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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017    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)

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 [X]    No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X]    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 [ ] (Do not check if a smaller reporting company)
 
Smaller reporting company [ X ]
Emerging growth company [ X ]
 
 

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. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 4, 2017, there were 3,075,168 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, 2017 and December 31, 2016 (Unaudited)
3

 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)
4

 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)
5

 
 
 
 
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2017 and 2016 (Unaudited)
6

 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (Unaudited)
7 - 8

 
 
 
 
Notes to Consolidated Financial Statements
9 - 42

 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
43 - 52

 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
52

 
 
 
Item 4.
Controls and Procedures
52

 
 
 
PART II
OTHER INFORMATION
53

 
 
 
Item 1.
Legal Proceedings
53

 
 
 
Item 1A.
Risk Factors
53

 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
53 - 54

 
 
 
Item 3.
Defaults Upon Senior Securities
54

 
 
 
Item 4.
Mine Safety Disclosures
54

 
 
 
Item 5.
Other Information
54

 
 
 
Item 6.
Exhibits
54 - 55

 
 
 
SIGNATURES
 
56

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, Inc.



 
 



Item 1. Financial Statements
FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts) (Unaudited)
ASSETS
June 30,
2017
 
December 31, 2016
Cash and due from banks
$
3,975

 
$
3,590

Interest-bearing deposits at other financial institutions
13,827

 
32,866

Total cash and cash equivalents
17,802

 
36,456

Certificates of deposit at other financial institutions
18,109

 
15,248

Securities available-for-sale, at fair value
78,932

 
81,875

Loans held for sale, at fair value
57,256

 
52,553

Loans receivable, net
709,102

 
593,317

Accrued interest receivable
2,903

 
2,524

Premises and equipment, net
15,550

 
16,012

Federal Home Loan Bank (“FHLB”) stock, at cost
3,909

 
2,719

Bank owned life insurance (“BOLI”), net
10,194

 
10,054

Servicing rights, held at the lower of cost or fair value
4,899

 
8,459

Goodwill
2,312

 
2,312

Core deposit intangible, net
1,517

 
1,717

Other assets
6,097

 
4,680

TOTAL ASSETS
$
928,582

 
$
827,926

 
 
 
 
LIABILITIES
 
 
 

Deposits:
 
 
 

Noninterest-bearing accounts
$
164,010

 
$
152,913

Interest-bearing accounts
621,687

 
559,680

Total deposits
785,697

 
712,593

Borrowings
30,669

 
12,670

Subordinated note:
 
 
 
Principal amount
10,000

 
10,000

Unamortized debt issuance costs
(165
)
 
(175
)
Total subordinated note less unamortized debt issuance costs
9,835

 
9,825

Other liabilities
13,557

 
11,805

Total liabilities
839,758

 
746,893

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; 3,075,168 and 3,059,503 shares issued and outstanding at June 30, 2017, and December 31, 2016, respectively
                            
31

 
31

Additional paid-in capital
28,208

 
27,334

Retained earnings
61,920

 
55,584

Accumulated other comprehensive loss, net of tax
(87
)
 
(536
)
Unearned shares - Employee Stock Ownership Plan (“ESOP”)
(1,248
)
 
(1,380
)
Total stockholders’ equity
88,824

 
81,033

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
928,582

 
$
827,926


See accompanying notes to these consolidated financial statements.

3

 
 
 
 
 
 


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share amounts) (Unaudited)


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 INTEREST INCOME
2017
 
2016
 
2017
 
2016
Loans receivable, including fees
$
10,401

 
$
8,452

 
$
19,773

 
$
16,773

Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions
736

 
636

 
1,397

 
1,213

Total interest and dividend income
11,137

 
9,088

 
21,170

 
17,986

 INTEREST EXPENSE
 
 
 

 
 
 
 
Deposits
896

 
785

 
1,748

 
1,603

Borrowings
106

 
42

 
145

 
127

Subordinated note
169

 
169

 
336

 
341

Total interest expense
1,171

 
996

 
2,229

 
2,071

 NET INTEREST INCOME
9,966

 
8,092

 
18,941

 
15,915

 PROVISION FOR LOAN LOSSES

 
600

 

 
1,200

 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
9,966

 
7,492

 
18,941

 
14,715

 NONINTEREST INCOME
 
 
 

 
 
 
 
Service charges and fee income
1,003

 
893

 
1,864

 
1,590

Gain on sale of loans
4,460

 
5,437

 
8,815

 
8,801

Gain on sale of investment securities
237

 

 
237

 

Gain on sale of mortgage servicing rights (“MSR”)
958

 

 
958

 

Earnings on cash surrender value of BOLI
71

 
70

 
140

 
139

Other noninterest income
228

 
156

 
363

 
347

Total noninterest income
6,957

 
6,556

 
12,377

 
10,877

 NONINTEREST EXPENSE
 
 
 

 
 
 
 
Salaries and benefits
6,916

 
5,358

 
13,034

 
10,223

Operations
1,443

 
1,396

 
2,929

 
2,771

Occupancy
645

 
610

 
1,289

 
1,178

Data processing
593

 
557

 
1,160

 
1,039

Gain on sale of other real estate owned (“OREO”)

 
(150
)
 

 
(150
)
Loan costs
543

 
638

 
1,252

 
1,074

Professional and board fees
402

 
524

 
883

 
989

Federal Deposit Insurance Corporation (“FDIC”) insurance
119

 
106

 
253

 
208

Marketing and advertising
182

 
207

 
320

 
351

Acquisition costs

 
4

 

 
389

Amortization of core deposit intangible
100

 
140

 
200

 
241

Impairment on servicing rights
1

 
215

 
1

 
214

Total noninterest expense
10,944

 
9,605

 
21,321

 
18,527

 INCOME BEFORE PROVISION FOR INCOME TAXES
5,979

 
4,443

 
9,997

 
7,065

 PROVISION FOR INCOME TAXES
1,620

 
1,608

 
3,045

 
2,569

 NET INCOME
$
4,359

 
$
2,835

 
$
6,952

 
$
4,496

Basic earnings per share
$
1.50

 
$
0.98

 
$
2.40

 
$
1.54

Diluted earnings per share
$
1.41

 
$
0.96

 
$
2.25

 
$
1.50


See accompanying notes to these consolidated financial statements.

 
 
4









 
 

FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Net Income
$
4,359

 
$
2,835

 
$
6,952

 
$
4,496

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
Unrealized holding gain during period
767

 
617

 
931

 
1,195

Income tax provision related to unrealized holding gain
(270
)
 
(219
)
 
(328
)
 
(425
)
Reclassification adjustment for realized gain included in net income
(237
)
 

 
(237
)
 

Income tax provision related to reclassification for realized gain
83

 

 
83

 

Other comprehensive income, net of tax
343

 
398

 
449

 
770

COMPREHENSIVE INCOME
$
4,702

 
$
3,233

 
$
7,401

 
$
5,266


See accompanying notes to these consolidated financial statements.


 
 
5









 
 
 
 
 
 


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share amounts) (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Other Comprehensive
Income, Net of Tax
 
Unearned ESOP Shares
 
Total Stockholders’
Equity
BALANCE, January 1, 2016
3,242,120

 
$
32

 
$
30,692

 
$
46,175

 
$
78

 
$
(1,637
)
 
$
75,340

Net income

 
$

 

 
4,496

 

 

 
$
4,496

Dividends paid ($0.17 per share)

 
$

 

 
(511
)
 

 

 
$
(511
)
Share-based compensation

 
$

 
393

 

 

 

 
$
393

Restricted stock awards
4,500

 
$

 

 

 

 

 
$

Common stock repurchased
(196,813
)
 
$
(1
)
 
(4,868
)
 

 

 

 
$
(4,869
)
Stock options exercised
6,300

 
$

 
106

 

 

 

 
$
106

Other comprehensive income, net of tax

 
$

 

 

 
770

 

 
$
770

ESOP shares allocated

 
$

 
193

 

 

 
133

 
$
326

BALANCE, June 30, 2016
3,056,107

 
$
31

 
$
26,516

 
$
50,160

 
$
848

 
$
(1,504
)
 
$
76,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, January 1, 2017
3,059,503

 
$
31

 
$
27,334

 
$
55,584

 
$
(536
)
 
$
(1,380
)
 
$
81,033

Net income

 
$

 

 
6,952

 

 

 
$
6,952

Dividends paid ($0.20 per share)

 
$

 

 
(616
)
 

 

 
$
(616
)
Share-based compensation

 
$

 
358

 

 

 

 
$
358

Common stock repurchased
(6,198
)
 
$

 
(275
)
 

 

 

 
$
(275
)
Stock options exercised
21,863

 
$

 
369

 

 

 

 
$
369

Other comprehensive income, net of tax

 
$

 

 

 
449

 

 
$
449

ESOP shares allocated

 
$

 
422

 

 

 
132

 
$
554

BALANCE, June 30, 2017
3,075,168

 
$
31

 
$
28,208

 
$
61,920

 
$
(87
)
 
$
(1,248
)
 
$
88,824

 
See accompanying notes to these consolidated financial statements.


 
 
6









 
 


FS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 
Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES
2017
 
2016
Net income
$
6,952

 
$
4,496

Adjustments to reconcile net income to net cash from operating activities
 
 
 
Provision for loan losses

 
1,200

Depreciation, amortization and accretion
1,514

 
2,406

Compensation expense related to stock options and restricted stock awards
358

 
393

ESOP compensation expense for allocated shares
554

 
326

Increase in cash surrender value of BOLI
(140
)
 
(139
)
Gain on sale of loans held for sale
(8,815
)
 
(8,801
)
Gain on sale of investment securities
(237
)
 

Gain on sale of OREO

 
(150
)
Gain on sale of MSR
(958
)
 

Origination of loans held for sale
(311,088
)
 
(354,401
)
Proceeds from sale of loans held for sale
312,986

 
342,698

Impairment of servicing rights
1

 
214

Changes in operating assets and liabilities
 
 
 
Accrued interest receivable
(379
)
 
(313
)
Other assets
(229
)
 
(6,359
)
Other liabilities
1,200

 
3,375

Net cash from (used by) operating activities
1,719

 
(15,055
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Activity in securities available-for-sale:
 
 
 
Proceeds from sale of investment securities
29,988

 

Maturities, prepayments, sales, and calls
3,653

 
5,797

Purchases
(30,093
)
 
(47,432
)
Maturities of certificates of deposit at other financial institutions
1,240

 
292

Purchase of certificates of deposit at other financial institutions
(4,102
)
 
(1,882
)
Loan originations and principal collections, net
(88,735
)
 
(49,839
)
Purchase of portfolio loans
(26,220
)
 

Proceeds from sale of other real estate owned, net

 
682

Purchase of premises and equipment, net
(323
)
 
(1,642
)
FHLB stock, net
(1,190
)
 
2,951

Proceeds from sale of MSR
4,827

 

Net cash received from acquisition

 
180,356

Net cash (used by) from investing activities
(110,955
)
 
89,283

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase in deposits
73,104

 
582

Borrowings, net
18,000

 
(79,099
)
Dividends paid
(616
)
 
(511
)
Proceeds from stock options exercised
369

 
106

Common stock repurchased
(275
)
 
(4,869
)
Net cash from (used by) financing activities
90,582

 
(83,791
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(18,654
)
 
(9,563
)
 
 
 
 

 
 
7









 
 


CASH AND CASH EQUIVALENTS, beginning of period
36,456

 
24,455

CASH AND CASH EQUIVALENTS, end of period
$
17,802

 
$
14,892

 
 
 
 
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
2,228

 
$
1,910

Income taxes
$
2,760

 
$
2,970

Assets acquired in acquisition of branches (Note 2)
$

 
$
181,575

Liabilities assumed in acquisition of branches (Note 2)
$

 
$
186,393

SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
 
 
 
Change in unrealized gain on investment securities
$
694

 
$
1,195

Property received in settlement of loans
$

 
$
525

Retention of gross mortgage servicing rights from loan sales
$
2,242

 
$
1,832


See accompanying notes to these consolidated financial statements.


 
 
8









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - FS Bancorp, Inc. (the “Company”) was incorporated in September 2011 as the proposed holding company for 1st Security Bank of Washington (the “Bank” or “1st Security Bank”) in connection with the Bank’s conversion from the mutual to stock form of ownership which was completed on July 9, 2012. The Bank is a community-based savings bank with 11 branches and seven loan production offices in suburban communities in the greater Puget Sound area which includes Snohomish, King, Pierce, Jefferson, Kitsap, and Clallam counties, and one loan production office in the market area of the Tri-Cities, Washington. The Bank provides loan and deposit services to customers who are predominantly small and middle-market businesses and individuals. The Bank acquired four retail bank branches from Bank of America, National Association (“Bank of America”) (two in Clallam and two in Jefferson counties) on January 22, 2016, and these branches opened as 1st Security Bank branches on January 25, 2016. The Company and its subsidiary are subject to regulation by certain federal and state agencies and undergo periodic examination by these regulatory agencies.
Pursuant to the Plan of Conversion (the “Plan”), the Company’s Board of Directors adopted an employee stock ownership plan (“ESOP”) which purchased 8% of the common stock in the open market or 259,210 shares. As provided for in the Plan, the Bank also established a liquidation account in the amount of retained earnings at December 31, 2011. The liquidation account is maintained for the benefit of eligible savings account holders at June 30, 2007, and supplemental eligible account holders as of March 31, 2012, who maintain deposit accounts at the Bank after the conversion. The conversion was accounted for as a change in corporate form with the historic basis of the Company’s assets, liabilities, and equity unchanged as a result.
Financial Statement Presentation - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the Company’s Annual Report on Form 10-K with all of the audited information and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2016, as filed with the SEC on March 16, 2017. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.
The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or any other future period. The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses, fair value of financial instruments, and the valuation of servicing rights.
Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per share amounts. In the narrative footnote discussion, amounts are rounded and presented in millions of dollars to one decimal point if the amounts are above $1.0 million.  Amounts below $1.0 million are rounded and presented in dollars to the nearest thousands. Certain prior year amounts have been reclassified to conform to the 2017 presentation with no change to consolidated net income or stockholders’ equity previously reported.

Principles of Consolidation - The consolidated financial statements include the accounts of FS Bancorp, Inc. and its wholly owned subsidiary, 1st Security Bank of Washington. All material intercompany accounts have been eliminated in consolidation.

Segment Reporting - The Company operates as two segments organized by lines of business including the commercial and consumer banking segment and the home lending segment. The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the manner in which financial information is regularly reviewed for the purpose of allocating resources and evaluating performance of the Company’s businesses. The results for these business segments are based on management’s accounting process,

 
 
9









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


which assigns income statement items and assets to each responsible operating segment. This process is dynamic and is based on management’s view of the Company’s operations. See Note 15 - Business Segments.
Subsequent Events - The Company has evaluated events and transactions subsequent to June 30, 2017, for potential recognition or disclosure.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates Topic 606 and supersedes Topic 605, Revenue Recognition. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which postponed the effective date of 2014-09.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amended the principal versus agent implementation guidance set for in ASU 2014-09.  Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer.  In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.  The ASU amends certain aspects of the guidance set forth in the FASB's new revenue standard related to identifying performance obligations and licensing implementation.  The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and adds some practical expedients, but does not change the core revenue recognition principle in Topic 606. The ASU is effective for public entities for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. For financial reporting purposes, the ASU allows for either full retrospective adoption, meaning the ASU is applied to all of the periods presented, or modified retrospective adoption, meaning the ASU is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. As a bank holding company, key revenue sources, such as interest income have been identified as out of the scope of this new guidance. The Company’s preliminary analysis suggests that the adoption of this accounting standard is not expected to have a material impact on the Company’s consolidated financial statements as substantially all of the Company’s other revenues are also excluded from the scope of the new guidance. New accounting guidance related to the adoption of this standard continues to be released by the FASB, which could impact the Company’s preliminary analysis of materiality and may change the preliminary conclusions reached as to the application of this new guidance.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments.  This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.  In addition, the amendments in this ASU require the exit price notion be used when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.  The ASU also requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted for certain provisions.  The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

 
 
10









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize on the balance sheet the assets and liabilities arising from operating leases. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in the ASU is permitted. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases, the adoption of ASU 2016-02 is expected to increase the new lease asset and related lease liability on our Consolidated Balance Sheets by less than 5% and not have a material impact on our regulatory capital ratios.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements. Once adopted, we expect our allowance for loan losses to increase through a one-time adjustment to retained earnings, however, until our evaluation is complete the magnitude of the increase will be unknown.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU was issued to simplify the subsequent measurement of goodwill and the amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for annual reporting periods beginning after December 31, 2019. Early adoption of the ASU is permitted. The Company expects this ASU to provide a simplified method of measuring goodwill impairment and does not expect this ASU to have a material impact on the Company's consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Management has been amortizing premiums on securities to the call date in our historical financial presentations. As a result, the adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's consolidated financial statements.


 
 
11









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


In May 2017, the FASB issued ASU No. 2017-09, Compensation--Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. The standard is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU No. 2017-09 is not expected to have a material impact on the Company’s consolidated financial statements.


NOTE 2 - BUSINESS COMBINATION

On January 22, 2016, the Company’s wholly-owned subsidiary, 1st Security Bank, completed the purchase of four branches (“Branch Purchase”) from Bank of America. The Branch Purchase included four retail bank branches located in the communities of Port Angeles, Sequim, Port Townsend, and Hadlock, Washington. In accordance with the Purchase and Assumption Agreement, dated as of September 1, 2015, between Bank of America and 1st Security Bank, the Bank acquired $186.4 million of deposits, a small portfolio of performing loans, two owned bank branches, three leases associated with the bank branches and parking facilities and certain other assets of the branches. In consideration of the purchased assets and transferred liabilities, 1st Security Bank paid (a) the unpaid principal balance and accrued interest of $419,000 for the loans acquired, (b) the net book value, or approximately $778,000, for the bank facilities and certain other assets associated with the acquired branches, and (c) a deposit premium of 2.50% on substantially all of the deposits assumed, which equated to approximately $4.8 million. The transaction was settled with Bank of America paying cash of $180.4 million to 1st Security Bank for the difference between these amounts and the total deposits assumed.
 
The Branch Purchase was accounted for under the acquisition method of accounting and accordingly, the assets and liabilities were recorded at their fair values on January 22, 2016, the date of acquisition. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values become available. During the second quarter of 2016, the Company completed a re-evaluation of the core deposit intangible because a portion of the core deposits were excluded from the original valuation.  The updated valuation of the core deposit intangible increased the fair value adjustment by $100,000 to $2.2 million from $2.1 million resulting in a decrease of $100,000 to the fair value adjustment of goodwill.  The impact to consolidated net income was an increase in the amortization of the core deposit intangible for the six months ended June 30, 2016 of $6,000 and was not considered material to the consolidated financial statements.




















 
 
12









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 




The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition:
January 22, 2016
 
Acquired Book Value
 
Fair Value Adjustments
 
Amount Recorded
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
180,356

 
$

 
$
180,356

Loans receivable
 
417

 

 
417

Premises and equipment, net
 
697

 
267

(1) 
964

Accrued interest receivable
 
2

 

 
2

Core deposit intangible
 

 
2,239

(2) 
2,239

Goodwill
 

 
2,312

(3) 
2,312

Other assets
 
103

 

 
103

Total assets acquired
 
$
181,575

 
$
4,818

 
$
186,393

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Deposits:
 
 
 
 
 

Noninterest-bearing accounts
 
$
79,966

 
$

 
$
79,966

Interest-bearing accounts
 
106,398

 

 
106,398

Total deposits
 
186,364

 

 
186,364

Accrued interest payable
 
7

 

 
7

Other liabilities
 
22

 

 
22

Total liabilities assumed
 
$
186,393

 
$

 
$
186,393


Explanation of Fair Value Adjustments

(1) The fair value adjustment represents the difference between the fair value of the acquired branches and the book value of the assets acquired. The Company utilized third-party valuations but did not receive appraisals to assist in the determination of fair value.

(2) The fair value adjustment represents the value of the core deposit base assumed in the Branch Purchase based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as an expense on an accelerated basis over the average life of the core deposit base, which is estimated to be nine years.

(3) The fair value adjustment represents the value of the goodwill calculated from the purchase based on the purchase price, less the fair value of assets acquired net of liabilities assumed.

Goodwill - The acquired goodwill represents the excess purchase price over the estimated fair value of the net assets acquired and was recorded at $2.3 million on January 22, 2016.








 
 
13









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 



The following table summarizes the aggregate amount recognized for each major class of assets acquired and liabilities assumed by 1st Security Bank in the Branch Purchase:
 
 
At January 22, 2016
Purchase price (1)
 
$
6,015

Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
 
 
Cash and cash equivalents
 
186,371

Acquired loans
 
417

Premises and equipment, net
 
964

Accrued interest receivable
 
2

Core deposit intangible
 
2,239

Other assets
 
103

Deposits
 
(186,364
)
Accrued interest payable
 
(7
)
Other liabilities
 
(22
)
Total fair value of identifiable net assets
 
3,703

Goodwill
 
$
2,312

(1) Purchase price includes premium paid on the deposits, the aggregate net book value of all assets acquired, and the unpaid principal and accrued interest on loans acquired.

Core deposit intangible

The core deposit intangible represents the fair value of the acquired core deposit base. The core deposit intangible will be amortized on an accelerated basis over approximately nine years. Total amortization expense was $100,000 and $200,000 for the three and six months ended June 30, 2017, and $140,000 and $241,000 for the same periods in 2016. Amortization expense for core deposit intangible is expected to be as follows at June 30, 2017:
2017
$
200

2018
307

2019
235

2020
181

2021
166

Thereafter
428

Total
$
1,517
















 
 
14









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


NOTE 3 - SECURITIES AVAILABLE-FOR-SALE
 
The following tables present the amortized costs, unrealized gains, unrealized losses, and estimated fair values of securities available-for-sale at June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
SECURITIES AVAILABLE-FOR-SALE
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Values
U.S. agency securities
$
8,005

 
$
88

 
$
(12
)
 
$
8,081

Corporate securities
7,134

 
24

 
(75
)
 
7,083

Municipal bonds
9,183

 
247

 
(34
)
 
9,396

Mortgage-backed securities
43,128

 
61

 
(438
)
 
42,751

U.S. Small Business Administration securities
11,618

 
48

 
(45
)
 
11,621

Total securities available-for-sale
$
79,068

 
$
468

 
$
(604
)
 
$
78,932

 
 
 
 
 
 
 
 
 
December 31, 2016
 
SECURITIES AVAILABLE-FOR-SALE
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Estimated
Fair
Values
U.S. agency securities
$
8,150

 
$
12

 
$
(94
)
 
$
8,068

Corporate securities
7,654

 
14

 
(168
)
 
7,500

Municipal bonds
15,183

 
164

 
(83
)
 
15,264

Mortgage-backed securities
45,856

 
52

 
(713
)
 
45,195

U.S. Small Business Administration securities
5,862

 
27

 
(41
)
 
5,848

Total securities available-for-sale
$
82,705

 
$
269

 
$
(1,099
)
 
$
81,875

 
At June 30, 2017, the Bank had pledged 10 securities held at the FHLB of Des Moines with a carrying value of $12.4 million to secure Washington State public deposits of $6.9 million with a $2.8 million collateral requirement by the Washington Public Deposit Protection Commission.

Investment securities that were in an unrealized loss position at June 30, 2017 and December 31, 2016 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position. Management believes that these securities are only temporarily impaired due to changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. 
 
June 30, 2017
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
SECURITIES AVAILABLE-FOR-SALE
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
U.S. agency securities
$
2,025

 
$
(12
)
 
$

 
$

 
$
2,025

 
$
(12
)
Corporate securities
2,122

 
(6
)
 
1,927

 
(69
)
 
4,049

 
(75
)
Municipal bonds
2,443

 
(34
)
 

 

 
2,443

 
(34
)
Mortgage-backed securities
31,393

 
(402
)
 
1,184

 
(36
)
 
32,577

 
(438
)
U.S. Small Business Administration securities
6,828

 
(45
)
 

 

 
6,828

 
(45
)
Total
$
44,811

 
$
(499
)
 
$
3,111

 
$
(105
)
 
$
47,922

 
$
(604
)

 
 
15









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


 
December 31, 2016
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
SECURITIES AVAILABLE-FOR-SALE
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
U.S. agency securities
$
6,998

 
$
(94
)
 
$

 
$

 
$
6,998

 
$
(94
)
Corporate securities
5,048

 
(106
)
 
1,438

 
(62
)
 
6,486

 
(168
)
Municipal bonds
6,741

 
(83
)
 

 

 
6,741

 
(83
)
Mortgage-backed securities
39,373

 
(713
)
 

 

 
39,373

 
(713
)
U.S. Small Business Administration securities
2,963

 
(41
)
 

 

 
2,963

 
(41
)
Total
$
61,123

 
$
(1,037
)
 
$
1,438

 
$
(62
)
 
$
62,561

 
$
(1,099
)

There were 27 investments with unrealized losses of less than one year, and three investments with unrealized losses of more than one year at June 30, 2017. There were 48 investments with unrealized losses of less than one year, and two investments with unrealized losses of more than one year at December 31, 2016. The unrealized losses associated with these investments are believed to be caused by changes in market interest rates that are considered to be temporary and the Company does not intend to sell the securities, and it is not likely to be required to sell these securities prior to maturity. No other-than-temporary impairment was recorded for the six months ended June 30, 2017, or for the year ended December 31, 2016.
 
The contractual maturities of securities available-for-sale at June 30, 2017 and December 31, 2016 are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.
 
June 30, 2017
 
December 31, 2016
U.S. agency securities
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due after one year through five years
$

 
$

 
$
4,000

 
$
3,956

Due after five years through ten years
8,005

 
8,081

 
4,150

 
4,112

Subtotal
8,005

 
8,081

 
8,150

 
8,068

Corporate securities
 
 
 
 
 
 
 
Due after one year through five years
5,138

 
5,156

 
5,659

 
5,625

Due after five years through ten years
1,996

 
1,927

 
1,995

 
1,875

Subtotal
7,134

 
7,083

 
7,654

 
7,500

Municipal bonds
 
 
 
 
 
 
 
Due in one year or less

 

 
509

 
513

Due after one year through five years
2,024

 
2,076

 
5,326

 
5,386

Due after five years through ten years
2,239

 
2,351

 
7,476

 
7,492

Due after ten years
4,920

 
4,969

 
1,872

 
1,873

Subtotal
9,183

 
9,396

 
15,183

 
15,264

Mortgage-backed securities
 
 
 
 
 
 
 
Federal National Mortgage Association (“FNMA”)
24,885

 
24,729

 
23,522

 
23,197

Federal Home Loan Mortgage Corporation (“FHLMC”)
11,559

 
11,375

 
14,950

 
14,662

Government National Mortgage Association (“GNMA”)
6,684

 
6,647

 
7,384

 
7,336

Subtotal
43,128

 
42,751

 
45,856

 
45,195

U.S. Small Business Administration securities
 
 
 
 
 
 
 
Due after five years through ten years
9,613

 
9,618

 
5,862

 
5,848

Due after ten years
2,005

 
2,003

 

 

Subtotal
11,618

 
11,621

 
5,862

 
5,848

Total
$
79,068

 
$
78,932

 
$
82,705

 
$
81,875

 

 
 
16









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
 


The Company sold $29.8 million of securities available-for-sale during the second quarter of 2017 realizing a gain of $237,000. There were no sales of securities available-for-sale for the three and six months ended June 30, 2016.  


NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio was as follows at June 30, 2017 and December 31, 2016:
 
June 30,
 
December 31,
REAL ESTATE LOANS
2017
 
2016
Commercial
$
57,997

 
$
55,871

Construction and development
119,455

 
94,462

Home equity
22,450

 
20,081

One-to-four-family (excludes loans held for sale)
154,826

 
124,009

Multi-family
42,967

 
37,527

Total real estate loans
397,695

 
331,950

CONSUMER LOANS
 
 
 
Indirect home improvement
117,926

 
107,759

Solar
38,507

 
36,503

Marine
32,254

 
28,549

Other consumer
2,042

 
1,915

Total consumer loans
190,729

 
174,726

COMMERCIAL BUSINESS LOANS


 


Commercial and industrial
92,713

 
65,841

Warehouse lending
39,165

 
32,898

Total commercial business loans
131,878

 
98,739

Total loans receivable, gross
720,302

 
605,415

Allowance for loan losses
(10,143
)
 
(10,211
)
Deferred costs, fees, premiums, and discounts, net
(1,057
)
 
(1,887
)
Total loans receivable, net
$
709,102

 
$
593,317


Most of the Company’s commercial and multi-family real estate, construction, residential, and/or commercial business lending activities are with customers located in the greater Puget Sound area and near our one loan production office located in the Tri-Cities, Washington. The Company originates real estate, consumer and commercial business loans and has concentrations in these areas, however, indirect home improvement loans are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, Idaho, and California. The Company also originates solar loans through contractors and dealers in the state of California. Loans are generally secured by collateral and rights to collateral vary and are legally documented to the extent practicable. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms.

The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company’s strategic plan and the manner in which management monitors performance and credit quality. 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 following is a summary of each of the Company’s loan portfolio segments and classes:
 




 
 
17









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 

Real Estate Loans
 
Commercial Lending. Loans originated by the Company primarily secured by income producing properties, including retail centers, warehouses, and office buildings located in our market areas.
 
Construction and Development Lending. Loans originated by the Company for the construction of, and secured by, commercial real estate, one-to-four-family, and multi-family residences and tracts of land for development that are generally not pre-sold. A portion of the one-to-four-family construction portfolio is custom construction.

Home Equity Lending. Loans originated by the Company secured by second mortgages on one-to-four-family residences, including home equity lines of credit in our market areas.

One-to-Four-Family Real Estate Lending. One-to-four-family residential loans include owner occupied properties (including second homes), and non-owner occupied properties. These loans originated by the Company are secured by first mortgages on one-to-four-family residences in our market areas that the Company intends to hold (excludes loans held for sale).

Multi-Family Lending. Apartment term lending (five or more units) to current banking customers and community reinvestment loans for low to moderate income individuals in the Company’s footprint.

Consumer Loans
 
Indirect Home Improvement. Fixture secured loans are originated by the Company for home improvement and are secured by the personal property installed in, on, or at the borrower’s real property, and may be perfected with a UCC-2 financing statement filed in the county of the borrower’s residence. These indirect home improvement loans include replacement windows, siding, roofing, and other home fixture installations.

Solar. Fixture secured loans are originated by the Company for home improvement and are secured by the personal property installed in, on, or at the borrower’s real property, and may be perfected with a UCC-2 financing statement filed in the county of the borrower’s residence.

Marine. Loans originated by the Company secured by boats to borrowers primarily located in its market areas.
 
Other Consumer. Loans originated by the Company, including automobiles, recreational vehicles, direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit.
 
Commercial Business Loans
 
Commercial and Industrial Lending. 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, and plant and equipment. Commercial and industrial loans are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.

Warehouse Lending. Loans originated by the Company’s mortgage and construction warehouse lending program through
which the Company funds third-party lenders originating residential mortgage and construction loans for sale into the secondary market and speculative construction loans for residential properties built for sale to single family households. These loans are secured by the notes and assigned deeds of trust associated with the residential mortgage and construction loans on properties primarily located in the Company’s market areas.






 
 
18









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 


The following tables detail activity in the allowance for loan losses by loan categories at or for the three and six months ended June 30, 2017 and 2016:
 
At or For the Three Months Ended June 30, 2017
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
3,813

 
$
2,588

 
$
2,169

 
$
1,577

 
$
10,147

   Provision for loan losses
331

 
87

 
282

 
(700
)
 

   Charge-offs

 
(179
)
 

 

 
(179
)
   Recoveries

 
173

 
2

 

 
175

Net (charge-offs) recoveries

 
(6
)
 
2

 

 
(4
)
Ending balance
$
4,144

 
$
2,669

 
$
2,453

 
$
877

 
$
10,143

Period end amount allocated to:
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Loans collectively evaluated for impairment
4,144

 
2,669

 
2,453

 
877

 
10,143

Ending balance
$
4,144

 
$
2,669

 
$
2,453

 
$
877

 
$
10,143

LOANS RECEIVABLE
 

 
 

 
 

 
 

 
 

Loans individually evaluated for impairment
$
439

 
$

 
$

 
$

 
$
439

Loans collectively evaluated for impairment
397,256

 
190,729

 
131,878

 

 
719,863

Ending balance
$
397,695

 
$
190,729

 
$
131,878

 
$

 
$
720,302



 
At or For the Six Months Ended June 30, 2017
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
3,547

 
$
2,082

 
$
2,675

 
$
1,907

 
$
10,211

   Provision for loan losses
596

 
661

 
(227
)
 
(1,030
)
 

   Charge-offs

 
(384
)
 

 

 
(384
)
   Recoveries
1

 
310

 
5

 

 
316

Net recoveries (charge-offs)
1

 
(74
)
 
5

 

 
(68
)
Ending balance
$
4,144

 
$
2,669

 
$
2,453

 
$
877

 
$
10,143

Period end amount allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Loans collectively evaluated for impairment
4,144

 
2,669

 
2,453

 
877

 
10,143

Ending balance
$
4,144

 
$
2,669

 
$
2,453

 
$
877

 
$
10,143

LOANS RECEIVABLE
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
439

 
$

 
$

 
$

 
$
439

Loans collectively evaluated for impairment
397,256

 
190,729

 
131,878

 

 
719,863

Ending balance
$
397,695

 
$
190,729

 
$
131,878

 
$

 
$
720,302




 
 
19









 
 
 
 
 
FS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 

 
At or For the Three Months Ended June 30, 2016
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance
$
3,456

 
$
2,084

 
$
1,543

 
$
1,244

 
$
8,327

   Provision for loan losses
(28
)
 
50

 
210

 
368

 
600

   Charge-offs

 
(291
)
 

 

 
(291
)
   Recoveries
49

 
196

 
70

 

 
315

Net recoveries (charge-offs)
49

 
(95
)
 
70

 

 
24

Ending balance
$
3,477

 
$
2,039

 
$
1,823

 
$
1,612

 
$
8,951

Period end amount allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$

 
$

 
$

 
$

Loans collectively evaluated for impairment
3,477

 
2,039

 
1,823

 
1,612

 
8,951

Ending balance
$
3,477

 
$
2,039

 
$
1,823

 
$
1,612

 
$
8,951

LOANS RECEIVABLE
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$
291

 
$

 
$

 
$

 
$
291

Loans collectively evaluated for impairment
295,463

 
165,736

 
99,072

 

 
560,271

Ending balance
$
295,754

 
$
165,736

 
$
99,072

 
$

 
$
560,562



 
At or For the Six Months Ended June 30, 2016
ALLOWANCE FOR LOAN LOSSES
Real Estate
 
Consumer
 
Commercial
Business
 
Unallocated
 
Total
Beginning balance