these consolidated financial statements.

3

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2023			2022		2023		2022
INTEREST INCOME
Loans receivable, including fees	$	39,874		$	29,563	$	114,082	$	77,885
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		3,396			1,741		8,667		4,990
Total interest and dividend income		43,270			31,304		122,749		82,875
INTEREST EXPENSE
Deposits		10,462			2,596		24,696		5,438
Borrowings		1,689			696		3,749		1,003
Subordinated notes		485			485		1,456		1,456
Total interest expense		12,636			3,777		29,901		7,897
NET INTEREST INCOME		30,634			27,527		92,848		74,978
PROVISION FOR CREDIT LOSSES		548			1,718		3,372		4,632
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		30,086			25,809		89,476		70,346
NONINTEREST INCOME
Service charges and fee income		2,882			2,327		8,352		6,121
Gain on sale of loans		1,875			1,402		5,298		7,325
Earnings on cash surrender value of BOLI		233			221		681		654
Other noninterest income		(8	)		231		703		312
Total noninterest income		4,982			4,181		15,034		14,412
NONINTEREST EXPENSE
Salaries and benefits		13,503			11,402		40,880		35,110
Operations		3,409			2,812		9,744		7,656
Occupancy		1,588			1,344		4,670		3,825
Data processing		1,841			1,548		5,092		4,363
Loan costs		564			746		2,077		2,020
Professional and board fees		666			631		2,001		2,387
Federal Deposit Insurance Corporation (“FDIC”) insurance		561			462		1,732		804
Marketing and advertising		452			220		1,072		652
Acquisition cost		—			—		1,562		—
Amortization of core deposit intangible		1,002			173		2,484		518
Recovery of servicing rights		—			—		—		(1	)
Total noninterest expense		23,586			19,338		71,314		57,334
INCOME BEFORE PROVISION FOR INCOME TAXES		11,482			10,652		33,196		27,424
PROVISION FOR INCOME TAXES		2,529			2,194		6,915		5,397
NET INCOME	$	8,953		$	8,458	$	26,281	$	22,027
Basic earnings per share	$	1.15		$	1.09	$	3.38	$	2.77
Diluted earnings per share	$	1.13		$	1.08	$	3.33	$	2.73

See accompanying notes to these consolidated financial statements.

4

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Net income	$	8,953		$	8,458		$	26,281		$	22,027
Other comprehensive loss:
Securities available-for-sale:
Unrealized loss during period		(11,762	)		(14,567	)		(9,341	)		(47,046	)
Income tax benefit related to unrealized holding loss		2,528			3,131			2,007			10,115
Derivative financial instruments:
Unrealized derivative gain during period		4,337			5,107			8,155			9,651
Income tax provision related to unrealized derivative gain		(933	)		(1,098	)		(1,753	)		(2,075	)
Reclassification adjustment for realized gain, net included in net income		(1,446	)		(278	)		(3,624	)		(232	)
Income tax provision related to reclassification, net		311			60			779			50
Other comprehensive loss, net of tax		(6,965	)		(7,645	)		(3,777	)		(29,537	)
COMPREHENSIVE INCOME (LOSS)	$	1,988		$	813		$	22,504		$	(7,510	)

See accompanying notes to these consolidated financial statements.

5

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

Three Months Ended September 30, 2023 and 2022

												Accumulated
												Other
						Additional						Comprehensive			Total
	Common Stock					Paid-in			Retained			Loss,			Stockholders'
	Shares			Amount		Capital			Earnings			Net of Tax			Equity
BALANCE, July 1, 2022		7,726,232		$	77	$	55,129		$	189,075		$	(21,640	)	$	222,641
Net income		—		$	—		—			8,458			—		$	8,458
Dividends paid ($0.20 per share)		—		$	—		—			(1,547	)		—		$	(1,547	)
Share-based compensation		—		$	—		500			—			—		$	500
Issuance of common stock-employee stock purchase plan		7,068		$	—		211			—			—		$	211
Restricted stock awards		35,050		$	—		—			—			—		$	—
Common stock repurchased - repurchase plan		(67,923	)	$	—		(1,732	)		—			—		$	(1,732	)
Common stock repurchased for employee/director taxes paid on restricted stock awards		(6,150	)	$	—		(190	)		—			—		$	(190	)
Stock options exercised, net		10,096		$	—		(149	)		—			—		$	(149	)
Other comprehensive loss, net of tax		—		$	—		—			—			(7,645	)	$	(7,645	)
BALANCE, September 30, 2022		7,704,373		$	77	$	53,769		$	195,986		$	(29,285	)	$	220,547
BALANCE, July 1, 2023		7,753,607		$	77	$	56,781		$	215,519		$	(22,444	)	$	249,933
Net income		—		$	—		—			8,953			—		$	8,953
Dividends paid ($0.25 per share)		—		$	—		—			(1,940	)		—		$	(1,940	)
Share-based compensation		—		$	—		590			—			—		$	590
Issuance of common stock- employee stock purchase plan		7,710		$	1		241			—			—		$	242
Restricted stock awards		37,600		$	—		—			—			—		$	—
Restricted stock awards forfeited		(4,712	)	$	—		—			—			—		$	—
Common stock repurchased for employee/director taxes paid on restricted stock awards		(11,006	)	$	—		(339	)		—			—		$	(339	)
Stock options exercised, net		12,896		$	—		191			—			—		$	191
Other comprehensive loss, net of tax		—		$	—		—			—			(6,965	)	$	(6,965	)
BALANCE, September 30, 2023		7,796,095		$	78	$	57,464		$	222,532		$	(29,409	)	$	250,665

See accompanying notes to these consolidated financial statements.

6

Nine Months Ended September 30, 2022 and 2023

													Accumulated
													Other
							Additional						Comprehensive			Total
	Common Stock						Paid-in			Retained			Income (Loss),			Stockholders'
	Shares			Amount			Capital			Earnings			Net of Tax			Equity
BALANCE, January 1, 2022		8,169,887		$	82		$	67,958		$	179,215		$	252		$	247,507
Net income		—		$	—			—			22,027			—		$	22,027
Dividends paid ($0.70 per share)		—		$	—			—			(5,553	)		—		$	(5,553	)
Share-based compensation		—		$	—			1,432			—			—		$	1,432
New credit standard (Topic 326) - impact in year of adoption		—		$	—			—			297			—		$	297
Issuance of common stock-employee stock purchase plan		7,068		$	—			211			—					$	211
Restricted stock awards		35,050		$	—			—			—			—		$	—
Common stock repurchased - repurchase plan		(544,530	)	$	(5	)		(15,623	)		—			—		$	(15,628	)
Common stock repurchased for employee/director taxes paid on restricted stock awards		(6,150	)	$	—			(190	)		—			—		$	(190	)
Stock options exercised, net		43,048		$	—			(19	)		—			—		$	(19	)
Other comprehensive loss, net of tax		—		$	—			—			—			(29,537	)	$	(29,537	)
BALANCE, September 30, 2