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, 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 November 5, 2021, there were 8,187,383 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, 2021 and December 31, 2020 (Unaudited)	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	6 - 7
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)	8 - 9
	Notes to Consolidated Financial Statements	10 - 44
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46 - 62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
Item 4.	Controls and Procedures	62
PART II	OTHER INFORMATION	63
Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	64
SIGNATURES		65

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)

	September 30,		December 31,
ASSETS	2021		2020
Cash and due from banks	$	11,426	$	11,554
Interest-bearing deposits at other financial institutions		16,906		80,022
Total cash and cash equivalents		28,332		91,576
Certificates of deposit at other financial institutions		11,782		12,278
Securities available-for-sale, at fair value		268,802		178,018
Securities held-to-maturity (fair value of $8,113 and $7,556, respectively)		7,500		7,500
Loans held for sale, at fair value		118,106		166,448
Loans receivable, net		1,678,043		1,544,981
Accrued interest receivable		7,797		7,030
Premises and equipment, net		27,243		27,343
Operating lease right-of-use (“ROU”) assets		4,875		4,949
Federal Home Loan Bank (“FHLB”) stock, at cost		4,871		7,439
Other real estate owned (“OREO”)		—		90
Deferred tax asset, net		303		—
Bank owned life insurance (“BOLI”), net		36,873		36,226
Servicing rights, held at the lower of cost or fair value		16,497		12,595
Goodwill		2,312		2,312
Core deposit intangible, net		4,220		4,751
Other assets		11,138		9,705
TOTAL ASSETS	$	2,228,694	$	2,113,241
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	446,606	$	362,853
Interest-bearing accounts		1,417,044		1,311,218
Total deposits		1,863,650		1,674,071
Borrowings		42,528		165,809
Subordinated notes:
Principal amount		50,000		10,000
Unamortized debt issuance costs		(623)		—
Total subordinated notes less unamortized debt issuance costs		49,377		10,000
Operating lease liabilities		5,097		5,176
Deferred tax liability, net		—		58
Other liabilities		27,589		28,120
Total liabilities		1,988,241		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; 8,208,045 and 8,475,912 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		82		85
Additional paid-in capital		68,481		81,275
Retained earnings		171,786		146,405
Accumulated other comprehensive income, net of tax		198		2,533
Unearned shares – Employee Stock Ownership Plan (“ESOP”)		(94)		(291)
Total stockholders’ equity		240,453		230,007
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,228,694	$	2,113,241

Per share data has been adjusted for all periods to reflect a two-for-one stock split effective July 14, 2021.

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,
	2021		2020		2021		2020
INTEREST INCOME
Loans receivable, including fees	$	23,520	$	21,066	$	67,538	$	62,370
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,487		1,162		4,050		3,520
Total interest and dividend income		25,007		22,228		71,588		65,890
INTEREST EXPENSE
Deposits		1,629		2,637		5,481		9,670
Borrowings		227		503		895		1,458
Subordinated notes		496		170		1,237		511
Total interest expense		2,352		3,310		7,613		11,639
NET INTEREST INCOME		22,655		18,918		63,975		54,251
PROVISION FOR LOAN LOSSES		—		3,100		1,500		11,435
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		22,655		15,818		62,475		42,816
NONINTEREST INCOME
Service charges and fee income		1,073		546		3,026		1,566
Gain on sale of loans		6,885		16,228		24,962		35,492
Gain on sale of investment securities		—		118		—		300
Earnings on cash surrender value of BOLI		218		219		647		650
Other noninterest income		222		435		983		2,560
Total noninterest income		8,398		17,546		29,618		40,568
NONINTEREST EXPENSE
Salaries and benefits		12,790		10,225		36,331		27,192
Operations		2,628		2,809		7,760		7,785
Occupancy		1,227		1,167		3,592		3,492
Data processing		1,309		1,127		3,819		3,158
Loss on sale of OREO		—		—		9		2
OREO expenses		—		—		—		2
Loan costs		842		593		2,013		1,544
Professional and board fees		757		601		2,365		1,950
Federal Deposit Insurance Corporation (“FDIC”) insurance		120		290		491		574
Marketing and advertising		177		109		429		358
Amortization of core deposit intangible		177		176		531		529
(Recovery) impairment of servicing rights		(11)		82		(2,057)		1,399
Total noninterest expense		20,016		17,179		55,283		47,985
INCOME BEFORE PROVISION FOR INCOME TAXES		11,037		16,185		36,810		35,399
PROVISION FOR INCOME TAXES		2,706		3,472		8,047		7,499
NET INCOME	$	8,331	$	12,713	$	28,763	$	27,900
Basic earnings per share	$	0.99	$	1.50	$	3.38	$	3.25
Diluted earnings per share	$	0.97	$	1.47	$	3.30	$	3.19

Per share data has been adjusted for all periods to reflect a two-for-one stock split effective July 14, 2021.

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				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	8,331	$	12,713	$	28,763	$	27,900
Other comprehensive (loss) income:
Securities available-for-sale:
Unrealized holding (loss) gain during period		(1,653)		1		(4,162)		4,882
Income tax benefit (provision) related to unrealized holding (loss) gain		356		—		896		(1,049)
Reclassification adjustment for realized gains, net included in net income		—		(118)		—		(300)
Income tax provision related to reclassification for realized gains, net		—		26		—		65
Cash flow hedges:
Unrealized derivative (losses) gains during period		(57)		(43)		814		(1,485)
Income tax benefit (provision) related to unrealized derivative (losses) gains		12		8		(175)		318
Reclassification adjustment for realized loss, net included in net income		135		98		373		84
Income tax benefit related to reclassification, net		(29)		(21)		(81)		(18)
Other comprehensive (loss) income, net of tax		(1,236)		(49)		(2,335)		2,497
COMPREHENSIVE INCOME	$	7,095	$	12,664	$	26,428	$	30,397

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, 2020 and 2021