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 March 31, 2021              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 April 30, 2021, there were 4,227,174 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 March 31, 2021 and December 31, 2020 (Unaudited)	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited)	7 - 8
	Notes to Consolidated Financial Statements	9 - 40
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42 - 55
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	55
PART II	OTHER INFORMATION	56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	57
SIGNATURES		58

As used in this report, the terms “we,” “our,” “us,” “Company” and “FS Bancorp” refer to FS Bancorp, Inc. and its consolidated subsidiary, 1st Security Bank of Washington, 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.

2

Item 1. Financial Statements

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

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

	March 31,		December 31,
ASSETS	2021		2020
Cash and due from banks	$	10,982	$	11,554
Interest-bearing deposits at other financial institutions		74,464		80,022
Total cash and cash equivalents		85,446		91,576
Certificates of deposit at other financial institutions		12,278		12,278
Securities available-for-sale, at fair value		201,311		178,018
Securities held-to-maturity (fair value of $7,873 and $7,556, respectively)		7,500		7,500
Loans held for sale, at fair value		156,281		166,448
Loans receivable, net		1,593,060		1,544,981
Accrued interest receivable		7,429		7,030
Premises and equipment, net		26,798		27,343
Operating lease right-of-use (“ROU”) assets		5,085		4,949
Federal Home Loan Bank (“FHLB”) stock, at cost		6,475		7,439
Other real estate owned (“OREO”)		—		90
Deferred tax asset, net		164		—
Bank owned life insurance (“BOLI”), net		36,440		36,226
Servicing rights, held at the lower of cost or fair value		15,735		12,595
Goodwill		2,312		2,312
Core deposit intangible, net		4,574		4,751
Other assets		14,698		9,705
TOTAL ASSETS	$	2,175,586	$	2,113,241
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	414,390	$	362,853
Interest-bearing accounts		1,366,403		1,311,218
Total deposits		1,780,793		1,674,071
Borrowings		72,528		165,809
Subordinated notes:
Principal amount		50,000		10,000
Unamortized debt issuance costs		(656)		—
Total subordinated notes less unamortized debt issuance costs		49,344		10,000
Operating lease liabilities		5,285		5,176
Deferred tax liability, net		—		58
Other liabilities		27,325		28,120
Total liabilities		1,935,275		1,883,234
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; 4,233,040 and 4,237,956 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		42		42
Additional paid-in capital		81,580		81,318
Retained earnings		157,193		146,405
Accumulated other comprehensive income, net of tax		1,721		2,533
Unearned shares – Employee Stock Ownership Plan (“ESOP”)		(225)		(291)
Total stockholders’ equity		240,311		230,007
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,175,586	$	2,113,241

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
	March 31,
	2021		2020
INTEREST INCOME
Loans receivable, including fees	$	21,534	$	20,740
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,250		1,209
Total interest and dividend income		22,784		21,949
INTEREST EXPENSE
Deposits		1,982		3,807
Borrowings		446		497
Subordinated notes		256		172
Total interest expense		2,684		4,476
NET INTEREST INCOME		20,100		17,473
PROVISION FOR LOAN LOSSES		1,500		3,686
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		18,600		13,787
NONINTEREST INCOME
Service charges and fee income		765		924
Gain on sale of loans		11,685		5,899
Earnings on cash surrender value of BOLI		214		216
Other noninterest income		370		1,852
Total noninterest income		13,034		8,891
NONINTEREST EXPENSE
Salaries and benefits		11,609		9,547
Operations		2,467		2,403
Occupancy		1,139		1,109
Data processing		1,307		980
Loss on sale of OREO		9		2
Loan costs		524		500
Professional and board fees		822		681
Federal Deposit Insurance Corporation (“FDIC”) insurance		248		126
Marketing and advertising		97		146
Amortization of core deposit intangible		177		176
(Recovery) impairment of servicing rights		(2,050)		514
Total noninterest expense		16,349		16,184
INCOME BEFORE PROVISION FOR INCOME TAXES		15,285		6,494
PROVISION FOR INCOME TAXES		3,402		1,327
NET INCOME	$	11,883	$	5,167
Basic earnings per share	$	2.78	$	1.16
Diluted earnings per share	$	2.70	$	1.14

See accompanying notes to these consolidated financial statements.

4

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

	Three Months Ended
	March 31,
	2021		2020
Net income	$	11,883	$	5,167
Other comprehensive (loss) income:
Securities available-for-sale:
Unrealized holding (loss) gain during period		(2,186)		2,364
Income tax benefit (provision) related to unrealized holding (loss) gain		472		(508)
Cash flow hedges:
Unrealized derivative gains (losses) during period		1,036		(1,052)
Income tax (provision) benefit related to unrealized derivative gains (losses)		(223)		226
Reclassification adjustment for interest expense, net included in net income		114		1
Income tax provision related to reclassification for expense, net		(25)		—
Other comprehensive (loss) income, net of tax		(812)		1,031
COMPREHENSIVE INCOME	$	11,071	$	6,198

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 March 31, 2020 and 2021

								Accumulated
								Other
				Additional				Comprehensive		Unearned		Total
	Common Stock			Paid-in		Retained		Income (Loss),		ESOP		Stockholders’
	Shares	Amount		Capital		Earnings		Net of Tax		Shares		Equity
BALANCE, January 1, 2020	4,459,041	$	44	$	89,268	$	110,715	$	788	$	(573)	$	200,242
Net income	—	$	—		—		5,167		—		—	$	5,167
Dividends paid ($0.21 per share)	—	$	—		—		(925)		—		—	$	(925)
Share-based compensation	—	$	—		224		—		—		—	$	224
Common stock repurchased - repurchase plan	(136,243)	$	(1)		(4,988)		—		—		—	$	(4,989)
Stock options exercised, net	9,398	$	—		(246)		—		—		—	$	(246)
Other comprehensive income, net of tax	—	$	—		—		—		1,031		—	$	1,031
ESOP shares allocated	—	$	—		259		—		—		66	$	325
BALANCE, March 31, 2020	4,332,196	$	43	$	84,517	$	114,957	$	1,819	$	(507)	$	200,829
BALANCE, January 1, 2021	4,237,956	$	42	$	81,318	$	146,405	$	2,533	$	(291)	$	230,007
Net income	—	$	—		—		11,883		—		—	$	11,883
Dividends paid ($0.26 per share)	—	$	—		—		(1,095)		—		—	$	(1,095)
Share-based compensation	—	$	—		295		—		—		—	$	295
Common stock repurchased - repurchase plan	(7,416)	$	—		(273)		—		—		—	$	(273)
Stock options exercised, net	2,500	$	—		(96)		—		—		—	$	(96)
Other comprehensive loss, net of tax	—	$	—		—		—		(812)		—	$	(812)
ESOP shares allocated	—	$	—		336		—		—		66	$	402
BALANCE, March 31, 2021	4,233,040	$	42	$	81,580	$	157,193	$	1,721	$	(225)	$	240,311

See accompanying notes to these consolidated financial statements.

6

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

.

	Three Months Ended March 31,
CASH FLOWS FROM (USED BY) OPERATING ACTIVITIES	2021		2020
Net income	$	11,883	$	5,167
Adjustments to reconcile net income to net cash from (used by) operating activities
Provision for loan losses		1,500		3,686
Depreciation, amortization and accretion		5,165		2,178
Compensation expense related to stock options and restricted stock awards		295		224
ESOP compensation expense for allocated shares		402		325
Increase in cash surrender value of BOLI		(214)		(216)
Gain on sale of loans held for sale		(11,685)		(5,899)
Origination of loans held for sale		(409,209)		(259,191)
Proceeds from sale of loans held for sale		423,983		218,574
(Recovery) impairment of servicing rights		(2,050)		514
Loss on sale of OREO		9		2
Changes in operating assets and liabilities
Accrued interest receivable		(399)		(418)
Other assets		(2,547)