FS Bancorp, Inc., a Washington corporation, was organized in September 2011
for the purpose of becoming the holding company of 1st Security Bank of Washington
upon the Bank’s conversion from a mutual to a stock savings bank (“Conversion”).
The Conversion was completed on July 9, 2012.
1st Security Bank of Washington is a relationship-driven community bank. The
Bank delivers banking and financial services to local families, local and regional
businesses and industry niches within distinct Puget Sound area communities.
The Bank emphasizes long-term relationships with families and businesses within
the communities served, working with them to meet their financial needs. The
Bank is also actively involved in community activities and events within these
market areas, which further strengthens relationships within these markets.
The Bank has been serving the Puget Sound area since 1936. Originally chartered
as a credit union, and known as Washington’s Credit Union, the Bank served
various select employment groups. On April 1, 2004, the Bank converted from
a credit union to a Washington state-chartered mutual savings bank. Upon completion
of the Conversion in July 2012, 1st Security Bank of Washington became a Washington
state-chartered stock savings bank and the wholly owned subsidiary of the Company.
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. Over the past few years, the Company has continued to originate
consumer loans, and increased emphasis on commercial real estate loans, including
construction and development lending, as well as commercial business loans.
Demand is affected by competition and the interest rate environment. In periods
of economic uncertainty, the ability of financial institutions, including us,
to originate large dollar volumes of commercial business and real estate loans
may be substantially reduced or restricted, with a resultant decrease in interest
income. In addition to interest earned on loans and loan origination fees, the
Company receives fees for loan commitments, late payments and other miscellaneous
services. The fees vary from time to time, generally depending on the supply
of funds and other competitive conditions in the market.
The Company is a diversified lender with a focus on the origination of indirect
home improvement loans, also referred to as fixture secured loans, home loans,
commercial real estate mortgage loans, commercial business loans and second
mortgage/home equity loan products. Consumer loans, in particular indirect home
improvement loans, represent the largest portion of the loan portfolio and have
traditionally been the mainstay of the Company’s lending strategy, a carryover
from its days as a credit union. Going forward, the Company plans to place more
emphasis on certain lending products, such as commercial real estate loans including
speculative residential construction loans, one-to-four-family loans, and commercial
business loans, while growing the current size of the consumer loan portfolio.
The Company reintroduced in-house originations of residential mortgage loans
in 2012, primarily for sale into the secondary market, through a mortgage banking
program. The Companys lending strategies are intended to take advantage of:
(1) the Company’s historical strength in indirect consumer lending, (2)
recent market consolidation that has created new lending opportunities, and
(3) relationship lending. Retail deposits will continue to serve as an important
funding source.
Historically, the Companys primary emphasis was the origination of consumer
loans (primarily indirect home improvement and automobile-secured loans), one-to-four-family
residential first mortgages, and second mortgage/home equity loan products.
As a result of the Companys initial public offering in 2012, while maintaining
the active indirect consumer lending program, the Company shifted its lending
focus to include non-mortgage commercial business loans, as well as commercial
real estate which includes construction and development loans. The Company reintroduced
in-house originations of residential mortgage loans in 2012, primarily for sale
in the secondary market. While maintaining the Company’s historical strength
in consumer lending, the Company has added management and personnel in the commercial
and home lending areas to take advantage of the relatively favorable long-term
business and economic environments prevailing in the markets.
The Company intends to continue to emphasize commercial real estate lending
and, as a result, the Company has assembled a highly experienced team, with
an average of over 20 years experience. The Banks Chief Credit Officer and
Chief Lending Officer are both senior bankers with over 25 years of commercial
lending experience in the northwestern U.S. region. Management has also hired
experienced commercial loan officers to support the Company’s commercial
real estate lending objectives. As the commercial loan portfolio expands, the
Company intends to bring in additional experienced personnel in the areas of
loan analysis and commercial deposit relationship management, as needed.
Construction and development lending contains the inherent difficulty in estimating
both a property’s value at completion of the project and the estimated
cost (including interest) of the project. Changes in the demand, such as for
new housing and higher than anticipated building costs may cause actual results
to vary significantly from those estimated. If the estimate of construction
cost proves to be inaccurate, we may be required to advance funds beyond the
amount originally committed to permit completion of the project. This type of
lending also typically involves higher loan principal amounts and is often concentrated
with a small number of builders. In addition, during the term of most of our
construction loans, an interest reserve is created at origination and is added
to the principal of the loan through the construction phase. If the estimate
of value upon completion proves to be inaccurate, we may be confronted at, or
prior to, the maturity of the loan with a project the value of which is insufficient
to assure full repayment. Because construction loans require active monitoring
of the building process, including cost comparisons and on-site inspections,
these loans are more difficult and costly to monitor. Increases in market rates
of interest may have a more pronounced effect on construction loans by rapidly
increasing the end-purchasers borrowing costs, thereby reducing the overall
demand for the project. Properties under construction are often difficult to
sell and typically must be completed in order to be successfully sold which
also complicates the process of working out problem construction loans. This
may require us to advance additional funds and/or contract with another builder
to complete construction. Furthermore, speculative construction loans to a builder
are often associated with homes that are not pre-sold, and thus pose a greater
potential risk than construction loans to individuals on their personal residences
as there is the added risk associated with identifying an end-purchaser for
the finished project. Loans on land under development or held for future construction
pose additional risk because of the lack of income being produced by the property
and the potential illiquid nature of the collateral. These risks can be significantly
impacted by supply and demand.