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FS Bancorp, Inc.

FS Bancorp, Inc.FSBWEarnings & Financial Report

Nasdaq · Financials · Savings Institutions, Not Federally Chartered

FS Bancorp, Inc. is a U.S.-headquartered bank holding company that serves as the parent of 1st Security Bank of Washington. It offers a full range of personal and commercial banking solutions including deposit products, mortgage loans, small business financing and construction loans, primarily catering to customers in the Pacific Northwest, with core segments covering retail banking, commercial banking and residential lending.

What changed in FS Bancorp, Inc.'s 10-K — 2023 vs 2024

Top changes in FS Bancorp, Inc.'s 2024 10-K

414 paragraphs added · 481 removed · 347 edited across 3 sections

Item 1. Business

Business — how the company describes what it does

1 edited+0 added−0 removed0 unchanged
Business: 3 ​ ​ General 3 ​ ​ Market Area 4 ​ ​ Lending Activities 5 ​ ​ Loan Originations, Servicing, Purchases and Sales 11 ​ ​ Asset Quality 13 ​ ​ Allowance for Credit Losses 14 ​ ​ Investment Activities 17 ​ ​ Deposit Activities and Other Sources of Funds 18 ​ ​ Subsidiary and Other Activities 18 ​ ​ Competition 18 ​ ​ Information about our Executive Officers 22 Human Capital 24 ​ ​ How We Are Regulated 25 ​ ​ Taxation 33
Business: 3 ​ ​ General 3 ​ ​ Market Area 4 ​ ​ Lending Activities 4 ​ ​ Loan Originations, Servicing, Purchases and Sales 11 ​ ​ Asset Quality 14 ​ ​ Allowance for Credit Losses 15 ​ ​ Investment Activities 18 ​ ​ Deposit Activities and Other Sources of Funds 19 ​ ​ Subsidiary and Other Activities 19 ​ ​ Competition 19 ​ ​ Information about our Executive Officers 23 Human Capital 25 ​ ​ How We Are Regulated 26 ​ ​ Taxation 34

Item 2. Properties

Properties — owned and leased real estate

345 edited+67 added−134 removed263 unchanged
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.
In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.
In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.
If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.
If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.
Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data.
Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data.
A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period.
A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period.
In cohorts where the Company’s historical data is insufficient due to a minimal amount of default activity or zero defaults, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company’s historical PDs.
In cohorts where the Company’s historical data is insufficient due to a minimal amount of default activity or zero defaults, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company’s historical PDs.
Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria. The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate.
Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria. The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate.
The calculation includes a 12 -month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over a 12 -month period.
The calculation includes a 12 -month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over a 12 -month period.
Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by qualitative and environmental adjustments to incorporate all significant risks to form a sufficient basis to estimate the credit losses.
Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by qualitative and environmental adjustments to incorporate all significant risks to form a sufficient basis to estimate the credit losses.
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.).
Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.).
Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances.
Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances.
The ACL on unfunded commitments is adjusted through a provision for (recovery of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
The ACL on unfunded commitments is adjusted through a provision for (recovery of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.
C&I loans originated by the Company to local small- and mid-sized businesses in our Puget Sound market area are secured primarily by accounts receivable, inventory, or personal property, plant and equipment. Some of the C&I loans purchased by the Company are outside of the greater Puget Sound market area.
C&I loans originated by the Company to local small- and mid-sized businesses in our market area are secured primarily by accounts receivable, inventory, or personal property, plant and equipment. Some C&I loans purchased by the Company are outside of the greater Puget Sound market area.
Thus, any measurement of the fair value of MSRs is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different point in time.
Thus, any measurement of the fair value of MSRs is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different time.
Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Unvested share-based awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two -class method.
Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Unvested share-based awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two -class method.
The Company originates real estate, consumer and commercial business loans and has concentrations in these areas, however, indirect home improvement loans, including solar-related home improvement loans, are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and recently New Hampshire.
The Company originates real estate, consumer, and commercial business loans and has concentrations in these areas, however, indirect home improvement loans, including solar-related home improvement loans are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and New Hampshire.
Fair value adjustments to MSRs are mainly due to market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the MSR portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of MSRs.
Fair value adjustments to MSRs are mainly due to market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the MSRs portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of MSRs.
Losses are charged against the ACL when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses. Allowance for Credit Losses on Loans .
Losses are charged against the ACL when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses. ACL on Loans .
A further decline in national and local economic conditions, as a result of the effects of inflation, a potential recession or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.
A further decline in national and local economic conditions, as a result of the effects of inflation, a recession or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.
The three loan portfolio segments are: (a) Real Estate Loans, (b) Consumer Loans and (c) Commercial Business Loans. Each of these segments is disaggregated into classes based on the risk characteristics of the borrower and/or the collateral type securing the loan.
The three loan portfolio segments are: (a) real estate, (b) consumer, and (c) commercial business. Each of these segments is disaggregated into classes based on the risk characteristics of the borrower and/or the collateral type securing the loan.
The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 110 Table of Contents Under capital adequacy guidelines of the regulatory framework for prompt corrective action, quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 total capital (as defined) and common equity Tier 1 (“CET 1” ) capital to risk-weighted assets (as defined).
The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 111 Table of Contents Under capital adequacy guidelines of the regulatory framework for prompt corrective action, quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 total capital (as defined) and common equity Tier 1 (“CET 1” ) capital to risk-weighted assets (as defined).
Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during the year ending December 31, 2024 that would materially impact liquidity. We also have purchase obligations, with remaining terms generally less than three years and contracts with various vendors to provide services, including information processing.
Based on current capital allocation objectives, there are no projects scheduled for capital investments in premises and equipment during the year ending December 31, 2025 that would materially impact liquidity. We also have purchase obligations, with remaining terms generally less than three years and contracts with various vendors to provide services, including information processing.
The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator: December 31, Corporate securities 2023 2022 BBB/BBB- $ 7,000 $ 8,500 BB+ 1,500 — Total $ 8,500 $ 8,500 At December 31, 2023 , there were no debt securities held-to-maturity that were classified as either nonaccrual or 90 days or more past due and still accruing interest.
The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator: December 31, Corporate securities 2024 2023 BBB/BBB- $ 8,500 $ 7,000 BB+ — 1,500 Total $ 8,500 $ 8,500 At December 31, 2024 and 2023 , there were no debt securities held-to-maturity that were classified as either nonaccrual or 90 days or more past due and still accruing interest.
Term loans that are renewed or extended for periods longer than 90 days are presented as new originations in the year of the most recent renewal or extension.
Term loans that were renewed or extended for periods longer than 90 days are presented as new originations in the year of the most recent renewal or extension.
Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of FS Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).
Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of FS Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).
Services are currently provided to communities through the main office, 27 full-service bank branches and seven stand-alone loan production offices, which are supported with 24/7 access to on-line banking and participation in a worldwide ATM network. The Company focuses on diversifying revenues, expanding lending channels, and growing the banking franchise.
Services are currently provided to communities through the main office, 27 full-service bank branches and 13 loan production offices (seven of which are stand-alone), which are supported with 24/7 access to on-line banking and participation in a worldwide ATM network. The Company focuses on diversifying revenues, expanding lending channels, and growing the banking franchise.
The Bank was in compliance with the FHLB minimum investment requirement at December 31, 2023 and 2022 . Management evaluates FHLB stock for impairment annually. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value.
The Bank was in compliance with the FHLB minimum investment requirement at December 31, 2024 and 2023 . Management evaluates FHLB stock for impairment annually. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value.
These derivatives are not speculative and arise from a service provided to clients. 116 Table of Contents Cash Flow Hedges The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted SOFR based brokered deposits. These derivative instruments are designated as cash flow hedges.
These derivatives are not speculative and arise from a service provided to clients. 118 Table of Contents Cash Flow Hedges The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted SOFR based brokered deposits. These derivative instruments are designated as cash flow hedges.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
At December 31, 2023 , the amortized cost basis of the closed portfolios used in these hedging relationships was $236.7 million; the cumulative basis adjustments associated with these hedging relationships was $3.2 million; and the amounts of the designated hedged items was $60.0 million. 117 Table of Contents The following tables summarize the Company’s derivative instruments at the dates indicated.
At December 31, 2023 , the amortized cost basis of the closed portfolios used in these hedging relationships was $236.7 million; the cumulative basis adjustments associated with these hedging relationships was $3.2 million; and the amounts of the designated hedged items was $60.0 million. 119 Table of Contents The following tables summarize the Company’s derivative instruments at the dates indicated.
Other Real Estate Owned – OREO is recorded initially at the lower of cost or fair value less selling costs, with any initial charge made to the allowance for credit losses ("ACL") on loans. Costs relating to development and improvement of the properties or assets are capitalized while costs relating to holding the properties or assets are expensed.
Other Real Estate Owned – OREO is recorded initially at the lower of cost or fair value less selling costs, with any initial charge made to the allowance for credit losses (“ACL”) on loans. Costs relating to development and improvement of the properties or assets are capitalized while costs relating to holding the properties or assets are expensed.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.
Nonaccrual and Past Due Loans . Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.
In the case of recoveries, amounts may not exceed the aggregate of amounts previously charged off. Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from 2009 to present.
In the case of recaptures, amounts may not exceed the aggregate of amounts previously charged off. Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from 2009 to present.
Under the Uniform Retail Credit Classification Policy, loans that are current or less than 90 days past due are graded “Pass” and risk graded “4” or “5” internally. Loans that are past due more than 90 days are classified “Substandard” risk graded “8” internally until the loan has demonstrated consistent performance, typically six months of contractual payments.
Under the Uniform Retail Credit Classification and Account Management Policy, loans that are current or less than 90 days past due are graded “Pass” and risk graded “4” or “5” internally. Loans that are past due more than 90 days are classified “Substandard” risk graded “8” internally until the loan has demonstrated consistent performance, typically six months of contractual payments.
A description of the 10 risk grades is as follows: ● Grades 1 and 2 - These grades include loans to very high-quality borrowers with excellent or desirable business credit. ● Grade 3 - This grade includes loans to borrowers of good business credit with moderate risk. ● Grades 4 and 5 - These grades include “Pass” grade loans to borrowers of average credit quality and risk. ● Grade 6 - This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term. ● Grade 7 - This grade is for “Other Assets Especially Mentioned (OAEM)” in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected. ● Grade 8 - This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected. ● Grade 9 - This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable. 96 Table of Contents ● Grade 10 - This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.
A description of the 10 risk grades is as follows: ● Grades 1 and 2 - These grades include loans to very high-quality borrowers with excellent or desirable business credit. ● Grade 3 - This grade includes loans to borrowers of good business credit with moderate risk. ● Grades 4 and 5 - These grades include “Pass” grade loans to borrowers of average credit quality and risk. ● Grade 6 - This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term. ● Grade 7 - This grade is for “Other Assets Especially Mentioned (OAEM)” or “Special Mention” loans in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected. ● Grade 8 - This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected. ● Grade 9 - This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable. ● Grade 10 - This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.
Based on its capital levels at December 31, 2023, the Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a well capitalized status under the capital categories of the FDIC.
Based on its capital levels at December 31, 2024, the Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a "well capitalized" status under the capital categories of the FDIC.
Restricted Assets – Regulations of the Board of Governors of the Federal Reserve System (“Federal Reserve”) require that the Bank maintain reserves in the form of cash on hand and deposit balances with the FRB, based on a percentage of deposits. At December 31, 2023 and December 31, 2022 , the Bank had no reserve requirement.
Restricted Assets – Regulations of the Board of Governors of the Federal Reserve System (“Federal Reserve”) require that the Bank maintain reserves in the form of cash on hand and deposit balances with the FRB, based on a percentage of deposits. At December 31, 2024 and December 31, 2023 , the Bank had no reserve requirement.
If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL are recorded as a provision for (reversal of) credit losses.
If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL are recorded as a provision for (recapture of) credit losses.
The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectability of a loan balance is confirmed and recoveries are credited to the ACL when received.
The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the uncollectability of a loan balance is confirmed and recaptures are credited to the ACL when received.
Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, 2023. Income and all average balances are monthly average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.
Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at December 31, 2024. Income and all average balances are monthly average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield.
The regulators may adjust the ACL based on their judgment and the information available to them at the time of their examination. This regulatory scrutiny adds an additional layer of evaluation and potential adjustment to the Company's credit loss provisions. 62 Table of Contents Noninterest Income .
The regulators may adjust the ACL based on their judgment and the information available to them at the time of their examination. This regulatory scrutiny adds an additional layer of evaluation and potential adjustment to the Company's credit loss provisions. 63 Table of Contents Noninterest Income .
In turn, auditing management’s complex judgments regarding the determination of risk grades, and qualitative and environmental adjustments applied to the allowance for credit losses on loans involved a high degree of auditor judgment due to the nature and extent of the audit evidence and effort required to audit the matter.
In turn, auditing management’s complex judgments regarding the determination of qualitative and environmental adjustments applied to the allowance for credit losses on loans involved a high degree of auditor judgment due to the nature and extent of the audit evidence and effort required to audit the matter.
Loans originated by the Company to consumers in our retail branch footprint, including automobiles, recreational vehicles, direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit and credit cards. Commercial Business Loans Commercial and Industrial ( “ C&I ” ) Lending .
Loans originated by the Company to consumers in our retail branch footprint, including automobiles, recreational vehicles, direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit and credit cards. Commercial Business Loans C&I Lending .
This change in value impacts the value of the Company and the liquidity of the securities. Market risk is controlled by setting a maximum average maturity/average life of the securities portfolio to 10 years. 64 Table of Contents Economic Risk. Economic risk is the risk that the underlying value of a bank will change when rates change.
This change in value impacts the value of the Company and the liquidity of the securities. Market risk is controlled by setting a maximum average maturity/average life of the securities portfolio to 10 years. 65 Table of Contents Economic Risk. Economic risk is the risk that the underlying value of a bank will change when rates change.
Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans. 53 Table of Contents The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology.
Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans. The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology.
Our current quarterly common stock dividend rate is $0.26 per share, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank and returning a substantial portion of our cash to our shareholders.
Our current quarterly common stock dividend rate is $0.28 per share, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank and returning a substantial portion of our cash to our shareholders.
Based on its evaluation, management determined that there was no impairment of FHLB stock for the years ended December 31, 2023, 2022, and 2021 . Loans Held for Sale – The Bank records all mortgage loans held for sale at fair value.
Based on its evaluation, management determined that there was no impairment of FHLB stock for the years ended December 31, 2024, 2023 and 2022 . Loans Held for Sale – The Bank records all mortgage loans held for sale at fair value.
The FHLB borrowings at December 31, 2023 and 2022 , consisted of a warehouse securities credit line (“securities line”), which allows advances with interest rates fixed at the time of borrowing and a warehouse federal funds (“Fed Funds”) advance, which allows daily advances at variable interest rates.
The FHLB borrowings at December 31, 2024 and 2023 , consisted of a warehouse securities credit line (“securities line”), which allows advances with interest rates fixed at the time of borrowing and a warehouse federal funds (“Fed Funds”) advance, which allows daily advances at variable interest rates.
The Bank tests for hedging effectiveness on a quarterly basis. The accumulated other comprehensive income is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Bank has not recorded any hedge ineffectiveness since inception.
The Company tests for hedging effectiveness on a quarterly basis. The accumulated other comprehensive income is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company has not recorded any hedge ineffectiveness since inception.
Commercial real estate, construction and development, multi-family and commercial business loans are evaluated individually for their risk classification and may be classified as “Substandard” even if current on their loan payment obligations. We regularly review our credits for accuracy of risk grades whenever we receive new information. Borrowers are generally required to submit financial information at regular intervals.
CRE, construction and development, multi-family and commercial business loans are evaluated individually for their risk classification and may be classified as “Substandard” even if current on their loan payment obligations. We regularly review our credits for accuracy of risk grades whenever we receive new information. Borrowers are generally required to submit financial information at regular intervals.
At December 31, 2023 , the Bank’s capital exceeded the conservation buffer. The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.
At December 31, 2024 , the Bank’s capital exceeded the conservation buffer. The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.
The key amendments included in this ASU: ● Require disclosure on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment profit and loss. ● Require disclosure on an annual and interim basis, an amount for other segment items (defined in the ASU) and a description of its composition. ● Clarify that if the CODM uses more than one measure of the segment's profit or loss in assessing performance, one or more of those additional measures may be reported. ● Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance.
The key amendments included in this ASU: ● Requires disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment profit and loss. ● Requires disclosure on an annual and interim basis, of an amount for other segment items (defined in the ASU) and a description of its composition. ● Clarifies that if the CODM uses more than one measure of the segment's profit or loss in assessing performance, one or more of those additional measures may be reported. ● Requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance.
We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on our financial position. The Company had no material pending legal actions at December 31, 2023 .
In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on our financial position. The Company had no material pending legal actions at December 31, 2024 .
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk, and complexity. In addition, nonowner-occupied commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly.
Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk, and complexity. In addition, nonowner-occupied CRE borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly.
Additionally, the ALCO is responsible for reviewing and reporting the effects of the policy implementations and strategies to the Board of Directors at least quarterly. The Chief Financial Officer oversees this process on a daily basis.
Additionally, the ALCO is responsible for reviewing and reporting the effects of the policy implementations and strategies to the Board of Directors at least quarterly. The Chief Financial Officer oversees this process on a regular basis.
If FS Bancorp were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at December 31, 2023, FS Bancorp would have exceeded all regulatory capital requirements.
If FS Bancorp were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at December 31, 2024, FS Bancorp would have exceeded all regulatory capital requirements.
At December 31, 2023 , the Company’s retail deposit branch network consisted of 27 branches in the Pacific Northwest. This segment is also responsible for the management of the investment portfolio and other assets of the Bank.
At December 31, 2024 , the Company’s retail deposit branch network consisted of 27 branches in the Pacific Northwest. This segment is also responsible for the management of the investment portfolio and other assets of the Bank.
At December 31, 2023 and 2022 , there were no loans sold to the FHLB of Des Moines greater than 30 days past their contractual payment due date. 109 Table of Contents Contingent liabilities for loans held for sale – In the ordinary course of business, loans are sold with limited recourse against the Company and may have to subsequently be repurchased due to defects that occurred during the origination of the loan.
At December 31, 2024 and 2023 , there were no loans sold to the FHLB of Des Moines greater than 30 days past their contractual payment due date. 110 Table of Contents Contingent liabilities for loans held for sale – In the ordinary course of business, loans are sold with limited recourse against the Company and may have to subsequently be repurchased due to defects that occurred during the origination of the loan.
While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. 65 Table of Contents The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund its operations.
While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund its operations.
We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We believe that our audits provide a reasonable basis for our opinions. 70 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Goodwill – Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiable assets acquired.
For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. 84 Table of Contents Goodwill – Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiable assets acquired.
Prepayment assumptions will be determined by analysis of historical behavior by loan cohort. Allowance for Credit Losses on Unfunded Commitments. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company.
Prepayment assumptions will be determined by analysis of historical behavior by loan cohort. ACL on Unfunded Commitments. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company.
There was no goodwill impairment for the years ended December 31, 2023, 2022, and 2021 . Bank Owned Life Insurance – The Bank has purchased life insurance policies on certain key executives.
There was no goodwill impairment for the years ended December 31, 2024, 2023 and 2022 . Bank Owned Life Insurance – The Bank has purchased life insurance policies on certain key executives.
There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes, at December 31, 2023 , that the Bank met all capital adequacy requirements.
There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes, at December 31, 2024 , that the Bank met all capital adequacy requirements.
The remaining branch offices and the seven stand-alone loan production offices are leased facilities. The lease terms for our branch and loan production offices are not individually material. The Company’s leases have remaining lease terms of three months to 6.5 years, some of which include options to extend the leases for up to five years.
The remaining branch offices and the seven stand-alone loan production offices are leased facilities. The lease terms for our branch and loan production offices are not individually material. The Company’s leases have remaining lease terms of 3 months to 5.5 years, some of which include options to extend the leases for up to five years.
Capitalized MSRs are stated separately on the Consolidated Balance Sheets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Income Taxes – The Company files a consolidated federal income tax return.
Capitalized MSRs are stated separately on the Consolidated Balance Sheets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. 83 Table of Contents Income Taxes – The Company files a consolidated federal income tax return.
Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded on The NASDAQ Stock Market LLC’s Global Market, under the symbol “FSBW.” At December 31, 2023, there were approximately 198 shareholders of record based upon securities position listings furnished to us by our transfer agent.
Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded on The NASDAQ Stock Market LLC’s Global Market, under the symbol “FSBW.” At December 31, 2024, there were approximately 190 shareholders of record based upon securities position listings furnished to us by our transfer agent.
As of December 31, 2023 , management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.
As of December 31, 2024 , management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.
Assuming continued cash dividend payment during 2024 at this rate of $0.26 per share, our average total dividend paid each quarter would be approximately $2.0 million based on the number of our current outstanding shares as of December 31, 2023. The Bank is subject to minimum capital requirements imposed by the FDIC.
Assuming continued cash dividend payment during 2025 at this rate of $0.28 per share, our average total dividend paid each quarter would be approximately $2.2 million based on the number of our current outstanding shares as of December 31, 2024. The Bank is subject to minimum capital requirements imposed by the FDIC.
Business – How We Are Regulated – Regulation of 1st Security Bank – Dividends” and “Regulation and Supervision of FS Bancorp – Restrictions on Dividends and Stock Repurchases.” 48 Table of Contents Our cash dividend policy is reviewed by management and the Board of Directors.
Business – How We Are Regulated – Regulation of 1st Security Bank – Dividends” and “Regulation and Supervision of FS Bancorp – Restrictions on Dividends and Stock Repurchases.” Our cash dividend policy is reviewed by management and the Board of Directors.
Interest Rate Risk. The table presented below, as of December 31, 2023, is an analysis prepared for the Company by a third-party consultant.
Interest Rate Risk. The table presented below, as of December 31, 2024, is an analysis prepared for the Company by a third-party consultant.
The Company has recorded a holdback reserve of $2.1 million and $2.3 million to cover loss exposure related to these guarantees for one -to- four -family loans sold into the secondary market at December 31, 2023 and 2022 , respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.
The Company has recorded a holdback reserve of $2.0 million and $2.1 million to cover loss exposure related to these guarantees for one -to- four -family loans sold into the secondary market at December 31, 2024 and 2023 , respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.
The Company recognized no interest and penalties in tax expense for the years ended December 31, 2023, 2022, and 2021 . 108 Table of Contents NOTE 13 – COMMITMENTS AND CONTINGENCIES Commitments – The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
The Company recognized no interest and penalties in tax expense for the years ended December 31, 2024, 2023 and 2022 . 109 Table of Contents NOTE 13 – COMMITMENTS AND CONTINGENCIES Commitments – The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
The following amounts were recorded on the balance sheet related to cumulative-basis adjustment for fair value hedges for the dates indicated: Cumulative Amount of Fair Value Line item on the Consolidated Balance Sheets Hedging Adjustment Included in in which the hedged item is included: Carrying Amount of the the Carrying Amount of the December 31, 2023 Hedged Assets Hedged Assets Investment securities (1) $ 56,785 $ 3,215 Total $ 56,785 $ 3,215 December 31, 2022 Investment securities (1) $ 55,893 $ 4,107 Total $ 55,893 $ 4,107 ____________________________________ 1 ) These amounts include the amortized cost basis of closed portfolios used in designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship.
The following amounts were recorded on the balance sheet related to cumulative-basis adjustment for fair value hedges for the dates indicated: Cumulative Amount of Fair Value Hedging Adjustment Included in Line item in the Consolidated Balance Sheets Carrying Amount of the the Carrying Amount of the in which the hedged item is included Hedged Assets Hedged Assets December 31, 2024 Investment securities (1) $ 55,701 $ 4,299 Total $ 55,701 $ 4,299 December 31, 2023 Investment securities (1) $ 56,785 $ 3,215 Total $ 56,785 $ 3,215 ____________________________________ ( 1 ) These amounts include the amortized cost basis of closed portfolios used in designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship.
Goodwill totaled $3.6 million at December 31, 2023 , and $2.3 million at December 31, 2022 , and represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in the Branch Acquisition on February 24, 2023, and the purchase of four retail bank branches from Bank of America on January 22, 2016.
Goodwill totaled $3.6 million at both December 31, 2024 , and December 31, 2023 , and represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in the Branch Purchase on February 24, 2023, and the purchase of four retail bank branches from Bank of America on January 22, 2016.
Federal income tax return and Oregon and Idaho state returns, which are subject to examination by tax authorities for years 2021 and later. At December 31, 2023 and 2022 , the Company had no uncertain tax positions.
Federal income tax return and Oregon, Idaho, and Arizona state income tax returns, which are subject to examination by tax authorities for years 2021 and later. At December 31, 2024 and 2023 , the Company had no uncertain tax positions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management” of this Form 10–K is incorporated herein by reference. 67 Table of Contents Item 8. Financial Statements and Supplementary Data FS BANCORP, INC.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset and Liability Management” of this Form 10–K is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data FS BANCORP, INC.
Sources of capital and liquidity for FS Bancorp include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. At December 31, 2023, FS Bancorp, Inc. had $9.1 million in unrestricted cash to meet liquidity needs.
Sources of capital and liquidity for FS Bancorp include distributions from the Bank and the issuance of debt or equity securities. Dividends and other capital distributions from the Bank are subject to regulatory notice. At December 31, 2024, FS Bancorp, Inc. had $9.2 million in unrestricted cash to meet liquidity needs.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Management’s Discussion and Analysis of Financial Condition and Results of Operations 51 ​ ​ Overview 51 ​ ​ Critical Accounting Policies and Estimates 53 ​ ​ Our Business and Operating Strategy and Goals 56 ​ ​ Comparison of Financial Condition at December 31, 2023 and December 31, 2022 57 ​ ​ Average Balances, Interest and Average Yields/Costs 59 ​ ​ Rate/Volume Analysis 60 ​ ​ Comparison of Results of Operations for the Years Ended December 31, 2023 and December 31, 2022 60 ​ ​ Asset and Liability Management and Market Risk 64 ​ ​ Recent Accounting Pronouncements 67
Management’s Discussion and Analysis of Financial Condition and Results of Operations 53 ​ ​ Overview 53 ​ ​ Critical Accounting Policies and Estimates 55 ​ ​ Our Business and Operating Strategy and Goals 57 ​ ​ Comparison of Financial Condition at December 31, 2024 and December 31, 2023 57 ​ ​ Average Balances, Interest and Average Yields/Costs 60 ​ ​ Rate/Volume Analysis 61 ​ ​ Comparison of Results of Operations for the Years Ended December 31, 2024 and December 31, 2023 61 ​ ​ Asset and Liability Management and Market Risk 65 ​ ​ Recent Accounting Pronouncements 69

Other FSBW 10-K year-over-year comparisons