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, 2022              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 May 6, 2022, there were 7,906,583 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, 2022 and December 31, 2021 (Unaudited)	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	4
	Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three  Months Ended March 31, 2022 and 2021 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	7 - 8
	Notes to Consolidated Financial Statements	9 - 44
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45 - 57
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	57
PART II	OTHER INFORMATION	58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
SIGNATURES		61

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	2022		2021
Cash and due from banks	$	12,014	$	12,043
Interest-bearing deposits at other financial institutions		17,592		14,448
Total cash and cash equivalents		29,606		26,491
Certificates of deposit at other financial institutions		8,177		10,542
Securities available-for-sale, at fair value		263,306		271,359
Securities held-to-maturity, net of allowance for credit losses of $72 and none, respectively (fair value of $7,663 and $8,128, respectively)		7,428		7,500
Loans held for sale, at fair value		42,068		125,810
Loans receivable, net (includes $14,918 and $16,083, at fair value, respectively)		1,797,663		1,728,540
Accrued interest receivable		8,436		7,594
Premises and equipment, net		26,116		26,591
Operating lease right-of-use (“ROU”) assets		5,172		4,557
Federal Home Loan Bank (“FHLB”) stock, at cost		4,666		4,778
Deferred tax asset, net		2,611		—
Bank owned life insurance (“BOLI”), net		36,890		37,092
Servicing rights, held at the lower of cost or fair value		18,041		16,970
Goodwill		2,312		2,312
Core deposit intangible, net		3,887		4,060
Other assets		17,554		12,195
TOTAL ASSETS	$	2,273,933	$	2,286,391
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	475,142	$	459,522
Interest-bearing accounts		1,444,646		1,456,222
Total deposits		1,919,788		1,915,744
Borrowings		35,528		42,528
Subordinated notes:
Principal amount		50,000		50,000
Unamortized debt issuance costs		(589)		(606)
Total subordinated notes less unamortized debt issuance costs		49,411		49,394
Operating lease liabilities		5,406		4,792
Deferred tax liability, net		—		1,183
Other liabilities		27,850		25,243
Total liabilities		2,037,983		2,038,884
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; 8,067,211 and 8,169,887 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		81		82
Additional paid-in capital		65,035		67,958
Retained earnings		184,748		179,215
Accumulated other comprehensive (loss) income, net of tax		(13,914)		252
Total stockholders’ equity		235,950		247,507
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,273,933	$	2,286,391

_______________________________

Share and 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
	March 31,
	2022		2021
INTEREST INCOME
Loans receivable, including fees	$	23,047	$	21,534
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,579		1,250
Total interest and dividend income		24,626		22,784
INTEREST EXPENSE
Deposits		1,285		1,982
Borrowings		133		446
Subordinated notes		486		256
Total interest expense		1,904		2,684
NET INTEREST INCOME		22,722		20,100
PROVISION FOR CREDIT LOSSES		1,043		1,500
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		21,679		18,600
NONINTEREST INCOME
Service charges and fee income		1,013		765
Gain on sale of loans		3,857		11,685
Earnings on cash surrender value of BOLI		217		214
Other noninterest income		789		370
Total noninterest income		5,876		13,034
NONINTEREST EXPENSE
Salaries and benefits		11,972		11,609
Operations		2,479		2,467
Occupancy		1,223		1,139
Data processing		1,360		1,307
Loss on sale of OREO		—		9
Loan costs		523		524
Professional and board fees		993		822
Federal Deposit Insurance Corporation (“FDIC”) insurance		157		248
Marketing and advertising		188		97
Amortization of core deposit intangible		173		177
Recovery of servicing rights		(1)		(2,050)
Total noninterest expense		19,067		16,349
INCOME BEFORE PROVISION FOR INCOME TAXES		8,488		15,285
PROVISION FOR INCOME TAXES		1,618		3,402
NET INCOME	$	6,870	$	11,883
Basic earnings per share	$	0.83	$	1.39
Diluted earnings per share	$	0.81	$	1.35

____________________________

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 (LOSS) INCOME

(In thousands) (Unaudited)

	Three Months Ended
	March 31,
	2022		2021
Net income	$	6,870	$	11,883
Other comprehensive loss:
Securities available-for-sale:
Unrealized loss during period		(20,973)		(2,186)
Income tax benefit related to unrealized holding loss		4,510		472
Cash flow hedges:
Unrealized derivative gain during period		2,827		1,036
Income tax provision related to unrealized derivative gain		(608)		(223)
Reclassification adjustment for realized loss, net included in net income		101		114
Income tax benefit related to reclassification, net		(23)		(25)
Other comprehensive loss, net of tax		(14,166)		(812)
COMPREHENSIVE (LOSS) INCOME	$	(7,296)	$	11,071

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, 2021 and 2022

								Accumulated
								Other
				Additional				Comprehensive		Unearned		Total
	Common Stock			Paid-in		Retained		Income,		ESOP		Stockholders’
	Shares	Amount		Capital		Earnings		Net of Tax		Shares		Equity
BALANCE, January 1, 2021	8,475,912	$	84	$	81,276	$	146,405	$	2,533	$	(291)	$	230,007
Net income	—	$	—		—		11,883		—		—	$	11,883
Dividends paid ($0.13 per share)	—	$	—		—		(1,095)		—		—	$	(1,095)
Share-based compensation	—	$	—		295		—		—		—	$	295
Common stock repurchased - repurchase plan	(14,832)	$	—		(273)		—		—		—	$	(273)
Stock options exercised, net	5,000	$	—		(96)		—		—		—	$	(96)
Other comprehensive loss, net of tax	—	$	—		—		—		(812)		—	$	(812)
ESOP shares allocated	—	$	—		336		—		—		66	$	402
BALANCE, March 31, 2021	8,466,080	$	84	$	81,538	$	157,193	$	1,721	$	(225)	$	240,311
BALANCE, January 1, 2022	8,169,887	$	82	$	67,958	$	179,215	$	252	$	—	$	247,507
Net income	—	$	—		—		6,870		—		—	$	6,870
New credit standard (Topic 326) - impact in year of adoption	—	$	—		—		297		—		—	$	297
Dividends paid ($0.20 per share)	—	$	—		—		(1,634)		—		—	$	(1,634)
Share-based compensation	—	$	—		451		—		—		—	$	451
Common stock repurchased - repurchase plan	(115,356)	$	(1)		(3,444)		—		—		—	$	(3,445)
Stock options exercised, net	12,680	$	—		70		—		—		—	$	70
Other comprehensive loss, net of tax	—	$	—		—		—		(14,166)		—	$	(14,166)
BALANCE, March 31, 2022	8,067,211	$	81	$	65,035	$	184,748	$	(13,914)	$	—	$	235,950

_________________________________

Share and 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.

6

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

.

	Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES	2022		2021
Net income	$	6,870	$	11,883
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses		1,043		1,500