fsbw20250317_10ka.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark one)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2024 OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35589

FS BANCORP, INC.

(Exact name of registrant as specified in its charter)


Washington		45-4585178
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6920 220th Street SW, Mountlake Terrace, Washington		98043
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(425) 771-5299

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	FSBW	The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was $255,164,361 based on the closing sales price of $36.45 per share of the registrant’s common stock as quoted on the NASDAQ Stock Market LLC on June 30, 2024. For purposes of this calculation, common stock held by executive officers and directors of the registrant is considered to be held by affiliates. As of March 13, 2025, there were 7,762,827 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

1.	Portions of the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders (“Proxy Statement”) are incorporated by reference into Part III.

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Explanatory Note

FS Bancorp, Inc. (the “Company”) is filing this 10-K/A (Amendment No. 1) (“Amendment No. 1”) to the Annual Report on Form 10-K for the year ended December 31, 2024 (the “Original Form 10-K”), as filed with the United States Securities and Exchange Commission (the “SEC”) on March 17, 2025 (the “Original Filing Date”), solely to correct a certain inadvertent typographical error contained in Item 8 related to the Opinion of the work completed by Moss Adams LLP, the Company's independent registered accounting firm. The Opinion was provided timely by Moss Adams LLP and received by the Company at the time of the Original Filing Date. Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, this Amendment No. 1 is signed by a duly authorized representative of the Company. It includes, as Exhibits 31.1 and 31.2, the certifications of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as well as the consent of the Company’s independent registered public accounting firm for the applicable period as Exhibits 23.

Except as described above, no changes have been made to the Original Form 10-K, and this Amendment No. 1 does not modify, amend or update the financial or other information contained in the Original Form 10-K. This Amendment No. 1 does not reflect any events that have occurred on or after the Original Filing Date. Among other things, the Company has not revised forward-looking statements made in the Original Form 10-K to reflect events that occurred or facts that became known to the Company after the Original Filing Date. Therefore, this Amendment No. 1 should be read in conjunction with the Original Form 10-K and any other documents the Company has filed with the SEC on or after the Original Filing Date.

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FS Bancorp, Inc.

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		Page
PART I

PART II
Item 8.	Financial Statements and Supplementary Data	69
	REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	70
	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	72

PART IV
Item 15.	Exhibits and Financial Statement Schedules	135

SIGNATURES		136

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Item 8. Financial Statements and Supplementary Data

FS BANCORP, INC. AND SUBSIDIARY

INDEX TO FINANCIAL STATEMENTS

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Everett, Washington, PCAOB ID 659)	70
Consolidated Balance Sheets	72
Consolidated Statements of Income	73
Consolidated Statements of Comprehensive Income	74
Consolidated Statements of Changes in Stockholders’ Equity	75
Consolidated Statements of Cash Flows	77
Notes to Consolidated Financial Statements	79

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

FS Bancorp, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of FS Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses on loans totaled $31.9 million as of December 31, 2024. The allowance for credit losses 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 loans. The measurement of the net amount expected to be collected on loans is based on relevant available information, from internal and external sources, relating to past events, current conditions, historical loss experience, and reasonable and supportable forecasts.

We identified management’s qualitative and environmental adjustments, which are used in the calculation of the allowance for credit losses on loans, as a critical audit matter. The qualitative and environmental adjustments are used to estimate factors that are not captured in the modeled expected losses. In turn, auditing management’s complex judgments regarding the determination of qualitative and environmental adjustments applied to the allowance for credit losses on loans involved a high degree of auditor judgment due to the nature and extent of the audit evidence and effort required to audit the matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the critical audit matter included the following, among others:

●	Testing the design, implementation, and operating effectiveness of controls related to management’s calculation of the allowance for credit losses on loans, including controls over the accuracy and application of qualitative and environmental adjustments.

●	Testing the completeness and accuracy of the data used in the calculation and the application of qualitative and environmental adjustments, all of which are determined by management and used in the calculation.

●	Obtaining management’s analysis and supporting documentation related to the qualitative and environmental adjustments and testing whether the adjustments used in the calculation of the allowance for credit losses on loans are supported by the analysis provided by management.

●	Evaluating the relevance and reliability of the external data used by management to estimate the qualitative and environmental adjustments used in the calculation of the allowance for credit losses on loans.

/s/ Moss Adams LLP

Everett, Washington

March 17, 2025

We have served as the Company’s auditor since 2006.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2024 AND 2023

(Dollars in thousands, except share data)

	December 31,
ASSETS	2024			2023
Cash and due from banks	$	19,280		$	17,083
Interest-bearing deposits at other financial institutions		12,355			48,608
Total cash and cash equivalents		31,635			65,691
Certificates of deposit at other financial institutions		1,727			24,167
Securities available-for-sale, at fair value (amortized cost of $310,272 and $328,695, net of allowance for credit losses of $0 and $0, respectively)		281,175			292,933
Securities held-to-maturity, net of allowance for credit losses of $45 (fair value of $8,144 and $7,666, respectively)		8,455			8,455
Loans held for sale, at fair value		27,835			25,668
Loans receivable, net of allowance for credit losses of $31,870 and $31,534 (includes loans of $12,728 and $15,088, at fair value, respectively)		2,501,951			2,401,481
Accrued interest receivable		13,881			14,005
Premises and equipment, net		29,756			30,578
Operating lease right-of-use (“ROU”) assets		5,378			6,627
Federal Home Loan Bank (“FHLB”) stock, at cost		15,621			2,114
Deferred tax asset, net		7,059			6,725
Bank owned life insurance (“BOLI”), net		38,528			37,719
Mortgage servicing rights (“MSRs”), held at the lower of cost or fair value		9,204			9,090
MSRs held for sale, held at the lower of cost or fair value		—			8,086
Goodwill		3,592			3,592
Core deposit intangible, net		13,710			17,343
Other assets		39,670			18,395
TOTAL ASSETS	$	3,029,177		$	2,972,669
LIABILITIES
Deposits:
Noninterest-bearing accounts	$	638,158		$	670,831
Interest-bearing accounts		1,701,260			1,851,492
Total deposits		2,339,418			2,522,323
Borrowings		307,806			93,746
Subordinated notes:
Principal amount		50,000			50,000
Unamortized debt issuance costs		(406	)		(473	)
Total subordinated notes less unamortized debt issuance costs		49,594			49,527
Operating lease liabilities		5,556			6,848
Other liabilities		31,036			35,737
Total liabilities		2,733,410			2,708,181
COMMITMENTS AND CONTINGENCIES (NOTE 12)
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; 7,833,014 and 7,800,545 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively		78			78
Additional paid-in capital		55,716			57,362
Retained earnings		257,113			230,354
Accumulated other comprehensive loss, net of tax		(17,140	)		(23,306	)
Total stockholders’ equity		295,767			264,488
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,029,177		$	2,972,669

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED December 31, 2024, 2023 and 2022

(Dollars in thousands, except earnings per share data)

	Year Ended December 31,
	2024			2023			2022
INTEREST INCOME
Loans receivable, including fees	$	170,857		$	154,945		$	111,648
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions		13,980			12,247			7,046
Total interest and dividend income		184,837			167,192			118,694
INTEREST EXPENSE
Deposits		53,163			36,751			9,420
Borrowings		6,627			5,196			3,052
Subordinated notes		1,942			1,942			1,942
Total interest expense		61,732			43,889			14,414
NET INTEREST INCOME		123,105			123,303			104,280
PROVISION FOR CREDIT LOSSES		5,511			4,774			6,217
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		117,594			118,529			98,063
NONINTEREST INCOME
Service charges and fee income		10,026			11,138			8,525
Gain on sale of loans		8,557			6,711			7,917
Gain on sale of MSRs		8,356			—			—
Loss on sale of investment securities, net		(7,836	)		—			—
Earnings on cash surrender value of BOLI		990			920			876
Other noninterest income		1,463			1,721			790
Total noninterest income		21,556			20,490			18,108
NONINTEREST EXPENSE
Salaries and benefits		55,092			53,622			47,632
Operations		13,529			13,070			10,743
Occupancy		6,857			6,378			5,165
Data processing		8,424			6,852			6,062
Gain on sale of OREO		—			(148	)		—
Loan costs		2,685			2,574			2,718
Professional and board fees		4,072			2,584			3,154
Federal Deposit Insurance Corporation (“FDIC”) insurance		2,005			2,392			1,224
Marketing and advertising		1,310			1,349			897
Acquisition cost		—			1,562			898
Amortization of core deposit intangible		3,633			3,464			691
(Recovery) impairment of MSRs		(38	)		48			(1	)
Total noninterest expense		97,569			93,747			79,183
INCOME BEFORE PROVISION FOR INCOME TAXES		41,581			45,272			36,988
PROVISION FOR INCOME TAXES		6,557			9,219			7,339
NET INCOME	$	35,024		$	36,053		$	29,649
Basic earnings per share	$	4.48		$	4.63		$	3.75
Diluted earnings per share	$	4.36		$	4.56		$	3.70

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED December 31, 2024, 2023 and 2022

(Dollars in thousands)

	Year Ended December 31,
	2024			2023			2022
Net income	$	35,024		$	36,053		$	29,649
Other comprehensive income (loss):
Securities available-for-sale:
Unrealized (loss) gain during period		(1,171	)		6,779			(41,849	)
Income tax benefit (provision) related to unrealized (loss) gain		252			(1,458	)		8,998
Reclassification adjustment for realized loss, net included in net income		7,836			—			—
Income tax benefit related to reclassification for realized loss, net		(1,685	)		—			—
Derivative financial instruments:
Unrealized derivative gain during period		7,738			1,651			9,844
Income tax provision related to unrealized derivative gain		(1,664	)		(355	)		(2,116	)
Reclassification adjustment for realized gain, net included in net income		(6,548	)		(5,465	)		(970	)
Income tax provision related to reclassification, net		1,408			1,174			209
Other comprehensive income (loss), net of tax		6,166			2,326			(25,884	)
COMPREHENSIVE INCOME	$	41,190		$	38,379		$	3,765

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED December 31, 2024, 2023 and 2022

(Dollars in thousands, except share amounts)

													Accumulated
													Other
							Additional						Comprehensive			Total
	Common Stock						Paid-in			Retained			Income (Loss),			Stockholders'
	Shares			Amount			Capital			Earnings			Net of Tax			Equity
BALANCE, January 1, 2022		8,169,887		$	82		$	67,958		$	179,215		$	252		$	247,507
Net income		—		$	—			—			29,649			—		$	29,649
Dividends paid ($0.90 per share)		—		$	—			—			(7,096	)		—		$	(7,096	)
Share-based compensation		—		$	—			1,971			—			—		$	1,971
Issuance of common stock - employee stock purchase plan		16,934		$	—			503			—					$	503
Restricted stock awards		35,050		$	—			—			—			—		$	—
Cumulative effect of new accounting standard (Topic 326) - impact in year of adoption		—		$	—			—			297			—		$	297
Common stock repurchased - repurchase plan		(544,530	)	$	(5	)		(15,623	)		—			—		$	(15,628	)
Common stock repurchased for employee/director taxes paid on restricted stock awards		(6,150	)	$	—			(190	)		—			—		$	(190	)
Stock options exercised, net		64,994		$	—			568			—			—		$	568
Other comprehensive loss, net of tax		—		$	—			—			—			(25,884	)	$	(25,884	)
BALANCE, December 31, 2022		7,736,185		$	77		$	55,187		$	202,065		$	(25,632	)	$	231,697

BALANCE, January 1, 2023		7,736,185		$	77		$	55,187		$	202,065		$	(25,632	)	$	231,697
Net income		—		$	—			—			36,053			—		$	36,053
Dividends paid ($1.00 per share)		—		$	—			—			(7,764	)		—		$	(7,764	)
Share-based compensation		—		$	—			2,010			—			—		$	2,010
Issuance of common stock - employee stock purchase plan		32,330		$	1			1,016			—			—		$	1,017
Restricted stock awards		37,600		$	—			—			—			—			—
Restricted stock awards forfeited		(9,524	)	$	—			—			—			—		$	—
Common stock repurchased - repurchase plan		(32,334	)	$	—			(223	)		—			—			(223	)
Common stock repurchased for employee/director taxes paid on restricted stock awards		(11,446	)	$	—			(355	)		—			—		$	(355	)
Stock options exercised, net		47,734		$	—			(273	)		—			—		$	(273	)
Other comprehensive income, net of tax		—		$	—			—			—			2,326		$	2,326
BALANCE, December 31, 2023		7,800,545		$	78		$	57,362		$	230,354		$	(23,306	)	$	264,488

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED December 31, 2024, 2023 and 2022 (Continued)

(Dollars in thousands, except share amounts)

													Accumulated
													Other
							Additional						Comprehensive			Total
	Common Stock						Paid-in			Retained			Income (Loss),			Stockholders’
	Shares			Amount			Capital			Earnings			Net of Tax			Equity
BALANCE, January 1, 2024		7,800,545		$	78		$	57,362		$	230,354		$	(23,306	)	$	264,488
Net income		—		$	—			—			35,024			—		$	35,024
Dividends paid ($1.06 per share)		—		$	—			—			(8,265	)		—		$	(8,265	)
Share-based compensation		—		$	—			1,806			—			—		$	1,806
Issuance of common stock- employee stock purchase plan		29,122		$	1			1,074			—			—		$	1,075
Restricted stock awards		42,250		$	—			—			—			—		$	—
Restricted stock awards forfeited		(4,000	)	$	—			—			—			—		$	—
Common stock repurchased - repurchase plan		(213,188	)	$	(1	)		(2,507	)		—			—		$	(2,508	)
Common stock repurchased for employee/director taxes paid on restricted stock awards		(9,193	)	$	—			(386	)		—			—		$	(386	)
Stock options exercised, net		187,478		$	—			(1,633	)		—			—		$	(1,633	)
Other comprehensive income, net of tax		—		$	—			—			—			6,166		$	6,166
BALANCE, December 31, 2024		7,833,014		$	78		$	55,716		$	257,113		$	(17,140	)	$	295,767

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED December 31, 2024, 2023 and 2022

(Dollars in thousands)

	Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES	2024			2023			2022
Net income	$	35,024		$	36,053		$	29,649
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses		5,511			4,774			6,217
Depreciation, amortization and accretion		10,566			12,649			14,004
Compensation expense related to stock options and restricted stock awards		1,806			2,010			1,971
Benefit for deferred income taxes		(2,023	)		(693	)		(844	)
Change in cash surrender value of BOLI		(990	)		(920	)		(876	)
Gain on sale of loans held for sale		(8,557	)		(6,711	)		(7,321	)
Gain on sale of portfolio loans		—			—			(596	)
Gain on sale of MSRs		(8,356	)		—			—
Loss on sale of investment securities, net		7,836			—			—
Origination of loans held for sale		(535,623	)		(377,144	)		(566,898	)
Proceeds from sale of loans held for sale		571,287			411,484			708,400
Gain on purchase of tax credits		(2,277	)		—			—
Purchase of tax credits		(26,217	)		—			—
(Recovery) impairment of MSRs		(38	)		48			(1	)
Gain on sale of OREO		—			(148	)		—
Changes in operating assets and liabilities
Accrued interest receivable		124			(2,331	)		(3,550	)
Other assets		8,051			(4,495	)		2,127
Other liabilities		(5,301	)		3,093			2,616
Net cash from operating activities		50,823			77,669			184,898
CASH FLOWS (USED BY) FROM INVESTING ACTIVITIES
Activity in securities available-for-sale:
Proceeds from sale of investment securities		101,907			—			—
Maturities, prepayments, and calls		17,716			17,295			21,201
Purchases		(110,340	)		(76,030	)		(22,968	)
Activity in securities held-to-maturity:
Purchases		—			—			(1,000	)
Maturities of certificates of deposit at other financial institutions		25,148			4,186			5,830
Purchase of certificates of deposit at other financial institutions		(2,708	)		(23,641	)		—
Portfolio loan originations and principal collections, net		(73,841	)		(185,024	)		(534,335	)
Net cash from acquisitions		—			336,157			—
Proceeds from sale of MSRs		16,309			—			—
Proceeds from sale of portfolio loans		—			—			39,034
Purchase of portfolio loans		(63,427	)		(2,818	)		(5,736	)
Proceeds from sale of OREO, net		—			718			145
Purchase of premises and equipment		(1,635	)		(1,671	)		(1,551	)
Proceeds from bank owned life insurance death benefits		181			—			1,169
Change in FHLB stock, net		(13,507	)		8,497			(5,833	)
Net cash (used by) from investing activities		(104,197	)		77,669			(504,044	)
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES
Net (decrease) increase in deposits		(183,025	)		(30,704	)		211,935
Proceeds from borrowings		967,769			2,164,338			3,003,617
Repayments of borrowings		(753,709	)		(2,257,120	)		(2,859,617	)
Dividends paid on common stock		(8,265	)		(7,764	)		(7,096	)
(Disbursements) proceeds from stock options exercised, net		(1,633	)		(273	)		568
Common stock repurchased for employee/director taxes paid on restricted stock awards		(386	)		(355	)		(190	)
Issuance of common stock - employee stock purchase plan		1,075			1,017			503
Common stock repurchased		(2,508	)		(223	)		(15,628	)
Net cash from (used by) financing activities		19,318			(131,084	)		334,092
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(34,056	)		24,254			14,946

CASH AND CASH EQUIVALENTS, beginning of year		65,691			41,437			26,491
CASH AND CASH EQUIVALENTS, end of year	$	31,635		$	65,691		$	41,437

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SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings	$	63,061	$	38,744			10,968
Income taxes		2,370		10,396			4,693

SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES
Change in fair value on available-for-sale investment securities	$	6,665	$	6,779		$	(41,849	)
Change in fair value on fair value and cash flow hedges		1,188		(3,814	)		8,857
Change in fair value on portfolio loans measured under the fair value option		52		447			(1,654	)
Retention in gross MSRs from loan sales		2,415		2,772			5,400
OREO received in settlement of loans		—		—			145
Transfer of closed retail branch to OREO		—		—			570
ROU assets in exchange for lease liabilities		422		2,034			3,049
Acquisitions:
Assets acquired		—		87,512			—
Liabilities assumed		—		424,949			—

See accompanying notes to these consolidated financial statements.

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NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – FS Bancorp, Inc. (the “Company”) was incorporated in September 2011 as the holding company for 1st Security Bank of Washington (the “Bank” or “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 27 full-service bank branches, a headquarters that also originates loans and accepts deposits, and loan production offices in suburban communities in the greater Puget Sound area, the Kennewick-Pasco-Richland metropolitan area of Washington, also known as the Tri-Cities, Goldendale, Vancouver, and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. The Bank’s branches located in the communities of 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- and middle-market businesses and individuals. The Company and its subsidiary are subject to regulation by certain federal and state agencies and undergo periodic examination by these regulatory agencies.

Financial Statement Presentation – The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with prevailing practices within the banking and securities industries. In preparing such financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses, fair value adjustments from assets and liabilities acquired in a business combination, fair value of financial instruments, the valuation of MSRs, deferred income taxes, and if needed, a deferred tax asset valuation allowance.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented to the nearest thousands of dollars except per share amounts. If the amounts are above $1.0 million, they are rounded one decimal point, and 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 and its wholly owned subsidiary, 1st Security 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 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 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 21 – Business Segments.”

Subsequent Events – The Company has evaluated events and transactions subsequent to December 31, 2024, through the date that the consolidated financial statements were issued, for potential recognition or disclosure.

Cash and Cash Equivalents – Cash and cash equivalents include cash and due from banks, and interest-bearing balances due from other banks and the Federal Reserve Bank of San Francisco (“FRB”) and have an original maturity of 90 days or less at the time of purchase. At times, cash balances may exceed FDIC insured limits. At December 31, 2024 and 2023, the Company had $41,000 and $27,000, respectively, of cash and due from banks and interest-bearing deposits at other financial institutions in excess of FDIC insured limits.

Securities – Securities are classified as held-to-maturity when the Company has the ability and positive intent to hold them to maturity. Securities classified as held-to-maturity are carried at cost, adjusted for amortization of premiums to the earliest callable date and accretion of discounts to the maturity date and, if appropriate, any credit impairment losses. Securities available-for-sale consist of debt securities that the Company has the intent and ability to hold for an indefinite period, but not necessarily to maturity. Such securities may be sold to implement the Company’s asset/liability management strategies and in response to changes in interest rates and similar factors. Securities available-for-sale are reported at fair value. Realized gains and losses on securities available-for-sale, determined using the specific identification method, are included in results of operations. Amortization of premiums and accretion of discounts are recognized as adjustments to yield over the contractual lives of the related securities with the exception of premiums for non-contingently callable debt securities which are amortized to the earliest call date, rather than the contractual maturity date. Dividends and interest income are recognized when earned.

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Each quarter management evaluates for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component recognized through the Provision for Credit Losses on the Consolidated Statements of Income. (See Note 3

– Investments).

Federal Home Loan Bank Stock – The Bank’s investment in FHLB stock is carried at cost, which approximates fair value. As a member of the FHLB system, the Bank is required to maintain an investment in capital stock of the FHLB. The Bank’s required minimum level of investment in FHLB stock is based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. At December 31, 2024 and 2023, the Bank’s investment in FHLB stock was $15.6 million and $2.1 million, respectively. The Bank was in compliance with the FHLB minimum investment requirement at December 31, 2024 and 2023.

Management evaluates FHLB stock for impairment annually. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB as compared with the capital stock amount for the FHLB and the length of time this situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB; and (4) the liquidity position of the FHLB. Based on its evaluation, management determined that there was no impairment of FHLB stock for the years ended December 31, 2024, 2023 and 2022.

Loans Held for Sale – The Bank records all mortgage loans held for sale at fair value. Fair value is determined by outstanding commitments from investors or current investor yield requirements calculated on the aggregate loan basis. Gains and losses on fair value changes of loans held for sale are recorded in the gain on sale of loans component of noninterest income. Origination fees and costs are recognized in earnings at the time of origination. Mortgage loans held for sale are sold with the mortgage service rights either released or retained by the Bank. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. All sales are made with limited recourse against the Company.

Other Real Estate Owned – OREO is recorded initially at the lower of cost or fair value less selling costs, with any initial charge made to the allowance for credit losses (“ACL”) on loans. Costs relating to development and improvement of the properties or assets are capitalized while costs relating to holding the properties or assets are expensed. Valuations are periodically performed by management, and a charge to earnings is recorded if the recorded value of a property exceeds its estimated net realizable value.

Derivatives – Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free-standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitments to fund the loans. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are reported in “Gain on sale of loans” on the Consolidated Statements of Income.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation. The Company’s hedging policies permit the use of various derivative financial instruments to manage interest rate risk or to hedge specified assets and liabilities. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the derivative contract. If derivative instruments are designated as fair value hedges, and such hedges are highly effective, both the change in the fair value of the hedge and the hedged item are included in current earnings. If derivative instruments are designated as cash flow hedges, fair value adjustments related to the effective portion are recorded in other comprehensive income and are reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective portions of cash flow hedges are reflected in earnings as they occur. Actual cash receipts and/or payments and related accruals on derivatives related to hedges are recorded as adjustments to the interest income or interest expense associated with the hedged item. During the life of the hedge, the Company formally assesses whether derivatives designated as hedging instruments continue to be highly effective in offsetting changes in the fair value or cash flows of hedged items. If it is determined that a hedge has ceased to be highly effective, the Company will discontinue hedge accounting prospectively. At such time, previous adjustments to the carrying value of the hedged item are reversed into current earnings and the derivative instrument is reclassified to a trading position recorded at fair value. For derivatives not designated as hedges, changes in fair value are recognized in earnings, in noninterest income.

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Loans Receivable – Loans receivable, are stated at the amount of unpaid principal reduced by the ACL on loans and net deferred fees or costs and premiums or discounts. Interest on loans is calculated using the simple interest method based on the daily balance of the principal amount outstanding and is credited to income as earned. Loan fees, net of direct origination costs, are deferred and amortized over the life of the loan using the effective yield method. If the loan is repaid prior to maturity, the remaining unamortized net deferred loan origination fee is recognized in income at the time of repayment.

Income Recognition on Nonaccrual Loans and Securities – Interest on loans is accrued daily based on the principal amount outstanding. Generally, the accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due or when they are past due 90 days as to either principal or interest (based on contractual terms), unless they are well secured and in the process of collection. All interest accrued but not collected for loans that are placed on nonaccrual status or charged off are reversed against interest income. Subsequent collections on a cash basis are applied proportionately to past due principal and interest, unless collectability of principal is in doubt, in which case all payments are applied to principal. Loans are returned to accrual status when the loan is performing according to its contractual terms for at least six months and the collectability of principal and interest is no longer doubtful. While less common, similar interest reversal and nonaccrual treatment is applied to investment securities if their ultimate collectability becomes questionable.

Allowance for Credit Losses on Held-to-Maturity Securities – 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 current conditions and reasonable and supportable forecasts.

The held-to-maturity portfolio consists entirely of corporate securities. Securities are generally rated investment grade. Securities are analyzed individually to establish a reserve.

Allowance for Credit Losses 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 security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Changes in the ACL are recorded as a provision for (recovery of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is not included in the estimate of credit losses.

Allowance for Credit Losses 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 loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and recoveries are credited to the allowance when received. In the case of recoveries, 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.

Collective Assessment – 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 their own cohorts due to specific risk characteristics for that pool of loans.

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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”), with the exception of 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 particular points in time (each month during the lookback period) to determine the probability that loans in a certain cohort will default over the 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 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 very limited charge-off history, management uses index LGDs comprised of rates derived from the LGD experience of other community banks in place of the Company’s historical LGDs.

The Company utilizes reasonable and 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 very limited default history, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company’s historical PDs.

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.

Individual Assessment – 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.). 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 ordered to support the impairment analysis of an impaired loan, the appraisal is reviewed by the Company’s internal appraisal reviewer.

Where the primary and/or expected source of repayment of a specific loan is believed to be the receipt of principal and interest payments from the borrower and/or the refinancing of the 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 actually received by the borrower from other creditors and/or from the Company’s knowledge of terms generally available from other banks.

Determining the Contractual Term – 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 modifications. Prepayment assumptions will be determined by analysis of historical behavior by loan cohort.

Allowance for Credit Losses on Unfunded Commitments – The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit. The ACL on unfunded commitments is adjusted through a provision for (recovery 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 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.

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Premises and Equipment, Net – Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives used to compute depreciation include building and building improvements up to 25 years and furniture, fixtures, and equipment from three to 10 years. Leasehold and tenant improvements are amortized using the straight-line method over the lesser of useful life or the life of the related lease. Gains or losses on dispositions are reflected on the Consolidated Statements of Income.

Management reviews buildings, improvements and equipment for impairment on an annual basis or whenever events or changes in the circumstances indicate that the undiscounted cash flows for the property are less than its carrying value. If identified, an impairment loss is recognized through a charge to earnings based on the fair value of the property.

Right of Use (“ROU”) Lease Asset & Lease Liability – The Company leases retail space, office space, storage space, and equipment under operating leases. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs in addition to the base rent. Certain leases also contain lease incentives, such as tenant improvement allowances and rent abatement. Variable lease payments are recognized as lease expense as they are incurred. The Company records an operating lease ROU asset and an operating lease liability for operating leases with a lease term greater than 12 months. The ROU asset and lease liability are recorded in “Other assets” and “Other liabilities”, respectively, on the Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Many of the Company’s leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule, which are factored into our determination of lease payments when appropriate. Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term. The ROU asset and lease liability terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Transfers of Financial Assets – Transfers of an entire financial asset, a group of entire financial assets, or participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage Servicing Rights – Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Generally, purchased MSRs are capitalized at the cost to acquire the rights. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the MSRs based on relative fair value. Fair value is based on market prices for comparable MSR contracts, when available, or alternatively, is based on a valuation model that calculates 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 the cost to service, the discount rate, 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 value of the rights as compared to amortized cost. Impairment is determined 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 for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as a recovery and an increase to income. Capitalized MSRs are stated separately on the Consolidated Balance Sheets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

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Income Taxes – The Company files a consolidated federal income tax return. Income taxes are reflected in the Company’s consolidated financial statements to show the tax effects of the operations and transactions reported in the consolidated financial statements and consist of taxes currently payable plus deferred taxes. 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 temporary 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 the period in which the deferred tax assets or liabilities are expected to be realized or settled and are determined using the assets and liability method of accounting. The deferred income tax provision represents the difference between net deferred tax asset/liability at the beginning and end of the reported period. In formulating the deferred tax asset, the Company is required to estimate income 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 treatment of items, such as depreciation and the provision for credit losses, for tax and financial reporting purposes.

The Company follows the authoritative guidance issued related to accounting for uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It is the Company’s policy to record any penalties or interest arising from federal or state taxes as a component of income tax expense.

Earnings Per Share (“EPS”) – Basic and diluted EPS are computed using the two-class method, which is an earnings allocation method for computing earnings per share that treats a participating security as having rights to 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.

Comprehensive Income (Loss) – Comprehensive income (loss) is comprised of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized holding gains and losses on securities available-for-sale, net of tax and unrealized holding gains (losses) on derivatives designated as hedges, net of tax recorded directly to equity.

Financial Instruments – In the ordinary course of business, the Company has entered into agreements for off-balance-sheet financial instruments consisting of commitments to extend credit and stand-by letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Restricted Assets – Regulations of the Board of Governors of the Federal Reserve System (“Federal Reserve”) require that the Bank maintain reserves in the form of cash on hand and deposit balances with the FRB, based on a percentage of deposits. At December 31, 2024 and December 31, 2023, the Bank had no reserve requirement.

Marketing and Advertising Costs – The Company records marketing and advertising costs as expenses as they are incurred. Total marketing and advertising expense was $1.3 million, $1.3 million and $897,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

Share-Based Compensation – Compensation cost is recognized for stock options and restricted stock awards, based on the fair value of these awards at the grant date. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the grant date is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

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Goodwill – Goodwill is recorded upon completion of a business combination as the difference between the purchase price and the fair value of net identifiable assets acquired. The Company completes its annual review of goodwill during the fourth quarter of each fiscal year. We have determined our goodwill balance is all related to a single reporting unit. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair value, including goodwill, to its carrying amount. If the fair value exceeds the carrying amount, then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to that reporting unit. There was no goodwill impairment for the years ended December 31, 2024, 2023 and 2022.

Bank Owned Life Insurance – The Bank has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

As a result of current tax law and the nature of these policies, the Bank records any increase in cash value of these policies as nontaxable noninterest income. If the Bank decided to surrender any of the policies prior to the death of the insured, such surrender may result in tax expense related to the life-to-date cumulative increase in cash value of the policy. If the Bank retains such policies until the death of the insured, the Bank will receive nontaxable proceeds from the insurance company equal to the death benefit of the policies.

Acquired Loans – Loans acquired in business combinations are recorded at their fair value at the acquisition date. Establishing the fair value of acquired loans involves a significant amount of judgement, including determining the credit discount based upon historical data adjusted for current economic conditions and other factors. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated or purchased non-credit-deteriorated. Purchased credit-deteriorated (“PCD”) loans have experienced more than insignificant credit deterioration since origination. For PCD loans, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The loan’s fair value is grossed up for the allowance for credit losses and becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through a provision for credit losses.

For purchased non-credit-deteriorated loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan. While credit discounts are included in the determination of the fair value for non-credit-deteriorated loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be recorded at the acquisition date. As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses in the Consolidated Statement of Income. Any subsequent deterioration (improvement) in credit quality is recognized by recording a provision for (reversal of) credit losses.

Application of New Accounting Guidance in 2024

On January 1, 2024, the Company adopted Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to 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 fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the 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, with early adoption permitted. The adoption of ASU 2022-03 did not have a material impact on the Company's consolidated financial statements and related disclosures.

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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 Emerging Issues Task Force. ASU 2023-02 allows an entity the option to apply the proportional amortization method of accounting to other equity investments that are made for the primary purpose of receiving tax credits or other income tax benefits if certain conditions are met. Prior to this ASU, the application of the 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 other income tax benefits received, being presented on a single line in the statements of income, income tax expense. Under this ASU, an entity has the option to 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 proportional amortization method use the delayed equity contribution guidance in paragraph 323-740-25-3, requiring a liability to be recognized for delayed equity contributions that are unconditional and legally binding or for equity contributions that are contingent upon a future event when that contingent event becomes probable. Under this ASU, low-income housing tax credit investments for which the 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 low-income housing tax credit investments not accounted for using the equity method must apply the impairment guidance in Subtopic 323-10: Investments - Equity Method and Joint Ventures - Overall. This ASU also clarifies that for low-income housing tax credit investments not accounted for under the proportional amortization method or the 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 annual periods concerning investments for which the proportional amortization method is 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 financial position and results of operations. ASU 2023-02 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of ASU 2023-02 did not have a material impact on the Company's consolidated financial statements and related disclosures.

On December 31, 2024, the Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires that a public entity that has a single reportable segment provide all the 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:

●	Requires disclosure on an annual and interim basis, of 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.

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

●	Clarifies 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.

●	Requires 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 adoption of ASU 2023-07 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued guidance within ASU 2023-09, Income Taxes (Topic 740): 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 income taxes paid information. The ASU 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 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.

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The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial 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 2023-09 will have on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued guidance within ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in the ASU require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:

●

Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.

●	Include certain amounts that are already required to be disclosed under GAAP in the same disclosure as the other disaggregation requirements.

●	Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.

●	Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied prospectively. The Company is evaluating the adoption of this ASU, but does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

NOTE 2 – Business Combination

On February 24, 2023, the Company’s wholly-owned subsidiary, 1st Security Bank, completed the purchase of seven branches (“Branch Acquisition”) from Columbia State Bank to expand its franchise in Washington and Oregon. The Branch Acquisition included seven retail bank branches located in the communities of Goldendale and White Salmon, Washington and Manzanita, Newport, Ontario, Tillamook, and Waldport, Oregon. In accordance with the Purchase and Assumption Agreement, dated as of November 7, 2022, between Columbia State Bank and 1st Security Bank, the Bank acquired $425.5 million of deposits, a portfolio of performing loans, six owned bank branches, one lease associated with the bank branches 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 $66.6 million for the loans acquired, (b) the fair value, or approximately $6.3 million, for the bank facilities and certain other assets associated with the acquired branches, and (c) a deposit premium of 4.15% for core deposits and 2.5% for public funds on substantially all of the deposits assumed, which equated to approximately $16.4 million. The transaction was settled with Columbia State Bank paying cash of $334.7 million to 1st Security Bank for the difference between the total assets purchased and the total liabilities assumed.

The Branch Acquisition was accounted for under the acquisition method of accounting and accordingly, the assets and liabilities were recorded at fair values on February 24, 2023, the date of acquisition. Determining the fair value of assets and liabilities is a complicated process involving significant 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. Due to the timing of the data conversion and the integration of operations of the branches onto the Company’s existing operations, historical reporting of the acquired branches is impracticable, and therefore, disclosure of the amounts of revenue and expenses attributable to the acquired branches since the acquisition date are not available.

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

	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

______________________

(1)

The fair value discount for acquired loans was determined by separate adjustments to reflect a credit risk and marketability component and a yield component reflecting the 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 loans is $63.2 million and the gross amount due is $66.1 million, none of which is expected to be uncollectable.

(2)

The fair value adjustment represents the value of the core deposit base assumed in the Branch Acquisition 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 10 years.

(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.

(4)

The fair value of time deposits was calculated using a discounted cash flow analysis that calculated the present value of the projected cash flows from the portfolio versus the present value of a similar portfolio with a similar maturity profile at current market rates. This adjustment represents a difference in interest rates from the time deposits acquired and the estimated wholesale funding rates used in the application of fair value accounting. The discounted amount will be amortized into expense as an increase in interest expense over the maturity profile of the acquired time deposits.

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.

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NOTE 3 – INVESTMENTS

The following tables present the amortized costs, unrealized gains, unrealized losses, estimated fair values of securities available-for-sale and held-to-maturity, and the ACL on securities available-for-sale and held-to-maturity, at the dates indicated:

	December 31, 2024
								Estimated
	Amortized		Unrealized		Unrealized			Fair
SECURITIES AVAILABLE-FOR-SALE	Cost		Gains		Losses			Values		ACL
U.S. agency securities	$	20,247	$	45	$	(3,154	)	$	17,138	$	—
Corporate securities		16,000		8		(882	)		15,126		—
Municipal bonds		82,774		—		(12,430	)		70,344		—
Mortgage-backed securities		178,740		415		(11,969	)		167,186		—
Asset-backed securities		12,511		3		(1,133	)		11,381		—
Total securities available-for-sale		310,272		471		(29,568	)		281,175		—

SECURITIES HELD-TO-MATURITY
Corporate securities		8,500		—		(356	)		8,144		45
Total securities held-to-maturity		8,500		—		(356	)		8,144		45

Total securities	$	318,772	$	471	$	(29,924	)	$	289,319	$	45

	December 31, 2023
								Estimated
	Amortized		Unrealized		Unrealized			Fair
SECURITIES AVAILABLE-FOR-SALE	Cost		Gains		Losses			Values		ACL
U.S. agency securities	$	21,151	$	46	$	(3,179	)	$	18,018	$	—
Corporate securities		13,000		613		(741	)		12,872		—
Municipal bonds		138,803		42		(19,398	)		119,447		—
Mortgage-backed securities		112,855		238		(11,845	)		101,248		—
Asset-backed securities		42,886		—		(1,538	)		41,348		—
Total securities available-for-sale		328,695		939		(36,701	)		292,933		—

SECURITIES HELD-TO-MATURITY
Corporate securities		8,500		—		(834	)		7,666		45
Total securities held-to-maturity		8,500		—		(834	)		7,666		45

Total securities	$	337,195	$	939	$	(37,535	)	$	300,599	$	45

The following table presents the activity in the ACL on securities held-to-maturity by major security type for the years indicated:

SECURITIES HELD-TO-MATURITY	For the Year Ended December 31,
Corporate Securities	2024		2023		2022
Beginning ACL balance	$	45	$	31	$	—
Impact of adopting ASU 2016-13		—		—		72
Provision for (recapture of) credit losses		—		14		(41	)
Total ending ACL balance	$	45	$	45	$	31

Management measures expected credit losses on held-to-maturity debt securities on an individual basis. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held-to-maturity debt securities totaled $116,000 as of both December 31, 2024 and 2023, and was $1.2 million and $1.5 million on available-for-sale debt securities as of December 31, 2024 and 2023, respectively.

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The Company monitors the credit quality of debt securities held-to-maturity quarterly using credit rating, material event notices, and changes in market value. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:

	December 31,
Corporate securities	2024		2023
BBB/BBB-	$	8,500	$	7,000
BB+		—		1,500
Total	$	8,500	$	8,500

At December 31, 2024 and 2023, there were no debt securities held-to-maturity that were classified as either nonaccrual or 90 days or more past due and still accruing interest.

The following table presents, as of December 31, 2024, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law:

	December 31, 2024
Purpose or beneficiary	Carrying Value		Amortized Cost		Fair Value
State and local government public deposits	$	34,384	$	40,343	$	34,384

Investment securities that were in an unrealized loss position at the dates indicated are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

	December 31, 2024
	Less than 12 Months					12 Months or Longer					Total
SECURITIES AVAILABLE-FOR-SALE	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. agency securities	$	—	$	—		$	15,093	$	(3,154	)	$	15,093	$	(3,154	)
Corporate securities		6,781		(219	)		5,337		(663	)		12,118		(882	)
Municipal bonds		1,677		(10	)		68,667		(12,420	)		70,344		(12,430	)
Mortgage-backed securities		31,093		(241	)		63,934		(11,728	)		95,027		(11,969	)
Asset-backed securities		3,638		(41	)		7,190		(1,092	)		10,828		(1,133	)
Total securities available-for-sale		43,189		(511	)		160,221		(29,057	)		203,410		(29,568	)

SECURITIES HELD-TO-MATURITY
Corporate securities		—		—			8,144		(356	)		8,144		(356	)
Total securities held-to-maturity		—		—			8,144		(356	)		8,144		(356	)

Total securities	$	43,189	$	(511	)	$	168,365	$	(29,413	)	$	211,554	$	(29,924	)

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	December 31, 2023
	Less than 12 Months					12 Months or Longer					Total
SECURITIES AVAILABLE-FOR-SALE	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. agency securities	$	—	$	—		$	15,972	$	(3,179	)	$	15,972	$	(3,179	)
Corporate securities		959		(41	)		4,300		(700	)		5,259		(741	)
Municipal bonds		3,922		(23	)		113,577		(19,375	)		117,499		(19,398	)
Mortgage-backed securities		20,662		(113	)		67,376		(11,732	)		88,038		(11,845	)
Asset-backed securities		33,211		(460	)		8,137		(1,078	)		41,348		(1,538	)
Total securities available-for-sale		58,754		(637	)		209,362		(36,064	)		268,116		(36,701	)

SECURITIES HELD-TO-MATURITY
Corporate securities		—		—			7,666		(834	)		7,666		(834	)
Total securities held-to-maturity		—		—			7,666		(834	)		7,666		(834	)

Total securities	$	58,754	$	(637	)	$	217,028	$	(36,898	)	$	275,782	$	(37,535	)

There were no held-to-maturity debt securities in an unrealized loss position of less than one year and seven held-to-maturity debt securities in an unrealized loss position of more than one year at both December 31, 2024 and 2023.

There were 22 available-for-sale securities in an unrealized loss position of less than one year and 121 available-for-sale securities in an unrealized loss position of more than one year at December 31, 2024, compared to 30 available-for-sale securities in an unrealized loss position of less than one year and 180 available-for-sale securities in an unrealized position of more than one year at December 31, 2023. The unrealized losses associated with these securities are believed to be caused by changing market conditions and considered to be temporary and the Company does not intend, and is not likely to be required, to sell these securities prior to maturity. Management monitors the published credit ratings of the issuers of the debt securities for material ratings or outlook changes. Substantially all the Company’s municipal bond portfolio is comprised of obligations of states and political subdivisions located within the Company’s geographic footprint that are monitored through quarterly or annual financial review utilizing published credit ratings. All the municipal bond securities are investment grade.

All of the available-for-sale mortgage-backed securities and asset-backed securities in an unrealized loss position are issued or guaranteed by government-sponsored enterprises, and the available-for-sale corporate securities are all investment grade and monitored for rating or outlook changes. Based on the Company’s evaluation of these securities, no credit impairment was recorded for the years ended December 31, 2024, 2023 and 2022.

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The contractual maturities of securities available-for-sale and held-to-maturity at the dates indicated are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.

	December 31, 2024				December 31, 2023
SECURITIES AVAILABLE-FOR-SALE	Amortized		Fair		Amortized		Fair
U.S. agency securities	Cost		Value		Cost		Value
Due within one year	$	—	$	—	$	922	$	914
Due after one year through five years		4,962		4,575		3,947		3,544
Due after five years through ten years		10,975		9,193		11,972		10,139
Due after ten years		4,310		3,370		4,310		3,421
Subtotal		20,247		17,138		21,151		18,018
Corporate securities
Due within one year		—		—		1,000		1,004
Due after one year through five years		11,000		10,766		6,000		6,609
Due after five years through ten years		3,000		2,918		4,000		3,839
Due after ten years		2,000		1,442		2,000		1,420
Subtotal		16,000		15,126		13,000		12,872
Municipal bonds
Due within one year		—		—		1,013		1,003
Due after one year through five years		2,186		2,168		757		751
Due after five years through ten years		4,158		3,728		7,603		7,101
Due after ten years		76,430		64,448		129,430		110,592
Subtotal		82,774		70,344		138,803		119,447
Mortgage-backed securities
Federal National Mortgage Association (“FNMA”)		90,771		80,677		76,369		66,275
Federal Home Loan Mortgage Corporation (“FHLMC”)		48,765		47,773		32,311		31,376
Government National Mortgage Association (“GNMA”)		39,204		38,736		4,175		3,597
Subtotal		178,740		167,186		112,855		101,248
Asset-backed securities
Due within one year		203		200		198		196
Due after one year through five years		1,073		1,037		1,860		1,824
Due after five years through ten years		2,867		2,648		21,420		20,929
Due after ten years		8,368		7,496		19,408		18,399
Subtotal		12,511		11,381		42,886		41,348
Total securities available-for-sale		310,272		281,175		328,695		292,933

SECURITIES HELD-TO-MATURITY
Corporate securities
Due after five years through ten years		8,500		8,144		8,500		7,666
Total securities held-to-maturity		8,500		8,144		8,500		7,666
Total securities	$	318,772	$	289,319	$	337,195	$	300,599

The proceeds and resulting gains and losses from sales of securities available-for-sale for the period:

	For the Year Ended
	December 31, 2024
			Gross		Gross
	Proceeds		Gains		(Losses)
Securities available-for-sale	$	101,907	$	215	$	(8,051	)

There were no sales proceeds, or gains or losses from the sale of securities available-for-sale for the years ended December 31, 2023 and December 31, 2022.

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NOTE 4 – LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES ON LOANS

The composition of the loan portfolio was as follows at the dates indicated:

	December 31,
REAL ESTATE LOANS	2024			2023
Commercial (“CRE”)	$	345,317		$	366,328
Construction and development		330,700			303,054
Home equity		75,147			69,488
One-to-four-family (excludes loans held for sale)		617,322			567,742
Multi-family		245,222			223,769
Total real estate loans		1,613,708			1,530,381
CONSUMER LOANS
Indirect home improvement		541,946			569,903
Marine		74,931			73,310
Other consumer		3,304			3,540
Total consumer loans		620,181			646,753
COMMERCIAL BUSINESS LOANS
Commercial and industrial (“C&I”)		287,014			238,301
Warehouse lending		12,918			17,580
Total commercial business loans		299,932			255,881
Total loans receivable, gross		2,533,821			2,433,015
ACL on loans		(31,870	)		(31,534	)
Total loans receivable, net	$	2,501,951		$	2,401,481

Loan amounts are net of unearned loan fees in excess of unamortized costs and premiums of $6.0 million as of December 31, 2024 and $8.4 million as of December 31, 2023. Net loans include unamortized net discounts on acquired loans of $2.0 million and $2.6 million as of December 31, 2024 and 2023, respectively. Net loans do not include accrued interest receivable. Accrued interest receivable on loans was $12.2 million as of December 31, 2024 and $11.5 million as of December 31, 2023 and was reported in “Accrued interest receivable” on the Consolidated Balance Sheets.

Most of the Company’s CRE and multi-family real estate, construction, residential, and/or commercial business lending activities are with customers located in Western Washington, the Oregon Coast, or near our loan production offices in Vancouver and the Tri-Cities, Washington. The Company originates real estate, consumer, and commercial business loans concentrated in these areas. However, indirect home improvement loans, including solar-related home improvement loans, are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and New Hampshire. These loans are generally secured by collateral with legal documentation outlining rights to collateral as practicable. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms.

At December 31, 2024, the Company held approximately $1.11 billion in loans that are pledged as collateral for FHLB advances, compared to approximately $1.07 billion at December 31, 2023. The Company held approximately $606.5 million in loans that are pledged as collateral for the FRB line of credit at December 31, 2024, compared to approximately $631.1 million at December 31, 2023.

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The Company has defined its loan portfolio into three segments that reflect the structure of the lending function, the Company’s strategic plan and the way management monitors performance and credit quality. The three loan portfolio segments are: (a) real estate, (b) consumer, and (c) commercial business. Each of these segments is disaggregated into classes based on the risk characteristics of the borrower and/or the collateral type securing the loan. The following is a summary of each of the Company’s loan portfolio segments and classes:

Real Estate Loans

One-to-Four-Family Real Estate Lending. One-to-four-family residential loans include both owner-occupied properties (including second homes) and non-owner-occupied properties with up to four units. These loans either originated by the Company or periodically purchased from other banks, are secured by first mortgages on one-to-four-family residences within our market areas and are intended to be held in the Company's portfolio (excludes loans held for sale).

Multi-family Lending. Apartment term lending (five or more units) to current banking customers and community reinvestment loans for low to moderate income individuals in the Company’s footprint.

CRE Lending. Loans originated by the Company primarily secured by income-producing properties, including retail centers, warehouses, and office buildings located in our market areas.

Construction and Development Lending. Loans originated by the Company for the construction of, and secured by, commercial real estate, one-to-four-family, and multi-family residences and tracts of land for development that are not pre-sold. A portion of the one-to-four-family construction portfolio is custom construction loans to the intended occupant of the residence.

Home Equity Lending. Loans originated by the Company secured by second mortgages on one-to-four-family residences, including home equity lines of credit in our market areas.

Consumer Loans

Indirect Home Improvement. Fixture secured loans for home improvement are originated by the Company through its network of home improvement contractors and dealers and are secured by the personal property installed in, on, or at the borrower’s real property, and may be perfected with a UCC‑2 financing statement filed in the county of the borrower’s residence. These indirect home improvement loans include replacement windows, siding, roofing, spas, and other home fixture installations, including solar related home improvement projects.

Marine. Loans originated by the Company, secured by boats, to borrowers primarily located in the states where the Company originates consumer loans.

Other Consumer. Loans originated by the Company to consumers in our retail branch footprint, including automobiles, recreational vehicles, direct home improvement loans, loans on deposits, and other consumer loans, primarily consisting of personal lines of credit and credit cards.

Commercial Business Loans

C&I Lending. C&I loans originated by the Company to local small- and mid-sized businesses in our market area are secured primarily by accounts receivable, inventory, or personal property, plant and equipment. Some C&I loans purchased by the Company are outside of the greater Puget Sound market area. C&I loans are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. At December 31, 2024 and 2023, C&I loans included Small Business Administration and United States Department of Agriculture guaranteed certificates of $52.6 million and $10.6 million, respectively.

Warehouse Lending. Loans originated to non-depository financial institutions and secured by notes originated by the non-depository financial institution. The Company has two distinct warehouse lending divisions: commercial warehouse re-lending secured by notes on construction loans and mortgage warehouse re-lending secured by notes on one-to-four-family loans. The Company’s commercial construction warehouse lines are secured by notes on construction loans and typically guaranteed by principals with experience in construction lending. Mortgage warehouse lending loans are funded through third-party residential mortgage bankers. Under this program, the Company provides short-term funding to the mortgage banking companies for the purpose of originating residential mortgage loans for sale into the secondary market.

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Allowance for Credit Losses

The following tables detail activity in the ACL on loans by loan categories, at or for the years indicated:

	At or For the Year Ended December 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		334		5,221			80			—		5,635
Charge-offs		—		(5,994	)		(1,141	)		—		(7,135	)
Recoveries		—		1,601			235			—		1,836
Net charge-offs		—		(4,393	)		(906	)		—		(5,299	)
Ending balance	$	14,441	$	14,185		$	3,244		$	—	$	31,870

	At or For the Year Ended December 31, 2023
	Real						Commercial
ACL ON LOANS	Estate			Consumer			Business			Unallocated		Total
Beginning balance	$	12,123		$	12,109		$	3,760		$	—	$	27,992
Provision for credit losses on loans		1,994			3,465			311			—		5,770
Charge-offs		(10	)		(3,465	)		(1	)		—		(3,476	)
Recoveries		—			1,248			—			—		1,248
Net charge-offs		(10	)		(2,217	)		(1	)		—		(2,228	)
Ending balance	$	14,107		$	13,357		$	4,070		$	—	$	31,534

	At or For the Year Ended December 31, 2022
							Commercial
ACL ON LOANS	Real Estate			Consumer			Business			Unallocated			Total
Beginning balance	$	14,798		$	4,280		$	6,536		$	21		$	25,635
Impact of adopting ASC 326		(5,234	)		6,078			(3,682	)		(21	)		(2,859	)
Provision for credit losses on loans		2,559			3,158			906			—			6,623
Charge-offs		—			(2,465	)		—			—			(2,465	)
Recoveries		—			1,058			—			—			1,058
Net charge-offs		—			(1,407	)		—			—			(1,407	)
Ending balance	$	12,123		$	12,109		$	3,760		$	—		$	27,992

The main reason for the 2024 provision for credit losses on loans was elevated net charge-offs. Additionally, the increase in the ACL on loans reflected organic loan growth, shifts in credit quality (including changes in classified, past due and nonperforming loans), and adjustments to qualitative factors. The most significant qualitative factor change was an increase in qualitative reserves, attributable to higher levels of past due, nonperforming, and net charge-offs on consumer loans relative to prior periods.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are automatically placed on nonaccrual once the loan is 90 days past due or sooner if, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, or as required by regulatory authorities.

Loan Modifications to Borrowers Experiencing Financial Difficulty

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 modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL on loans because of the measurement methodologies used to estimate the allowance.

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The following tables present the amortized cost basis of loans at December 31, 2024 and 2023 that were both experiencing financial difficulty and modified during the years ended December 31, 2024 and 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:

	December 31, 2024
							Combination		Combination
							Term		Term		Total
							Extension		Extension		Class of
	Principal		Payment		Term		and Principal		Payment		Financing
REAL ESTATE LOANS	Forgiveness		Delay		Extension		Forgiveness		Delay		Receivable
CRE	$	—	$	—	$	—	$	—	$	1,146		0.33	%
Construction and development		—		—		—		—		4,979		1.51

December 31, 2023

Combination

Term

Total

Extension

Class of

Principal

Payment

Term

and Principal

Interest Rate

Financing

REAL ESTATE LOANS

Forgiveness

Delay

Extension

Forgiveness

Reduction

Receivable

CRE

—

1,088

0.30

The Company has committed to lend additional amounts totaling $5.3 million to the borrowers included in the previous tables as of December 31, 2024.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months:

	December 31, 2024
	30-59		60-89
	Days		Days		90 Days		Total
	Past		Past		or More		Past
REAL ESTATE LOANS	Due		Due		Past Due		Due
Construction and development	$	—	$	—	$	4,979	$	4,979

There were no loans to borrowers experiencing financial difficulty that had a payment default during the years ended December 31, 2024, 2023 and 2022 and were modified in the twelve months prior to that default.

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the years ended December 31, 2024 and 2023:

	December 31, 2024
	Weighted-
	Average
	Term Extension
	Payment Delay
REAL ESTATE LOANS	(in years)
CRE		2.5
Construction and development		0.5

	December 31, 2023
	Weighted-
	Average
	Term Extension
	Payment Delay
REAL ESTATE LOANS	(in years)
CRE		1.5

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Nonaccrual and Past Due Loans

The following tables provide information pertaining to the aging analysis of contractually past due loans and nonaccrual loans at the dates indicated:

	December 31, 2024
	30-59		60-89
	Days		Days		90 Days		Total				Total
	Past		Past		or More		Past				Loans		Non-
REAL ESTATE LOANS	Due		Due		Past Due		Due		Current		Receivable		Accrual (1)
CRE	$	845	$	—	$	1,625	$	2,470	$	342,847	$	345,317	$	2,771
Construction and development		822		—		4,979		5,801		324,899		330,700		4,979
Home equity		20		—		251		271		74,876		75,147		261
One-to-four-family		2,507		253		76		2,836		614,486		617,322		164
Multi-family		—		—		—		—		245,222		245,222		—
Total real estate loans		4,194		253		6,931		11,378		1,602,330		1,613,708		8,175
CONSUMER LOANS
Indirect home improvement		3,920		1,787		758		6,465		535,481		541,946		1,677
Marine		718		150		40		908		74,023		74,931		289
Other consumer		17		1		13		31		3,273		3,304		14
Total consumer loans		4,655		1,938		811		7,404		612,777		620,181		1,980
COMMERCIAL BUSINESS LOANS
C&I		118		—		3,331		3,449		283,565		287,014		3,446
Warehouse lending		—		—		—		—		12,918		12,918		—
Total commercial business loans		118		—		3,331		3,449		296,483		299,932		3,446
Total loans	$	8,967	$	2,191	$	11,073	$	22,231	$	2,511,590	$	2,533,821	$	13,601

	December 31, 2023
	30-59		60-89
	Days		Days		90 Days		Total				Total
	Past		Past		or More		Past				Loans		Non-
REAL ESTATE LOANS	Due		Due		Past Due		Due		Current		Receivable		Accrual (1)
CRE	$	—	$	—	$	—	$	—	$	366,328	$	366,328	$	1,088
Construction and development		—		—		—		—		303,054		303,054		4,699
Home equity		79		25		136		240		69,248		69,488		173
One-to-four-family		—		96		—		96		567,646		567,742		96
Multi-family		—		—		—		—		223,769		223,769		—
Total real estate loans		79		121		136		336		1,530,045		1,530,381		6,056
CONSUMER LOANS
Indirect home improvement		1,759		1,248		777		3,784		566,119		569,903		1,863
Marine		373		243		137		753		72,557		73,310		342
Other consumer		57		18		6		81		3,459		3,540		8
Total consumer loans		2,189		1,509		920		4,618		642,135		646,753		2,213
COMMERCIAL BUSINESS LOANS
C&I		—		—		2,514		2,514		235,787		238,301		2,683
Warehouse lending		—		—		—		—		17,580		17,580		—
Total commercial business loans		—		—		2,514		2,514		253,367		255,881		2,683
Total loans	$	2,268	$	1,630	$	3,570	$	7,468	$	2,425,547	$	2,433,015	$	10,952

______________________________

(1)

Includes loans less than 90 days past due as applicable.

There were no loans 90 days or more past due and still accruing interest at both December 31, 2024 and 2023.

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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) nonperforming 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 reported as “Pass” and loans in risk grades 7 to 10 reported as classified loans in the Company’s 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.

●	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.

●	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)” or “Special Mention” loans 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 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.

Homogeneous loans are risk rated based upon the 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, solar, marine, other consumer, and 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 graded “4” or “5” internally. Loans that are past due more than 90 days are classified “Substandard” risk 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.

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The following tables summarize risk rated loan balances and total current period gross charge-offs by category as of December 31, 2024 and 2023. 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.

	December 31, 2024
															Revolving
															Loans
REAL ESTATE LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
CRE	2024		2023		2022		2021		2020		Prior		Loans		to Term		Loans
Pass	$	13,023	$	48,434	$	84,077	$	51,874	$	43,652	$	66,142	$	—	$	679	$	307,881
Watch		—		3,135		10,689		12,654		—		6,948		—		—		33,426
Special mention		—		—		—		—		—		394		—		—		394
Substandard		—		—		—		—		1,625		1,991		—		—		3,616
Total CRE		13,023		51,569		94,766		64,528		45,277		75,475		—		679		345,317
Construction and development
Pass		167,942		87,012		30,200		29,851		—		380		10,336		—		325,721
Substandard		—		—		4,979		—		—		—		—		—		4,979
Total construction and development		167,942		87,012		35,179		29,851		—		380		10,336		—		330,700
Home equity
Pass		6,501		2,379		326		1,538		5,930		1,631		56,430		151		74,886
Substandard		—		—		—		—		—		14		247		—		261
Total home equity		6,501		2,379		326		1,538		5,930		1,645		56,677		151		75,147
One-to-four-family
Pass		77,602		110,505		174,355		109,006		76,653		66,426		—		—		614,547
Substandard		—		—		735		—		—		2,040		—		—		2,775
Total one-to-four-family		77,602		110,505		175,090		109,006		76,653		68,466		—		—		617,322
Multi-family
Pass		20,662		7,030		20,098		89,733		59,886		47,813		—		—		245,222
Total multi-family		20,662		7,030		20,098		89,733		59,886		47,813		—		—		245,222
Total real estate loans	$	285,730	$	258,495	$	325,459	$	294,656	$	187,746	$	193,779	$	67,013	$	830	$	1,613,708

	December 31, 2024
															Revolving
															Loans
CONSUMER LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
Indirect home improvement	2024		2023		2022		2021		2020		Prior		Loans		to Term		Loans
Pass	$	98,516	$	130,254	$	167,896	$	74,577	$	28,045	$	40,981	$	—	$	—	$	540,269
Substandard		99		403		712		100		106		257		—		—		1,677
Total indirect home improvement		98,615		130,657		168,608		74,677		28,151		41,238		—		—		541,946
Indirect home improvement gross charge-offs		381		1,477		1,627		677		568		523		—		—		5,253
Marine
Pass		13,322		11,386		20,449		8,521		10,958		10,006		—		—		74,642
Substandard		—		—		—		—		106		183		—		—		289
Total marine		13,322		11,386		20,449		8,521		11,064		10,189		—		—		74,931
Marine gross charge-offs		—		21		128		51		128		237		—		—		565
Other consumer
Pass		310		93		334		56		35		126		2,336		—		3,290
Substandard		—		—		—		3		—		—		11		—		14
Total other consumer		310		93		334		59		35		126		2,347		—		3,304
Other consumer gross charge-offs		1		33		6		—		—		45		91		—		176
Total consumer loans	$	112,247	$	142,136	$	189,391	$	83,257	$	39,250	$	51,553	$	2,347	$	—	$	620,181

Table of Contents

	December 31, 2024
															Revolving
COMMERCIAL															Loans
BUSINESS LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
C&I	2024		2023		2022		2021		2020		Prior		Loans		to Term		Loans
Pass	$	65,491	$	20,084	$	20,091	$	16,468	$	6,135	$	8,791	$	120,899	$	602	$	258,561
Watch		—		4,987		—		722		1,799		—		4,183		—		11,691
Special mention		—		—		—		543		—		556		6,375		—		7,474
Substandard		—		2,373		—		2,243		1,255		1,296		2,121		—		9,288
Total C&I		65,491		27,444		20,091		19,976		9,189		10,643		133,578		602		287,014
C&I gross charge-offs		—		—		—		—		—		380		761		—		1,141
Warehouse lending
Pass		—		—		—		—		—		—		11,060		—		11,060
Special mention		—		—		—		—		—		—		1,858		—		1,858
Total warehouse lending		—		—		—		—		—		—		12,918		—		12,918
Total commercial business loans	$	65,491	$	27,444	$	20,091	$	19,976	$	9,189	$	10,643	$	146,496	$	602	$	299,932

TOTAL LOANS RECEIVABLE, GROSS
Pass	$	463,369	$	417,177	$	517,826	$	381,624	$	231,294	$	242,296	$	201,061	$	1,432	$	2,456,079
Watch		—		8,122		10,689		13,376		1,799		6,948		4,183		—		45,117
Special mention		—		—		—		543		—		950		8,233		—		9,726
Substandard		99		2,776		6,426		2,346		3,092		5,781		2,379		—		22,899
Total loans receivable, gross	$	463,468	$	428,075	$	534,941	$	397,889	$	236,185	$	255,975	$	215,856	$	1,432	$	2,533,821
Total gross charge-offs	$	382	$	1,531	$	1,761	$	728	$	696	$	1,185	$	852	$	—	$	7,135

	December 31, 2023
															Revolving
															Loans
REAL ESTATE LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
CRE	2023		2022		2021		2020		2019		Prior		Loans		to Term		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

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	December 31, 2023
															Revolving
															Loans
CONSUMER LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
Indirect home improvement	2023		2022		2021		2020		2019		Prior		Loans		to Term		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
															Revolving
COMMERCIAL															Loans
BUSINESS LOANS	Term Loans by Year of Origination												Revolving		Converted		Total
C&I	2023		2022		2021		2020		2019		Prior		Loans		to Term		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

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

	December 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	$	2,771	$	—	$	2,771	$	1,088	$	—	$	1,088
Construction and development		—		4,979		4,979		—		4,699		4,699
Home equity		261		—		261		173		—		173
One-to-four-family		164		—		164		96		—		96
		3,196		4,979		8,175		1,357		4,699		6,056
CONSUMER LOANS
Indirect home improvement		—		1,677		1,677		—		1,863		1,863
Marine		—		289		289		—		342		342
Other consumer		—		14		14		—		8		8
		—		1,980		1,980		—		2,213		2,213
COMMERCIAL BUSINESS LOANS
C&I		2,486		960		3,446		—		2,683		2,683
Total	$	5,682	$	7,919	$	13,601	$	1,357	$	9,595	$	10,952

The Company recognized interest income on a cash basis for nonaccrual loans of $427,000, $579,000, and $506,000 during the years ended December 31, 2024, 2023 and 2022, respectively.

The following table presents the amortized cost basis of collateral dependent loans by class of loans as of dates indicated:

	December 31, 2024								December 31, 2023
			Residential		Other						Residential		Other
			Real		Non-Real						Real		Non-Real
REAL ESTATE LOANS	CRE		Estate		Estate		Total		CRE		Estate		Estate		Total
CRE	$	2,771	$	—	$	—	$	2,771	$	1,088	$	—	$	—	$	1,088
Construction and development		4,979		—		—		4,979		4,699		—				4,699
Home equity		—		261		—		261		—		173		—		173
One-to-four-family		—		164		—		164		—		96		—		96
		7,750		425		—		8,175		5,787		269		—		6,056
CONSUMER LOANS
Indirect home improvement		—		—		1,677		1,677		—		—		1,863		1,863
Marine		—		—		289		289		—		—		342		342
		—		—		1,966		1,966		—		—		2,205		2,205
COMMERCIAL BUSINESS LOANS
C&I		—		—		3,446		3,446		—		—		2,683		2,683
Total	$	7,750	$	425	$	5,412	$	13,587	$	5,787	$	269	$	4,888	$	10,944

Related Party Loans

Certain directors and executive officers or their related affiliates are customers of and have had banking transactions with the Company. Total loans to directors, executive officers, and their affiliates are subject to regulatory limitations.

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Outstanding loan balances of related party loans, all of which were within regulatory limits, were as follows:

	At December 31,
	2024			2023
Beginning balance	$	3,343		$	3,445
Additions		345			—
Repayments		(113	)		(102	)
Ending balance	$	3,575		$	3,343

The aggregate maximum loan balance of extended credit to related parties was $3.6 million and $3.7 million at December 31, 2024 and 2023, respectively, and includes the ending balances from the tables above. These loans and lines of credit were made in compliance with applicable laws on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated third parties and do not involve more than the normal risk of collectability.

NOTE 5 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included on the Consolidated Balance Sheets. The unpaid principal balances of residential mortgage loans serviced for others were $1.63 billion and $2.83 billion at December 31, 2024 and 2023, respectively.

The following table summarizes MSRs activity at or for the years indicated:

	At or For the Year Ended
	December 31,
	2024			2023			2022
Beginning balance, at the lower of cost or fair value	$	17,176		$	18,017		$	16,970
Additions		2,415			2,772			5,400
Sales		(7,953	)		—			—
MSRs amortized		(2,472	)		(3,565	)		(4,354	)
Recovery (impairment) of MSRs		38			(48	)		1
Ending balance, at the lower of cost or fair value	$	9,204		$	17,176		$	18,017

The fair value of the MSRs’ assets was $21.0 million and $38.2 million at December 31, 2024 and December 31, 2023, respectively. Fair value adjustments to MSRs are mainly due to 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 MSRs portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of MSRs.

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

	At December 31,
Key assumptions:	2024			2023
Weighted average discount rate		10.2	%		9.4	%
Conditional prepayment rate (“CPR”)		8.3	%		7.2	%
Weighted average life in years		7.9			8.4

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Key economic assumptions of the current fair value for single family MSRs are presented in the table 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, or FHLB serviced home loan. The table below references a 50 basis point and 100 basis point adverse rate change and the impact on prepayment speeds and discount rates at the dates indicated:

	December 31,
	2024			2023
Aggregate portfolio principal balance	$	1,632,141		$	2,832,016
Weighted average rate of loans in MSRs portfolio		4.2	%		3.6	%

At December 31, 2024	Base			0.5% Adverse Rate Change			1.0% Adverse Rate Change
Conditional prepayment rate		8.3	%		10.1	%		12.7	%
Fair value MSRs	$	21,043		$	20,127		$	19,067
Percentage of MSRs		1.2	%		1.2	%		1.1	%

Discount rate		10.2	%		10.7	%		11.2	%
Fair value MSRs	$	21,043		$	20,587		$	20,149
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 MSRs which is extremely sensitive to changes in key assumptions. For example, actual prepayment experience may differ and any difference may have a material effect on the fair 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 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; 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 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 time.

The Company recorded $4.7 million, $7.2 million, and $7.1 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of loans for the years ended December 31, 2024, 2023 and 2022, respectively. The income, net of amortization of MSRs, is reported in “Service charges and fee income” on the Consolidated Statements of Income.

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NOTE 6 – PREMISES AND EQUIPMENT

Premises and equipment at the dates indicated were as follows:

	December 31,
	2024			2023
Land	$	7,925		$	7,925
Buildings		20,814			20,814
Furniture, fixtures, and equipment		16,831			17,962
Leasehold improvements		2,880			2,680
Building improvements		8,392			8,043
Projects in process		211			150
Subtotal		57,053			57,574
Less accumulated depreciation and amortization		(27,297	)		(26,996	)
Total	$	29,756		$	30,578

Depreciation and amortization expense for these assets totaled $2.5 million, $2.6 million, and $2.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

NOTE 7 – LEASES

The Company has operating leases for retail bank and home lending branches, loan production offices, and certain equipment. At December 31, 2024, these leases have remaining terms ranging from three months to 5.5 years, with some including options to extend for up to five years.

The components of lease cost (included in occupancy expense on the Consolidated Statements of Income) for the years indicated are as follows:

	For Year Ended December 31,
Lease cost:	2024		2023		2022
Operating lease cost	$	1,896	$	1,837	$	1,422
Short-term lease cost		10		19		21
Total lease cost	$	1,906	$	1,856	$	1,443

The following table provides supplemental information related to operating leases at or for the years indicated:

	At or For the Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities:	2024			2023
Operating cash flows from operating leases	$	1,950		$	1,882
Weighted average remaining lease term- operating leases (in years)		3.5			4.0
Weighted average discount rate- operating leases		3.14	%		2.95	%

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.

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

2025	$	1,706
2026		1,572
2027		1,273
2028		531
2029		402
Thereafter		676
Total lease payments		6,160
Less imputed interest		(604	)
Total	$	5,556

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

The following table presents the activity related to OREO at and for the years indicated:

	At or For the Year Ended December 31,
	2024		2023			2022
Beginning balance	$	—	$	570		$	—
Additions		—		—			—
Loans transferred to OREO		—		—			145
Closed retail branch transferred to OREO		—		—			570
Gross proceeds from sale of OREO		—		(718	)		(145	)
Gain on sale of OREO		—		148			—
Ending balance	$	—	$	—		$	570

There were no OREO properties at December 31, 2024 and 2023, and one OREO property (a closed branch in Centralia, Washington) at December 31, 2022. OREO holding costs were $10,000, for the year ended December 31, 2022.

There were $84,000 and $96,000 in mortgage loans collateralized by residential real estate property in the process of foreclosure at December 31, 2024 and 2023, respectively.

NOTE 9 – DEPOSITS

Deposits are summarized as follows at the dates indicated:

	December 31,
	2024		2023
Noninterest-bearing checking	$	627,679	$	654,048
Interest-bearing checking⁽¹⁾		176,561		244,028
Savings		154,188		151,630
Money market⁽²⁾		341,615		359,063
Certificates of deposit less than $100,000⁽³⁾		440,257		587,858
Certificates of deposit of $100,000 through $250,000		455,594		429,373
Certificates of deposit greater than $250,000		133,045		79,540
Escrow accounts related to mortgages serviced ⁽⁴⁾		10,479		16,783
Total	$	2,339,418	$	2,522,323

_____________________________

(1)	Includes no brokered deposits and $70.2 million of brokered deposits at December 31, 2024 and 2023, respectively.

(2)	Includes $279,000 and $1,000 of brokered deposits at December 31, 2024 and 2023, respectively.

(3)	Includes $143.1 million and $361.3 million of brokered certificates of deposit at December 31, 2024 and 2023, respectively.

(4)	Noninterest-bearing accounts.

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Scheduled maturities of time deposits at December 31, 2024 for future years ending are as follows:

Maturing in 2025	$	869,282
Maturing in 2026		127,484
Maturing in 2027		20,307
Maturing in 2028		11,419
Maturing in 2029 and thereafter		404
Total	$	1,028,896

Interest expense by deposit category for the years indicated is as follows:

	Year Ended December 31,
	2024		2023		2022
Interest-bearing checking	$	2,521	$	2,586	$	495
Savings and money market		7,633		5,511		3,775
Certificates of deposit		43,009		28,654		5,150
Total	$	53,163	$	36,751	$	9,420

The Company had related party deposits of approximately $3.2 million and $2.8 million at December 31, 2024 and 2023, respectively, which included deposits held for directors and executive officers.

NOTE 10 – EMPLOYEE BENEFITS

401(k) Plan

The Company has a salary deferral 401(k) Plan covering substantially all of its employees. Employees are eligible to participate in the 401(k) plan at the date of hire if they are 18 years of age. Eligible employees may contribute through payroll deductions and are 100% vested at all times in their deferral contributions account. The Company matches 100% for contributions of 1% to 3%, and 50% for contributions of 4% to 5%. The Company made matching contributions of $1.9 million, $1.7 million, and $1.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.

NOTE 11 – DEBT

Borrowings

The Bank is a member of the FHLB of Des Moines, which entitles it to certain benefits including a variety of borrowing options consisting of a secured credit line that allows both fixed and variable rate advances. The FHLB borrowings at December 31, 2024 and 2023, consisted of a warehouse securities credit line (“securities line”), which allows advances with interest rates fixed at the time of borrowing and a warehouse federal funds (“Fed Funds”) advance, which allows daily advances at variable interest rates. Credit capacity is primarily determined by the value of assets collateralized at the FHLB, funds on deposit at the FHLB, and stock owned by the Bank.

Credit is limited to 45% of the Company’s total assets and available pledged assets. The Bank entered into an Advances, Pledges and Security Agreement with the FHLB for which specific loans are pledged to secure these credit lines. At December 31, 2024, loans of approximately $1.11 billion were pledged to the FHLB. At December 31, 2024, the Bank’s total borrowing capacity was $649.7 million with the FHLB of Des Moines, with unused borrowing capacity of $349.5 million. In addition, all FHLB stock owned by the Company is collateral for credit lines.

The Bank maintains a short-term borrowing line with the FRB with total credit based on eligible collateral. The Bank can borrow under the Term Auction Facility and Term Deposit Facility at rates published by the San Francisco FRB. As of December 31, 2024 and 2023, the Bank had approximately $606.5 million and $631.1 million, respectively, in pledged consumer loans with a borrowing capacity of $270.4 million and $351.6 million for the Term Auction Facility and Term Deposit Facility, respectively. The Bank had $8.0 million in outstanding borrowings under these lines at December 31, 2024, and none outstanding at December 31, 2023. The Bank also had $101.0 million unsecured Fed Funds lines of credit with other financial institutions of which none was outstanding at December 31, 2024.

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Borrowings on these lines at the dates indicated were as follows:

	December 31,
	2024		2023
Federal Home Loan Bank - (interest rates ranging from 4.45% to 4.92% and 2.00% to 2.37% at December 31, 2024 and 2023, respectively)	$	299,806	$	3,896
FRB - Fed funds - (interest rate of 4.33% at December 31, 2024)		8,000		—
FRB - Bank Term Funding Program (“BTFP”) advance - (interest rate of 4.70% at December 31, 2023)		—		89,850
Total	$	307,806	$	93,746

Scheduled maturities of borrowings were as follows:

Years Ending December 31,	Balances		Interest Rates
2025	$	259,000		4.60	%
2026		48,806		4.79	%
Total	$	307,806		4.63	%

Subordinated Notes

On February 10, 2021, FS Bancorp completed the private placement of $50.0 million of its 3.75% fixed-to-floating rate subordinated notes due 2031 (the “Notes”) at an offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after placement agent fees and offering expenses, of approximately $49.3 million. The interest rate on the Notes remains fixed equal to 3.75% for the first five years. After five years the interest rate changes to a floating interest rate tied to a Three-Month Term Secured Overnight Financing Rate (“SOFR”), plus a spread of 337 basis points. The Notes will mature on February 15, 2031. On or after February 15, 2026, the Company may redeem the Notes, in whole or in part.

The Notes are unsecured obligations and are subordinated in right of payment to all existing and future indebtedness, deposits and other liabilities of the Company's current and future subsidiaries, including the Bank’s deposits as well as the Company's subsidiaries' liabilities to general creditors and liabilities arising during the ordinary course of business. The Notes may be included in Tier 2 capital for the Company under current regulatory guidelines and interpretations.

The maximum balance at any month end and the average balances and weighted average interest rates on debt during the years indicated were as follows:

	For the Year Ending December 31,
Maximum balance:	2024			2023			2022
FHLB advances and Fed Funds		$299,805			$74,895			$260,828
FRB Fed Funds		41,000			—			—
Fed Funds lines of credit with other financial institutions		3,963			—			—
Subordinated notes		50,000			50,000			50,000
FRB BTFP advance		89,850			90,000			—
Average balance:
FHLB advances and Fed Funds		122,015			33,945			102,008
FRB Fed Funds		1,705			14,704			548
Fed Funds lines of credit with other financial institutions		11			11			15
Subordinated notes		50,000			50,000			50,000
FRB BTFP advance		30,195			61,669			—
Weighted average interest rates
FHLB advances and Fed Funds		5.03	%		4.40	%		2.98	%
FRB Fed Funds		5.56	%		5.42	%		1.69	%
Fed Funds lines of credit with other financial institutions		5.88	%		5.62	%		3.28	%
Subordinated notes		3.88	%		3.88	%		3.75	%
FRB BTFP advance		4.70	%		4.71	%		—	%

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NOTE 12 – INCOME TAXES

The components of income tax expense for the years indicated were as follows:

	For the Year Ending December 31,
Provision for income taxes	2024			2023			2022
Current	$	8,580		$	9,912		$	8,183
Deferred		(2,023	)		(693	)		(844	)
Total provision for income taxes	$	6,557		$	9,219		$	7,339

A reconciliation of the effective income tax rate with the federal statutory tax rates at the dates indicated was as follows:

	December 31,
	2024						2023						2022
	Amount			Rate			Amount			Rate			Amount			Rate
Income tax provision at statutory rate	$	8,744			21.0	%	$	9,507			21.0	%	$	7,767			21.0	%
Tax exempt income		(179	)		(0.4	)		(333	)		(0.7	)		(852	)		(2.3	)
Nondeductible items resulting in increase in tax		160			0.4			165			0.4			31			0.1
Increase in tax resulting from other items		180			0.4			36			0.1			274			0.7
Equity compensation		(631	)		(1.5	)		(208	)		(0.5	)		(146	)		(0.4	)
Executive compensation		560			1.3			52			0.1			265			0.7
Gain on tax credit purchase		(2,277	)		(5.5	)		—			—			—			—
Total	$	6,557			15.7	%	$	9,219			20.4	%	$	7,339			19.8	%

Total deferred tax assets and liabilities at the dates indicated were as follows:

Deferred Tax Assets	December 31,
	2024			2023
ACL on loans	$	6,859		$	6,746
Non-accrued loan interest		42			3
Restricted stock awards		105			113
Non-qualified stock options		489			615
Lease liability		1,194			1,463
Securities available-for-sale		6,256			7,689
ACL on unfunded commitments		302			327
Other		36			49
Purchase accounting adjustments		481			48
Total deferred tax assets		15,764			17,053
Deferred Tax Liabilities
Loan origination costs		(2,513	)		(2,512	)
MSRs		(1,960	)		(3,679	)
Stock dividend - FHLB stock		—			(7	)
Property, plant, and equipment		(1,515	)		(1,408	)
Lease right-of-use assets		(1,156	)		(1,415	)
Interest rate swaps designated as cash flow hedge		(1,561	)		(1,307	)
Total deferred tax liabilities		(8,705	)		(10,328	)
Net deferred tax assets	$	7,059		$	6,725

The Company files a U.S. Federal income tax return and Oregon, Idaho, and Arizona state income tax returns, which are subject to examination by tax authorities for years 2021 and later. At December 31, 2024 and 2023, the Company had no uncertain tax positions. The Company recognized no interest and penalties in tax expense for the years ended December 31, 2024, 2023 and 2022.

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NOTE 13 – 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 the dates indicated:

COMMITMENTS TO EXTEND CREDIT	December 31,
REAL ESTATE LOANS	2024		2023
CRE	$	1,132	$	3,472
Construction and development		174,131		154,611
One-to-four-family (includes locks for saleable loans)		23,138		23,751
Home equity		97,358		94,026
Multi-family		5,876		2,945
Total real estate loans		301,635		278,805
CONSUMER LOANS		28,566		29,517
COMMERCIAL BUSINESS LOANS
C&I		174,292		164,873
Warehouse lending		53,978		61,837
Total commercial business loans		228,270		226,710
Total commitments to extend credit	$	558,471	$	535,032

Commitments to extend credit are agreements to lend to a customer 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 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 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 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 – on unfunded loan commitments at December 31, 2024 and December 31, 2023 was $1.4 million and $1.5 million, respectively. The decline in the ACL was due to the Company recording a recovery from the ACL – on unfunded loan commitments of $123,000 for the year ended December 31, 2024, as compared to a recovery of $1.0 million for the year ended December 31, 2023.

A portion of the one-to-four-family commitments included in the table above are accounted for as fair value derivatives and do not carry an associated reserve. The Company’s derivative positions are presented with discussion in “Note 18 – Derivatives.”

The Company also sells 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 December 31, 2024, the total loans sold to the FHLB were $8.6 million with the FLA being $581,000 and the CE obligation at $389,000 or 4.5% of the loans outstanding. Management has established a holdback of 10% of the outstanding CE obligation, or $39,000, which is a part of the off-balance sheet holdback for loans sold. At December 31, 2024 and 2023, there were no loans sold to the FHLB of Des Moines greater than 30 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 a holdback reserve of $2.0 million and $2.1 million to cover loss exposure related to these guarantees for one-to-four-family loans sold into the secondary market at December 31, 2024 and 2023, respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.

The Company has entered into a severance agreement with its Chief Executive Officer (“CEO”). The severance agreement, subject to certain requirements, generally includes a lump sum payment to the CEO equal to 24 months of base compensation in the event their 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 executives and 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.

As a result of 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 December 31, 2024.

NOTE 14 – SIGNIFICANT CONCENTRATION OF CREDIT RISK

Most of the Company’s commercial and multi-family real estate, construction, residential, and commercial business lending activities are with customers located in Western Washington, the Oregon Coast, or near our loan production offices in Vancouver and the Tri-Cities, Washington. The Company originates real estate, consumer, and commercial business loans and has concentrations in these areas, however, indirect home improvement loans, including solar-related home improvement loans are originated through a network of home improvement contractors and dealers located throughout Washington, Oregon, California, Idaho, Colorado, Arizona, Minnesota, Nevada, Texas, Utah, Massachusetts, Montana, and New Hampshire. Loans are generally secured by collateral and rights to collateral vary and are legally documented to the extent practicable. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms. At December 31, 2024, the concentration on commercial real estate remains below the 300% of Risk Based Capital regulatory threshold at 256.8%, and the subset of construction loans, excluding owner-occupied loans is within Board approved limits. The concentration of construction, land development, and other land loans represented 89.8% of the Bank’s total regulatory capital at December 31, 2024, remaining below the 100% regulatory threshold. These loans are focused on in-city, infill vertical construction financing in King and Snohomish counties. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms.

NOTE 15 – REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by the 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.

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Under capital adequacy guidelines of the regulatory framework for prompt corrective action, 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 CET 1 capital ratios as set forth in the table below to be categorized as "well capitalized". At December 31, 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 December 31, 2024, that the Bank met all capital adequacy requirements.

The following table compares the Bank’s actual capital amounts and ratios at December 31, 2024 to their minimum regulatory capital requirements and well capitalized regulatory capital at that date:

										To be Well Capitalized
							For Capital			Under Prompt
				For Capital			Adequacy With			Corrective
	Actual			Adequacy Purposes			Capital Buffer			Action Provisions
Bank Only	Amount		Ratio	Amount		Ratio	Amount		Ratio	Amount		Ratio
At December 31, 2024
Total risk-based capital (to risk-weighted assets)	$	368,953	14.18%	$	208,174	8.00%	$	273,228	10.50%	$	260,218	10.00%
Tier 1 risk-based capital (to risk-weighted assets)	$	336,416	12.93%	$	156,131	6.00%	$	221,185	8.50%	$	208,174	8.00%
Tier 1 leverage capital (to average assets)	$	336,416	11.24%	$	119,741	4.00%	$	N/A	N/A	$	149,676	5.00%
CET 1 capital (to risk-weighted assets)	$	336,416	12.93%	$	117,098	4.50%	$	182,152	7.00%	$	169,141	6.50%

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 leverage ratios, the Bank 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 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. At December 31, 2024, the Bank’s capital exceeded the conservation buffer.

The Company is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations 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. A bank holding company that crosses the $3.0 billion total consolidated assets threshold as of June 30 of a particular year is no longer permitted to file reports as a small holding company beginning the following March. As the Company was under $3.0 billion in assets as of June 30, 2024, the Company was still considered a small holding company as of December 31, 2024 despite total assets exceeding $3.0 billion at year end. 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 expects the holding company’s subsidiary bank to be “well capitalized” under the prompt corrective action regulations.

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The following table presents the Company's regulatory capital ratios at the dates indicated:

	At December 31,
Company Only	2024			2023
Total risk-based capital (to risk-weighted assets)		14.53	%		13.73	%
Tier 1 risk-based capital (to risk-weighted assets)		11.36	%		10.51	%
Tier 1 leverage capital (to average assets)		9.87	%		9.01	%
CET 1 capital (to risk-weighted assets)		11.36	%		10.51	%

NOTE 16 – FAIR VALUE MEASUREMENTS

The Company determines fair value based on the requirements established in ASC Topic 820, Fair Value Measurements, which provides a framework for measuring fair value in accordance with U.S. 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 as the 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 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.

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

Securities – 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 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 (Level 2). Transfers between the fair value hierarchy are determined through the 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 consider market convention.

Mortgage 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 To-Be-Announced (“TBA”) mortgage-backed security (Level 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 December 31, 2024 and 2023, there were $12.7 million and $15.1 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from held for sale to loans held for investment. The aggregate unpaid principal balance of these loans was $13.8 million and $16.3 million as of December 31, 2024 and 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 years ended December 31, 2024, 2023 and 2022, the Company recorded a net increase of $52,000, a net increase of $447,000, and a net decrease of $1.7 million in fair value, respectively. 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).

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Derivative Instruments – Fair values for derivative assets and liabilities are measured on a recurring basis. The primary use of a derivative instrument 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 rate assumptions based on historical information, where appropriate. TBA mortgage-backed securities are fair valued on similar contracts in active markets (Level 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 (Level 2 and 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 market inputs 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.

Collateral Dependent Loans – Expected credit losses on collateral dependent loans are measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) at the reporting date and the amortized cost basis of the loan. If the fair value of 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 are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported (Level 3).

Mortgage Servicing Rights – The fair value of MSRs is estimated using net present value of expected cash flows using a third-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).

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 December 31, 2024
Securities available-for-sale:	Level 1		Level 2			Level 3		Total
U.S. agency securities	$	—	$	17,138		$	—	$	17,138
Corporate securities		—		15,126			—		15,126
Municipal bonds		—		70,344			—		70,344
Mortgage-backed securities		—		167,186			—		167,186
Asset-backed securities		—		11,381			—		11,381
Mortgage loans held for sale, at fair value		—		27,835			—		27,835
Loans receivable, at fair value		—		12,728			—		12,728
Derivatives:
Mandatory and best effort forward commitments with investors		—		—			31		31
Interest rate lock commitments with customers		—		—			103		103
Forward TBA mortgage-backed securities		—		180			—		180
Interest rate swaps - cash flow and fair value hedges		—		7,244			—		7,244
Interest rate swaps - dealer offsets to customer swap positions		—		62			—		62
Total assets measured at fair value	$	—	$	329,224		$	134	$	329,358
Financial Liabilities
Derivatives:
Interest rate swaps - customer swap positions	$	—	$	(61	)	$	—	$	(61	)
Total liabilities measured at fair value	$	—	$	(61	)	$	—	$	(61	)

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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
Asset-backed 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 tables presents financial assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy at the dates indicated.

	December 31, 2024
	Level 1		Level 2		Level 3		Total
Collateral dependent loans	$	—	$	—	$	1,130	$	1,130
MSRs		—		—		21,043		21,043

	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 financial instruments measured under a Level 3 unobservable input on a recurring and nonrecurring basis at the dates indicated:

Level 3		Significant			Weighted Average Rate
Fair Value	Valuation	Unobservable			December 31,			December 31,
Instruments	Techniques	Inputs	Range		2024			2023
RECURRING
Interest rate lock commitments with customers	Quoted market prices	Pull-through expectations		80% - 99%		94.0	%		90.5	%
Individual forward sale commitments with investors	Quoted market prices	Pull-through expectations		80% - 99%		94.0	%		90.5	%
NONRECURRING
MSRs	Industry sources	Pre-payment speeds		0% - 50%		8.3	%		7.2	%

The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding positive or negative fair value adjustment.

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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 years indicated:

				Purchases									Net change in			Net change in
	Beginning			and			Sales and			Ending			fair value for			fair value for
2024	Balance			Issuances			Settlements			Balance			gains/(losses) (1)			gains/(losses) (2)
Interest rate lock commitments with customers	$	329		$	4,279		$	(4,505	)	$	103		$	(226	)	$	—
Individual forward sale commitments with investors		(188	)		(1,626	)		1,845			31			219			—
2023
Interest rate lock commitments with customers	$	107		$	4,291		$	(4,069	)	$	329		$	222		$	—
Individual forward sale commitments with investors		(38	)		66			(216	)		(188	)		(150	)		—
2022
Interest rate lock commitments with customers	$	757		$	3,215		$	(3,865	)	$	107		$	(650	)	$	—
Individual forward sale commitments with investors		808			6,383			(7,229	)		(38	)		(846	)		—

_____________________________

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

(2) Relating to items held at end of period included in other comprehensive income.

(Losses) 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” on the Consolidated Statements of Income.

Fair values for financial instruments are management's estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments.

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The following table provides estimated fair values of the Company’s financial instruments at the dates indicated, whether recognized at fair value or not on the Consolidated Balance Sheets:

	December 31,
	2024				2023
Financial Assets	Carrying		Fair		Carrying		Fair
Level 1 inputs:	Amount		Value		Amount		Value
Cash and cash equivalents	$	31,635	$	31,635	$	65,691	$	65,691
Certificates of deposit at other financial institutions		1,727		1,727		24,167		24,167
Level 2 inputs:
Securities available-for-sale, at fair value		281,175		281,175		292,933		292,933
Securities held-to-maturity, gross		8,500		8,144		8,500		7,666
Loans held for sale, at fair value		27,835		27,835		25,668		25,668
FHLB stock, at cost		15,621		15,621		2,114		2,114
Forward TBA mortgage-backed securities		180		180		—		—
Loans receivable, at fair value		12,728		12,728		15,088		15,088
Interest rate swaps - cash flow and fair value hedges		7,244		7,244		6,431		6,431
Interest rate swaps - dealer offsets to customer swap positions		62		62		64		64
Level 3 inputs:
Loans receivable, gross		2,521,093		2,385,213		2,417,927		2,276,397
MSRs, held at lower of cost or fair value		9,204		21,043		9,090		20,552
MSRs held for sale, held at lower of cost or fair value		—		—		8,086		17,611
Mandatory and best effort forward commitments with investors		31		31
Fair value interest rate locks with customers		103		103		—		—
Financial Liabilities
Level 2 inputs:
Time deposits		1,028,896		1,024,663		1,096,771		1,089,474
Borrowings		307,806		307,408		93,746		93,416
Subordinated notes, excluding unamortized debt issuance costs		50,000		45,504		50,000		43,480
Interest rate swaps - cash flow and fair value hedges		—		—		375		375
Forward TBA mortgage-backed securities		—		—		284		284
Interest rate swaps - customer swap positions		61		61		63		63
Level 3 inputs:
Mandatory and best effort forward commitments with investors		—		—		188		188

NOTE 17 – EARNINGS PER SHARE

The Company computes earnings per share using the two-class method, which is an earnings allocation method for computing earnings per share that treats a participating security as having rights to 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 Company.

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The following table presents a reconciliation of the components used to compute basic and diluted earnings per share at or for the years indicated:

	At or For the Year Ended December 31,
Numerator (Dollars in thousands, except per share amounts):	2024			2023			2022
Net income	$	35,024		$	36,053		$	29,649
Dividends and undistributed earnings allocated to participating securities		(572	)		(578	)		(554	)
Net income available to common shareholders	$	34,452		$	35,475		$	29,095
Denominator (shown as actual):
Basic weighted average common shares outstanding		7,697,806			7,656,526			7,754,507
Dilutive shares		195,440			118,907			119,133
Diluted weighted average common shares outstanding		7,893,246			7,775,433			7,873,640
Basic earnings per share	$	4.48		$	4.63		$	3.75
Diluted earnings per share	$	4.36		$	4.56		$	3.70
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.		11,640			56,520			61,912

NOTE 18 – 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 exposure to 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 changing interest rates associated with these mortgage loan 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 in the fair value of the derivatives reported in noninterest income or noninterest expense. The Bank recognizes all derivative instruments as either “Other assets” or “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.

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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 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 $1.6 million will be reclassified from accumulated other comprehensive loss as a decrease to interest expense over the next twelve 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.

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
			Hedging Adjustment Included in
Line item in the Consolidated Balance Sheets	Carrying Amount of the		the Carrying Amount of the
in which the hedged item is included	Hedged Assets		Hedged Assets
December 31, 2024
Investment securities (1)	$	55,701	$	4,299
Total	$	55,701	$	4,299

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 December 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $189.0 million; the cumulative basis adjustments associated with these hedging relationships was $4.3 million; and the amounts of the designated hedged items was $60.0 million. At December 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $236.7 million; the cumulative basis adjustments associated with these hedging relationships was $3.2 million; and the amounts of the designated hedged items was $60.0 million.

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The following tables summarize the Company’s derivative instruments at the dates indicated. The Company recognizes derivative assets and liabilities in “Other assets” and “Other liabilities”, respectively, on the Consolidated Balance Sheets, as follows:

	December 31, 2024
			Fair Value
Cash flow and fair value hedges:	Notional		Asset		Liability
Interest rate swaps	$	340,000	$	7,244	$	—
Non-hedging derivatives:
Fallout adjusted interest rate lock commitments with customers		16,905		103		—
Mandatory and best effort forward commitments with investors		6,829		31		—
Forward TBA mortgage-backed securities		31,000		180		—
Interest rate swaps - customer swap positions		716		—		61
Interest rate swaps - dealer offsets to customer swap positions		716		62		—

	December 31, 2023
			Fair Value
Cash flow and fair value hedges:	Notional		Asset		Liability
Interest rate swaps	$	310,000	$	6,431	$	375
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		—

The following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the years indicated:

	Year Ended December 31,
	2024					2023					2022
	Interest					Interest					Interest
	Expense		Interest			Expense		Interest			Expense		Interest
	Deposits and		Income			Deposits and		Income			Deposits and		Income
	Borrowings		Securities			Borrowings		Securities			Borrowings		Securities
Total amounts presented on the Consolidated Statements of Income	$	59,790	$	13,980		$	36,751	$	12,247		$	9,420	$	7,046
Net gains (losses) on fair value hedging relationships:
Interest rate swaps - securities
Recognized on hedged items	$	—	$	(1,084	)	$	—	$	892		$	—	$	(4,107	)
Recognized on derivatives designated as hedging instruments		—		1,084			—		(892	)		—		4,103
Net interest income recognized on cash flows of derivatives designated as hedging instruments		—		1,597			—		1,509			—		—
Net income (expense) recognized on fair value hedges	$	—	$	1,597		$	—	$	1,509		$	—	$	(4	)
Net gain on cash flow hedging relationships:
Interest rate swaps - brokered deposits and borrowings
Realized gains (pre-tax) reclassified from accumulated other comprehensive loss into net income	$	4,951	$	—		$	5,465	$	—		$	970	$	—
Net income recognized on cash flow hedges	$	4,951	$	—		$	5,465	$	—		$	970	$	—

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Changes in the fair value of the non-hedging derivatives recognized in “Noninterest income” on the Consolidated Statements of Income and included in gain on sale of loans resulted in net losses of $29,000, and net gains of $75,000 and $2.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The following table presents a summary of amounts outstanding in derivative financial instruments, including those entered into in connection with the same counterparty under master netting agreements, as of the years 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 counterparty.

			Gross Amounts		Net Amounts of Assets		Gross Amounts Not Offset
	Gross Amounts		Offset in the		Presented in the		in the Consolidated Balance Sheets
	of Recognized		Consolidated		Consolidated		Financial		Cash Collateral
Offsetting of derivative assets	Assets		Balance Sheets		Balance Sheets		Instruments		Received		Net Amount
At December 31, 2024
Interest rate swaps	$	7,844	$	538	$	7,306	$	—	$	740	$	6,566

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 Presented in			in the Consolidated Balance Sheets
	of Recognized			Consolidated			the Consolidated			Financial		Cash Collateral
Offsetting of derivative liabilities	Liabilities			Balance Sheets			Balance Sheets			Instruments		Posted		Net Amount
At December 31, 2024
Interest rate swaps	$	—		$	—		$	—		$	—	$	—	$	—

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

Credit Risk-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 December 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 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.

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NOTE 19 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following were changes in accumulated other comprehensive income (loss) by component, net of tax, for the years indicated:

				Unrealized
				(Losses)
	Gains and			and Gains
	(Losses) on			on Available
	Derivative			for Sale
Year Ended December 31, 2024	Instruments			Securities			Total
Beginning balance	$	4,766		$	(28,072	)	$	(23,306	)
Other comprehensive income (loss) before reclassification, net of tax		6,074			(919	)		5,155
Amounts reclassified from accumulated other comprehensive loss, net of tax		(5,140	)		6,151			1,011
Net current period other comprehensive income		934			5,232			6,166
Ending balance	$	5,700		$	(22,840	)	$	(17,140	)

				Unrealized
				(Losses)
	Gains and			and Gains
	(Losses) on			on Available
	Derivative			for Sale
Year Ended December 31, 2023	Instruments			Securities			Total
Beginning balance	$	7,761		$	(33,393	)	$	(25,632	)
Other comprehensive income before reclassification, net of tax		1,296			5,321			6,617
Amounts reclassified from accumulated other comprehensive loss, net of tax		(4,291	)		—			(4,291	)
Net current period other comprehensive (loss) income		(2,995	)		5,321			2,326
Ending balance	$	4,766		$	(28,072	)	$	(23,306	)

				Unrealized
	Gains and			Losses
	(Losses) on			on Available
	Derivative			for Sale
Year Ended December 31, 2022	Instruments			Securities			Total
Beginning balance	$	794		$	(542	)	$	252
Other comprehensive income (loss) before reclassification, net of tax		7,728			(32,851	)		(25,123	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		(761	)		—			(761	)
Net current period other comprehensive income (loss)		6,967			(32,851	)		(25,884	)
Ending balance	$	7,761		$	(33,393	)	$	(25,632	)

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.

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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.

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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.

NOTE 21 – BUSINESS SEGMENTS

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

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

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

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

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

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

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

Segment assets are primarily allocated by loan origination channel. The home lending segment is limited to residential mortgage and home equity loans originated through the home lending platform. The home lending segment additionally includes related accrued interest receivable and the Company's MSR assets. The commercial and consumer banking segment includes the remainder of the loan portfolio, the assets of the retail branch network and administrative buildings, as well as the investment portfolio and other assets of the Bank. A description of the Company’s business segments and the products and services 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, online banking platforms, mobile banking apps, and telephone banking. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. The Company originates consumer loans, commercial and multi-family real estate loans, construction loans for residential and multi-family construction, and commercial business loans. At December 31, 2024, the Company’s retail deposit branch network consisted of 27 branches in the Pacific Northwest. This segment is also responsible for the management of the investment portfolio and other assets of the Bank.

Home Lending Segment

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

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Segment Financial Results

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

	At or For the Year Ended December 31, 2024
Income:	Commercial and Consumer Banking			Home Lending			Total
Interest income - loans receivable, including fees	$	139,996		$	30,861		$	170,857
Interest income - other interest earnings assets		13,980			—			13,980
Total interest income by segment		153,976			30,861			184,837

Gain on sale of loans		—			8,557			8,557
Gain on sale of MSRs		6,473			1,883			8,356
Other income		1,856			2,787			4,643
Intersegment income		898			(898	)		—
Total noninterest income by segment		9,227			12,329			21,556

Total income by segment		163,203			43,190			206,393

Expense:
Interest expense - deposits		53,156			7			53,163
Interest expense - borrowings		6,627			—			6,627
Interest expense - subordinated note		1,555			387			1,942
Interest expense - intersegment		(20,666	)		20,666			—
Total interest expense by segment		40,672			21,060			61,732

Provision for credit losses by segment		5,393			118			5,511

Salaries and benefits		26,609			8,470			35,079
Overhead allocation		22,464			6,559			29,023
Other segment items⁽¹⁾		28,542			4,925			33,467
Total noninterest expense by segment		77,615			19,954			97,569

Income before (provision) benefit for income taxes by segment		39,523			2,058			41,581
(Provision) benefit for income taxes by segment		(6,733	)		176			(6,557	)
Net income by segment	$	32,790		$	2,234		$	35,024

Other segment disclosures:
Segment assets	$	2,410,777		$	618,400		$	3,029,177
FTEs		447			115			562

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	At or For the Year Ended December 31, 2023
Income:	Commercial and Consumer Banking			Home Lending			Total
Interest income - loans receivable, including fees	$	127,947		$	26,998		$	154,945
Interest income - other interest earnings assets		12,247			—			12,247
Total interest income by segment		140,194			26,998			167,192

Gain on sale of loans		—			6,711			6,711
Other income		9,178			4,601			13,779
Intersegment income		1,190			(1,190	)		—
Total noninterest income by segment		10,368			10,122			20,490

Total income by segment		150,562			37,120			187,682

Expense:
Interest expense - deposits		36,743			8			36,751
Interest expense - borrowings		5,196			—			5,196
Interest expense - subordinated note		1,581			361			1,942
Interest expense - intersegment		(15,063	)		15,063			—
Total interest expense by segment		28,457			15,432			43,889

Provision for credit losses by segment		3,494			1,280			4,774

Salaries and benefits		25,623			9,749			35,372
Overhead allocation		21,266			6,109			27,375
Other segment items⁽¹⁾		26,878			4,122			31,000
Total noninterest expense by segment		73,767			19,980			93,747

Income before provision for income taxes by segment		44,844			428			45,272
Provision for income taxes by segment		(9,132	)		(87	)		(9,219	)
Net income by segment	$	35,712		$	341		$	36,053

Other segment disclosures:
Segment assets	$	2,420,930		$	551,739		$	2,972,669
FTEs		447			123			570

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	At or For the Year Ended December 31, 2022
	Commercial
	and Consumer
Income:	Banking			Home Lending			Total
Interest income - loans receivable, including fees	$	92,799		$	18,849		$	111,648
Interest income - other interest earnings assets		7,046			—			7,046
Total interest income by segment		99,845			18,849			118,694

Gain on sale of loans		358			7,559			7,917
Other income		8,553			1,638			10,191
Intersegment income		1,247			(1,247	)		—
Total noninterest income by segment		10,158			7,950			18,108

Total income by segment		110,003			26,799			136,802

Expense:
Interest expense - deposits		9,413			7			9,420
Interest expense - borrowings		3,052			—			3,052
Interest expense - subordinated note		1,609			333			1,942
Interest expense - intersegment		(7,587	)		7,587			—
Total interest expense by segment		6,487			7,927			14,414

Provision for credit losses by segment		5,064			1,153			6,217

Salaries and benefits		25,798			9,588			35,386
Corporate overhead allocation		16,904			6,216			23,120
Other segment items⁽¹⁾		17,021			3,656			20,677
Total noninterest expense by segment		59,723			19,460			79,183

Income (loss) before (provision) benefit for income taxes by segment		38,729			(1,741	)		36,988
(Provision) benefit for income taxes by segment		(7,684	)		345			(7,339	)
Net income (loss) by segment	$	31,045		$	(1,396	)	$	29,649

Other segment disclosures:
Segment assets	$	2,150,956		$	481,944		$	2,632,900
FTEs		405			132			537

________________________

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

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NOTE 22 – 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 December 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 December 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 December 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 years indicated:

	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 Acquisition		17,438		—			17,438
Amortization		—		(3,464	)		(3,464	)
Balance, December 31, 2023		24,928		(7,585	)		17,343
Amortization		—		(3,633	)		(3,633	)
Balance, December 31, 2024	$	24,928	$	(11,218	)	$	13,710

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 Acquisition, on a straight-line basis over 10 years for the CDI related to the Anchor Bank acquisition on November 2018 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 $3.6 million, $3.5 million and $691,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

Amortization expense for CDI is expected to be as follows for the years ended December 31:

2025	$	3,192
2026		2,845
2027		2,500
2028		2,110
2029		1,283
Thereafter		1,780
Total	$	13,710

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NOTE 23 – PARENT COMPANY ONLY FINANCIAL INFORMATION

The Condensed Balance Sheets, Statements of Income, and Statements of Cash Flows for the Company (Parent Only) are presented below:

Condensed Balance Sheets	December 31,
Assets	2024		2023
Cash and due from banks	$	9,160	$	9,094
Investment in subsidiary		336,579		305,315
Other assets		487		458
Total assets	$	346,226	$	314,867
Liabilities and stockholders' equity
Subordinated notes, net		49,594		49,527
Other liabilities		865		852
Total liabilities		50,459		50,379
Stockholders' equity		295,767		264,488
Total liabilities and stockholders' equity	$	346,226	$	314,867

Condensed Statements of Income	Year Ended December 31,
	2024			2023			2022
Interest expense on subordinated note	$	(1,942	)	$	(1,942	)	$	(1,942	)
Dividends received from subsidiary		11,832			8,919			9,110
Other expenses		(452	)		(278	)		(274	)
Income before income tax benefit and equity in undistributed net income of subsidiary		9,438			6,699			6,894
Income tax benefit		488			458			465
Equity in undistributed earnings of subsidiary		25,098			28,896			22,290
Net income	$	35,024		$	36,053		$	29,649

Condensed Statements of Cash Flows	Year Ended December 31,
	2024			2023			2022
Cash flows from operating activities:
Net income	$	35,024		$	36,053		$	29,649
Equity in undistributed net income of subsidiary		(25,098	)		(28,896	)		(22,290	)
Amortization		67			66			67
Share-based compensation expense related to stock options and restricted stock		1,806			2,010			1,971
Changes in operating assets and liabilities
Other assets		(29	)		246			(297	)
Other liabilities		13			18			55
Net cash from operating activities		11,783			9,497			9,155
Cash flows used by financing activities:
(Disbursements) proceeds from stock options exercised		(1,633	)		(273	)		568
Common stock repurchased for employee/director taxes paid on restricted stock awards		(386	)		(355	)		(190	)
Issuance of common stock - employee stock purchase plan		1,075			1,017			503
Common stock repurchased		(2,508	)		(223	)		(15,628	)
Dividends paid on common stock		(8,265	)		(7,764	)		(7,096	)
Net cash used by financing activities		(11,717	)		(7,598	)		(21,843	)
Net increase (decrease) in cash and cash equivalents		66			1,899			(12,688	)
Cash and cash equivalents, beginning of year		9,094			7,195			19,883
Cash and cash equivalents, end of year	$	9,160		$	9,094		$	7,195

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	1. Financial Statements
	For a list of the financial statements filed as part of this report see “Part II - Item 8. Financial Statements and Supplementary Data.”
	2. Financial Statement Schedules
	Schedules to the Consolidated Financial Statements have been omitted as the required information is inapplicable.
(b)	Exhibits
	Exhibits are available from the Company by written request

		3.1	Articles of Incorporation for FS Bancorp, Inc. (1)
		3.2	Bylaws for FS Bancorp, Inc. (2)
		4.1	Form of Common Stock certificate of FS Bancorp, Inc. (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)
		4.4	Description of Registrant’s Securities (4).
		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 Matthew D. Mullet (1)
		10.3	FS Bancorp, Inc. 2013 Equity Incentive Plan (the “2013 Plan”) (5)
		10.4	Form of Incentive Stock Option Agreement under the 2013 Plan (5)
		10.5	Form of Non-Qualified Stock Option Agreement under the 2013 Plan (5)
		10.6	Form of Restricted Stock Agreement under the 2013 Plan (5)
		10.9	Form of Change of Control Agreement with Donn C. Costa, Dennis O’Leary, Erin Burr, Victoria Jarman, Kelli Nielsen, and May-Ling Sowell (6)
		10.10	FS Bancorp, Inc. 2018 Equity Incentive Plan (8)
		10.11	Form of Incentive Stock Option Award Agreement under the 2018 Equity Incentive Plan (8)
		10.12	Form of Non-Qualified Stock Option Award Agreement under the 2018 Equity Incentive Plan (8)
		10.13	Form of Restricted Stock Award Agreement under the 2018 Equity Incentive Plan (8)
		10.14	FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (9)
		10.15	Form of Enrollment/Change Form under the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (9)
		10.16	Form of Change of Control Agreement with Shana Allen and Benjamin Crowl (10)
		14	Code of Ethics and Conduct Policy (7)
		19	Insider Trading Policies and Procedures (12)
		21	Subsidiaries of Registrant (12)
		23	Consent of Independent Registered Public Accounting Firm
		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
		97	Policy relating to Recovery of Erroneously Awarded Compensation (11)
		101	The following materials from the Company’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements.
		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. 001‑355589).

(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 Current Report on 424B5 (Prospectus) (333-215810) filed on September 11, 2017.

(5)	Filed as an exhibit to the Registrant’s Registration Statement on Form S‑8 (333‑192990) filed on December 20, 2013 and incorporated by reference.

(6)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 1, 2016 (File No. 001-35589)

(7)	Registrant elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on its website at www.fsbwa.com in the section titled Investor Relations: Corporate Governance.

(8)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-22513) filed on May 23,2018.

(9)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-265729) filed on June 21,2022.
(10)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2024 (File No. 001-35589).
(11)	Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 15, 2024 (File No. 001-35589).
(12)	Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2024, filed on March 17, 2025 (File No. 001-35589).

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FS BANCORP, INC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)


/s/Matthew D. Mullet
Matthew D. Mullet
President & Chief Financial Officer
March 19, 2025

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