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, 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 August 5, 2022, there were 7,726,232 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 June 30, 2022 and December 31, 2021 (Unaudited)	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	4
	Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	6 - 7
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	8 - 9
	Notes to Consolidated Financial Statements	10 - 51
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53 - 68
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	68
PART II	OTHER INFORMATION	69
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	70
Item 6.	Exhibits	70
SIGNATURES		71

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)

	June 30,		December 31,
ASSETS	2022		2021
Cash and due from banks	$	12,708	$	12,043
Interest-bearing deposits at other financial institutions		15,951		14,448
Total cash and cash equivalents		28,659		26,491
Certificates of deposit at other financial institutions		4,960		10,542
Securities available-for-sale, at fair value		247,832		271,359
Securities held-to-maturity, net of allowance for credit losses of $31 and none, respectively (fair value of $8,342 and $8,128, respectively)		8,469		7,500
Loans held for sale, at fair value		34,989		125,810
Loans receivable, net (includes $14,863 and $16,083, at fair value, respectively)		1,946,072		1,728,540
Accrued interest receivable		8,553		7,594
Premises and equipment, net		25,740		26,591
Operating lease right-of-use (“ROU”) assets		4,850		4,557
Federal Home Loan Bank (“FHLB”) stock, at cost		6,295		4,778
Other real estate owned (“OREO”)		145		—
Deferred tax asset, net		4,709		—
Bank owned life insurance (“BOLI”), net		37,106		37,092
Servicing rights, held at the lower of cost or fair value		18,516		16,970
Goodwill		2,312		2,312
Core deposit intangible, net		3,715		4,060
Other assets		16,317		12,195
TOTAL ASSETS	$	2,399,239	$	2,286,391
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	588,364	$	580,749
Interest-bearing accounts		1,427,736		1,334,995
Total deposits		2,016,100		1,915,744
Borrowings		78,028		42,528
Subordinated notes:
Principal amount		50,000		50,000
Unamortized debt issuance costs		(573)		(606)
Total subordinated notes less unamortized debt issuance costs		49,427		49,394
Operating lease liabilities		5,081		4,792
Deferred tax liability, net		—		1,183
Other liabilities		27,962		25,243
Total liabilities		2,176,598		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;7,726,232 and 8,169,887 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		77		82
Additional paid-in capital		55,129		67,958
Retained earnings		189,075		179,215
Accumulated other comprehensive (loss) income, net of tax		(21,640)		252
Total stockholders’ equity		222,641		247,507
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,399,239	$	2,286,391

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
INTEREST INCOME
Loans receivable, including fees	$	25,275	$	22,484	$	48,322	$	44,018
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		1,670		1,313		3,249		2,563
Total interest and dividend income		26,945		23,797		51,571		46,581
INTEREST EXPENSE
Deposits		1,557		1,870		2,842		3,852
Borrowings		174		222		307		668
Subordinated notes		485		485		971		741
Total interest expense		2,216		2,577		4,120		5,261
NET INTEREST INCOME		24,729		21,220		47,451		41,320
PROVISION FOR CREDIT LOSSES		1,871		—		2,914		1,500
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		22,858		21,220		44,537		39,820
NONINTEREST INCOME
Service charges and fee income		1,762		1,188		2,775		1,953
Gain on sale of loans		2,066		6,392		5,923		18,077
Earnings on cash surrender value of BOLI		216		215		433		429
Other noninterest income		311		391		1,100		761
Total noninterest income		4,355		8,186		10,231		21,220
NONINTEREST EXPENSE
Salaries and benefits		11,736		11,932		23,708		23,541
Operations		2,365		2,709		4,844		5,132
Occupancy		1,258		1,226		2,481		2,365
Data processing		1,455		1,203		2,815		2,510
Loss on sale of OREO		—		—		—		9
Loan costs		751		647		1,274		1,171
Professional and board fees		763		786		1,756		1,608
Federal Deposit Insurance Corporation (“FDIC”) insurance		185		123		342		371
Marketing and advertising		244		155		432		252
Amortization of core deposit intangible		172		177		345		354
Impairment (recovery) of servicing rights		—		4		(1)		(2,046)
Total noninterest expense		18,929		18,962		37,996		35,267
INCOME BEFORE PROVISION FOR INCOME TAXES		8,284		10,444		16,772		25,773
PROVISION FOR INCOME TAXES		1,585		1,895		3,203		5,341
NET INCOME	$	6,699	$	8,549	$	13,569	$	20,432
Basic earnings per share	$	0.84	$	1.02	$	1.68	$	2.42
Diluted earnings per share	$	0.83	$	0.98	$	1.66	$	2.35

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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income	$	6,699	$	8,549	$	13,569	$	20,432
Other comprehensive loss:
Securities available-for-sale:
Unrealized loss during period		(11,506)		(323)		(32,479)		(2,509)
Income tax benefit related to unrealized holding loss		2,474		68		6,984		540
Derivative financial instruments:
Unrealized derivative gain (loss) during period		1,717		(165)		4,544		871
Income tax (provision) benefit related to unrealized derivative gain		(369)		35		(977)		(187)
Reclassification adjustment for realized (gain) loss, net included in net income		(55)		124		46		238
Income tax provision (benefit) related to reclassification, net		13		(26)		(10)		(52)
Other comprehensive loss, net of tax		(7,726)		(287)		(21,892)		(