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Note 11 - Stock-based Compensation

9 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 11 – 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, nonqualified 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 September 30, 2025, there were 52,060 stock option awards and 500 RSAs available for future grants under the 2018 Plan.

Total share-based compensation expense was $583,000 and $1.6 million for the three and nine months ended September 30, 2025, and $464,000 and $1.2 million for the three and nine months ended September 30, 2024, respectively.

Stock Options

The 2018 Plan provides for the grant of stock option awards that may be designated as either incentive stock options or nonqualified stock options. Stock option awards generally vest over a one-year period for non-employee directors, and over a four-or five-year period for employees and officers with annual vesting in equal installments on the anniversary date of each grant date provided the award recipient remains in continuous service with the Company. Options become exercisable after vesting and remain exercisable for the remaining term of the original grant, subject to a maximum term of 10 years. Any unexercised stock options expire 10 years after the grant date, or earlier upon the termination of the recipient's 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 which incorporates the following assumptions.

		September 30,				December 31,
		2025				2024
Dividend yield			2.79	%			2.57	%
Expected volatility			38.45	%			29.55	%
Risk-free interest rate			3.98	%			3.82	%
Expected term in years			6.2				6.3
Weighted-average grant date fair value per option granted		$	13.21			$	11.36

The dividend yield is based on the current quarterly dividend in effect at the time of the grant. 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, 6.25 years for four-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 dates indicated (shown as actual):

		Shares				Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term In Years				Aggregate Value
Outstanding at January 1, 2025			537,901			$	31.55				6.75			$	5,187,207
Granted			138,372				40.14				9.87				—
Less exercised			(6,000	)			29.30				—				80,460
Outstanding at September 30, 2025			670,273			$	33.34				6.83			$	4,595,894

Expected to vest, assuming a 0.31% annual forfeiture rate at, September 30, 2025 ⁽¹⁾			652,718			$	33.21				6.77				4,555,924

Exercisable at September 30, 2025			383,098			$	30.15				5.35			$	3,789,646

(1)

Forfeiture rate has been calculated and estimated, based on historical employment data, to assume a forfeiture of 3.1% of the options over 10 years.

At September 30, 2025, there was $3.1 million of total unrecognized 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 2.0 years.

Restricted Stock Awards

The RSAs’ fair value is equal to the market price of FS Bancorp’s common stock on the grant date. 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 four- or five-year period for employees and officers, beginning on the grant date, and over a one-year period for non-employee directors, with vesting occurring at the end of the one-year period. Any nonvested RSAs are forfeited upon the award recipient’s termination of service with the Company or the Bank.

The following table presents a summary of the Company’s nonvested awards during the dates indicated (shown as actual):

Nonvested Shares		Shares				Weighted-Average Grant-Date Fair Value Per Share
Nonvested at January 1, 2025			103,063			$	35.05
Granted			37,872				40.14
Less vested			(37,964	)			30.75
Nonvested at September 30, 2025			102,971			$	37.73

At September 30, 2025, there was $3.7 million of total unrecognized compensation cost 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 2.0 years.