FS Bancorp, Inc. (‘FS Bancorp’) operates as the holding company for 1st Security Bank (‘bank’).
The bank is a relationship-focused community bank dedicated to serving local families, regional businesses, and industry niches primarily within distinct Puget Sound and Pacific Northwest communities. The bank prioritizes long-term relationships, working closely with customers to meet their financial needs while actively participating in community activities and events to further strengthen these con...
FS Bancorp, Inc. (‘FS Bancorp’) operates as the holding company for 1st Security Bank (‘bank’).
The bank is a relationship-focused community bank dedicated to serving local families, regional businesses, and industry niches primarily within distinct Puget Sound and Pacific Northwest communities. The bank prioritizes long-term relationships, working closely with customers to meet their financial needs while actively participating in community activities and events to further strengthen these connections.
The bank also operates various full-service bank branches, of which some are located in Washington state, and a few in Oregon state, along with some loan production offices in suburban communities in the greater Puget Sound and Pacific Northwest area. Among the full-service branches in Washington, some are in Snohomish County, King County, Clallam County, Jefferson County, Pierce County, Grays Harbor County, Thurston County, Kitsap County, and Klickitat County. Furthermore, some full-service branches are located in Oregon: Lincoln County, Tillamook County, and Malheur County. The company’s loan production offices include stand-alone offices in Pierce County, King County, Kitsap County, and Snohomish County in the Puget Sound region, as well as in Benton County in Eastern Washington, and the company’s newest office in Clark County, in Southwest Washington.
The company is a diversified lender that specializes in originating various types of loans, including commercial real estate (‘CRE’), multi-family, construction, one-to-four-family, and home equity loans, as well as consumer loans, such as indirect home improvement (‘fixture secured loans’), and marine loans, along with commercial business loans.
The bank is examined and regulated by the Washington State Department of Financial Institutions (‘DFI’), its primary regulator, and by the Federal Deposit Insurance Corporation (‘FDIC’). The bank is required to have certain reserves set by the Federal Reserve and is a member of the Federal Home Loan Bank of Des Moines (‘FHLB’ or ‘FHLB of Des Moines’), which is one of the 11 regional banks in the Federal Home Loan Bank System.
Market Area
As of December 31, 2024, the company conducted operations, including loan and/or deposit services from its headquarters, loan production offices, full-service bank branches in the Puget Sound region of Washington, and various locations in Oregon.
The primary market area for business operations is the Seattle-Tacoma-Bellevue, Washington Metropolitan Statistical Area (the ‘Seattle MSA’). Kitsap, Clallam, Jefferson, Thurston, and Grays Harbor counties, though not in the Seattle MSA, are also part of the company’s market area. This overall region is typically known as the Puget Sound region.
Lending Activities
CRE Lending: The company offers a variety of CRE loans. Most of these loans are secured by income-producing properties.
The company’s loans secured by CRE are originated with a fixed or variable interest rate for up to a 15-year maturity and a 30-year amortization. The variable rate loans are indexed to the prime rate of interest or five, seven, or ten-year FHLB rate, with rates equal to the prevailing index rate up to 4% above the prevailing rate. Loan-to-value ratios on the company’s CRE loans typically do not exceed 80% of the appraised value of the property securing the loan. In addition, personal guarantees are typically obtained from a principal of the borrower on substantially all credits.
Loans secured by CRE are generally underwritten based on the net operating income of the property and the financial strength of the borrower. These loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial and multi-family real estate properties are often dependent on the successful operation or management of the properties, repayment of these loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. Commercial and multi-family loans also expose a lender to greater credit risk than loans secured by one-to-four-family properties because the collateral securing these loans typically cannot be sold as easily as one-to-four-family properties. In addition, most of its commercial and multi-family loans are not fully amortizing and include balloon payments upon maturity.
The company intends to continue to emphasize CRE lending and has hired experienced commercial loan officers to support the company’s CRE lending objectives. As the CRE loan portfolio expands, the company intends to bring in additional experienced personnel in the areas of loan analysis and commercial deposit relationship management.
Construction and Development Lending: The company's construction and development team is dedicated to residential construction lending, concentrating on vertical, in-city one-to-four-family development within its market area. The portfolio also includes custom construction loans that are originated through the company's Home Lending segment to homeowners, which are typically inhabited by the homeowner and converted to or refinanced into permanent loans at the completion of construction. The company’s residential speculative construction lending program includes loans for the purpose of constructing both speculative and pre-sold one-to-four-family residences, the acquisition of in-city lots with and without existing improvements for later development of one-to-four-family residences, the acquisition of land to be developed, and loans for the acquisition and development of land for future development of single-family residences. The company generally limits these types of loans to known builders and developers in the market area. Construction loans generally provide for the payment of interest-only during the construction phase, which is typically 12 – 18 months.
The company also reviews and has a licensed third-party inspect each property before disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspection by a third-party inspector based on the percentage of completion method.
The company may also make land acquisition and development loans to builders or residential lot developers on a limited basis. These loans involve a higher degree of credit risk, similar to commercial construction loans. Construction financing is generally considered to involve a higher degree of credit risk than longer-term financing on improved, owner-occupied real estate.
The company seeks to address the foregoing risks associated with construction development lending by developing and adhering to underwriting policies, disbursement procedures, and monitoring practices. Specifically, the company seeks to diversify the number of loans and projects in the market area, evaluate and document the creditworthiness of the borrower and the viability of the proposed project, limit loan-to-value ratios to specified levels, control disbursements on construction loans on the basis of on-site inspections by a licensed third-party, monitor economic conditions and the housing inventory in each market, and typically obtains personal guarantees from a principal of the borrower on substantially all credits.
Home Equity Lending: The company has been active in second lien mortgage and home equity lending, with the focus of this lending being conducted in the company’s primary market area. The home equity lines of credit generally have adjustable rates tied to the prime rate of interest with a draw term of 10 years plus and a term to maturity of 20 years. Monthly payments are based on 1.0% of the outstanding balance with a maximum combined loan-to-value ratio of up to 89.99%, including any underlying first mortgage. Fixed second lien mortgage home equity loans are typically amortizing loans with terms of up to 30 years.
Residential: The company originates loans secured by first mortgages on one-to-four-family residences primarily in the market area it serves. 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 important referral sources of the company’s loan originations.
The company generally underwrites the one-to-four-family loans based on the applicant’s ability to repay. This includes employment and credit history, and the appraised value of the subject property.
Consumer Lending: Consumer lending represents a significant and important historical activity for the company, primarily reflecting the indirect lending through home improvement contractors and dealers.
The company’s indirect home improvement loans, also referred to as fixture secured loans, represent the largest portion of the consumer loan portfolio and have traditionally been the mainstay of the company’s consumer lending strategy. Indirect home improvement loans are originated through a network of 46 active home improvement contractors and dealers located in Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and New Hampshire. Five dealers are responsible for 74.1% of the loan originations for the year ended December 31, 2024. These fixture secured loans consist of loans for a wide variety of products, such as replacement windows, siding, roofs, HVAC systems, spas, and other home fixture installations, including solar-related home improvement projects.
In connection with fixture secured loans, the company receives loan applications from the dealers and originates the loans based on pre-defined lending criteria. All loan applications are evaluated by the company’s credit analysts who use automated data to expedite the loan approval process. The company follows the internal underwriting guidelines in evaluating loans obtained through the indirect dealer program, including using a Fair Isaac Corporation (‘FICO’) credit score to approve loans.
The company’s fixture secured loans generally range in amounts from $2,500 to $100,000 and generally carry terms of 7 to 20 years with fixed rates of amortizing payments and interest. In some instances, the participating dealer may pay a fee to buy down the borrower’s interest rate to a rate below the company’s published rate. Fixture secured loans are secured by the personal property installed in, on, or at the borrower’s real property, and may be perfected with a financing statement under the Uniform Commercial Code (‘UCC’) filed in the county of the borrower’s residence. The company generally files a UCC financing statement to perfect the security interest in the personal property in situations where the borrower’s credit score is below 720 or the home improvement loan is for an amount in excess of $5,000. Perfection gives the company a claim to the collateral that is superior to someone that obtains a lien through the judicial process subsequent to the perfection of a security interest.
The company also offers consumer marine loans secured by boats. Marine loans are originated with borrowers on both a direct and indirect basis and generally carry terms of up to 20 years with fixed rates of interest. The company generally requires a 10% down payment, and the loan amount may be up to the lesser of 120% of factory invoice or 90% of the purchase price.
The company originates other consumer loans. These loans primarily include personal lines of credit, credit cards, automobile, direct home improvement, loans on deposit, and recreational loans.
In evaluating any consumer loan application, a borrower’s FICO score is utilized as an important indicator of credit risk. The FICO score represents the creditworthiness of a borrower based on the borrower’s credit history, as reported by an independent third party. A higher FICO score typically indicates a greater degree of creditworthiness.
Commercial Business Lending: The company originates commercial business loans and lines of credit to local small- and mid-sized businesses in market areas that are secured by accounts receivable, inventory, or personal/business property, plant, and equipment. Commercial business loans may be fixed-rate but are usually adjustable-rate loans indexed to the prime rate of interest, plus a margin. The company also encourages the borrower to establish a deposit relationship as part of the loan approval process.
The company also has commercial construction warehouse lending lines secured by notes on construction loans and typically guaranteed by principals with experience in construction lending. The company’s mortgage warehouse lending program includes construction re-lending warehouse lines. These lines are secured by notes provided to construction lenders and are typically guaranteed by a principal of the borrower with experience in construction lending.
Under this program, the company provides short-term funding to the mortgage banking companies for the purpose of originating one-to-four-family loans for sale into the secondary market. The company’s mortgage warehouse lending lines are secured by the underlying notes associated with one-to-four-family loans made to borrowers by the mortgage banking company and generally require guarantees from the principal shareholder(s) of the mortgage banking company. These loans are repaid when the note is sold by the mortgage bank into the secondary market, with the proceeds from the sale used to pay down the outstanding loan before being dispersed to the mortgage bank.
As of December 31, 2024, most of the commercial business loans were secured. The company’s commercial business lending policy includes credit file documentation and analysis of the borrower’s background, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of other conditions affecting the borrower. The company typically requires personal guarantees on these commercial business loans, acknowledging that they are generally associated with higher credit risk compared to residential mortgage loans. This loan is secured by underlying notes associated with one-to-four-family mortgage loans made to borrowers. The company makes commercial business loans secured by business assets, such as accounts receivable, inventory, equipment, real estate, and cash as collateral with loan-to-value ratios in most cases up to 80%, based on the type of collateral.
Loan Originations, Servicing, Purchases, and Sales
The company originates both fixed-rate and adjustable-rate loans. The ability to originate loans, however, is dependent upon customer demand for loans in the market areas. From time to time, to supplement the company’s loan originations and based on its asset/liability objectives, it will also purchase bulk loans or pools of loans from other financial institutions.
The company will sell long-term, conforming fixed-rate residential real estate loans in the secondary market to mitigate credit and interest rate risk. Gains and losses from the sale of these loans are recognized based on the difference between the sales proceeds and carrying value of the loans at the time of the sale. A majority of residential real estate loans sold by FS Bancorp are sold with servicing retained at a specified servicing fee. Certain residential real estate loans, originating as Federal Housing Administration (‘FHA’), the U.S. Department of Veterans Affairs (‘VA’), or the United States Department of Agriculture (‘USDA’) Rural Housing loans are sold by the company as servicing released loans to other companies.
Real Estate Loans
One-to-Four-Family Real Estate Lending: One-to-four-family residential loans include both owner-occupied properties (including second homes) and non-owner-occupied properties with up to four units. These loans are either originated by the company or periodically purchased from other banks, are secured by first mortgages on one-to-four-family residences within its market areas and are intended to be held in the company's portfolio (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.
CRE Lending: Loans originated by the company primarily secured by income-producing properties, including retail centers, warehouses, and office buildings located in its 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 not pre-sold. A portion of the one-to-four-family construction portfolio is custom construction loans to the intended occupant of the residence.
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 the company’s market areas.
Consumer Loans
Indirect Home Improvement: Fixture secured loans for home improvement are originated by the company through its network of home improvement contractors and dealers 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, spas, and other home fixture installations, including solar-related home improvement projects.
Marine: Loans originated by the company, secured by boats, to borrowers primarily located in the states where the company originates consumer loans.
Other Consumer: Loans originated by the company to consumers in the company’s 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: C&I loans originated by the company to local small- and mid-sized businesses in the company’s market area are secured primarily by accounts receivable, inventory, or personal property, plant, and equipment. Some C&I loans purchased by FS Bancorp are outside of the greater Puget Sound market area. C&I loans are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As of December 31, 2024, C&I loans included Small Business Administration and the United States Department of Agriculture guaranteed certificates of $52.6 million.
Warehouse Lending: Loans originated to non-depository financial institutions and secured by notes originated by the non-depository financial institution. The company has two distinct warehouse lending divisions: commercial warehouse re-lending secured by notes on construction loans and mortgage warehouse re-lending secured by notes on one-to-four-family loans. The company’s commercial construction warehouse lines are secured by notes on construction loans and typically guaranteed by principals with experience in construction lending. Mortgage warehouse lending loans are funded through third-party residential mortgage bankers. Under this program, the company provides short-term funding to the mortgage banking companies for the purpose of originating residential mortgage loans for sale into the secondary market.
Deposits
The company’s deposit composition reflected a mixture, with certificates of deposit (including brokered) accounting for 44.0% of the total deposits as of December 31, 2024, and interest and noninterest-bearing checking, savings, and money market accounts comprising the balance of total deposits. The company had $143.4 million of brokered deposits, or 6.1% of total deposits, as of December 31, 2024. As a wholesale funding alternative, brokered deposits have competitive rates that are comparable to FHLB borrowings and local certificates of deposit.
Deposits are attracted from within the market area through the offering of a broad selection of deposit instruments, including checking accounts, money market deposit accounts, savings accounts, and certificates of deposit with a variety of rates. In determining the terms of the company’s deposit accounts, the company considers the development of long-term profitable customer relationships, current market interest rates, current maturity structure and deposit mix, customer preferences, and the profitability of acquiring customer deposits compared to alternative sources.
Investment Portfolio
As of December 31, 2024, the company's investment portfolio included U.S. agency securities, corporate securities, municipal bonds, mortgage-backed securities, and asset-backed securities.
Strategy
The company’s strategy is to provide innovative products and superior customer service to small businesses, industry and geographic niches, and individuals located in its primary market area. 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 online banking and participation in a worldwide ATM network. The company focuses on diversifying revenues, expanding lending channels, and growing the banking franchise. The company’s strategy is to grow and diversify the loan portfolio and revenue streams; capture the customers' full relationship; and expand the company’s markets.
Regulation
The bank, as a state-chartered savings bank, is subject to applicable provisions of Washington law and to regulations and examinations of the DFI. As an insured institution, it also is subject to examination and regulation by the FDIC, which insures the deposits of the bank to the maximum amount permitted by law.
The bank is also subject to the provisions of the Community Reinvestment Act of 1977 (‘CRA’), which requires the appropriate federal bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the bank, including low- and moderate-income neighborhoods. The bank received a ‘satisfactory’ rating during its most recent CRA examination.
The bank is subject to consumer protection regulations issued by the Consumer Financial Protection Bureau (‘CFPB’), but as a financial institution with assets of less than $10 billion, the bank is generally subject to supervision and enforcement by the FDIC and the DFI with respect to compliance with federal and state consumer financial protection laws and regulations.
The bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers. While the list set forth below is not exhaustive, these include the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Consumer Leasing Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement the foregoing.
FS Bancorp is a bank holding company registered with the Federal Reserve and is the sole shareholder of the bank. Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (‘BHCA’), and the regulations promulgated thereunder.
Under the BHCA, FS Bancorp is supervised by the Federal Reserve. The stock of FS Bancorp is registered with the Securities and Exchange Commission (the ‘SEC’) under the Securities Exchange Act of 1934, as amended. As a result, FS Bancorp is subject to the information, proxy solicitation, insider trading restrictions, and other requirements under the Securities Exchange Act of 1934.
History
FS Bancorp, Inc. was founded in 1936. The company, a Washington corporation, was incorporated in 2011.
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