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, 2023 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 5, 2023, there were 7,743,283 outstanding 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)


	March 31,		December 31,
ASSETS	2023		2022
Cash and due from banks	$	21,481	$	10,525
Interest-bearing deposits at other financial institutions		36,700		30,912
Total cash and cash equivalents		58,181		41,437
Certificates of deposit at other financial institutions		4,712		4,712
Securities available-for-sale, at fair value		232,373		229,252
Securities held-to-maturity, net of allowance for credit losses of $31 and $31, respectively (fair value of $7,924 and $7,929, respectively)		8,469		8,469
Loans held for sale, at fair value		23,310		20,093
Loans receivable, net (includes $14,960 and $14,035, at fair value, respectively)		2,299,649		2,190,860
Accrued interest receivable		12,336		11,144
Premises and equipment, net		31,781		25,119
Operating lease right-of-use (“ROU”) assets		7,414		6,226
Federal Home Loan Bank (“FHLB”) stock, at cost		3,863		10,611
Other real estate owned (“OREO”)		570		570
Deferred tax asset, net		5,860		6,670
Bank owned life insurance (“BOLI”), net		37,020		36,799
Servicing rights, held at the lower of cost or fair value		17,599		18,017
Goodwill		3,592		2,312
Core deposit intangible, net		20,348		3,369
Other assets		15,731		17,238
TOTAL ASSETS	$	2,782,808	$	2,632,898
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	746,922	$	554,174
Interest-bearing accounts		1,696,351		1,573,567
Total deposits		2,443,273		2,127,741
Borrowings		7,528		186,528
Subordinated notes:
Principal amount		50,000		50,000
Unamortized debt issuance costs		(523)		(539)
Total subordinated notes less unamortized debt issuance costs		49,477		49,461
Operating lease liabilities		7,651		6,474
Other liabilities		33,045		30,997
Total liabilities		2,540,974		2,401,201
COMMITMENTS AND CONTINGENCIES (NOTE 10)
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; 7,743,283 and 7,736,185 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		77		77
Additional paid-in capital		56,138		55,187
Retained earnings		208,342		202,065
Accumulated other comprehensive loss, net of tax		(22,723)		(25,632)
Total stockholders’ equity		241,834		231,697
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,782,808	$	2,632,898

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
	March 31,
	2023		2022
INTEREST INCOME
Loans receivable, including fees	$	35,992	$	23,047
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		2,620		1,579
Total interest and dividend income		38,612		24,626
INTEREST EXPENSE
Deposits		6,624		1,285
Borrowings		841		133
Subordinated notes		485		486
Total interest expense		7,950		1,904
NET INTEREST INCOME		30,662		22,722
PROVISION FOR CREDIT LOSSES		2,108		1,043
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		28,554		21,679
NONINTEREST INCOME
Service charges and fee income		2,608		1,013
Gain on sale of loans		1,476		3,857
Earnings on cash surrender value of BOLI		221		217
Other noninterest income		914		789
Total noninterest income		5,219		5,876
NONINTEREST EXPENSE
Salaries and benefits		13,864		11,972
Operations		2,692		2,479
Occupancy		1,520		1,223
Data processing		1,568		1,360
Loan costs		470		523
Professional and board fees		678		993
Federal Deposit Insurance Corporation (“FDIC”) insurance		580		157
Marketing and advertising		190		188
Acquisition cost		1,501		—
Amortization of core deposit intangible		459		173
Impairment (recovery) of servicing rights		2		(1)
Total noninterest expense		23,524		19,067
INCOME BEFORE PROVISION FOR INCOME TAXES		10,249		8,488
PROVISION FOR INCOME TAXES		2,037		1,618
NET INCOME	$	8,212	$	6,870
Basic earnings per share⁽¹⁾	$	1.06	$	0.84
Diluted earnings per share ⁽¹⁾	$	1.04	$	0.83

______________________________

(1)

Earnings per share for the three months ended March 31, 2022, was revised due to the improper inclusion of certain unvested shares in the denominator of basic and diluted earnings per share. As a result of the inclusion, earnings per share was understated for the three months ended March 31, 2022. Basic earnings per share for that period was updated to $0.84 from $0.83 as previously reported. Diluted earnings per share was updated to $0.83 from $0.81 as previously reported.

See accompanying notes to these consolidated financial statements.

Table of Contents

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Net income	$	8,212	$	6,870
Other comprehensive income (loss):
Securities available-for-sale:
Unrealized gain (loss) during period		6,136		(20,973)
Income tax (provision) benefit related to unrealized holding gain (loss)		(1,320)		4,510
Derivative financial instruments:
Unrealized derivative (loss) gain during period		(1,517)		2,827
Income tax benefit (provision) related to unrealized derivative (loss) gain		322		(608)
Reclassification adjustment for realized (gain) loss, net included in net income		(907)		101
Income tax provision (benefit) related to reclassification, net		195		(23)
Other comprehensive income (loss), net of tax		2,909		(14,166)
COMPREHENSIVE INCOME (LOSS)	$	11,121	$	(7,296)

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 March 31, 2022 and 2023


								Accumulated
								Other
				Additional				Comprehensive		Total
	Common Stock			Paid-in		Retained		Income (Loss),		Stockholders’
	Shares	Amount		Capital		Earnings		Net of Tax		Equity
BALANCE, January 1, 2022	8,169,887	$	82	$	67,958	$	179,215	$	252	$	247,507
Net income	—	$	—		—		6,870		—	$	6,870
Cumulative effect of new accounting 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

BALANCE, January 1, 2023	7,736,185	$	77	$	55,187	$	202,065	$	(25,632)	$	231,697
Net income	—	$	—		—		8,212		—	$	8,212
Dividends paid ($0.25 per share)	—	$	—		—		(1,935)		—	$	(1,935)
Share-based compensation	—	$	—		654		—		—	$	654
Issuance of common stock- employee stock purchase plan	7,350	$	—		271		—		—	$	271
Restricted stock awards forfeited	(4,812)	$	—		—		—		—	$	—
Common stock repurchased for employee/director taxes paid on restricted stock awards	(440)	$	—		(16)		—		—	$	(16)
Stock options exercised, net	5,000	$	—		42		—		—	$	42
Other comprehensive income, net of tax	—	$	—		—		—		2,909	$	2,909
BALANCE, March 31, 2023	7,743,283	$	77	$	56,138	$	208,342	$	(22,723)	$	241,834

See accompanying notes to these consolidated financial statements.

Table of Contents

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES	2023		2022
Net income	$	8,212	$	6,870
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses		2,108		1,043
Depreciation, amortization and accretion		3,358		4,289
Compensation expense related to stock options and restricted stock awards		654		451
Change in cash surrender value of BOLI		(221)		(217)
Gain on sale of loans held for sale		(1,476)		(3,857)
Origination of loans held for sale		(73,050)		(211,575)
Proceeds from sale of loans held for sale		78,316		302,553
Impairment (recovery) of servicing rights		2		(1)
Changes in operating assets and liabilities
Accrued interest receivable		(662)		(842)
Other assets		(470)		(476)
Other liabilities		1,700		(296)
Net cash from operating activities		18,471		97,942
CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES
Activity in securities available-for-sale:
Maturities, prepayments, and calls		2,497		3,333
Purchases		—		(16,762)
Maturities of certificates of deposit at other financial institutions		—		2,365
Portfolio loan originations and principal collections, net		(55,269)		(73,340)
Net cash from acquisitions		336,157		—
Purchase of portfolio loans		(829)		(2,806)
Purchase of premises and equipment		(954)		(160)
Proceeds from bank owned life insurance death benefits		—		419
Change in FHLB stock, net		6,748		112
Net cash from (used by) investing activities		288,350		(86,839)
CASH FLOWS USED BY FINANCING ACTIVITIES
Net (decrease) increase in deposits		(109,439)		4,021
Proceeds from borrowings		382,500		38,000
Repayments of borrowings		(561,500)		(45,000)
Dividends paid on common stock		(1,935)		(1,634)
Proceeds from stock options exercised, net		42		70
Common stock repurchased for employee taxes paid on restricted stock awards		(16)		—
Issuance of common stock - employee stock purchase plan		271		—
Common stock repurchased - repurchase plan		—		(3,445)
Net cash used by financing activities		(290,077)		(7,988)
NET INCREASE IN CASH AND CASH EQUIVALENTS		16,744		3,115

CASH AND CASH EQUIVALENTS, beginning of period		41,437		26,491
CASH AND CASH EQUIVALENTS, end of period	$	58,181	$	29,606


		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 (Unaudited)	3

	Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	4

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	6

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)	7 - 8

	Notes to Consolidated Financial Statements	9 - 44

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	61

Item 4.	Controls and Procedures	61

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	62

Item 3.	Defaults Upon Senior Securities	63

Item 4.	Mine Safety Disclosures	63

Item 5.	Other Information	63

Item 6.	Exhibits	64

SIGNATURES		65

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:

Interest on deposits and borrowings

Income taxes