FS Bancorp, Inc.
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| PART I · · |
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| Item 1. | Business: | 3 | |
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| | | General | 3 |
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| | | Market Area | 4 |
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| | | Lending Activities | 5 |
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| | | Loan Originations, Servicing, Purchases and Sales | 11 |
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| | | Asset Quality | 13 |
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| | | Allowance for Credit Losses | 14 |
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| | | Investment Activities | 17 |
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| | | Deposit Activities and Other Sources of Funds | 18 |
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| | | Subsidiary and Other Activities | 18 |
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| | | Competition | 18 |
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| | | Information about our Executive Officers | 22 |
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| Human Capital | 24 |
| | | How We Are Regulated | 25 |
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| | | Taxation | 33 |
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| Item 1A. | Risk Factors | 33 | |
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| Item 1B. | Unresolved Staff Comments | 45 | |
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| Item 1C. | Cybersecurity | 45 | |
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| Item 2. | Properties | 48 | |
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| Item 3. | Legal Proceedings | 48 | |
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| Item 4. | Mine Safety Disclosures | 48 | |
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| PART II | | | |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 48 | |
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| Item 6. | Reserved | 51 | |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 51 | |
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| | | Overview | 51 |
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| | | Critical Accounting Policies and Estimates | 53 |
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| | | Our Business and Operating Strategy and Goals | 56 |
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| | | Comparison of Financial Condition at December 31, 2023 and December 31, 2022 | 57 |
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| | | Average Balances, Interest and Average Yields/Costs | 59 |
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| | | Rate/Volume Analysis | 60 |
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| | | Comparison of Results of Operations for the Years Ended December 31, 2023 and December 31, 2022 | 60 |
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| | | Asset and Liability Management and Market Risk | 64 |
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| | | Recent Accounting Pronouncements | 67 |
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| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 67 | |
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| Item 8. | Financial Statements and Supplementary Data | 68 | |
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| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 128 | |
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| Item 9A. | Controls and Procedures | 129 | |
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| Item 9B. | Other Information | 130 | |
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| Item 9C. | Disclosure Regarding Foreign Jurisdiction that Prevent Inspections | 130 | |
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| PART III | | | |
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| Item 10. | Directors, Executive Officers and Corporate Governance | 130 | |
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| Item 11. | Executive Compensation | 131 | |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 131 | |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 132 | |
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| Item 14. | Principal Accountant Fees and Services | 132 | |
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| PART IV | | | |
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| Item 15. | Exhibits and Financial Statement Schedules | 133 | |
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| SIGNATURES | | | 134 |
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When we refer to “FS Bancorp” in this report, we are referring to FS Bancorp, Inc. When we refer to “Bank” or “1st Security Bank” in this report, we are referring to 1st Security Bank of Washington, the wholly owned subsidiary of FS Bancorp. As used in this report, the terms “we,” “our,” “us,” and “Company” refer to FS Bancorp, Inc. and its consolidated subsidiary, 1st Security Bank of Washington, unless the context indicates otherwise.
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Forward-Looking Statements
This Form 10–K contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions. Forward-looking statements include, but are not limited to:
| ● | statements of our goals, intentions, and expectations; |
| ● | statements regarding our business plans, prospects, growth, and operating strategies; |
| ● | statements regarding the quality of our loan and investment portfolios; and |
| ● | estimates of our risks and future costs and benefits. |
These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
| ● | expected revenues, cost savings, synergies and other benefits from our branch purchase, might not be realized within the expected time frames or at all and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, might be greater than expected; |
| ● | potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels; labor shortages, the effects of inflation, a potential recession or slowed economic growth; |
| ● | changes in the interest rate environment, including the recent past increases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity; |
| ● | the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; |
| ● | the effects of any government shutdown; |
| ● | the credit risks of lending activities, including changes in the level and trend of loan delinquencies, write offs, changes in our allowance for credit losses (“ACL”) on loans, and provision for credit losses on loans that may be impacted by deterioration in the housing and commercial real estate markets; |
| ● | secondary market conditions and our ability to originate loans for sale and sell loans in the secondary market; |
| ● | fluctuations in the demand for loans, the number of unsold homes, land and other properties, and fluctuations in real estate values in our market area; |
| ● | staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; |
| ● | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
| ● | changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; |
| ● | increased competitive pressures among financial services companies; |
| ● | our ability to execute our plans to grow our residential construction lending, our home lending operations, our warehouse lending, and the geographic expansion of our indirect home improvement lending; |
| ● | our ability to attract and retain deposits; |
| ● | our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
| ● | our ability to control operating costs and expenses; |
| ● | our ability to retain key members of our senior management team; |
| ● | changes in consumer spending, borrowing, and savings habits; |
| ● | our ability to successfully manage our growth; |
| ● | the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; |
| ● | legislative or regulatory changes that adversely affect our business, including changes in banking, securities and tax law, and in regulatory policies and principles, or the interpretation of regulatory capital or other rules; |
| ● | our ability to pay dividends on our common stock; |
| ● | the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets; |
| ● | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board, or the Financial Accounting Standards Board (“FASB”); |
| ● | costs and effects of litigation, including settlements and judgments; |
| ● | disruptions, security breaches, or other adverse events, failures, or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; |
| ● | inability of key third-party vendors to perform their obligations to us; |
| ● | the economic impact of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; |
| ● | other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services, and |
| ● | other risks described elsewhere in this Annual Report on Form 10–K for the year ended December 31, 2023 (the “Form 10–K”), and our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”). |
Any of the forward-looking statements made in this Form 10–K and in other public statements may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. The Company undertakes no obligation to update or revise any forward-looking statement included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
Available Information
The Company provides a link on its investor information page at www.fsbwa.com to filings with the SEC for purposes of providing copies of its annual report on Form 10–K, quarterly reports on Form 10–Q, current reports on Form 8–K and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to the SEC. Other than an investor’s own internet access charges, these filings are free of charge and available through the SEC’s website at www.sec.gov. The information contained on the Company’s website is not included as part of, or incorporated by reference into, this Annual Report on Form 10–K.
