Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 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) ( j Washington p 45-4585178 ...

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (Exact name of registrant as specified in its charter) ( j Washington p 45-4585178 organization) (IRS Employer Identification No.) 6920 22 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to (Mark One) Commission File Number: 001-35589 FS BANCORP, INC. (Exact name of registrant as specified in its charter) Washington 45-4585178 organizat ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-35589 FS BANCORP, INC. (Exact name of registrant as specified in its charter) | Washington | 45-4585178 | | --- | --- | | (State or other jurisdicti ...

Loan Portfolio and Provision for Losses - As of September 30, 2020, the Company had 471 Paycheck Protection Program (PPP) loans totaling $74.1 million for small- to mid-size businesses [181]. - The Company recorded a provision for loan losses of $3.1 million for the quarter ended September 30, 2020, compared to $573,000 for the same quarter in 2019, reflecting the adverse impact of the COVID-19 pandemic [182]. - The total amount of portfolio loans under payment/relief agreements as of September 30, 2020, included $23.8 million in commercial real estate loans and $7.6 million in commercial business loans [182]. - The allowance for loan and lease losses (ALLL) was $24.8 million, or 1.63% of gross loans receivable, at September 30, 2020, compared to $13.2 million, or 0.98%, at December 31, 2019 [211]. - Non-performing loans increased to $7.6 million at September 30, 2020, from $3.0 million at December 31, 2019, with a ratio of non-performing loans to total gross loans of 0.50% [213]. - Substandard loans increased to $18.5 million at September 30, 2020, compared to $6.7 million at December 31, 2019 [211]. - The provision for loan losses increased significantly to $11.4 million for the nine months ended September 30, 2020, compared to $2.2 million in the same period of 2019, reflecting credit deterioration due to the COVID-19 pandemic [243]. Loan Originations and Sales - For the nine months ended September 30, 2020, the Company originated $1.35 billion of one-to-four-family loans, with $1.12 billion sold to investors [191]. - The Company originated $1.35 billion in one-to-four-family loans during the nine months ended September 30, 2020, a 112.0% increase compared to $638.7 million for the same period in 2019 [210]. - The Company sold $1.12 billion of one-to-four-family loans during the nine months ended September 30, 2020, compared to $551.6 million for the same period one year ago [210]. Financial Performance - Net income for the three months ended September 30, 2020, was $12.7 million, a 78.87% increase from $7.1 million for the same period in 2019, primarily due to a $10.8 million increase in noninterest income [223]. - Net income for the nine months ended September 30, 2020, was $27.9 million, a 66.5% increase from $16.8 million in the same period of 2019 [236]. - Noninterest income surged by $10.8 million, or 160.2%, to $17.5 million for the three months ended September 30, 2020, driven by a $11.6 million increase in gain on sale of loans [232]. - Noninterest income rose by $23.2 million, or 133.4%, to $40.6 million for the nine months ended September 30, 2020, driven by a $24.9 million increase in gain on sale of loans [244]. Asset and Liability Management - Total assets increased by $341.6 million, or 19.9%, to $2.05 billion at September 30, 2020, compared to $1.71 billion at December 31, 2019 [207]. - Loans receivable, net increased by $155.2 million to $1.49 billion at September 30, 2020, from $1.34 billion at December 31, 2019 [208]. - Loans held for sale increased by $145.4 million, or 208.6%, to $215.1 million at September 30, 2020, from $69.7 million at December 31, 2019 [209]. - Total liabilities increased by $321.3 million to $1.83 billion at September 30, 2020, from $1.51 billion at December 31, 2019, primarily due to increases in deposits and borrowings [215]. - Total deposits rose by $220.8 million to $1.61 billion at September 30, 2020, driven by organic growth, PPP loan proceeds, and government stimulus checks [216]. Interest Income and Expense - Net interest income increased by $1.2 million to $18.9 million for the three months ended September 30, 2020, compared to $17.7 million for the same period in 2019 [225]. - Interest income decreased by $483,000 to $22.2 million for the three months ended September 30, 2020, primarily due to a 121 basis point decrease in the average yield on interest-earning assets [228]. - The net interest margin decreased by 62 basis points to 3.92% for the three months ended September 30, 2020, from 4.54% for the same period in the prior year [227]. - Interest income for the nine months ended September 30, 2020, decreased by $1.5 million to $65.9 million, primarily due to a 98 basis point decrease in the average yield on interest-earning assets [240]. - Interest expense decreased by $2.8 million to $11.6 million for the nine months ended September 30, 2020, primarily due to a $2.3 million decrease in interest expense on deposits and a $474,000 decrease on borrowings [241]. Capital and Liquidity - The Bank maintained a Tier 1 leverage-based capital ratio of 10.7% at September 30, 2020, down from 11.6% at December 31, 2019, while still exceeding the minimum capital requirements [256]. - FS Bancorp, Inc. had $12.6 million in unrestricted cash to meet liquidity needs as of September 30, 2020 [253]. - As of September 30, 2020, the Bank's total borrowing capacity with the FHLB was $573.8 million, with unused capacity of $495.5 million [249]. Operational Efficiency - The efficiency ratio improved to 47.11% for Q3 2020, compared to 60.14% for Q3 2019, indicating better cost management relative to income [234]. - The efficiency ratio improved to 50.61% for the nine months ended September 30, 2020, compared to 66.24% in the prior year, indicating better cost management relative to income [246]. - Noninterest expense rose by $2.5 million, or 16.7%, to $17.2 million for the three months ended September 30, 2020, primarily due to increased salaries and benefits [233]. - Noninterest expense increased by $1.4 million, or 3.0%, to $48.0 million for the nine months ended September 30, 2020, primarily due to a $2.4 million increase in salaries and benefits [245].

Loan Performance and Provisions - The Company recorded a provision for loan losses of $4.6 million for the quarter ended June 30, 2020, compared to $910,000 for the same quarter in 2019, reflecting the adverse impact of the COVID-19 pandemic [205]. - The allowance for loan and lease losses (ALLL) was $21.5 million, or 1.47% of gross loans receivable, at June 30, 2020, compared to $13.2 million, or 0.98%, at December 31, 2019 [243]. - Non-performing loans increased to $7.9 million at June 30, 2020, from $3.0 million at December 31, 2019, with a ratio of non-performing loans to total gross loans of 0.54% [243]. - The provision for loan losses increased significantly to $4.6 million for the three months ended June 30, 2020, from $910,000 in the same period of 2019, due to credit deterioration from the COVID-19 pandemic [267]. - For the six months ended June 30, 2020, the provision for loan losses increased to $8.3 million from $1.7 million in the same period of 2019, primarily due to credit deterioration related to the COVID-19 pandemic [282]. Loan Originations and Modifications - The Company funded 463 Paycheck Protection Program (PPP) loans totaling $75.3 million as of June 30, 2020, aimed at supporting small to midsize businesses [203]. - As of June 30, 2020, the Bank approved loan modifications for 355 individual loans with aggregate principal balances totaling $103.6 million due to COVID-19 [208]. - The Company originated $764.0 million of one-to-four-family loans during the six months ended June 30, 2020, with $639.4 million sold to investors [218]. - One-to-four-family loan originations increased by $412.3 million, or 117.2%, to $764.0 million during the six months ended June 30, 2020, compared to $351.7 million during the same period in 2019 [239]. - Commercial business loans increased by $54.0 million, primarily due to $75.3 million in PPP loans originated in the second quarter of 2020 [237]. Financial Performance - Net income for the three months ended June 30, 2020, was $10.0 million, a 122.2% increase from $4.5 million for the same period in 2019 [258]. - For the six months ended June 30, 2020, net income was $15.2 million, up from $9.7 million in the same period of 2019, influenced by a $12.4 million increase in noninterest income [273]. - Noninterest income surged by $8.0 million, or 132.3%, to $14.1 million for the three months ended June 30, 2020, driven by a $9.8 million increase in gains on loan sales [268]. - Noninterest income rose by $12.4 million, or 116.4%, to $23.0 million for the six months ended June 30, 2020, driven by a $13.3 million increase in gain on sale of loans [283]. Asset and Liability Changes - Total assets increased by $295.7 million, or 17.3%, to $2.01 billion at June 30, 2020, compared to $1.71 billion at December 31, 2019 [236]. - Loans receivable, net increased by $108.1 million to $1.44 billion at June 30, 2020, from $1.34 billion at December 31, 2019 [237]. - Total liabilities increased by $287.3 million to $1.80 billion at June 30, 2020, from $1.51 billion at December 31, 2019, primarily due to increases in deposits and borrowings [246]. - Total deposits rose by $214.5 million to $1.61 billion at June 30, 2020, driven by PPP loan proceeds and government stimulus checks [247]. Interest Income and Expenses - Net interest income increased by $326,000 to $17.9 million for the three months ended June 30, 2020, compared to $17.5 million for the same period in 2019 [261]. - Interest income decreased by $652,000 to $21.7 million for the three months ended June 30, 2020, primarily due to a 111 basis point decrease in the average yield on interest-earning assets [264]. - Net interest income for the six months ended June 30, 2020, increased slightly by $110,000 to $35.3 million, despite a decrease in interest income of $1.0 million [274]. - Interest income for the six months ended June 30, 2020, decreased by $1.0 million to $43.7 million, with an average yield on interest-earning assets dropping to 5.06% [278]. - Noninterest expense decreased by $2.4 million, or 14.3%, to $14.6 million for the three months ended June 30, 2020, primarily due to a reduction in salaries and benefits [269]. Capital and Efficiency Ratios - Total stockholders' equity increased by $8.4 million to $208.6 million at June 30, 2020, primarily due to net income and other comprehensive income [254]. - The efficiency ratio improved to 45.71% for the three months ended June 30, 2020, compared to 72.28% for the same period in 2019, reflecting increased noninterest income and decreased noninterest expenses [270]. - The efficiency ratio improved to 52.79% for the six months ended June 30, 2020, compared to 69.49% for the same period in 2019, reflecting increased noninterest income and decreased noninterest expense [285]. - The Tier 1 leverage-based capital ratio for the Bank at June 30, 2020 was 10.8%, down from 11.6% at December 31, 2019, while still exceeding the minimum capital requirements [295]. Community Engagement and Operational Adjustments - The Company has taken measures to ensure branch safety, with most employees working remotely and branches operating under specific guidelines [209]. - The Company is actively involved in community activities, strengthening relationships within its market areas [214]. - The Company has emphasized lower cost core deposits to reduce funding costs for loan growth [215]. - The Company is focused on diversifying revenues and expanding lending channels, particularly in residential mortgage and commercial construction [217].

Table of Contents 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 March 31, 2020 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 (Stat ...

Lending Focus and Portfolio Composition - The Company has shifted its lending focus to include non-mortgage commercial business loans and commercial real estate, while maintaining its strength in consumer lending[33]. - As of December 31, 2019, the total loan portfolio was $1,351.9 million, with real estate loans comprising 60.95% of the portfolio[36]. - The Company’s consumer loans increased to $326.2 million, representing 24.13% of the total loan portfolio, up from 20.77% in the previous year[36]. - The Company’s commercial and industrial loans totaled $140.5 million, accounting for 10.40% of the total loan portfolio[36]. - Total real estate loans reached $169.5 million, which is 12.53% of total loans, with a notable increase in commercial real estate loans to $344.7 million, or 25.5% of the gross loan portfolio[46]. - The commercial business loan portfolio totaled $201.6 million, accounting for 14.9% of the gross loan portfolio[76]. - The Company originated $891.4 million of one-to-four-family mortgages in 2019, with $785.4 million sold to investors, including $550.1 million to government-sponsored entities[62]. - The Company’s marine loan portfolio totaled $67.2 million, representing 20.6% of total consumer loans at December 31, 2019[68]. - The Company’s indirect home improvement loans totaled $210.7 million, or 15.6% of the gross loan portfolio, as of December 31, 2019[64]. - The Company had $115.6 million, or 64.3% of the outstanding construction and development loan portfolio, comprised of speculative one-to-four-family construction loans[52]. Loan Performance and Allowance for Losses - The allowance for loan losses was $13.2 million, compared to $12.3 million in the prior year[1]. - The provision for loan losses for the year ended December 31, 2019, was $2.9 million, reflecting ongoing assessments of credit losses in the loan portfolio[107]. - The allowance for loan losses was $13.2 million, or 0.98% of gross loans receivable, compared to $12.3 million, or 0.93% in the previous year, indicating an increase in the allowance coverage ratio[107]. - Non-accruing loans totaled $3.033 million as of December 31, 2019, down from $3.894 million in 2018, showing a decline of approximately 23.1%[96]. - The total loans delinquent for 60-89 days amounted to $343 thousand, while those delinquent for 90 days or more totaled $1,502 thousand[95]. - The total amount of loans due after December 31, 2019, with predetermined interest rates is $546.5 million, while those with floating rates total $805.4 million[41]. Deposits and Funding Sources - As of December 31, 2019, the Bank had $1,392.4 million in total deposits, reflecting a net increase of $118.2 million or 9.28% compared to the previous year[129]. - The composition of total deposits included 39.6% from certificates of deposit and 10.6% from brokered deposits, amounting to $147.6 million[126]. - The Bank's total certificates of deposit amounted to $551.5 million, with 53.87% maturing at rates of 0.00 - 1.99%[135]. - The Bank's reliance on FHLB borrowings for funding was highlighted, with advances used to fund loan originations to increase net interest income[140]. - As of December 31, 2019, the Bank had outstanding advances from the FHLB of Des Moines totaling $84.9 million, with a weighted average interest rate of 2.29%[146]. - The Bank maintained a committed credit facility with the FHLB of Des Moines providing for advances up to $477.2 million[146]. Capital Ratios and Regulatory Compliance - As of December 31, 2019, 1st Security Bank of Washington's total risk-based capital ratio was 14.64%, significantly above the required 8.00%[193]. - The Tier 1 risk-based capital ratio for 1st Security Bank of Washington was 13.70% as of December 31, 2019, exceeding the minimum requirement of 6.00%[193]. - The CET1 capital ratio was 13.70% at the end of 2019, well above the required 4.50%[193]. - The bank's leverage ratio stood at 11.56% as of December 31, 2019, surpassing the minimum requirement of 4.00%[193]. - 1st Security Bank of Washington is categorized as well capitalized under FDIC regulations, meeting all capital requirements[187]. - The bank's capital conservation buffer requirement was fully phased in as of December 31, 2019, ensuring compliance with regulatory guidelines[193]. Economic and Market Conditions - The unemployment rate in King County was 2.1% at December 31, 2019, significantly lower than the state average of 4.3%[31]. - The median household income for King County was $95,000 in 2018, compared to $74,000 for the State of Washington[30]. - The Puget Sound region has a population of approximately 4.2 million, representing a significant market base for potential business[24]. - The average home value in King County was $671,000, with a statewide average increase in home values of 11.5% in Q4 2019[32]. Employee and Operational Metrics - The Company had 452 full-time equivalent employees as of December 31, 2019[152]. - The Company operates 21 full-service bank branches and seven home loan production offices in the Puget Sound region[23]. Miscellaneous - The Company issued an unsecured subordinated term note of $10.0 million due October 1, 2025, with an annual interest rate of 6.50%[143]. - The Company earned gross mortgage servicing fees of $3.5 million for the year ended December 31, 2019, servicing $1.46 billion of one-to-four-family loans[82]. - The Company processed approximately 790 loans and funded about $323.8 million under its mortgage warehouse lending program during the year ended December 31, 2019[74].

Acquisition and Growth - The Company completed the Anchor Acquisition, acquiring $361.6 million in loans and $357.9 million in deposits for a total consideration of $64.6 million[175]. - The Company funded $37.3 million in fixture secured loans during the quarter ended September 30, 2019, totaling approximately 2,000 loans[179]. - The Company originated $638.7 million of one-to-four-family loans during the nine months ended September 30, 2019, with $551.6 million sold to investors[179]. - One-to-four-family residential mortgage loans held for investment totaled $253.8 million, representing 19.1% of the total gross loan portfolio as of September 30, 2019[179]. - One-to-four-family loan originations increased by $83.4 million, or 15.0%, to $638.7 million during the nine months ended September 30, 2019[196]. Financial Performance - Net income for the three months ended September 30, 2019, increased by $3.1 million, or 76.3%, to $7.1 million, from $4.1 million for the same period in 2018[205]. - Net income for the nine months ended September 30, 2019, increased by $4.2 million, or 33.0%, to $16.8 million from $12.6 million for the same period in 2018[220]. - Net interest income increased by $4.9 million, or 37.9%, to $17.7 million for the three months ended September 30, 2019, compared to $12.9 million for the same period in 2018[209]. - Net interest income increased by $16.7 million, or 46.0%, to $53.0 million for the nine months ended September 30, 2019, compared to $36.3 million for the same period in 2018[222]. - Noninterest income increased by $1.9 million, or 40.4%, to $6.7 million for the three months ended September 30, 2019, from $4.8 million for the same period in 2018[216]. - Noninterest income increased by $1.9 million, or 12.6%, to $17.4 million for the nine months ended September 30, 2019, mainly due to higher service charges and fee income[229]. Asset and Liability Management - Total assets increased by $73.4 million, or 4.5%, to $1.69 billion at September 30, 2019, compared to $1.62 billion at December 31, 2018[192]. - Total liabilities increased by $59.1 million to $1.50 billion at September 30, 2019, from $1.44 billion at December 31, 2018[199]. - Total deposits increased to $1.39 billion at September 30, 2019, from $1.27 billion at December 31, 2018[200]. - Loans held for sale increased by $29.4 million, or 57.5%, to $80.6 million at September 30, 2019, from $51.2 million at December 31, 2018[195]. Capital and Liquidity - The Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 capital ratios of 11.6%, 13.6%, 14.5%, and 13.6%, respectively, as of September 30, 2019[241]. - FS Bancorp, Inc. regulatory capital ratios at September 30, 2019 were 11.3% for Tier 1 leverage-based capital, 13.3% for Tier 1 risk-based capital, 14.2% for total risk-based capital, and 13.3% for CET 1 capital ratio[242]. - The Bank is considered to be well capitalized based on its capital levels at September 30, 2019[241]. - FS Bancorp, Inc. had $3.5 million in unrestricted cash to meet liquidity needs as of September 30, 2019[239]. - At September 30, 2019, the Bank's total borrowing capacity was $451.5 million with unused borrowing capacity of $368.8 million[234]. Expense and Efficiency - Noninterest expense increased by $2.9 million, or 24.4%, to $14.7 million for the three months ended September 30, 2019, from $11.8 million for the same period in 2018[217]. - Noninterest expense rose by $11.6 million, or 33.0%, to $46.6 million for the nine months ended September 30, 2019, largely due to the Anchor Acquisition[230]. - The efficiency ratio improved to 60.1% for the three months ended September 30, 2019, compared to 67.0% for the same period in 2018[218]. - The efficiency ratio improved to 66.2% for the nine months ended September 30, 2019, compared to 67.7% for the same period in 2018[231]. Interest and Taxation - Interest income rose by $7.1 million, or 45.7%, to $22.7 million for the three months ended September 30, 2019, compared to $15.6 million for the same period in 2018[212]. - Interest income rose by $24.8 million, or 58.2%, to $67.4 million for the nine months ended September 30, 2019, driven by a $23.7 million increase in loans receivable interest income[225]. - Interest expense increased by $8.1 million, or 128.6%, to $14.4 million for the nine months ended September 30, 2019, primarily due to higher deposit costs[226]. - The effective corporate income tax rate decreased to 22.2% for the three months ended September 30, 2019, from 24.6% for the same period in 2018[219]. - The effective tax rate increased to 21.9% for the nine months ended September 30, 2019, from 18.3% for the same period in 2018[232]. Risk Management - The Company reviews its allowance for loan and lease losses quarterly, adjusting based on economic conditions and portfolio evaluations[186]. - The allowance for loan and lease losses (ALLL) was $12.8 million, or 0.96% of gross loans receivable, at September 30, 2019, compared to $12.3 million, or 0.93%, at December 31, 2018[197]. - Provision for loan losses was $573,000 for the three months ended September 30, 2019, compared to $450,000 for the same period in 2018[215]. - The provision for loan losses was $2.2 million for the nine months ended September 30, 2019, compared to $1.3 million for the same period in 2018[228]. - There have been no material changes in the market risk disclosures since the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[243].

[PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for FS Bancorp, Inc. as of June 30, 2019, and for the three and six-month periods then ended, including Balance Sheets, Statements of Income, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows, along with detailed notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2019, total assets were $1.64 billion, a slight increase from $1.62 billion at December 31, 2018, driven by increases in cash and cash equivalents and loans held for sale, partially offset by a decrease in net loans receivable, while total liabilities rose to $1.45 billion, primarily due to a $60.0 million increase in deposits, and stockholders' equity increased to $189.4 million from $180.0 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,641,065** | **$1,621,644** | | Total cash and cash equivalents | $59,594 | $32,779 | | Loans receivable, net | $1,282,119 | $1,312,519 | | Loans held for sale, at fair value | $66,508 | $51,195 | | **Total Liabilities** | **$1,451,639** | **$1,441,606** | | Total deposits | $1,334,217 | $1,274,219 | | Borrowings | $83,211 | $137,149 | | **Total Stockholders' Equity** | **$189,426** | **$180,038** | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) For the six months ended June 30, 2019, net income was $9.7 million, an increase from $8.6 million in the same period of 2018, driven by a significant rise in net interest income to $35.2 million from $23.4 million, primarily due to the Anchor acquisition, partially offset by a higher provision for loan losses and increased noninterest expenses, including acquisition-related costs Income Statement Summary (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $17,534 | $11,925 | $35,223 | $23,422 | | Provision for Loan Losses | $910 | $450 | $1,660 | $800 | | Noninterest Income | $6,083 | $5,614 | $10,638 | $10,638 | | Noninterest Expense | $17,071 | $12,144 | $31,868 | $23,179 | | **Net Income** | **$4,463** | **$4,257** | **$9,655** | **$8,579** | | **Diluted EPS** | **$0.98** | **$1.13** | **$2.12** | **$2.28** | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the six months ended June 30, 2019, was $11.6 million, significantly higher than the $6.9 million reported for the same period in 2018, driven by both higher net income and a positive change in other comprehensive income, which saw a $2.0 million gain from unrealized holding gains on securities, compared to a $1.7 million loss in the prior year Comprehensive Income (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income | $9,655 | $8,579 | | Other comprehensive income (loss), net of tax | $1,975 | $(1,652) | | **Comprehensive Income** | **$11,630** | **$6,927** | [Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased from $180.0 million at the start of 2019 to $189.4 million at June 30, 2019, primarily due to $9.7 million in net income and a $2.0 million positive change in accumulated other comprehensive income, partially offset by $1.3 million in dividends paid and $2.7 million in common stock repurchases - Key drivers for the change in stockholders' equity for the six months ended June 30, 2019 include: - Net income: **+$9.7 million** - Dividends paid: **-$1.3 million** - Common stock repurchased: **-$2.7 million** - Other comprehensive income, net of tax: **+$2.0 million**[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2019, net cash from operating activities was a use of $5.0 million, while investing activities provided $29.2 million, primarily from net loan collections, and financing activities provided $2.5 million, driven by a net increase in deposits that offset repayments of borrowings, resulting in an overall increase of $26.8 million in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used) from operating activities | $(4,952) | $12,375 | | Net cash from (used) by investing activities | $29,236 | $(147,986) | | Net cash from financing activities | $2,531 | $138,673 | | **Net Increase in Cash and Cash Equivalents** | **$26,815** | **$3,062** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies and financial data presented in the statements, covering topics such as the basis of presentation, the significant impact of the Anchor Bancorp acquisition, composition of securities and loan portfolios, servicing rights, derivatives, leases, regulatory capital, and business segment performance [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations, highlighting the impact of the Anchor Bancorp acquisition completed in November 2018, covering changes in the balance sheet, a detailed breakdown of net interest income and margin, noninterest income and expenses, and asset quality, while also reviewing the company's liquidity position and capital resources, confirming a 'well capitalized' status, and emphasizing its strategy of diversifying revenues and expanding lending channels - The acquisition of Anchor Bancorp in November 2018 significantly impacted financial results, contributing to increased net interest income, higher operating expenses, and expanded market presence[174](index=174&type=chunk) - The company's business plan focuses on growing and diversifying the loan portfolio, maintaining strong asset quality, emphasizing lower-cost core deposits, and expanding its markets[176](index=176&type=chunk) Key Performance Metrics Comparison | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $4,463 | $4,257 | $9,655 | $8,579 | | Net Interest Margin (NIM) | 4.60% | 4.58% | 4.65% | 4.66% | | Efficiency Ratio | 72.3% | 69.2% | 69.5% | 68.1% | | Non-performing loans to gross loans | 0.1% | N/A | 0.1% | N/A | [Comparison of Financial Condition](index=74&type=section&id=Comparison%20of%20Financial%20Condition) Total assets grew by $19.4 million to $1.64 billion at June 30, 2019, from year-end 2018, funded by deposit growth, while net loans receivable decreased by $30.4 million, mainly in construction and commercial business loans, offset by a $28.3 million increase in consumer loans, and total deposits increased by $60.0 million, with strong growth in relationship-based checking accounts, leading to stockholders' equity rising by $9.4 million, driven by net income, despite $2.5 million in stock repurchases - Total assets increased by **1.2%** to **$1.64 billion** at June 30, 2019, compared to **$1.62 billion** at December 31, 2018[191](index=191&type=chunk) - Net loans receivable decreased by **$30.4 million**, primarily due to declines in construction & development (**-$33.2M**) and commercial business loans (**-$22.1M**), offset by a **$28.3M** increase in consumer loans[193](index=193&type=chunk) - Total deposits increased by **$60.0 million** to **$1.33 billion**, with relationship-based transactional accounts growing by **$74.1 million**[198](index=198&type=chunk) [Comparison of Results of Operations](index=78&type=section&id=Comparison%20of%20Results%20of%20Operations) For the six months ended June 30, 2019, net income rose 12.5% to $9.7 million year-over-year, driven by a 50.4% increase in net interest income to $35.2 million, largely from the Anchor acquisition, with the Net Interest Margin (NIM) remaining stable at 4.65%, while noninterest income was flat at $10.6 million as higher service fees were offset by lower gains on loan sales, and noninterest expense increased 37.5% to $31.9 million, reflecting acquisition costs and operational growth Results of Operations for the Six Months Ended June 30 | Metric (in thousands) | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $35,223 | $23,422 | +50.4% | | Provision for Loan Losses | $1,660 | $800 | +107.5% | | Noninterest Income | $10,638 | $10,638 | 0.0% | | Noninterest Expense | $31,868 | $23,179 | +37.5% | | **Net Income** | **$9,655** | **$8,579** | **+12.5%** | - The Net Interest Margin (NIM) for the six months ended June 30, 2019 was **4.65%**, a slight decrease of one basis point from **4.66%** in the prior year period, with the impact of higher-cost deposits nearly offset by a positive **18 basis point** impact from interest accretion on acquired loans[222](index=222&type=chunk)[223](index=223&type=chunk) - Acquisition costs related to the Anchor integration totaled **$1.6 million** for the first six months of 2019, contributing significantly to the rise in noninterest expense[229](index=229&type=chunk) [Liquidity and Capital Resources](index=85&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with primary sources including deposit growth, FHLB advances, and cash flows from loans, with the Bank having $390.3 million in unused borrowing capacity with the FHLB at June 30, 2019, and remaining 'well capitalized' under all regulatory measures, with a Tier 1 leverage ratio of 11.4% and a total risk-based capital ratio of 14.7%, well above the required minimums - At June 30, 2019, the Bank had total borrowing capacity of **$484.2 million** with the FHLB of Des Moines, with **$390.3 million** unused[233](index=233&type=chunk) - The Bank also maintained a **$144.8 million** borrowing line with the Federal Reserve Bank and **$51.0 million** in federal funds lines with correspondent banks[234](index=234&type=chunk) Bank Capital Ratios at June 30, 2019 | Ratio | Actual | Well Capitalized Minimum | | :--- | :--- | :--- | | Tier 1 Leverage Capital | 11.4% | 5.00% | | Common Equity Tier 1 (CET 1) Capital | 13.8% | 6.50% | | Tier 1 Risk-Based Capital | 13.8% | 8.00% | | Total Risk-Based Capital | 14.7% | 10.00% | [Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there have been no material changes in the market risk disclosures from those presented in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - No material changes in market risk disclosures were reported for the period[242](index=242&type=chunk) [Controls and Procedures](index=87&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective, and they also reported no significant changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[245](index=245&type=chunk) - No significant changes to internal controls over financial reporting were identified during the second quarter of 2019[246](index=246&type=chunk) [PART II OTHER INFORMATION](index=89&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=89&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, and management believes that any potential liability from these proceedings will not have a material adverse effect on the company's financial condition - In management's opinion, any liability from pending legal proceedings would not have a material adverse effect on the company's business or financial condition[248](index=248&type=chunk) [Risk Factors](index=89&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to risk factors were reported from the company's 2018 Annual Report on Form 10-K[249](index=249&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2019, the company repurchased 49,978 shares of its common stock at an average price of $48.27 per share as part of a publicly announced plan authorized in January 2019, with 172,378 shares remaining available for repurchase under the plan as of June 30, 2019 Common Stock Repurchases (Q2 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2019 | — | $— | | May 2019 | 38,241 | $48.42 | | June 2019 | 11,737 | $47.78 | | **Total for Quarter** | **49,978** | **$48.27** | - On January 28, 2019, the Board authorized the repurchase of up to **225,000 shares**, and as of the end of Q2 2019, **172,378 shares** were still available for repurchase under this plan[253](index=253&type=chunk) [Exhibits](index=91&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the CEO and CFO certifications required under the Sarbanes-Oxley Act (Sections 302 and 906) and the XBRL interactive data files - Key exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[259](index=259&type=chunk)[261](index=261&type=chunk) - The report includes financial statements and notes formatted in Extensible Business Reporting Language (XBRL)[259](index=259&type=chunk)[261](index=261&type=chunk)