Equibles

10-Q

FS Bancorp, Inc. (FSBW)

10-Q 2025-11-10 For: 2025-09-30
View Original
Added on April 10, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2025

or

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

For the transition period from   to

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) (IRS Employer Identification No.)

6920 220th Street SW, Mountlake Terrace, Washington

98043

(Address of principal executive offices; Zip Code)

(425)

771

‑

5299

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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, par value $.01 per share FSBW The NASDAQ Stock Market LLC

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 the 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 is a shell company (as defined in Rule 12b‑2 of the Exchange Act).    Yes ☐          No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 7, 2025, there were 7,518,462 outstanding shares of the registrant’s common stock.

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FS Bancorp, Inc.

Form 10‑Q

Table of Contents

Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2025 (Unaudited) and December 31, 2024 3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 5
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (Unaudited) 8 - 9
Notes to Consolidated Financial Statements 10 - 50
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 51 - 64
Item 3. Quantitative and Qualitative Disclosures About Market Risk 64
Item 4. Controls and Procedures 64
PART II OTHER INFORMATION 65
Item 1. Legal Proceedings 65
Item 1A. Risk Factors 65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 65
Item 3. Defaults Upon Senior Securities 66
Item 4. Mine Safety Disclosures 66
Item 5. Other Information 66
Item 6. Exhibits 67
SIGNATURES 68

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

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Item 1. Financial Statements

FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except shares and per share amounts) (Unaudited)

December 31,
ASSETS 2024
Cash and due from banks 12,391 $ 19,280
Interest-bearing deposits at other financial institutions 48,889 12,355
Total cash and cash equivalents 61,280 31,635
Certificates of deposit at other financial institutions — 1,727
Securities available-for-sale, at fair value (amortized cost of 335,152 and 310,272, net of allowance for credit losses of 0 and 0, respectively) 311,695 281,175
Securities held-to-maturity, at amortized cost (fair value of 32,142 and 8,144, net of allowance for credit losses of 220 and 45, respectively) 31,386 8,455
Loans held for sale, at fair value 38,579 27,835
Loans receivable, net of allowance for credit losses of 30,056 and 31,870 (includes loans of 12,571 and 12,728, at fair value, respectively) 2,599,601 2,501,951
Accrued interest receivable 15,122 13,881
Premises and equipment, net 32,444 29,756
Operating lease right-of-use (“ROU”) assets 6,832 5,378
Federal Home Loan Bank (“FHLB”) stock, at cost 7,975 15,621
Deferred tax asset, net 6,767 7,059
Bank owned life insurance (“BOLI”), net 38,531 38,528
Mortgage servicing rights (“MSRs”), held at the lower of cost or fair value 8,506 9,204
Goodwill 3,592 3,592
Core deposit intangible, net 11,284 13,710
Other assets 35,231 39,670
TOTAL ASSETS 3,208,825 $ 3,029,177
LIABILITIES **** ****
Deposits:
Noninterest-bearing accounts 665,852 $ 638,158
Interest-bearing accounts 2,020,640 1,701,260
Total deposits 2,686,492 2,339,418
Borrowings 129,305 307,806
Subordinated notes:
Principal amount 50,000 50,000
Unamortized debt issuance costs (356 ) (406 )
Total subordinated notes less unamortized debt issuance costs 49,644 49,594
Operating lease liabilities 6,993 5,556
Other liabilities 35,880 31,036
Total liabilities 2,908,314 2,733,410
COMMITMENTS AND CONTINGENCIES (NOTE 8) **** ****
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; 7,535,330 and 7,833,014 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively 75 78
Additional paid-in capital 43,907 55,716
Retained earnings 273,882 257,113
Accumulated other comprehensive loss, net of tax (17,353 ) (17,140 )
Total stockholders’ equity 300,511 295,767
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 3,208,825 $ 3,029,177

All values are in US Dollars.

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except shares and per share amounts) (Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
INTEREST INCOME 2025 2024 2025 2024
Loans receivable, including fees $ 46,664 $ 43,800 $ 135,004 $ 127,203
Interest and dividends on investment securities, cash and cash equivalents, and certificates of deposit at other financial institutions 4,309 3,243 11,459 10,660
Total interest and dividend income 50,973 47,043 146,463 137,863
INTEREST EXPENSE **** **** ****
Deposits 14,862 13,486 42,440 39,620
Borrowings 1,935 1,828 5,783 4,796
Subordinated notes 486 485 1,456 1,456
Total interest expense 17,283 15,799 49,679 45,872
NET INTEREST INCOME 33,690 31,244 96,784 91,991
PROVISION FOR CREDIT LOSSES 2,309 1,513 5,922 3,989
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 31,381 29,731 90,862 88,002
NONINTEREST INCOME **** **** ****
Service charges and fee income 2,326 2,482 6,894 7,513
Gain on sale of loans 2,439 2,523 6,111 6,824
Gain on sale of MSRs — 141 — 8,356
Gain (loss) on sale of investment securities, net — 11 — (7,836 )
Earnings on cash surrender value of BOLI 269 252 773 734
Other noninterest income 560 558 2,112 1,355
Total noninterest income 5,594 5,967 15,890 16,946
NONINTEREST EXPENSE **** **** ****
Salaries and benefits 14,415 13,985 43,037 40,920
Operations 3,974 3,827 11,243 10,354
Occupancy 1,744 1,662 5,240 5,036
Data processing 1,784 2,156 5,966 6,172
Loan costs 746 666 2,012 1,904
Professional and board fees 1,093 1,223 3,435 3,034
Federal Deposit Insurance Corporation (“FDIC”) insurance 592 533 1,684 1,515
Marketing and advertising 259 377 879 981
Amortization of core deposit intangible 787 897 2,426 2,757
(Recovery) impairment of MSRs (6 ) 506 23 545
Total noninterest expense 25,388 25,832 75,945 73,218
INCOME BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 11,587 9,866 30,807 31,730
PROVISION (BENEFIT) FOR INCOME TAXES 2,410 (420 ) 5,881 4,088
NET INCOME $ 9,177 $ 10,286 $ 24,926 $ 27,642
Basic earnings per share $ 1.20 $ 1.32 $ 3.23 $ 3.54
Diluted earnings per share $ 1.18 $ 1.29 $ 3.18 $ 3.45

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 2025 2024
Net income $ 9,177 $ 10,286 $ 24,926 $ 27,642
Other comprehensive income: **** **** **** ****
Securities available-for-sale:
Unrealized gain during period 3,681 5,404 5,640 3,853
Income tax provision related to unrealized gain (793 ) (1,161 ) (1,213 ) (828 )
Reclassification adjustment for realized (gain) loss, net included in net income — (11 ) — 7,836
Income tax provision (benefit) related to reclassification for realized loss, net — 2 — (1,685 )
Derivative financial instruments:
Unrealized derivative gain (loss) during period 241 (7,309 ) (3,275 ) 2
Income tax (provision) benefit related to unrealized derivative (loss) gain (47 ) 1,571 704 —
Reclassification adjustment for realized gain, net included in net income (807 ) (1,584 ) (2,634 ) (5,293 )
Income tax provision related to reclassification, net 172 341 565 1,138
Other comprehensive income (loss), net of tax 2,447 (2,747 ) (213 ) 5,023
COMPREHENSIVE INCOME $ 11,624 $ 7,539 $ 24,713 $ 32,665

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

Three Months Ended September 30, 2025 and 2024

Accumulated
Other
Additional Comprehensive Total
Paid-in Retained Loss, Stockholders'
Amount Capital Earnings Net of Tax Equity
BALANCE, July 1, 2024 7,742,607 $ 77 $ 55,834 $ 243,651 $ (15,536 ) $ 284,026
Net income — — — 10,286 — 10,286
Dividends paid (0.27 per share) — — — (2,094 ) — (2,094 )
Share-based compensation — — 464 — — 464
Issuance of common stock - employee stock purchase plan 6,173 1 251 — — 252
Restricted stock awards 42,250 — — — — —
Common stock repurchased for employee/director taxes paid on restricted stock awards (9,193 ) — (386 ) — — (386 )
Common stock repurchased – repurchase plan (87,931 ) — (147 ) — — (147 )
Stock options exercised, net 123,266 — (752 ) — — (752 )
Other comprehensive loss, net of tax — — — — (2,747 ) (2,747 )
BALANCE, September 30, 2024 7,817,172 $ 78 $ 55,264 $ 251,843 $ (18,283 ) $ 288,902
BALANCE, July 1, 2025 7,618,543 $ 76 $ 48,418 $ 268,509 $ (19,800 ) $ 297,203
Net income — — — 9,177 — 9,177
Dividends paid (0.50 per share) — — — (3,804 ) — (3,804 )
Share-based compensation — — 583 — — 583
Issuance of common stock - employee stock purchase plan 7,328 — 287 — — 287
Restricted stock awards 37,872 — — — — —
Common stock repurchased for employee/director taxes paid on restricted stock awards (10,881 ) — (464 ) — — (464 )
Common stock repurchased - repurchase plan (123,532 ) (1 ) (4,897 ) — — (4,898 )
Stock options exercised, net 6,000 — (20 ) — — (20 )
Other comprehensive income, net of tax — — — — 2,447 2,447
BALANCE, September 30, 2025 7,535,330 $ 75 $ 43,907 $ 273,882 $ (17,353 ) $ 300,511

All values are in US Dollars.

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Nine Months Ended September 30, 2025 and 2024

Accumulated
Other
Additional Comprehensive Total
Paid-in Retained Income (Loss), Stockholders'
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 — — — 27,642 — 27,642
Dividends paid (0.79 per share) — — — (6,153 ) — (6,153 )
Share-based compensation — — 1,248 — — 1,248
Issuance of common stock - employee stock purchase plan 24,113 1 831 — 832
Restricted stock awards 42,250 — — — — —
Restricted stock awards forfeited (4,000 ) — — — — —
Common stock repurchased for employee/director taxes paid on restricted stock awards (9,193 ) — (386 ) — — (386 )
Common stock repurchased - repurchase plan (178,421 ) (1 ) (2,507 ) — — (2,508 )
Stock options exercised, net 141,878 — (1,284 ) — — (1,284 )
Other comprehensive income, net of tax — — — — 5,023 5,023
BALANCE, September 30, 2024 7,817,172 $ 78 $ 55,264 $ 251,843 $ (18,283 ) $ 288,902
BALANCE, January 1, 2025 7,833,014 $ 78 $ 55,716 $ 257,113 $ (17,140 ) $ 295,767
Net income — — — 24,926 — 24,926
Dividends paid (1.06 per share) — — — (8,157 ) — (8,157 )
Share-based compensation — — 1,621 — — 1,621
Issuance of common stock - employee stock purchase plan 23,456 — 937 — — 937
Restricted stock awards 37,872 — — — — —
Common stock repurchased - repurchase plan (354,131 ) (3 ) (13,883 ) — — (13,886 )
Common stock repurchased for employee/director taxes paid on restricted stock awards (10,881 ) — (464 ) — — (464 )
Stock options exercised, net 6,000 — (20 ) — — (20 )
Other comprehensive loss, net of tax — — — — (213 ) (213 )
BALANCE, September 30, 2025 7,535,330 $ 75 $ 43,907 $ 273,882 $ (17,353 ) $ 300,511

All values are in US Dollars.

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2025 2024
Net income $ 24,926 $ 27,642
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses 5,922 3,989
Depreciation, amortization and accretion 9,444 7,948
Compensation expense related to stock options and restricted stock awards 1,621 1,248
Earnings on cash surrender value of BOLI (773 ) (734 )
Gain on sale of loans held for sale (6,111 ) (6,824 )
Gain on sale of MSRs — (8,356 )
Loss on sale of investment securities, net — 7,836
Change in fair value on portfolio loans measured under the fair value option (469 ) (448 )
Origination of loans held for sale (354,231 ) (426,672 )
Proceeds from sale of loans held for sale 379,654 430,421
Gain on purchase of tax credits (660 ) (2,262 )
Purchase of tax credits (7,587 ) (26,007 )
Impairment of MSRs 23 545
Changes in operating assets and liabilities
Accrued interest receivable (1,241 ) (9 )
Other assets 8,146 3,758
Other liabilities 1,294 (2,781 )
Net cash from operating activities 59,958 9,294
CASH FLOWS USED BY INVESTING ACTIVITIES **** ****
Activity in securities available-for-sale:
Proceeds from sale of investment securities — 101,907
Maturities, prepayments, and calls 35,616 13,403
Purchases (61,724 ) (47,729 )
Activity in securities held-to-maturity:
Purchases (25,985 ) —
Maturities, prepayments, and calls 3,000 —
Maturities of certificates of deposit at other financial institutions 1,727 14,874
Purchase of certificates of deposit at other financial institutions — (2,708 )
Portfolio loan originations and principal collections, net (132,008 ) (37,425 )
Proceeds from sale of MSRs — 16,311
Proceeds from sale of portfolio loans 2,309 —
Purchase of portfolio loans (3,956 ) (50,099 )
Purchase of premises and equipment (4,665 ) (1,253 )
Proceeds from bank owned life insurance death benefits 771 —
Change in FHLB stock, net 7,646 (7,390 )
Net cash used by investing activities (177,269 ) (109 )
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES **** ****
Net increase (decrease) in deposits 347,047 (95,097 )
Proceeds from borrowings 626,436 707,768
Repayments of borrowings (804,937 ) (637,708 )
Dividends paid on common stock (8,157 ) (6,153 )
Disbursements from stock options exercised, net (20 ) (1,284 )
Common stock repurchased for employee/director taxes paid on restricted stock awards (464 ) (386 )
Issuance of common stock - employee stock purchase plan 937 832
Common stock repurchased (13,886 ) (2,508 )
Net cash from (used by) financing activities 146,956 (34,536 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,645 (25,351 )
CASH AND CASH EQUIVALENTS, beginning of period 31,635 65,691
CASH AND CASH EQUIVALENTS, end of period $ 61,280 $ 40,340

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FS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands) (Unaudited)

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION **** ****
Cash paid during the period for:
Interest on deposits and borrowings $ 47,460 $ 47,071
Income taxes 89 2,435
SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES **** ****
Change in fair value on available-for-sale investment securities $ 5,640 $ 11,689
Change in fair value on fair value and cash flow hedges (5,893 ) (5,288 )
Retention in gross MSRs from loan sales 1,242 1,891
ROU assets in exchange for lease liabilities 3,013 —

See accompanying notes to these consolidated financial statements.

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FS BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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 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 accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10‑Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). These unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10‑K which includes all the audited financial statements and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2024. In the opinion of management, all normal adjustments and recurring accruals considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain prior-period amounts have been reclassified to conform to the current period presentation.

The results for the three and nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025, or any other future period. The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses (“ACL”).

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 13 – Business Segments.”

Subsequent Events – The Company has evaluated events and transactions after  September 30, 2025, for potential recognition or disclosure.

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RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance within Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in the ASU are intended to enhance transparency regarding income tax information by improving income tax disclosures, particularly related to the rate reconciliation and income taxes paid. The ASU requires entities to disclose specified categories within the rate reconciliation and to provide additional information for reconciling items that meet a defined 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.
--- ---

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 does not expect the ASU to have a material effect on its consolidated financial statements.

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, public companies 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 currently evaluating the impact of this ASU but does not expect it to have a material effect on its consolidated financial statements.

In January 2025, the FASB issued guidance within ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendment in this ASU amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted.  The Company is currently evaluating the impact of this ASU but does not expect it to have a material effect on its consolidated financial statements.

Application of New Accounting Guidance Adopted in 2025

None.

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NOTE 2 – 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  September 30, 2025 and December 31, 2024:

September 30, 2025
Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE-FOR-SALE Cost Gains Losses Values ACL
U.S. agency securities $ 20,260 $ 31 $ (2,303 ) $ 17,988 $ —
Corporate securities 16,000 7 (556 ) 15,451 —
Municipal bonds 81,925 5 (11,225 ) 70,705 —
Mortgage-backed securities 205,937 865 (9,580 ) 197,222 —
Asset-backed securities 11,030 — (701 ) 10,329 —
Total securities available-for-sale 335,152 908 (24,365 ) 311,695 —
SECURITIES HELD-TO-MATURITY ****
Corporate securities 29,336 404 (82 ) 29,658 220
Municipal bonds 2,270 214 — 2,484 —
Total securities held-to-maturity 31,606 618 (82 ) 32,142 220
Total securities $ 366,758 $ 1,526 $ (24,447 ) $ 343,837 $ 220
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

The following tables present the activity in the ACL on securities held-to-maturity by major security type for the three and nine months ended September 30, 2025 and 2024:

SECURITIES HELD-TO-MATURITY For the Three Months Ended September 30,
Corporate Securities 2025 2024
Beginning ACL balance $ 220 $ 45
Provision for credit losses — —
Total ending ACL balance $ 220 $ 45
SECURITIES HELD-TO-MATURITY For the Nine Months Ended September 30,
--- --- --- --- ---
Corporate Securities 2025 2024
Beginning ACL balance $ 45 $ 45
Provision for credit losses 175 —
Total ending ACL balance $ 220 $ 45

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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. The increase in provision during the periods was attributable to increased securities balances. Accrued interest receivable totaled $609,000 and $116,000 on held-to-maturity debt securities and $1.7 million and $1.2 million on available-for-sale debt securities as of September 30, 2025 and December 31, 2024, respectively.  Accrued interest receivable on securities is reported in “Accrued interest receivable” on the Consolidated Balance Sheets and is excluded from the calculation of the ACL.

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:

September 30, December 31,
Corporate securities 2025 2024
BBB/BBB- $ 29,336 $ 8,500
Municipal bonds
AA 2,270 —
Total $ 31,606 $ 8,500

At September 30, 2025 and  December 31, 2024, 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 September 30, 2025, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law:

September 30, 2025
Purpose or beneficiary Carrying Value Amortized Cost Fair Value
State and local government public deposits $ 22,377 $ 25,939 $ 22,377

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.

September 30, 2025
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 $ — $ — $ 15,957 $ (2,303 ) $ 15,957 $ (2,303 )
Corporate securities 5,997 (3 ) 5,447 (553 ) 11,444 (556 )
Municipal bonds 487 — 69,387 (11,225 ) 69,874 (11,225 )
Mortgage-backed securities 50,987 (508 ) 62,610 (9,072 ) 113,597 (9,580 )
Asset-backed securities 3,713 (18 ) 6,616 (683 ) 10,329 (701 )
Total securities available-for-sale 61,184 (529 ) 160,017 (23,836 ) 221,201 (24,365 )
SECURITIES HELD-TO-MATURITY **** **** ****
Corporate securities 5,594 (22 ) 940 (60 ) 6,534 (82 )
Total securities held-to-maturity 5,594 (22 ) 940 (60 ) 6,534 (82 )
Total securities $ 66,778 $ (551 ) $ 160,957 $ (23,896 ) $ 227,735 $ (24,447 )

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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 )

There were five held-to-maturity debt securities in an unrealized loss position of less than one year and one held-to-maturity debt securities in an unrealized loss position of more than one year at  September 30, 2025, compared to 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  December 31, 2024.

There were 20 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 September 30, 2025, compared to 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. 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 nine months ended September 30, 2025, or for the year ended December 31, 2024.

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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.

September 30, 2025 December 31, 2024
SECURITIES AVAILABLE-FOR-SALE Amortized Fair Amortized Fair
U.S. agency securities Cost Value Cost Value
Due after one year through five years $ 4,972 $ 4,762 $ 4,962 $ 4,575
Due after five years through ten years 15,288 13,226 10,975 9,193
Due after ten years — — 4,310 3,370
Subtotal 20,260 17,988 20,247 17,138
Corporate securities
Due after one year through five years 14,000 13,934 11,000 10,766
Due after five years through ten years 2,000 1,517 3,000 2,918
Due after ten years — — 2,000 1,442
Subtotal 16,000 15,451 16,000 15,126
Municipal bonds
Due after one year through five years 2,147 2,150 2,186 2,168
Due after five years through ten years 4,121 3,785 4,158 3,728
Due after ten years 75,657 64,770 76,430 64,448
Subtotal 81,925 70,705 82,774 70,344
Mortgage-backed securities
Federal National Mortgage Association (“FNMA”) 86,824 79,479 90,771 80,677
Federal Home Loan Mortgage Corporation (“FHLMC”) 46,537 45,823 48,765 47,773
Government National Mortgage Association (“GNMA”) 72,576 71,920 39,204 38,736
Subtotal 205,937 197,222 178,740 167,186
Asset-backed securities
Due within one year 130 129 203 200
Due after one year through five years 744 728 1,073 1,037
Due after five years through ten years 2,599 2,446 2,867 2,648
Due after ten years 7,557 7,026 8,368 7,496
Subtotal 11,030 10,329 12,511 11,381
Total securities available-for-sale 335,152 311,695 310,272 281,175
SECURITIES HELD-TO-MATURITY
Corporate securities
Due after one year through five years 3,500 3,488 — —
Due after five years through ten years 25,836 26,170 8,500 8,144
Subtotal 29,336 29,658 8,500 8,144
Municipal bonds
Due after five years through ten years 2,270 2,484 — —
Subtotal 2,270 2,484 — —
Total securities held-to-maturity 31,606 32,142 8,500 8,144
Total securities $ 366,758 $ 343,837 $ 318,772 $ 289,319

The proceeds and resulting gains and losses from sales of securities available-for-sale for the three and nine months ended September 30, 2025 and 2024:

For the Three Months Ended September 30, 2025
Gross Gross
Proceeds Gains (Losses)
Securities available-for-sale $ — $ — $ —
For the Three Months Ended September 30, 2024
--- --- --- --- --- --- ---
Gross Gross
Proceeds Gains (Losses)
Securities available-for-sale $ 3,448 $ 11 $ —

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For the Nine Months Ended September 30, 2025
Gross Gross
Proceeds Gains (Losses)
Securities available-for-sale $ — $ — $ —
For the Nine Months Ended September 30, 2024
--- --- --- --- --- --- --- ---
Gross Gross
Proceeds Gains (Losses)
Securities available-for-sale $ 101,907 $ 215 $ (8,051 )

NOTE 3 – LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES – LOANS

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

September 30, December 31,
2025 2024
COMMERCIAL REAL ESTATE ("CRE") LOANS
CRE owner occupied $ 170,714 $ 170,396
CRE non-owner occupied 172,713 174,921
Commercial and speculative construction and development 326,684 280,798
Multi-family 262,578 245,222
Total CRE loans 932,689 871,337
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family 629,712 617,322
Home equity 86,895 75,147
Residential custom construction 53,296 49,902
Total residential real estate 769,903 742,371
CONSUMER LOANS **** ****
Indirect home improvement 527,597 541,946
Marine 70,220 74,931
Other consumer 2,962 3,304
Total consumer loans 600,779 620,181
COMMERCIAL BUSINESS LOANS **** ****
Commercial and industrial (“C&I”) 311,173 287,014
Warehouse lending 15,113 12,918
Total commercial business loans 326,286 299,932
Total loans receivable, gross 2,629,657 2,533,821
ACL on loans (30,056 ) (31,870 )
Total loans receivable, net $ 2,599,601 $ 2,501,951

Loan amounts are net of unearned loan fees in excess of unamortized costs, unamortized net discounts on acquired loans, and premiums on purchased loans of $8.9 million as of September 30, 2025 and $8.0 million as of December 31, 2024. Net loans does not include accrued interest receivable.

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. While the Company primarily originates real estate, consumer, and commercial business loans in these market areas, it also originates indirect home improvement loans, including solar-related home improvement loans, 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. Depending on underwriting guidelines, these indirect home improvement loans may be secured by collateral, with legal documentation that establishes the Company's rights to the collateral, where practicable. Local economic conditions may affect borrowers’ ability to meet the stated repayment terms.

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At September 30, 2025, the Company held approximately $1.07 billion in loans that are pledged as collateral for FHLB borrowings, compared to approximately $1.11 billion at December 31, 2024. The Company held approximately $585.2 million in loans that are pledged as collateral for the Federal Reserve Bank of San Francisco (the “FRB”) line of credit at September 30, 2025, compared to approximately $606.5 million at December 31, 2024.

The Company has defined its loan portfolio into four segments that reflect the structure of the lending function, the Company’s strategic plan and the way management monitors performance and credit quality. The four loan portfolio segments are: (a) CRE, (b) residential real estate, (c) consumer, and (d) 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:

CRE Loans

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.

Commercial and Speculative 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. Custom one-to-four-family construction loans to the intended occupant of the residence are included under residential custom construction lending below.

Residential 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, which are originated by the Company or periodically purchased from other banks, are secured by first mortgages on one-to-four-family residences in our market areas and are intended to be held in the Company's portfolio (excludes loans held for sale).

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.

Residential Custom Construction Lending.  One-to-four-family custom construction loans to the intended occupant of the residence.

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 states where the Company originates consumer loans.

Other Consumer. Loans originated by the Company to consumers in our retail branch footprint, including automobiles, 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 our market area. C&I loans are made based on the borrower’s ability to make repayment from the cash flow of the borrower’s business. At September 30, 2025 and  December 31, 2024, C&I loans included Small Business Administration and United States Department of Agriculture guaranteed certificates of $46.1 million and $52.6 million, respectively.

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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.

Allowance for Credit Losses

The following tables detail activity in the ACL on loans by loan categories at or for the three and nine months ended September 30, 2025 and 2024:

At or For the Three Months Ended September 30, 2025
Residential Commercial
ACL ON LOANS CRE Real Estate Consumer Business Total
Beginning balance $ 7,070 $ 7,654 $ 15,075 $ 2,390 $ 32,189
Provision for (reversal of) credit losses on loans 22 (165 ) 2,452 (457 ) 1,852
Charge-offs (2,300 ) — (2,044 ) — (4,344 )
Recoveries — — 350 9 359
Net (charge-offs) recoveries (2,300 ) — (1,694 ) 9 (3,985 )
Ending balance $ 4,792 $ 7,489 $ 15,833 $ 1,942 $ 30,056
At or For the Three Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Residential Commercial
ACL ON LOANS CRE Real Estate Consumer Business Total
Beginning balance $ 6,671 $ 7,417 $ 13,253 $ 3,897 $ 31,238
(Reversal of) provision for credit losses on loans (103 ) 149 2,102 (557 ) 1,591
Charge-offs — — (1,964 ) — (1,964 )
Recoveries — — 361 6 367
Net (charge-offs) recoveries — — (1,603 ) 6 (1,597 )
Ending balance $ 6,568 $ 7,566 $ 13,752 $ 3,346 $ 31,232
At or For the Nine Months Ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Residential Commercial
ACL ON LOANS CRE Real Estate Consumer Business Total
Beginning balance $ 7,001 $ 7,440 $ 14,185 $ 3,244 $ 31,870
Provision for (reversal of) credit losses on loans 91 49 5,880 (948 ) 5,072
Charge-offs (2,300 ) — (5,321 ) (433 ) (8,054 )
Recoveries — — 1,089 79 1,168
Net charge-offs (2,300 ) — (4,232 ) (354 ) (6,886 )
Ending balance $ 4,792 $ 7,489 $ 15,833 $ 1,942 $ 30,056
At or For the Nine Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Residential Commercial
ACL ON LOANS CRE Real Estate Consumer Business Total
Beginning balance $ 7,293 $ 6,814 $ 13,357 $ 4,070 $ 31,534
(Reversal of) provision for credit losses on loans (725 ) 752 3,660 326 4,013
Charge-offs — — (4,465 ) (1,141 ) (5,606 )
Recoveries — — 1,200 91 1,291
Net charge-offs — — (3,265 ) (1,050 ) (4,315 )
Ending balance $ 6,568 $ 7,566 $ 13,752 $ 3,346 $ 31,232

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The increase in the provision for credit losses on loans for the three and nine months ended September 30, 2025, was primarily the result of elevated net charge-offs in the consumer loan portfolio, particularly in indirect home improvement loans.  The ACL on loans decreased primarily due to a partial charge-off of $2.3 million on a single CRE loan. As the partial charge-off was previously reserved for in prior periods, it did not result in an additional provisioning impact in the current period. The most significant qualitative factor affecting the ACL was an increase in reserves attributable to higher levels of past due and nonperforming loans, as well as higher 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 a 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.

The following tables present the amortized cost basis of loans that were both experiencing financial difficulty and modified during the three and nine months ended  September 30, 2025 and 2024, by class and by type of modification. The tables also present the percentage of the amortized cost basis of loans modified for borrowers experiencing financial difficulty relative to the total amortized cost basis of each class of financing receivable, as well as the financial effect of the modification.

For the Three Months Ended September 30, 2025 For the Nine Months Ended September 30, 2025
Weighted- Weighted-
Average Average
Combination Term Combination Term
Term Total Extension Term Total Extension
Extension Class of Payment Extension Class of Payment
Payment Financing Delay Payment Financing Delay
CRE LOANS Delay Receivable (in years) Delay Receivable (in years)
CRE owner occupied $ 1,203 0.7 % 3.3 $ 1,203 0.70 % 3.3
For the Three Months Ended September 30, 2024 For the Nine Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Weighted- Weighted-
Average Average
Combination Term Combination Term
Term Total Extension Term Total Extension
Extension Class of Payment Extension Class of Payment
Payment Financing Delay Payment Financing Delay
CRE LOANS Delay Receivable (in years) Delay Receivable (in years)
CRE owner occupied $ 1,130 0.3 % 2.3 $ 1,130 0.3 % 2.3

As of  September 30, 2025, the Company had committed to lend additional amounts totaling $292,000 to borrowers experiencing financial difficulty whose loans were modified within the previous 12 months.

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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 twelve months as of  September 30, 2025:

September 30, 2025
30-59 60-89
Days Days 90 Days Total
Past Past or More Past
CRE LOANS Due Due Past Due Due
Commercial and speculative construction and development $ — $ — $ 9,150 $ 9,150
COMMERCIAL BUSINESS LOANS **** **** **** **** **** **** **** ****
C&I — — 199 199
Total loans $ — $ — $ 9,349 $ 9,349

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended  September 30, 2024 and were modified in the twelve months prior to that default.

Nonaccrual and Past Due Loans

The following tables provide information pertaining to the aging analysis of contractually past due loans and nonaccrual loans at September 30, 2025 and December 31, 2024:

September 30, 2025
30-59 60-89
Days Days 90 Days Total Total
Past Past or More Past Loans Non-
CRE LOANS Due Due Past Due Due Current Receivable Accrual ^(1)^
CRE owner occupied $ — $ — $ 844 $ 844 $ 169,870 $ 170,714 $ 2,047
CRE non-owner occupied 563 — — 563 172,150 172,713 —
Commercial and speculative construction and development — — 9,150 9,150 317,534 326,684 9,150
Multi-family — — — — 262,578 262,578 —
Total CRE loans 563 — 9,994 10,557 922,132 932,689 11,197
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family (excludes loans held for sale) — — 788 788 628,924 629,712 1,799
Home equity 122 — — 122 86,773 86,895 317
Residential custom construction — — — — 53,296 53,296 —
Total residential real estate loans 122 — 788 910 768,993 769,903 2,116
CONSUMER LOANS
Indirect home improvement 3,306 1,470 1,288 6,064 521,533 527,597 3,802
Marine 194 24 98 316 69,904 70,220 620
Other consumer 2 2 39 43 2,919 2,962 40
Total consumer loans 3,502 1,496 1,425 6,423 594,356 600,779 4,462
COMMERCIAL BUSINESS LOANS
C&I — — 599 599 310,574 311,173 599
Warehouse lending — — — — 15,113 15,113 —
Total commercial business loans — — 599 599 325,687 326,286 599
Total loans $ 4,187 $ 1,496 $ 12,806 $ 18,489 $ 2,611,168 $ 2,629,657 $ 18,374

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December 31, 2024
30-59 60-89
Days Days 90 Days Total Total
Past Past or More Past Loans Non-
CRE LOANS Due Due Past Due Due Current Receivable Accrual ^(1)^
CRE owner occupied $ 845 $ — $ 1,625 $ 2,470 $ 167,926 $ 170,396 $ 2,771
CRE non-owner occupied — — — — 174,921 174,921 —
Commercial and speculative construction and development — — 4,979 4,979 275,819 280,798 4,979
Multi-family — — — — 245,222 245,222 —
Total CRE loans 845 — 6,604 7,449 863,888 871,337 7,750
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family 2,507 253 76 2,836 614,486 617,322 164
Home equity 20 — 251 271 74,876 75,147 261
Residential custom construction 822 — — 822 49,080 49,902 —
Total residential real estate loans 3,349 253 327 3,929 738,442 742,371 425
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
(1) Includes loans less than 90 days past due as applicable.
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There were no loans 90 days or more past due and still accruing interest at both September 30, 2025 and December 31, 2024.

There were $792,000 and $84,000 in residential real estate loans in the process of foreclosure at  September 30, 2025 and December 31, 2024, respectively.

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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) non-performing loans, and (v) the general economic conditions in the Company’s markets.

The Company utilizes a risk grading matrix to assign a risk grade to its real estate and commercial business loans. Loans are graded on a scale of 1 to 10, with loans in risk grades 1 to 6 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.
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● Grades 4 and 5 - These grades include “Pass” grade loans to borrowers of average credit quality and risk.
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● 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.
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● Grade 7 - This grade is for “Other Assets Especially Mentioned (“OAEM”)” or “Special Mention” in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected.
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● 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.
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● 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.
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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 rated “4” or “5” internally. Loans that are past due more than 90 days are classified “Substandard” and 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 (both owner occupied and non-owner occupied), commercial 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 the dates indicated. Term loans that were renewed or extended for periods longer than 90 days are presented as new originations in the year of the most recent renewal or extension.

September 30, 2025
Revolving
Loans
CRE LOANS Term Loans by Year of Origination Revolving Converted Total
CRE owner occupied 2025 2024 2023 2022 2021 Prior Loans to Term Loans
Pass $ 19,829 $ 4,172 $ 27,061 $ 36,451 $ 11,787 $ 42,490 $ — $ — $ 141,790
Watch 142 600 — 5,260 13,337 7,150 — — 26,489
Special mention — — — — — — — — —
Substandard — — — — — 2,435 — — 2,435
Total CRE owner occupied 19,971 4,772 27,061 41,711 25,124 52,075 — — 170,714
CRE non-owner occupied
Pass 2,429 8,364 16,124 49,954 35,257 53,301 — 300 165,729
Watch — — — — — 412 — — 412
Special mention — — — 1,363 — 2,128 — — 3,491
Substandard — — 3,081 — — — — — 3,081
Total CRE non-owner occupied 2,429 8,364 19,205 51,317 35,257 55,841 — 300 172,713
Commercial and speculative construction and development
Pass 128,910 108,636 36,736 22,331 12,155 74 8,692 — 317,534
Substandard 1,209 — — 7,941 — — — — 9,150
Total commercial and speculative construction and development 130,119 108,636 36,736 30,272 12,155 74 8,692 — 326,684
Commercial and speculative construction and development gross charge-offs — — — 2,300 — — — — 2,300
Multi-family
Pass 23,970 20,741 7,040 20,014 87,907 102,906 — — 262,578
Total multi-family 23,970 20,741 7,040 20,014 87,907 102,906 — — 262,578
Total CRE loans $ 176,489 $ 142,513 $ 90,042 $ 143,314 $ 160,443 $ 210,896 $ 8,692 $ 300 $ 932,689
Total CRE loans gross charge-offs $ — $ — $ — $ 2,300 $ — $ — $ — $ — $ 2,300
September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
RESIDENTIAL Revolving
REAL ESTATE LOANS Loans
One-to-four-family Term Loans by Year of Origination Revolving Converted Total
(excludes loans held for sale) 2025 2024 2023 2022 2021 Prior Loans to Term Loans
Pass $ 75,788 $ 58,176 $ 107,133 $ 154,882 $ 99,758 $ 129,111 $ — $ 504 $ 625,352
Watch — — 676 — — — — — 676
Substandard — — — 715 — 2,969 — — 3,684
Total one-to-four-family 75,788 58,176 107,809 155,597 99,758 132,080 — 504 629,712
Home equity
Pass 11,091 2,075 1,843 294 1,365 6,674 63,236 — 86,578
Substandard — — — — — 7 310 — 317
Total home equity 11,091 2,075 1,843 294 1,365 6,681 63,546 — 86,895
Residential custom construction
Pass 26,812 23,164 1,959 1,361 — — — — 53,296
Total residential custom construction 26,812 23,164 1,959 1,361 — — — — 53,296
Total residential real estate loans $ 113,691 $ 83,415 $ 111,611 $ 157,252 $ 101,123 $ 138,761 $ 63,546 $ 504 $ 769,903

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September 30, 2025
Revolving
Loans
CONSUMER LOANS Term Loans by Year of Origination Revolving Converted Total
Indirect home improvement 2025 2024 2023 2022 2021 Prior Loans to Term Loans
Pass $ 85,137 $ 74,590 $ 106,797 $ 139,680 $ 61,947 $ 55,644 $ — $ — $ 523,795
Substandard 149 640 1,094 1,070 397 452 — — 3,802
Total indirect home improvement 85,286 75,230 107,891 140,750 62,344 56,096 — — 527,597
Indirect home improvement gross charge-offs 57 1,228 1,073 1,603 585 530 — — 5,076
Marine
Pass 7,154 11,287 10,073 17,438 7,522 16,126 — — 69,600
Substandard — — 27 113 106 374 — — 620
Total marine 7,154 11,287 10,100 17,551 7,628 16,500 — — 70,220
Marine gross charge-offs — 63 16 — — 38 — — 117
Other consumer
Pass 186 108 46 133 15 122 2,312 — 2,922
Substandard — — — — — — 40 — 40
Total other consumer 186 108 46 133 15 122 2,352 — 2,962
Other consumer gross charge-offs — 5 — — 2 44 77 — 128
Total consumer loans $ 92,626 $ 86,625 $ 118,037 $ 158,434 $ 69,987 $ 72,718 $ 2,352 $ — $ 600,779
Total consumer loans gross charge-offs $ 57 $ 1,296 $ 1,089 $ 1,603 $ 587 $ 612 $ 77 $ — $ 5,321
September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Revolving
COMMERCIAL Loans
BUSINESS LOANS Term Loans by Year of Origination Revolving Converted Total
C&I 2025 2024 2023 2022 2021 Prior Loans to Term Loans
Pass $ 33,820 $ 57,656 $ 20,254 $ 13,360 $ 13,317 $ 11,992 $ 143,912 $ 777 $ 295,088
Watch — — — — 602 — 3,997 — 4,599
Special mention — — 4,999 — 508 1,546 469 — 7,522
Substandard 192 — 84 — 1,627 1,260 801 — 3,964
Total C&I 34,012 57,656 25,337 13,360 16,054 14,798 149,179 777 311,173
C&I gross charge-offs — — — — 433 — — — 433
Warehouse lending
Pass — — — — — — 14,329 — 14,329
Special mention — — — — — — 784 — 784
Total warehouse lending — — — — — — 15,113 — 15,113
Total commercial business loans $ 34,012 $ 57,656 $ 25,337 $ 13,360 $ 16,054 $ 14,798 $ 164,292 $ 777 $ 326,286
Total commercial business loans gross charge-offs $ — $ — $ — $ — $ 433 $ — $ — $ — $ 433
TOTAL LOANS RECEIVABLE, GROSS
Pass $ 415,126 $ 368,969 $ 335,066 $ 455,898 $ 331,030 $ 418,440 $ 232,481 $ 1,581 $ 2,558,591
Watch 142 600 676 5,260 13,939 7,562 3,997 — 32,176
Special mention — — 4,999 1,363 508 3,674 1,253 — 11,797
Substandard 1,550 640 4,286 9,839 2,130 7,497 1,151 — 27,093
Total loans receivable, gross $ 416,818 $ 370,209 $ 345,027 $ 472,360 $ 347,607 $ 437,173 $ 238,882 $ 1,581 $ 2,629,657
Total gross charge-offs $ 57 $ 1,296 $ 1,089 $ 3,903 $ 1,020 $ 612 $ 77 $ — $ 8,054

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December 31, 2024
Revolving
Loans
CRE LOANS Term Loans by Year of Origination Revolving Converted Total
CRE owner occupied 2024 2023 2022 2021 2020 Prior Loans to Term Loans
Pass $ 4,659 $ 31,943 $ 35,248 $ 15,653 $ 28,970 $ 22,926 $ — $ 679 $ 140,078
Watch — — 9,300 12,654 — 4,354 — — 26,308
Special mention — — — — — 394 — — 394
Substandard — — — — 1,625 1,991 — — 3,616
Total CRE owner occupied 4,659 31,943 44,548 28,307 30,595 29,665 — 679 170,396
CRE non-owner occupied
Pass 8,364 16,491 48,829 36,221 14,682 43,216 — — 167,803
Watch — 3,135 1,389 — — 2,594 — — 7,118
Total CRE non-owner occupied 8,364 19,626 50,218 36,221 14,682 45,810 — — 174,921
Commercial and speculative construction and development
Pass 129,201 77,241 28,810 29,851 — 380 10,336 — 275,819
Substandard — — 4,979 — — — — — 4,979
Total commercial and speculative construction and development 129,201 77,241 33,789 29,851 — 380 10,336 — 280,798
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 CRE loans $ 162,886 $ 135,840 $ 148,653 $ 184,112 $ 105,163 $ 123,668 $ 10,336 $ 679 $ 871,337
December 31, 2024
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RESIDENTIAL Revolving
REAL ESTATE LOANS Loans
One-to-four-family Term Loans by Year of Origination Revolving Converted Total
(excludes loans held for sale) 2024 2023 2022 2021 2020 Prior Loans to Term Loans
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
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
Residential custom construction
Pass 38,741 9,771 1,390 — — — — — 49,902
Total residential custom construction 38,741 9,771 1,390 — — — — — 49,902
Total residential real estate loans $ 122,844 $ 122,655 $ 176,806 $ 110,544 $ 82,583 $ 70,111 $ 56,677 $ 151 $ 742,371

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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
Total consumer loans gross charge-offs $ 382 $ 1,531 $ 1,761 $ 728 $ 696 $ 805 $ 91 $ — $ 5,994
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 commercial business loans gross charge-offs $ — $ — $ — $ — $ — $ 380 $ 761 $ — $ 1,141
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

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

September 30, 2025 December 31, 2024
Nonaccrual with Nonaccrual with Total Nonaccrual with Nonaccrual with Total
CRE LOANS No ACL ACL Nonaccrual No ACL ACL Nonaccrual
CRE owner occupied $ 2,047 $ — $ 2,047 $ 2,771 $ — $ 2,771
Commercial and speculative construction and development 9,150 — 9,150 — 4,979 4,979
11,197 — 11,197 2,771 4,979 7,750
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family 1,799 — 1,799 164 — 164
Home equity 317 — 317 261 — 261
2,116 — 2,116 425 — 425
CONSUMER LOANS
Indirect home improvement — 3,802 3,802 — 1,677 1,677
Marine — 620 620 — 289 289
Other consumer — 40 40 — 14 14
— 4,462 4,462 — 1,980 1,980
COMMERCIAL BUSINESS LOANS
C&I 434 165 599 2,486 960 3,446
Total $ 13,747 $ 4,627 $ 18,374 $ 5,682 $ 7,919 $ 13,601

The Company recognized interest income on a cash basis for nonaccrual loans of $146,000 and $41,000 during the three months ended September 30, 2025 and 2024, and $391,000 and $244,000 during the nine months ended  September 30, 2025 and 2024, respectively.

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

September 30, 2025 December 31, 2024
Residential Other Residential Other
Real Non-Real Real Non-Real
CRE LOANS CRE Estate Estate Total CRE Estate Estate Total
CRE owner occupied $ 2,047 $ — $ — $ 2,047 $ 2,771 $ — $ — $ 2,771
Commercial and speculative construction and development 9,150 — — 9,150 4,979 — 4,979
11,197 — — 11,197 7,750 — — 7,750
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family — 1,799 — 1,799 — 164 — 164
Home equity — 317 — 317 — 261 — 261
— 2,116 — 2,116 — 425 — 425
CONSUMER LOANS
Indirect home improvement — — 3,802 3,802 — — 1,677 1,677
Marine — — 620 620 — — 289 289
— — 4,422 4,422 — — 1,966 1,966
COMMERCIAL BUSINESS LOANS
C&I — — 599 599 — — 3,446 3,446
Total $ 11,197 $ 2,116 $ 5,021 $ 18,334 $ 7,750 $ 425 $ 5,412 $ 13,587

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NOTE 4 –MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included on the Consolidated Balance Sheets. The unpaid principal balance of residential mortgage loans serviced for others was $1.64 billion and $1.63 billion at  September 30, 2025 and December 31, 2024, respectively.

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

At or For the Three Months Ended
September 30,
2025 2024
Beginning balance, at the lower of cost or fair value $ 8,652 $ 9,352
Additions 510 498
MSRs amortized (662 ) (605 )
Recovery (impairment) of MSRs 6 (506 )
Ending balance, at the lower of cost or fair value $ 8,506 $ 8,739
At or For the Nine Months Ended
--- --- --- --- --- --- ---
September 30,
2025 2024
Beginning balance, at the lower of cost or fair value $ 9,204 $ 17,176
Additions 1,242 1,891
Sales — (7,953 )
MSRs amortized (1,917 ) (1,830 )
Impairment of MSRs (23 ) (545 )
Ending balance, at the lower of cost or fair value $ 8,506 $ 8,739

The fair value of the MSRs’ assets was $21.7 million and $21.0 million at  September 30, 2025 and December 31, 2024, 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.

Key economic assumptions of the current fair value for single family MSRs are presented in the table below. Also shown is the sensitivity of the MSR portfolio to changes in market interest rates on the underlying loans, expressed as the impact on prepayment speeds and discount rates.  The table presents the estimated decline in fair value assuming a 10% and 20% adverse change in market interest rates.  Two sets of sensitivities are provided: (i) prepayment-only sensitivity, reflecting the impact of the interest rate change on prepayment speeds, holding discount rates constant; and (ii) combined sensitivity reflecting the impact of the interest rate change on both prepayment speeds and the discount rate used to value the MSRs.

September 30, December 31,
2025 2024
Aggregate portfolio principal balance $ 1,639,890 $ 1,632,141
Weighted average rate of loans in MSRs portfolio 4.4 % 4.2 %
Fair value MSRs $ 21,691 $ 21,043
Weighted average life in years 7.8 7.9
Weighted average constant prepayment rate 8.3 % 8.3 %
Decline in fair value from 10% adverse change (prepayment-only) $ 715 $ 408
Decline in fair value from 20% adverse change (prepayment-only) $ 1,075 $ 776
Effective discount rate 9.1 % 10.2 %
Decline in fair value from 10% adverse change (prepayment + discount rate) $ 901 $ 911
Decline in fair value from 20% adverse change (prepayment + discount rate) $ 1,733 $ 1,819

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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 $1.1 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of loans for both the three months ended September 30, 2025 and 2024, and $3.3 million and $3.6 million for the nine months ended  September 30, 2025 and 2024, respectively. The income, net of amortization of MSRs, is reported in “Service charges and fee income” on the Consolidated Statements of Income.

NOTE 5 – 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.

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Customer Swaps Not Designated as Hedges

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

Cash Flow Hedges

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

The Company expects that approximately $157,000 will be reclassified from accumulated other comprehensive loss as a decrease to interest expense over the next 12 months related to these cash flow hedges.

Fair Value Hedges

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

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

Line item in the Consolidated Balance Sheets in which the hedged item is included Carrying Amount of the Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
September 30, 2025
Investment securities ^(1)^ $ 57,882 $ 2,118
Total $ 57,882 $ 2,118
December 31, 2024
Investment securities ^(1)^ $ 55,701 $ 4,299
Total $ 55,701 $ 4,299
(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 September 30, 2025, the amortized cost basis of the closed portfolios used in these hedging relationships was $183.2 million; the cumulative basis adjustments associated with these hedging relationships was $2.1 million; and the amount of the designated hedged items was $60.0 million.  At  December 31, 2024, the amortized cost basis of the closed portfolios used in these hedging relationships was $189.0 million; the cumulative basis adjustment associated with these hedging relationships was $4.3 million; and the amount 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:

September 30, 2025
Fair Value
Cash flow and fair value hedges: Notional Asset Liability
Interest rate swaps $ 280,000 $ 1,714 $ 665
Non-hedging derivatives:
Fallout adjusted interest rate lock commitments with customers 45,889 275 —
Mandatory and best effort forward commitments with investors 11,737 — 28
Forward TBA mortgage-backed securities 68,000 30 —
Interest rate swaps – customer swap positions 716 — 59
Interest rate swaps – dealer offsets to customer swap positions 716 59 —
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 —

The following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30,
2025 2024
Interest Expense Deposits and Borrowings Interest Income Securities Interest Expense Deposits and Borrowings Interest Income Securities
Total amounts presented on the Consolidated Statements of Income $ 16,797 $ 4,309 $ 15,314 $ 3,243
Net gains (losses) on fair value hedging relationships:
Interest rate swaps – securities
Recognized on hedged items $ — $ 241 $ — $ 2,432
Recognized on derivatives designated as hedging instruments — (241 ) — (2,432 )
Net interest income recognized on cash flows of derivatives designated as hedging instruments — 280 — 433
Net income recognized on fair value hedges $ — $ 280 $ — $ 433
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 $ 527 $ — $ 1,151 $ —
Net income recognized on cash flow hedges $ 527 $ — $ 1,151 $ —

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Nine Months Ended September 30,
2025 2024
Interest Interest
Expense Interest Expense Interest
Deposits and Income Deposits and Income
Borrowings Securities Borrowings Securities
Total amounts presented on the Consolidated Statements of Income $ 48,223 $ 11,459 $ 44,416 $ 10,660
Net gains (losses) on fair value hedging relationships:
Interest rate swaps – securities
Recognized on hedged items $ — $ 2,181 $ — $ 1,044
Recognized on derivatives designated as hedging instruments — (2,181 ) — (1,044 )
Net interest income recognized on cash flows of derivatives designated as hedging instruments — 822 — 1,272
Net income recognized on fair value hedges $ — $ 822 $ — $ 1,272
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 $ 1,812 $ — $ 4,021 $ —
Net income recognized on cash flow hedges $ 1,812 $ — $ 4,021 $ —

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 $266,000 and $149,000 for the three months ended September 30, 2025 and 2024, and net gains of $3,000 and $201,000 for the nine months ended September 30, 2025 and 2024, respectively.

The following tables present a summary of amounts outstanding in derivative financial instruments, including those entered into in connection with the same counterparty under master netting agreements at the dates indicated. While these agreements are typically over-collateralized, GAAP requires disclosures in these tables 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 September 30, 2025
Interest rate swaps $ 1,997 $ 224 $ 1,773 $ — $ — $ 1,773
At December 31, 2024
Interest rate swaps $ 7,844 $ 538 $ 7,306 $ — $ 740 $ 6,566
Net Amounts of
--- --- --- --- --- --- --- --- --- --- --- --- ---
Gross Amounts Liabilities 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 liabilities Liabilities Balance Sheets Balance Sheets Instruments Posted Net Amount
At September 30, 2025
Interest rate swaps $ 718 $ 53 $ 665 $ — $ 660 $ 5
At December 31, 2024
Interest rate swaps $ — $ — $ — $ — $ — $ —

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 September 30, 2025, the Company had $660,000 of 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 6 – LEASES

The Company has operating leases for retail bank and home lending branches, loan production offices, and certain equipment.  At  September 30, 2025, these leases have remaining terms ranging from two months to nine years and ten months, 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 three and nine months ended September 30, 2025 and 2024 are as follows:

Three Months Ended September 30,
Lease cost: 2025 2024
Operating lease cost $ 494 $ 464
Short-term lease cost 7 2
Total lease cost $ 501 $ 466
Nine Months Ended September 30,
--- --- --- --- ---
Lease cost: 2025 2024
Operating lease cost $ 1,459 $ 1,414
Short-term lease cost 21 10
Total lease cost $ 1,480 $ 1,424

The following table provides supplemental information related to operating leases at or for the three and nine months ended September 30, 2025 and 2024:

At or For the Three months Ended September 30,
Cash paid for amounts included in the measurement of lease liabilities: 2025 2024
Operating cash flows from operating leases $ 508 $ 483
Weighted average remaining lease term- operating leases (in years) 4.7 3.5
Weighted average discount rate- operating leases 3.83 % 3.01 %
At or For the Nine months Ended September 30,
--- --- --- --- --- --- ---
Cash paid for amounts included in the measurement of lease liabilities: 2025 2024
Operating cash flows from operating leases $ 1,496 $ 1,462
Weighted average remaining lease term- operating leases (in years) 4.7 3.5
Weighted average discount rate- operating leases 3.83 % 3.01 %

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

Maturities of operating lease liabilities at  September 30, 2025 for future periods are as follows:

Remainder of 2025 $ 491
2026 1,941
2027 1,683
2028 1,066
2029 947
Thereafter 1,931
Total lease payments 8,059
Less imputed interest (1,066 )
Total $ 6,993

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NOTE 7 – DEPOSITS

Deposits are summarized as follows at the dates indicated:

December 31,
2024
Noninterest-bearing checking 648,661 $ 627,679
Interest-bearing checking 199,527 176,561
Savings 167,006 154,188
Money market (1) 354,333 341,615
Certificates of deposit less than 100,000 (2) 682,004 440,257
Certificates of deposit of 100,000 through 250,000 462,397 455,594
Certificates of deposit greater than 250,000 155,373 133,045
Escrow accounts related to mortgages serviced (3) 17,191 10,479
Total 2,686,492 $ 2,339,418

All values are in US Dollars.

(1) Includes $251,000 and $279,000 of brokered deposits at September 30, 2025 and December 31, 2024, respectively.
(2) Includes $369.4 million and $143.1 million of brokered deposits at September 30, 2025 and December 31, 2024, respectively.
--- ---
(3) Noninterest-bearing accounts.
--- ---

Scheduled maturities of time deposits at September 30, 2025 for future periods ending are as follows:

Maturing in 2025 $ 582,010
Maturing in 2026 662,486
Maturing in 2027 35,390
Maturing in 2028 11,409
Maturing in 2029 and thereafter 8,479
Total $ 1,299,774

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

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Interest-bearing checking $ 1,007 $ 580 $ 2,573 $ 1,919
Savings and money market 2,167 1,981 6,136 5,593
Certificates of deposit 11,688 10,925 33,731 32,108
Total $ 14,862 $ 13,486 $ 42,440 $ 39,620

NOTE 8 – 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.

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The following table provides a summary of the Company’s commitments at the dates indicated:

COMMITMENTS TO EXTEND CREDIT September 30, December 31,
CRE LOANS 2025 2024
CRE $ 2,255 $ 1,132
Commercial and speculative construction and development 220,663 135,006
Multi-family 6,896 5,876
Total CRE loans 229,814 142,014
RESIDENTIAL REAL ESTATE LOANS
One-to-four-family (excludes loans held for sale) 54,927 23,138
Home equity 100,769 97,358
Residential custom construction 39,447 39,125
Total residential real estate loans 195,143 159,621
CONSUMER LOANS 30,125 28,566
COMMERCIAL BUSINESS LOANS
C&I 141,186 174,292
Warehouse lending 55,993 53,978
Total commercial business loans 197,179 228,270
Total commitments to extend credit $ 652,261 $ 558,471

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 an extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.

Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and ultimately may not be drawn on to the total extent to which the Company is committed. The Company’s ACL – unfunded loan commitments at September 30, 2025 and December 31, 2024 was $2.1 million and $1.4 million, respectively. The Company recorded a provision for credit losses – unfunded loan commitments of $457,000 and $675,000 for the three and nine months ended  September 30, 2025, respectively, as compared to a recovery for credit losses – unfunded loan commitments of $78,000 and $24,000 for the three and nine months ended September 30, 2024, respectively. The increase in provision for the 2025 periods was primarily attributable to an $85.7 million increase in commercial and speculative construction and development loan commitments.

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 the discussion in “Note 5 – 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 September 30, 2025, total loans serviced on behalf of the FHLB of Des Moines were $8.4 million with the FLA totaling $581,000 and the CE obligation at $389,000 or 4.6% of the loans outstanding. Management has established a holdback of 10% of the outstanding CE, or $39,000, which is a part of the off-balance sheet holdback for loans sold. At both September 30, 2025 and December 31, 2024, there were no loans sold and serviced on behalf of the FHLB of Des Moines that were greater than 90 days past their contractual payment due date.

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 $1.8 million and $2.0 million to cover loss exposure related to these guarantees for one-to-four-family loans sold into the secondary market at September 30, 2025 and December 31, 2024, respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.

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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 his employment is involuntarily terminated, other than for cause or the executive terminates his employment with good reason, as defined in the severance agreement.

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

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 September 30, 2025.

NOTE 9 – FAIR VALUE MEASUREMENTS

The Company determines fair value based on the requirements established in Accounting Standards Codification (“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 TBA mortgage-backed security (Level 2).

Loans Receivable – Certain residential mortgage loans were initially originated for sale with the fair value option elected; after origination, these loans were transferred to loans held for investment. As of September 30, 2025 and December 31, 2024, there were $12.6 million and $12.7 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from held for sale, at fair value to loans held for investment. The aggregate unpaid principal balance of these loans was $13.2 million and $13.8 million as of September 30, 2025 and December 31, 2024, respectively. Gains and losses from changes in fair value for these loans are reported in earnings as a component of “Other noninterest income” on the Consolidated Statements of Income. For the three months ended  September 30, 2025, the Company recorded a net increase in fair value of $203,000, as compared to a net increase in fair value of $262,000, for the three months ended  September 30, 2024.   For the nine months ended  September 30, 2025 and 2024, the Company recorded a net increase in fair value of $469,000 and $448,000, 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 derivative instruments is related to the mortgage banking activities of the Company. The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-though 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 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 is limited to the amount previously charged off.  Subsequent changes in expected credit losses on collateral-dependent loans are included within the provision for credit losses, either as an additional provision or as a reduction of 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 September 30, 2025
Securities available-for-sale: Level 1 Level 2 Level 3 Total
U.S. agency securities $ — $ 17,988 $ — $ 17,988
Corporate securities — 15,451 — 15,451
Municipal bonds — 70,705 — 70,705
Mortgage-backed securities — 197,222 — 197,222
Asset-backed securities — 10,329 — 10,329
Mortgage loans held for sale, at fair value — 38,579 — 38,579
Loans receivable, at fair value — 12,571 — 12,571
Derivatives:
Interest rate lock commitments with customers — — 275 275
Forward TBA mortgage-backed securities — 30 — 30
Interest rate swaps - cash flow and fair value hedges — 1,714 — 1,714
Interest rate swaps - dealer offsets to customer swap positions — 59 — 59
Total assets measured at fair value $ — $ 364,648 $ 275 $ 364,923
Financial Liabilities **** **** ****
Derivatives:
Interest rate swaps - customer swap positions $ — $ (59 ) $ — $ (59 )
Interest rate swaps - cash flow and fair value hedges — (665 ) — (665 )
Mandatory and best effort forward commitments with investors — — (28 ) (28 )
Total liabilities measured at fair value $ — $ (724 ) $ (28 ) $ (752 )

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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 )

The following tables present financial assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy at September 30, 2025 and  December 31, 2024. Level 3 assets recorded at fair value on a nonrecurring basis included loans for which a partial charge-off was recorded based on the fair value of collateral.

September 30, 2025
Level 1 Level 2 Level 3 Total
Collateral dependent loans $ — $ — $ 9,349 $ 9,349
MSRs — — 21,691 21,691
December 31, 2024
--- --- --- --- --- --- --- --- ---
Level 1 Level 2 Level 3 Total
Collateral dependent loans $ — $ — $ 1,130 $ 1,130
MSRs — — 21,043 21,043

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 September 30, December 31,
Instruments Techniques Inputs Range 2025 2024
RECURRING **** ****
Interest rate lock commitments with customers Quoted market prices Pull-through expectations 80% - 99% 89.9 % 94.0 %
Individual forward sale commitments with investors Quoted market prices Pull-through expectations 80% - 99% 89.9 % 94.0 %
NONRECURRING **** ****
Collateral dependent loans Fair value of underlying collateral Discount applied to the obtained appraisal 0% - 25% 12.0 % — %
MSRs Industry sources Pre-payment speeds 0% - 50% 8.3 % 8.3 %

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 dates indicated:

Purchases Net change in Net change in
Three Months Ended Beginning and Sales and Ending fair value for fair value for
September 30, 2025 Balance Issuances Settlements Balance gains/(losses) ^(1)^ gains/(losses) ^(2)^
Interest rate lock commitments with customers $ 409 $ 864 $ (998 ) $ 275 $ (134 ) $ —
Individual forward sale commitments with investors (162 ) (92 ) 226 (28 ) 134 —
September 30, 2024 **** **** **** **** ****
Interest rate lock commitments with customers $ 378 $ 1,587 $ (1,673 ) $ 292 $ (86 ) $ —
Individual forward sale commitments with investors (316 ) (1,138 ) 1,377 (77 ) 239 —
Purchases Net change in Net change in
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Nine Months Ended Beginning and Sales and Ending fair value for fair value for
September 30, 2025 Balance Issuances Settlements Balance gains/(losses) ^(1)^ gains/(losses) ^(2)^
Interest rate lock commitments with customers $ 103 $ 3,104 $ (2,932 ) $ 275 $ 172 $ —
Individual forward sale commitments with investors 31 (345 ) 286 (28 ) (59 ) —
September 30, 2024 **** **** **** **** ****
Interest rate lock commitments with customers $ 329 $ 3,245 $ (3,282 ) $ 292 $ (37 ) $ —
Individual forward sale commitments with investors (188 ) (1,117 ) 1,228 (77 ) (111 ) —

(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.

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

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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:

September 30, 2025 December 31, 2024
Financial Assets Carrying Fair Carrying Fair
Level 1 inputs: Amount Value Amount Value
Cash and cash equivalents $ 61,280 $ 61,280 $ 31,635 $ 31,635
Certificates of deposit at other financial institutions — — 1,727 1,727
Level 2 inputs:
Securities available-for-sale, at fair value 311,695 311,695 281,175 281,175
Securities held-to-maturity, gross 31,606 32,142 8,500 8,144
Loans held for sale, at fair value 38,579 38,579 27,835 27,835
FHLB stock, at cost 7,975 7,975 15,621 15,621
Forward TBA mortgage-backed securities 30 30 180 180
Loans receivable, at fair value 12,571 12,571 12,728 12,728
Interest rate swaps - cash flow and fair value hedges 1,714 1,714 7,244 7,244
Interest rate swaps - dealer offsets to customer swap positions 59 59 62 62
Level 3 inputs:
Loans receivable, gross 2,617,086 2,525,412 2,521,093 2,385,213
MSRs, held at lower of cost or fair value 8,506 21,691 9,204 21,043
Mandatory and best effort forward commitments with investors — — 31 31
Fair value interest rate locks with customers 275 275 103 103
Financial Liabilities
Level 2 inputs:
Time deposits 1,299,774 1,300,722 1,028,896 1,024,663
Borrowings 129,305 128,100 307,806 307,408
Subordinated notes, excluding unamortized debt issuance costs 50,000 48,654 50,000 45,504
Interest rate swaps - cash flow and fair value hedges 665 665 — —
Interest rate swaps - customer swap positions 59 59 61 61
Level 3 inputs:
Mandatory and best effort forward commitments with investors 28 28 — —

NOTE 10 – 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 dates indicated:

At or For the Three Months Ended September 30, At or For the Nine Months Ended September 30,
Numerator: 2025 2024 2025 2024
Net income $ 9,177 $ 10,286 $ 24,926 $ 27,642
Dividends and undistributed earnings allocated to participating securities (176) (165) (443) (450)
Net income available to common shareholders $ 9,001 $ 10,121 $ 24,483 $ 27,192
Denominator (shown as actual):
Basic weighted average common shares outstanding 7,488,139 7,676,102 7,587,202 7,689,277
Dilutive shares 135,104 178,287 110,759 188,569
Diluted weighted average common shares outstanding 7,623,243 7,854,389 7,697,961 7,877,846
Basic earnings per share $ 1.20 $ 1.32 $ 3.23 $ 3.54
Diluted earnings per share $ 1.18 $ 1.29 $ 3.18 $ 3.45
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. 19,771 — 12,382 14,151

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.

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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.
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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.

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NOTE 12 – 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.

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 September 30, 2025, the Bank was categorized as “well capitalized” under applicable regulatory requirements. There are no conditions or events since that notification that management believes have changed the Bank’s category. Management believes, at September 30, 2025, that the Bank met all capital adequacy requirements.

The following tables compare the Bank’s actual capital amounts and ratios to their minimum regulatory capital requirements and well capitalized regulatory capital at the dates indicated:

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 September 30, 2025
Total risk-based capital (to risk-weighted assets) $ 382,049 13.81 % $ 221,372 8.00 % $ 290,551 10.50 % $ 276,715 10.00 %
Tier 1 risk-based capital (to risk-weighted assets) $ 349,690 12.64 % $ 166,029 6.00 % $ 235,208 8.50 % $ 221,372 8.00 %
Tier 1 leverage capital (to average assets) $ 349,690 10.96 % $ 127,647 4.00 % $ N/A N/A $ 159,558 5.00 %
CET 1 capital (to risk-weighted assets) $ 349,690 12.64 % $ 124,522 4.50 % $ 193,701 7.00 % $ 179,865 6.50 %
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 %

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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 capital levels.  Failure to maintain the required buffer could result in limitations on the Bank's ability to pay dividends, repurchase shares, and pay discretionary bonuses, based on specified percentages of eligible retained income.  At September 30, 2025, the Bank’s capital exceeded the conservation buffer.

As a bank holding company registered with the Federal Reserve, the Company is subject to the capital adequacy requirements of the Federal Reserve. Bank holding companies with $3.0 billion or more in assets are subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to the holding company’s subsidiary bank and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations.

Under Federal Reserve regulations, a bank holding company is considered a small bank holding company if its total consolidated assets are below $3.0 billion as of June 30 of a given year.  The Company's total consolidated assets were below $3.0 billion as of June 30, 2024, and therefore, the Company qualified as a small bank holding company for regulatory purposes for the 2024 calendar year.  As of June 30, 2025, the Company's total consolidated assets exceeded $3.0 billion, and accordingly, the Company ceased to qualify as a small bank holding company as of that reporting period.  As a result, the Company is subject to all regulatory requirements applicable to larger bank holding companies, including enhanced reporting, capital, and governance standards.

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

At September 30, At December 31,
Company Only 2025 2024
Total risk-based capital (to risk-weighted assets) 13.93% 14.53%
Tier 1 risk-based capital (to risk-weighted assets) 10.95% 11.36%
Tier 1 leverage capital (to average assets) 9.49% 9.87%
CET 1 capital (to risk-weighted assets) 10.95% 11.36%

NOTE 13 – 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 operations, 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.

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;
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● 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
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● 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.
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Segment assets are primarily allocated by a 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 September 30, 2025, 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 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 MSRs 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. Noninterest expense includes allocated overhead expense from general corporate activities. Allocation is determined based on a combination of segment assets and FTEs.  For the three and nine months ended September 30, 2025 and 2024, the Home Lending segment included allocated overhead expenses of $1.8 million and $5.5 million, compared to $1.8 million and $4.8 million, respectively.

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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 three and nine months ended September 30, 2025 and 2024:

At or For the Three Months Ended September 30, 2025
Income: Commercial and Consumer Banking Home Lending Total
Interest income - loans receivable, including fees $ 37,419 $ 9,245 $ 46,664
Interest income - other interest earnings assets 4,309 — 4,309
Total interest income by segment 41,728 9,245 50,973
Gain on sale of loans 63 2,376 2,439
Other income 2,338 817 3,155
Intersegment income (323 ) 323 —
Total noninterest income by segment 2,078 3,516 5,594
Total income by segment 43,806 12,761 56,567
Expense:
Interest expense - deposits 14,857 6 14,863
Interest expense - borrowings 1,935 — 1,935
Interest expense - subordinated note 384 101 485
Interest expense - intersegment (6,259 ) 6,259 —
Total interest expense by segment 10,917 6,366 17,283
Provision for credit losses by segment 2,150 159 2,309
Salaries and benefits 8,032 1,803 9,835
Overhead allocation 5,761 1,810 7,571
Other segment items^(1)^ 6,342 1,640 7,982
Total noninterest expense by segment 20,135 5,253 25,388
Income before provision for income taxes by segment 10,604 983 11,587
Provision for income taxes by segment (2,203 ) (207 ) (2,410 )
Net income by segment $ 8,401 $ 776 $ 9,177
Other segment disclosures:
Segment assets $ 2,546,789 $ 662,036 $ 3,208,825
FTEs 460 115 575

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At or For the Three Months Ended September 30, 2024
Income: Commercial and Consumer Banking Home Lending Total
Interest income - loans receivable, including fees $ 35,591 $ 8,209 $ 43,800
Interest income - other interest earnings assets 3,243 — 3,243
Total interest income by segment 38,834 8,209 47,043
Gain on sale of loans — 2,523 2,523
Gain on sale of MSRs (372 ) 513 141
Gain on sale of investment securities 11 — 11
Other income 2,433 859 3,292
Intersegment income 185 (185 ) —
Total noninterest income by segment 2,257 3,710 5,967
Total income by segment 41,091 11,919 53,010
Expense:
Interest expense - deposits 13,485 1 13,486
Interest expense - borrowings 1,828 — 1,828
Interest expense - subordinated note 384 101 485
Interest expense - intersegment (5,475 ) 5,475 —
Total interest expense by segment 10,222 5,577 15,799
Provision for credit losses by segment 1,331 182 1,513
Salaries and benefits 7,464 2,094 9,558
Overhead allocation 6,040 1,762 7,802
Other segment items^(1)^ 6,695 1,777 8,472
Total noninterest expense by segment 20,199 5,633 25,832
Income before provision for income taxes by segment 9,339 527 9,866
(Provision) benefit for income taxes by segment (71 ) 491 420
Net income by segment $ 9,268 $ 1,018 $ 10,286
Other segment disclosures:
Segment assets $ 2,358,004 $ 614,665 $ 2,972,669
FTEs 442 117 559

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At or For the Nine Months Ended September 30, 2025
Income: Commercial and Consumer Banking Home Lending Total
Interest income - loans receivable, including fees $ 108,430 $ 26,574 $ 135,004
Interest income - other interest earnings assets 11,459 — 11,459
Total interest income by segment 119,889 26,574 146,463
Gain on sale of loans 63 6,048 6,111
Other income 7,533 2,246 9,779
Intersegment income (975 ) 975 —
Total noninterest income by segment 6,621 9,269 15,890
Total income by segment 126,510 35,843 162,353
Expense:
Interest expense - deposits 42,430 10 42,440
Interest expense - borrowings 5,783 — 5,783
Interest expense - subordinated note 1,155 301 1,456
Interest expense - intersegment (17,876 ) 17,876 —
Total interest expense by segment 31,492 18,187 49,679
Provision for credit losses by segment 5,320 602 5,922
Salaries and benefits 23,571 6,061 29,632
Overhead allocation 17,323 5,463 22,786
Other segment items^(1)^ 19,731 3,796 23,527
Total noninterest expense by segment 60,625 15,320 75,945
Income before provision for income taxes by segment 29,073 1,734 30,807
Provision for income taxes by segment (5,517 ) (364 ) (5,881 )
Net income by segment $ 23,556 $ 1,370 $ 24,926
Other segment disclosures:
Segment assets $ 2,546,789 $ 662,036 $ 3,208,825
FTEs 460 115 575

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At or For the Nine Months Ended September 30, 2024
Income: Commercial and Consumer Banking Home Lending Total
Interest income - loans receivable, including fees $ 104,438 $ 22,765 $ 127,203
Interest income - other interest earnings assets 10,660 — 10,660
Total interest income by segment 115,098 22,765 137,863
Gain on sale of loans — 6,824 6,824
Gain on sale of MSRs 6,987 1,369 8,356
Loss on sale of investment securities (7,836 ) — (7,836 )
Other income 7,056 2,546 9,602
Intersegment income 712 (712 ) —
Total noninterest income by segment 6,919 10,027 16,946
Total income by segment 122,017 32,792 154,809
Expense:
Interest expense - deposits 39,615 5 39,620
Interest expense - borrowings 4,796 — 4,796
Interest expense - subordinated note 1,167 289 1,456
Interest expense - intersegment (15,229 ) 15,229 —
Total interest expense by segment 30,349 15,523 45,872
Provision for credit losses by segment 3,796 193 3,989
Salaries and benefits 22,557 6,182 28,739
Overhead allocation 16,278 4,797 21,075
Other segment items^(1)^ 19,415 3,989 23,404
Total noninterest expense by segment 58,250 14,968 73,218
Income before provision for income taxes by segment 29,622 2,108 31,730
(Provision) benefit for income taxes by segment (4,253 ) 165 (4,088 )
Net income by segment $ 25,369 $ 2,273 $ 27,642
Other segment disclosures:
Segment assets $ 2,358,004 $ 614,665 $ 2,972,669
FTEs 442 117 559
(1) Other segment items include operations, occupancy, data processing, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.
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NOTE 14 – 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  September 30, 2025, and December 31, 2024, 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 (“Branch Acquisition”), 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 September 30, 2025, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.

The following table summarizes the changes in the Company’s other intangible assets comprised solely of CDI for the year ended  December 31, 2024, and the nine months ended September 30, 2025.

Other Intangible Assets
Accumulated
Gross CDI Amortization Net CDI
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
Amortization — (2,426 ) (2,426 )
Balance, September 30, 2025 $ 24,928 $ (13,644 ) $ 11,284

The CDI represents the fair value assigned to the intangible core deposit base acquired in business combinations. The CDI from the Branch Acquisition is being amortized on an accelerated basis over 10 years, while the CDI from the Anchor Bank acquisition (completed in  November 2018) is being amortized on a straight-line basis over 10 years.  Amortization expense was $787,000 and $2.4 million for the three and nine months ended September 30, 2025, compared to $897,000 and $2.8 million for the same periods in 2024, respectively.

Amortization expense for CDI is expected to be as follows at September 30, 2025:

Remainder of 2025 $ 766
2026 2,845
2027 2,500
2028 2,110
2029 1,283
Thereafter 1,780
Total $ 11,284

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward–Looking Statements

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

● statements of our goals, intentions, and expectations;
● statements regarding our business plans, prospects, growth, and operating strategies;
● statements regarding the quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.

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

● adverse impacts to economic conditions in our local markets or other markets where we have lending relationships, or other aspects of the Company's business operations;
● effects of employment levels, labor shortages, persistent inflation, recessionary pressures or slowing economic growth;
● changes in interest rate levels and the duration of such changes, including action by the Board of Governors of the Federal Reserve System (“Federal Reserve”), which could adversely affect our revenues and expenses, the values of our assets and obligations, and the availability and cost of capital and liquidity;
● the impact of inflation and monetary and fiscal policy response thereto, and their impact on consumer behavior;
● geopolitical developments and international conflicts, including but not limited to tensions or instability in Eastern Europe, the Middle East, and Asia, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, energy prices, or economic activity in specific industry sectors;
● the effects of a federal government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;
● credit risks of lending activities, including loan delinquencies, write-offs, changes in our allowance for credit losses (“ACL”), and provision for credit losses;
● secondary market conditions and our ability to originate loans for sale and sell loans in the secondary market;
● fluctuations in loan demand, unsold homes, and land and in property values;
● staffing fluctuations in response to product demand or corporate implementation strategies;
● use of estimates in determining the fair value of assets, which may prove incorrect;
● increased competitive pressures among financial services companies;
● our ability to execute our plans to grow our residential construction lending, our home lending operations, our warehouse lending, and the geographic expansion of our indirect home improvement lending;
● our ability to attract and retain deposits;
● our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
● our ability to control operating costs and expenses;
● expectations regarding key growth initiatives and strategic priorities;
● retention of key members of our senior management team;
● changes in consumer spending, borrowing, and savings habits;
● our ability to successfully manage our growth;
● bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;
● the ability to adapt to rapid technological changes, including advancements in artificial intelligence, digital banking, and cybersecurity;
● legislation or regulatory changes including, but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;

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● our ability to pay dividends on our common stock;
● quality and composition of our securities portfolio and the impact of adverse changes in the securities markets;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board (“FASB”);
● costs and effects of litigation, including settlements and judgments;
● vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;
● inability of key third-party service providers to perform their obligations to us;
● effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic political unrest, and other external events;
● the potential for new or increased tariffs, trade restrictions or geopolitical tensions that could affect economic activity or specific industry sectors;
● environmental, social and governance goals and targets;
● other economic, competitive, governmental, bank regulatory, consumer and technical factors affecting our operations, pricing, products and services, and
● other risks described elsewhere in this Form 10‑Q and our other reports filed with or furnished to SEC, including our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”).

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

Overview

1st Security Bank has been serving the Puget Sound area since 1907, which includes when the predecessor to Anchor Bank, one of its banking acquisitions, was formed. On July 9, 2012, the Bank converted from mutual to stock ownership and became the wholly owned subsidiary of FS Bancorp.

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

The Company's strategic focus involves diversifying revenues, expanding lending channels, and enhancing the banking franchise. Management is committed to establishing varied revenue streams considering credit, interest rate, and concentration risks. The business plan includes:

● Growing and diversifying our loan portfolio;
● Maintaining strong asset quality;
● Emphasizing lower cost core deposits to reduce the costs of funding our loan growth;
● Capturing customers’ complete relationships through a broad array of products and services, leveraging community involvement, and selectively emphasizing offerings aligned with customers’ banking needs; and
● Expanding into new markets.

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As a diversified lender, the Company specializes in originating one-to-four-family loans, commercial real estate (“CRE”) mortgages, second mortgages, consumer loans, marine lending, and commercial business loans.

At September 30, 2025, the Company's loan portfolio included commercial real estate loans, residential real estate loans, consumer loans, and commercial business loans representing 35.4%, 29.1%, 22.9%, and 12.4% of the portfolio, respectively.

Indirect home improvement loans to finance window, gutter, siding replacement, solar panels, spas, and other improvement renovations are a large segment of the consumer loan portfolio. These indirect home improvement loans are dependent on the Company’s contractor/dealer network of 33 currently active fixture dealerships located throughout Washington, Oregon, California, Idaho, Colorado, Nevada, Arizona, Minnesota, Texas, Utah, Massachusetts, Montana, and New Hampshire. During the three months ended September 30, 2025, the Company originated 1,691 indirect home improvement loans with an aggregate total of $38.4 million. Five contractor/dealers accounted for 75.7% of the dollar volume funded in this category.  In addition, four states represented nearly three-quarters of the loan originations: Washington, Oregon, California, and Idaho with 35.9%, 20.0%, 15.6%, and 4.9% of total loan volume, respectively.

The Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and from existing customers. Retail banking customers are also an important source of the Company’s loan originations. The Company originated $166.9 million of one-to-four-family loans (which included loans held for sale, loans held for investment and fixed seconds) in addition to $8.7 million of loans brokered to other institutions through the home lending segment during the three months ended September 30, 2025, of which $156.4 million were sold to investors. Of the loans sold to investors, $53.8 million were sold to the FNMA, FHLMC, FHLB, and/or GNMA with servicing rights retained for the purpose of further developing these customer relationships.

For the three months ended September 30, 2025, one-to-four-family loan originations and refinancing activity decreased compared to the prior quarter as a result of economic volatility in the markets. Residential construction and development lending, while not as common as other loan origination options like one-to-four-family loans, continues to be an important element in our total loan portfolio, and we continue to take a disciplined approach by concentrating our efforts on loans to builders and developers in our market areas known to us. These short-term loans typically have a maturity period of six to 18 months, with disbursements not fully realized at origination, leading to a short-term reduction in net loans receivable.

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

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

The Company’s earnings are also affected by fee income from mortgage banking activities, the provision for (reversal of) credit losses, service charges and fees, gains from sales of assets, operating expenses and income taxes.

Critical Accounting Estimates

There have been no material changes to the Company’s critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Comparison of Financial Condition at September 30, 2025 and December 31, 2024

Assets. Total assets increased $179.6 million to $3.21 billion at September 30, 2025, from $3.03 billion at December 31, 2024, primarily due to increases of $97.7 million in loans receivable, net,  $30.5 million in securities available-for-sale, $29.6 million in total cash and cash equivalents, $22.9 million in securities held-to-maturity, and $10.7 million in loans held for sale, partially offset by decreases of $7.6 million in FHLB stock, $4.4 million in other assets, $2.4 million in core deposits intangible, net, and $1.7 million in certificates of deposit at other financial institutions. Asset growth was primarily funded by brokered deposits.

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Loans receivable, net, increased $97.7 million to $2.60 billion at September 30, 2025, compared to $2.50 billion at December 31, 2024.

● Commercial real estate (“CRE”) loans increased $61.4 million, primarily reflecting:

○ $45.9 million in commercial and speculative construction and development loans,

○ $17.4 million in multi-family loans, and

○ $318,000 in CRE owner occupied loans,

○ partially offset by a $2.2 million decrease in CRE non–owner occupied loans.

● Residential real estate loans increased $27.5 million, driven by:

○ $12.4 million in one-to-four-family loans (excluding loans held for sale),

○ $11.7 million in home equity loans, and

○ $3.4 million in residential custom construction loans.

● Total undisbursed construction and development loan commitments increased $86.0 million to $260.1 million at September 30, 2025, from $174.1 million at December 31, 2024.

● Commercial business loans increased $26.4 million, reflecting increases of $24.2 million in commercial and industrial (“C&I”) loans and $2.2 million in warehouse lending.

● Consumer loans decreased $19.4 million, primarily due to declines of $14.3 million in indirect home improvement loans and $4.7 million in marine loans.

Overall, loan growth was concentrated in commercial construction and development, multi-family, and residential real estate segments, reflecting continued demand in those markets. Consumer balances, primarily indirect home improvement loans, declined presumably due to volatile economic conditions, as the Company continued to manage indirect exposures.

Loans held for sale, consisting of one-to-four-family loans, increased $10.7 million to $38.6 million at September 30, 2025, from $27.8 million at December 31, 2024. The Company continues to invest in its home lending operations and strategically manage production capacity in the markets we serve.

One-to-four-family loan originations for the nine months ended September 30, 2025, included $354.2 million of loans originated for sale, $147.4 million of portfolio loans including first and second liens, and $18.7 million of loans brokered to other institutions.

Originations of one-to-four-family loans for the periods indicated were as follows:

(Dollars in thousands) For the Nine Months Ended September 30,
2025 2024
Amount Percent Amount Percent Change % Change
Purchase $ 446,631 85.8 % $ 497,705 88.8 % (10.3) %
Refinance 73,697 14.2 62,546 11.2 17.8 %
Total $ 520,328 100.0 % $ 560,251 100.0 % (7.1) %

All values are in US Dollars.

During the nine months ended September 30, 2025, the Company sold $375.4 million of one-to-four-family loans, compared to $426.0 million for the same period one year ago. The decrease in loan sales reflects a more competitive market environment and lower purchase volume, partially offset by higher refinance activity.  The Company remains focused on managing loan production capacity and maintaining a pipeline consistent with market demand.  Gross margin on home loan sales was 3.14% for the nine months ended September 30, 2025, compared to 3.06% for the nine months ended September 30, 2024. Gross margin is defined as the margin on loans sold without the impact of deferred loan costs.

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The ACL on loans totaled $30.1 million, or 1.14%, of gross loans receivable (excluding loans held for sale), at  September 30, 2025, compared to $31.9 million, or 1.26%, at  December 31, 2024. The ACL on unfunded loan commitments increased $675,000 to $2.1 million at  September 30, 2025, from $1.4 million at  December 31, 2024, primarily reflecting growth in commercial and speculative construction and development loan commitments.  Total loans 30 days or more past due decreased to $18.5 million, or 0.70% of total loans, from $22.2 million, or 0.88%, over the same period, reflecting continued repayment performance in the broader loan portfolio.

Nonperforming loans, consisting solely of nonaccrual loans, increased $4.8 million to $18.4 million at  September 30, 2025, from $13.6 million at December 31, 2024.  The increase was primarily due to construction and development CRE loans, which increased $4.2 million to $9.2 million, indirect home improvement loans, which increased $2.1 million to $3.8 million, and one-to-four-family residential loans, which increased $1.6 million to $1.8 million. These increases were partially offset by a decrease of $2.8 million in nonaccrual commercial business loans, to $599,000, and a decrease of $724,000 in nonaccrual CRE owner-occupied loans, to $2.0 million.  The increase in nonperforming loans reflects continued elevated losses in certain consumer loans due to strained economic conditions and in construction and development loans due to a collateral deficiency on a commercial construction project.  The deficiency had been fully reserved in previous periods, accordingly, no offsetting provisions were recorded.  Consequently, the ratio of nonperforming loans to total gross loans rose to 0.70% at September 30, 2025, from 0.54% at December 31, 2024.

Classified loans, all of which were classified as substandard, totaled $27.1 million at  September 30, 2025, compared to $22.9 million at December 31, 2024. The coverage ratio of the ACL on loans to nonperforming loans was 163.8% at  September 30, 2025, compared to 234.3% at December 31, 2024. The decline in the coverage ratio primarily reflects the $2.3 million partial charge-off on a CRE loan that was previously reserved combined with the increase in nonperforming loans.

Asset quality trends reflect growth in construction, multi-family, and residential loan segments, ongoing elevated losses in certain consumer loan portfolios, and the Company’s continued risk management and monitoring of nonperforming and substandard exposures.

L iabilities. Total liabilities increased $174.9 million to $2.91 billion at September 30, 2025, from $2.73 billion at December 31, 2024, primarily due to an increase of $347.1 million in deposits, offset by a decrease of $178.5 million in borrowings. The loan-to-deposit ratio was approximately 99.3% at September 30, 2025, compared to approximately 109.5% at December 31, 2024, reflecting the mix shift toward deposits, particularly brokered CDs, to fund asset growth and reduce wholesale borrowings.

Total deposits increased $347.1 million to $2.69 billion at September 30, 2025, from $2.34 billion at December 31, 2024, reflecting increases in all deposit categories. Transactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) increased $50.7 million to $865.4 million at September 30, 2025, from $814.7 million at December 31, 2024 This increase was due to increases of $23.0 million in interest-bearing checking, $21.0 million in noninterest-bearing checking and $6.7 million in escrow accounts related to mortgages serviced, reflecting higher customer balances and increased activity in mortgage servicing.  Money market and savings accounts increased $25.5 million to $521.3 million at September 30, 2025, from $495.8 million at December 31, 2024, due to customer preference for liquidity and slightly higher balances in retail and business savings accounts.

CDs, which include both retail and non-retail CDs, increased $270.9 million to $1.3 billion at September 30, 2025, from $1.03 billion at December 31, 2024.  Retail CDs increased $50.8 million to $924.9 million at September 30, 2025, from $874.1 million at December 31, 2024. Non-retail CDs, which include brokered CDs, online CDs and public funds CDs increased $220.0 million to $374.8 million, compared to $154.8 million at December 31, 2024, was primarily due to an increase of $226.4 million in brokered CDs. Non-retail CDs represented 28.8% and 15.0% of total CDs at September 30, 2025 and December 31, 2024, respectively. The increase in non-retail CDs aligns with the Company's strategy to manage interest rate risk and liquidity by accessing larger and more diversified funding sources at competitive rates that were only slightly higher than local market rates, and to reduce reliance on higher cost borrowings.

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Deposits are summarized as follows at the dates indicated:

(Dollars in thousands) December 31,
2024
Noninterest-bearing checking 648,661 $ 627,679
Interest-bearing checking 199,527 176,561
Savings 167,006 154,188
Money market (1) 354,333 341,615
CDs less than 100,000 (2) 682,004 440,257
CDs of 100,000 through 250,000 462,397 455,594
CDs greater than 250,000 (3) 155,373 133,045
Escrow accounts related to mortgages serviced (4) 17,191 10,479
Total 2,686,492 $ 2,339,418

All values are in US Dollars.

(1) Includes $251,000 and $279,000 of brokered deposits at September 30, 2025 and December 31, 2024, respectively.
(2) Includes $369.4 million and $143.1 million of brokered CDs at September 30, 2025 and December 31, 2024, respectively.
(3) CDs that meet or exceed the FDIC insurance limit.
(4) Noninterest-bearing checking.

The Bank had uninsured deposits of approximately $694.4 million or 25.8% of total deposits, at September 30, 2025, compared to approximately $652.7 million or 27.9% of total deposits at December 31, 2024. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Borrowings decreased $178.5 million to $129.3 million at September 30, 2025, from $307.8 million at December 31, 2024.  The decrease reflects the repayment of higher-cost borrowings using lower-cost brokered deposits, consistent with the Company’s funding and liquidity strategy. At September 30, 2025, borrowings were solely comprised of FHLB advances.

Stockholders’ Equity. Total stockholders’ equity increased $4.7 million to $300.5 million at September 30, 2025, from $295.8 million at December 31, 2024.  The increase primarily reflects net income of $24.9 million, partially offset by share repurchases of $13.9 million, cash dividends paid totaling $8.2 million, and $1.6 million in equity award compensation. Additionally, the issuance of common stock under the employee stock purchase plan contributed $937,000, reflecting the issuance of 23,456 shares of Company common stock.  Stockholders' equity was also impacted by the increase in accumulated other comprehensive loss, net of tax of $213,000, primarily due to decreases in unrealized net gains on fair value and cash flow hedges of $4.6 million, net of tax, reflecting changes in market interest rates during the quarter, partially offset by an improvement in unrealized net losses on securities available-for-sale of $4.4 million, net of tax.

Book value per common share was $40.43 at September 30, 2025, compared to $38.26 at December 31, 2024.  The calculation of book value per share at September 30, 2025, was based on 7,432,359 common shares, derived by subtracting the 102,971 unvested restricted stock shares from the 7,535,330 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2024, was calculated based on 7,729,951 common shares, after deducting 103,063 unvested restricted stock shares from the 7,833,014 reported common shares outstanding as of that date.

Comparison of Results of Operations for the Three Months Ended September 30, 2025 and 2024

General. Net income was $9.2 million for the three months ended September 30, 2025, compared to $10.3 million for the three months ended September 30, 2024. The decrease was primarily due to a $2.8 million, or 673.8%, increase in  provision for income tax expense, a $796,000, or 52.6%, increase in provision for loan losses, and a $373,000 decrease in total noninterest income, partially offset by a $2.4 million, or 7.8%, increase in net interest income and a $444,000, or 1.7%, reduction in total noninterest expense.

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Average Balances, Interest and Average Yields/Cost

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

(Dollars in thousands) For the Three Months Ended
September 30, 2025 September 30, 2024
Average Balances Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate
ASSETS **** **** **** ****
Loans receivable, net and loans held for sale ^(1)^ ^(2)^ $ 2,651,111 $ 46,664 6.98 % $ 2,536,106 $ 43,800 6.87 %
Taxable investment securities^(3)(4)^ 285,111 3,244 4.51 % 181,249 1,947 4.27 %
Tax exempt securities^(3)^ 79,341 467 2.34 % 78,208 503 2.56 %
FHLB stock 10,082 224 8.81 % 10,739 246 9.11 %
Interest-bearing deposits at other financial institutions 34,857 374 4.26 % 48,546 547 4.48 %
Total interest-earning assets 3,060,502 50,973 6.61 % 2,854,848 47,043 6.56 %
Noninterest-earning assets 124,955 105,941
Total assets $ 3,185,457 $ 2,960,789
LIABILITIES **** **** **** ****
Savings and money market $ 515,051 2,167 1.67 % $ 498,396 1,981 1.58 %
Interest-bearing checking 211,031 1,007 1.89 % 168,637 580 1.37 %
Certificates of deposit 1,221,748 11,689 3.80 % 1,070,760 10,925 4.06 %
Borrowings 176,234 1,935 4.36 % 191,279 1,828 3.80 %
Subordinated notes 49,633 485 3.88 % 49,567 485 3.89 %
Total interest-bearing liabilities 2,173,697 17,283 3.15 % 1,978,639 15,799 3.18 %
Noninterest-bearing accounts 668,908 650,852
Other noninterest-bearing liabilities 38,746 40,606
Total liabilities $ 2,881,351 $ 2,670,097
Net interest income $ 33,690 $ 31,244
Net interest rate spread 3.45 % 3.38 %
Net earning assets $ 886,805 $ 876,209
Net interest margin 4.37 % 4.35 %
Average interest-earning assets to average interest-bearing liabilities 140.80 % 144.28 %
(1) The average loans receivable, net balances include nonaccrual loans carrying a zero yield.
--- ---
(2) Includes net deferred fee recognition of $1.6 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively.
(3) Shown at amortized cost.
(4) Includes income from fair value hedges of $280,000 and $433,000 for the three months ended September 30, 2025 and 2024, respectively.

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Net Interest Income. Net interest income increased $2.4 million to $33.7 million for the three months ended September 30, 2025, from $31.2 million for the three months ended September 30, 2024, primarily due to an increase in total interest income of $3.9 million, partially offset by an increase in total interest expense of $1.5 million. The $3.9 million increase in total interest income was primarily due to an increase of $2.9 million in interest income on loans receivable, including fees, driven primarily by an 11-basis point increase in the average yield earned on loans receivable as new loans were originated at higher rates and variable-rate loans repriced higher, and a higher average balance of loans outstanding. The $1.5 million increase in total interest expense was primarily the result of a shift in the funding mix toward brokered CDs, which were used to repay higher-cost borrowings in accordance with the Company's funding and liquidity strategy.

Net interest margin (“NIM”) (annualized) increased two basis point to 4.37% for the three months ended September 30, 2025, from 4.35% for the same period the prior year. The change in NIM reflects the increase in yields earned on interest-earning assets, along with a slight improvement in funding cost.

Interest Income. Total interest income for the three months ended September 30, 2025, increased $3.9 million to $51.0 million, from $47.0 million for the three months ended September 30, 2024. The $3.9 million increase in total interest income was primarily due to an increase of $2.9 million in interest income on loans receivable, including fees, primarily as a result of net loan growth and variable rate loans repricing higher.

The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the three months ended September 30, 2025 and 2024:

(Dollars in thousands) Three Months Ended September 30,
2025 2024
Average Average Change
Balance Balance in Interest
Outstanding Yield Outstanding Yield Income
Loans receivable, net and loans held for sale^(1)(2)^ $ 2,651,111 6.98 % $ 2,536,106 6.87 %
Taxable investment securities^(3)(4)^ 285,111 4.51 181,249 4.27
Tax exempt securities^(3)^ 79,341 2.34 78,208 2.56 )
FHLB stock 10,082 8.81 10,739 9.11 )
Interest-bearing deposits at other financial institutions 34,857 4.26 48,546 4.48 )
Total interest-earning assets $ 3,060,502 6.61 % $ 2,854,848 6.56 %

All values are in US Dollars.

(1) The average loans receivable, net balances include nonaccrual loans carrying a zero yield.
(2) Includes net deferred fee recognition of $1.6 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively.
(3) Shown at amortized cost.
(4) Includes income from fair value hedges of $280,000 and $433,000 for the three months ended September 30, 2025 and 2024, respectively.

Interest Expense. Total interest expense increased $1.5 million to $17.3 million for the three months ended September 30, 2025, from $15.8 million for the comparable quarter in 2024, primarily due to an increase of interest expense on deposits of $1.4 million. The higher deposit costs were a result of an increase in the average balance of deposits, partially offset by a decrease in the average interest paid. The increase in interest expense also reflects a strategic shift in deposit mix towards a higher proportion of CDs and interest-bearing checking accounts, which generally carry higher interest rates in the current market environment.

The average cost of total interest-bearing deposits decreased six basis points to 3.03%, for the three months ended September 30, 2025, compared to 3.09%, for the three months ended September 30, 2024. The average balance of total interest-bearing deposits increased $210.0 million to $1.95 billion for the three months ended September 30, 2025 and 2024, compared to $1.74 billion for the three months ended September 30, 2024. The decrease in the average cost of deposits primarily reflected lower rates paid on CDs, partially offset by higher rates paid on interest-bearing checking, savings, and money market accounts in the current rate environment.  The shift in the deposit mix toward a higher proportion of CDs, which generally bear higher rates than transaction accounts but lower rates than borrowings, also contributed to the change in funding costs.

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The average cost of total interest-bearing liabilities decreased three basis points to 3.15% for the three months ended September 30, 2025, from 3.18% for the three months ended September 30, 2024. The average cost of funds, which includes noninterest-bearing checking, increased two basis points to 2.41% for the three months ended September 30, 2025, from 2.39% for the three months ended September 30, 2024, primarily reflecting a lower proportion of noninterest-bearing deposits in the overall funding mix.

The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the three months ended September 30, 2025 and 2024:

(Dollars in thousands) Three Months Ended September 30,
2025 2024
Average Average Change
Balance Balance in Interest
Outstanding Rate Outstanding Rate Expense
Savings and money market $ 515,051 1.67 % $ 498,396 1.58 %
Interest-bearing checking 211,031 1.89 168,637 1.37
Certificates of deposit 1,221,748 3.80 1,070,760 4.06
Borrowings 176,234 4.36 191,279 3.80
Subordinated note 49,633 3.88 49,567 3.89
Total interest-bearing liabilities $ 2,173,697 3.15 % $ 1,978,639 3.18 %

All values are in US Dollars.

Provision for Credit Losses. For the three months ended September 30, 2025, the provision for credit losses was $2.3 million, consisting of a $1.9 million provision for credit losses on loans and a $457,000 provision for credit losses on unfunded loan commitments, compared to $1.5 million provision for the three months ended September 30, 2024, consisting of a $1.6 million provision for credit losses on loans, partially offset by a $79,000 reversal of the ACL on unfunded loan commitments. The increase in the provision for credit losses on loans primarily reflects growth in the loan portfolio, an increase in nonperforming loans, and higher net charge-offs.

Net loan charge-offs totaled $4.0 million for the three months ended September 30, 2025, compared to $1.6 million during the three months ended September 30, 2024. The increase was primarily due to a partial charge-off of $2.3 million on a commercial construction loan. A decline in national and local economic conditions, as a result of the effects of tariffs, inflation, or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.

Noninterest Income. Noninterest income decreased $373,000 to $5.6 million for the three months ended September 30, 2025, from $6.0 million for the three months ended September 30, 2024.  The decrease primarily reflects a $156,000 decrease in service charges and fee income and a $141,000 decrease in gain on sale of MSRs as there were no MSR sales in the current quarter compared to sales of $8.4 million during the same period last year.

Noninterest Expense. Noninterest expense was $25.4 million for the three months ended September 30, 2025, compared to $25.8 million for the three months ended September 30, 2024. The $444,000 decrease was primarily due to a $6,000 recovery in MSRs, compared to the prior year's $506,000 impairment, driven primarily by higher market interest rates, which reduced prepayment risk and increased the estimated value of mortgage servicing rights, a $372,000 decrease in data processing, a $130,000 decrease in professional and board fees, a $118,000 decrease in marketing and advertising, and a $110,000 decrease in amortization of core deposit intangibles. These decreases were partially offset by a $430,000 increase in salaries and benefits, primarily due to competitive wage adjustments and a $147,000 increase in operations expense.

The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, improved to 64.63% for the three months ended September 30, 2025, compared to 69.42% for the three months ended September 30, 2024, due to an increase in net interest income and a slight decrease in noninterest expense.

Provision for Income Taxes. For the three months ended September 30, 2025, the Company recorded a provision for income taxes of $2.4 million, compared to a $420,000 benefit for income taxes for the three months ended September 30, 2024. The increase in the provision for income taxes was primarily due to the absence of alternative energy tax credits under the Inflation Reduction Act of 2022 for the three months ended September 30, 2025, which were available in the comparable quarter last year.  The effective corporate income tax rates for the three months ended September 30, 2025 and 2024, were 20.8% and (4.3)%, respectively.

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Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024

General. Net income was $24.9 million for the nine months ended September 30, 2025, compared to $27.6 million for the nine months ended September 30, 2024. The decrease was primarily due to a $2.7 million, or 3.7%, increase in noninterest expense, a $1.9 million, or 48.5%, increase in provision for credit losses, a $1.8 million increase in the provision for income taxes, and a $1.1 million, or 6.2%, decrease in noninterest income, partially offset by a $4.8 million, or 5.2%, increase in net interest income.

Average Balances, Interest and Average Yields/Cost

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

(Dollars in thousands) For the Nine Months Ended
September 30, 2025 September 30, 2024
Average Balances Average Balance Outstanding Interest Earned/ Paid Yield/ Rate Average Balance Outstanding Interest Earned/ Paid Yield/ Rate
ASSETS **** **** **** ****
Loans receivable, net and loans held for sale ^(1) (2)^ $ 2,608,338 $ 135,004 6.92 % $ 2,504,129 $ 127,203 6.79 %
Taxable investment securities^(3)(4)^ 267,657 8,651 4.32 % 203,798 6,772 4.44 %
Tax exempt securities^(3)^ 78,386 1,356 2.31 % 93,162 1,755 2.52 %
FHLB stock 10,262 702 9.15 % 6,666 432 8.66 %
Interest-bearing deposits at other financial institutions 23,575 750 4.25 % 49,887 1,701 4.55 %
Total interest-earning assets 2,988,218 146,463 6.55 % 2,857,642 137,863 6.44 %
Noninterest-earning assets 123,785 98,099
Total assets $ 3,112,003 $ 2,955,741
LIABILITIES **** **** **** ****
Savings and money market $ 505,103 6,137 1.62 % $ 504,453 5,593 1.48 %
Interest-bearing checking 197,768 2,573 1.74 % 175,993 1,919 1.46 %
Certificates of deposit 1,177,136 33,730 3.83 % 1,107,878 32,108 3.87 %
Borrowings 181,633 5,783 4.26 % 144,635 4,796 4.43 %
Subordinated notes 49,617 1,456 3.92 % 49,550 1,456 3.93 %
Total interest-bearing liabilities 2,111,257 49,679 3.15 % 1,982,509 45,872 3.09 %
Noninterest-bearing accounts 663,536 648,345
Other noninterest-bearing liabilities 35,081 41,965
Total liabilities $ 2,809,874 $ 2,672,819
Net interest income $ 96,784 $ 91,991
Net interest rate spread 3.40 % 3.35 %
Net earning assets $ 876,961 $ 875,133
Net interest margin 4.33 % 4.30 %
Average interest-earning assets to average interest-bearing liabilities 141.54 % 144.14 %
(1) The average loans receivable, net balances include nonaccrual loans carrying a zero yield.
--- ---
(2) Includes net deferred fee recognition of $4.2 million and $3.6 million for the nine months ended September 30, 2025 and 2024, respectively.
(3) Shown at amortized cost.
(4) Includes income from fair value hedges of $822,000 and $1.3 million for the nine months ended September 30, 2025 and 2024, respectively.

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Net Interest Income. Net interest income increased $4.8 million to $96.8 million for the nine months ended September 30, 2025, from $92.0 million for the nine months ended September 30, 2024, primarily due to an increase in total interest income of $8.6 million, partially offset by an increase in total interest expense of $3.8 million. The increase in total interest income was primarily due to an increase of $7.8 million in interest income on loans receivable, including fees, driven primarily by a 13-basis point increase in the average yield earned on loans receivable as new loans were originated at higher rates and variable-rate loans repriced higher, and a higher average balance of loans outstanding. The $3.8 million increase in total interest expense was primarily the result of a shift in the funding mix toward brokered CDs, which were used to repay higher-cost borrowings in accordance with the Company's funding and liquidity strategy.

Net interest margin (“NIM”) (annualized) increased three basis point to 4.33% for the nine months ended September 30, 2025, from 4.30% for the same period the prior year. The increase in NIM reflects higher yields on interest-earning assets, partially offset by the higher cost of funding and increased average capital relative to the prior period.

Interest Income. Total interest income for the nine months ended September 30, 2025, increased $8.6 million to $146.5 million, from $137.9 million for the nine months ended September 30, 2024. This increase was primarily due to an increase of $7.8 million in interest income on loans receivable, including fees, resulting from both a higher average balance of loans outstanding and a 13-basis point increase in the average yield on loans as new loans were originated at higher rates and variable-rate loans repriced higher.  Interest income also increased due to higher balances and yields on taxable investments securities and FHLB stock, partially offset by decreases in interest on tax-exempt securities and interest-bearing deposits at other financial institutions, which resulted from lower average balances and yields in those categories.

The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the nine months ended September 30, 2025 and 2024:

(Dollars in thousands) Nine Months Ended September 30,
2025 2024
Average Average Change
Balance Balance in Interest
Outstanding Yield Outstanding Yield Income
Loans receivable, net and loans held for sale^(1)(2)^ $ 2,608,338 6.92 % $ 2,504,129 6.79 %
Taxable investment securities ^(3)(4)^ 267,657 4.32 203,798 4.44
Tax exempt securities^(3)^ 78,386 2.31 93,162 2.52 )
FHLB stock 10,262 9.15 6,666 8.66
Interest-bearing deposits at other financial institutions 23,575 4.25 49,887 4.55 )
Total interest-earning assets $ 2,988,218 6.55 % $ 2,857,642 6.44 %

All values are in US Dollars.

(1) The average loans receivable, net balances include nonaccrual loans carrying a zero yield.
(2) Includes net deferred fee recognition of $4.2 million and $3.6 million for the nine months ended September 30, 2025 and 2024, respectively.
(3) Shown at amortized cost.
(4) Includes income from fair value hedges of $822,000 and $1.3 million for the nine months ended September 30, 2025 and 2024, respectively.

Interest Expense. Total interest expense increased $3.8 million to $49.7 million for the nine months ended September 30, 2025, from $45.9 million for the same period in 2024. Interest expense on deposits increased $2.8 million, primarily reflecting higher average balances across deposit categories and higher rates on deposit accounts.  The average balance of total interest-bearing deposits increased $91.7 million to $1.88 billion for the nine months ended September 30, 2025, compared to $1.79 billion for the nine months ended September 30, 2024. The average cost of total interest-bearing deposits increased six basis points to 3.02% from 2.96%.  Interest expense on borrowings increased by $987,000, primarily due to higher average balances of borrowings.  The average cost of borrowings declined slightly, reflecting changes in the mix of FHLB advances and other borrowings.

The average cost of total interest-bearing liabilities increased six basis points to 3.15% for the nine months ended September 30, 2025, compared to 3.09% for the nine months ended September 30, 2024. The average cost of funds, which includes noninterest-bearing checking accounts, increased six basis points to 2.39% for the nine months ended September 30, 2025, from 2.33% for the nine months ended September 30, 2024.

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The following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the nine months ended September 30, 2025 and 2024:

(Dollars in thousands) Nine Months Ended September 30,
2025 2024
Average Average Change
Balance Balance in Interest
Outstanding Rate Outstanding Rate Expense
Savings and money market $ 505,103 1.62 % $ 504,453 1.48 %
Interest-bearing checking 197,768 1.74 175,993 1.46
Certificates of deposit 1,177,136 3.83 1,107,878 3.87
Borrowings 181,633 4.26 144,635 4.43
Subordinated note 49,617 3.92 49,550 3.93
Total interest-bearing liabilities $ 2,111,257 3.15 % $ 1,982,509 3.09 %

All values are in US Dollars.

Provision for Credit Losses. For the nine months ended September 30, 2025, the provision for credit losses was $5.9 million, consisting of a $5.1 million provision for credit losses on loans, a $675,000 provision for credit losses on unfunded loan commitments, and a $175,000 provision for losses on held to maturity investment securities, compared to $4.0 million provision for the nine months ended September 30, 2024, which was entirely attributable to loans. The increase in the provision for credit losses on loans was primarily due to growth in the loan portfolio, an increase in nonperforming loans, and higher net charge-offs.

Net loan charge-offs totaled $6.9 million, for the nine months ended September 30, 2025, compared to $4.3 million during the nine months ended September 30, 2024.  The increase was primarily due to a partial charge-off of $2.3 million on a commercial construction loan as discussed above, and a $1.3 million increase in net charge-offs on indirect home improvement loans, partially offset by decreases of $695,000 and $312,000 in net charge-offs on commercial business loans and marine loans, respectively. A decline in national and local economic conditions, as a result of the effects of tariffs, inflation or slowed economic growth, among other factors, could result in a material increase in the ACL on loans and may adversely affect the Company’s financial condition and result of operations.

Noninterest Income. Noninterest income decreased $1.1 million to $15.9 million for the nine months ended September 30, 2025, compared to $16.9 million for the same period in 2024. This decrease was primarily the result of a $713,000 decrease in gain on sale of loans, reflecting lower sales activity, a $619,000 decrease in service charges and fee income, primarily due to reduced transaction volumes, and a net decrease of $520,000 from no activity in gain on sale of MSRs and loss on sale of investment securities in 2025, compared to an $8.4 million net gain on sale of MSRs partially offset by a $7.8 million loss on sale of investment securities in the first half of 2024.  These decreases were partially offset by a $757,000 increase in other noninterest income, primarily due to a $358,000 gain from sales of nonmarketable equity securities, $219,000 in bank owned life insurance proceeds, and a $152,000 increase in brokered loan fees.

Noninterest Expense. Noninterest expense increased $2.7 million to $75.9 million for the nine months ended September 30, 2025, from $73.2 million for the nine months ended September 30, 2024. The increase was primarily due to increases of $2.1 million in salaries and benefits due to competitive wage adjustments, $889,000 in operations, primarily due to system upgrades, and $401,000 in professional and board fees, partially offset by a $522,000 decrease in the impairment of MSRs, driven primarily by higher market interest rates, which reduced prepayment risk and increased the estimated value of mortgage servicing rights..

The efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, weakened to 67.40% for the nine months ended September 30, 2025, compared to 67.21% for the nine months ended September 30, 2024, due to an increase in noninterest expense that outpaced total revenue growth.

Provision for Income Taxes. For the nine months ended September 30, 2025, the Company recorded a provision for income taxes of $5.9 million, compared to $4.1 million for the nine months ended September 30, 2024. The increase in the income taxes provision was primarily due to the absence of alternative energy tax credits in the current period, as compared to the same period last year.  The effective corporate income tax rates for the nine months ended September 30, 2025 and 2024, were 19.1% and 12.9%, respectively.

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Liquidity

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

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund its operations. The Bank generally maintains sufficient cash and short-term investments to meet short-term liquidity needs. At September 30, 2025, the Bank’s total borrowing capacity was $636.7 million with the FHLB of Des Moines, with unused borrowing capacity of $504.0 million. The FHLB borrowing limit is based on certain categories of loans, primarily real estate loans that qualify as collateral for FHLB borrowings.  At September 30, 2025, the Bank held approximately $1.07 billion in loans that qualify as collateral for FHLB borrowings.

In addition to the availability of liquidity from the FHLB of Des Moines, the Bank maintains a short-term borrowing line with the FRB with a limit of $265.5 million and a combined credit limit of $101.0 million in written federal funds lines of credit through correspondent banking relationships at September 30, 2025. The FRB borrowing limit is based on certain categories of loans, primarily consumer loans that qualify as collateral for FRB line of credit.  At September 30, 2025, the Bank held approximately $585.2 million in loans that qualify as collateral for the FRB line of credit. There were no outstanding borrowings with the FRB or correspondent banks as of September 30, 2025, and $8.0 million at December 31, 2024.   Subject to market conditions, we expect to utilize these borrowing facilities from time to time in the future to fund loan originations and deposit withdrawals, to satisfy other financial commitments, repay maturing debt and to take advantage of investment opportunities to the extent feasible.

The Bank’s Asset and Liability Management Policy permits management to utilize brokered deposits up to 20% of deposits or $538.0 million at September 30, 2025. Total brokered deposits at September 30, 2025 were $369.7 million. Management utilizes brokered deposits to mitigate interest rate risk and to enhance liquidity when appropriate.

Liquidity management is both a daily and long-term function of the Company’s management. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer-term basis, a strategy is maintained of investing in various lending products and investment securities, including U.S. Government obligations and U.S. agency securities. The Company uses sources of funds primarily to meet ongoing commitments, pay maturing deposits, fund withdrawals, and to fund loan commitments. At September 30, 2025, outstanding loan commitments, including unused lines of credit totaled $652.3 million. The Company purchased $87.7 million in securities during the nine months ended September 30, 2025. The Company purchased $47.7 million in securities during the nine months ended September 30, 2024. Proceeds from securities repayments, maturities and sales were $38.6 million and $115.3 million during the nine months ended September 30, 2025 and 2024, respectively.

The Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the nine months ended September 30, 2025 and 2024, the Bank sold $375.9 million and $426.0 million in loans, respectively.

Total deposits increased $347.1 million during the nine months ended September 30, 2025, partially driven by a net increase in brokered deposits of $143.0 million. CDs scheduled to mature in three months or less at September 30, 2025, totaled $582.0 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this strategy, management believes that a majority of maturing relationship deposits will remain with the Bank.

For the remainder of 2025, we project that fixed commitments will include $491,000 of operating lease payments. For information regarding our operating leases, see “Note 6 – Leases” of the Notes to Consolidated Financial Statements included in this report. FHLB borrowings of $68.8 million are scheduled to mature within the next twelve months.

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

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Dividends and other capital distributions from the Bank are subject to regulatory notice and certain restrictions. The unrestricted cash of FS Bancorp held at the Bank on an unconsolidated basis totaled $3.3 million at September 30, 2025. The Company currently expects to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.28 per share, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank and returning a substantial portion of our cash to our shareholders. Assuming continued payment during 2025 at this rate of $0.28 per share, our total dividends paid each quarter would be approximately $2.1 million based on the number of the current outstanding shares as of September 30, 2025.

Under FS Bancorp’s existing stock repurchase program, approximately $826,000 remained available for future repurchases as of September 30, 2025. On October 27 2025, subsequent to quarter-end, the Company publicly announced that its Board of Directors approved an additional stock repurchase program, authorizing the repurchase of up to $5.0 million of Company common stock, in addition to the amount remaining under the existing stock repurchase program.  See “Unregistered Sales of Equity Securities and Use of Proceeds” in Item 2, Part II of this Form 10-Q for additional information relating to stock repurchases.

Capital Resources

The Bank is subject to minimum capital requirements imposed by the FDIC. Based on its capital levels at September 30, 2025, the Bank exceeded these requirements as of that date. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain a well-capitalized status under the capital categories of the FDIC. Based on capital levels at September 30, 2025, the Bank was considered to be “well capitalized”. At September 30, 2025, the Bank exceeded all regulatory capital requirements with Tier 1 leverage-based capital, Tier 1 risk-based capital, total risk-based capital, and common equity Tier 1 capital ratios of 11.0%, 12.6%, 13.8%, and 12.6%, respectively.

As a bank holding company registered with the Federal Reserve, the Company is subject to the capital adequacy requirements of the Federal Reserve. Bank holding companies with $3.0 billion or more in assets are subject to compliance with the Federal Reserve’s capital regulations, which are generally the same as the capital regulations applicable to the Bank. The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to the holding company’s subsidiary bank and the Federal Reserve expects the holding company’s subsidiary bank to be well capitalized under the prompt corrective action regulations. FS Bancorp is subject to regulatory capital guidelines for bank holding companies with $3.0 billion or more in assets at September 30, 2025, and has exceeded all applicable regulatory capital requirements. The regulatory capital ratios calculated for FS Bancorp at September 30, 2025 were 9.5% for Tier 1 leverage-based capital, 11.0% for Tier 1 risk-based capital, 13.9% for total risk-based capital, and 11.0% for CET 1 capital ratio. For additional information regarding regulatory capital compliance, see the discussion included in “Note 12 – Regulatory Capital” to the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the market risk disclosures contained in FS Bancorp’s 2024 Form 10-K.

Item 4. Controls and Procedures

(a)         Evaluation of Disclosure Controls and Procedures

An evaluation of the disclosure controls and procedures as defined in Rule 13a‑15(e) of the Exchange Act was carried out as of September 30, 2025, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) and several other members of the Company’s senior management. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon the foregoing evaluation, the Company’s CEO and CFO concluded that as of September 30, 2025, the Company’s disclosure controls and procedures were effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to FS Bancorp management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure, specified in the SEC’s rules and forms.

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(b)         Changes in Internal Controls

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2025, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A.  Risk Factors

There have been no material changes in the Risk Factors previously disclosed in FS Bancorp’s 2024 Form 10-K.

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

(a) Not applicable
(b) Not applicable
--- ---
(c) The following table summarizes common stock repurchases during the three months ended September 30, 2025:
--- ---
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Repurchased as Part of Publicly Announced Plan or Program Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Plan or Program
--- --- --- --- --- --- --- --- ---
July 1, 2025 - July 31, 2025 16,715 $ 41.86 16,715 $ 5,025,074
August 1, 2025 - August 31, 2025 ^(1)^ 64,229 40.68 48,773 3,044,422
September 1, 2025 - September 30, 2025 53,469 41.49 53,469 825,938
Total for the quarter 134,413 $ 41.15 118,957 $ 825,938

____________________________

(1) Includes 6,000 shares internally repurchased by the Company acting as the cash counterparty for participants exercising options.  In addition, 10,881 shares that were surrendered by participants in the 2018 Equity Incentive Plan in satisfaction of payment for withholding taxes upon the vesting of restricted stock shares and repurchased by the Company.
(2) On April 4, 2025, the Company publicly announced a stock repurchase program, authorizing the repurchase of up to $5.0 million of Company common stock, in addition to any amounts remaining under the prior program.  On July 9, 2025, the Company announced a further program, also authorizing the repurchase of up to $5.0 million of Company common stock, in addition to any amounts remaining under the April 2025 program.  Repurchases under these programs may occur from time to time in the open market, through privately negotiated transactions, or by withholding shares upon the exercise of equity awards, over a 12-month period ending July 9, 2026.

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

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a) None.
(b) None.
--- ---
(c) Trading Plans. During the three months ended  September 30, 2025, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
--- ---

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Item 6.   Exhibits

3.1 Articles of Incorporation of FS Bancorp, Inc. (1)
3.2 Bylaws of FS Bancorp, Inc. (2)
4.1 Form of Common Stock Certificate of FS Bancorp, Inc. (1)
4.2 Indenture dated February 10, 2021, by and between FS Bancorp, Inc. and U.S. Bank National Association, as trustee (3)
4.3 Forms of 3.75 Fixed-to-Floating Rate Subordinated Notes due 2031 (included as Exhibit A-1 and Exhibit A-2 to the Indenture filed as Exhibit 4.2 hereto (3)
10.1 Severance Agreement between 1st Security Bank of Washington and Joseph C. Adams (1)
10.2 Form of Change of Control Agreement between 1st Security Bank of Washington and Matthew D. Mullet (1)
10.3 Form of change of control agreement with Donn C. Costa, Dennis O’Leary, Erin Burr, Victoria Jarman, Kelli Nielsen, and May-Ling Sowell (4)
10.4 FS Bancorp, Inc. 2018 Equity Incentive Plan (5)
10.5 Form of Incentive Stock Option Award Agreement under the 2018 Equity Incentive Plan (5)
10.6 Form of Non-Qualified Stock Option Award Agreement under the 2018 Equity Incentive Plan (5)
10.7 Form of Restricted Stock Award Agreement under the 2018 Equity Incentive Plan (5)
10.8 FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (6)
10.9 Form of Enrollment/Change Form under the FS Bancorp, Inc. Nonqualified 2022 Stock Purchase Plan (6)
10.10 Form of Change of Control Agreement with Shana Allen, Stephanie Nicklaus, and Benjamin Crowl (7)
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2025 formatted in Inline Extensible Business Reporting Language (IXBRL): (1) Consolidated Balance Sheets; (2) Consolidated Statements of Income; (3) Consolidated Statements of Comprehensive Income (Loss); (4) Consolidated Statements of Changes in 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 Form 8-K filed on February 1, 2016 (File No. 001‑35589).
(5) Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-22513) filed on May 23, 2018.
(6) Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (333-265729) filed on June 21, 2022.
(7) Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 2, 2024 (File No. 001-35589).

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SIGNATURES

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

FS BANCORP, INC.
Date: November 10, 2025 By: /s/Joseph C. Adams
Joseph C. Adams
Chief Executive Officer
(Duly Authorized Officer)
Date: November 10, 2025 By: /s/Phillip D. Whittington
Phillip D. Whittington
Chief Financial Officer
(Principal Financial and Accounting Officer)

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ex_852016.htm

EXHIBIT 31.1

​

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

​

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

​

I, Joseph C. Adams, certify that:

​

1. I have reviewed this Quarterly Report on Form 10-Q of FS Bancorp, Inc.;

​

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

​

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

​

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15-(f)) for the registrant and have:

​

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

​

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

​

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

​

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

​

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

​

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

​

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

​

Date: November 10, 2025 /s/Joseph C. Adams
​ ​ ​ Joseph C. Adams
​ ​ ​ Chief Executive Officer

​

ex_852017.htm

EXHIBIT 31.2

​

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

​

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

​

I, Phillip D. Whittington, certify that:

​

1. I have reviewed this Quarterly Report on Form 10-Q of FS Bancorp, Inc.;

​

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

​

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

​

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15-(f)) for the registrant and have:

​

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

​

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

​

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

​

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

​

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

​

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

​

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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Date: November 10, 2025 ​ /s/Phillip D. Whittington
​ ​ ​ Phillip D. Whittington
​ ​ ​ Chief Financial Officer

​

ex_852018.htm

EXHIBIT 32.1

​

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

​

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

​

​

In connection with the accompanying Quarterly Report on Form 10-Q of FS Bancorp, Inc. (the “Company”) for the quarter ended September 30, 2025 (the “Report”), I, Joseph C. Adams, in my capacity as Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

​

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

​

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in the Report.

​

Date: November 10, 2025 ​ /s/Joseph C. Adams
​ ​ ​ Joseph C. Adams
​ ​ ​ Chief Executive Officer

​

ex_852019.htm

EXHIBIT 32.2

​

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

​

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

​

​

In connection with the accompanying Quarterly Report on Form 10-Q of FS Bancorp, Inc. (the “Company”) for the quarter ended September 30, 2025 (the “Report”), I, Phillip D. Whittington, in my capacity as Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

​

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

​

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in the Report.

​

Date: November 10, 2025 ​ /s/Phillip D. Whittington
​ ​ ​ Phillip D. Whittington
​ ​ ​ Chief Financial Officer

​

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