FS Bancorp, Inc. Stock Compensation Disclosure
NOTE 18 – STOCK-BASED COMPENSATION
Stock Options and Restricted Stock
On May 17, 2018, the shareholders of FS Bancorp approved the 2018 Equity Incentive Plan (the “2018 Plan”) that authorized 1.3 million shares of the Company’s common stock to be awarded. The 2018 Plan provides for the grant of incentive stock options, non-qualified stock options, and up to 326,000 shares as restricted stock awards (“RSAs”) to directors, emeritus directors, officers, employees or advisory directors of the Company. At December 31, 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 $2.3 million, $1.8 million, and $2.0 million, for the years ended December 31, 2025, 2024 and 2023, respectively. The related income tax benefit was $473,000, $379,000, and $422,000 for the years ended December 31, 2025, 2024 and 2023, respectively.
Stock-based compensation awards are settled by issuing new shares from the Company’s pool of authorized but unissued common stock, and the Company does not use previously repurchased treasury shares for this purpose.
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 -year period for non-employee directors, and over a - or -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.
| December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Dividend yield | 2.79 | % | 2.57 | % | 3.25 | % | ||||||
| Expected volatility | 38.45 | % | 29.55 | % | 28.24 | % | ||||||
| Risk-free interest rate | 3.98 | % | 3.82 | % | 4.35 | % | ||||||
| Expected term in years | 6.2 | 6.3 | 6.5 | |||||||||
| Weighted-average grant date fair value per option granted | $ | 13.21 | $ | 11.36 | $ | 7.61 | ||||||
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 -year vesting, 6.25 years for -year vesting, and 6.5 years for -year vesting.
The following table presents a summary of the Company’s stock option awards during the years indicated (shown as actual).
| Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term In Years | Aggregate Value | |||||||||||||
| Outstanding at January 1, 2023 | 647,832 | $ | 26.67 | 6.84 | $ | 4,627,255 | ||||||||||
| Granted | 103,000 | 30.73 | — | — | ||||||||||||
| Less exercised | 47,734 | 10.17 | — | 970,064 | ||||||||||||
| Less Forfeited or expired | 40,819 | 32.96 | — | — | ||||||||||||
| Outstanding at December 31, 2023 | 662,279 | $ | 28.12 | 6.69 | $ | 5,852,975 | ||||||||||
| Outstanding at January 1, 2024 | 662,279 | $ | 28.12 | 6.69 | $ | 5,852,975 | ||||||||||
| Granted | 75,100 | 41.98 | 9.62 | — | ||||||||||||
| Less exercised | 187,478 | 23.69 | — | 3,916,425 | ||||||||||||
| Less forfeited | 12,000 | 30.73 | — | — | ||||||||||||
| Outstanding at December 31, 2024 | 537,901 | $ | 31.55 | 6.75 | $ | 5,187,207 | ||||||||||
| Outstanding at January 1, 2025 | 537,901 | $ | 31.55 | 6.75 | $ | 5,187,207 | ||||||||||
| Granted | 138,372 | 40.14 | 9.62 | — | ||||||||||||
| Less exercised | 17,650 | 27.25 | — | 237,460 | ||||||||||||
| Outstanding at December 31, 2025 | 658,623 | $ | 33.47 | 6.63 | $ | 5,134,992 | ||||||||||
| Expected to vest, assuming a % annual forfeiture rate at, December 31, 2025 (1) | 643,150 | $ | 33.35 | 6.58 | 5,087,730 | |||||||||||
| Exercisable at December 31, 2025 | 371,448 | $ | 30.28 | 5.16 | $ | 4,065,004 | ||||||||||
___________________________
| (1) | Forfeiture rate has been calculated and estimated, based on historical employment data, to assume a forfeiture of 3.1% of the options over 10 years. |
At December 31, 2025, there was $2.8 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 1.8 years.
Restricted Stock Awards
The RSAs fair value is equal to the value of 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 - or -year period for employees and officers, beginning on the grant date, and over a -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 years indicated (shown as actual).
| Nonvested Shares | Shares | Weighted-Average Grant-Date Fair Value Per Share | ||||||
| Nonvested at January 1, 2023 | 118,530 | $ | 28.85 | |||||
| Granted | 37,600 | 30.73 | ||||||
| Less vested | (44,462 | ) | 28.24 | |||||
| Less forfeited or expired | (9,524 | ) | 30.96 | |||||
| Nonvested at December 31, 2023 | 102,144 | $ | 29.61 | |||||
| Nonvested at January 1, 2024 | 102,144 | $ | 29.61 | |||||
| Granted | 42,250 | 41.98 | ||||||
| Less vested | (37,331 | ) | 28.46 | |||||
| Less forfeited or expired | (4,000 | ) | 30.73 | |||||
| Nonvested at December 31, 2024 | 103,063 | $ | 35.05 | |||||
| Nonvested at January 1, 2025 | 103,063 | $ | 35.05 | |||||
| Granted | 37,872 | 40.14 | ||||||
| Less vested | (37,964 | ) | 32.88 | |||||
| Nonvested at December 31, 2025 | 102,971 | $ | 37.73 | |||||
At December 31, 2025, there was $3.4 million of total unrecognized compensation costs related to nonvested shares granted under the 2018 Plan as RSAs. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.8 years.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 15, 2024 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.