FS Bancorp, Inc. Segments Disclosure

NOTE 19 – BUSINESS SEGMENTS

 

The Company’s reportable segments are determined by the Chief Financial Officer (“CFO”), who is the designated chief operating decision maker or CODM, based upon information provided about the Company's products and services offered, primarily distinguished between commercial and consumer banking and home lending.  They are also distinguished by the level of information provided to the CFO, who uses such information to review performance of various components of business for each branch and home lending office, which are aggregated if operating performance, products/services, and customers are similar.  The CFO evaluates the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the performance of the Company's segments and in the determination of allocating resources.  The CFO uses revenue streams to evaluate product pricing and significant expenses to assess performance of each segment to evaluate compensation of certain employees.  Segment pretax profit or loss is used to assess the performance of the banking segment by monitoring the margin between interest revenue and interest expense.  Segment pretax profit or loss is used to assess the performance of the home lending segment by monitoring the premium received on loans sales.  Loans, investments, and deposits provide the revenues in the commercial and consumer banking operation, and servicing fees and loan sales provide the revenues in home lending.  Interest expense, provisions for credit losses, and payroll provide the significant expenses in commercial and consumer banking, and cost of loan sales and payroll provide the significant expenses in home lending.  All operations are domestic and the Company has no major customers providing greater than 10% of total segment revenue. The Company does not have any material intra-entity sales or transfers, aside from certain allocations of interest expense and loan servicing cost from the commercial and consumer banking segment to the home lending segment. 

 

 

The Company uses various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:

 

●	a funds transfer pricing (“FTP”) system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets;

 

●	a cost per loan serviced allocation based on the number of loans being serviced on the balance sheet and the number of loans serviced for third parties;

 

●	an allocation based upon the approximate square footage utilized by the home lending segment in Company owned locations;

 

●	an allocation of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on the number of full-time employees (“FTEs”) in each segment; and

 

●	an allocation of the Company’s consolidated income taxes which are based on the effective tax rate applied to the segment’s pretax income or loss.

 

Segment assets are primarily allocated based on loan origination channel. The home lending segment is limited to residential mortgage and home equity loans originated through the home lending platform. The home lending segment additionally includes related accrued interest receivable and the Company's MSR assets. The commercial and consumer banking segment includes the remainder of the loan portfolio, the assets of the retail branch network and administrative buildings, as well as the investment portfolio and other assets of the Bank.  A description of the Company’s business segments and the products and services they provide is as follows:

 

Commercial and Consumer Banking Segment

 

The commercial and consumer banking segment provides diversified financial products and services to our commercial and consumer customers through Bank branches, online banking platforms, mobile banking apps, and telephone banking. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. The Company originates consumer loans, commercial and multi-family real estate loans, construction loans for residential and multi-family construction, and commercial business loans. At December 31, 2025, the Company’s retail deposit branch network consisted of 27 branches in the Pacific Northwest. This segment is also responsible for the management of the investment portfolio and other assets of the Bank.

 

Home Lending Segment

 

The home lending segment originates one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as loans held for investment. A majority of these mortgage loans are sold to or securitized by FNMA, FHLMC, GNMA or the FHLB of Des Moines, while the Company generally retains the right to service these loans. Loans originated under the guidelines of the Federal Housing Administration (“FHA”), US Department of Veterans Affairs (“VA”), and United States Department of Agriculture (“USDA”) are generally sold servicing released to a correspondent bank or mortgage company. The Company has the option to sell loans on a servicing-released or servicing-retained basis to securitizers and correspondent lenders. A small percentage of its loans are brokered to other lenders. On occasion, the Company may sell a portion of its MSRs portfolio and may sell small pools of loans initially originated to be held in the loan portfolio. The Company manages the loan funding and the interest rate risk associated with the secondary market loan sales and the retained one-to-four-family MSRs within this business segment. One-to-four-family loans originated for investment and held in this segment are allocated to the home lending segment with a corresponding provision expense and FTP for cost of funds.  Noninterest expense includes allocated overhead expense from general corporate activities.  Allocation is determined based on a combination of segment assets and FTEs.  

 

Segment Financial Results

 

Accounting policies for segments are consistent with those described in “Note 1 – Basis of Presentation and Summary of Significant Accounting Policies.” Segment performance is evaluated using net income.  Indirect expenses are allocated based on segment assets and full-time equivalent employees (“FTEs”).  Transactions among segments are made at fair value.  Information reported internally for performance assessment by the CFO follows, inclusive of reconciliations of significant segment totals to the financial statements at or for the years indicated:

 

 

		At or For the Year Ended December 31, 2025
Income:		Commercial and Consumer Banking				Home Lending				Total
Interest income - loans receivable, including fees		$	146,140			$	35,741			$	181,881
Interest income - other interest earnings assets			15,365				—				15,365
Total interest income by segment			161,505				35,741				197,246
Gain on sale of loans			63				8,217				8,280
Other income			11,239				2,758				13,997
Intersegment income			(1,295	)			1,295				—
Total noninterest income by segment			10,007				12,270				22,277
Total income by segment			171,512				48,011				219,523
Expense:
Interest expense - deposits			57,649				20				57,669
Interest expense - borrowings			7,229				—				7,229
Interest expense - subordinated note			1,541				401				1,942
Interest expense - intersegment			(24,048	)			24,048				—
Total interest expense by segment			42,371				24,469				66,840
Provision for credit losses by segment			9,001				545				9,546
Salaries and benefits			32,355				7,709				40,064
Overhead allocation			23,352				7,370				30,722
Other segment items (1)			25,794				5,437				31,231
Total noninterest expense by segment			81,501				20,516				102,017
Income before provision for income taxes by segment			38,639				2,481				41,120
Provision for income taxes by segment			(7,305	)			(469	)			(7,774	)
Net income by segment		$	31,334			$	2,012			$	33,346
Other segment disclosures:
Segment assets		$	2,538,874			$	657,973			$	3,196,847
FTEs			462				118				580

 

 

 

		At or For the Year Ended December 31, 2024
Income:		Commercial and Consumer Banking				Home Lending				Total
Interest income - loans receivable, including fees		$	139,996			$	30,861			$	170,857
Interest income - other interest earnings assets			13,980				—				13,980
Total interest income by segment			153,976				30,861				184,837
Gain on sale of loans			—				8,557				8,557
Gain on sale of MSRs			6,473				1,883				8,356
Loss on sale of investment securities			—				—				—
Other income			1,856				2,787				4,643
Intersegment income			898				(898	)			—
Total noninterest income by segment			9,227				12,329				21,556
Total income by segment			163,203				43,190				206,393
Expense:
Interest expense - deposits			53,156				7				53,163
Interest expense - borrowings			6,627				—				6,627
Interest expense - subordinated note			1,555				387				1,942
Interest expense - intersegment			(20,666	)			20,666				—
Total interest expense by segment			40,672				21,060				61,732
Provision for credit losses by segment			5,393				118				5,511
Salaries and benefits			26,609				8,470				35,079
Overhead allocation			22,464				6,559				29,023
Other segment items (1)			28,542				4,925				33,467
Total noninterest expense by segment			77,615				19,954				97,569
Income before provision for income taxes by segment			39,523				2,058				41,581
(Provision) benefit for income taxes by segment			(6,733	)			176				(6,557	)
Net income by segment		$	32,790			$	2,234			$	35,024
Other segment disclosures:
Segment assets		$	2,410,777			$	618,400			$	3,029,177
FTEs			447				115				562

 

 

 

		At or For the Year Ended December 31, 2023
		Commercial
		and Consumer
Income:		Banking				Home Lending				Total
Interest income - loans receivable, including fees		$	127,947			$	26,998			$	154,945
Interest income - other interest earnings assets			12,247				—				12,247
Total interest income by segment			140,194				26,998				167,192
Gain on sale of loans			—				6,711				6,711
Other income			9,178				4,601				13,779
Intersegment income			1,190				(1,190	)			—
Total noninterest income by segment			10,368				10,122				20,490
Total income by segment			150,562				37,120				187,682
Expense:
Interest expense - deposits			36,743				8				36,751
Interest expense - borrowings			5,196				—				5,196
Interest expense - subordinated note			1,581				361				1,942
Interest expense - intersegment			(15,063	)			15,063				—
Total interest expense by segment			28,457				15,432				43,889
Provision for credit losses by segment			3,494				1,280				4,774
Salaries and benefits			25,623				9,749				35,372
Corporate overhead allocation			21,266				6,109				27,375
Other segment items (1)			26,878				4,122				31,000
Total noninterest expense by segment			73,767				19,980				93,747
Income before provision for income taxes by segment			44,844				428				45,272
Provision for income taxes by segment			(9,132	)			(87	)			(9,219	)
Net income by segment		$	35,712			$	341			$	36,053
Other segment disclosures:
Segment assets		$	2,420,930			$	551,739			$	2,972,669
FTEs			447				123				570

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(1)	Other segments items include operations, occupancy, data processing, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.