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Note 20 - Stock-based Compensation | 12 Months Ended
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Dec. 31, 2024
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] | NOTE 20 – STOCK-BASED COMPENSATION Stock Options and Restricted Stock On May 17, 2018, the shareholders of FS Bancorp approved the 2018 Equity Incentive Plan (the “2018 Plan”) that authorized 1.3 million shares of the Company’s common stock to be awarded. The 2018 Plan provides for the grant of incentive stock options, non-qualified stock options, and up to 326,000 shares as restricted stock awards (“RSAs”) to directors, emeritus directors, officers, employees or advisory directors of the Company. At December 31, 2024, there were 190,432 stock option awards and 38,372 RSAs available for future grants under the 2018 Plan. For the years ended December 31, 2024, 2023 and 2022, total share-based compensation expense was $1.8 million, $2.0 million, and $2.0 million, respectively. The related income tax benefit was $379,000, $422,000, and $414,000 for the years ended December 31, 2024, 2023 and 2022, respectively. Stock Options The 2018 Plan consists of stock option awards that may be granted as incentive stock options or nonqualified stock options. Stock option awards generally vest over a one-year or two-year period for non-employee directors and over a five-year period for employees and officers with 20% vesting on the anniversary date of each grant date 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. 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 fair value of options granted was determined using the following weighted-average assumptions as of the grant date for the years indicated:
|  | December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Dividend yield |  |  | 2.57 | % |  |  | 3.25 | % |  |  | 2.59 | %
Expected volatility |  |  | 29.55 | % |  |  | 28.24 | % |  |  | 26.86 | %
Risk-free interest rate |  |  | 3.82 | % |  |  | 4.35 | % |  |  | 2.88 | %
Expected term in years |  |  | 6.3 |  |  |  | 6.5 |  |  |  | 6.5 |
Weighted-average grant date fair value per option granted |  | $ | 11.36 |  |  | $ | 7.61 |  |  | $ | 7.13 |
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 historical volatility of the Company's stock price over a specified period of time is used for the expected volatility. The Company bases the risk-free interest rate on the comparable U.S. Treasury rate for the discount rate associated with the stock 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, 5.75 years for two-year vesting, and 6.5 years for five-year vesting. The following table presents a summary of the Company’s stock option awards during the years indicated (shown as actual).
|  |  |  |  |  |  |  |  |  | Weighted- |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Average |  |  |  |  |
|  |  |  |  |  | Weighted- |  |  | Remaining |  |  | Aggregate |
|  |  |  |  |  | Average |  |  | Contractual |  |  | Intrinsic |
|  | Shares |  |  | Exercise Price |  |  | Term In Years |  |  | Value |
Outstanding at January 1, 2022 |  |  | 613,626 |  |  | $ | 25.24 |  |  |  | 7.17 |  |  | $ | 5,362,902 |
Granted |  |  | 99,200 |  |  |  | 30.94 |  |  |  | — |  |  |  | — |
Less exercised |  |  | 64,994 |  |  |  | 19.75 |  |  |  | — |  |  |  | 790,558 |
Outstanding at December 31, 2022 |  |  | 647,832 |  |  | $ | 26.67 |  |  |  | 6.84 |  |  | $ | 4,627,255 |
Outstanding at January 1, 2023 |  |  | 647,832 |  |  | $ | 26.67 |  |  |  | 6.84 |  |  | $ | 4,627,255 |
Granted |  |  | 103,000 |  |  |  | 30.73 |  |  |  | — |  |  |  | — |
Less exercised |  |  | 47,734 |  |  |  | 10.17 |  |  |  | — |  |  |  | 970,064 |
Less forfeited |  |  | 40,819 |  |  |  | 32.96 |  |  |  | — |  |  |  | — |
Outstanding at December 31, 2023 |  |  | 662,279 |  |  | $ | 28.12 |  |  |  | 6.69 |  |  | $ | 5,852,975 |
Outstanding at January 1, 2024 |  |  | 662,279 |  |  | $ | 28.12 |  |  |  | 6.69 |  |  | $ | 5,852,975 |
Granted |  |  | 75,100 |  |  |  | 41.98 |  |  |  | 9.62 |  |  |  | — |
Less exercised |  |  | 187,478 |  |  |  | 23.69 |  |  |  | — |  |  |  | 3,916,425 |
Less forfeited |  |  | 12,000 |  |  |  | 30.73 |  |  |  | — |  |  |  | — |
Outstanding at December 31, 2024 |  |  | 537,901 |  |  | $ | 31.55 |  |  |  | 6.75 |  |  | $ | 5,187,207 |
Expected to vest, assuming a 0.31% annual forfeiture rate at, December 31, 2024 (1) |  |  | 524,787 |  |  | $ | 31.46 |  |  |  | 6.70 |  |  |  | 5,104,755 |
Exercisable at December 31, 2024 |  |  | 296,643 |  |  | $ | 29.55 |  |  |  | 5.58 |  |  | $ | 3,414,456 |
___________________________
(1) | Forfeiture rate has been calculated and estimated, based on historical employment data, to assume a forfeiture of 3.1% of the options over 10 years.
At December 31, 2024, there was $1.9 million of total unrecognized forfeiture adjusted compensation cost related to nonvested stock options granted under the 2018 Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.8 years. Restricted Stock Awards The RSAs fair value is equal to the value of the market price of the Company’s common stock on the grant date and compensation expense is recognized over the vesting period of the awards based on the fair value of the restricted stock. Shares granted under the 2018 Plan generally vest over a one-year or two-year period for non-employee directors and a five-year period for employees and officers, beginning on the grant date. Any forfeited RSAs are made available for future grants under the 2018 Plan. The following table presents a summary of the Company’s nonvested awards during the years indicated (shown as actual).
|  |  |  |  |  | Weighted-Average |
|  |  |  |  |  | Grant-Date |
|  |  |  |  |  | Fair Value |
Nonvested Shares |  | Shares |  |  | Per Share |
Nonvested at January 1, 2022 |  |  | 121,672 |  |  | $ | 28.02 |
Granted |  |  | 35,050 |  |  |  | 30.94 |
Less vested |  |  | 38,192 |  |  |  | 28.12 |
Nonvested at December 31, 2022 |  |  | 118,530 |  |  | $ | 28.85 |
Nonvested at January 1, 2023 |  |  | 118,530 |  |  | $ | 28.85 |
Granted |  |  | 37,600 |  |  |  | 30.73 |
Less vested |  |  | 44,462 |  |  |  | 28.24 |
Forfeited or expired |  |  | 9,524 |  |  |  | 30.96 |
Nonvested at December 31, 2023 |  |  | 102,144 |  |  | $ | 29.61 |
Nonvested at January 1, 2024 |  |  | 102,144 |  |  | $ | 29.61 |
Granted |  |  | 42,250 |  |  |  | 41.98 |
Less vested |  |  | 37,331 |  |  |  | 28.46 |
Less forfeited |  |  | 4,000 |  |  |  | 30.73 |
Nonvested at December 31, 2024 |  |  | 103,063 |  |  | $ | 35.05 |
At December 31, 2024, there was $3.1 million of total unrecognized forfeiture adjusted compensation costs related to nonvested shares granted under the 2018 Plan as RSAs. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.9 years.

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