NOTE 10 - DEBT

Borrowings

The Bank is a member of the FHLB of Des Moines, which entitles it to certain benefits including a variety of borrowing options consisting of a secured credit line that allows both fixed and variable rate advances. The FHLB borrowings at December 31, 2019 and 2018, consisted of a warehouse securities credit line (“securities line”), which allows advances with interest rates fixed at the time of borrowing and a warehouse federal funds (“Fed Funds”) advance, which allows daily advances at variable interest rates. Credit capacity is primarily determined by the value of assets collateralized at the FHLB, funds on deposit at the FHLB, and stock owned by the Bank.

Credit is limited to 45% of the Company’s total assets and available pledged assets. The Bank entered into an Advanced, Pledges and Security Agreement with the FHLB for which specific loans are pledged to secure these credit lines. At December 31, 2019, loans of approximately $646.1 million were pledged to the FHLB. At December 31, 2019, the Bank’s total borrowing capacity was $477.2 million with the FHLB of Des Moines, with unused borrowing capacity of $386.5 million. In addition, all FHLB stock owned by the Company is collateral for credit lines.

The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral. The Bank can borrow under the Term Auction or Term Facility at rates published by the San Francisco FRB. At December 31, 2019 and 2018, the Bank had approximately $318.8 million and $265.2 million, respectively, in pledged consumer loans with a Term Auction or Term Facility borrowing capacity of $156.1 million and $127.7 million, respectively, of which none was outstanding at either date. The Bank also had $71.0 million unsecured Fed Funds lines of credit with other financial institutions of which none was outstanding at December 31, 2019.

Advances on these lines at December 31, 2019 and 2018 were as follows:


	2019		2018
Federal Home Loan Bank - (interest rates ranging from 1.58% to 2.87% and 1.15% to 2.87% at December 31, 2019 and 2018, respectively)	$	84,864	$	137,149
Total	$	84,864	$	137,149

Subordinated Note

On October 15, 2015 (the “Closing Date”), FS Bancorp, Inc. issued an unsecured subordinated term note in the aggregate principal amount of $10.0 million due October 1, 2025 (the “Subordinated Note”) pursuant to a Subordinated Loan Agreement with Community Funding CLO, Ltd. The Subordinated Note bears interest at an annual interest rate of 6.50%, payable by the Company quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on the first such date following the Closing Date and on the maturity date.

The Subordinated Note will mature on October 1, 2025 but may be prepaid at the Company’s option and with regulatory approval at any time on or after five years after the Closing Date or at any time upon certain events, such as a change in the regulatory capital treatment of the Subordinated Note or the interest on the Subordinated Note no longer being deductible by the Company for United States federal income tax purposes. The Company contributed $9.0 million of the proceeds from the Subordinated Note as additional capital to the Bank in the fourth quarter of 2015 and used the balance to fund general working capital and operating expenses.

The maximum and average outstanding and weighted average interest rates on debt during the years ended December 31, 2019 and 2018 were as follows:


	2019			2018
Maximum balance:
Federal Home Loan Bank advances and Fed Funds	$	186,401		$	180,025
Federal Reserve Bank	$	5,000		$	—
Fed Funds lines of credit	$	5,000		$	21,016
Subordinated note	$	10,000		$	10,000
Average balance:
Federal Home Loan Bank advances and Fed Funds	$	93,653		$	96,044
Federal Reserve Bank	$	167		$	—
Fed Funds lines of credit	$	318		$	5,286
Subordinated note	$	10,000		$	10,000
Weighted average interest rate:
Federal Home Loan Bank advances and Fed Funds		2.61	%		2.02	%
Federal Reserve Bank		2.96	%		—	%
Fed Funds lines of credit		2.09	%		1.93	%
Subordinated note		6.50	%		6.50	%

Scheduled maturities of Federal Home Loan Bank advances were as follows:


			Interest
Years Ending December 31,	Balances		Rates
2020	$	12,336	2.46	%
2021		45,000	2.48	%
2022		—	—	%
2023		13,633	2.03	%
2024		13,895	1.77	%
Total	$	84,864