DEBT

Borrowings

The Bank is a member of the FHLB of Des Moines, which entitles it to certain benefits including a variety of borrowing options consisting of a secured credit line that allows both fixed and variable rate advances. The FHLB borrowings at December 31, 2016 and 2015, consisted of a warehouse securities credit line (“securities line”), which allows advances with interest rates fixed at the time of borrowing and a warehouse Federal Funds (“Fed Funds”) advance, which allows daily advances at variable interest rates. Credit capacity is primarily determined by the value of assets collateralized at the FHLB, funds on deposit at the FHLB, and stock owned by the Bank.

Credit is limited to 35% of the Company’s total assets. The Bank entered into an Advanced, Pledges and Security Agreement with the FHLB for which specific loans are pledged to secure these credit lines. At December 31, 2016, loans of approximately $249.8 million were pledged to the FHLB with a borrowing capacity, net of advances of $177.5 million. In addition, all FHLB stock owned by the Company is collateral for credit lines.

The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral. The Bank can borrow under the Term Auction or Term Facility at rates published by the San Francisco FRB. At December 31, 2016 and 2015, the Bank had approximately $170.1 million in pledged consumer loans with a Term Auction or Term Facility borrowing capacity of $85.9 million and $79.5 million, respectively, of which none was outstanding at either date. The Bank also had $40.0 million unsecured Fed Funds lines of credit with other large financial institutions of which none was outstanding at December 31, 2016.

Advances on these lines at December 31, 2016 and 2015 were as follows:



	2016		2015
Federal Home Loan Bank - (interest rates ranging from 0.86% to 1.73% and 0.34% to 1.73% at December 31, 2016 and 2015, respectively)	$	12,670	$	98,769
Total	$	12,670	$	98,769

Subordinated Note

On October 15, 2015 (the “Closing Date”), FS Bancorp, Inc. issued an unsecured subordinated term note in the aggregate principal amount of $10.0 million due October 1, 2025 (the “Subordinated Note”) pursuant to a Subordinated Loan Agreement with Community Funding CLO, Ltd. The Subordinated Note bears interest at an annual interest rate of 6.50%, payable by the Company quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on the first such date following the Closing Date and on the maturity date.

The Subordinated Note will mature on October 1, 2025 but may be prepaid at the Company’s option and with regulatory approval at any time on or after five years after the Closing Date or at any time upon certain events, such as a change in the regulatory capital treatment of the Subordinated Note or the interest on the Subordinated Note no longer being deductible by the Company for United States federal income tax purposes. The Company contributed $9.0 million of the proceeds from the Subordinated Note as additional capital to the Bank in the fourth quarter of 2015 and used the balance to fund general working capital and operating expenses.

The maximum and average outstanding and weighted average interest rates on debt during the years ended December 31, 2016 and 2015 were as follows:



	2016			2015
Maximum balance:
Federal Home Loan Bank advances and Fed Funds	$	98,769		$	98,769
Federal Reserve Bank	$	1,000		$	—
Fed Funds lines of credit	$	6,000		$	2,901
Warehouse lines of credit	$	—		$	2,300
Subordinated note	$	10,000		$	10,000
Average balance:
Federal Home Loan Bank advances and Fed Funds	$	26,259		$	38,393
Federal Reserve Bank	$	3		$	—
Fed Funds lines of credit	$	16		$	145
Warehouse lines of credit	$	—		$	1,886
Subordinated note	$	10,000		$	2,120
Weighted average interest rate:
Federal Home Loan Bank advances and Fed Funds	0.98		%	0.82		%
Federal Reserve Bank	1.00		%	—		%
Fed Funds lines of credit	0.77		%	0.42		%
Warehouse lines of credit	—		%	4.18		%
Subordinated note	6.50		%	6.50		%

Scheduled maturities of Federal Home Loan Bank advances were as follows:



Year Ending			Interest
December 31,	Balances		Rates
2017	$	5,140	1.10	%
2018	3,987		1.01	%
2019	1,207		1.73	%
2020	2,336		1.71	%
Total	$	12,670