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 June 30, 2020 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 July 31, 2020, there were 4,246,041outstanding shares of the registrant’s common stock.

Table of Contents

Item 1. Financial Statements

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

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


	June 30,		December 31,
ASSETS	2020		2019
Cash and due from banks	$	12,214	$	13,175
Interest-bearing deposits at other financial institutions		113,910		32,603
Total cash and cash equivalents		126,124		45,778
Certificates of deposit at other financial institutions		17,926		20,902
Securities available-for-sale, at fair value		168,709		126,057
Loans held for sale, at fair value		139,410		69,699
Loans receivable, net		1,444,425		1,336,346
Accrued interest receivable		6,303		5,908
Premises and equipment, net		28,340		28,770
Operating lease right-of-use (“ROU”) assets		4,730		5,016
Federal Home Loan Bank (“FHLB”) stock, at cost		7,659		8,045
Other real estate owned (“OREO”)		90		168
Bank owned life insurance (“BOLI”), net		35,788		35,356
Servicing rights, held at the lower of cost or fair value		10,672		11,560
Goodwill		2,312		2,312
Core deposit intangible, net		5,104		5,457
Other assets		11,164		11,682
TOTAL ASSETS	$	2,008,756	$	1,713,056
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	345,497	$	273,602
Interest-bearing accounts		1,261,375		1,118,806
Total deposits		1,606,872		1,392,408
Borrowings		150,255		84,864
Subordinated note:
Principal amount		10,000		10,000
Unamortized debt issuance costs		(105)		(115)
Total subordinated note less unamortized debt issuance costs		9,895		9,885
Operating lease liabilities		4,945		5,214
Deferred tax liability, net		2,675		1,971
Other liabilities		25,473		18,472
Total liabilities		1,800,115		1,512,814
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; 4,245,041 and 4,459,041 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		42		44
Additional paid-in capital		81,616		89,268
Retained earnings		124,090		110,715
Accumulated other comprehensive income, net of tax		3,334		788
Unearned shares – Employee Stock Ownership Plan (“ESOP”)		(441)		(573)
Total stockholders’ equity		208,641		200,242
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,008,756	$	1,713,056

See accompanying notes to these consolidated financial statements.

Table of Contents

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
INTEREST INCOME
Loans receivable, including fees	$	20,564	$	21,102	$	41,304	$	42,211
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,149		1,263		2,358		2,465
Total interest and dividend income		21,713		22,365		43,662		44,676
INTEREST EXPENSE
Deposits		3,226		4,056		7,033		7,766
Borrowings		458		606		955		1,350
Subordinated note		169		169		341		337
Total interest expense		3,853		4,831		8,329		9,453
NET INTEREST INCOME		17,860		17,534		35,333		35,223
PROVISION FOR LOAN LOSSES		4,649		910		8,335		1,660
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		13,211		16,624		26,998		33,563
NONINTEREST INCOME
Service charges and fee income		96		1,854		1,020		3,512
Gain on sale of loans		13,365		3,576		19,264		5,973
Gain on sale of investment securities		182		32		182		32
Earnings on cash surrender value of BOLI		215		217		431		432
Other noninterest income		273		404		2,125		689
Total noninterest income		14,131		6,083		23,022		10,638
NONINTEREST EXPENSE
Salaries and benefits		7,420		8,649		16,967		16,892
Operations		2,573		2,658		4,976		4,702
Occupancy		1,216		1,230		2,325		2,342
Data processing		1,051		1,336		2,031		2,622
Loss (gain) on sale of OREO		—		—		2		(85)
OREO expenses		2		7		2		11
Loan costs		451		707		951		1,379
Professional and board fees		668		616		1,349		1,166
Federal Deposit Insurance Corporation (“FDIC”) insurance		158		139		284		387
Marketing and advertising		103		191		249		327
Acquisition costs		—		1,224		—		1,598
Amortization of core deposit intangible		177		190		353		380
Impairment of servicing rights		803		124		1,317		147
Total noninterest expense		14,622		17,071		30,806		31,868
INCOME BEFORE PROVISION FOR INCOME TAXES		12,720		5,636		19,214		12,333
PROVISION FOR INCOME TAXES		2,700		1,173		4,027		2,678
NET INCOME	$	10,020	$	4,463	$	15,187	$	9,655
Basic earnings per share	$	2.34	$	1.00	$	3.48	$	2.17
Diluted earnings per share	$	2.30	$	0.98	$	3.42	$	2.12

See accompanying notes to these consolidated financial statements.

Table of Contents

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net Income	$	10,020	$	4,463	$	15,187	$	9,655
Other comprehensive income:
Securities available-for-sale:
Unrealized holding gain during period		2,516		1,220		4,880		2,548
Income tax provision related to unrealized holding gain		(540)		(263)		(1,048)		(548)
Reclassification adjustment for realized gains, net included in net income		(182)		(32)		(182)		(32)
Income tax provision related to reclassification for realized gains, net		39		7		39		7
Cash flow hedges:
Unrealized derivative losses during period		(390)		—		(1,442)		—
Income tax benefit related to unrealized derivative losses		84		—		310		—
Reclassification adjustment for income, net included in net income		(15)		—		(14)		—
Income tax provision related to reclassification for income, net		3		—		3		—
Other comprehensive income, net of tax		1,515		932		2,546		1,975
COMPREHENSIVE INCOME	$	11,535	$	5,395	$	17,733	$	11,630

See accompanying notes to these consolidated financial statements.

Table of Contents

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

Three Months Ended June 30, 2019 and 2020


								Accumulated
								Other
				Additional				Comprehensive		Unearned		Total
	Common Stock			Paid-in		Retained		(Loss) Income,		ESOP		Stockholders’
	Shares	Amount		Capital		Earnings		Net of Tax		Shares		Equity
BALANCE, April 1, 2019	4,489,042	$	45	$	91,742	$	95,383	$	(436)	$	(782)	$	185,952
Net income	—	$	—		—		4,463		—		—	$	4,463
Dividends paid ($0.15 per share)	—	$	—		—		(662)		—		—	$	(662)
Share-based compensation	—	$	—		190		—		—		—	$	190
Common stock repurchased	(49,978)	$	—		(2,413)		—		—		—	$	(2,413)
Stock options exercised, net	37,800	$	—		638		—		—		—


		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 (Unaudited)	3

	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)	8 - 9

	Notes to Consolidated Financial Statements	10 - 45

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46 - 61

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62

Item 4.	Controls and Procedures	62

PART II	OTHER INFORMATION	62

Item 1.	Legal Proceedings	62

Item 1A.	Risk Factors	62

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	65

Item 5.	Other Information	65

Item 6.	Exhibits	66

SIGNATURES		67