DEF 14A of FS Bancorp, Inc., Apr 8, 2024

DEF 14A of FS Bancorp, Inc.

Filed Apr 8, 2024 · FY20230001104659-24-044643

Open on EDGAR

  1. Vote Required to Approve Proposal 1: Election of Directors

    Vote Required to Approve Proposal 1: Election of Directors Directors are elected by a plurality of the votes cast, in person or by proxy, at the annual meeting by holders of FS Bancorp common stock. Accordingly, the three nominees for election as directors who receive the highest number of votes actually cast will be elected. Pursuant to our Articles of Incorporation, shareholders are not permitted to cumulate their votes for the election of directors. Votes may be cast for or withheld from each nominee. Votes that are withheld will have no effect on the outcome of the election because the nominees receiving the greatest number of votes will be elected. Our Board of Directors unanimously recommends that you vote FOR the election of each of its director nominees.

  2. PROPOSAL 1 — ELECTION OF DIRECTORS

    PROPOSAL 1 — ELECTION OF DIRECTORS Our Board of Directors currently consists of seven members and is divided into three classes. Approximately one-third of the directors are elected annually to serve for a three-year period or until their respective successors are elected and qualified. The table below sets forth information regarding each director of FS Bancorp and each nominee for director. The Nominating & Environmental, Social and Governance Committee of the Board of Directors selects nominees for election as directors. Joseph C. Adams, Pamela M. Andrews and Joseph P. Zavaglia currently serve as FS Bancorp directors and have been nominated to each serve a three-year term. Each nominee has consented to being named in this proxy statement and has agreed to serve if elected. If a nominee is unable to stand for election, the Board of Directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority. At this time, we are not aware of any reason why a nominee might be unable to serve if elected. The Board of Directors recommends a vote FOR the election of Joseph C. Adams, Pamela M. Andrews and Joseph P. Zavaglia.

  3. PROPOSAL 1 — ELECTION OF DIRECTORS

    | Name | Age as of December 31, 2023 | Year first elected or appointed director(1) | Term to expire | | Board Nominees | | | | | Joseph C. Adams | 64 | 2005 | 2027(2) | | Pamela M. Andrews | 65 | 2021 | 2027(2) | | Joseph P. Zavaglia | 75 | 2011 | 2027(2) | | Directors Continuing in Office | | | | | Ted A. Leech | 76 | 2005 | 2025 | | Marina Cofer-Wildsmith | 56 | 2012 | 2025 | | Michael J. Mansfield | 67 | 2008 | 2026 | | Margaret R. Piesik | 73 | 2006 | 2026 |

  4. PROPOSAL 1 — ELECTION OF DIRECTORS

    (1) For years before 2013, includes prior service on the Board of Directors of 1st Security Bank. (2) Assuming reelection.

  5. Information Regarding Nominees for Election

    Information Regarding Nominees for Election Set forth below is the present principal occupation and other business experience during at least the last five years of each nominee for election, as well as a brief discussion of the particular experience, qualifications, attributes and skills that led the Board to conclude that the nominee should serve as a director of FS Bancorp. Joseph C. Adams is a director and has been the Chief Executive Officer of 1st Security Bank of Washington since July 2004. He has also served in those capacities for FS Bancorp since its formation in September 2011. He joined 1st Security Bank of Washington in April 2003 as its Chief Financial Officer. Mr. Adams served as Supervisory Committee Chairperson from 1993 to 1999 when the Bank was Washington’s Credit Union. Mr. Adams is a lawyer, having worked for Deloitte as a tax consultant, K&L Gates as a lawyer and then at Univar USA as a lawyer and Director of Regulatory Affairs. As the Director of Regulatory Affairs for Univar USA, the largest chemical distribution company in the United States, Mr. Adams used his environmental law expertise to ensure Univar stayed in compliance with all relevant local, state and federal environmental laws, rules and regulations. He is a member of the Washington State Bar Association and was a Board member of the Community Bankers of Washington. Mr. Adams graduated with Distinction from the University of Hawaii with a Bachelor of Business Administration in Finance. He also graduated cum laude with a Juris Doctor from the University of Puget Sound School of Law. In addition, Mr. Adams graduated with honors from the Pacific Coast Banking School in 2007, a master’s level program held at the University of Washington. Mr. Adams’s legal and accounting backgrounds, as well as his duties as Chief Executive Officer of 1st Security Bank of Washington, bring a special knowledge of the financial, economic and regulatory challenges faced by the Bank, which makes him well-suited to educating the Board on these matters. Pamela M. Andrews was an active trial attorney in Seattle for over 35 years, practicing in the areas of professional liability, medical malpractice, nursing home/assisted living, mental healthcare and complex civil litigation. She is a member of both the Washington and Wisconsin Bar Associations. She also served as the President of her law firm, Andrews Skinner, P.S., for the last 16 years of her practice. Ms. Andrews was selected as a Fellow of the International Society of Barristers; a Senior Fellow of Litigation Counsel of America; a founding and continuous member of the Bar Register of Preeminent Women Lawyers for the last ten years of her practice and enjoyed a Martindale Hubbell AV rating for 30 years. Ms. Andrews graduated summa cum laude from the University of Wisconsin-Oshkosh and received her Juris Doctor from the University of Wisconsin-Madison. She has been active in community animal welfare groups and associations in the Puget Sound and Pacific Northwest region. Ms. Andrews adds important skills to the Board, including legal, litigation, insurance, human resources, small business experience and operations management. Joseph P. Zavaglia has been the owner and operator since February 2008 of Zavaglia Consulting, L.L.C., which provides retail banking and small business advisory services to community banks. He also runs From the Heart of Italy, an Italian cooking school. Mr. Zavaglia started his career in 1975 and over a period of 49 years has worked in numerous areas of banking, including commercial lending, retail and small business banking, human resources, investments, incentive compensation and executive administration with both large national institutions and community banks. Upon retiring from his last executive banking position, he served as a board member for nine years and was an employee of Pacific Coast Banking School. Mr. Zavaglia then worked with the Washington Bankers Association in co-creating four developmental programs which are now being offered throughout the United States. Mr. Zavaglia received his undergraduate degree in Business Management from Seattle University, and his Masters Degree in Education from Western Washington University. He is also a graduate of Pacific Coast Banking School and formerly held Series 6, 63 and 26 securities licenses and his state insurance license for life and disability. Giving back to the communities he serves has been his passion. Mr. Zavaglia served as Chair of the Board of Regents at Seattle University for three years and as a board member for nine additional years, State Board Chair of the March of Dimes for 15 years, Chair of the Italian Studies Board at the University of Washington and Chair of the Dean’s Advisory Board for Woodring College of Education at Western Washington University for four years. In 2007, he was inducted into the Athletic Hall of Fame at Seattle University. In 2012, he received the Distinguished Alumnus award from the Woodring College of Education, and in 2015, was awarded the University Service Award from Seattle University. Mr. Zavaglia brings strong leadership, management, human resource, and interpersonal skills to our Board.

  6. Information Regarding Incumbent Directors

    Information Regarding Incumbent Directors Set forth below is the present principal occupation and other business experience during at least the last five years of each director continuing in office, as well as a brief discussion of the particular experience, qualifications, attributes and skills that led the Board to conclude that the director should serve on FS Bancorp’s Board of Directors. Ted A. Leech, Board Chair of FS Bancorp and 1st Security Bank, is retired from Univar Corporation. From January 2003 to February 2005, Mr. Leech was Vice President of Business Development where he conducted feasibility studies and investigated potential investments in China, Hong Kong, Singapore, Australia, Malaysia, Indonesia and Brazil. Prior to that, Mr. Leech was Senior Vice President of Administration for Univar USA where he was responsible for accounting, payables/receivables, information systems, treasury, legal, human resources and internal audit. Additionally, he currently serves as treasurer and board member of a food distribution non-profit. As a result of his professional experiences, Mr. Leech brings strong leadership, management, finance, accounting and human resource skills to our board. Mr. Leech’s expertise also qualifies him as a financial expert, which was the basis of his selection as Chairperson of the Audit Committee. Marina Cofer-Wildsmith has spent 30 years working in nonprofit management and business development. Her background includes serving as Executive Director of Bainbridge Youth Services from 2012 to 2017, business consulting from 2009 to 2012, and Chief Executive Officer of the American Lung Association of Washington and the Northwest from 2003 to 2007. Other American Lung Association positions held from 1990 to 2003 included program development, marketing and communications. Her key career achievements include leading the Washington Smoke Free Restaurants and Bars Initiative, developing with the U.S. Environmental Protection Agency the air quality forecasting model and advocating for other essential air pollution reduction and public health legislation. Ms. Cofer-Wildsmith is very active in the community. Currently, she serves as an Assistant District Governor for Rotary International District 5020 and is a past President of the Rotary Club of Bainbridge Island. Other board service has included Public-at-Large Director for the Puget Sound Clean Air Agency from 2005 to 2013. She has her Bachelor of Science degree in Biology from the College of William and Mary, Williamsburg, Virginia and her Master’s degree in Educational Processes from Maryville University, St. Louis, Missouri. Leadership recognition includes awards from the Chamber of Commerce, Rotary, Environmental Protection Agency, Conservation Federation and Governor Gregoire. As a result of her professional experiences and active community involvement, Ms. Cofer-Wildsmith brings strong leadership, management, organization and interpersonal skills to our organization. Michael J. Mansfield spent 16 years with Deloitte LLP before joining Moss Adams LLP in 1995, where he was a partner for more than 10 years. During his time with Moss Adams, Mr. Mansfield chaired the Business Owner Succession Services Practice in the Seattle office and he served as a member of the firm’s Tax Committee. He provided taxation, business, and financial accounting services to a variety of clients in the financial services, construction, manufacturing and distribution, and service industries. In January 2008, Mr. Mansfield left Moss Adams to start Family Fortunes, LLC, a consulting company aimed at assisting individuals and business owners develop and execute strategic plans, with the goals of enhancing value proposition and creating a legacy vision for families and business owners. Mr. Mansfield is also a minority owner/part-time Chief Financial Officer for two construction companies (Pacific Pile & Marine, L.P. and R Miller, Inc.) and a minority owner in seven other privately-owned businesses, in addition to serving on the advisory board of four other private companies. Mr. Mansfield’s decades of experience as a public accountant, together with his experience of being part of the management/advisory team of several small- to medium-sized businesses, has provided him with strong leadership, financial and administrative insights that are valuable to FS Bancorp. Margaret R. Piesik worked at Microsoft for 11 years until retiring in 1998. She served on the board of directors of the Providence Hospital Foundation from 2001 to 2003 and from 2004 to 2010, served as the President of Swedish Medical Center Service League. She was also a co-owner of White Barn Farm, a family-owned organic flower and vegetable farm, until its sale in 2010. She previously served on the board of the Kirkland Performance Center. Ms. Piesik is also active in several local service organizations. Ms. Piesik’s managerial experience, together with her experience serving on several boards and active participation in the local community, brings valuable knowledge and skills to our organization.

  7. Director Qualifications and Experience

    Director Qualifications and Experience The following table identifies the experience, qualifications, attributes, and skills that the Nominating & Environmental, Social and Governance Committee considered in making its decision to nominate directors to our Board. The fact that a particular attribute was not considered does not mean that the director lacks such an attribute.

  8. Director Qualifications and Experience

    | | Adams | Andrews | Cofer-Wildsmith | Leech | Mansfield | Piesik | Zavaglia | | Experience, Qualification, Skill or Attribute | | | | | | | | | Professional standing in chosen field | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Expertise in financial services or related industry | ✓ | | | | ✓ | ✓ | ✓ | | Certified public accountant or financial expert | ✓ | | | ✓ | ✓ | | ✓ | | Attorney | ✓ | ✓ | | | | | | | Civic and community involvement | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Leadership and team building skills | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | | Diversity by race, ethnicity or gender | ✓ | ✓ | ✓ | | | ✓ | | | Specific skills/knowledge: | | | | | | | | | Finance | ✓ | | ✓ | ✓ | ✓ | | ✓ | | Technology | | | | | | ✓ | | | Securities | ✓ | | | | | | ✓ | | Marketing | ✓ | | ✓ | ✓ | | ✓ | ✓ | | Public affairs | ✓ | | ✓ | | | ✓ | | | Human resources | ✓ | ✓ | ✓ | ✓ | | ✓ | ✓ | | Environmental, social and governance | ✓ | | ✓ | | | | ✓ |

  9. Board Independence

    Board Independence Our common stock is listed on the Nasdaq Global Select Market. In accordance with Nasdaq requirements, at least a majority of our directors must be independent directors. The Board has determined that six of our seven directors (85.7%) are independent, as defined by Nasdaq. Directors Andrews, Cofer-Wildsmith, Leech, Mansfield, Piesik and Zavaglia are all independent. Only Joseph C. Adams, who is our Chief Executive Officer, is not independent.

  10. Diversity

    Diversity As part of its director nominee evaluation process, the Board considers diverse viewpoints, backgrounds and experiences, as well as gender, age, race and ethnicity, in the selection of directors to enhance the Board’s diversity. All Board members must also fit the culture of FS Bancorp and 1st Security Bank, including living up to our Core Values and embodying our “Smart, Driven, Kind” commitment. The table below presents a summary of the Board’s diversity statistics, as required by Nasdaq. Each of the categories listed in the table below has the meaning as it is used in Nasdaq Rule 5605(f).

  11. Diversity

    | Board Diversity Matrix (as of April 8, 2024) | | | | | | Total number of directors | 7 | | | | | | Male | Female | Non-binary | Did not disclose gender | | Part I: Gender Identity | | | | | | Directors | 4 | 3 | — | — | | Part II: Demographic Background | | | | | | Alaskan Native or Native American | 1 | — | — | — | | Hispanic or Latino | 1 | — | — | — | | White | 4 | 3 | — | — | | Two or More Races or Ethnicities | 2 | — | — | — |

  12. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS

    MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS

  13. Board of Directors

    Board of Directors The Boards of Directors of FS Bancorp and 1st Security Bank conduct their business through board and committee meetings. During the fiscal year ended December 31, 2023, the Boards of Directors of FS Bancorp and 1st Security Bank each held nine meetings. No director of FS Bancorp or the Bank attended fewer than 75% of the total meetings of the boards and committees on which that person served during this period.

  14. DIRECTORS’ COMPENSATION

    | Name | Fees earned or paid in cash ($) | Stock awards ($)(1)(2) | Option awards ($)(1)(3) | All other compensation ($)(4) | Total ($) | | Pamela M. Andrews | 67,925 | 15,365 | 11,175 | 8,375 | 102,840 | | Marina Cofer-Wildsmith | 64,900 | 15,365 | 11,175 | 5,237 | 96,677 | | Ted A. Leech | 79,585 | 15,365 | 11,175 | 4,966 | 111,091 | | Michael J. Mansfield | 63,635 | 15,365 | 11,175 | 9,350 | 99,525 | | Margaret R. Piesik | 66,935 | 15,365 | 11,175 | 3,140 | 96,615 | | Joseph P. Zavaglia | 68,860 | 15,365 | 11,175 | 4,951 | 100,351 |

  15. Best Compensation Practices and Policies

    | What We Do | What We Do Not Do | | ✓ Pay for performance | ✘ No tax gross-ups | | ✓ Engage independent compensation consultant | ✘ No significant perquisites for executives | | ✓ Review compensation programs for risk | ✘ No supplemental executive retirement plan | | ✓ Annual say-on-pay vote | ✘ No repricing of stock options | | ✓ Maintain stock ownership guidelines for executives and non-employee directors | ✘ No equity grants below 100% of fair market value without shareholder approval | | ✓ Double trigger required for accelerated vesting of equity awards under the 2018 Equity Incentive Plan | ✘ No dividends are paid on unvested restricted stock | | ✓ Restrict executive officers and directors from engaging in hedging and pledging transactions with respect to FSBW stock | | | ✓ Annual shareholder communication | |

  16. The Decision-Making Process

    The Decision-Making Process The Role of the Compensation Committee. The Compensation Committee, which is comprised of independent directors, oversees the executive compensation program for our named executive officers. The Committee works very closely with an independent compensation consultant and management to examine the effectiveness of our executive compensation program throughout the year. The Committee makes all final compensation and equity award decisions regarding our named executive officers, except for the Chief Executive Officer, whose compensation is determined by the independent members of the Board of Directors, based upon recommendations of the Compensation Committee. The Chief Executive Officer is not present during voting or deliberations on his compensation. The Role of Management. Members of our management team attend regular meetings where executive compensation, corporate and individual performance, and competitive compensation levels and practices are discussed and evaluated. Only the Compensation Committee members are allowed to vote on decisions regarding named executive officer compensation. The Chief Executive Officer reviews his recommendations pertaining to all executives’ pay with the Compensation Committee, which provides transparency and oversight. Decisions on non-named executive officer pay are made by the Chief Executive Officer. The Role of the Independent Consultant. The Compensation Committee engages an independent compensation consultant to provide expertise on competitive pay practices, program design, and an objective assessment of any inherent risks of any programs. Pursuant to authority granted to it under its charter, the Compensation Committee has hired Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent consultant. Pearl Meyer is retained by, and reports directly to, the Compensation Committee, and provided no other services to FS Bancorp in 2023. Based on standards promulgated by the SEC and Nasdaq to assess compensation advisor independence, as well as the analysis conducted by Pearl Meyer in its independence review, the Compensation Committee has concluded that Pearl Meyer is an independent and conflict-free advisor to the Committee. The Role of Peer Group Companies. The Compensation Committee strives to set a competitive level of total compensation for each named executive officer as compared with executive officers in similar positions at peer companies. For purposes of setting 2023 compensation levels, in conjunction with the recommendation of Pearl Meyer, the Compensation Committee took into account compensation data from public filings of the group of peer companies listed below, ranging from 0.75 to 2.5 times the total assets of FS Bancorp. In addition, data was collected from surveys of financial institutions with a similar size profile and a primary industry scope of banking.

  17. 2023 Executive Compensation Program

    Annual Incentive Compensation. The 2023 annual cash incentives provided our named executive officers the opportunity to earn a performance-based award. Actual award payouts depend on the achievement of quantitative and qualitative performance objectives and are at a base target of 40% or 50%, based on the named executive officer’s position and salary, and may be up to two times (2x) the target award opportunity. Target award opportunities are expressed as a percentage of base salary as follows:

  18. 2023 Executive Compensation Program

    Annual cash incentives are intended to reward both incremental improvement and continued strong performance. Accordingly, when making final award decisions, the Compensation Committee takes a holistic view of performance results and considers the following key factors: • comparison to peers (relative financial performance); • financial performance compared to prior year and budget expectations; • general economic conditions and degree of difficulty in attaining target levels; • non-recurring events, whether positive or negative; • input from the Chief Executive Officer on the individual performance of the other named executive officers; and • an executive’s support and commitment to the Bank’s culture and to ensuring the Bank is in compliance with regulatory requirements and guidelines. In addition to the compensation peer group described above, the Compensation Committee uses various other groups of competitors against which it tracks and assesses our relative performance to ensure a balanced perspective (i.e., regulatory, business/strategy mode, geographic, etc.). The financial and strategic goals are not individually weighted. The Compensation Committee may use its business judgement to increase or decrease the recommended bonuses based on all available information, including performance to peers, individual performance and any other relevant factor. In addition, awards may be paid only if the following conditions are met: (1) the most recent regulatory examination(s) must be satisfactory or better; (2) bonus expense cannot cause 1st Security Bank to fall below the well-capitalized level set by regulators; (3) payment of bonuses cannot cause the Bank to fall outside regulatory guidance on liquidity; (4) there must have been a matching contribution by FS Bancorp to the Bank’s 401(k) plan; and (5) dividends must have been declared and paid to shareholders during the plan year. 2023 Results and Award Payouts. For 2023, actual annual incentive award payouts were based on a combination of specific financial results and strategic achievements as assessed by the Compensation Committee. Financial results for 2023 included the following: • increased net interest income before provision expense by 18% to $123.3 million in 2023 from $104.2 million in 2023; • net income of $36.1 million for 2023 compared to $29.6 million for 2022; • completed the acquisition of seven branches from Columbia State Bank, resulting in an expansion into Oregon in February 2023 and $425.5 million in new deposits as of the acquisition date of February 24, 2023; • net interest margin increased to 4.48% for 2023, compared to 4.46% for 2022 due to the acquisition of seven (7) branches in the first quarter of 2023; • non-interest bearing deposits totaled $670.8 million at year end 2023 compared to $554.2 million at year end 2023 as a result of the Branch acquisition; • 13% asset growth funded by 19% deposit growth including the seven (7) branch acquisition; • continued focus on strong asset quality with only 0.37% of assets at the end of 2023 classified as nonperforming, a slight increase from 0.35% at year-end 2022; • book value per share of $34.36 at year end 2023, compared to $30.42 at year end 2022, which includes -$3.03 attributable to unrealized investment mark to market losses in accumulated other comprehensive loss in 2023; • increased cash dividends paid to shareholders to $1.00 per share in 2023 from $0.90 per share in 2022, an 11% annual increase; and • repurchased 43,780 of shares at an average price of $30.53 in 2023. Book Value Per Share Key strategic and human capital achievements for 2023 included the following: ranked #1 in the Extra Large category by Puget Sound Business Journal as Washington’s Best Workplaces; • continued focus on staff reallocation from the home lending segment to the commercial and consumer banking segment, resulting in nine fewer full-time equivalent employees in home lending in 2023; and • donated over $225,000 to local food banks during our annual food drive in all the communities we serve. Our executive team continues to adjust to varying economic conditions including the recent 100 basis point increase in the Federal funds rate. Although higher interest rates have slowed our lending production, the branch acquisition allowed the Bank to maintain strong margins and expand profitability in 2023. We remain focused on disciplined execution, risk mitigation, cost control and our ability to execute well under volatile market conditions. As a result, the Compensation Committee approved varied annual incentive awards ranging from 50% to 87% of the named executive officers’ base salaries. Upon a holistic assessment of the performance described above, the Compensation Committee approved annual cash incentive awards for 2023 performance as follows:

  19. Long-Term Equity Incentive Plan

    Long-Term Equity Incentive Plan In 2018, our Board of Directors unanimously adopted, and shareholders approved, the FS Bancorp, Inc. 2018 Equity Incentive Plan. The purposes of the plan are: (1) to promote the long-term growth and profitability of FS Bancorp; (2) to attract and retain individuals of outstanding competence; and (3) to provide participants with incentives that are closely linked to the interests of all shareholders of FS Bancorp. Stock-based award grants align the interests of executives with those of shareholders. When FS Bancorp performs well, executives are rewarded along with other shareholders. We believe that stock-based awards are of great value in recruiting and retaining highly qualified personnel who are in great demand. The table below shows the long-term equity incentive award values granted to each of the named executive officers on August 15, 2023.

  20. Long-Term Equity Incentive Plan

    | Officer | Restricted Stock ($) | Stock Options ($) | Total Grant Date Fair Value ($) | | Joseph C. Adams | 199,745 | 148,590 | 348,335 | | Matthew D. Mullet | 122,920 | 91,440 | 214,360 | | Donn C. Costa | — | — | — | | Shana Allen | 76,825 | 57,150 | 133,975 | | Kelli Nielsen | 58,387 | 43,434 | 101,821 | | Dennis V. O’Leary | 49,168 | 24,384 | 73,552 |

  21. Long-Term Equity Incentive Plan

    Stock options provide meaningful incentives for management to execute on the longer-term financial and strategic growth goals that drive shareholder value creation because they only provide value to the named executive officers if the price of FS Bancorp’s stock appreciates over time. Specifically, the value of the award depends on the price of FS Bancorp’s common stock in the future as compared to the exercise price of the options granted. There can be no assurance that any value will be realized. Stock options typically vest in 20% increments on each of the first five anniversaries of the date of grant. These stock options are also contingent upon the continued employment of the named executive officer through each vesting date. Termination of employment for any reasons other than death, disability or a change in control results in the forfeiture of any unvested options. Restricted stock awards are intended to provide the named executive officers with the economic equivalent of a direct ownership interest in FS Bancorp during the vesting period and provide us with significant retention security regardless of post-grant share price volatility. Grants of restricted stock awards vest in 20% increments on each of the first five anniversaries of the date of grant. Termination of employment for any reasons other than death, disability or a change in control results in the forfeiture of any unvested shares. More information about equity awards made during 2023 is set forth in the Grants of Plan-Based Awards and Outstanding Equity Awards tables that follow.

  22. Other Policies and Guidelines

    Shares counted toward the stock ownership requirement include those held directly or through a broker, shares held in the Employee Stock Ownership Plan, the 401(k) Plan, vested stock options and restricted stock with time-based vesting. Once the minimum ownership requirement is met, officers must maintain the required ownership amounts and compliance will be calculated annually. Each director and executive officer is required to retain 50% of net after tax shares acquired upon the exercise of stock options or vesting of restricted stock until the stock ownership requirement is met. Exceptions may apply for donations of stock and for sales or divisions of property in the case of divorce, disability or death, or other limited circumstances. Executive officers have five years from their appointment to comply with the applicable stock ownership requirement. Five of the six named executive officers were in compliance with these guidelines as of December 31, 2023. Ms. Allen was appointed to the executive team on January 1, 2023. Clawback Policy. FS Bancorp, Inc. has maintained a clawback policy since 2012. The policy provides the Board with the authority to withhold and/or recoup bonuses based on the occurrence of one or more of the following: • Fraud as determined by internal or external audit or examination. The policy defines fraud as any intentional deception made for personal gain or to damage 1st Security Bank or another person. • A material error occurred in the financial statements requiring restatement. • A loss or other injury to FS Bancorp’s or 1st Security Bank’s reputation triggered by a participant taking one or more imprudent risks. Examples include making an out-of policy loan without proper approvals, investing in inferior grade securities to gain a higher return rate or approving significant loan production that ultimately requires the Bank to suffer substantial financial losses which should have been foreseen through proper due diligence. Note that the taking of the imprudent risk is in and of itself grounds to trigger the claw-back. Actual monetary loss is not a requirement under this policy. • Violation of FS Bancorp and 1st Security Bank’s Code of Ethics. • Violation of 1st Security Bank’s Core Values. The policy was updated in 2023 to provide for the recovery of erroneously awarded incentive-based compensation pursuant to Section 10D of the Securities Exchange Act, Rule 10D-1 under Section 10D and Nasdaq Listing Rule 5608.

  23. Summary Compensation Table

    Summary Compensation Table The table below summarizes the total compensation paid to or earned by each of our named executive officers for the fiscal years ended December 31, 2023, 2022 and 2021.

  24. Summary Compensation Table

    | Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(2) | All Other Compensation ($)(3) | Total ($) | | Joseph C. Adams Chief Executive Officer | 2023 | 525,000 | 460,000 | 199,745 | 148,590 | 40,033 | 1,373,368 | | | 2022 | 494,904 | 450,000 | 232,050 | 160,650 | 27,224 | 1,364,828 | | | 2021 | 475,000 | 825,000 | 283,680 | 256,560 | 36,603 | 1,876,843 | | Matthew D. Mullet Chief Financial Officer | 2023 | 346,500 | 303,500 | 122,920 | 91,440 | 26,811 | 891,171 | | | 2022 | 330,000 | 280,000 | 139,230 | 96,390 | 20,321 | 865,941 | | | 2021 | 330,000 | 580,000 | 177,300 | 160,350 | 33,149 | 1,280,799 | | Donn C. Costa Executive Vice President, Home Lending | 2023 | 346,500 | 173,250 | — | — | 31,057 | 550,807 | | | 2022 | 330,000 | 165,000 | — | — | 26,917 | 521,917 | | | 2021 | 330,000 | 930,000 | — | — | 34,941 | 1,294,941 | | Shana Allen(4) Chief Information Officer | 2023 | 245,000 | 171,500 | 76,825 | 57,150 | 13,207 | 563,682 | | Kelli Nielsen(4) Executive Vice President, Retail Banking/Marketing | 2023 | 225,000 | 160,000 | 58,387 | 43,434 | 19,689 | 506,510 | | Dennis V. O’Leary(5) Former Chief Lending Officer | 2023 | 346,500 | 200,000 | 49,168 | 24,384 | 22,887 | 642,939 | | | 2022 | 330,000 | 280,000 | 139,230 | 96,390 | 18,037 | 863,657 | | | 2021 | 330,000 | 730,000 | 177,300 | 160,350 | 33,381 | 1,431,031 |

  25. Summary Compensation Table

    (1) Consists of the annual incentive award and the performance award described above under “Compensation Discussion and Analysis — 2023 Executive Compensation Program — Annual Incentive Compensation” and “— Performance Award and Non-Competition Agreement.” (2) Represents the aggregate grant date fair value of awards, computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions, see Note 20 of the Notes to Consolidated Financial Statements in FS Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2023. (3) For 2023, consists of the following:

  26. Summary Compensation Table

    | | 401(k) match ($) | ESPP contribution ($) | Life insurance premiums ($) | Dividends on restricted stock ($) | | Joseph C. Adams | 13,200 | 6,000 | 1,007 | 19,826 | | Matthew D. Mullet | 13,200 | 4,125 | 774 | 8,712 | | Donn C. Costa | 13,200 | 7,000 | 788 | 10,069 | | Shana Allen | 12,154 | 75 | 978 | — | | Kelli Nielsen | 13,200 | — | 757 | 5,732 | | Dennis V. O’Leary | 13,200 | — | 975 | 8,712 |

  27. Summary Compensation Table

    (4) Not a named executive officer in 2022 or 2021. Mr. O’Leary stepped down as Chief Lending Officer effective July 1, 2023 and transitioned into a management role that oversees commercial real estate and construction lending.

  28. Grants of Plan-Based Awards

    Grants of Plan-Based Awards The following table shows information regarding grants of plan-based awards made to our named executive officers for 2023.

  29. Grants of Plan-Based Awards

    | Name | Grant date | All other stock awards: Number of shares of stock or units (#)(1) | All other option awards: Number of securities underlying options (#)(1) | Exercise or base price of option awards ($/Sh) | Grant date fair value of stock and option awards(2) | | Joseph C. Adams | 8/15/2023 | 6,500 | 19,500 | 30.73 | 348,335 | | Matthew D. Mullet | 8/15/2023 | 4,000 | 12,000 | 30.73 | 214,360 | | Donn C. Costa | — | — | — | — | — | | Shana Allen | 8/15/2023 | 2,500 | 7,500 | 30.73 | 133,975 | | Kelli Nielsen | 8/15/2023 | 1,900 | 5,700 | 30.73 | 101,821 | | Dennis V. O’Leary | 8/15/2023 | 1,600 | 3,200 | 30.73 | 73,552 |

  30. Grants of Plan-Based Awards

    (1) Awards vest in equal installments of 20% per year beginning on August 15, 2024. Represents the aggregate grant date fair value of awards, computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions, see Note 20 of the Notes to Consolidated Financial Statements in FS Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2023.

  31. Outstanding Equity Awards

    Outstanding Equity Awards The following table shows information regarding outstanding equity awards as of December 31, 2023 for the named executive officers.

  32. Outstanding Equity Awards

    | | Option Awards(1) | | | | | Stock Awards(1) | | | Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expira- tion Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | | Joseph C. Adams | 08/15/18 | 45,600 | — | 29.30 | 08/15/28 | | | | | 08/15/19 | 19,200 | 4,800 | 24.37 | 08/15/29 | | | | | 08/14/20 | 17,280 | 11,520 | 21.35 | 08/14/30 | | | | | 08/13/21 | 9,600 | 14,400 | 35.46 | 08/13/31 | | | | | 08/15/22 | 4,500 | 18,000 | 30.94 | 08/15/32 | | | | | 08/15/23 | — | 19,500 | 30.73 | 08/15/33 | 22,740 | 840,470 | | Matthew D. Mullet | 08/15/18 | 9,600 | — | 29.30 | 08/15/28 | | | | | 08/15/19 | 9,960 | 2,490 | 24.37 | 08/15/29 | | | | | 08/14/20 | 6,180 | 6,180 | 21.35 | 08/14/30 | | | | | 08/13/21 | 6,000 | 9,000 | 35.46 | 08/13/31 | | | | | 08/15/22 | 2,700 | 10,800 | 30.94 | 08/15/32 | | | | | 08/15/23 | — | 12,000 | 30.73 | 08/15/33 | 13,490 | 498,590 | | Donn C. Costa | 08/15/18 | 36,800 | — | 29.30 | 05/15/28 | | | | | 08/15/19 | 9,960 | 2,490 | 24.37 | 08/15/29 | | | | | 08/14/20 | 6,180 | 6,180 | 21.35 | 08/14/30 | 2,890 | 106,814 | | Shana Allen | 08/15/23 | — | 7,500 | 30.73 | 08/15/33 | 2,500 | 92,400 | | Kelli Nielsen | 08/15/18 | 9,600 | — | 29.30 | 08/15/28 | | | | | 08/15/19 | 4,544 | 1,136 | 24.37 | 08/15/29 | | | | | 08/14/20 | 4,224 | 2,816 | 21.35 | 08/14/30 | | | | | 08/13/21 | 2,580 | 3,870 | 35.46 | 08/13/31 | | | | | 08/15/22 | 1,161 | 4,644 | 30.94 | 08/15/32 | | | | | 08/15/23 | — | 5,700 | 30.73 | 08/15/33 | 6,714 | 248,149 | | Dennis V. O’Leary | 08/15/18 | 9,600 | — | 29.30 | 08/15/28 | | | | | 08/15/19 | 9,960 | 2,490 | 24.37 | 08/15/29 | | | | | 08/14/20 | 9,270 | 6,180 | 21.35 | 08/14/30 | | | | | 08/13/21 | 6,000 | 9,000 | 35.46 | 08/13/31 | | | | | 08/15/22 | 2,700 | 10,800 | 30.94 | 08/15/32 | | | | | 08/15/23 | — | 3,200 | 30.73 | 08/15/33 | 11,090 | 409,886 |

  33. Outstanding Equity Awards

    (1) Awards vest pro rata over a five-year period from the grant date, with the first 20% vesting one year after the grant date. Amounts are based on FS Bancorp’s common stock closing price of $36.96 on December 29, 2023, the last day of trading in 2023.

  34. Option Exercises and Stock Vested

    Option Exercises and Stock Vested The following table shows the value realized upon the exercise of stock options and the vesting of stock awards for the named executive officers during the year ended December 31, 2023.

  35. Option Exercises and Stock Vested

    | | Option awards | | Stock awards | | | Name | Number of shares acquired on exercise (#) | Value realized on exercise ($) | Number of shares acquired on vesting (#) | Value realized on vesting ($) | | Joseph C. Adams | — | — | 8,900 | 273,497 | | Matthew D. Mullet | — | — | 4,240 | 130,295 | | Donn C. Costa | — | — | 3.700 | 113,701 | | Shana Allen | — | — | — | — | | Kelli Nielsen | — | — | 2,569 | 78,945 | | Dennis V. O’Leary | — | — | 4,240 | 130,295 |

  36. Potential Payments Upon Termination

    Potential Payments Upon Termination We have entered into agreements with the named executive officers that provide for potential payments upon disability, termination and death. In addition, our equity plans also provide for potential payments upon termination. The following table shows, as of December 31, 2023, the value of potential payments and benefits following a termination of employment under a variety of scenarios.

  37. Potential Payments Upon Termination

    | | Death ($) | Disability ($) | Involuntary Termination ($) | Change in Control ($) | | Joseph C. Adams | | | | | | Severance Agreement | — | — | 1,050,000 | 1,050,000 | | Equity Awards(1) | 1,332,175 | 1,332,175 | — | 1,332,175 | | Matthew D. Mullet | | | | | | Change of Control Agreement | — | — | — | 346,500 | | Equity Awards(1) | 779,685 | 779,685 | — | 779,685 | | Donn C. Costa | | | | | | Change of Control Agreement | — | — | — | 346,500 | | Equity Awards(1) | 234,633 | 234,633 | — | 234,633 | | Shana Allen | | | | | | Change of Control Agreement | — | — | — | 245,000 | | Equity Awards(1) | 62,300 | 62,300 | — | 62,300 | | Kelli Nielsen | | | | | | Change of Control Agreement | — | — | — | 225,000 | | Equity Awards(1) | 375,682 | 375,682 | — | 375,682 | | Dennis V. O’Leary | | | | | | Change of Control Agreement | — | — | — | 346,500 | | Equity Awards(1) | 636,157 | 636,157 | — | 636,157 |

  38. Potential Payments Upon Termination

    Amounts are based on FS Bancorp’s common stock closing price of $36.96 on December 29, 2023, the last day of trading in 2023. Severance Agreement for Chief Executive Officer. 1st Security Bank entered into a severance agreement with Mr. Adams. The agreement provides that if (1) the Bank terminates Mr. Adams’ employment other than for cause, (2) Mr. Adams terminates his employment for “good reason” or (3) there is a change in control of the Bank, Mr. Adams would be entitled to receive from the Bank a lump sum payment equal to 24 months of his base compensation. “Good reason” means any one or more of the following: (1) reduction of Mr. Adams’ salary or elimination of any significant compensation, unless generally applicable to similarly-situated employees; (2) assignment to Mr. Adams without his consent any authorities or duties materially inconsistent with his position as of the date of the severance agreement; and (3) a relocation or transfer that would materially increase Mr. Adams’ commute. Change of Control Agreements. 1st Security Bank entered into change in control agreements with Mr. Mullet, Mr. Costa, Ms. Allen, Ms. Nielsen and Mr. O’Leary. These agreements provide that if there is a change in control of the Bank during the term of the agreement, the executive will be entitled to a severance payment if the executive suffers an involuntary termination within six months preceding or twelve months following the change in control. The severance payment will be twelve months of the executive’s then current salary, paid in a lump sum within 45 days of the termination. “Involuntary termination” means (1) termination of the executive’s employment other than for cause, (2) a reduction of the executive’s base salary, unless generally applicable to all senior officers of the Bank (any reduction for Mr. Mullet), (3) a material adverse change in the executive’s benefits, contingent benefits or vacation, unless generally applicable to all senior officers of the Bank, (4) a relocation of more than 20 miles from Mountlake Terrace, Washington (50 miles for Mr. Mullet) or (5) a material demotion of the executive, including but not limited to a material diminution of the executive’s title, duties or responsibilities. Receipt of the severance payment is conditioned upon the executive signing a severance agreement containing a comprehensive release of claims. Equity Awards. The 2013 Equity Incentive Plan and the 2018 Equity Incentive Plan provide for acceleration of awards if a recipient of an award terminates service early as a result of death or disability. The 2013 Equity Incentive Plan also provides that in connection with an actual change in control, all unexercisable options will become fully exercisable and all unvested awards of restricted stock will vest in full. The 2018 Equity Incentive Plan provides that if a change in control occurs prior to the vesting date of an award that is outstanding on the change in control date, and the participant experiences an involuntary separation from service, other than a termination for cause, during the 365-day period following the change in control date, then the vesting date for such non-vested outstanding award will be accelerated to the date of the participant’s involuntary separation from service. However, if upon a change in control the successor to FS Bancorp either does not assume the outstanding award or replace it with an award that is determined by the Compensation Committee to be at least equivalent in value to the outstanding award on the change in control date, then the vesting date of such outstanding award will be accelerated to the change in control date.

  39. Chief Executive Officer Pay Ratio

    Chief Executive Officer Pay Ratio In August 2015 pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the SEC adopted Item 402(u) of Regulation S-K, requiring annual disclosure of the ratio of the annual total compensation of the Chief Executive Officer to the median employee’s annual total compensation. For 2023, this information is as follows:

  40. Chief Executive Officer Pay Ratio

    | Mr. Adams, Chief Executive Officer, annual total compensation: | $1,373,368 | | Median employee annual total compensation: | $62,501 | | Ratio of Chief Executive Officer to median employee compensation: | 22 to 1 |

  41. Chief Executive Officer Pay Ratio

    In determining the median employee, we used a listing of all full-time employees, excluding our Chief Executive Officer, as of December 31, 2023. To identify our median employee, we used the reported W-2 income for 2023 of all full-time employees, including 401k and ESPP matching contributions, as our consistently applied compensation measure. As a result of the flexibility permitted by Item 402(u), the method we used to determine our median employee may differ from the methods used by our peers, so the ratios may not be comparable.

  42. Pay Versus Performance

    Pay Versus Performance As required by Section 953(a) of the Dodd-Frank Act, and item 402(v) of Regulation S-K, we are providing the following information about the relationship between compensation actually paid to our principal executive officer (“PEO”), Mr. Adams, and the named executive officers (“NEOs”) excluding Mr. Adams (non-PEO NEOs) and certain financial performance metrics of FS Bancorp using the methodology that has been prescribed by the SEC. Refer to the Compensation Discussion and Analysis in this proxy statement for a complete description of how executive compensation relates to Bank performance and how the Compensation Committee makes its decision.

  43. Pay Versus Performance

    | | | | Average Summary Compensation Table Total for non-PEO NEOs ($)(1) | | Value of Initial Fixed $100 Investment Based on: | | | | | Year | Summary Compensation Table Total for PEO ($)(1) | Compensation Actually Paid to PEO ($)(2) | | Average Compensation Actually Paid to non-PEO NEOs ($)(2) | Total Shareholder Return ($)(3) | Peer Group Total Shareholder Return ($)(3) | Net Income ($ in millions) | Return on Assets (%)(4) | | 2023 | 1,373,368 | 1,330,694 | 630,571 | 852,623 | 127.72 | 112.03 | 36.1 | 1.27 | | 2022 | 1,364,828 | 1,246,692 | 562,879 | 453,130 | 111.93 | 111.46 | 29.6 | 1.22 | | 2021 | 1,876,843 | 2,345,458 | 1,362,986 | 1,921,658 | 109.29 | 126.43 | 37.4 | 1.71 | | 2020 | 1,801,481 | 1,322,596 | 1,611,519 | 1,248,859 | 87.59 | 90.82 | 39.3 | 2.02 |

  44. Pay Versus Performance

    (1) The PEO for 2023, 2022, 2021 and 2020 is Joseph C. Adams. The non-PEO NEOs for 2023 are Matthew D. Mullet, Donn C. Costa, Shana Allen, Kelli Nielsen and Dennis V. O’Leary. The non-PEO NEOs for 2022 are Matthew D. Mullet, Dennis V. O’Leary, Robert B. Fuller and Donn C. Costa. In 2021 and 2020, FS Bancorp was a smaller reporting company. The non-PEO NEOs for 2021 are Dennis V. O’Leary and Donn C. Costa. The non-PEO NEOs for 2020 are Matthew D. Mullet and Donn C. Costa. (2) The following amounts were deducted from/added to summary compensation table total compensation in accordance with the SEC-mandated adjustments to calculate compensation actually paid for the year ended December 31, 2023. The fair value of stock awards was determined using methodologies and assumptions developed in a manner substantively consistent with those used to determine the grant date fair value of such awards.

  45. Pay Versus Performance

    | | PEO ($) | Average for non- PEO NEOs ($) | | Summary compensation table total | 1,373,368 | 630,571 | | Deduct grant date fair value of equity awards granted in fiscal year | (348,335) | (524,233) | | Add fair value at fiscal year end of outstanding and unvested equity awards granted in fiscal year | 464,581 | 696,329 | | Add change in fair value of outstanding and unvested equity awards granted in prior fiscal years | (79,334) | 197,347 | | Add change in fair value as of vesting date of equity awards granted in prior fiscal years for which applicable vesting conditions were satisfied during the fiscal year | (79,586) | (147,392) | | Compensation actually paid | 1,330,694 | 852,623 |

  46. Pay Versus Performance

    (3) Total Shareholder Return (“TSR”) assumes $100 invested in FS Bancorp common stock and the S&P U.S. SmallCap Banks Index on December 31, 2019 with all dividends reinvested. We determined that return on assets is the most important financial measure used to link compensation actually paid to our NEOs for the most recently completed fiscal year to company performance. Most Important Financial Performance Measures. As required by the SEC’s rules, the following is a list of the most important financial measures used to link “compensation actually paid” to our performance. The roles of each of these performance measures in our executive compensation programs is more thoroughly discussed in the Compensation Discussion and Analysis in this proxy statement, along with a description of how executive compensation relates to our performance and how the Compensation Committee makes its decisions. Net Income • Net Interest Margin • Efficiency Ratio • Return on Assets • Relative Total Shareholder Return Descriptions of the Information Presented in the Pay Versus Performance Table. The illustrations below compare “compensation actually paid” (as calculated in accordance with the SEC’s rules) and the following measures: • FS Bancorp’s cumulative TSR and the peer group’s cumulative TSR; • FS Bancorp’s Net Income; and • FS Bancorp’s Return on Assets.

  47. Pay Versus Performance

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