FS Bancorp,Inc.

Form ~~10‑~~10‑Q

Table of Contents

					PageNumber
PARTI		~~Page Number~~
~~PART I~~	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2024 (Unaudited) and December 31, ~~2016 (Unaudited)~~2023	3

	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (Unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (Unaudited)	6

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 (Unaudited)	7 - 8

	Notes to Consolidated Financial Statements	89 - 43 45

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4446 - 53 59

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53 59

Item 4.	Controls and Procedures	53 59

PARTII	OTHER INFORMATION		60
~~PART II~~	~~OTHER INFORMATION~~	55
Item 1.
~~Item 1.~~	Legal Proceedings	55 60

Item 1A.	Risk Factors	55 60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55 60

Item 3.	Defaults Upon Senior Securities	55 61

Item 4.	Mine Safety Disclosures	55 61

Item 5.	Other Information	55 61

Item 6.	Exhibits	56 62

SIGNATURES		63		58

When we refer to “FS Bancorp” in this report, we are referring to FS Bancorp, Inc. When we refer to “Bank” or “1st Security Bank” in this report, we are referring to 1st Security Bank of Washington, the wholly owned subsidiary of FS Bancorp. As used in this report, the terms “we,” “our,” “us,” ~~“Company”~~ and ~~“FS Bancorp”~~“Company” refer to FS Bancorp, Inc. and its consolidated subsidiary, 1st Security Bank of Washington, unless the context indicates otherwise. ~~When we refer to “Bank” in this report, we are referring to 1st Security Bank of Washington, the wholly owned subsidiary of FS Bancorp, Inc.~~

Table of Contents

Item1. Financial Statements

FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except shares and per share amounts) (Unaudited)


	September 30,		December 31,
	2017		2016		March 31,			December 31,
ASSETS					2024			2023
Cash and due from banks	$	3,299	$	3,590	$	17,149		$	17,083
Interest-bearing deposits at other financial institutions		27,996		32,866		28,257			48,608
Total cash and cash equivalents		31,295		36,456		45,406			65,691
Certificates of deposit at other financial institutions		18,108		15,248		23,222			24,167
Securities available-for-sale, at fair value		78,103		81,875
Securities available-for-sale, at fair value (amortized cost of $309,959 and $328,695, net of allowance for credit losses of $0 and $0, respectively)						279,643			292,933
Securities held-to-maturity, net of allowance for credit losses of $45 and $45 (fair value of $7,785 and $7,666, respectively)						8,455			8,455
Loans held for sale, at fair value		65,055		52,553		49,957			25,668
Loans receivable, net		753,854		593,317
Loans receivable, net of allowance for credit losses of $31,479 and $31,534 (includes $15,003 and $15,088 of loans at fair value, respectively)						2,415,379			2,401,481
Accrued interest receivable		3,217		2,524		14,455			14,005
Premises and equipment, net		15,463		16,012		30,326			30,578
Operating lease right-of-use (“ROU”) assets						6,202			6,627
Federal Home Loan Bank (“FHLB”) stock, at cost		3,047		2,719		2,909			2,114
Deferred tax asset, net						4,832			6,725
Bank owned life insurance (“BOLI”), net		10,262		10,054		37,958			37,719
Servicing rights, held at the lower of cost or fair value		5,811		8,459
Mortgage servicing rights (“MSRs”), held at the lower of cost or fair value						9,009			9,090
MSRs held for sale, held at the lower of cost or fair value						—			8,086
Goodwill		2,312		2,312		3,592			3,592
Core deposit intangible, net		1,417		1,717		16,402			17,343
Other assets		5,947		4,680		21,958			18,395
TOTAL ASSETS	$	993,891	$	827,926	$	2,969,705		$	2,972,669
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	166,964	$	152,913	$	646,899		$	670,831
Interest-bearing accounts		673,614		559,680		1,818,398			1,851,492
Total deposits		840,578		712,593		2,465,297			2,522,323
Borrowings		10,270		12,670		129,940			93,746
Subordinated note:
Subordinated notes:
Principal amount		10,000		10,000		50,000			50,000
Unamortized debt issuance costs		(160)		(175)		(456	)		(473	)
Total subordinated note less unamortized debt issuance costs		9,840		9,825
Total subordinated notes less unamortized debt issuance costs						49,544			49,527
Operating lease liabilities						6,410			6,848
Other liabilities		14,964		11,805		40,582			35,737
Total liabilities		875,652		746,893		2,691,773			2,708,181
COMMITMENTS AND CONTINGENCIES (NOTE 9)
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued or outstanding		—		—		—			—
Common stock, $.01 par value; 45,000,000 shares authorized; 3,674,902 and 3,059,503 shares issued and outstanding at September 30, 2017, and December 31, 2016, respectively		37		31
Common stock, $.01 par value; 45,000,000 shares authorized; 7,805,795 and 7,800,545 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively						78			78
Additional paid-in capital		54,463		27,334		57,552			57,362
Retained earnings		65,049		55,584		236,720			230,354
Accumulated other comprehensive loss, net of tax		(128)		(536)		(16,418	)		(23,306	)
Unearned shares – Employee Stock Ownership Plan (“ESOP”)		(1,182)		(1,380)
Total stockholders’ equity		118,239		81,033		277,932			264,488
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	993,891	$	827,926	$	2,969,705		$	2,972,669

See accompanying notes to these consolidated financial statements.

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FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except shares and per share amounts) (Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2024			2023
INTEREST INCOME
Loans receivable, including fees	$	11,715	$	9,241	$	31,488	$	26,014	$	40,997		$	35,992
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		637		538		2,034		1,751		3,883			2,620
Total interest and dividend income		12,352		9,779		33,522		27,765		44,880			38,612
INTEREST EXPENSE
Deposits		1,045		808		2,793		2,411		12,882			6,624
Borrowings		114		50		259		177		1,167			841
Subordinated note		171		171		508		512
Subordinated notes										485			485
Total interest expense		1,330		1,029		3,560		3,100		14,534			7,950
NET INTEREST INCOME		11,022		8,750		29,962		24,665		30,346			30,662
PROVISION FOR LOAN LOSSES		450		600		450		1,800
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		10,572		8,150		29,512		22,865
PROVISION FOR CREDIT LOSSES										1,399			2,108
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES										28,947			28,554
NONINTEREST INCOME
Service charges and fee income		879		899		2,743		2,489		2,552			2,608
Gain on sale of loans		5,025		5,922		13,840		14,722
Gain on sale of investment securities		143		146		380		146
Gain on sale of mortgage servicing rights (“MSR”)		38		—		996		—
Gain on sale of loans held for sale										1,838			1,476
Gain on sale of MSRs										8,215			—
Loss on sale of investment securities										(7,998	)		—
Earnings on cash surrender value of BOLI		68		71		208		211		240			221
Other noninterest income		274		210		637		557		264			914
Total noninterest income		6,427		7,248		18,804		18,125		5,111			5,219
NONINTEREST EXPENSE
Salaries and benefits		7,140		6,287		20,174		16,510		13,557			13,864
Operations		1,577		1,450		4,506		4,221		3,008			2,692
Occupancy		650		597		1,939		1,775		1,705			1,520
Data processing		651		537		1,811		1,576		1,958			1,568
Gain on sale of other real estate owned (“OREO”)		—		—		—		(150)
Loan costs		726		715		1,977		1,789		585			470
Professional and board fees		378		502		1,261		1,490		923			678
Federal Deposit Insurance Corporation (“FDIC”) insurance		175		98		428		306		532			580
Marketing and advertising		192		202		512		553		227			190
Acquisition costs		—		—		—		389		—			1,501
Amortization of core deposit intangible		100		140		300		382		941			459
(Recovery) impairment on servicing rights		—		(216)		1		(2)
Impairment of MSRs										93			2
Total noninterest expense		11,589		10,312		32,909		28,839		23,529			23,524
INCOME BEFORE PROVISION FOR INCOME TAXES		5,410		5,086		15,407		12,151		10,529			10,249
PROVISION FOR INCOME TAXES		1,956		1,629		5,001		4,198		2,132			2,037
NET INCOME	$	3,454	$	3,457	$	10,406	$	7,953	$	8,397		$	8,212
Basic earnings per share	$	1.13	$	1.21	$	3.53	$	2.74	$	1.07		$	1.06
Diluted earnings per share	$	1.07	$	1.18	$	3.31	$	2.66	$	1.06		$	1.04

See accompanying notes to these consolidated financial statements.

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FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net Income

$
3,454

$
3,457

$
10,406

$
7,953

Other comprehensive income, before tax:









Securities available-for-sale:









Unrealized holding gain during period

80

29

1,012

1,224

Income tax provision related to unrealized holding gain

(28)

(8)

(357)

(433)

Reclassification adjustment for realized gain included in net income

(143)

(146)

(380)

(146)

Income tax provision related to reclassification for realized gain

50

50

133

50

Other comprehensive (loss) income, net of tax

(41)

(75)

408

695

COMPREHENSIVE INCOME

$
3,413

$
3,382

$
10,814

$
8,648

	Three Months Ended
	March 31,
	2024			2023
Net income	$	8,397		$	8,212
Other comprehensive income:
Securities available-for-sale:
Unrealized holding (loss) gain during period		(2,552	)		6,136
Income tax benefit (provision) related to unrealized holding (loss) gain		549			(1,320	)
Reclassification adjustment for realized loss, net included in net income		7,998			—
Income tax provision related to reclassification for realized loss, net		(1,719	)		—
Derivative financial instruments:
Unrealized derivative gain (loss) during period		5,050			(1,517	)
Income tax (provision) benefit related to unrealized derivative gain (loss)		(1,086	)		322
Reclassification adjustment for realized gain, net included in net income		(1,722	)		(907	)
Income tax provision related to reclassification, net		370			195
Other comprehensive income, net of tax		6,888			2,909
COMPREHENSIVE INCOME	$	15,285		$	11,121

See accompanying notes to these consolidated financial statements.

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FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share amounts) (Unaudited)

Three Months Ended March 31, 2024 and 2023

												Accumulated
												Other
						Additional						Comprehensive			Total
	Common Stock					Paid-in			Retained			Loss,			Stockholders'
	Shares			Amount		Capital			Earnings			Net of Tax			Equity
BALANCE, January 1, 2023		7,736,185		$	77	$	55,187		$	202,065		$	(25,632	)	$	231,697
Net income		—		$	—		—			8,212			—		$	8,212
Dividends paid ($0.25 per share)		—		$	—		—			(1,935	)		—		$	(1,935	)
Share-based compensation		—		$	—		654			—			—		$	654
Issuance of common stock-employee stock purchase plan		7,350		$	—		271			—			—		$	271
Restricted stock awards forfeited		(4,812	)	$	—		—			—			—		$	—
Common stock repurchased for employee/director taxes paid on restricted stock awards		(440	)	$	—		(16	)		—			—		$	(16	)
Stock options exercised, net		5,000		$	—		42			—			—		$	42
Other comprehensive income, net of tax		—		$	—		—			—			2,909		$	2,909
BALANCE, March 31, 2023		7,743,283		$	77	$	56,138		$	208,342		$	(22,723	)	$	241,834

BALANCE, January 1, 2024		7,800,545		$	78	$	57,362		$	230,354		$	(23,306	)	$	264,488
Net income		—		$	—		—			8,397			—		$	8,397
Dividends paid ($0.26 per share)		—		$	—		—			(2,031	)		—		$	(2,031	)
Share-based compensation		—		$	—		395			—			—		$	395
Issuance of common stock- employee stock purchase plan		9,250		$	—		302			—			—		$	302
Common stock repurchased - repurchase plan		(17,612	)	$	—		—			—			—		$	—
Restricted stock awards forfeited		(4,000	)	$	—		—			—			—		$	—
Stock options exercised, net		17,612		$	—		(507	)		—			—		$	(507	)
Other comprehensive income, net of tax		—		$	—		—			—			6,888		$	6,888
BALANCE, March 31, 2024		7,805,795		$	78	$	57,552		$	236,720		$	(16,418	)	$	277,932

See accompanying notes to these consolidated financial statements.

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FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~CASH FLOWS

(~~Dollars in thousands, except share amounts)~~In thousands) (Unaudited)

Accumulated




Additional

Other

Unearned

Total

Common Stock

Paid-in

Retained

Comprehensive

ESOP

Stockholders’

Shares

Amount

Capital

Earnings

Income, Net of Tax

Shares

Equity
BALANCE, January 1, 2016

3,242,120

$
32

$
30,692

$
46,175

$
78

$
(1,637)

$
75,340
Net income

—

$
—

—

7,953

—

—

$
7,953
Dividends paid ($0.26 per share)

—

$
—

—

(802)

—

—

$
(802)
Share-based compensation

—

$
—

588

—

—

—

$
588
Restricted stock awards

4,500

$
—

—

—

—

—

$
—
Common stock repurchased

(198,167)

$
(1)

(4,902)

—

—

—

$
(4,903)
Stock options exercised

9,300

$
—

157

—

—

—

$
157
Other comprehensive income, net of tax

—

$
—

—

—

695

—

$
695
ESOP shares allocated

—

$
—

331

—

—

198

$
529
BALANCE, September 30, 2016

3,057,753

$
31

$
26,866

$
53,326

$
773

$
(1,439)

$
79,557

BALANCE, January 1, 2017

3,059,503

$
31

$
27,334

$
55,584

$
(536)

$
(1,380)

$
81,033
Net income

—

$
—

—

10,406

—

—

$
10,406
Dividends paid ($0.31 per share)

—

$
—

—

(941)

—

—

$
(941)
Proceeds from public offering, net of expenses

587,234

$
6

25,612

—

—

—

$
25,618
Share-based compensation

—

$
—

496

—

—

—

$
496
Common stock repurchased

(6,198)

$
—

(275)

—

—

—

$
(275)
Stock options exercised

34,363

$
—

580

—

—

—

$
580
Other comprehensive income, net of tax

—

$
—

—

—

408

—

$
408
ESOP shares allocated

—

$
—

716

—

—

198

$
914
BALANCE, September 30, 2017

3,674,902

$
37

$
54,463

$
65,049

$
(128)

$
(1,182)

$
118,239

	Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES	2024			2023
Net income	$	8,397		$	8,212
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses		1,399			2,108
Depreciation, amortization and accretion		2,835			3,358
Compensation expense related to stock options and restricted stock awards		395			654
Change in cash surrender value of BOLI		(240	)		(221	)
Gain on sale of loans held for sale		(1,838	)		(1,476	)
Gain on sale of MSRs		(8,215	)		—
Loss on sale of investment securities		7,998			—
Origination of loans held for sale		(109,554	)		(73,050	)
Proceeds from sale of loans held for sale		94,874			78,316
Impairment of MSRs		93			2
Changes in operating assets and liabilities
Accrued interest receivable		(450	)		(662	)
Other assets		(496	)		(470	)
Other liabilities		5,079			1,700
Net cash from operating activities		277			18,471
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities available-for-sale:
Proceeds from sale of investment securities		44,036			—
Maturities, prepayments, and calls		4,293			2,497
Purchases		(38,009	)		—
Maturities of certificates of deposit at other financial institutions		1,925			—
Purchase of certificates of deposit at other financial institutions		(980	)		—
Portfolio loan originations and principal collections, net		(8,226	)		(55,269	)
Net cash from acquisitions		—			336,157
Proceeds from sale of mortgage servicing rights		16,168			—
Purchase of portfolio loans		(15,492	)		(829	)
Purchase of premises and equipment		(357	)		(954	)
Change in FHLB stock, net		(795	)		6,748
Net cash from investing activities		2,563			288,350
CASH FLOWS USED BY FINANCING ACTIVITIES
Net decrease in deposits		(57,083	)		(109,439	)
Proceeds from borrowings		175,000			382,500
Repayments of borrowings		(138,806	)		(561,500	)
Dividends paid on common stock		(2,031	)		(1,935	)
(Disbursements) proceeds from stock options exercised, net		(507	)		42
Common stock repurchased for employee/director taxes paid on restricted stock awards		—			(16	)
Issuance of common stock - employee stock purchase plan		302			271
Net cash used by financing activities		(23,125	)		(290,077	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(20,285	)		16,744

CASH AND CASH EQUIVALENTS, beginning of period		65,691			41,437
CASH AND CASH EQUIVALENTS, end of period	$	45,406		$	58,181

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FS BANCORP,INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands) (Unaudited)

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings	$	12,087	$	7,064
Income taxes		—		—

SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Change in fair value on available-for-sale investment securities	$	5,446	$	6,136
Change in fair value on fair value and cash flow hedges		3,324		(2,424	)
Change in fair value on portfolio loans measured under the fair value option		2		577
Retention in gross MSRs from loan sales		576		405
ROU assets in exchange for lease liabilities		—		1,574
Acquisitions:
Assets acquired		—		87,512
Liabilities assumed		—		424,949

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands) (Unaudited)~~

Nine Months Ended September 30,


2017

2016
CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$
10,406

$
7,953
Adjustments to reconcile net income to net cash from operating activities




Provision for loan losses

450

1,800
Depreciation, amortization and accretion

2,577

3,779
Compensation expense related to stock options and restricted stock awards

496

588
ESOP compensation expense for allocated shares

914

529
Increase in cash surrender value of BOLI

(208)

(211)
Gain on sale of loans held for sale

(13,840)

(14,722)
Gain on sale of investment securities

(380)

(146)
Gain on sale of OREO

—

(150)
Gain on sale of MSR

(996)

—
Origination of loans held for sale

(520,358)

(584,073)
Proceeds from sale of loans held for sale

520,091

564,218
Impairment (recovery) of servicing rights

1

(2)
Changes in operating assets and liabilities




Accrued interest receivable

(693)

(450)
Other assets

(79)

(7,481)
Other liabilities

2,668

5,063
Net cash from (used by) operating activities

1,049

(23,305)
CASH FLOWS FROM INVESTING ACTIVITIES




Activity in securities available-for-sale:




Proceeds from sale of investment securities

39,103

13,577
Maturities, prepayments, sales, and calls

6,531

9,039
Purchases

(41,320)

(47,432)
Maturities of certificates of deposit at other financial institutions

1,240

292
Purchase of certificates of deposit at other financial institutions

(4,102)

(1,882)
Loan originations and principal collections, net

(129,763)

(93,871)
Purchase of portfolio loans

(32,342)

—
Proceeds from sale of other real estate owned, net

—

682
Purchase of premises and equipment, net

(623)

(2,287)
FHLB stock, net

(328)

2,547
Proceeds from sale of MSR

4,827

—
Net cash received from acquisition

—

180,356
Net cash (used by) from investing activities

(156,777)

61,021
CASH FLOWS FROM FINANCING ACTIVITIES




Net increase in deposits

127,985

37,630
Borrowings, net

(2,400)

(77,740)
Dividends paid

(941)

(802)
Proceeds from stock options exercised

580

157
Common stock repurchased

(275)

(4,903)
Proceeds from issuance of common stock

25,618

—
Net cash from (used by) financing activities

150,567

(45,658)
NET DECREASE IN CASH AND CASH EQUIVALENTS

(5,161)

(7,942)
CASH AND CASH EQUIVALENTS, beginning of period

36,456

24,455
CASH AND CASH EQUIVALENTS, end of period

$
31,295

$
16,513

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION




Cash paid during the period for:




Interest

$
3,528

$
2,931
Income taxes

$
5,800

$
4,420
Assets acquired in acquisition of branches (Note 2)

$
—

$
181,575
Liabilities assumed in acquisition of branches (Note 2)

$
—

$
186,393
SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES


Change in unrealized gain on investment securities

$
631

$
1,079
Transfer portfolio loans to loans held for sale

$
1,886

$
—
Property received in settlement of loans

$
—

$
525
Retention of gross mortgage servicing rights from loan sales

$
3,569

$
2,927

~~See accompanying notes to these consolidated financial statements~~

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Amounts)

NOTE1 - – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - – FS Bancorp, Inc. (the “Company”) was incorporated in September 2011 as the ~~proposed~~ holding company for 1st Security Bank of Washington (the “Bank” or ~~“1st~~“1st Security Bank”) in connection with the Bank’s conversion from the mutual to stock form of ownership which was completed on July 9, 2012. The Bank is a community-based savings bank with 1127 full-service bank branches, a headquarters that also originates loans and ~~seven~~accepts deposits, and loan production offices in suburban communities in the greater Puget Sound area, ~~which includes Snohomish, King, Pierce, Jefferson, Kitsap,~~the Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, Goldendale, Vancouver, and ~~Clallam counties,~~White Salmon, Washington and ~~one loan production office~~Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. The Bank’s branches located in the ~~market area~~communities of ~~the Tri-Cities, Washington.~~ Goldendale and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon were acquired from Columbia State Bank on February 24, 2023, and opened as 1st Security Bank branches on February 27, 2023. The Bank provides loan and deposit services to customers who are predominantly ~~small~~small- and middle-market businesses and individuals. The Bank acquired four retail bank branches from Bank of America, National Association (“Bank of America”) (two in Clallam and two in Jefferson counties) on January 22, 2016, and these branches opened as 1st Security Bank branches on January 25, 2016. The Company and its subsidiary are subject to regulation by certain federal and state agencies and undergo periodic examination by these regulatory agencies.

Pursuant to the Plan of Conversion (the “Plan”), the Company’s Board of Directors adopted an employee stock ownership plan (“ESOP”) which purchased 8% of the common stock in the open market or 259,210 shares. As provided for in the Plan, the Bank also established a liquidation account in the amount of retained earnings at December 31, 2011. The liquidation account is maintained for the benefit of eligible savings account holders at June 30, 2007, and supplemental eligible account holders as of March 31, 2012, who maintain deposit accounts at the Bank after the conversion. The conversion was accounted for as a change in corporate form with the historic basis of the Company’s assets, liabilities, and equity unchanged as a result.

Financial Statement Presentation - – The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10‑Q and Article 10 of Regulation ~~S-X~~S-X as promulgated by the Securities and Exchange Commission (“SEC”). ~~It is recommended that these~~These unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10‑K ~~with~~ which includes all of the audited ~~information~~financial statements and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, ~~2016,~~2023, as filed with the SEC on March ~~16, 2017.~~15,2024. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included.

The results for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017,~~2024, or any other future period. The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for ~~loan~~credit losses (“ACL”) and ~~lease losses, fair value of financial instruments, and the valuation of servicing rights.~~business combinations.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented into the nearest thousands of dollars except per share amounts. ~~In the narrative footnote discussion, amounts are rounded and presented in millions of dollars to one decimal point if~~If the amounts are above ~~$1.0 million. Amounts below $1.0~~$1.0 million, they are rounded one decimal point, and presented in dollars to the nearest thousands. Certain prior year amounts have been reclassified to conform to the 2017 presentation with no change to consolidated net income or stockholders’ equity previously reported.if they are above $1.0 billion, they are rounded two decimal points.

Principles of Consolidation -– The consolidated financial statements include the accounts of FS Bancorp ~~Inc.~~ and its wholly owned subsidiary, 1st Security ~~Bank of Washington.~~Bank. All material intercompany accounts have been eliminated in consolidation.

Segment Reporting - –The Company operates in two business segments through the Bank: commercial and consumer banking and home lending. The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the ~~manner in which~~way financial information is regularly reviewed for the purpose of allocating resources and evaluating performance of the Company’s businesses. The results for these business segments are based on management’s accounting process, which assigns income statement

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

items and assets to each responsible operating segment. This process is dynamic and is based on management’s view of the Company’s operations. See ~~Note~~ “Note 15 - – Business Segments.”

Subsequent Events -– The Company has evaluated events and transactions ~~subsequent to September 30, 2017,~~after March 31, 2024, for potential recognition or disclosure.

Table of Contents

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~May 2014,~~ March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014‑09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~2020-04, “Reference Rate Reform” (“Topic 848”). This ASU provides optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU apply to modifications to agreements (e.g., ~~which creates Topic 606~~loans, debt securities, derivatives, borrowings) that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and ~~supersedes Topic 605, Revenue Recognition. In August 2015, FASB issued ASU No. 2015‑14,~~ ~~Revenue from Contracts with Customers (Topic 606), which postponed~~contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions). The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) Modifications of contracts within the scope of Topics 840, Leases, and 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (for example, the incremental borrowing rate) or remeasurements of lease payments that otherwise would be required under those Topics for modifications not accounted for as separate contracts; and 3) Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging – Embedded Derivatives. In January 2021, ASU 2021-01 updated amendments in the new ASU to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this ASU and the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of any date from the effective dates. The amendments in this ASU have differing effective dates, beginning with an interim period including and subsequent to March 12, 2020 through December 31, 2022, deferred now until December 31, 2024. The Company does not expect the adoption of ~~2014‑09.~~ ASU 2020-04 to have a material impact on its consolidated financial statements and related disclosures.

In ~~March 2016,~~ November 2023, the FASB issued guidance within ASU ~~2016‑08, Revenue from Contracts with Customers~~2023-07,Segment Reporting (Topic ~~606)~~280): ~~Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~~~, which amended~~Improvements to Reportable Segment Disclosures. This ASU requires that a public entity that has a single reportable segment provide all the ~~principal versus agent implementation guidance set~~disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments included in this ASU:

●	Require disclosure on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment profit and loss.

●	Require disclosure on an annual and interim basis, an amount for other segment items (defined in the ASU) and a description of its composition.

●	Clarify that if the CODM uses more than one measure of the segment's profit or loss in assessing performance, one or more of those additional measures may be reported.

●	Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the effect that ASU ~~2014‑09. Among other things, ASU 2016‑08 clarifies that an entity should evaluate whether it is~~2023-07 will have on the ~~principal or the agent for each specified good or service promised in a contract with a customer.~~ Company’s consolidated financial statements and related disclosures.

In ~~April 2016,~~ December 2023, the FASB issued guidance within ASU ~~No. 2016‑10, Revenue from Contracts with Customers~~2023-09,Income Taxes (Topic ~~606)~~740):~~Identifying Performance Obligations~~ Improvements to Income Tax Disclosures. The amendments in the ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and ~~Licensing~~.income taxes paid information. The ASU ~~amends certain aspects~~requires disclosure in the rate reconciliation of specific categories as well as provide additional information for reconciling items that meet a quantitative threshold.

Those amendments require disclosure of the ~~guidance set forth in the FASB’s new revenue standard related to identifying performance obligations and licensing implementation. The core principle~~following information about income taxes paid on an annual basis:

●	Income taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net refunds received).

●	Income tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions.

Table of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In May 2016, the FASB issued ASU No. 2016‑12, ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,~~ ~~which provides clarifying guidance in certain narrow areas and adds some practical expedients, but does not change the core revenue recognition principle in Topic 606.~~ Contents

The ASU is effective for ~~public entities for interim and~~ annual periods beginning after December 15, ~~2017; early~~2024. Early adoption is ~~not permitted. For~~permitted for annual financial ~~reporting purposes,~~statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis. The Company is evaluating the effect that ASU ~~allows for either full retrospective adoption, meaning~~ 2023-09 will have on its consolidated financial statements and related disclosures.

Application of New Accounting Guidance Adopted in 2024

On January 1, 2024, the Company adopted ASU ~~is applied~~No.2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to ~~all~~Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security should not be considered in measuring fair value, nor should the contractual restriction be recognized and measured separately. Further, this ASU requires disclosure of the ~~periods presented, or modified retrospective adoption, meaning the ASU is applied only~~fair value of equity securities subject to ~~the most current period presented~~contractual sale restrictions reflected in the ~~financial statements with~~balance sheet, the ~~cumulative effect of initially applying the standard recognized at the date of initial application. As a bank holding company, key revenue sources, such as interest income have been identified as out~~nature and remaining duration of the ~~scope of this new guidance.~~restrictions(s), and the circumstances that could cause a lapse in the restriction(s). ASU 2022-03 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The ~~Company’s preliminary analysis suggests that the~~ adoption of ~~this accounting standard is~~ ASU 2022-03 did not ~~expected to~~ have a material impact on the Company’s consolidated financial statements ~~as substantially all~~and related disclosures.

On January 1, 2024, the Company adopted ASU 2023-02,Investments - Equity Method and Joint Ventures (Topic 323):Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, a consensus of the ~~Company’s~~Emerging Issues Task Force. ASU 2023-02 allows an entity the option to apply the proportional amortization method of accounting to other ~~revenues~~equity investments that are ~~also excluded from~~made for the ~~scope~~primary purpose of ~~the new guidance. New accounting guidance related~~receiving tax credits or other income tax benefits if certain conditions are met. Prior to ~~the adoption of~~ this ~~standard continues to be released by the FASB, which could impact the Company’s preliminary analysis of materiality and may change the preliminary conclusions reached as to~~ASU, the application of ~~this new guidance.~~

~~In January 2016,~~ the ~~FASB issued ASU No. 2016‑01,~~ ~~Financial Instruments - Overall (Subtopic 825‑10), Recognition and Measurement of Financial Assets and Financial Liabilities.~~ ~~The new guidance is intended to improve the recognition and measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity~~proportional amortization method of accounting was limited to investments in low-income housing tax credit structures. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or ~~those that result~~other income tax benefits received, being presented on a single line in ~~consolidation~~the statements of income, income tax expense. Under this ASU, an entity has the ~~investee)~~option to ~~be measured at fair value with changes in fair value recognized in net income.~~apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit program basis. In addition, the amendments in this ASU require that all tax equity investments accounted for using the ~~exit price notion~~proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability to be ~~used~~recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when ~~measuring~~that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the ~~fair value~~proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. Further, this ASU specifies that impairment of ~~financial instruments~~low-income housing tax credit investments not accounted for ~~disclosure purposes~~using the equity method must apply the impairment guidance in Subtopic 323-10:Investments - Equity Method and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.Joint Ventures - Overall. This ASU also ~~eliminates~~clarifies that for low-income housing tax credit investments not accounted for under the ~~requirement to disclose~~proportional amortization method or the ~~method(s)~~equity method, an entity shall account for them under Topic 321: Investments - Equity Securities. The amendments in the ASU also require additional disclosures in interim and ~~significant assumptions used to estimate~~annual periods concerning investments for which the ~~fair value that~~proportional amortization method is ~~required to be disclosed for financial instruments measured at amortized cost~~applied, including (i) the nature of tax equity investments, and (ii) the effect of tax equity investments and related income tax credits and other income tax benefits on the ~~balance sheet. The~~financial position and results of operations. ASU also requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU No. 2016‑012023-02 is effective for ~~financial statements issued~~the Company for fiscal years beginning after December 15, ~~2017, and interim periods within~~

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~those fiscal years. Early adoption is permitted for certain provisions. The adoption of ASU No. 2016-01 is not expected to have a material impact on the Company’s consolidated financial statements.~~

~~In February 2016, the FASB issued ASU No. 2016‑02,~~ ~~Leases (Topic 842)~~. ASU No. 2016‑02 requires lessees to recognize on the balance sheet the assets and liabilities arising from operating leases. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. The amendments in ASU 2016‑02 are effective for fiscal years beginning after December 15, 2018, 2023, including interim periods within those fiscal years. Early application of the amendments in the ASU is permitted. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices and certain equipment under noncancelable operating lease agreements, however, based on current leases, the adoption of ASU 2016‑02 is expected to increase the new lease asset and related lease liability on our Consolidated Balance Sheets by less than 5% and not to have a material impact on our regulatory capital ratios.

~~In June 2016, the FASB issued ASU No. 2016‑13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements. Once adopted, we expect our allowance for loan losses to increase through a one‑time adjustment to retained earnings, however, until our evaluation is complete the magnitude of the increase will be unknown.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This ASU is intended to address the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted and must be applied using a retrospective transition method to each period presented. Adoption of ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017‑04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.~~ The ASU was issued to simplify the subsequent measurement of goodwill and the amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU is effective for annual reporting periods beginning after December 31, 2019. Early adoption of the ASU is permitted. The Company expects this ASU to provide a simplified method of measuring goodwill impairment and does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

~~In March 2017, the FASB issued ASU No. 2017‑08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities~~. The ASU shortens the amortization period for certain callable debt securities held at a premium. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of ASU ~~No. 2017‑08 is~~ 2023-02 did not ~~expected to have a material impact on the Company’s consolidated financial statements.~~

~~In May 2017, the FASB issued ASU No. 2017‑09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. The standard is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU No. 2017‑09 is not expected to have a material impact on the Company’s consolidated financial statements.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. This ASU amends the hedge accounting recognition and presentation requirements in ASC 815 to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. The amendments in this ASU permit hedge accounting for hedging relationships involving nonfinancial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU No. 2017-12 is not expected to have a material impact on the Company's consolidated financial ~~statements.~~ statements and related disclosures.

NOTE 2 -– BUSINESS COMBINATION

On ~~January 22, 2016,~~ February 24, 2023, the Company’s wholly-owned subsidiary, 1st Security Bank, completed the purchase of ~~four~~seven branches (“Branch Purchase”) from Columbia State Bank ~~of America.~~to expand its franchise in Washington and Oregon. The Branch Purchase included ~~four~~seven retail bank branches located in the communities of ~~Port Angeles, Sequim, Port Townsend,~~Goldendale and ~~Hadlock, Washington.~~White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. In accordance with the Purchase and Assumption Agreement, dated as of ~~September 1, 2015,~~ November 7, 2022, between Columbia State Bank ~~of America~~ and 1st Security Bank, the Bank acquired ~~$186.4~~$425.5 million of deposits, a ~~small~~ portfolio of performing loans, ~~two~~six owned bank branches, ~~three leases~~one lease associated with the bank branches ~~and parking facilities~~ and certain other assets of the branches. In consideration of the purchased assets and transferred liabilities, 1st Security Bank paid (a) the unpaid principal balance and accrued interest of ~~$419,000~~$66.6 million for the loans acquired, (b) the ~~net book~~fair value, or approximately ~~$778,000,~~$6.3 million, for the bank facilities and certain other assets associated with the acquired branches, and (c) a deposit premium of ~~2.50%~~4.15% for core deposits and 2.5% for public funds on substantially all of the deposits assumed, which equated to approximately ~~$4.8~~$16.4 million. The transaction was settled with Columbia State Bank ~~of America~~ paying cash of ~~$180.4~~$334.7 million to 1st Security Bank for the difference between ~~these amounts~~the total assets purchased and the total ~~deposits~~liabilities assumed.

Table of Contents

The Branch Purchase was accounted for under the acquisition method of accounting and accordingly, the assets and liabilities were recorded at ~~their~~ fair values on ~~January 22, 2016,~~ February 24, 2023, the date of acquisition. Determining the fair value of

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~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

assets and liabilities is a complicated process involving significant ~~judgment~~judgement regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values become available. ~~During~~Due to the ~~second quarter of 2016, the Company completed a re-evaluation~~timing of the ~~core deposit intangible because a portion~~data conversion and the integration of operations of the ~~core deposits were excluded from~~branches onto the ~~original valuation. The updated valuation~~Company’s existing operations, historical reporting of the ~~core deposit intangible increased~~acquired branches is impracticable, and therefore, disclosure of the ~~fair value adjustment by $100,000 to $2.2 million from $2.1 million resulting in a decrease~~amounts of ~~$100,000~~revenue and expenses attributable to the ~~fair value adjustment of goodwill. The impact to consolidated net income was an increase in~~acquired branches since the ~~amortization of the core deposit intangible for the six months ended June 30, 2016 of $6,000 and was~~ acquisition date are not ~~considered material to the consolidated financial statements.~~ available.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of acquisition:

Acquired Book

Fair Value

Amount
January 22, 2016

Value

Adjustments

Recorded
Assets






Cash and cash equivalents

$
180,356

$
—

$
180,356
Loans receivable

417

—

417
Premises and equipment, net

697

267
(1)

964
Accrued interest receivable

2

—

2
Core deposit intangible

—

2,239
(2)

2,239
Goodwill

—

2,312
(3)

2,312
Other assets

103

—

103
Total assets acquired

$
181,575

$
4,818

$
186,393
Liabilities






Deposits:






Noninterest-bearing accounts

$
79,966

$
—

$
79,966
Interest-bearing accounts

106,398

—

106,398
Total deposits

186,364

—

186,364
Accrued interest payable

7

—

7
Other liabilities

22

—

22
Total liabilities assumed

$
186,393

$
—

$
186,393

	Acquired Book		Fair Value			Amount
February 24, 2023	Value		Adjustments			Recorded
Assets
Cash and cash equivalents	$	336,157	$	—		$	336,157
Loans receivable		66,093		(2,902	)⁽¹⁾		63,191
Premises and equipment		6,342		—			6,342
Accrued interest receivable		530		—			530
Core deposit intangible ("CDI")		—		17,438	⁽²⁾		17,438
Goodwill		—		1,280	⁽³⁾		1,280
Other assets		11		—			11
Total assets acquired	$	409,133	$	15,816		$	424,949
Liabilities
Deposits:
Noninterest-bearing accounts	$	225,567	$	—		$	225,567
Interest-bearing accounts		199,898		(548	)⁽⁴⁾		199,350
Total deposits		425,465		(548	)		424,917
Accrued interest payable		4		—			4
Other liabilities		28		—			28
Total liabilities assumed	$	425,497	$	(548	)	$	424,949

~~Explanation of Fair Value Adjustments~~

~~(1)~~

(1)

The fair value ~~adjustment represents~~discount for acquired loans was determined by separate adjustments to reflect a credit risk and marketability component and a yield component reflecting the ~~difference~~differential between portfolio and market yields. The discount on acquired loans will be accreted back into interest income using the effective yield method. None of the loans acquired are purchased financial assets with credit deterioration. The fair value of the ~~acquired branches~~loans was $63.2 million and the ~~book value~~gross amount due is $66.1 million, none of ~~the assets acquired. The Company utilized third-party valuations but did not receive appraisals~~which is expected to ~~assist in the determination of fair value.~~be uncollectable.

~~(2)~~

(2)

The fair value adjustment represents the value of the core deposit base assumed in the Branch Purchase based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as an expense on an accelerated basis over the average life of the core deposit base, which is estimated to be ~~nine~~10 years.

~~(3)~~

(3)

The fair value adjustment represents the value of the goodwill calculated from the purchase based on the purchase price, less the fair value of assets acquired net of liabilities assumed. The goodwill of $1.3 million is attributable to the workforce and customer relationships associated with the branches. All the goodwill is deductible for tax purposes and will be amortized over a 15-year period. The goodwill was assigned to the Commercial and Consumer Banking segment.

~~Goodwill~~ ~~- The acquired goodwill represents the excess purchase price over the estimated fair value of the net assets acquired and was recorded at $2.3 million on January 22, 2016.~~

The disclosures regarding pro-forma data and the results of operations after the acquisition date are omitted as this information is not practical to obtain. The branches’ financial information is not reported on a stand-alone basis.

Table of Contents

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Company may modify the contractual terms of a loan to a borrower experiencing financial difficulty as a part of ongoing loss mitigation strategies. These modifications may result in an interest rate reduction, term extension, an other-than-insignificant payment delay, or a combination thereof. The Company typically does not offer principal forgiveness. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses on loans because of the measurement methodologies used to estimate the allowance.

The following tables present the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty at the end of the reporting period by loan class and modification type.

At March 31, 2024, and March 31,2023, the loans were in compliance with their modified terms, but were classified as current and nonaccrual and individually evaluated in the determination of the associated ACL for loans. For the three months ended March 31, 2024, and March 31, 2023, no loans experienced a default subsequent to being granted a modification in the last twelve months. There were no unfunded commitments associated with loans modified for borrowers experiencing financial distress as of March 31,2024.

Table of Contents

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following tables provide additional information about our impaired loans that have been segregated to reflect loans for which an allowance for credit losses has been provided and loans for which no allowance has been provided at September 30, 2017 and December 31, 2016:

September 30, 2017


Unpaid






Principal

Write-

Recorded

Related

Balance

downs

Investment

Allowance
WITH NO RELATED ALLOWANCE RECORDED

Home equity

$
154

$
—

$
154

$
—
One-to-four-family

68

(12)

56

—
Total real estate loans

222

(12)

210

—
WITH AN ALLOWANCE RECORDED

Commercial business loans

551

—

551

88
Total

$
773

$
(12)

$
761

$
88

December 31, 2016


Unpaid






Principal

Write-

Recorded

Related

Balance

downs

Investment

Allowance
WITH NO RELATED ALLOWANCE RECORDED

Home equity

$
137

$
—

$
137

$
—
One-to-four-family

69

(12)

57

—
Total

$
206

$
(12)

$
194

$
—

The following tables present the average recorded investment in loans individually evaluated for impairment and the interest income recognized and received for the three and nine months ended September 30, 2017 and 2016:

Three Months Ended

September 30, 2017

September 30, 2016


Average Recorded

Interest Income

Average Recorded

Interest Income

Investment

Recognized

Investment

Recognized
WITH NO RELATED ALLOWANCE RECORDED

Home equity

$
201

$
—

$
152

$
—
One-to-four-family

56

1

58

1
Total real estate loans

257

1

210

1
WITH AN ALLOWANCE RECORDED

Commercial business loans

551

23

—

—
Total

$
808

$
24

$
210

$
1

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Nine Months Ended

September 30, 2017

September 30, 2016


Average Recorded

Interest Income

Average Recorded

Interest Income

Investment

Recognized

Investment

Recognized
WITH NO RELATED ALLOWANCE RECORDED

Home equity

$
220

$
—

$
154

$
2
One-to-four-family

56

3

58

2
Total real estate loans

276

3

212

4
WITH AN ALLOWANCE RECORDED

Commercial business loans

551

23

—

—
Total

$
827

$
26

$
212

$
4

Credit Quality Indicators

As part of the Company’s on-going monitoring of credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grading of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) non-performing loans, and (v) the general economic conditions in the Company’s markets.

The Company utilizes a risk grading matrix to assign a risk grade to its real estate and commercial business loans. Loans are graded on a scale of 1 to 10, with loans in risk grades 1 to 6 ~~considered~~ reported as “Pass” and loans in risk grades 7 to 10 ~~are~~ reported as classified loans in the Company’s ~~allowance for loan loss~~ACL analysis.

A description of the 10 risk grades is as follows:

~~Grades 1 and 2 -~~ ~~These grades include loans to very high quality borrowers with excellent or desirable business credit.~~

●

Grades 1 and 2- These grades include loans to very high-quality borrowers with excellent or desirable business credit.

~~Grade 3 -~~ ~~This grade includes loans to borrowers of good business credit with moderate risk.~~

●

Grade 3- This grade includes loans to borrowers of good business credit with moderate risk.

~~Grades 4 and 5 -~~ ~~These grades include “Pass” grade loans to borrowers of average credit quality and risk.~~

●

Grades 4 and 5- These grades include “Pass” grade loans to borrowers of average credit quality and risk.

~~Grade 6 -~~ This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term.

●

Grade 6- This grade includes loans on management’s “Watch” list and is intended to be utilized on a temporary basis for “Pass” grade borrowers where frequent and thorough monitoring is required due to credit weaknesses and where significant risk-modifying action is anticipated in the near term.

~~Grade 7 -~~ ~~This grade is for “Other Assets Especially Mentioned” (“OAEM”) in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected.~~

●

Grade 7- This grade is for “Other Assets Especially Mentioned (“OAEM”)” or “Special Mention” in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected.

~~Grade 8 -~~ ~~This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected.~~

●

Grade 8- This grade includes “Substandard” loans in accordance with regulatory guidelines which represent an unacceptable business credit where a loss is possible if loan weakness is not corrected.

~~Grade 9 -~~ ~~This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable.~~

●

Grade 9- This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable.

~~Grade 10 -~~ ~~This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.~~

●

Grade 10- This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.

~~Consumer, Home Equity and One-to-Four-Family Real Estate Loans~~

Homogeneous loans are risk rated based upon the ~~FDIC’s~~Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy. Loans classified under this policy at the Company are consumer loans which include indirect home improvement,

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

solar, marine, other consumer, and ~~one-to-four-family~~ one-to-four-family first and second liens. Under the Uniform Retail Credit Classification and Account Management Policy, loans that are current or less than 90 days past due are graded “Pass” and risk rated ~~“4”~~“4” or ~~“5”~~“5” internally. Loans that are past due more than 90 days are classified “Substandard” and risk ~~rated “8”~~graded “8” internally until the loan has demonstrated consistent performance, typically six months of contractual payments. Closed-end loans that are 120 days past due and open-end loans that are 180 days past due are charged off based on the value of the collateral less cost to sell. Management may choose to conservatively risk rate credits even if paying in accordance with the loan’s repayment terms.

CRE, construction and development, multi-family and commercial business loans are evaluated individually for their risk classification and may be classified as “Substandard” even if current on their loan payment obligations. We regularly review our credits for accuracy of risk grades whenever we receive new information. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals ranging from monthly to annually depending on credit size, risk, and complexity. In addition, nonowner-occupied CRE borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. We monitor construction loans monthly. We also review loans graded “Watch” or worse, regardless of loan type, no less than quarterly.

Table of Contents

The following tables summarize risk rated loan balances and total current period gross charge-offs by category, ~~at September 30, 2017 and December 31, 2016:~~as of the dates indicated. Term loans that were renewed or extended for periods longer than 90 days are presented as new originations in the year of the most recent renewal or extension.

September 30, 2017






Special








Pass

Watch

Mention

Substandard

Doubtful

Loss

(1 - 5)

(6)

(7)

(8)

(9)

(10)

Total
REAL ESTATE LOANS

Commercial

$
56,533

$
5,072

$
1,575

$
—

$
—

$
—

$
63,180
Construction and development

129,407

—

—

—

—

—

129,407
Home equity

23,872

—

—

154

—

—

24,026
One-to-four-family

169,352

—

693

142

—

—

170,187
Multi-family

43,408

—

—

—

—

—

43,408
Total real estate loans

422,572

5,072

2,268

296

—

—

430,208
CONSUMER LOANS














Indirect home improvement

124,071

—

—

316

—

—

124,387
Solar

40,001

—

—

81

—

—

40,082
Marine

35,164

—

—

9

—

—

35,173
Other consumer

1,961

—

—

71

—

—

2,032
Total consumer loans

201,197

—

—

477

—

—

201,674
COMMERCIAL BUSINESS LOANS














Commercial and industrial

76,302

306

828

5,785

—

—

83,221
Warehouse lending

44,969

5,499

—

—

—

—

50,468
Total commercial business loans

121,271

5,805

828

5,785

—

—

133,689
Total loans

$
745,040

$
10,877

$
3,096

$
6,558

$
—

$
—

$
765,571

	March 31, 2024
															Revolving Loans
REAL ESTATE LOANS	Term Loans by Year of Origination														Converted
CRE	2024		2023		2022		2021		2020		Prior		Revolving Loans		to Term		Total Loans
Pass	$	3,034	$	46,629	$	85,321	$	60,749	$	45,012	$	84,134	$	—	$	73	$	324,952
Watch		—		3,185		10,843		12,835		—		2,665		244		—		29,772
Special mention		—		—		—		—		—		404		—		—		404
Substandard		—		—		—		—		1,641		2,286		—		—		3,927
Total CRE		3,034		49,814		96,164		73,584		46,653		89,489		244		73		359,055
Construction and development
Pass		21,765		133,438		74,758		40,355		15,220		526		10,547		—		296,609
Substandard		—		—		4,737		—		—		—		—		—		4,737
Total construction and development		21,765		133,438		79,495		40,355		15,220		526		10,547		—		301,346
Home equity
Pass		4,095		4,364		381		1,573		6,397		1,971		54,372		—		73,153
Substandard		—		—		—		—		—		33		137		—		170
Total home equity		4,095		4,364		381		1,573		6,397		2,004		54,509		—		73,323
One-to-four-family
Pass		18,276		102,210		172,463		124,529		80,342		79,296		—		—		577,116
Substandard		—		—		862		—		—		2,072		—		—		2,934
Total one-to-four-family		18,276		102,210		173,325		124,529		80,342		81,368		—		—		580,050
Multi-family
Pass		93		7,087		20,328		90,820		42,296		61,786		—		—		222,410
Total multi-family		93		7,087		20,328		90,820		42,296		61,786		—		—		222,410
Total real estate loans	$	47,263	$	296,913	$	369,693	$	330,861	$	190,908	$	235,173	$	65,300	$	73	$	1,536,184

	March 31, 2024
															Revolving Loans
CONSUMER LOANS	Term Loans by Year of Origination														Converted
Indirect home improvement	2024		2023		2022		2021		2020		Prior		Revolving Loans		to Term		Total Loans
Pass	$	31,369	$	160,726	$	201,319	$	88,557	$	33,947	$	50,684	$	5	$	—	$	566,607
Substandard		—		385		799		469		205		337		—		—		2,195
Total indirect home improvement		31,369		161,111		202,118		89,026		34,152		51,021		5		—		568,802
Indirect home improvement gross charge-offs		—		211		499		183		45		225		—		—		1,163
Marine
Pass		3,780		13,093		22,512		9,685		12,679		11,787		—		—		73,536
Substandard		—		—		55		—		126		204		—		—		385
Total marine		3,780		13,093		22,567		9,685		12,805		11,991		—		—		73,921
Marine gross charge-offs		—		—		75		51		—		105		—		—		231
Other consumer
Pass		50		237		491		143		59		143		2,283		—		3,406
Substandard		—		—		—		—		—		—		3		—		3
Total other consumer		50		237		491		143		59		143		2,286		—		3,409
Other consumer gross charge-offs		—		33		6		—		—		16		37		—		92
Total consumer loans	$	35,199	$	174,441	$	225,176	$	98,854	$	47,016	$	63,155	$	2,291	$	—	$	646,132

~~(1)~~

At September 30, 2017, the Company had agreed to sell a substandard shared/syndicated national credit at a slight discount to market. The $1.9 million loan was excluded from the substandard totals listed above as the loan was classified as held for sale at September 30, 2017. The transaction settled in October 2017 at the September 30, 2017 fair value.

Table of Contents

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

December 31, 2016

Special

Pass

Watch

Mention

Substandard

Doubtful

Loss


(1 - 5)

(6)

(7)

(8)

(9)

(10)

Total
REAL ESTATE LOANS

Commercial

$
53,234

$
2,637

$
—

$
—

$
—

$
—

$
55,871
Construction and development

94,462

—

—

—

—

—

94,462
Home equity

19,871

—

—

210

—

—

20,081
One-to-four-family

124,009

—

—

—

—

—

124,009
Multi-family

37,527

—

—

—

—

—

37,527
Total real estate loans

329,103

2,637

—

210

—

—

331,950
CONSUMER LOANS














Indirect home improvement

107,324

—

—

435

—

—

107,759
Solar

36,434

—

—

69

—

—

36,503
Marine

28,549

—

—

—

—

—

28,549
Other consumer

1,813

—

—

102

—

—

1,915
Total consumer loans

174,120

—

—

606

—

—

174,726
COMMERCIAL BUSINESS LOANS














Commercial and industrial

58,105

525

—

7,211

—

—

65,841
Warehouse lending

32,898

—

—

—

—

—

32,898
Total commercial business loans

91,003

525

—

7,211

—

—

98,739
Total loans

$
594,226

$
3,162

$
—

$
8,027

$
—

$
—

$
605,415

	March 31, 2024
COMMERCIAL															Revolving Loans
BUSINESS LOANS	Term Loans by Year of Origination														Converted
C&I	2024		2023		2022		2021		2020		Prior		Revolving Loans		to Term		Total Loans
Pass	$	9,500	$	21,168	$	32,498	$	18,602	$	10,837	$	13,158	$	120,156	$	25	$	225,944
Watch		—		4,458		—		758		2,224		931		9,305		—		17,676
Special mention		—		—		—		575		—		701		942		—		2,218
Substandard		—		2,915		—		2,302		1,342		1,933		2,099		—		10,591
Total C&I		9,500		28,541		32,498		22,237		14,403		16,723		132,502		25		256,429
C&I gross charge-offs		—		—		—		—		—		—		408		—		408
Warehouse lending
Pass		—		—		—		—		—		—		8,111		—		8,111
Watch		—		—		—		—		—		—		2		—		2
Total warehouse lending		—		—		—		—		—		—		8,113		—		8,113
Total commercial business loans	$	9,500	$	28,541	$	32,498	$	22,237	$	14,403	$	16,723	$	140,615	$	25	$	264,542

TOTAL LOANS RECEIVABLE, GROSS
Pass	$	91,962	$	488,952	$	610,071	$	435,013	$	246,789	$	303,485	$	195,474	$	98	$	2,371,844
Watch		—		7,643		10,843		13,593		2,224		3,596		9,551		—		47,450
Special mention		—		—		—		575		—		1,105		942		—		2,622
Substandard		—		3,300		6,453		2,771		3,314		6,865		2,239		—		24,942
Total loans receivable, gross	$	91,962	$	499,895	$	627,367	$	451,952	$	252,327	$	315,051	$	208,206	$	98	$	2,446,858
Total gross charge-offs	$	—	$	244	$	580	$	234	$	45	$	346	$	445	$	—	$	1,894

	December 31, 2023
															Revolving Loans
REAL ESTATE LOANS	Term Loans by Year of Origination														Converted
CRE	2023		2022		2021		2020		2019		Prior		Revolving Loans		to Term		Total Loans
Pass	$	48,551	$	91,144	$	61,689	$	46,117	$	27,957	$	61,764	$	499	$	—	$	337,721
Watch		3,201		5,446		12,894		—		453		2,226		45		—		24,265
Special mention		—		—		—		—		409		—		—		—		409
Substandard		—		—		—		1,650		—		1,957		—		326		3,933
Total CRE		51,752		96,590		74,583		47,767		28,819		65,947		544		326		366,328
Construction and development
Pass		120,155		106,168		46,989		15,219		—		540		9,284		—		298,355
Substandard		—		4,699		—		—		—		—		—		—		4,699
Total construction and development		120,155		110,867		46,989		15,219		—		540		9,284		—		303,054
Home equity
Pass		4,583		398		1,584		6,525		11		2,137		54,077		—		69,315
Substandard		—		—		—		—		—		36		137		—		173
Total home equity		4,583		398		1,584		6,525		11		2,173		54,214		—		69,488
Home equity gross charge-offs														10				10
One-to-four-family														—
Pass		103,165		175,412		122,406		80,815		30,595		52,008		—		472		564,873
Substandard		—		866		—		—		—		2,003		—		—		2,869
Total one-to-four-family		103,165		176,278		122,406		80,815		30,595		54,011		—		472		567,742
Multi-family
Pass		7,106		20,404		91,047		42,511		37,990		24,711		—		—		223,769
Total multi-family		7,106		20,404		91,047		42,511		37,990		24,711		—		—		223,769
Total real estate loans	$	286,761	$	404,537	$	336,609	$	192,837	$	97,415	$	147,382	$	64,042	$	798	$	1,530,381

~~Troubled Debt Restructured Loans~~

Table of Contents

	December 31, 2023
															Revolving Loans
CONSUMER LOANS	Term Loans by Year of Origination														Converted
Indirect home improvement	2023		2022		2021		2020		2019		Prior		Revolving Loans		to Term		Total Loans
Pass	$	171,208	$	212,661	$	93,664	$	36,032	$	23,977	$	30,492	$	6	$	—	$	568,040
Substandard		212		663		448		141		258		141		—		—		1,863
Total indirect home improvement		171,420		213,324		94,112		36,173		24,235		30,633		6		—		569,903
Indirect home improvement gross charge-offs		204		1,386		567		290		145		336		—		—		2,928
Marine
Pass		13,619		23,963		9,987		13,082		5,267		7,050		—		—		72,968
Substandard		—		—		52		85		—		205		—		—		342
Total marine		13,619		23,963		10,039		13,167		5,267		7,255		—		—		73,310
Marine gross charge-offs		—		47		93		—		7		256		—		—		403
Other consumer
Pass		309		559		175		69		3		159		2,258		—		3,532
Substandard		—		—		—		—		—		—		8		—		8
Total other consumer		309		559		175		69		3		159		2,266		—		3,540
Other consumer gross charge-offs		—		2		12		—		—		—		120		—		134
Total consumer loans	$	185,348	$	237,846	$	104,326	$	49,409	$	29,505	$	38,047	$	2,272	$	—	$	646,753

	December 31, 2023
COMMERCIAL															Revolving Loans
BUSINESS LOANS	Term Loans by Year of Origination														Converted
C&I	2023		2022		2021		2020		2019		Prior		Revolving Loans		to Term		Total Loans
Pass	$	13,971	$	32,334	$	19,634	$	11,537	$	5,122	$	9,707	$	119,844	$	145	$	212,294
Watch		2,322		—		1,382		2,366		—		953		5,754		—		12,777
Special mention		143		—		—		—		498		253		1,345		—		2,239
Substandard		2,940		—		2,321		1,391		1,766		169		2,005		—		10,592
Doubtful		—		—		—		—		—		—		399		—		399
Total C&I		19,376		32,334		23,337		15,294		7,386		11,082		129,347		145		238,301
C&I gross charge-offs		—		—		1		—		—		—		—		—		1
Warehouse lending
Pass		—		—		—		—		—		—		17,003		—		17,003
Watch		—		—		—		—		—		—		577		—		577
Total warehouse lending		—		—		—		—		—		—		17,580		—		17,580
Total commercial business loans	$	19,376	$	32,334	$	23,337	$	15,294	$	7,386	$	11,082	$	146,927	$	145	$	255,881

TOTAL LOANS RECEIVABLE, GROSS
Pass	$	482,667	$	663,043	$	447,175	$	251,907	$	130,922	$	188,568	$	202,971	$	617	$	2,367,870
Watch		5,523		5,446		14,276		2,366		453		3,179		6,376		—		37,619
Special mention		143		—		—		—		907		253		1,345		—		2,648
Substandard		3,152		6,228		2,821		3,267		2,024		4,511		2,150		326		24,479
Doubtful		—		—		—		—		—		—		399		—		399
Total loans receivable, gross	$	491,485	$	674,717	$	464,272	$	257,540	$	134,306	$	196,511	$	213,241	$	943	$	2,433,015
Total gross charge-offs	$	204	$	1,435	$	673	$	290	$	152	$	592	$	130	$	—	$	3,476

Table of Contents

The following table presents the amortized cost basis of loans on nonaccrual status as of the dates indicated:

Troubled debt restructured (“TDR”) loans are loans for which the Company, for economic or legal reasons related to the borrower’s financial condition, has granted a significant concession to the borrower that it would otherwise not consider.

	March 31, 2024						December 31, 2023
	Nonaccrual with		Nonaccrual with		Total		Nonaccrual with		Nonaccrual with		Total
REAL ESTATE LOANS	No ACL		ACL		Nonaccrual		No ACL		ACL		Nonaccrual
CRE	$	1,102	$	—	$	1,102	$	1,088	$	—	$	1,088
Construction and development		—		4,737		4,737		—		4,699		4,699
Home equity		170		—		170		173		—		173
One-to-four-family		173		—		173		96		—		96
		1,445		4,737		6,182		1,357		4,699		6,056
CONSUMER LOANS
Indirect home improvement		—		2,195		2,195		—		1,863		1,863
Marine		—		385		385		—		342		342
Other consumer		—		3		3		—		8		8
		—		2,583		2,583		—		2,213		2,213
COMMERCIAL BUSINESS LOANS
C&I		292		3,049		3,341		—		2,683		2,683
Total	$	1,737	$	10,369	$	12,106	$	1,357	$	9,595	$	10,952

The Company ~~had one TDR loan~~recognized interest income on ~~accrual~~a cash basis for nonaccrual loans of $111,000 and included in impaired loans at both September 30, 2017 and December 31, 2016, with a balance of $56,000 and $57,000, respectively, which was a one-to-four-family loan. The Company had no commitments to lend additional funds on this TDR loan at September 30, 2017.

~~For~~$62,000 during the three ~~and nine~~ months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016, there were no TDR~~2023, respectively.

The following table presents the amortized cost basis of collateral dependent loans ~~that were modified in~~by class of loans as of the ~~previous 12 months that subsequently defaulted in the reporting period.~~dates indicated:

	March 31, 2024								December 31, 2023
	Commercial		Residential		Other				Commercial		Residential		Other
REAL ESTATE LOANS	Real Estate		Real Estate		Non-Real Estate		Total		Real Estate		Real Estate		Non-Real Estate		Total
CRE	$	1,102	$	—	$	—	$	1,102	$	1,088	$	—	$	—	$	1,088
Construction and development		4,737		—		—		4,737		4,699		—				4,699
Home equity		—		170		—		170		—		173		—		173
One-to-four-family		—		173		—		173		—		96		—		96
		5,839		343		—		6,182		5,787		269		—		6,056
CONSUMER LOANS
Indirect home improvement		—		—		2,195		2,195		—		—		1,863		1,863
Marine		—		—		385		385		—		—		342		342
		—		—		2,580		2,580		—		—		2,205		2,205
COMMERCIAL BUSINESS LOANS
C&I		—		—		3,341		3,341		—		—		2,683		2,683
Total	$	5,839	$	343	$	5,921	$	12,103	$	5,787	$	269	$	4,888	$	10,944

NOTE5 - – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included on the Consolidated Balance Sheets. The unpaid principal ~~balances~~balance of permanent loans serviced for others ~~were $662.0 million~~was $1.56 billion and ~~$977.1 million~~$2.83 billion at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016, respectively, and are carried at the lower of cost or market.~~2023, respectively.

During the quarter ended June 30, 2017, the Company sold a portion of its mortgage servicing rights (“MSR”) with a book value of $4.8 million, generating an associated gain of $958,000. During the third quarter of 2017, a $38,000 adjustment was made to mortgage servicing rights resulting in a revised gain of $996,000 due to better than expected prepayments.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following ~~tables summarize servicing rights~~table summarizes MSRs activity ~~and the respective book value~~ at or for the ~~three and nine months ended September 30, 2017 and 2016:~~dates indicated:

At or For the Three Months Ended

September 30,

2017

2016
Beginning balance

$
4,899

$
6,751
Additions

1,326

1,095
Servicing rights amortized

(414)

(408)
Recovery on servicing rights

—

216
Ending balance

$
5,811

$
7,654

	At or For the Three Months Ended
	March 31,
	2024			2023
Beginning balance, at the lower of cost or fair value	$	17,176		$	18,017
Additions		576			405
Sales		(7,953	)		—
MSRs amortized		(697	)		(821	)
Impairment of MSRs		(93	)		(2	)
Ending balance, at the lower of cost or fair value	$	9,009		$	17,599

At or For the Nine Months Ended

September 30,

2017

2016
Beginning balance

$
8,459

$
5,811
Additions

3,569

2,927
Sales

(4,751)

—
Servicing rights amortized

(1,465)

(1,086)
(Impairment) recovery on servicing rights

(1)

2
Ending balance

$
5,811

$
7,654

Table of Contents

The fair ~~market~~ value of the ~~permanent servicing rights’~~MSRs’ assets was ~~$7.3~~$20.3 million and ~~$11.7~~$38.2 million at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively. Fair value adjustments to ~~servicing rights~~MSRs are mainly due to ~~market based~~market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates. A significant change in prepayments of the loans in the ~~servicing~~MSRs portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of ~~servicing rights.~~MSRs.

The following provides valuation assumptions used in determining the fair value of ~~MSR~~MSRs at the dates indicated:

At September 30,


2017

2016

Key assumptions:

Weighted average discount rate

9.5
%
9.5
%
Conditional prepayment rate (“CPR”)

11.3
%
16.4
%
Weighted average life in years

6.8

5.2

	At March 31,			At December 31,
Key assumptions:	2024			2023
Weighted average discount rate		9.9	%		9.4	%
Conditional prepayment rate (“CPR”)		8.9	%		7.2	%
Weighted average life in years		7.9			8.4

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Key economic assumptions ~~and the sensitivity~~ of the current fair value for single family ~~MSR to immediate adverse changes~~MSRs are presented in ~~those assumptions at September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017

December 31, 2016

Aggregate portfolio principal balance



$
658,599

$
973,139

Weighted average rate of note



4.0
%

3.9
%

At September 30, 2017

Base

0.5%Adverse Rate Change

1.0%Adverse Rate Change

Conditional prepayment rate

11.3
%

18.2
%

25.4
%
Fair value MSR

$
7,283

$
5,764

$
4,682

Percentage of MSR

1.1
%

0.9
%

0.7
%

Discount rate

9.5
%

10.0
%

10.5
%
Fair value MSR

$
7,283

$
7,139

$
7,000

Percentage of MSR

1.1
%

1.1
%

1.1
%

At December 31, 2016

Base

0.5%Adverse Rate Change

1.0%Adverse Rate Change

Conditional prepayment rate

8.8
%

12.8
%

20.2
%
Fair value MSR

$
11,735

$
9,991

$
7,808

Percentage of MSR

1.2
%

1.0
%

0.8
%

Discount rate

9.5
%

10.0
%

10.5
%
Fair value MSR

$
11,735

$
11,480

$
11,235

Percentage of MSR

1.2
%

1.2
%

1.2
%

~~The above~~the table ~~shows~~below. Also presented is the sensitivity to market rate changes for the par rate coupon for a conventional ~~one-to-four-family FNMA/FHLMC/GNMA/~~one-to-four-family FNMA, FHLMC, GNMA, or FHLB serviced home loan. The ~~above~~ table below references a 50 basis point and 100 basis point ~~decrease in note rates.~~adverse rate change and the impact on prepayment speeds and discount rates at the dates indicated:

	March 31, 2024			December 31, 2023
Aggregate portfolio principal balance	$	1,562,287		$	2,832,016
Weighted average rate of loans in MSRs portfolio		4.0	%		3.6	%

At March 31, 2024	Base			0.5% Adverse Rate Change			1.0% Adverse Rate Change
Conditional prepayment rate		8.9	%		10.4	%		12.6	%
Fair value MSRs	$	20,315		$	19,706		$	18,953
Percentage of MSRs		1.3	%		1.3	%		1.2	%

Discount rate		9.9	%		10.4	%		10.9	%
Fair value MSRs	$	20,315		$	19,877		$	19,456
Percentage of MSRs		1.3	%		1.3	%		1.2	%

At December 31, 2023	Base			0.5% Adverse Rate Change			1.0% Adverse Rate Change
Conditional prepayment rate		7.2	%		8.0	%		9.3	%
Fair value MSRs	$	38,163		$	37,268		$	35,819
Percentage of MSRs		1.3	%		1.3	%		1.3	%

Discount rate		9.4	%		9.9	%		10.4	%
Fair value MSRs	$	38,163		$	37,301		$	36,476
Percentage of MSRs		1.3	%		1.3	%		1.3	%

These sensitivities are hypothetical and should be used with caution as the tables above demonstrate the Company’s methodology for estimating the fair value of ~~MSR~~MSRs which is ~~highly~~extremely sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on ~~MSR~~the fair ~~value.~~value of MSRs. Changes in fair value resulting from changes in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, in these tables, the effects of a variation in a particular assumption on the fair value of ~~the MSR~~MSRs is calculated without changing any other assumption; in reality, changes in one factor may be associated with changes in another (for example, decreases in market interest rates may provide an incentive to ~~refinance;~~refinance, however, this may also indicate a slowing economy and an increase in the unemployment rate, which reduces the number of borrowers who qualify for refinancing), which may magnify or counteract the sensitivities. Thus, any measurement of ~~MSR~~the fair value of MSRs is limited by the conditions existing and assumptions made at a particular point in time. Those assumptions may not be appropriate if they are applied to a different ~~point in~~ time.

The Company recorded ~~$430,000~~$1.4 million and ~~$534,000~~$1.8 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of ~~mortgage and commercial~~ loans for the three months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016, respectively, and $1.8 million and $1.4 million for the nine months ended September 30, 2017 and 2016,~~2023, respectively. The income, net of amortization of MSRs, is reported in ~~noninterest income~~“Service charges and fee income” on the Consolidated Statements of Income.

Table of Contents

NOTE6 - – DERIVATIVES

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain borrowings, brokered deposits, investment securities, forward sales contracts, and commitments to extend credit associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.

Mortgage Banking Derivatives Not Designated as Hedges

The Company regularly enters into commitments to originate and sell loans held for sale. The Company has ~~established a hedging strategy~~exposure to ~~protect itself against~~movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one-to four-family loans that are intended to be sold and for closed one-to-four-family mortgage loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of ~~loss~~changing interest rates associated with ~~interest rate movements on~~these mortgage loan ~~commitments. The Company enters~~commitments by entering into forward sales contracts to sell one-to-four-family mortgage loans or into contracts to sell forward To-Be-Announced (“TBA”) mortgage-backed securities. These commitments and contracts are considered derivatives but have not been designated as hedging instruments for reporting purposes under U.S. GAAP. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

in the fair value of the derivatives reported in noninterest ~~income.~~income or noninterest expense. The ~~Company~~Bank recognizes all derivative instruments as either ~~other assets~~“Other assets” or ~~other liabilities~~“Other liabilities” on the Consolidated Balance Sheets and measures those instruments at fair value.

Customer Swaps Not Designated as Hedges

The Company also enters into derivative contracts, which consist of interest rate swaps, to facilitate the needs of clients desiring to manage interest rate risk. These swaps are not designated as accounting hedges under ASC 815, Derivatives and Hedging. To economically hedge the interest rate risk associated with offering this product, the Company simultaneously enters into derivative contracts with third parties to offset the customer contracts such that the Company minimizes its net risk exposure resulting from such transactions. The derivative contracts are structured such that the notional amounts reduce over time to generally match the expected amortization of the underlying loans. These derivatives are not speculative and arise from a service provided to clients.

Cash Flow Hedges

The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted Secured Overnight Financing Rate (“SOFR”) based brokered deposits. These derivative instruments are designated as cash flow hedges. The hedged item is the SOFR portion of the series of future adjustable-rate borrowings and deposits over the term of the interest rate swap. Accordingly, changes to the amount of interest payment cash flows for the hedged transactions attributable to a change in credit risk are excluded from management’s assessment of hedge effectiveness. The Company tests for hedging effectiveness on a quarterly basis. The accumulated other comprehensive income is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company has not recorded any hedge ineffectiveness since inception.

The Company expects that approximately $3.7 million will be reclassified from accumulated other comprehensive loss as a decrease to interest expense over the next 12 months related to these cash flow hedges.

Fair Value Hedges

The Company is exposed to changes in the fair value of certain of its pools of prepayable fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, the SOFR. Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

Table of Contents

The following amounts were recorded on the balance sheet related to cumulative-basis adjustment for fair value hedges for the dates indicated:

			Cumulative Amount of Fair Value
Line item in the statement of financial			Hedging Adjustment Included in
position in which the hedged Item is	Carrying Amount of the		the Carrying Amount of the
included	Hedged Assets		Hedged Assets
March 31, 2024
Investment securities ⁽¹⁾	$	55,560	$	4,440
Total	$	55,560	$	4,440

December 31, 2023
Investment securities ⁽¹⁾	$	56,785	$	3,215
Total	$	56,785	$	3,215

(1)

These amounts include the amortized cost basis of closed portfolios used in designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $184.9 million; the cumulative basis adjustments associated with these hedging relationships was $4.4 million; and the amounts of the designated hedged items was $60.0 million.

The following tables summarize the Company’s derivative instruments at the dates ~~indicated:~~

September 30, 2017

Fair Value


Notional

Asset

Liability
Fallout adjusted interest rate lock commitments with customers

$
59,741

$
1,131

$
—
Mandatory and best effort forward commitments with investors

33,491

4

—
Forward TBA mortgage-backed securities

77,000

104

—
TBA mortgage-backed securities forward sales paired off with investors

32,500

—

140

December 31, 2016

Fair Value


Notional

Asset

Liability
Fallout adjusted interest rate lock commitments with customers

$
33,289

$
818

$
—
Mandatory and best effort forward commitments with investors

23,536

177

—
Forward TBA mortgage-backed securities

53,000

495

—
TBA mortgage-backed securities forward sales paired off with investors

44,000

747

—

indicated. The ~~fair value of derivatives was impacted during the third quarter of 2017 by an increase~~Company recognizes derivative assets and liabilities in ~~notional asset value partially offset by a decrease in the fair value on the derivative asset, specifically loan locks~~“Other assets” and ~~loan commitments.~~

At September 30, 2017 and 2016, the Company had $77.0 million and $99.5 million of TBA trades with counterparties that required margin collateral of $485,000 and $872,000, respectively. This collateral is included in interest-bearing deposits at other financial institutions“Other liabilities,” respectively, on the Consolidated Balance ~~Sheets.~~Sheets, as follows:

	March 31, 2024
			Fair Value
Cash flow hedges:	Notional		Asset		Liability
Interest rate swaps - brokered deposits	$	190,000	$	4,960	$	—
Fair value hedges:
Interest rate swaps - securities		60,000		4,420		—
Non-hedging derivatives:
Fallout adjusted interest rate lock commitments with customers		29,238		251		—
Mandatory and best effort forward commitments with investors		36,310		—		73
Forward TBA mortgage-backed securities		38,000		—		78
Interest rate swaps - customer swap positions		801		—		73
Interest rate swaps - dealer offsets to customer swap positions		801		73		—

	December 31, 2023
			Fair Value
Cash flow hedges:	Notional		Asset		Liability
Interest rate swaps - brokered deposits	$	250,000	$	3,233	$	375
Fair value hedges:
Interest rate swaps - securities		60,000		3,198		—
Non-hedging derivatives:
Fallout adjusted interest rate lock commitments with customers		22,334		329		—
Mandatory and best effort forward commitments with investors		10,070		—		188
Forward TBA mortgage-backed securities		33,000		—		284
Interest rate swaps - customer swap positions		801		—		63
Interest rate swaps - dealer offsets to customer swap positions		801		64		—

Table of Contents

The following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2024 and 2023:

	Three Months Ended March 31,
	2024					2023
	Interest		Interest			Interest		Interest
	Expense		Income			Expense		Income
	Deposits		Securities			Deposits		Securities
Total amounts presented on the Consolidated Statements of Income	$	12,882	$	3,883		$	6,624	$	2,620
Net gains (losses) on fair value hedging relationships:
Interest rate swaps - securities
Recognized on hedged items	$	—	$	(1,225	)	$	—	$	1,495
Recognized on derivatives designated as hedging instruments		—		1,225			—		(1,495	)
Net interest income recognized on cash flows of derivatives designated as hedging instruments		—		418			—		293
Net income recognized on fair value hedges	$	—	$	418		$	—	$	293
Net gain on cash flow hedging relationships:
Interest rate swaps - brokered deposits and borrowings
Realized gains (pre-tax) reclassified from AOCI into net income	$	1,722	$	—		$	907	$	—
Net income recognized on cash flow hedges	$	1,722	$	—		$	907	$	—

Changes in the fair value of the non-hedging derivatives recognized in ~~other noninterest income~~“Noninterest income” on the Consolidated Statements of Income and included in gain on sale of loans resulted in net gains of ~~$374,000~~$201,000 and ~~$697,000~~$424,000 for the three months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016, respectively,~~2023, respectively.

The following tables present a summary of amounts outstanding in derivative financial instruments, including those entered into in connection with the same counter-party under master netting agreements at the dates indicated. While these agreements are typically over-collateralized, GAAP requires disclosures in this table to limit the amount of such collateral to the amount of the related asset or liability for each counter-party.

			Gross Amounts		Net Amounts of Assets		Gross Amounts Not Offset
	Gross Amounts		Offset in the		Presented in the		in the Statement of Financial Position
	of Recognized		Statement of		Statement of		Financial		Cash Collateral
Offsetting of derivative assets	Assets		Financial Position		Financial Position		Instruments		Received			Net Amount
At March 31, 2024
Interest rate swaps	$	9,628	$	175	$	9,453	$	—	$	(1,070	)	$	8,383

At December 31, 2023
Interest rate swaps	$	6,648	$	153	$	6,495	$	—	$	—		$	6,495

				Gross Amounts			Net Amounts of			Gross Amounts Not Offset
	Gross Amounts			Offset in the			Liabilities			in the Statement of Financial Position
	of Recognized			Statement of			Presented in the Statement			Financial		Cash Collateral
Offsetting of derivative liabilities	Liabilities			Financial Position			of Financial Position			Instruments		Posted		Net Amount
At March 31, 2024
Interest rate swaps	$	—		$	—		$	—		$	—	$	—	$	—

At December 31, 2023
Interest rate swaps	$	(722	)	$	(347	)	$	(375	)	$	—	$	270	$	(105	)

Table of Contents

CreditRisk–Related Contingent Features

The Company has derivative contracts with its derivative counterparties that contain a provision to post collateral to the counterparties when these contracts are in a net liability position. At March 31, 2024, the Company had no collateral posted due to this provision. Receivables related to cash collateral that has been paid to counterparties is included in “Cash and ~~net (loss) gain~~cash equivalents” on the Consolidated Balance Sheets. In certain cases, the Company will have posted excess collateral, compared to total exposure due to initial margin requirements or day-to-day rate volatility.

NOTE 7– LEASES

The Company has operating leases for retail bank and home lending branches, loan production offices, and certain equipment. The Company’s leases have remaining lease terms of ~~($7,000)~~six months to six years and ~~$1.7 million~~nine months, some of which include options to extend the leases for up to five years.

The components of lease cost (included in occupancy expense on the Consolidated Statements of Income) for the ~~nine~~three months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016, respectively.~~2023 are as follows:

	Three Months Ended		Three Months Ended
Lease cost:	March 31, 2024		March 31, 2023
Operating lease cost	$	474	$	409
Short-term lease cost		3		4
Total lease cost	$	477	$	413

The following tables provide supplemental information related to operating leases at or for the three months ended March 31, 2024 and 2023:

	At or For the			At or For the
	Three Months Ended			Three Months Ended
Cash paid for amounts included in the measurement of lease liabilities:	March 31, 2024			March 31, 2023
Operating cash flows from operating leases	$	490		$	424
Weighted average remaining lease term- operating leases (in years)		3.8			4.6
Weighted average discount rate- operating leases		2.97	%		2.83	%

The Company’s leases typically do not contain a discount rate implicit in the lease contract. As an alternative, the discount rate used in determining the lease liability for each individual lease was the FHLB of Des Moines’ fixed-advance rate.

Maturities of operating lease liabilities at March 31, 2024 for future periods are as follows:

Remainder of 2024	$	1,446
2025		1,628
2026		1,475
2027		1,173
2028		428
Thereafter		954
Total lease payments		7,104
Less imputed interest		(694	)
Total	$	6,410

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NOTE ~~7 -~~8– OTHER REAL ESTATE OWNED (“OREO”)

~~There was no OREO activity for the three months ended September 30, 2017 and 2016.~~

The following table presents the activity related to OREO at or for the ~~nine~~three months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016:~~2023:

At or For the Nine Months Ended

September 30,

2017

2016

Beginning balance

$
—

$
—
Net loans transferred to OREO

—

525
Capitalized costs

—

7
Gross proceeds from sale of OREO

—

(682)
Gain on sale of OREO

—

150
Ending balance

$
—

$
—

	At or For the Three Months Ended
	March 31,
	2024		2023
Beginning balance	$	—	$	570
Additions		—		—
Loans transferred to OREO		—		—
Ending balance	$	—	$	570

There were no OREO properties at ~~September 30, 2017~~March 31, 2024 and ~~September 30, 2016. For~~one OREO property (a closed branch in Centralia, Washington) at March 31, 2023. There were no OREO holding costs for the three ~~and nine~~ months ended ~~September 30, 2017,~~ March 31, 2024 and for the three months ended September 30, 2016, the Company recorded no net gain or loss on the disposal of OREO. For the nine months ended September 30, 2016, the Company recorded a $150,000 net gain on the2023.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~disposal of OREO. There were no holding costs associated with OREO for the three and nine months ended September 30, 2017 and 2016.~~

There were no$80,000 and $96,000 in portfolio mortgage ~~loan properties~~loans collateralized by residential real estate in the process of foreclosureat ~~September 30, 2017. At~~ March 31, 2024 and at December 31, ~~2016, there was a $43,000 mortgage loan collateralized by residential real estate property in the process of foreclosure.~~2023, respectively.

NOTE ~~8 -~~9 – DEPOSITS

Deposits are summarized as follows at ~~September 30, 2017 and December 31, 2016:~~the dates indicated:

September 30,

December 31,

2017(1)

2016(1)
Noninterest-bearing checking

$
156,017

$
143,236
Interest-bearing checking

115,775

66,119
Savings

72,974

54,995
Money market(4)

236,036

242,849
Certificates of deposit less than $100,000(2)

143,169

93,791
Certificates of deposit of $100,000 through $250,000

73,733

74,832
Certificates of deposit of $250,000 and over(3)

31,927

27,094
Escrow accounts related to mortgages serviced

10,947

9,677
Total

$
840,578

$
712,593

	March 31,		December 31,
	2024		2023
Noninterest-bearing checking	$	618,526	$	654,048
Interest-bearing checking ⁽¹⁾		188,050		244,028
Savings		153,025		151,630
Money market ⁽²⁾		364,944		359,063
Certificates of deposit less than $100,000 ⁽³⁾		579,153		587,858
Certificates of deposit of $100,000 through $250,000		424,463		429,373
Certificates of deposit greater than $250,000		108,763		79,540
Escrow accounts related to mortgages serviced ⁽⁴⁾		28,373		16,783
Total	$	2,465,297	$	2,522,323

~~(1)~~

(1)

Includes ~~$138.2 million of deposits acquired in the Branch Purchase at September 30, 2017~~$0.0 and ~~$162.2 million at December 31, 2016.~~

~~(2)~~

~~Includes $92.2~~$70.2 million of brokered deposits at ~~September 30, 2017~~March 31, 2024 and ~~$47.1 million at~~ December 31, ~~2016.~~2023, respectively.

~~(3)~~

~~Time deposits that meet or exceed the FDIC insurance limit.~~

~~(4)~~

(2)

Includes ~~$10.0~~$8.0 million and $1,000 of brokered deposits at March 31, 2024 and December 31, 2023, respectively.

(3)	Includes $331.3 million and $361.3 million of brokered deposits at ~~September 30, 2017~~March 31, 2024 and ~~none at~~ December 31, ~~2016.~~2023, respectively.

(4)	Noninterest-bearing accounts.

Federal Reserve regulations require that the Bank maintain reserves in the form of cash on hand and deposit balances with the Federal Reserve Bank, based on a percentage of deposits. The amounts of such balances at September 30, 2017 and December 31, 2016 were $19.3 million and $10.7 million, respectively.

Scheduled maturities of ~~time~~certificates of deposits at ~~September 30, 2017~~March 31, 2024 for future periods ending are as follows:

At September 30, 2017
Maturing in 2017

$
81,162
Maturing in 2018

75,057
Maturing in 2019

45,868
Maturing in 2020

14,980
Maturing in 2021

15,816
Thereafter

15,946
Total

$
248,829

Maturing in 2024	$	776,564
Maturing in 2025		267,538
Maturing in 2026		44,267
Maturing in 2027		21,324
Maturing in 2028		2,258
Thereafter		428
Total	$	1,112,379

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Interest expense by deposit category for the ~~three and nine months ended September 30, 2017 and 2016~~periods indicated is as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
Interest-bearing checking

$
44

$
7

$
66

$
20
Savings and money market

356

257

937

757
Certificates of deposit

645

544

1,790

1,634
Total

$
1,045

$
808

$
2,793

$
2,411

	Three Months Ended
	March 31,
	2024		2023
Interest-bearing checking	$	784	$	98
Savings and money market		1,661		1,198
Certificates of deposit		10,437		5,328
Total	$	12,882	$	6,624

~~Table of Contents~~

~~FS BANCORP, INC.~~NOTE10 – COMMITMENTS AND ~~SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

CONTINGENCIES

~~NOTE 9 - COMMITMENTS AND CONTINGENCIES~~

Commitments - – The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The following table provides a summary of the Company’s commitments at ~~September 30, 2017 and December 31, 2016:~~the dates indicated:

September 30,

December 31,

2017

2016
COMMITMENTS TO EXTEND CREDIT

REAL ESTATE LOANS




Commercial

$
108

$
108
Construction and development

82,115

57,016
One-to-four-family (includes loans held for sale)

117,997

79,870
Home equity

31,258

26,129
Multi-family

418

426
Total real estate loans

231,896

163,549
CONSUMER LOANS

10,025

8,527
COMMERCIAL BUSINESS LOANS




Commercial and industrial

46,912

31,775
Warehouse lending

58,231

51,102
Total commercial business loans

105,143

82,877
Total commitments to extend credit

$
347,064

$
254,953

COMMITMENTS TO EXTEND CREDIT	March 31,		December 31,
REAL ESTATE LOANS	2024		2023
Commercial	$	2,637	$	3,472
Construction and development		168,195		154,611
One-to-four-family (includes locks for saleable loans)		29,238		23,751
Home equity		94,228		94,026
Multi-family		2,881		2,945
Total real estate loans		297,179		278,805
CONSUMER LOANS		29,345		29,517
COMMERCIAL BUSINESS LOANS
C&I		163,801		164,873
Warehouse lending		76,323		61,837
Total commercial business loans		240,124		226,710
Total commitments to extend credit	$	566,648	$	535,032

Commitments to extend credit are agreements to lend to a customer ~~as long as~~provided there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the amount of the total commitments do does not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon an extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit ~~are uncollateralized and~~ usually do not contain a specified maturity date and ultimately may not be drawn upon to the total extent to which the Company is committed. The Company’s ACL – unfunded loan commitments at both March 31, 2024 and December 31, 2023 was $1.5 million. The Company ~~has established reserves for estimated losses~~recorded a recovery from the ACL – unfunded loan commitments of ~~$237,000 at September 30, 2017 and $179,000 at December~~$22,000 for the three months ended March 31, ~~2016. One-to-four-family commitments included in~~2024, as compared to a recovery of $249,000 for the ~~table above are accounted for as fair value derivatives and do not carry an associated loss reserve.~~three months ended March 31, 2023.

The Company also sells ~~one-to-four-family~~one-to-four-family loans to the FHLB of Des Moines that require a limited level of recourse if the loans default and exceed a certain loss exposure. Specific to that recourse, the FHLB of Des Moines established a first loss account (“FLA”) related to the loans and required a credit enhancement (“CE”) obligation by the Bank to be utilized after the FLA is used. Based on loans sold through ~~September 30, 2017, the~~March 31, 2024, total loans ~~sold to~~serviced on behalf of the FHLB of Des Moines were ~~$40.5~~$8.9 million with the FLA ~~being $433,000~~totaling $581,000 and the CE obligation at ~~$1.1 million~~$389,000 or ~~2.6%~~4.4% of the loans outstanding. Management has established a holdback of 10% of the outstanding CE, or ~~$110,000,~~$39,000, which is a part of the off-balance sheet holdback for loans sold.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~There~~ At both March 31, 2024 and December 31, 2023, there were no ~~outstanding delinquencies on the~~ loans sold toand serviced on behalf of the FHLB of Des Moines ~~at September 30, 2017 and December 31, 2016.~~that were greater than 90 days past their contractual payment due date.

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Contingent liabilities for loans held for sale - – In the ordinary course of business, loans are sold with limited recourse against the Company and may have to subsequently be repurchased due to defects that occurred during the origination of the loan. The defects are categorized as documentation errors, underwriting errors, early payoff, early payment defaults, breach of representation or warranty, servicing errors, and/or fraud. When a loan sold to an investor without recourse fails to perform according to its contractual terms, the investor will typically review the loan file to determine whether defects in the origination process occurred. If a defect is identified, the Company may be required to either repurchase the loan or indemnify the investor for losses sustained. If there are no such defects, the Company has no commitment to repurchase the loan. The Company has recorded ~~reserves~~a holdback reserve of ~~$1.0~~$1.9 million and ~~$955,000~~$2.1 million to cover loss exposure related to these guarantees for ~~one-to-four-family~~one-to-four-family loans sold into the secondary market at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively, which is included in ~~other liabilities~~“Other liabilities” on the Consolidated Balance Sheets.

The Company has entered into a severance agreement with its Chief Executive ~~Officer.~~Officer (“CEO”). The severance agreement, subject to certain requirements, generally includes a lump sum payment to the ~~Chief Executive Officer~~CEO equal to 24 months of base compensation in the event his employment is involuntarily terminated, other than for cause or the executive terminates his employment with good reason, as defined in the severance agreement.

The Company has entered into change of control agreements with its ~~Chief Financial Officer, Chief Operating Officer, Chief Lending Officer,~~executives and ~~two Executive Vice Presidents of Home Lending.~~select key personnel. The change of control agreements, subject to certain requirements, generally remain in effect until canceled by either party upon at least 24 months prior written notice. Under the change of control agreements, the executive generally will be entitled to a change of control payment from the Company if the executive is involuntarily terminated within six months preceding or 12 months after a change in control (as defined in the change of control agreements). In such an event, the executives would each be entitled to receive a cash payment in an amount equal to 12 months of their then current salary, subject to certain requirements in the change of control agreements.

~~The Bank received 7,158 shares of Class B common stock in Visa, Inc. as~~

As a result of the Visa initial public offering (“IPO”) in March 2008. These Class B shares of stock held by the Bank could be converted to Class A shares at a conversion rate of 1.6483 when all litigation pending as of the date of the IPO is concluded. However, at September 30, 2017, the date that litigation will be concluded cannot be determined. Until such time, the stock cannot be redeemed or sold by the Bank; therefore, it is not readily marketable and has a current carrying value of $0. Visa, Inc. Class A stock’s market value at September 30, 2017 and December 31, 2016 was $105.24 per share and $77.73 per share, respectively.

~~Due to~~ the nature of our activities, the Company is subject to various pending and threatened legal actions, which arise in the ordinary course of business. From time to time, subordination liens may create litigation which requires us to defend our lien rights. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on our financial position. The Company had no material pending legal actions at ~~September 30, 2017.~~March 31, 2024.

NOTE ~~10 -~~11 – FAIR VALUE ~~OF FINANCIAL INSTRUMENTS~~MEASUREMENTS

The Company ~~assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. Consequently, the~~determines fair value ofbased on the Company’s consolidated financial instruments will change when interest rate levels change and that change may either be favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed interest rate obligations are less likely to prepayrequirements established in a rising interest rate environment and more likely to prepay in a falling interest rate environment. Conversely, depositors who are receiving fixed interest rates are more likely to withdraw funds before maturity in a rising interest rate environment and less likely to do so in a falling interest rate environment. Management monitors interest rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans and deposits, and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Accounting ~~guidance regarding fair value measurements defines fair value and establishes~~Standards Codification (“ASC”) Topic 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. ~~GAAP. Fair~~GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 defines fair value isas the ~~exchange~~exit price, or the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement ~~date.~~ date under current market conditions.

The following definitions describe the levels of inputs that may be used to measure fair value:

Level 1 - – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 - – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

~~Determination~~

Table of ~~Fair Market Values:~~Contents

The following methods were used to estimate the fair value of certain assets and liabilities on a recurring and nonrecurring basis:

Securities ~~Available-for-Sale~~ - –The fair value of securities available-for-sale are recorded on a recurring basis. The fair value of investments and mortgage-backed securities are provided by a ~~third-party~~third-party pricing service. These valuations are based on market data using pricing models that vary by asset class and incorporate available current trade, bid, and other market information, and for structured securities, cash flow, and loan performance data. The pricing processes utilize benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. Option adjusted spread models are also used to assess the impact of changes in interest rates and to develop prepayment ~~scenarios.~~scenarios (Level 2). Transfers between the fair value hierarchy are determined through the ~~third-party~~third-party service provider which, from time to time will transfer between levels based on market conditions per the related security. All models and processes used ~~take into account~~consider market ~~convention (Level 2).~~convention.

Mortgage ~~and Nonmortgage~~ Loans Held for Sale - –The fair value of loans held for sale reflects the value of commitments with investors and/or the relative price as delivered into a TBA mortgage-backed security (Level 2)2).

Loans Receivable– Certain residential mortgage loans were initially originated for sale and measured at fair value; after origination, the loans were transferred to loans held for investment. As of March 31, 2024 and December 31, 2023, there were $15.0 million and $15.1 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from held for sale, at fair value to loans held for investment. The aggregate unpaid principal balance of these loans was $16.2 million and $16.3 million as of March 31, 2024 and December 31, 2023, respectively. Gains and losses from changes in fair value for these loans are reported in earnings as a component of “Other noninterest income” on the Consolidated Statements of Income. For the three months ended March 31, 2024, the Company recorded a net increase in fair value of $2,000, as compared to a net increase in fair value of $577,000 for the three months ended March 31, 2023. For loans originated as held for sale and transferred into loans held for investment, the fair value is determined based on quoted secondary market prices for similar loans (Level 2).

Derivative Instruments - – Fair values for derivative assets and liabilities are measured on a recurring basis. The primary use of derivative instruments is related to the mortgage banking activities of the Company. The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as ~~pull-through~~pull-though rate assumptions based on historical information, where appropriate. TBA mortgage-backed securities are fair valued on similar contracts in active markets (Level 2)2), while locks and forwards with customers and investors are fair valued using similar contracts in the market and changes in the market interest rates ~~(Levels~~ (Level 2 and 3)3). Derivative instruments not related to mortgage banking activities include interest rate swap agreements. The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of the market inputs we use are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.

~~Impaired Loans -~~

Other Real Estate Owned – Fair value adjustments to ~~impaired~~OREO are recorded at the lower of carrying amount of the loan or fair value of the collateral less selling costs. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the ACL on loans. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell (Level 3).

Table of Contents

Collateral Dependent Loans–Expected credit losses on collateral dependent loans are ~~recorded to reflect partial write-downs~~measured based on the ~~current appraised~~fair value of collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral ~~or internally developed models, which contain management’s assumptions. Management~~is less than the amortized cost basis of the loan, the Company will ~~utilize discounted cash flow impairment for TDRs when~~recognize an allowance as the ~~change in terms results in a discount to the overall cash flows to be received (Level 3).~~

~~The following tables present securities available-for-sale measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:~~

Securities Available-for-Sale


Level 1

Level 2

Level 3

Total
At September 30, 2017

U.S. agency securities

$
—

$
6,122

$
—

$
6,122
Corporate securities

—

7,075

—

7,075
Municipal bonds

—

11,439

—

11,439
Mortgage-backed securities

—

39,474

—

39,474
U.S. Small Business Administration securities

—

13,993

—

13,993
Total

$
—

$
78,103

$
—

$
78,103

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Securities Available-for-Sale


Level 1

Level 2

Level 3

Total
At December 31, 2016

U.S. agency securities

$
—

$
8,068

$
—

$
8,068
Corporate securities

—

7,500

—

7,500
Municipal bonds

—

15,264

—

15,264
Mortgage-backed securities

—

45,195

—

45,195
U.S. Small Business Administration securities

—

5,848

—

5,848
Total

$
—

$
81,875

$
—

$
81,875

~~The following table presents mortgage loans held for sale measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:~~

Mortgage Loans Held for Sale


Level 1

Level 2

Level 3

Total
September 30, 2017

$
—

$
65,055

$
—

$
65,055
December 31, 2016

$
—

$
52,553

$
—

$
52,553

~~The following tables present~~difference between the fair value of interest rate lock commitments with customers, individual forward sale commitments with investors, and paired off commitments with investors measured at their fair value on a recurring basis at September 30, 2017 and December 31, 2016:

Interest Rate Lock Commitments with Customers


Level 1

Level 2

Level 3

Total
September 30, 2017

$
—

$
—

$
1,131

$
1,131
December 31, 2016

$
—

$
—

$
818

$
818

Individual Forward Sale Commitments with Investors


Level 1

Level 2

Level 3

Total
September 30, 2017

$
—

$
104

$
4

$
108
December 31, 2016

$
—

$
495

$
177

$
672

Paired Off Commitments with Investors


Level 1

Level 2

Level 3

Total
September 30, 2017

$
—

$
(140)

$
—

$
(140)
December 31, 2016

$
—

$
747

$
—

$
747

The following table presents impaired loans measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded at September 30, 2017 and December 31, 2016. The amounts disclosed below represent the ~~fair values~~collateral, less costs to sell (if applicable) at the ~~time~~reporting date and the ~~nonrecurring fair value measurements were evaluated.~~

Impaired Loans


Level 1

Level 2

Level 3

Total
September 30, 2017

$
—

$
—

$
761

$
761
December 31, 2016

$
—

$
—

$
194

$
194

~~Table~~amortized cost basis of ~~Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Quantitative Information about Level 3 Fair Value Measurements -~~ ~~Shown in~~ the ~~table below is~~loan. If the fair value of ~~financial instruments measured under~~the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off by the subsequent changes in the expected credit losses on collateral dependent loans. Subsequent adjustments in the expected credit losses for collateral-dependent loans are included within the provision for credit losses in the same way the expected credit loss initially was recognized or as a ~~Level~~ reduction in the provision that would otherwise be reported (Level 3 ~~unobservable input on a recurring and nonrecurring basis at September 30, 2017:~~).


		~~Significant~~	~~Range~~	~~Weighted~~
~~Level 3 Fair Value Instrument~~	~~Valuation Technique~~	~~Unobservable Inputs~~	~~(Weighted Average)~~	~~Average~~
~~RECURRING~~
~~Interest rate lock commitments with customers~~	~~Quoted market prices~~	~~Pull-through expectations~~	~~80% - 99%~~	~~95.0~~	%
~~Individual forward sale commitments with investors~~	~~Quoted market prices~~	~~Pull-through expectations~~	~~80% - 99%~~	~~95.0~~	%
~~NONRECURRING~~
~~Impaired loans~~	~~Fair value of underlying collateral~~	~~Discount applied to the obtained appraisal~~	~~0% - 18.0%~~	~~11.6~~	%

An increase in the pull-through rate utilized in the fair value measurement of the interest rate lock commitments with customers and forward sale commitments with investors will result in positive fair value adjustments (and an increase in the fair value measurement). Conversely, a decrease in the pull-through rate will result in a negative fair value adjustment (and a decrease in the fair value measurement).

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2017 and 2016:

Net change in fair

value for gains/

Purchases

(losses) relating to

Beginning

and

Sales and

Ending

items held at end of
Three Months Ended September 30,

Balance

Issuances

Settlements

Balance

period
2017

Interest rate lock commitments with customers

$
1,212

$
3,891

$
(3,972)

$
1,131

$
(81)
Individual forward sale commitments with investors

83


40

(119)


4

(79)
2016


Interest rate lock commitments with customers

$
2,058

$
5,763

$
(5,971)

$
1,850

$
(208)
Individual forward sale commitments with investors

(3)


(60)

23


(40)

(37)

Net change in fair

value for gains/

Purchases

(losses) relating to

Beginning

and

Sales and

Ending

items held at end of
Nine Months Ended September 30,

Balance

Issuances

Settlements

Balance

period
2017

Interest rate lock commitments with customers

$
818

$
11,440

$
(11,127)

$
1,131

$
313
Individual forward sale commitments with investors

177


(49)

(124)


4

(173)
2016


Interest rate lock commitments with customers

$
698

$
14,039

$
(12,887)

$
1,850

$
1,152
Individual forward sale commitments with investors

74


(267)

153


(40)

(114)

Gains (losses) on interest rate lock commitments carried at fair value are recorded in other noninterest income. Gains (losses) on forward sale commitments with investors carried at fair value are recorded within other noninterest income.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Fair Values of Financial Instruments -~~ ~~The following methods and assumptions were used by the Company in estimating the fair values of financial instruments disclosed in these financial statements:~~

~~Cash, and Cash Equivalents and Certificates of Deposit at Other Financial Institutions~~ ~~- The carrying amounts of cash and short-term instruments approximate their fair value (Level 1).~~

~~Federal Home Loan Bank stock~~ ~~- The par value of FHLB stock approximates its fair value (Level 2).~~

~~Bank-owned Life Insurance~~ ~~- The estimated fair value is equal to the cash surrender value of policies, net of surrender charges (Level 1).~~

~~Accrued Interest -~~ ~~The carrying amounts of accrued interest approximate its fair value (Level 2).~~

~~Loans Receivable, Net~~ - For variable rate loans that re-price frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers or similar credit quality (Level 3).

Mortgage Servicing Rights - –The fair value of ~~mortgage, commercial, and consumer servicing rights are~~MSRs is estimated using net present value of expected cash flows using a third ~~party~~-party model that incorporates assumptions used in the industry to value such rights, adjusted for factors such as weighted average prepayments speeds based on historical information where appropriate (Level 3)3).

~~Deposits~~ -

The following tables present securities available-for-sale, mortgage loans held for sale, loans receivable, at fair value, and derivative assets and liabilities measured at fair value on a recurring basis at the dates indicated:

Financial Assets	At March 31, 2024
Securities available-for-sale:	Level 1		Level 2			Level 3			Total
U.S. agency securities	$	—	$	17,898		$	—		$	17,898
Corporate securities		—		15,200			—			15,200
Municipal bonds		—		73,553			—			73,553
Mortgage-backed securities		—		119,802			—			119,802
U.S. Small Business Administration securities		—		53,190			—			53,190
Mortgage loans held for sale, at fair value		—		49,957			—			49,957
Loans receivable, at fair value		—		15,003			—			15,003
Derivatives:
Interest rate lock commitments with customers		—		—			251			251
Interest rate swaps - cash flow and fair value hedges		—		9,380			—			9,380
Interest rate swaps - dealer offsets to customer swap positions		—		73			—			73
Total assets measured at fair value	$	—	$	354,056		$	251		$	354,307
Financial Liabilities
Derivatives:
Interest rate swaps - customer swap positions	$	—	$	(73	)	$	—		$	(73	)
Mandatory and best effort forward commitments with investors		—		—			(73	)		(73	)
Forward TBA mortgage-backed securities		—		(78	)		—			(78	)
Total liabilities measured at fair value	$	—	$	(151	)	$	(73	)	$	(224	)

Table of Contents

Financial Assets	At December 31, 2023
Securities available-for-sale:	Level 1		Level 2			Level 3			Total
U.S. agency securities	$	—	$	18,018		$	—		$	18,018
Corporate securities		—		12,872			—			12,872
Municipal bonds		—		119,447			—			119,447
Mortgage-backed securities		—		101,248			—			101,248
U.S. Small Business Administration securities		—		41,348			—			41,348
Mortgage loans held for sale, at fair value		—		25,668			—			25,668
Loans receivable, at fair value		—		15,088			—			15,088
Derivatives:
Interest rate lock commitments with customers		—		—			329			329
Interest rate swaps- cash flow and fair value hedges		—		6,431			—			6,431
Interest rate swaps - dealer offsets to customer swap positions		—		64			—			64
Total assets measured at fair value	$	—	$	340,184		$	329		$	340,513
Financial Liabilities
Derivatives:
Mandatory and best effort forward commitments with investors	$	—	$	—		$	(188	)	$	(188	)
Forward TBA mortgage-backed securities		—		(284	)		—			(284	)
Interest rate swaps - cash flow and fair value hedges		—		(375	)		—			(375	)
Interest rate swaps - customer swap positions		—		(63	)		—			(63	)
Total liabilities measured at fair value	$	—	$	(722	)	$	(188	)	$	(910	)

The following table presents financial assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy at March 31, 2024 and December 31, 2023.

	March 31, 2024
	Level 1		Level 2		Level 3		Total
MSRs	$	—	$	—	$	20,315	$	20,315

	December 31, 2023
	Level 1		Level 2		Level 3		Total
MSRs	$	—	$	—	$	38,163	$	38,163

Quantitative Information about Level 3 Fair Value Measurements – Shown in the table below is the fair value of ~~deposits with no stated maturity date is included~~financial instruments measured under a Level 3 unobservable input on a recurring and nonrecurring basis at the ~~amount payable on demand. Fair values for fixed~~dates indicated:

Level 3

Significant

Weighted Average Rate

Fair Value

Valuation

Unobservable

March 31,

December 31,

Instruments

Techniques

Inputs

Range

2024

2023

RECURRING

Interest rate lock commitments with customers

Quoted market prices

Pull-through expectations

80% - 99%

89.4

90.5

Individual forward sale commitments with investors

Quoted market prices

Pull-through expectations

80% - 99%

89.4

90.5

NONRECURRING

MSR

Industry sources

Pre-payment speeds

0% - 50%

8.9

7.2

The pull-through rate ~~certificates of deposit are estimated using a discounted cash flow calculation on interest rates currently offered on similar certificates (Level 2).~~

~~Borrowings -~~ ~~The carrying amounts of advances maturing within 90 days approximate their fair values. The fair values of long-term advances are estimated using discounted cash flow analyses~~is based on ~~the Bank’s current incremental borrowing~~historical loan closing rates for similar ~~types of borrowing arrangements (Level 2).~~

~~Subordinated Note -~~ ~~The fair value of the Subordinated Note is based upon the average yield of debt issuances for similarly sized issuances (Level 2).~~

~~Off-Balance Sheet Instruments -~~ The fair value of commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the customers. The majority of the Company’s off-balance sheet instruments consist of non-fee producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value. The fair value of loan lock commitments with customers and investors reflect an estimate of value based upon the interest rate lock ~~date,~~commitments. An increase or decrease in the ~~expected~~ pull-through ~~percentage for the commitment, and the interest~~ rate ~~at year end (Level 2 and 3).~~would have a corresponding positive or negative fair value adjustment.

Table of Contents

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the dates indicated:

~~FS BANCORP, INC. AND SUBSIDIARY~~

				Purchases									Net change in			Net change in
Three Months Ended	Beginning			and			Sales and			Ending			fair value for			fair value for
March 31, 2024	Balance			Issuances			Settlements			Balance			gains/(losses) ⁽¹⁾			gains/(losses) ⁽²⁾
Interest rate lock commitments with customers	$	329		$	965		$	(1,043	)	$	251		$	(78	)	$	—
Individual forward sale commitments with investors		(188	)		(15	)		130			(73	)		115			—
March 31, 2023
Interest rate lock commitments with customers	$	107		$	994		$	(536	)	$	565		$	458		$	—
Individual forward sale commitments with investors		(38	)		222			(197	)		(13	)		25			—

(1) Relating to items held at end of period included in income.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~(2) Relating to items held at end of period included in other comprehensive income (loss).

Gains on interest rate lock commitments and on forward sale commitments with investors carried at fair value are recorded in “Gain on sale of loans held for sale” on the Consolidated Statements of Income.

Table of Contents

The following table provides estimated fair values of the Company’s financial instruments at ~~September 30, 2017 and December 31, 2016:~~the dates indicated, whether recognized at fair value or not on the Consolidated Balance Sheets:

	March 31,				December 31,
	2024				2023
Financial Assets	Carrying		Fair		Carrying		Fair
Level 1 inputs:	Amount		Value		Amount		Value
Cash and cash equivalents	$	45,406	$	45,406	$	65,691	$	65,691
Certificates of deposit at other financial institutions		23,222		23,222		24,167		24,167
Level 2 inputs:
Securities available-for-sale, at fair value		279,643		279,643		292,933		292,933
Securities held-to-maturity, gross		8,500		7,785		8,500		7,666
Loans held for sale, at fair value		49,957		49,957		25,668		25,668
FHLB stock, at cost		2,909		2,909		2,114		2,114
Loans receivable, at fair value		15,003		15,003		15,088		15,088
Interest rate swaps - cash flow and fair value hedges		9,380		9,380		6,431		6,431
Accrued interest receivable		14,455		14,455		14,005		14,005
Interest rate swaps - dealer offsets to customer swap positions		73		73		64		64
Level 3 inputs:
Loans receivable, net		2,400,376		2,284,273		2,417,927		2,276,397
MSRs, held at lower of cost or fair value		9,009		20,315		9,090		20,552
MSRs held for sale, held at lower of cost or fair value		—		—		8,086		17,611
Fair value interest rate locks with customers		251		251		—		—
Financial Liabilities
Level 2 inputs:
Deposits		2,465,297		2,453,676		2,522,323		2,515,026
Borrowings		129,940		129,474		93,746		93,416
Subordinated notes, excluding unamortized debt issuance costs		50,000		43,812		50,000		43,480
Accrued interest payable		6,966		6,966		5,473		5,473
Interest rate swaps - cash flow and fair value hedges		—		—		375		375
Forward TBA mortgage-backed securities		78		78		284		284
Interest rate swaps - customer swap positions		73		73		63		63
Level 3 inputs:
Mandatory and best effort forward commitments with investors		73		73		188		188

September 30,

December 31,

2017

2016


Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value
Financial Assets

Level 1 inputs:








Cash and cash equivalents

$
31,295

$
31,295

$
36,456

$
36,456
Certificates of deposit at other financial institutions

18,108

18,108

15,248

15,248
Level 2 inputs:

Securities available-for-sale, at fair value

78,103

78,103

81,875

81,875
Loans held for sale, at fair value

65,055

65,055

52,553

52,553
FHLB stock, at cost

3,047

3,047

2,719

2,719
Accrued interest receivable

3,217

3,217

2,524

2,524
Individual forward sale commitments with investors

104

104

495

495
Paired off commitments with investors

—

—

747

747
Level 3 inputs:

Loans receivable, gross

765,571

779,284

605,415

670,183
Servicing rights, held at lower of cost or fair value

5,811

7,289

8,459

11,741
Fair value interest rate locks with customers

1,131

1,131

818

818
Individual forward sale commitments with investors

4

4

177

177
Financial Liabilities

Level 2 inputs:

Deposits

840,578

844,288

712,593

718,970
Borrowings

10,270

9,049

12,670

12,660
Subordinated note

9,840

9,805

9,825

9,805
Accrued interest payable

217

217

192

192
Paired off commitments with investors

140

140

—

—

NOTE12 – EARNINGS PER SHARE

~~NOTE 11 - EMPLOYEE BENEFITS~~

~~Employee Stock Ownership Plan~~

~~On January 1, 2012, the~~The Company established an ESOP for eligible employees of the Company and the Bank. Employees of the Company and the Bank are eligible to participate in the ESOP if they have been credited with at least 1,000 hours of service during the employees’ first 12‑month period and based on anniversary date will be vested into the ESOP. After two years of working at least 1,000 hours in each of those two years, the employee will be 100% vested in the ESOP.

The ESOP borrowed $2.6 million from FS Bancorp, Inc. and used those funds to acquire 259,210 shares of FS Bancorp, Inc. common stock in the open market at an average price of $10.17 per share during the second half of 2012. It is anticipated that the Bank will make contributions to the ESOP in amounts necessary to amortize the ESOP loan payable to FS Bancorp, Inc. over a period of 10 years, bearing interest at 2.30%. Intercompany expenses associated with the ESOP are eliminated in consolidation. Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to FS Bancorp, Inc. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Bank’s discretionary contributions to the ESOP and earnings on the ESOP assets. Payments of principal and interest are due annually on December 31, the Company’s fiscal year end. On December 31, 2016, the ESOP paid the fifth annual installment of principal in the amount of $257,000, plus accrued interest of $38,000 pursuant to the ESOP loan agreement.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

As shares are committed to be released from collateral, the Company reports compensation expense equal to the average daily market prices of the shares at September 30, 2017 for the prior 90 days. These shares become outstanding forcomputes earnings per share ~~computations. The compensation expense~~using the two-class method, which is ~~accrued monthly throughout the year. Dividends on allocated ESOP shares are recorded~~an earnings allocation method for computing earnings per share that treats a participating security as ~~a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.~~

~~Compensation expense related~~having rights to the ESOP for the three months ended September 30, 2017 and 2016 was $360,000 and $204,000, respectively, and $914,000 and $529,000 for the nine months ended September 30, 2017 and 2016, respectively.

~~Shares held by the ESOP at September 30, 2017 and 2016 were as follows (shown as actual):~~

Balances

Balances

at September 30, 2017

at September 30, 2016
Allocated shares

126,589

102,359
Committed to be released shares

19,441

19,441
Unallocated shares

110,164

136,085
Total ESOP shares

256,194

257,885

Fair value of unallocated shares (in thousands)

$
5,180

$
3,703

~~NOTE 12 - EARNINGS PER SHARE~~

earnings that would otherwise have been available to common shareholders. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Unvested share-based awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the ~~entity. For earnings per share calculations, the ESOP shares committed to be released are included as outstanding shares for both basic and diluted earnings per share.~~Company.

Table of Contents

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share at or for the ~~three end nine months ended September 30, 2017 and 2016:~~dates indicated:

	At or For the Three Months Ended March 31,
Numerator	2024			2023
Net income	$	8,397		$	8,212
Dividends and undistributed earnings allocated to participating securities		(131	)		(147	)
Net income available to common shareholders	$	8,266		$	8,065
Denominator (shown as actual):
Basic weighted average common shares outstanding		7,703,789			7,623,580
Dilutive shares		120,671			154,838
Diluted weighted average common shares outstanding		7,824,460			7,778,418
Basic earnings per share	$	1.07		$	1.06
Diluted earnings per share	$	1.06		$	1.04
Potentially dilutive weighted average share options that were not included in the computation of diluted earnings per share because to do so would be anti-dilutive.		28,102			37,227

At or For the Three Months Ended September 30,

At or For the Nine Months Ended September 30,
Numerator:

2017

2016

2017

2016
Net income (in thousands)

$
3,454

$
3,457

$
10,406

$
7,953
Denominator:

Basic weighted average common shares outstanding

3,051,744

2,851,147

2,949,092

2,901,572
Dilutive shares

187,584

87,292

192,685

84,102
Diluted weighted average common shares outstanding

3,239,328

2,938,439

3,141,777

2,985,674
Basic earnings per share

$
1.13

$
1.21

$
3.53

$
2.74
Diluted earnings per share

$
1.07

$
1.18

$
3.31

$
2.66

NOTE13 – STOCK-BASED COMPENSATION

~~NOTE 13 - STOCK-BASED COMPENSATION~~

Stock Options and Restricted Stock

~~In September 2013,~~

On May 17, 2018, the shareholders of FS Bancorp ~~Inc.~~ approved the ~~FS Bancorp, Inc. 2013~~2018 Equity Incentive Plan (“(the “2018Plan”). that authorized 1.3 million shares of the Company’s common stock to be awarded. The2018 Plan provides for the grant of incentive stock options, nonqualified stock options, and up to 326,000 shares as restricted stock ~~awards.~~awards (“RSAs”) to directors, emeritus directors, officers, employees or advisory directors of the Company. At March 31, 2024, there were 265,532 stock option awards and 80,622 RSAs available for future grants under the 2018 Plan.

Total share-based compensation expense was $395,000 and $654,000 for the ~~Plan was $138,000 and $496,000 for the~~ three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~ March 31, 2024 and ~~$195,000 and $588,000 for the three and nine months ended September 30, 2016,~~2023, respectively.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Stock Options

The 2018Plan ~~authorizes the grant~~consists of stock ~~options totaling 324,013 shares to Company directors and employees in which 322,000~~ option ~~share~~ awards ~~under the Plan were granted with an exercise price equal to the market price of FS Bancorp’s common stock at the grant date of May 8, 2014, of $16.89 per share. These option share awards were~~that may be granted as ~~non-qualified~~incentive stock options ~~having~~or nonqualified stock options. Stock option awards generally vest over a ~~vesting~~one-year period of for independent directors or over a five ~~years,~~-year period for employees and officers with 20% vesting on the anniversary date of each grant date ~~and a contractual life~~as long as the award recipient remains in service to the Company. The options are exercisable after vesting for up to the remaining term of the original grant. The maximum term of the options granted is 10 years. Any unexercised stock options will expire 10 years after the grant date or sooner in the event of the award recipient’s termination of service with the Company or the Bank. ~~At September 30, 2017, 2,013 option share awards are available to be granted.~~

The fair value of each stock option award is estimated on the grant date using a Black-Scholes Option pricing model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The ~~Company became a publicly held company in July 2012, therefore~~ historical data was not available to calculate the volatility for FS Bancorp stock. Management utilized a proxy to determine the expected volatility of FS Bancorp’s stock at grant date for the majority of stock options granted in 2014. The proxy chosen was the NASDAQ Bank Index, or NASDAQ Bank (NASDAQ symbol: BANK). This index provides the volatility of the ~~banking sector~~Company's stock price over a specified period of time is used for ~~NASDAQ traded banks.~~the expected volatility. The ~~majority of smaller banks are traded~~Company bases the risk-free interest rate on the ~~NASDAQ given the costs and daily interaction required with trading on the New York Stock Exchange. The Company utilized the~~ comparable U.S. Treasury rate for the discount rate associated with the stock ~~options granted.~~in effect on the date of the grant. The Company elected to use Staff Accounting Bulletin 107, simplified expected term calculation for the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at 5.5 years for one-year vesting and 6.5 ~~years.~~years for five-year vesting.

Table of Contents

The following table presents a summary of the Company’s stock option ~~plan~~ awards during the ~~nine months ended September 30, 2017~~dates indicated (shown as actual):

Weighted-Average


Weighted-

Remaining

Average

Contractual Term In

Aggregate

Shares

Exercise Price

Years

Intrinsic Value
Outstanding at January 1, 2017

295,850

$
16.89

7.36

$
5,638,901
Granted

—

—

—

—
Less exercised

34,363

$
16.89

—

$
919,380
Forfeited or expired

—

—

—

—
Outstanding at September 30, 2017

261,487

$
16.89

6.61

$
9,089,288

Expected to vest, assuming a 0.31% annual forfeiture rate

261,053

$
16.89

6.61

$
9,074,192

Exercisable at September 30, 2017

134,687

$
16.89

6.61

$
4,681,720

					Weighted-Average
			Weighted-		Remaining
			Average		Contractual Term In		Aggregate
	Shares		Exercise Price		Years		Intrinsic Value
Outstanding at January 1, 2024		662,279	$	28.12		6.69	$	5,852,975
Granted		—	$	—		—		—
Less exercised		17,612	$	8.45		—	$	507,344
Less forfeited		12,000		30.73		—		—
Outstanding at March 31, 2024		632,667	$	28.62		6.56	$	3,923,645

Expected to vest, assuming a 0.31% annual forfeiture rate at March 31, 2024 ⁽¹⁾		623,800	$	28.62		6.48	$	3,873,086

Exercisable at March 31, 2024		365,850	$	27.83		5.52	$	2,549,465

(1)

Forfeiture rate has been calculated and estimated to assume a forfeiture of 3.1% of the options over 10 years.

At ~~September 30, 2017,~~March 31, 2024, there was ~~$368,000~~$1.5 million of total unrecognized forfeiture adjusted compensation cost related to nonvested stock options granted under the2018 Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of ~~1.6~~3.2 years.

Restricted Stock Awards

The ~~Plan authorizes~~RSAs’ fair value is equal to the value of the market price of FS Bancorp’s common stock on the grant ~~of restricted stock awards totaling 129,605 shares to Company directors~~date and employees, and 125,105 shares were granted on May 8, 2014 at a grant date fair value of $16.89 per share. The remaining 4,500 restricted stock awards were granted January 1, 2016 at a grant date fair value of $26.00 per share. Compensationcompensation expense is recognized over the vesting period of the awards based on the fair value of the restricted stock. ~~The restricted stock awards’ fair value is equal to~~Shares granted under the ~~value~~2018 Plan generally vest over a one-year period for independent directors and a five-year period for employees and officers beginning on the grant date. ~~Shares awarded as restricted stock vest ratably over a three-year period for directors and a five-year period for employees, beginning at the grant date.~~ Any ~~unvested restricted stock awards~~nonvested RSAs will ~~expire after vesting or sooner~~be forfeited in the event of the award recipient’s termination of service with the Company or the Bank.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents a summary of the Company’s nonvested awards during the ~~nine months ended September 30, 2017~~dates indicated (shown as actual):

Weighted-Average


Grant-Date Fair Value

Weighted-Average
Nonvested Shares

Shares

Per Share

Grant-Date Fair Value
Nonvested at January 1, 2017

68,763

$
17.49

$
1,202,401
Granted

—

—

—
Less vested

31,921

$
17.32

$
552,810
Forfeited or expired

—

—

—
Nonvested at September 30, 2017

36,842

$
17.63

$
649,591

			Weighted-Average
			Grant-Date Fair Value
Nonvested Shares	Shares		Per Share
Nonvested at January 1, 2024		102,144	$	29.61
Granted		—		—
Less vested		—		—
Less forfeited		4,000		30.73
Nonvested at March 31, 2024		98,144	$	29.57

At ~~September 30, 2017,~~March 31, 2024, there was ~~$508,000~~$2.2 million of total unrecognized forfeiture adjusted compensation ~~costs~~cost related to nonvested shares granted under the 2018 Plan as ~~restricted stock awards.~~RSAs. The cost is expected to be recognized over the remaining weighted-average vesting period of ~~1.6~~3.1 years.

NOTE14 - – REGULATORY CAPITAL

The ~~Company and the~~ Bank ~~are~~is subject to various regulatory capital requirements administered by the ~~federal banking agencies.~~Federal Reserve and the FDIC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

~~Quantitative~~

Table of Contents

Under the risk-based capital adequacy framework, quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 total capital (as defined) and common equity Tier 1 (“CET 1”) capital to risk-weighted assets (as defined).

The Bank must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage, and ~~Tier~~ CET 1 ~~leverage~~ capital ratios as set forth in the table below to be categorized as well capitalized. At ~~September 30, 2017 and December~~March 31, ~~2016,~~2024, the Bank was categorized as well capitalized under applicable regulatory requirements. There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes, at ~~September 30 2017,~~March 31, 2024, that ~~the Company and~~ the Bank met all capital adequacy requirements.

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following ~~table compares~~tables compare the Bank’s actual capital amounts and ratios ~~at September 30, 2017 and December 31, 2016~~ to their minimum regulatory capital requirements and well capitalized regulatory capital at ~~those~~the dates ~~(dollars in thousands):~~indicated:

To be Well Capitalized

Under Prompt

For Capital

Corrective

Actual

Adequacy Purposes

Action Provisions

Bank Only

Amount

Ratio

Amount

Ratio

Amount

Ratio

At September 30, 2017













Total risk-based capital













(to risk-weighted assets)

$
130,246

16.14
%
$
64,556

8.00
%
$
80,696

10.00
%
Tier 1 risk-based capital





(to risk-weighted assets)

$
120,150

14.89
%
$
48,417

6.00
%
$
64,556

8.00
%
Tier 1 leverage capital





(to average assets)

$
120,150

12.50
%
$
38,459

4.00
%
$
48,074

5.00
%
CET 1 capital





(to risk-weighted assets)

$
120,150

14.89
%
$
36,313

4.50
%
$
52,452

6.50
%

At December 31, 2016













Total risk-based capital













(to risk-weighted assets)

$
93,309

13.87
%
$
53,813

8.00
%
$
67,266

10.00
%
Tier 1 risk-based capital













(to risk-weighted assets)

$
84,876

12.62
%
$
40,360

6.00
%
$
53,813

8.00
%
Tier 1 leverage capital













(to average assets)

$
84,876

10.33
%
$
32,862

4.00
%
$
41,078

5.00
%
CET 1 capital













(to risk-weighted assets)

$
84,876

12.62
%
$
30,270

4.50
%
$
43,723

6.50
%

																To be Well Capitalized
																Under Prompt
						For Capital					For Capital Adequacy					Corrective
	Actual					Adequacy Purposes					with Capital Buffer					Action Provisions
Bank Only	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
At March 31, 2024
Total risk-based capital
(to risk-weighted assets)	$	346,551		13.72	%	$	202,098		8.00	%	$	265,253		10.50	%	$	252,622		10.00	%
Tier 1 risk-based capital
(to risk-weighted assets)	$	314,938		12.47	%	$	151,573		6.00	%	$	214,729		8.50	%	$	202,098		8.00	%
Tier 1 leverage capital
(to average assets)	$	314,938		10.61	%	$	118,727		4.00	%	$	N/A		N/A		$	148,408		5.00	%
CET 1 capital
(to risk-weighted assets)	$	314,938		12.47	%	$	113,680		4.50	%	$	176,835		7.00	%	$	164,204		6.50	%

										To be Well Capitalized
										Under Prompt
				For Capital			For Capital Adequacy			Corrective
	Actual			Adequacy Purposes			with Capital Buffer			Action Provisions
Bank Only	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
At December 31, 2023
Total risk-based capital
(to risk-weighted assets)	$	339,436	13.37%	$	203,094	8.00%	$	266,561	10.50%	$	253,868	10.00%
Tier 1 risk-based capital
(to risk-weighted assets)	$	307,686	12.12%	$	152,321	6.00%	$	215,787	8.50%	$	203,094	8.00%
Tier 1 leverage capital
(to average assets)	$	307,686	10.39%	$	118,488	4.00%	$	N/A	N/A	$	148,109	5.00%
CET 1 capital
(to risk-weighted assets)	$	307,686	12.12%	$	114,240	4.50%	$	177,707	7.00%	$	165,014	6.50%

In addition to the minimum CET 1, Tier 1, total capital and ~~total capital~~leverage ratios, the Bank ~~has~~is required to maintain a capital conservation buffer consisting of additional CET 1 capital greater than 2.5% of risk-weighted assets above the required minimum capital levels ~~in order~~ to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented to an amount equal to 2.5% of risk-weighted assets in January 2019. At ~~September 30, 2017,~~March 31, 2024, the Bank’s ~~CET1~~ capital exceeded the minimum required capital with the required conservation ~~buffer of 1.25%.~~buffer.

~~FS Bancorp, Inc.~~

The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to ~~the~~ capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. ~~For~~Bank holding companies with less than $3.0 billion in assets are generally not subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company ~~with less than $1.0 billion in assets,~~is required to serve as a source of financial and managerial strength to the ~~capital guidelines apply on a~~holding company’s subsidiary bank ~~only basis~~ and ~~the Federal Reserve~~ expects the holding company’s subsidiary ~~banks~~bank to be well capitalized under the prompt corrective action regulations. If ~~FS Bancorp, Inc. was~~the Company were subject to regulatory guidelines for bank holding companies with ~~$1.0~~$3.0 billion or more in assets at ~~September 30, 2017, the Company~~March 31, 2024, it would have exceeded all regulatory capital requirements. For informational purposes, the regulatory capital ratios calculated for the Company at March 31, 2024 were 9.2% for Tier 1 leverage-based capital, 10.9% for Tier 1 risk-based capital, 14.1% for total risk-based capital, and 10.9% for CET 1 capital ratio. The regulatory capital ratios calculated for ~~FS Bancorp, Inc.~~the Company at ~~September 30, 2017~~December 31, 2023 were ~~11.9%~~9.0% for Tier 1 leverage-based capital, ~~14.2%~~10.5% for Tier 1 risk-based capital, ~~15.5%~~13.7% for total risk-based capital, and ~~14.2%~~10.5% for CET 1 capital ratio.

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NOTE15 - – BUSINESS SEGMENTS

The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the ~~manner in which~~way financial information is currently evaluated by management. This process is dynamic and is based on management’s current view of the Company’s operations and is not necessarily comparable with similar information for other financial institutions. ~~We define our~~The Company defines its business segments by

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

product type and customer segment which ~~we have~~it has organized into two lines of business: commercial and consumer banking and home lending.

~~We use~~

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 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. The FTP methodology is based on management's estimated cost of originating funds including the cost of overhead for deposit generation;

~~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;~~

●	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 square footage utilized by the home lending segment in Company owned locations;~~

●	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 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.~~

●	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.

~~The FTP methodology is based on management’s estimated cost of originating funds including the cost of overhead for deposit generation.~~

A description of the Company’s business segments and the products and services that 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, ~~ATMs,~~ 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. ~~We originate~~The Company originates consumer loans, commercial and multi-family real estate loans, construction loans onfor residential and multi-family construction, and commercial business loans. At ~~September 30, 2017, our~~March 31, 2024, the Company’s retail deposit branch network consisted of 1127 branches in the Pacific Northwest. ~~At September 30, 2017 and December 31, 2016, our deposits totaled $840.6 million and $712.6 million, respectively.~~ This segment is also responsible for the management of ~~our~~the investment portfolio and other assets of the Bank.

Home Lending Segment

The home lending segmentoriginates ~~one-to-four-family~~one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as ~~originating adjustable rate mortgage (“ARM”)~~ loans held for investment. ~~The~~A majority of ~~our~~these mortgage loans are sold to or securitized by FNMA, FHLMC, GNMA, or the FHLB of Des Moines, while ~~we retain~~the Company generally retains the right to service these loans. Loans originated under the guidelines of the Federal Housing Administration or ~~FHA,~~(“FHA”), US Department of Veterans Affairs or VA, and United States Department of Agriculture or USDA are generally sold servicing released to a correspondent bank or mortgage company. ~~We have~~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 ~~our~~its loans are brokered to other lenders. On occasion, we the Company may sell a portion of ~~our MSR~~its MSRs portfolio and may sell small pools of loans initially originated to be held in the loan portfolio. ~~We manage~~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 mortgage servicing rights~~one-to-four-family MSRs within this business segment. ~~One-to-four-family~~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.

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~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Segment Financial Results

The tables below summarize the financial results for each segment based ~~primarily~~ on the ~~number of FTEs and assets~~factors mentioned above within each segment for the three ~~and nine~~ months ended ~~September 30, 2017~~ March 31, 2024 and ~~2016:~~2023:

At or For the Three Months Ended September 30, 2017


Home Lending

Commercial and Consumer Banking

Total
Condensed income statement:

Net interest income (1)

$
812

$
10,210

$
11,022
Provision for loan losses

(127)

(323)

(450)
Noninterest income

5,014

1,413

6,427
Noninterest expense

(4,586)

(7,003)

(11,589)
Income before provision for income taxes

1,113

4,297

5,410
Provision for income taxes

(407)

(1,549)

(1,956)
Net income

$
706

$
2,748

$
3,454
Total average assets at period end

$
220,898

$
744,820

$
965,718
FTEs

119

204

323


	At or For the Three Months Ended September 30, 2016
	Home Lending		Commercial and Consumer Banking		Total		At or For the Three Months Ended March 31, 2024
Condensed income statement:							Commercial and Consumer Banking			Home Lending			Total
Net interest income (1)	$	793	$	7,957	$	8,750	$	28,086		$	2,260		$	30,346
Provision for loan losses		(16)		(584)		(600)
Noninterest income		5,982		1,266		7,248
Noninterest expense		(3,861)		(6,451)		(10,312)
Provision for credit losses								(1,251	)		(148	)		(1,399	)
Noninterest income⁽²⁾								2,393			2,718			5,111
Noninterest expense ⁽³⁾								(19,008	)		(4,521	)		(23,529	)
Income before provision for income taxes		2,898		2,188		5,086		10,220			309			10,529
Provision for income taxes		(948)		(681)		(1,629)		(2,069	)		(63	)		(2,132	)
Net income	$	1,950	$	1,507	$	3,457	$	8,151		$	246		$	8,397
Total average assets at period end	$	168,722	$	634,735	$	803,457
FTEs		110		195		305
Total average assets for period ended							$	2,401,864		$	556,683		$	2,958,547
Full-time employees ("FTEs")								440			130			570

	At or For the Three Months Ended March 31, 2023
Condensed income statement:	Commercial and Consumer Banking			Home Lending			Total
Net interest income ⁽¹⁾	$	27,500		$	3,162		$	30,662
(Provision) recovery for credit losses		(2,122	)		14			(2,108	)
Noninterest income ⁽²⁾		2,380			2,839			5,219
Noninterest expense⁽³⁾		(18,610	)		(4,914	)		(23,524	)
Income before provision for income taxes		9,148			1,101			10,249
Provision for income taxes		(1,809	)		(228	)		(2,037	)
Net income	$	7,339		$	873		$	8,212
Total average assets for period ended	$	2,250,052		$	491,974		$	2,742,026
FTEs		445			141			586

(1)

~~Table of Contents~~

~~FS BANCORP, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

At or For the Nine Months Ended September 30, 2017


Home Lending

Commercial and Consumer Banking

Total
Condensed income statement:

Net interest income (1)

$
1,857

$
28,105

$
29,962
Provision for loan losses

(324)

(126)

(450)
Noninterest income

14,863

3,941

18,804
Noninterest expense

(12,985)

(19,924)

(32,909)
Income before provision for income taxes

3,411

11,996

15,407
Provision for income taxes

(1,107)

(3,894)

(5,001)
Net income

$
2,304

$
8,102

$
10,406
Total average assets at period end

$
196,765

$
706,017

$
902,782
FTEs

119

204

323

At or For the Nine Months Ended September 30, 2016


Home Lending

Commercial and Consumer Banking

Total
Condensed income statement:

Net interest income (1)

$
1,706

$
22,959

$
24,665
Provision for loan losses

(142)

(1,658)

(1,800)
Noninterest income

14,852

3,273

18,125
Noninterest expense

(10,593)

(18,246)

(28,839)
Income before provision for income taxes

5,823

6,328

12,151
Provision for income taxes

(2,012)

(2,186)

(4,198)
Net income

$
3,811

$
4,142

$
7,953
Total average assets at period end

$
147,873

$
642,283

$
790,156
FTEs

110

195

305

~~(1)~~

Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of assigned liabilities to fund segment assets.

(2)

Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value, and subsequently transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of noninterest income. For the three months ended March 31,2024, the Company recorded a net increase in fair value of $2,000, as compared to a net increase in fair value of $577,000 for the three months ended March 31,2023, respectively. As of March 31,2024 and 2023, there was $15.0 million and $15.1 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from loans held for sale to loans held for investment.

(3)

Noninterest expense includes allocated overhead expense from general corporate activities. Allocation is determined based on a combination of segment assets and FTEs. For the three months ended March 31,2024 and 2023, the Home Lending segment included allocated overhead expenses of $1.5 million and $1.6 million, respectively.

Table of Contents

NOTE16 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and certain other intangibles generally arise from business combinations accounted for under the acquisition method of accounting. Goodwill totaled $3.6 million at both March 31, 2024, and December 31, 2023, and represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in the Branch Purchase on February 24, 2023, and the purchase of four retail bank branches from Bank of America on January 22, 2016. Goodwill is not amortized but is evaluated for impairment on an annual basis at December 31 of each year or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performed an impairment analysis at March 31, 2024, and determined that no impairment of goodwill existed.

Core deposit intangible (“CDI”) is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. As of March 31, 2024, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.

The following table summarizes the changes in the Company’s other intangible assets comprised solely of CDI for the year ended December 31, 2023, and the three months ended March 31, 2024.

	Other Intangible Assets
			Accumulated
	Gross CDI		Amortization			Net CDI
Balance, December 31, 2022	$	7,490	$	(4,121	)	$	3,369
Additions as a result of the Branch Purchase		17,438		—			17,438
Amortization		—		(3,464	)		(3,464	)
Balance, December 31, 2023		24,928		(7,585	)		17,343
Amortization		—		(941	)		(941	)
Balance, March 31, 2024	$	24,928	$	(8,526	)	$	16,402

The CDI represents the fair value of the intangible core deposit base acquired in business combinations. The CDI will be amortized on an accelerated basis over 10 years for the CDI related to the Branch Purchase, on a straight-line basis over 10 years for the CDI related to the Anchor Bank acquisition in November 2018 (“Anchor Acquisition”) and on an accelerated basis over approximately nine years for the CDI related to the purchase of four retail bank branches from Bank of America on January 22, 2016. Total amortization expense was $941,000 for the three months ended March 31, 2024, and $459,000 for the same period in 2023.

Table of Contents

Amortization expense for CDI is expected to be as follows at March 31, 2024:

Remainder of 2024	$	2,692
2025		3,191
2026		2,846
2027		2,500
2028		2,110
Thereafter		3,063
Total	$	16,402

NOTE 17– REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

All the Company’s revenue from contracts with customers in-scope of ASC 606 is recognized in noninterest income and included in our commercial and consumer banking segment. The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope and/or immaterial to Topic 606, for the dates indicated.

	At or For the Three Months Ended March 31,
Noninterest income	2024		2023
In-scope of Topic 606:
Debit card interchange fees	$	763	$	639
Deposit service and account maintenance fees		364		275
Noninterest income (in-scope of Topic 606)		1,127		914
Noninterest income (out-of-scope and/or immaterial to Topic 606)		3,984		4,305
Total noninterest income	$	5,111	$	5,219

Deposit Service and Account Maintenance Fees

The Bank earns fees from its deposit customers for account maintenance, transaction-based services, and overdraft charges. Account maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts monthly. The performance obligation is satisfied, and the fees are recognized monthly as the service period is completed. Transaction-based fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as wire fees, as well as charges against the account, such as fees for non-sufficient funds and overdrafts. The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

Debit Interchange Income

Debit and ATM interchange income represent fees earned when a debit card issued by the Bank is used. The Bank earns interchange fees from debit cardholder transactions through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. The performance obligation is satisfied, and the fees are earned when the cost of the transaction is charged to the cardholders’ debit card.

Table of Contents

Item2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Forward-Looking~~

Forward–Looking Statements

This report ~~may contain~~contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions. Forward-looking statements include, but are not limited to:

●

statements of our goals, intentions, and expectations;

●

statements regarding our business plans, prospects, growth, and operating strategies;

●

statements regarding the quality of our loan and investment portfolios; and

●

·estimates of our risks and future costs and benefits.

~~estimates of our risks and future costs and benefits.~~

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

●	potential adverse impacts to economic conditions in the Company’s local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages, the effects of inflation, a potential recession or slowed economic growth;
●	·changes in the interest rate environment, including the recent past increases in the Board of Governors of the Federal Reserve System (“Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
●		~~general economic conditions, either nationally or~~the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in ~~our market area, that are worse than expected;~~response thereto;

●	the effects of any federal government shutdown;
	·	●	the credit risks of lending activities, including changes in the level and trend of loan delinquencies, write offs, changes in our allowance for ~~loan~~credit losses (“ACL”) on loans, and provision for ~~loan~~credit losses on loans that may be impacted by deterioration in the housing and commercial real estate markets;

●

secondary market conditions and our ability to originate loans for sale and sell loans in the secondary market;

●

fluctuations in the demand for loans, the number of unsold homes, land and other properties, and fluctuations in real estate values in our market area;

●

~~increases~~staffing fluctuations in ~~premiums for deposit insurance;~~response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

●

the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

●

changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments;

●

increased competitive pressures among financial services companies;

●

our ability to execute our plans to grow our residential construction lending, our home lending operations, our warehouse lending, and the geographic expansion of our indirect home improvement lending;

●

our ability to attract and retain deposits;

●

our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

●

our ability to control operating costs and expenses;

●	·our ability to retain key members of our senior management team;
●	changes in consumer spending, borrowing, and savings habits;

●

our ability to successfully manage our growth;

●

·the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

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legislative or regulatory changes that adversely affect our business including ~~the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act,~~ changes in ~~regulation~~banking, securities and tax law, and in regulatory policies and principles, ~~an increase in regulatory capital requirements~~ or ~~change in~~ the interpretation of regulatory capital or other ~~rules, including as a result of Basel III;~~rules;

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●	·our ability to pay dividends on our common stock;
●		the quality and composition of our securities portfolio and the impact of any adverse changes in the securities markets;

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changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards ~~Board;~~Board (“FASB”);

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costs and effects of litigation, including settlements and judgments;

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disruptions, security breaches, or other adverse events, failures, or interruptions in, or attacks on, our ~~ability to implement~~information technology systems or on the third-party vendors who perform several of our ~~branch expansion strategy;~~critical processing functions;

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inability of key third-party vendors to perform their obligations to us; ~~and~~

●	·the economic impact of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest, and other external events on our business;
●	other economic, competitive, governmental, bank regulatory, consumer and technical factors affecting our operations, pricing, products and services, and
●	other risks described elsewhere in this Form 10‑Q and our other reports filed with ~~the U.S. Securities and Exchange Commission,~~or furnished to SEC, including our Annual Report on Form ~~10‑K~~10-K for the year ended December 31, ~~2016.~~2023 (the “2023 Form 10-K”).

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Any of the forward-looking statements made in this Form 10‑Q and in other public statements may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. The Company undertakes no obligation to update or revise any forward-looking statement included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

Overview

FS Bancorp ~~Inc.~~ and its subsidiary bank, 1st Security Bank, ~~of Washington~~ have been serving the Puget Sound area since ~~1936. Originally chartered as a credit union, known as Washington’s Credit Union,~~1907, including its bank acquisitions, when the ~~credit union served various select employment groups. On April 1, 2004, the credit union converted~~predecessor to ~~a Washington state-chartered mutual savings bank.~~Anchor Bank was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS ~~Bancorp, Inc.~~Bancorp.

The Company is relationship-driven, delivering banking and financial services to local families, local and regional businesses and industry niches ~~within distinct~~in suburban communities in the greater Puget Sound area, ~~communities, and one loan production office located in~~the Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, ~~Washington.~~ Goldendale, Vancouver, and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook and Waldport, Oregon.

On ~~January 22, 2016,~~February 24, 2023, the Company completed ~~the Branch Purchase~~its purchase of seven retail bank branches from Columbia State Bank (the “Branch Acquisition”) and acquired ~~$186.4~~approximately $425.5 million in deposits and ~~$419,000~~$66.1 million in ~~loans based on financial information at that date.~~loans. The ~~four~~seven acquired branches ~~acquired~~ are ~~located~~ in the communities of ~~Port Angeles, Sequim, Port Townsend,~~Goldendale, and ~~Hadlock, Washington.~~White Salmon, Washington, and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. The Branch ~~Purchase~~Acquisition expanded our Puget Sound-focused retail footprint ~~onto~~into southeast Washington and the ~~Olympic Peninsula and provided~~state of Oregon as well as providing an opportunity to extend our unique brand of community banking into those communities.

The Company also maintains its long-standing indirect consumer lending platform which operates primarily throughout the ~~West Coast.~~Western United States. The Company emphasizes long-term relationships with families and businesses within the communities served, working with them to meet their financial needs. The Company is also actively involved in community activities and events within these market areas, which further strengthens our relationships within those markets.

The ~~Company focuses on~~Company's strategic focus involves diversifying revenues, expanding lending channels, and ~~growing~~enhancing the banking franchise. Management ~~remains focused on building diversified~~is committed to establishing varied revenue streams ~~based upon~~considering credit, interest rate, and concentration risks. ~~Our~~The business plan ~~remains as follows:~~includes:

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Growing and diversifying our loan portfolio;

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Maintaining strong asset quality;

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Emphasizing lower cost core deposits to reduce the costs of funding our loan growth;

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Capturing ~~our~~ customers’ ~~full relationship by offering~~complete relationships through a ~~wide range~~broad array of products and services, by leveraging ~~our well-established~~community involvement, ~~in our communities~~ and by selectively emphasizing ~~products and services designed to meet our~~offerings aligned with customers’ banking needs; and

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Expanding ~~the Company’s~~into new markets.

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~~The Company is~~

As a diversified lender, ~~with a focus on~~ the ~~origination of indirect home improvement loans, also referred to as fixture secured~~Company specializes in originating one-to-four-family loans, commercial real estate ~~mortgage~~(“CRE”) mortgages, second mortgages, consumer loans, ~~home~~marine lending, and commercial business loans.

At March 31, 2024, the Company's loan portfolio included real estate loans, consumer loans, and commercial business loans representing 62.8%, 26.3%, and ~~second mortgage/home equity loan products. Consumer loans, in particular indirect home improvement~~10.9% of the portfolio, respectively.

Fixture secured loans to finance window, ~~replacement,~~ gutter, ~~replacement,~~ siding replacement, solar panels, spas, and other improvement renovations ~~represent the largest portion~~are a large segment of the consumer loan ~~portfolio and have traditionally been the mainstay of our lending strategy. At September 30, 2017,~~portfolio. These fixture-secured consumer loans represented 26.3% of the Company’s total gross loan portfolio, down from 28.9% at December 31, 2016, as real estate and commercial business loan originations have increased at a faster pace than consumer loan originations.

~~Indirect home improvement lending is~~are dependent on the ~~Bank’s relationships with home improvement contractors~~Company’s contractor/dealer network of 77 active dealers located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and ~~dealers.~~New Hampshire. Five of these contractor/dealers were responsible for 77.1% of the dollar volume of funded loans for the three months ended March 31, 2024. The Company funded ~~$24.6~~$34.9 million or ~~1,490~~approximately 1,600 loans in the fixture-secured consumer loan category during the quarter ended ~~September 30, 2017, using its indirect home improvement contractor/dealer network located throughout Washington, Oregon, Idaho, and California with four contractors/dealers responsible~~March 31, 2024.

The following table details fixture secured loan originations by state for ~~45.5% of~~ the ~~funded loans dollar volume. During the nine months ended September 30,~~periods indicated:

(Dollars in thousands)	For the Three Months Ended					For the Year Ended
	March 31, 2024					December 31, 2023
State	Amount		Percent			Amount		Percent
Washington	$	12,555		35.9	%	$	72,166		35.1	%
Oregon		7,723		22.1			48,831		23.8
California		3,530		10.1			34,219		16.7
Idaho		2,198		6.3			13,787		6.7
Colorado		2,069		5.9			7,442		3.6
Arizona		1,328		3.8			5,846		2.8
Nevada		1,251		3.6			4,697		2.3
Minnesota		623		1.8			8,312		4.0
Texas		514		1.5			1,685		0.8
Utah		1,661		4.8			5,062		2.5
Massachusetts		401		1.1			778		0.4
Montana		819		2.3			2,200		1.1
New Hampshire		273		0.8			322		0.2
Total fixture secured loans	$	34,945		100.0	%	$	205,347		100.0	%

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2017, the Company originated $15.5 million in the state of California, and at September 30, 2017, held $42.9 million in California originated consumer loans. Management has established a concentration limit of no more than 100% of the Bank’s total risk-based capital for loans originated in California. At September 30, 2017, the limit was $130.2 million.

The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. ~~Walk-in~~Retail banking customers are also an important source of the Company’s loan originations. ~~During the nine months ended, the~~The Company originated ~~$603.4~~$151.4 million of one-to-four-family loans ~~which includes~~(which included loans held for sale, ~~(“HFS”),~~ loans held for investment and fixed ~~seconds, and~~seconds) in addition to $2.6 million of loans brokered to other institutions through the home lending segment ~~including brokered loans of $5.7 million. During~~during the ~~nine~~three months ended ~~September 30, 2017, $511.8~~March 31, 2024, of which $93.9 million ~~of the loans originated~~ were sold to investors. Of the loans sold to investors, ~~of which $321.3~~$55.5 million were sold to the FNMA, FHLMC, FHLB, and/or GNMA with servicing rights retained for the purpose of further developing these customer relationships. At ~~September 30, 2017,~~March 31, 2024, one-to-four-family residential mortgage loans held for investment ~~which excludes loans held for sale of $65.1 million,~~ totaled ~~$170.2~~$580.1 million, or ~~22.2%~~23.7%, of the total gross loan ~~portfolio.~~portfolio, while loans held for sale totaled $50.0 million and home equity loans totaled $73.3 million at that date.

~~The Company generally underwrites~~

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For the three months ended March 31, 2024, one-to-four-family loan originations and refinancing activity increased compared to the prior quarter as a result of slightly decreased market interest rates. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, ~~based on the applicant’s ability~~continues to ~~repay. This includes employment~~be an important element in our total loan portfolio, and credit history and the appraised value of the subject property. The Company lends up to 100% of the lesser of the appraised value or purchase price for one-to-four-family first mortgage loans. For first mortgage loans with a loan-to-value ratio in excess of 80%, the Company generally requires either private mortgage insurance or government sponsored insurance in order to mitigate the higher risk level associated with higher loan-to-value loans. Fixed-rate loans secured by one-to-four-family residences have contractual maturities of up to 30 years and are generally fully amortizing, with payments due monthly. Adjustable-rate mortgage loans may pose different credit risks than fixed-rate loans, primarily because as interest rates increase, the borrower’s payments rise, increasing the potential for default. Properties securing the one-to-four-family loans are appraised by independent fee appraisers who are selected in accordance with industry and regulatory standards. The Company requires borrowers to obtain title and hazard insurance, and flood insurance, if necessary. Loans are generally underwritten to the secondary market guidelines with additional requirements as determined by the internal underwriting department.

Since 2012, the Company has had an emphasis on diversifying lending products by expanding commercial real estate, commercial business and residential lending, while maintaining the current volume of production and historical growth of the consumer loan portfolio. The Company’s lending strategies are intendedwe continue to take ~~advantage of: (1) historical strength~~a disciplined approach by concentrating our efforts on loans to builders and developers in ~~indirect consumer lending, (2) recent~~our market ~~consolidation that has created new lending opportunities and the availability~~areas known to us. These short-term loans typically have a maturity period of ~~experienced bankers, and (3) strength~~six to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in ~~relationship lending. Retail deposits will continue to serve as an important funding source.~~net loans receivable.

The Company is significantly affected by prevailing economic conditions, as well as government policies and regulations concerning, among other things, monetary and fiscal affairs. ~~Retail deposits serve as an important funding source.~~ Deposit flows are influenced by a number of factors, including interest rates paid on time deposits, other investments, account maturities, and the overall level of personal income and savings. Lending activities are influenced by the demand for funds, the number and quality of lenders, and regional economic cycles. Sources of funds for lending activities include primarily deposits, including brokered deposits, borrowings, payments on loans, and income provided from operations.

The Company’s earnings are primarily dependent upon net interest income, the difference between interest income and interest expense. Interest income is a function of the balances of loans and investments outstanding during a given period and the yield earned on these loans and investments. Interest expense is a function of the amount of deposits and borrowings outstanding during the same period and interest rates paid on these deposits and borrowings. ~~Another significant influence on the Company’s earnings is fee income from home lending activities.~~

The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for ~~loan~~(recapture of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes. Most notable of these factors, the Company recorded a provision for credit losses of $1.4 million for the three months ended March 31, 2024, compared to $2.1 million for the same period one year ago. The decreased provision for credit losses in the current period was primarily due to a decrease in net loan growth, particularly in consumer loans, partially offset by an increase in provision for credit losses due to higher net charge-offs in commercial business, indirect home improvement, and marine loans.

Critical Accounting ~~Policies~~Estimates

We prepare our consolidated financial statements in accordance with GAAP. In doing so, we must make estimates and ~~Estimates~~

~~Certain~~assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the ~~Company’s accounting policies are important to~~time the portrayal of the Company’s financial condition, since they require management to make difficult, complex, or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to,

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~~changes in interest rates, changes in the performance of the economy,~~estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of ~~borrowers.~~operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Management believes that its critical accounting policies include the following:

~~Allowance~~

ACL on Held-to-MaturitySecurities. Management measures expected credit losses on held-to-maturity securities by individual security. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers credit ratings and historical credit loss information that is adjusted for ~~Loan~~current conditions and ~~Lease Losses.~~ reasonable and supportable forecasts.

The ~~allowance for loan and lease losses (“ALLL”)~~held-to-maturity portfolio consists entirely of corporate securities. Securities are generally rated investment grade or higher. Securities are analyzed individually to establish a reserve.

ACL on Available-for-Sale Securities. For available-for-sale securities in an unrealized loss position, management first assesses whether it intends to sell, or is more likely than not to be required to sell, the amount estimated by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. A high degreesecurity before recovery of ~~judgment is necessary when determining the amount~~its amortized cost basis. If either of the ~~allowance for loan losses. Among~~criteria regarding intent or requirement to sell is met, the ~~material estimates required~~security’s amortized cost basis is written down to ~~establish~~fair value through income. For debt securities available-for-sale that do not meet the ~~allowance are: loss exposure at default;~~aforementioned criteria, the ~~amount and timing of future cash flows on impacted loans;~~Company evaluates whether the decline in fair value ~~of collateral; and determination of loss factors~~has resulted from credit losses or other factors. In making this assessment, management considers the extent to ~~be applied~~which fair value is less than amortized cost, any changes to the ~~various elements~~rating of the ~~portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly~~security by a rating agency, and ~~establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic~~adverse conditions ~~and other factors~~specifically related to the collectability of the loan portfolio. Although the Company believes it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. As the Company adds new products to the loan portfolio and expands the Company’s market area, management intends to enhance and adapt our methodology to keep pace with the size and complexity of the loan portfolio. Changes in any of the above factors could havesecurity, among other factors. If this assessment indicates that a significant effect on the calculation of the allowance for loan losses in any given period. Management believes that its systematic methodology continues to be appropriate given the Company’s increased size and level of complexity.

~~Troubled Debt Restructured Loans.~~ TDRs are loans whose terms have been modified or restructured due to a borrower’s financial difficulty, including but not limited to: a reduction in the stated interest rate; an extension of the maturity at an interest rate below current market; a reduction in the face amount of the debt; a reduction in the accrued interest; or re-aging, extensions, deferrals and renewals. TDR loans are considered impaired loans and are individually evaluated for impairment. TDR loans can be classified as either accrual or non-accrual. TDR loans are classified as non-performing loans unless they have been performing in accordance with their modified terms for a period of at least six months in which case they are placed on accrual status.

~~Servicing Rights.~~ Servicing assets are recognized as separate assets when rights are acquired through the purchase or through the sale of financial assets. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For sales of mortgage, commercial and consumer loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage, commercial, or consumer servicing contracts, when available, or alternatively, is based on a valuation model that calculatescredit loss exists, the present value of ~~estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as~~cash flows expected to be collected from the security are compared to the amortized cost ~~to service,~~basis of the ~~discount rate,~~security. If the ~~custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses.~~

~~Servicing assets are evaluated quarterly for impairment based upon the fair~~present value of cash flows expected to be collected is less than the ~~rights as compared to~~ amortized ~~cost. Impairment~~cost basis, a credit loss exists and an ACL is ~~determined~~recorded, limited by ~~stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type, and investor type. Impairment is recognized through a valuation allowance to~~ the ~~extent~~amount that the fair value is less than the ~~capitalized amount. If~~amortized cost basis.

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Changes in the ~~Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be~~ACL are recorded as a ~~recovery and~~provision for (recapture of) credit losses. Losses are charged against the ACL when management believes the uncollectibility of an ~~increase~~available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to ~~income. Capitalized servicing rights are stated separately~~sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses.

ACL on Loans. The ACL on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the ~~Consolidated Balance Sheets~~loans. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed and recaptures are ~~amortized~~credited to the ACL when received. In the case of recaptures, amounts may not exceed the aggregate of amounts previously charged off.

Management utilizes relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts. The lookback period in the analysis includes historical data from 2009 to present. Adjustments to historical loss information are made when management determines historical data is not likely reflective of the current portfolio such as limited data sets or lack of default or loss history. Management may selectively apply external market data to subjectively adjust the Company’s own loss history including index or peer data. Accrued interest receivable is excluded from the estimate of credit losses on loans.

The ACL on loans is measured on a collective cohort basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then risk-grade grouping. Risk grade is grouped within each call report code by pass, watch, special mention, substandard, and doubtful. Other loan types are separated into ~~noninterest income~~their own cohorts due to specific risk characteristics for that pool of loans.

The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”), except for the indirect and marine portfolios which are evaluated under a vintage methodology. The vintage methodology measures the expected loss calculation for future periods based on historical performance by the origination period of loans with similar life cycles and risk characteristics. Guaranteed portions of loans are measured with zero risk due to cash collateral and full guaranty.

The PD calculation looks at the historical loan portfolio at points in ~~proportion~~time (each month during the lookback period) to ~~and~~determine the probability that loans in a certain cohort will default over the ~~period~~next 12-month period. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. In cohorts where the Company’s historical data is insufficient due to a minimal amount of default activity or zero defaults, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the ~~estimated future net servicing income~~Company’s historical PDs. Additionally, management reviews all other cohorts to determine if index PDs should be used outside of these criteria.

The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e., nonaccrual or charge-off). Due to limited charge-off history, management uses index LGDs comprised of rates derived from the LGD experience of other community banks in place of the ~~underlying financial assets.~~Company’s historical LGDs.

~~Derivatives~~

The Company utilizes reasonable and ~~Hedging Activity.~~ ~~ASC 815, “Derivatives and Hedging,” requires that derivatives~~supportable forecasts of future economic conditions when estimating the ACL on loans. The calculation includes a 12-month PD forecast based on the Company’s regression model comparing peer nonperforming loan ratios to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over a 12-month period. Due to limited default history, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company be recorded in the consolidated financial statements at fair value. Management considers its accounting policy for derivatives to be critical because these instruments have certain interest rate risk characteristics that change in value based upon changes in the capital markets. The Company’s derivatives are primarily the result of its home lending activities in the form of commitments to extend credit, commitments to sell loans, TBA MBS trades and option contracts to mitigate the risk of the commitments to extend credit. Estimates of the percentage of commitments to extend credit on loans to be held for sale that may not fund are based upon historical data and current market trends. The fair value adjustments of the derivatives are recorded on the Consolidated Statements of Income with offsets to other assets or other liabilities on the Consolidated Balance Sheets.PDs.

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~~Income Taxes~~The Company recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by qualitative and environmental adjustments to incorporate all significant risks to form a sufficient basis to estimate the credit losses.

Loans classified as nonaccrual, are reviewed quarterly for potential individual assessment. Any loan classified as a nonaccrual that is not determined to need individual assessment is evaluated collectively within its respective cohort.

Where the primary and/or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral, impairment will generally be measured based upon expected future collateral proceeds, net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset(s) (i.e., past due taxes, liens, etc.). ~~Income taxes~~Estimates of future collateral proceeds will be based upon available appraisals, reference to recent valuations of comparable properties, use of consultants or other professionals with relevant market and/or property-specific knowledge, and any other sources of information believed appropriate by management under the specific circumstances. When appraisals are ~~reflected in~~ordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by the Company’s ~~consolidated financial statements~~internal appraisal reviewer.

Where the primary and/or expected source of repayment of a specific loan is believed to ~~show~~be the ~~tax effects~~receipt of principal and interest payments from the borrower and/or the refinancing of the ~~operations~~loan by another creditor, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate. Expected refinancing proceeds may be estimated from review of term sheets received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and ~~transactions reported in~~modifications. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.

ACL on Unfunded Commitments. The Company estimates expected credit losses over the ~~consolidated financial statements and consist of taxes currently payable plus deferred taxes. Accounting Standards Codification, ASC 740, “Accounting for Income Taxes~~,” requires the asset and liability approach for financial accounting and reporting for deferred income taxes. Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of assets and liabilities. They are reflected at currently enacted income tax rates applicable to thecontractual period in which the ~~deferred tax assets or liabilities are~~Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The ACL for unfunded commitments is adjusted through a provision for (recapture of) credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be ~~realized~~funded over its estimated life. The estimate utilizes the same factors and assumptions as the ACL on loans and is applied at the same collective cohort level.

Business Combinations and Goodwill. Pursuant to applicable accounting guidance, the Company recognizes assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date. Transaction costs related to the acquisition are expensed in the period incurred. The determination of fair values involves estimates based on internal or ~~settled~~third-party valuations, including appraisals, discounted cash flow analysis, and other techniques incorporating factors such as attrition, inflation, asset growth rates, discount rates, credit risk, and multiples of earnings. The determination of fair value may require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.

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In whole bank or bank branch acquisitions, the primary identifiable intangible asset recorded is the value of the core deposit intangibles, representing the estimated value of the long-term deposit relationships acquired. The determination involves assumptions and estimates, typically determined through discounted cash flow analysis, considering customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. Amortization of core deposit intangibles occurs over estimated useful lives reviewed periodically for reasonableness. These estimated useful lives, typically ranging from seven to 10 years with an accelerated rate of amortization are periodically reviewed for reasonableness. Identifiable intangible assets, including core deposit intangibles, are assessed for impairment when events or changes suggest the carrying value may not be recoverable. The Company's policy dictates recognition of an impairment loss equal to the difference between the asset’s carrying amount and its fair value if the expected undiscounted future cash flows are less than the carrying amount. Estimating future cash flows involves the use of multiple estimates and assumptions, as previously mentioned.

The ACL on purchase credit deteriorated (“PCD”) assets is recognized within business combination accounting with no initial impact to net income. Subsequent changes in estimates of expected credit losses on PCD loans are recognized through a provision for (recapture of) credit losses in subsequent periods as they arise. The ACL on non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions that were described previously in the section above entitled, “Allowance for Credit Losses on Loans.”

Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with differences from contractual unpaid principal balances referred to as “discounts.” These discounts are accreted to interest income over the loans' estimated remaining lives.

Similar adjustments are made for premiums or discounts on acquired debt impacting interest expense over their remaining lives. Actual accretion or amortization may differ materially from our estimates impacting our operating results.

Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. ASC 350–10 establishes standards for an impairment assessment of goodwill.

The initial recognition of goodwill and other intangible assets, along with subsequent analyses, necessitates subjective judgments from management. These judgements involve estimating how acquired assets will perform in the future using valuation methods including discounted cash flow analysis. Additionally, the challenge arises as estimated cash flows may extend beyond 10 years, making them difficult to determine over an extended timeframe. Significant events and factors influencing these estimates include competitive forces, customer behaviors, attrition, changes in revenue growth trends, cost structures, technology, alterations in discount rates, and specific industry and market conditions. To validate assumptions in its estimates, the Company reviews the historical performance of underlying or similar assets, ensuring the reasonableness of cash flow estimates.

The Company’s annual assessment of potential goodwill impairment was completed during the fourth quarter of 2023. Based on the results of this assessment, no goodwill impairment was recognized. Because of current economic conditions the Company continues to monitor goodwill and other intangible assets for impairment indicators throughout the year.

On an on-going basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and ~~liability method~~liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company’s accounting policies are discussed in detail in “Note 1 – Basis of ~~accounting. The deferred income provision represents the difference between net deferred tax asset/liability at the beginning~~Presentation and ~~end~~Summary” of the ~~reported period. In formulating the deferred tax asset, the Company is required~~Notes to ~~estimate income~~Consolidated Financial Statements included in Item 8. “Financial Statement and taxes in the jurisdiction in which the Company operates. This process involves estimating the actual current tax exposure for the reported period together with assessing temporary differences resulting from differing treatmentSupplementary Data” of ~~items, such as depreciation and the provision for loan losses, for tax and financial reporting purposes.~~Form 10–K.

Deferred tax liabilities occur when taxable income is smaller than reported income on the income statements due to accounting valuation methods that differ from tax, as well as tax rate estimates and payments made quarterly and adjusted to actual at the end

Table of the year. Deferred tax liabilities are temporary differences payable in future periods. The Company had a net deferred tax liability of $1.4 million, and $1.2 million, at September 30, 2017 and December 31, 2016, respectively.Contents

Comparison of Financial Condition at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016~~2023

Assets. Total assets ~~increased $166.0 million, or 20.0%, to $993.9 million~~were $2.97 billion at ~~September 30, 2017, from $827.9 million at~~both March 31, 2024 and December 31, ~~2016, primarily as a result~~2023. The changes in total assets at March 31, 2024, compared to December 31, 2023, included increases of ~~a $160.5~~$24.3 million ~~or 27.1% increase~~in loans held for sale, $13.9 million in loans receivable, net, ~~a $12.5~~and $3.6 million ~~or 23.8% increase in loans HFS, a $2.9 million, or 18.8% increase in certificates of deposit at other financial institutions, and a $1.3 million, or 27.1% increase~~ in other assets, partially offset by ~~a $5.2~~decreases of $20.3 million ~~or 14.2% decrease~~ in total cash and cash equivalents, ~~a $3.8~~$13.3 million ~~or 4.6% decrease~~ in securities available-for-sale, $8.1 million in MSRs held for sale, and ~~a $2.6~~$1.9 million ~~or 31.3% decrease~~ in ~~servicing rights.~~deferred tax asset, net.

Loans receivable, net increased ~~$160.5~~$13.9 million ~~or 27.1%~~ to ~~$753.9 million~~$2.42 billion at ~~September 30, 2017,~~March 31, 2024, from ~~$593.3 million~~$2.40 billion at December 31, ~~2016. The increase in~~2023, Total real estate loans ~~receivable, net was primarily a result of~~increased $5.8 million to $1.54 billion at March 31, 2024, compared to December 31, 2023, reflecting increases in ~~real estate and commercial business loans. Real estate loan increases included~~ one-to-four-family loans (excluding loans held for ~~investment~~sale) of ~~$46.2~~$12.3 million and home equity loans of $3.8 million, partially offset by decreases in CRE loans of $7.3 million, construction and development loans of ~~$34.9~~$1.7 million, ~~commercial real estate loans of $7.3 million,~~and multi-family loans of ~~$5.9~~$1.4 million. Undisbursed construction and development loan commitments increased $13.6 million, ~~and home equity loans of $3.9 million. Changes in commercial business lending included a $17.6~~to $168.2 million ~~increase in~~at March 31, 2024, as compared to $154.6 million at December 31, 2023. Similarly, commercial business loans ~~associated with our warehouse lending program and~~increased $8.7 million to $264.5 million at March 31, 2024, compared to December 31, 2023, as a ~~$17.4 million~~result of an increase in commercial and industrial ~~loans. Growth~~lending of $18.1 million, partially offset by a decrease in ~~consumer~~warehouse lending ~~was $26.9~~of $9.5 million. Consumer loans decreased $621,000 to $646.1 million ~~reflecting growth~~at March 31, 2024, compared to December 31, 2023, primarily due to a decrease of $1.1 million in ~~the Bank’s long established~~ indirect home improvement ~~lending platform.~~loans and $131,000 in other consumer loans, partially offset by an increase of $611,000 in marine loans.

Loans ~~HFS,~~held for sale, consisting of one-to-four-family loans, ~~and one commercial and industrial loan,~~ increased by ~~$12.5~~$24.3 million ~~or 23.8%~~ to ~~$65.1~~$50.0 million at ~~September 30, 2017,~~March 31, 2024, from ~~$52.6~~$25.7 million at December 31, ~~2016 due to increased loan originations.~~2023. The Company ~~will continue selling one-to-four-family loans into~~continues to invest in its home lending operations and strategically manage production capacity in the ~~secondary market for asset~~/~~liability management purposes.~~markets we serve.

One-to-four-family loan originations for the three months ended March 31, 2024, included $110.5 million of loans originated ~~through the home lending segment which includes~~for sale, $40.9 million of portfolio loans ~~HFS, loans held for investment, fixed seconds,~~including first and second liens, and $2.6 million of loans brokered to other institutions increased $27.3 million, or 12.6% to $244.1 million during the quarter ended September 30, 2017, compared to $232.9 million for the same quarter one year ago. One-to-four-family loans originated through the home lending segment increased $19.3 million, or 3.3% to $603.4 million during the nine months ended September 30, 2017, compared to $584.1 million during the nine months ended September 30, 2016. institutions.

Originations of one-to-four-family loans ~~to purchase a home (purchase production) increased by $68.0 million, or 17.2% with $464.3 million in loan purchase production closing during~~for the ~~nine~~periods indicated were as follows:

(Dollars in thousands)	For the Three Months Ended March 31,
	2024					2023
	Amount		Percent			Amount		Percent			$ Change		% Change
Purchase	$	135,577		88.1	%	$	102,489		92.3	%	$	33,088		32.3	%
Refinance		18,371		11.9			8,535		7.7			9,836		115.2	%
Total	$	153,948		100.0	%	$	111,024		100.0	%	$	42,924		38.7	%

During the three months ended September 30, 2017, up from $396.3 million for the nine months ended September 30, 2016. One-to-four-family loan originations for refinance (refinance production) decreased $58.9 million, or 30.1% with $136.6 million in refinance production closing during the nine months ended September 30, 2017, down from $195.5 million for the nine months ended September 30, 2016. During the quarter ended September 30, 2017,March 31, 2024, the Company sold ~~$204.3~~$93.9 million of one-to-four-family loans compared to ~~sales of $205.1~~$77.3 million for the same ~~quarter~~period one year ago. ~~In addition,~~Gross margin on home loan sales increased to 3.43% for the three months ended March 31, 2024, compared to 3.05% for the three months ended March 31, 2023. Gross margin is defined as the margin on loans sold ~~increased to 2.53% for~~(cash sales) without the ~~nine months ended September 30, 2017, from 2.48% for the nine months ended September 30, 2016.~~impact of deferred costs.

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Purchase production was 76.1% of the total one-to-four-family loan originations versus 23.9% for refinance production during the third quarter of 2017, compared to 60.9% in purchase production versus 39.1% in refinance production during the same period 2016. Purchase production for the nine months ended September 30, 2017 was 77.3% of the total one-to-four-family loan originations versus 22.7% for refinance production, compared to 67.0% in purchase volume versus 33.0% in refinances for the nine months ended September 30, 2016. The increase in originations and purchase activity was primarily associated with the strong home purchase demand in the Pacific Northwest, while the decline in refinance activity reflects the rise in mortgage interest rates over the past year.

The ~~ALLL at September 30, 2017 increased to $10.6~~ACL on loans totaled $31.5 million or ~~1.4%~~1.29% of gross loans receivable ~~excluding~~(excluding loans ~~HFS,~~held for sale), at March 31, 2024, compared to ~~$10.2~~$31.5 million or ~~1.7%~~1.30% of gross loans receivable ~~excluding~~(excluding loans ~~HFS,~~held for sale, at December 31, ~~2016. Non-performing loans, consisting of non-accrual loans, increased to $1.3~~2023. The ACL on unfunded loan commitments was $1.5 million at ~~September 30, 2017, from $721,000~~both March 31, 2024 and December 31, 2023.

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Classified loans totaled $24.9 million at March 31, 2024, all of which were classified as substandard, compared to classified loans of $24.9 million at December 31, ~~2016. At September 30, 2017, non-performing~~2023, of which $24.5 million were classified as substandard and $399,000 were classified as doubtful. Nonperforming loans, ~~consisted~~consisting solely of ~~$551,000~~nonaccrual loans, increased $1.2 million to $12.1 million at March 31, 2024, from $11.0 million at December 31, 2023, primarily due to increases in commercial business loans of ~~commercial~~$659,000 and ~~industrial loans, $316,000 of~~ indirect home improvement loans ~~$154,000~~ of ~~home equity loans, $142,000~~$332,000. The ratio of ~~one-to-four-family loans, $81,000 of solar loans, $11,000 of other consumer loans, and $9,000 of marine loans. Non-performing~~nonperforming loans to total gross loans was ~~0.2%~~0.49% at ~~September 30, 2017,~~March 31, 2024, compared to ~~0.1%~~0.45% at December 31, ~~2016. Substandard loans~~2023. There were no OREO properties at both March 31, 2024 and December 31, 2023.

Liabilities. Total liabilities decreased ~~$1.5~~$16.4 million ~~or 18.3%,~~ to ~~$6.6~~$2.69 billion at March 31, 2024, from $2.71 billion at December 31, 2023, primarily due to a decrease of $57.0 million in deposits, offset by increases of $36.2 million in borrowings and $4.8 million in other liabilities.

Total deposits decreased $57.0 million to $2.47 billion at ~~September 30, 2017,~~March 31, 2024, from $2.52 billion at December 31, 2023. CDs, which include retail and non-retail CDs, increased $15.6 million to $1.11 billion at March 31, 2024, from $1.10 billion at December 31, 2023, with non-retail CDs representing 31.0% and 34.2% of total CDs at such dates, respectively. At March 31, 2024, non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $30.0 million to $344.5 million, compared to ~~$8.0~~$374.5 million at December 31, ~~2016,~~2023, primarily due to ~~the transfer~~a decrease of ~~$1.9~~$30.0 million in substandard shared national credits to loans HFS sold at a slight discount to market early in October 2017. The Company recorded the expected discount based on the sales price as a loan charge-off during the third quarter of 2017. The Company had no OREO at September 30, 2017, or at December 31, 2016.brokered CDs.

The Company sold $9.0 million of securities AFS during the third quarter of 2017 realizing a gain of $143,000. Those sales primarily provided additional funds for loan growth during the quarter. The sales of lower coupon investments enabled us to capitalize on the lower Treasury rates for a gain during the third quarter of 2017. The average yield on sold securities AFS during the quarter was 2.48%.

~~Liabilities.~~ Total liabilities increased $128.8 million, or 17.2%, to $875.7 million at September 30, 2017, from $746.9 million at December 31, 2016, due primarily to an increase in deposits. Total deposits increased $128.0 million, or 18.0%, to $840.6 million at September 30, 2017, from $712.6 million at December 31, 2016. Relationship-based transactionalTransactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) ~~increased $63.7~~decreased $79.9 million ~~or 29.1%,~~ to ~~$282.7~~$834.9 million at ~~September 30, 2017,~~March 31, 2024, from ~~$219.0~~$914.9 million at December 31, ~~2016.~~2023, due to decreases of $56.0 million in interest-bearing checking and $35.5 million in noninterest-bearing checking, partially offset by an increase of $11.6 million in escrow accounts related to mortgages serviced. Money market and savings accounts increased ~~$11.2~~$7.3 million ~~or 3.7%,~~ to ~~$309.0~~$518.0 million at ~~September 30, 2017,~~March 31, 2024, from ~~$297.8~~$510.7 million at December 31, ~~2016. Time~~2023.

Deposits are summarized as follows at the dates indicated:

(Dollars in thousands)	March 31,		December 31,
	2024		2023
Noninterest-bearing checking	$	618,526	$	654,048
Interest-bearing checking ⁽¹⁾		188,050		244,028
Savings		153,025		151,630
Money market ⁽²⁾		364,944		359,063
CDs less than $100,000 ⁽³⁾		579,153		587,858
CDs of $100,000 through $250,000		424,463		429,373
CDs greater than $250,000 ⁽⁴⁾		108,763		79,540
Escrow accounts related to mortgages serviced ⁽⁵⁾		28,373		16,783
Total	$	2,465,297	$	2,522,323

(1)	Includes $0.0 and $70.2 million of brokered deposits at March 31, 2024 and December 31, 2023, respectively.
(2)	Includes $8.0 million and $1,000 of brokered deposits at March 31, 2024 and December 31, 2023, respectively.
(3)	Includes $331.3 million and $361.3 million of brokered CDs at March 31, 2024 and December 31, 2023, respectively.
(4)	CDs that meet or exceed the FDIC insurance limit.
(5)	Noninterest-bearing checking.

The Bank had uninsured deposits ~~increased $53.1~~of approximately $614.1 million or ~~27.1%,~~24.9% of total deposits, at March 31, 2024, compared to ~~$248.8~~approximately $606.5 million or 24.0% of total deposits at December 31, 2023. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

At March 31, 2024, borrowings totaled $129.9 million and were comprised of advances from the Federal Reserve Bank’s Bank Term Funding Program (“BTFP”) of $89.9 million, FRB overnight borrowings of $23.0 million, and FHLB fixed-rate advances of $17.1 million. Borrowings increased $36.2 million to $129.9 million at ~~September 30, 2017,~~March 31, 2024, from ~~$195.7~~$93.7 million at December 31, ~~2016. Non-retail certificates of deposit which includes brokered certificates of deposit, online certificates of deposit, and public funds~~2023. The increased ~~$39.4~~borrowings were partially attributable to a decrease in total deposits.

Stockholders’ Equity. Total stockholders’ equity increased $13.4 million ~~or 65.5%,~~ to ~~$99.7~~$277.9 million at ~~September 30, 2017, compared to $60.2~~March 31, 2024, from $264.5 million at December 31, 2016. Wholesale funding (brokered deposits) were utilized to bridge short-term asset growth such as loans HFS and pay down higher cost short-term Federal Home Loan Bank (“FHLB”) Fed Funds advances. Approximately $138.2 million of the acquired deposits from the Branch Purchase remain at 1st Security Bank at September 30, 2017. These branch locations have attracted new deposits with an aggregated total of $220.8 million, including public funds at September 30, 2017. Management remains focused on growth in lower cost relationship-based deposits to fund long-term asset growth.

~~Borrowings decreased $2.4 million, or 18.9%, to $10.3 million at September 30, 2017, from $12.7 million at December 31, 2016, primarily due to the repayment of FHLB Fed Funds advances.~~

~~Stockholders’ Equity.~~ ~~Total stockholders’ equity increased $37.2 million, or 45.9% to $118.2 million at September 30, 2017, from $81.0 million at December 31, 2016.~~2023. The increase in stockholders’ equity ~~during the nine months ended September 30, 2017,~~ was primarily due to ~~the issuance during the third quarter of 2017 of 587,234 shares of common stock at a price of $47.00 per share for net proceeds of $25.6 million and~~ net income of ~~$10.4~~$8.4 million, partially offset by dividends paid of $2.0 million. In addition, stockholders’ equity was positively impacted by decreases in unrealized net losses in securities available-for-sale of $4.3 million, net of tax, and unrealized net gains on fair value and cash flow hedges of $2.6 million, net of tax, reflecting sales of investment securities in unrealized loss positions and changes in market interest rates benefiting hedges during the quarter, resulting in a $6.9 million improvement in accumulated other comprehensive loss.

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Book value per common share was ~~$33.52~~$36.06 at ~~September 30, 2017,~~March 31, 2024, compared to ~~$28.32~~$34.36 at December 31, ~~2016.~~

~~Net proceeds received from the stock offering were used to fund the majority~~2023. The calculation of ~~a $26.0 million contribution to the Bank~~book value per share at the end of the third quarter 2017 to provide additional Tier 1 capital for growth planned over the next 24 months. Management expects continued lending growth due to strong economic factors in the Pacific Northwest and, specifically, the communities we serve.

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~~We have~~March 31, 2024, was based on 7,707,651 common shares, ~~outstanding of 3,527,896 that were calculated using shares outstanding of 3,674,902 at September 30, 2017, less 36,842~~after deducting the 98,144 unvested restricted stock shares ~~and 110,164 unallocated ESOP shares. Common~~from the 7,805,795 reported common shares outstanding as of ~~2,861,135 were calculated using shares outstanding~~that date. Similarly, the book value per share at December 31, ~~2016 of 3,059,503, less 68,763~~2023, was calculated based on 7,698,401 common shares, after deducting the 102,144 unvested restricted stock shares ~~and 129,605 unallocated ESOP shares.~~from the 7,800,545 reported common shares outstanding as of that date.

Comparison of Results of Operations for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023

General. Net income was $8.4 million for the three months ended March 31, 2024, compared to $8.2 million for the three months ended March 31, 2023. The increase in net income was primarily due to a $709,000 or 33.6% decrease in the provision for credit losses, partially offset by a $316,000 or $1.0% decrease in net interest income, a $108,000 or 2.1% decrease in noninterest income and a $95,000 or 4.7% increase in provision for income taxes. Total noninterest expense remained relatively unchanged at ~~$3.5~~$23.5 million for the three months ended March 31, 2024, compared to the same period in 2023.

Average Balances, Interest and Average Yields/Cost

The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at for the periods presented. Average balances are daily average balances. Nonaccrual loans have been included in the table as loans carrying a zero yield. The yields on tax-exempt municipal bonds have not been computed on a tax equivalent basis.

(Dollars in thousands)	For the Three Months Ended								For the Three Months Ended
	March 31, 2024								March 31, 2023
Average Balances	Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate			Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate
ASSETS
Loans receivable, net and loans held for sale ⁽¹⁾	$	2,464,602		$	40,997		6.69	%	$	2,292,364		$	35,992		6.37	%
Taxable AFS mortgage-backed securities ⁽²⁾		114,799			1,121		3.93	%		81,796			345		1.71	%
Taxable AFS investment securities ⁽²⁾		94,731			1,162		4.93	%		59,037			743		5.10	%
Tax-exempt AFS investment securities ⁽²⁾		121,883			754		2.49	%		129,843			635		1.98	%
Taxable HTM investment securities		8,500			108		5.11	%		8,500			108		5.15	%
FHLB stock		2,174			31		5.74	%		6,335			97		6.21	%
Interest-bearing deposits at other financial institutions		59,514			707		4.78	%		69,664			692		4.03	%
Total interest-earning assets		2,866,203			44,880		6.30	%		2,647,539			38,612		5.91	%
Noninterest-earning assets		92,344								94,486
Total assets	$	2,958,547							$	2,742,025
LIABILITIES
Savings and money market	$	506,786			1,661		1.32	%	$	692,841			1,198		0.70	%
Interest-bearing checking		188,979			784		1.67	%		145,434			98		0.27	%
Certificates of deposit		1,137,002			10,437		3.69	%		849,762			5,328		2.54	%
Borrowings		101,150			1,167		4.64	%		79,339			841		4.30	%
Subordinated notes		49,533			485		3.94	%		49,467			485		3.98	%
Total interest-bearing liabilities		1,983,450			14,534		2.95	%		1,816,843			7,950		1.77	%
Noninterest-bearing accounts		657,083								620,071
Other noninterest-bearing liabilities		43,246								34,434
Total liabilities	$	2,683,779							$	2,471,348
Net interest income				$	30,346							$	30,662
Net interest rate spread							3.35	%							4.14	%
Net earning assets	$	882,753							$	830,696
Net interest margin							4.26	%							4.70	%
Average interest-earning assets to average interest-bearing liabilities		144.51	%							145.72	%

(1)	Includes net deferred fee recognition of $1.3 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively.
(2)	Available for sale (“AFS”) and held to maturity (“HTM”) securities are shown at amortized cost.

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Net Interest Income. Net interest income decreased $316,000 to $30.3 million for the three months ended March 31, 2024, from $30.7 million for the three months ended March 31, 2023, due to an increase in interest expense on deposits and, to a lesser extent, borrowings, partially offset by an increase in interest and dividend income. Total interest income increased $6.3 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to an increase of $5.0 million in interest income on loans receivable, including fees, impacted primarily as a result of new loans being originated at higher rates and variable-rate loans repricing higher following increased market interest rates during the first six months of 2023. In addition, interest income on investment securities, excluding FHLB stock, increased $1.3 million, and interest-bearing deposits at other financial institutions increased $15,000, during the three months ended March 31, 2024, compared to the same period in 2023, primarily due to recent increases in market interest rates. Total interest expense increased $6.6 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily as a result of higher market interest rates, higher utilization of borrowings and a shift in deposit mix from transactional accounts to higher cost CDs.

Net interest margin (“NIM”) decreased 44 basis points to 4.26% for the three months ended March 31, 2024, from 4.70% for the same quarter the prior year. The change in NIM reflects the increased costs of deposits and borrowings which outpaced the increased yields earned on interest-earning assets.

Interest Income. Interest income for the three months ended March 31, 2024, increased $6.3 million to $44.9 million, from $38.6 million for the three months ended March 31, 2023. The increase was primarily attributable to a $218.7 million increase in the average balance of total interest-earning assets and a 39-basis point increase in the average yield on total interest-earning assets.

The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the three months ended March 31, 2024 and 2023:

(Dollars in thousands)	Three Months Ended March 31,
	2024					2023
	Average					Average					$ Change
	Balance					Balance					in Interest
	Outstanding		Yield			Outstanding		Yield			Income
Loans receivable, net and loans held for sale⁽¹⁾ ⁽²⁾	$	2,464,602		6.69	%	$	2,292,364		6.37	%	$	5,005
Taxable AFS mortgage-backed securities ⁽³⁾		114,799		3.93			81,796		1.71			776
Taxable AFS investment securities ⁽³⁾		94,731		4.93			59,037		5.10			419
Tax-exempt AFS investment securities ⁽³⁾		121,883		2.49			129,843		1.98			119
Taxable HTM investment securities		8,500		5.11			8,500		5.15			—
FHLB stock		2,174		5.74			6,335		6.21			(66	)
Interest-bearing deposits at other financial institutions		59,514		4.78			69,664		4.03			15
Total interest-earning assets	$	2,866,203		6.30	%	$	2,647,539		5.91	%	$	6,268

(1)	The average loans receivable, net balances include nonaccrual loans.
(2)	Includes net deferred fee recognition of $1.3 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively.
(3)	Shown at amortized cost.

Interest Expense. Interest expense increased $6.6 million to $14.5 million for the three months ended March 31, 2024, from $8.0 million for the comparable quarter in 2023, primarily due to an increase of interest expense on deposits of $6.3 million and on borrowings of $326,000. The average cost of funds for total interest-bearing liabilities increased 118 basis points to 2.95% for the three months ended March 31, 2024, from 1.77% for the three months ended March 31, 2023. The increase in interest expense was predominantly due to an increase in cost for deposits and borrowings as well as an increase in the average balances of CDs and borrowings. The average cost of total interest-bearing deposits increased 124 basis points to 2.83%, for the three months ended March 31, 2024, compared to 1.59%, for the three months ended March 31, 2023. The average balance of total interest-bearing deposits increased $144.7 million to $1.83 billion for the three months ended March 31, 2024, compared to $1.69 billion for the three months ended March 31, 2023. The average cost of funds, including noninterest-bearing checking, increased 89 basis points to 2.21% for the three months ended March 31, 2024, from 1.32% for the three months ended March 31, 2023.

The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the three months ended March 31, 2024 and 2023:

(Dollars in thousands)	Three Months Ended March 31,
	2024					2023
	Average					Average					$ Change
	Balance					Balance					in Interest
	Outstanding		Rate			Outstanding		Rate			Expense
Savings and money market	$	506,786		1.32	%	$	692,841		0.70	%	$	463
Interest-bearing checking		188,979		1.67			145,434		0.27			686
Certificates of deposit		1,137,002		3.69			849,762		2.54			5,109
Borrowings		101,150		4.64			79,339		4.30			326
Subordinated note		49,533		3.94			49,467		3.98			—
Total interest-bearing liabilities	$	1,983,450		2.95	%	$	1,816,843		1.77	%	$	6,584

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Provision for Credit Losses. For the three months ended March 31, 2024, the provision for credit losses was $1.4 million, consisting of a $1.4 million provision for credit losses on loans, partially offset by a $22,000 recapture of the ACL on unfunded loan commitments, compared to $2.1 million provision for credit losses for the three months ended March 31, 2023, consisting of a $2.4 million provision for credit losses on loans, offset by a $249,000 recapture of the ACL on unfunded loan commitments. The provision for credit losses on loans reflects the increase in the loan portfolio, as well as an increase in nonperforming loans and higher net charge-offs.

During the three months ended March 31, 2024, net loan charge-offs totaled $1.5 million, compared to $410,000 during the three months ended March 31, 2023. The increase was primarily due to increases in net charge-offs of $441,000 in indirect home improvement loans, $408,000 in commercial business loans, and $169,000 in marine loans. A further decline in national and local economic conditions, as a result the effects of inflation, a potential recession or slowed economic growth, among other economic factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.

Noninterest Income. Noninterest income decreased $108,000 to $5.1 million for the three months ended March 31, 2024, from $5.2 million for the three months ended March 31, 2023. The decrease reflects an $8.0 million loss on sale of investment securities resulting from management's strategic decision to increase the yields earned on and reduce the duration of the securities portfolio, and a $650,000 decrease in other noninterest income, primarily due to fair value adjustments to loans in the loan portfolio, partially offset by an $8.2 million increase in gain on sale of MSRs and a $362,000 gain on sale of loans. Gross margin on home loan sales increased to 3.43% for the three months ended March 31, 2024, from 3.05% for the three months ended March 31, 2023.

Noninterest Expense. Noninterest expense was $23.5 million for both the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016 as the $2.4 million increase in net interest income, after provision for loan losses was offset by a decline in noninterest income, an increase~~2023. The variations in noninterest expense and an increase in provision for income taxes. Net income for the nine months ended September 30, 2017, increased $2.5 million, or 30.8%, to $10.4 million, from $8.0 million for the nine months ended September 30, 2016. The increase in net income was primarily a result of a $6.6 million, or 29.1% increase in net interest income, after provision for loan losses, partially offset by a $4.1 million, or 14.1% increase in noninterest expense.

The following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities to calculate the comparison of results of operations for the three and nine months ended September 30, 2017 and 2016:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,
Average Balances

2017

2016

2017

2016
Assets

Loans receivable, net (1)

$
803,399

$
643,989

$
725,247

$
600,343
Securities available-for-sale, at fair value

79,377

83,643

90,206

80,214
Interest-bearing deposits and certificates of deposit at other financial institutions

42,990

36,744

46,153

74,573
FHLB stock, at cost

4,034

1,407

3,658

2,004
Total interest-earning assets

929,800

765,783

865,264

757,134
Noninterest-earning assets (2)

35,868

37,674

37,501

33,022
Total assets

$
965,668

$
803,457

$
902,765

$
790,156
Liabilities and stockholders’ equity

Interest-bearing accounts

$
642,811

$
532,069

$
603,449

$
517,625
Borrowings

34,372

20,239

27,994

28,660
Subordinated note

9,837

9,817

9,832

9,812
Total interest-bearing liabilities

687,020

562,125

641,275

556,097
Noninterest-bearing accounts

169,367

153,209

163,079

147,848
Other noninterest-bearing liabilities

13,966

12,048

11,318

11,222
Stockholders’ equity

95,315

76,075

87,093

74,989
Total liabilities and stockholders’ equity

$
965,668

$
803,457

$
902,765

$
790,156

~~(1)~~

~~Includes loans held for sale~~

~~(2)~~

~~Includes BOLI, goodwill, and CDI~~

~~Net Interest Income.~~ Net interest income increased $2.3 million, or 26.0%, to $11.0 million for the three months ended September 30, 2017, from $8.8 million for the three months ended September 30, 2016. The increase in net interest income was primarily due to a $2.5 million, or 26.8% increase in loans receivable interest income, due to an increase in the average loans receivable, net balance.

Net interest income increased $5.3 million, or 21.5%, to $30.0 million for the nine months ended September 30, 2017, from $24.7 million for the nine months ended September 30, 2016. The increase in net interest income was primarily due to a $5.5 million, or 21.0% increase in loans receivable interest income, due to an increase in the average loans receivable, net balance.

~~Table of Contents~~

The net interest margin (“NIM”) increased 15 basis points to 4.70% for the three months ended September 30, 2017, from 4.55% for the three months ended September 30, 2016, and increased 27 basis points to 4.63% for the nine months ended September 30, 2017, from 4.36% for the nine months ended September 30, 2016. The increased NIM reflects growth in higher yielding loans, compared to short term investments and cash. Management remains focused on matching deposit duration with the duration of earning assets where appropriate.

~~Interest Income.~~ Interest income for the three months ended September 30, 2017, increased $2.6 million, or 26.3%, to $12.4 million, from $9.8 million for the three months ended September 30, 2016. The increase during the period was primarily attributable to the increase in the average balance of loans receivable to $803.4 million for the three months ended September 30, 2017, compared to $644.0 million for the three months ended September 30, 2016. The average yield on interest-earning assets increased 18 basis points to 5.27% for the three months ended September 30, 2017, compared to 5.09% for the three months ended September 30, 2016. The increase in average yield on interest-earning assets compared to the same period a year earlier primarily reflects the growth in the loan portfolio and the proportionally larger level of loans in the average interest-earning asset mix.

Interest income for the nine months ended September 30, 2017, increased $5.8 million, or 20.7%, to $33.5 million, from $27.8 million for the nine months ended September 30, 2016. The increase during the period was primarily attributable to the increase in the average balance of loans receivable to $725.2 million for the nine months ended September 30, 2017, compared to $600.3 million for the nine months ended September 30, 2016. The average yield on interest-earning assets increased 27 basis points to 5.18% for the nine months ended September 30, 2017, compared to 4.91% for the nine months ended September 30, 2016. The increase in average yield on interest-earning assets compared to the same period a year earlier primarily reflects the growth in the loan portfolio and the proportionally larger level of loans in the average interest-earning asset mix.

~~Interest Expense.~~ Interest expense increased $301,000, or 29.3%, to $1.3 million for the three months ended September 30, 2017, from $1.0 million for the same period of the prior year. The average cost of funds increased four basis points to 0.61% for the three months ended September 30, 2017, compared to 0.57% for the three months ended September 30, 2016were primarily due to the ~~growth~~absence of acquisition costs in ~~interest-bearing deposits. The average cost of deposits increased four basis points~~the current period, in contrast to ~~0.51% for the three months ended September 30, 2017, compared to 0.47% for the three months ended September 30, 2016, reflecting rising interest rates over the last year and the increase~~$1.5 million incurred in ~~non-retail certificates of deposit.~~

~~Interest expense increased $460,000, or 14.8%, to $3.6 million for the nine months ended September 30, 2017, from $3.1 million for the same period of~~ the prior year, primarily due to growth in deposits. The average cost of funds was unchanged at 0.59% for the nine months ended September 30, 2017 and 2016. The average cost of deposits was also unchanged at 0.48% for both the nine months ended September 30, 2017 and 2016, reflecting steady deposit interest rates year over year. ~~Management remains focused on matching deposit duration with the duration of earning assets where appropriate.~~

~~Provision for Loan Losses~~ For the three and nine months ended September 30, 2017, the provision for loan losses was $450,000, compared to $600,000 and $1.8 million, for the three and nine months ended September 30, 2016, respectively. The reduced provision for loan losses for the three and nine months ended September 30, 2017Additionally, there was a ~~result~~decrease of the low level of charge-offs and the relatively low level of delinquent, nonperforming and classified loans, as well as the increasing percentage of real estate loans and improving real estate values in our market areas. Management also reviewed during the quarter the historical loss activity over the past 17 quarters and incorporated the decrease in the level of historical loss as a factor in determining a reduction in the required unallocated allowance for loan and lease losses at September 30, 2017. During the three months ended September 30, 2017, net recoveries totaled $5,000 compared to $35,000 during the three months ended September 30, 2016. Net charge-offs totaled $63,000 during the nine months ended September 30, 2017, compared to net recoveries of $1,000 during the nine months ended September 30, 2016.

~~Noninterest Income.~~ Noninterest income decreased $821,000, or 11.3%, to $6.4 million for the three months ended September 30, 2017, from $7.2 million for the three months ended September 30, 2016. The decrease during the period was due to an $897,000 reduction in gain on sale of loans, primarily associated with a decrease in the volume of loans/locks fair valued, and a reduction of gain on sale margins associated with the product mix in the Pacific Northwest, partially offset by a $64,000 increase in other noninterest income.

~~Table of Contents~~

Noninterest income increased $679,000, or 3.7%, to $18.8 million for the nine months ended September 30, 2017, from $18.1 million for the nine months ended September 30, 2016. The increase during the period was primarily due to increases in gain on sale of servicing rights of $996,000, service charges and fee income of $254,000, and gain on sale of investment securities of $234,000, primarily offset by a decrease in gain on sale of loans of $882,000 primarily associated with a decrease in the volume of loans/locks fair valued, and a reduction of gain on sale margins associated with the product mix in the Pacific Northwest.

~~Noninterest Expense.~~ Noninterest expense increased $1.3 million, or 12.4%, to $11.6 million for the three months ended September 30, 2017, from $10.3 million for the three months ended September 30, 2016. The increase in noninterest expense was primarily a result of an $853,000 increase$307,000 in salaries and benefits, ~~which included $42,000~~partially offset by increases of $482,000 in ~~incentives and commissions for the loan production staff associated with continued strong loan production growth, a $216,000 decrease in recovery~~amortization of ~~mortgage servicing rights, a $127,000 increase in operations, and a $114,000 increase~~core deposit intangible, $390,000 in data processing, ~~partially offset by a $124,000 decrease~~$316,000 in operations, $245,000 in professional and board ~~fees.~~

Noninterest expense increased $4.1 million 14.1%, to $32.9 million for the nine months ended September 30, 2017, from $28.8 million for the nine months ended September 30, 2016. The increase in noninterest expense was primarily a result of a $3.7 million increase in salaries and benefits, which included $935,000 in incentives and commissions for the loan production staff, a $285,000 increase in operations, a $235,000 increase in data processing, a $188,000 increase in loan costs, and a $164,000 increasefees, $185,000 in occupancy expense, ~~partially offset by a $389,000 decrease~~and $115,000 in ~~acquisition costs and a $229,000 decrease in professional and board fees.~~loan costs.

The efficiency ratio, which is calculated by dividing noninterest expense ~~as a percentage of~~by total net interest income and noninterest income, ~~weakened slightly~~worsened to ~~66.4%~~66.36% for the three months ended ~~September 30, 2017,~~March 31, 2024, compared to ~~64.5%~~65.56% for the three months ended ~~September 30, 2016, and 67.5% for the nine months ended September 30, 2017, compared~~March 31, 2023, primarily due to ~~67.4% for the nine months ended September 30, 2016, representing a greater increase~~decreases in ~~noninterest expense as compared to a smaller increase in~~net interest income and noninterest income.

Provision for Income ~~Tax.~~ Taxes.For the three months ended ~~September 30, 2017,~~March 31, 2024, the Company recorded a provision for income ~~tax expense~~taxes of ~~$2.0~~$2.1 million ~~on pre-tax income~~ as compared to ~~$1.6~~$2.0 million for the three months ended ~~September 30, 2016.~~March 31, 2023. The increase in the income taxes provision was primarily due to a $280,000 increase in pre-tax income during the three months ended March 31, 2024, as compared to the same quarter last year. The effective corporate income tax rates for the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 were ~~36.2%~~20.2% and ~~32.0%~~19.9%, respectively. ~~For~~The increase in the ~~nine months ended September 30, 2017, the Company recorded a provision for~~effective corporate income tax rate was attributable to a decrease in nontaxable income between periods, to include an increase in non-deductible interest expense ~~of $5.0 million on pre-tax income as compared~~attributable to ~~$4.2 million for~~ the ~~nine months ended September 30, 2016. The effective tax rates for the nine months ended September 30, 2017 and 2016 were 32.5% and 34.5%, respectively.~~related assets.

Liquidity

Management maintains a liquidity position that it believes will adequately provide funding for loan demand and deposit runoff that may occur in the normal course of business. The Company relies on ~~a number of~~several different sources ~~in order~~ to meet ~~its~~ potential liquidity demands. The primary sources are increases in deposit accounts, FHLB advances, purchases of ~~Fed Funds,~~federal funds, sale of securities available-for-sale, cash flows from loan payments, sales of one-to-four-family loans ~~HFS,~~held for sale, and maturing securities. While the maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund its operations. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At ~~September 30, 2017,~~March 31, 2024, the Bank’s total borrowing capacity was ~~$247.1~~$698.7 million with the FHLB of Des Moines, with unused borrowing capacity of ~~$235.8~~$681.2 million. The FHLB borrowing limit is based on certain categories of loans, primarily real estate loans that qualify as collateral for FHLB advances. At ~~September 30, 2017,~~March 31, 2024, the Bank held approximately ~~$320.1 million~~$1.09 billion in loans that qualify as collateral for FHLB advances.

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In addition to the availability of liquidity from the FHLB of Des Moines, the Bank ~~maintained~~maintains a short-term borrowing line with the ~~Federal Reserve Bank,~~FRB with a ~~current~~ limit of ~~$96.0~~$269.3 million and a combined credit limit of ~~$43.0~~$101.0 million in written ~~Fed Funds~~federal funds lines of credit through correspondent banking relationships at ~~September 30, 2017.~~March 31, 2024. The ~~Federal Reserve Bank~~FRB borrowing limit is based on certain categories of loans, primarily consumer loans that qualify as collateral for ~~Federal Reserve Bank~~FRB line of credit. At ~~September 30, 2017,~~March 31, 2024, the Bank held approximately ~~$195.3~~$632.8 million in loans that qualify as collateral for the ~~Federal Reserve Bank~~FRB line of credit.

~~At September 30, 2017, $10.3~~ Additionally, securities with a carrying value of $76.2 million ~~in FHLB advances~~ were ~~outstanding, and no advances were outstanding against~~pledged primarily to provide contingent liquidity through the BTFP at the Federal Reserve Bank ~~line~~at March 31, 2024, with a current limit of ~~credit, or~~$90.1 million and no unused borrowing capacity. Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the ~~Fed Funds lines~~future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of ~~credit.~~ investment opportunities to the extent feasible.

The Bank’s Asset and Liability Management Policy permits management to utilize brokered deposits up to 20% of ~~Bank~~ deposits or ~~$168.8~~$494.9 million at ~~September 30, 2017.~~

~~Table of Contents~~

March 31, 2024. Total brokered deposits at ~~September 30, 2017~~March 31, 2024 were ~~$102.2~~$339.3 million. Management utilizes brokered deposits to mitigate interest rate risk and to enhance liquidity ~~risk exposure~~ when appropriate.

Liquidity management is both a daily and long-term function of ~~Company~~the Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and ~~Fed Funds.~~federal funds. On a ~~longer term~~longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and ~~federal~~U.S. agency securities. The Company uses sources of funds primarily to meet ongoing commitments, pay maturing deposits, fund withdrawals, and to fund loan commitments. At ~~September 30, 2017, the approved~~March 31, 2024, outstanding loan commitments, including unused lines of credit ~~amounted to $347.1~~totaled $566.6 million. The Company purchased $38.0 million ~~including undisbursed construction~~in securities during the three months ended March 31, 2024. The Company purchased no securities during the three months ended March 31, 2023. Proceeds from securities repayments, maturities and ~~development~~sales were $48.3 million and $2.5 million during the three months ended March 31, 2024 and 2023, respectively.

The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the three months ended March 31, 2024 and 2023, the Bank sold $93.9 million and $77.3 million in ~~process totaling $82.1~~loans, respectively.

Total deposits decreased $57.0 million during the three months ended March 31, 2024 primarily driven by a net decrease in brokered deposits of $92.2 million. ~~Certificates of deposit~~CDs scheduled to mature in three months or less at ~~September 30, 2017,~~March 31, 2024, totaled ~~$81.2~~$336.0 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this ~~management~~ strategy, ~~the Company~~management believes that a majority of maturing relationship deposits will remain with the Bank.

For the remainder of 2024, we project that fixed commitments will include $1.4 million of operating lease payments. For information regarding our operating leases, see “Note 7 – Leases” of the Notes to Consolidated Financial Statements included in this report. FHLB advances of $1.1 million are scheduled to mature within the next twelve months.

As a separate legal entity from the Bank, FS Bancorp, Inc. must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to the Bank), FS Bancorp is responsible for paying for any stock repurchases, dividends declared to its stockholders, interest and principal on outstanding debt, and other general corporate expenses. Sources of capital and liquidity for FS Bancorp ~~Inc.~~ include distributions from the Bank and the issuance of debt or equity ~~securities.~~ securities, although there are regulatory restrictions on the ability of the Bank to make distributions.

Dividends and other capital distributions from the Bank are subject to regulatory ~~notice. At September 30, 2017,~~notice and certain restrictions. The unrestricted cash of FS Bancorp ~~Inc. had $3.7~~held at the Bank on an unconsolidated basis totaled $9.3 million at March 31, 2024. The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.26 per share, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to ~~meet liquidity needs.~~

~~Commitments and Off-Balance Sheet Arrangements~~

~~The Company is a party to financial instruments with off-balance sheet risk in~~our shareholders. Assuming continued payment during 2024 at this rate of $0.26 per share, our total dividends paid each quarter would be approximately $2.0 million based on the ~~normal course of business in order to meet the financing needs of its customers. For information regarding our commitments and off-balance sheet arrangements, see Note 9~~number of the ~~Notes to Consolidated Financial Statements included~~current outstanding shares as of March 31, 2024.

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Under FS Bancorp’s existing stock repurchase program, approximately $3.0 million remained available for future repurchases as of March 31, 2024. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Item 2, Part ~~I. Item 1~~II of this ~~report.~~Form 10-Q for additional information relating to stock repurchases.

Capital Resources

The Bank is subject to minimum capital requirements imposed by the FDIC. Based on its capital levels at ~~September 30, 2017,~~March 31, 2024, the Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a ~~well capitalized~~well-capitalized status under the capital categories of the FDIC. Based on capital levels at ~~September 30, 2017,~~March 31, 2024, the Bank was considered to be well capitalized. At ~~September 30, 2017,~~March 31, 2024, 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 10.6%, 12.5%, ~~14.9%, 16.1%~~13.7%, and ~~14.9%~~12.5%, respectively.

As a bank holding company registered with the Federal Reserve, the Company is subject to the capital adequacy requirements of the Federal Reserve. Bank holding companies with less than $3.0 billion in assets are generally not subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to the holding company’s subsidiary bank and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations. If FS Bancorp were subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at March 31, 2024, FS Bancorp would have exceeded all regulatory capital requirements. For informational purposes, the regulatory capital ratios calculated for FS Bancorp at March 31, 2024 were 9.2% for Tier 1 leverage-based capital, 10.9% for Tier 1 risk-based capital, 14.1% for total risk-based capital, and 10.9% for CET 1 capital ratio. For additional information regarding ~~the Bank’s~~ regulatory capital compliance, see the discussion included in ~~Note~~“Note 14 – Regulatory Capital” to the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

For a bank holding company with less than $1 billion in consolidated assets, such as FS Bancorp, Inc., the capital guidelines apply on a bank only basis and the Federal Reserve requires the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If FS Bancorp, Inc. was subject to regulatory guidelines for bank holding companies with $1 billion or more in assets, at September 30, 2017, FS Bancorp, Inc. would have exceeded all regulatory capital requirements.

Item3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the market risk disclosures contained in FS Bancorp’s 2023 Form 10-K.

~~Not required for smaller reporting companies.~~

Item4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

An evaluation of the disclosure controls and procedures ~~(as~~as defined in Rule 13a‑15(e) of the ~~Securities~~ Exchange Act ~~of 1934 (the “Act”)) at September 30, 2017~~ was carried out as of March 31, 2024, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) and several other members of the Company’s senior management. ~~The Company’s Chief Executive Officer~~In designing and ~~Chief Financial Officer concluded that~~evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in ~~effect at September 30, 2017~~designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon the foregoing evaluation, the Company’s CEO and CFO concluded that as of March 31, 2024, the Company’s disclosure controls and procedures were effective in ensuring that ~~the~~ information we are required to ~~be disclosed by the Company~~disclose in the reports ~~it files~~we file or ~~submits~~submit under the Exchange Act ~~is: (i) accumulated and communicated to the Company’s~~

~~Table of Contents~~

~~management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii)~~is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to FS Bancorp management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.

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(b)Changes in Internal Controls

There ~~have been~~were no changes in the Company’s internal control over financial reporting ~~(as defined in Rule 13a‑15(f) of the Act)~~ that occurred during the three months ended ~~September 30, 2017,~~March 31, 2024, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

~~Table of Contents~~

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

In the normal course of business, the Company occasionally becomes involved in various legal proceedings. In the opinion of management, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.

Item1A.Risk Factors

There have been no material changes toin the ~~risk factors set forth~~Risk Factors previously disclosed in ~~Part I. Item 1A of the Company’s Annual Report on~~FS Bancorp’s 2023 Form ~~10‑K for the year ended December 31, 2016.~~10-K.

Item2.Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Not applicable

~~Not applicable~~

(b)

Not applicable

~~Not applicable~~

(c)

The following table summarizes common stock repurchases during the three months ended March 31, 2024:

~~Not applicable~~

							Maximum
					Total Number		Dollar Value of
					of Shares		Shares that
			Average		Repurchased as		May Yet Be
	Total Number		Price		Part of Publicly		Repurchased
	of Shares		Paid per		Announced		Under the
Period	Purchased		Share		Plan or Program		Plan or Program
January 1, 2024 - January 31, 2024 ⁽¹⁾		17,612	$	37.25		17,612	$	3,023,630
February 1, 2024 - February 29, 2024		—		—		—		—
March 1, 2024 - March 31, 2024		—		—		—		—
Total for the quarter		17,612	$	37.25		17,612	$	3,023,630

____________________________

(1) Includes 3,653 shares internally repurchased by the Company to pay for the option exercise price for participants exercising options.

On August 15, 2023, the Company publicly announced that its Board of Directors approved a stock repurchase program, authorizing the repurchase up to $5.0 million shares of Company common stock, representing approximately 2.5% of its outstanding shares as of that date. The repurchases may be executed, from time to time, in the open market, through privately negotiated transactions, or by withholding shares upon the exercise of equity awards over a 12-month period until July 31, 2024.

The actual timing, price, and number of shares repurchased under the program will depend on a number of factors, including constraints specified pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, price, general business and market conditions, and alternative investment opportunities. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

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Item3.Defaults Upon Senior Securities

Not applicable.

Item4. Mine Safety Disclosures

Not applicable.

Item 5.Other Information

~~Not applicable.~~

(a)

None.

(b)

None.

(c)

Trading Plans. During the three months ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item6. Exhibits

~~Item 6. Exhibits~~

3.1
~~3.1~~		Articles of Incorporation of FS Bancorp, Inc. (1)
3.2		Bylaws of FS Bancorp, Inc. (2)
4.1		Form of Common Stock Certificate of FS Bancorp, Inc. (1)
~~10.1~~ 4.2		Indenture dated February 10, 2021, by and between FS Bancorp, Inc. and U.S. Bank National Association, as trustee (3)
4.3		Forms of 3.75 Fixed-to-Floating Rate Subordinated Notes due 2031 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.2 hereto (3)
10.1		Severance Agreement between 1st Security Bank of Washington and Joseph C. Adams (1)
10.2		Form of Change of Control Agreement between 1st Security Bank of Washington and ~~each of Joseph C. Adams,~~ Matthew D. Mullet ~~Drew B. Ness, and Dennis V. O’Leary~~ (1)
10.3		FS Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”) ~~(3)~~(4)
10.4		Form of Incentive Stock Option Agreement under the 2013 Plan ~~(3)~~(4)
10.5		Form of Non-Qualified Stock Option Agreement under the 2013 Plan ~~(3)~~(4)
10.6		Form of Restricted Stock Agreement under the 2013 Plan ~~(3)~~
~~10.7~~		~~Purchase and Assumption Agreement between Bank of America, National Association and 1st Security Bank dated September 1, 2015~~ (4)
~~10.8~~	10.9	~~Subordinated Loan Agreement dated September 30, 2015 by and among Community Funding CLO, Ltd. and the Company (5)~~
~~10.9~~		Form of change of control agreement with Donn C. Costa, Dennis O’Leary, Erin Burr, Victoria Jarman, Kelli Nielsen, and ~~Debbie L. Steck~~May-Ling Sowell (5)
10.10		FS Bancorp, Inc. 2018 Equity Incentive Plan (6)
~~31.1~~ 10.11		Form of Incentive Stock Option Award Agreement under the 2018 Equity Incentive Plan (6)
10.12		Form of Non-Qualified Stock Option Award Agreement under the 2018 Equity Incentive Plan (6)
10.13		Form of Restricted Stock Award Agreement under the 2018 Equity Incentive Plan (6)
10.14		FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (7)
10.15		Form of Enrollment/Change Form under the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (7)
10.16		Form of Change of Control Agreement with Shana Allen, Stephanie Nicklaus, and Benjamin Crowl (8)
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from the Company’s Quarterly Report on Form 10‑Q for the quarter ended ~~September 30, 2017~~March 31, 2024 formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(IXBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive ~~Income;~~Income (Loss); (4) Consolidated Statements of Changes in Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements.
~~(1)~~ 104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
(1)		Filed as an exhibit to the Registrant’s Registration Statement on Form S‑1 (333‑177125) filed on October 3, 2011, and incorporated by reference.
(2)		Filed as an exhibit to the Registrant’s Current Report on Form 8‑K filed on July 10, 2013 (File No. 001‑~~35589)~~355589).
(3)		Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 11, 2021 (File No. 001-35589).
(4)		Filed as an exhibit to the Registrant’s Registration Statement on Form ~~S‑8 (333‑192990)~~S-8 (333-192990) filed on December 20, 2013 and incorporated by reference.
~~(4)~~ (5)		Filed as an exhibit to the Registrant’s Current Report on Form ~~8‑K filed on September 2, 2015 (File No. 001‑35589).~~
~~(5)~~		~~Filed as an exhibit to the Registrant’s Current Report on Form 8‑K filed on October 19, 2015 (File No. 001‑35589).~~
~~(6)~~		~~Filed as an exhibit to the Registrant’s Current Report on Form 8‑K~~8-K filed on February 1, 2016 (File No. 001‑35589).
(6)		Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-22513) filed on May 23, 2018.
(7)		Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-265729) filed on June 21, 2022.
(8)		Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2024 (File No. 001-35589).

Table of Contents

~~Exhibit Index~~


~~Exhibit No~~.		~~Description~~
~~31.1~~		~~Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~31.2~~		~~Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~32.1~~		~~Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~32.2~~		~~Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101~~		The following materials from the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2017 formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements.

SIGNATURES

~~Table of Contents~~

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FS BANCORP, INC.


Date: ~~November 13, 2017~~May 10, 2024	By:	/s/Joseph C. Adams
		Joseph C. Adams,
		Chief Executive Officer
			(~~Duly Authorized~~Principal Executive Officer)

Date: ~~November 13, 2017~~May 10, 2024	By:	/s/Matthew D. Mullet
		Matthew D. Mullet
		Secretary, Treasurer and
		Chief Financial Officer
			(Principal Financial and Accounting Officer)

Washington		~~45‑4585178~~45-4585178
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)	~~(IRS Employer Identification No.)~~

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	FSBW	The NASDAQ Stock Market LLC

Large accelerated filer ~~[ ]~~☐		Accelerated filer ~~[ ]~~☒
Non-accelerated filer ~~[ ] (Do not check if a smaller reporting company)~~☐		Smaller reporting company ~~[ X ]~~☒
Emerging growth company ~~[ X ]~~☐

	March 31, 2024
Purpose or beneficiary	Carrying Value		Amortized Cost		Fair Value
State and local government public deposits	$	34,703	$	40,783	$	34,703
Federal Reserve Bank - Bank Term Funding Program facility ("BTFP")		76,161		89,834		76,161
Total pledged securities	$	110,864	$	130,617	$	110,864


	September 30, 2017
	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
SECURITIES AVAILABLE-FOR-SALE
U.S. agency securities	$	3,014	$	(23)	$	—	$	—	$	3,014	$	(23)
Corporate securities		—		—		1,919		(77)		1,919		(77)
Municipal bonds		4,834		(116)		—		—		4,834		(116)
Mortgage-backed securities		22,266		(247)		4,773		(97)		27,039		(344)
U.S. Small Business Administration securities		9,425		(68)		—		—		9,425		(68)
Total	$	39,539	$	(454)	$	6,692	$	(174)	$	46,231	$	(628)


	At January 22,
	2016
Purchase price (1)	$	6,015
Recognized amounts of identifiable assets acquired and (liabilities assumed), at fair value:
Cash and cash equivalents		186,371
Acquired loans		417
Premises and equipment, net		964
Accrued interest receivable		2
Core deposit intangible		2,239
Other assets		103
Deposits		(186,364)
Accrued interest payable		(7)
Other liabilities		(22)
Total fair value of identifiable net assets		3,703
Goodwill	$	2,312


Fourth Quarter 2017	$	100
2018		307
2019		235
2020		181
2021		166
Thereafter		428
Total	$	1,417


	September 30, 2017
							Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Values
SECURITIES AVAILABLE-FOR-SALE
U.S. agency securities	$	6,086	$	59	$	(23)	$	6,122
Corporate securities		7,123		29		(77)		7,075
Municipal bonds		11,342		213		(116)		11,439
Mortgage-backed securities		39,733		85		(344)		39,474
U.S. Small Business Administration securities		14,018		43		(68)		13,993
Total securities available-for-sale	$	78,302	$	429	$	(628)	$	78,103

	March 31, 2024
								Estimated
	Amortized		Unrealized		Unrealized			Fair
SECURITIES AVAILABLE-FOR-SALE	Cost		Gains		Losses			Values		ACL
U.S. agency securities	$	21,151	$	45	$	(3,298	)	$	17,898	$	—
Corporate securities		16,000		90		(890	)		15,200		—
Municipal bonds		86,257		18		(12,722	)		73,553		—
Mortgage-backed securities		131,594		172		(11,964	)		119,802		—
U.S. Small Business Administration securities		54,957		—		(1,767	)		53,190		—
Total securities available-for-sale		309,959		325		(30,641	)		279,643		—

SECURITIES HELD-TO-MATURITY
Corporate securities		8,500		—		(715	)		7,785		45
Total securities held-to-maturity		8,500		—		(715	)		7,785		45

Total securities	$	318,459	$	325	$	(31,356	)	$	287,428	$	45

SECURITIES HELD-TO-MATURITY	For the Three Months Ended March 31,
Corporate Securities	2024		2023
Beginning ACL balance	$	45	$	31
Provision for (recapture of) credit losses		—		—
Total ending ACL balance	$	45	$	31


	December 31, 2016
							Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Values
SECURITIES AVAILABLE-FOR-SALE
U.S. agency securities	$	8,150	$	12	$	(94)	$	8,068
Corporate securities		7,654		14		(168)		7,500
Municipal bonds		15,183		164		(83)		15,264
Mortgage-backed securities		45,856		52		(713)		45,195
U.S. Small Business Administration securities		5,862		27		(41)		5,848
Total securities available-for-sale	$	82,705	$	269	$	(1,099)	$	81,875

	March 31, 2024
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
SECURITIES AVAILABLE-FOR-SALE	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	—	$	—		$	15,853	$	(3,298	)	$	15,853	$	(3,298	)
Corporate securities		7,846		(154	)		4,263		(736	)		12,109		(890	)
Municipal bonds		1,279		(7	)		71,256		(12,715	)		72,535		(12,722	)
Mortgage-backed securities		25,189		(63	)		66,593		(11,901	)		91,782		(11,964	)
U.S. Small Business Administration securities		45,560		(592	)		7,630		(1,175	)		53,190		(1,767	)
Total securities available-for-sale		79,874		(816	)		165,595		(29,825	)		245,469		(30,641	)

SECURITIES HELD-TO-MATURITY
Corporate securities		—		—			7,785		(715	)		7,785		(715	)
Total securities held-to-maturity		—		—			7,785		(715	)		7,785		(715	)

Total securities	$	79,874	$	(816	)	$	173,380	$	(30,540	)	$	253,254	$	(31,356	)

	March 31, 2024
			Gross		Gross
	Proceeds		Gains		(Losses)
Securities available-for-sale	$	44,036	$	—	$	(7,998)


	Three Months Ended						Nine Months Ended
	September 30, 2016						September 30, 2016
			Gross		Gross				Gross		Gross
	Proceeds		Gains		(Losses)		Proceeds		Gains		(Losses)
Securities available-for-sale	$	13,577	$	149	$	(3)	$	13,577	$	149	$	(3)


	At or For the Three Months Ended September 30, 2017
					Commercial
	Real Estate		Consumer		Business		Unallocated		Total
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	4,144	$	2,669	$	2,453	$	877	$	10,143
Provision for loan losses		481		65		(130)		34		450
Charge-offs		(55)		(152)		(33)		—		(240)
Recoveries		35		208		2		—		245
Net (charge-offs) recoveries		(20)		56		(31)		—		5
Ending balance	$	4,605	$	2,790	$	2,292	$	911	$	10,598
Period end amount allocated to:
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		4,605		2,790		2,292		911		10,598
Ending balance	$	4,605	$	2,790	$	2,292	$	911	$	10,598
LOANS RECEIVABLE
Loans individually evaluated for impairment	$	210	$	—	$	551	$	—	$	761
Loans collectively evaluated for impairment		429,998		201,674		133,138		—		764,810
Ending balance	$	430,208	$	201,674	$	133,689	$	—	$	765,571

	At or For the Three Months Ended March 31, 2024
	Real					Commercial
ACL ON LOANS	Estate		Consumer			Business			Unallocated		Total
Beginning balance	$	14,107	$	13,357		$	4,070		$	—	$	31,534
Provision for credit losses on loans		146		644			631			—		1,421
Charge-offs		—		(1,486	)		(408	)		—		(1,894	)
Recoveries		—		418			—			—		418
Net charge-offs		—		(1,068	)		(408	)		—		(1,476	)
Total ending ACL balance	$	14,253	$	12,933		$	4,293		$	—	$	31,479

	Payment Deferral
	Amortized Cost		% of Total Loan
For the three months ended March 31, 2024	Basis		Type	Financial Effect
CRE	$	1,102	0.3%	Deferred payments and capitalized interest for adding a weighted-average period of 1.7 years to the life of the loans.

	Combination - Term Extension and Interest Rate Reduction
	Amortized Cost		% of Total Loan
For the three months ended March 31, 2023	Basis		Type		Financial Effect
C&I	$	3,709	1.7	%	Reduced weighted-average contractual interest rate from 7.5% to 4.1%, and added a weighted-average period of 5.0 years to the life of the loans.


	September 30, 2017
	30-59		60-89
	Days		Days		90 Days		Total				Total
	Past		Past		or More		Past				Loans		Non-
	Due		Due		Past Due		Due		Current		Receivable		Accrual
REAL ESTATE LOANS
Commercial	$	—	$	—	$	—	$	—	$	63,180	$	63,180	$	—
Construction and development		—		—		—		—		129,407		129,407		—
Home equity		111		16		138		265		23,761		24,026		154
One-to-four-family		—		—		—		—		170,187		170,187		142
Multi-family		—		—		—		—		43,408		43,408		—
Total real estate loans		111		16		138		265		429,943		430,208		296
CONSUMER LOANS
Indirect home improvement		261		77		174		512		123,875		124,387		316
Solar		83		22		81		186		39,896		40,082		81
Marine		—		—		—		—		35,173		35,173		9
Other consumer		7		—		1		8		2,024		2,032		11
Total consumer loans		351		99		256		706		200,968		201,674		417
COMMERCIAL BUSINESS LOANS
Commercial and industrial		—		—		—		—		83,221		83,221		551
Warehouse lending		—		—		—		—		50,468		50,468		—
Total commercial business loans		—		—		—		—		133,689		133,689		551
Total loans	$	462	$	115	$	394	$	971	$	764,600	$	765,571	$	1,264


	September 30, 2017
	Unpaid
	Principal		Write-		Recorded		Related
	Balance		downs		Investment		Allowance
WITH NO RELATED ALLOWANCE RECORDED
Home equity	$	154	$	—	$	154	$	—
One-to-four-family		68		(12)		56		—
Total real estate loans		222		(12)		210		—
WITH AN ALLOWANCE RECORDED
Commercial business loans		551		—		551		88
Total	$	773	$	(12)	$	761	$	88


	September 30, 2017
					Special
	Pass		Watch		Mention		Substandard		Doubtful		Loss
	(1 - 5)		(6)		(7)		(8)		(9)		(10)		Total
REAL ESTATE LOANS
Commercial	$	56,533	$	5,072	$	1,575	$	—	$	—	$	—	$	63,180
Construction and development		129,407		—		—		—		—		—		129,407
Home equity		23,872		—		—		154		—		—		24,026
One-to-four-family		169,352		—		693		142		—		—		170,187
Multi-family		43,408		—		—		—		—		—		43,408
Total real estate loans		422,572		5,072		2,268		296		—		—		430,208
CONSUMER LOANS
Indirect home improvement		124,071		—		—		316		—		—		124,387
Solar		40,001		—		—		81		—		—		40,082
Marine		35,164		—		—		9		—		—		35,173
Other consumer		1,961		—		—		71		—		—		2,032
Total consumer loans		201,197		—		—		477		—		—		201,674
COMMERCIAL BUSINESS LOANS
Commercial and industrial		76,302		306		828		5,785		—		—		83,221
Warehouse lending		44,969		5,499		—		—		—		—		50,468
Total commercial business loans		121,271		5,805		828		5,785		—		—		133,689
Total loans	$	745,040	$	10,877	$	3,096	$	6,558	$	—	$	—	$	765,571


	At or For the Three Months Ended
	September 30,
	2017		2016
Beginning balance	$	4,899	$	6,751
Additions		1,326		1,095
Servicing rights amortized		(414)		(408)
Recovery on servicing rights		—		216
Ending balance	$	5,811	$	7,654


	At or For the Nine Months Ended
	September 30,
	2017		2016
Beginning balance	$	8,459	$	5,811
Additions		3,569		2,927
Sales		(4,751)		—
Servicing rights amortized		(1,465)		(1,086)
(Impairment) recovery on servicing rights		(1)		2
Ending balance	$	5,811	$	7,654


	At September 30,
	2017		2016
Key assumptions:
Weighted average discount rate	9.5	%	9.5	%
Conditional prepayment rate (“CPR”)	11.3	%	16.4	%
Weighted average life in years	6.8		5.2


	September 30, 2017
			Fair Value
	Notional		Asset		Liability
Fallout adjusted interest rate lock commitments with customers	$	59,741	$	1,131	$	—
Mandatory and best effort forward commitments with investors		33,491		4		—
Forward TBA mortgage-backed securities		77,000		104		—
TBA mortgage-backed securities forward sales paired off with investors		32,500		—		140


	September 30,		December 31,
	2017(1)		2016(1)
Noninterest-bearing checking	$	156,017	$	143,236
Interest-bearing checking		115,775		66,119
Savings		72,974		54,995
Money market(4)		236,036		242,849
Certificates of deposit less than $100,000(2)		143,169		93,791
Certificates of deposit of $100,000 through $250,000		73,733		74,832
Certificates of deposit of $250,000 and over(3)		31,927		27,094
Escrow accounts related to mortgages serviced		10,947		9,677
Total	$	840,578	$	712,593


	At September 30, 2017
Maturing in 2017	$	81,162
Maturing in 2018		75,057
Maturing in 2019		45,868
Maturing in 2020		14,980
Maturing in 2021		15,816
Thereafter		15,946
Total	$	248,829


	Mortgage Loans Held for Sale
	Level 1		Level 2		Level 3		Total
September 30, 2017	$	—	$	65,055	$	—	$	65,055
December 31, 2016	$	—	$	52,553	$	—	$	52,553


	Paired Off Commitments with Investors
	Level 1		Level 2		Level 3		Total
September 30, 2017	$	—	$	(140)	$	—	$	(140)
December 31, 2016	$	—	$	747	$	—	$	747


	Impaired Loans
	Level 1		Level 2		Level 3		Total
September 30, 2017	$	—	$	—	$	761	$	761
December 31, 2016	$	—	$	—	$	194	$	194


									Net change in fair
									value for gains/
			Purchases						(losses) relating to
	Beginning		and		Sales and		Ending		items held at end of
Three Months Ended September 30,	Balance		Issuances		Settlements		Balance		period
2017
Interest rate lock commitments with customers	$	1,212	$	3,891	$	(3,972)	$	1,131	$	(81)
Individual forward sale commitments with investors		83		40		(119)		4		(79)
2016
Interest rate lock commitments with customers	$	2,058	$	5,763	$	(5,971)	$	1,850	$	(208)
Individual forward sale commitments with investors		(3)		(60)		23		(40)		(37)


	Balances		Balances
	at September 30, 2017		at September 30, 2016
Allocated shares		126,589		102,359
Committed to be released shares		19,441		19,441
Unallocated shares		110,164		136,085
Total ESOP shares		256,194		257,885

Fair value of unallocated shares (in thousands)	$	5,180	$	3,703


	At or For the Three Months Ended September 30,				At or For the Nine Months Ended September 30,
Numerator:	2017		2016		2017		2016
Net income (in thousands)	$	3,454	$	3,457	$	10,406	$	7,953
Denominator:
Basic weighted average common shares outstanding		3,051,744		2,851,147		2,949,092		2,901,572
Dilutive shares		187,584		87,292		192,685		84,102
Diluted weighted average common shares outstanding		3,239,328		2,938,439		3,141,777		2,985,674
Basic earnings per share	$	1.13	$	1.21	$	3.53	$	2.74
Diluted earnings per share	$	1.07	$	1.18	$	3.31	$	2.66


				Weighted-Average
		Weighted-		Remaining
		Average		Contractual Term In	Aggregate
	Shares	Exercise Price		Years	Intrinsic Value
Outstanding at January 1, 2017	295,850	$	16.89	7.36	$	5,638,901
Granted	—		—	—		—
Less exercised	34,363	$	16.89	—	$	919,380
Forfeited or expired	—		—	—		—
Outstanding at September 30, 2017	261,487	$	16.89	6.61	$	9,089,288

Expected to vest, assuming a 0.31% annual forfeiture rate	261,053	$	16.89	6.61	$	9,074,192

Exercisable at September 30, 2017	134,687	$	16.89	6.61	$	4,681,720


		Weighted-Average
		Grant-Date Fair Value		Weighted-Average
Nonvested Shares	Shares	Per Share		Grant-Date Fair Value
Nonvested at January 1, 2017	68,763	$	17.49	$	1,202,401
Granted	—		—		—
Less vested	31,921	$	17.32	$	552,810
Forfeited or expired	—		—		—
Nonvested at September 30, 2017	36,842	$	17.63	$	649,591