FS Bancorp, Inc.

1st Security Bank has been serving the Puget Sound area since 1907, which includes when the predecessor to Anchor Bank, one of its banking acquisitions, was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp.

The Company is relationship-driven, delivering banking and financial services to local families, local and regional businesses and industry niches in suburban communities in the greater Puget Sound area, the Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, Goldendale, Vancouver, and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon.

On February 24, 2023, the Company completed its purchase of seven retail bank branches from Columbia State Bank (the “Branch Acquisition”) and acquired approximately $425.5 million in deposits and $66.1 million in loans. The seven acquired branches are in the communities of Goldendale and White Salmon, Washington, and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. The Branch Acquisition expanded our Puget Sound-focused retail footprint into southeast Washington and the state of Oregon as well as providing an opportunity to extend our unique brand of community banking into those communities.

The Company also maintains its long-standing indirect consumer lending platform which operates primarily throughout the Western United States. The Company emphasizes long-term relationships with families and businesses within the communities served, working with them to meet their financial needs. The Company is also actively involved in community activities and events within these market areas, which further strengthens our relationships within those markets.

The Company's strategic focus involves diversifying revenues, expanding lending channels, and enhancing the banking franchise. Management is committed to establishing varied revenue streams considering credit, interest rate, and concentration risks. The business plan includes:

As a diversified lender, the Company specializes in originating various types of loans, including CRE, multi-family, construction, one-to-four-family, and home equity loans, as well as, consumer loans, such as fixture secured loans, and marine loans, along with commercial business loans. The Company's lending strategies aim to capitalize on new lending opportunities, arising from recent market consolidation, and focus on relationship lending.

At December 31, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 63.7%, 24.5%, and 11.8% of the total loan portfolio, respectively.

A significant portion of our consumer loan portfolio consists of fixture secured loans, which are used to finance home improvement projects such as window and gutter replacements, siding upgrades, solar panel installations, and spas. These loans rely heavily on our network of 46 active contractors and dealers across Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and New Hampshire. Five of these contractor/dealers were responsible for 74.1% of the dollar volume of funded loans for the year ended December 31, 2024. The Company funded $121.3 million, consisting of 5,444 loans in the fixture-secured consumer loan category during the year ended December 31, 2024.

The following table details fixture secured loan originations by state for the periods indicated:

The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $695.2 million of one-to-four-family loans (which included loans held for sale, loans held for investment and fixed seconds) in addition to $20.5 million of loans brokered to other institutions through the home lending segment during the year ended December 31, 2024, of which $564.8 million were sold to investors. Of the loans sold to investors, $233.9 million were sold to the FNMA, FHLMC, FHLB, and GNMA with servicing rights retained for the purpose of further developing these customer relationships. At December 31, 2024, one-to-four-family residential mortgage loans held for investment totaled $617.3 million, or 24.4% of the total gross loan portfolio, while loans held for sale totaled $27.8 million and residential home equity loans totaled $75.1 million at that date.

For the year ended December 31, 2024, one-to-four-family loan originations and refinancing activity increased compared to the prior period as a result of slightly decreased market interest rates and slightly more housing inventory. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, continues to be an important element in our total loan portfolio, and we continue to take a disciplined approach by concentrating our efforts on loans to builders and developers in our market areas known to us. These short-term loans typically have a maturity period of six to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in net loans receivable.

The Company is significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs. Deposit flows are influenced by a number of factors, including interest rates paid on time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles. Sources of funds for lending activities include primarily deposits, including brokered deposits, borrowings, payments on loans, and income provided from operations.

The Company’s earnings are primarily dependent upon net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and the interest rates paid on these deposits and borrowings. The Company's earnings are also affected by fee income from mortgage banking activities, the provision for (recovery of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes.