{"url_path":"/sec/fsbw/10-q/2026/cover-page","section_key":"cover-page","section_title":"Cover Page","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-08","source_url":"https://www.sec.gov/Archives/edgar/data/1530249/0001437749-26-015942-index.html","accession_number":"0001437749-26-015942","cik":"0001530249","ticker":"FSBW","issuer_name":"FS Bancorp, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1530249/0001437749-26-015942-index.html","primary_entity_key":"0001530249","primary_entity_name":"FS Bancorp, Inc."},"word_count":27973,"has_tables":true,"body_markdown":"fsbw20260331_10q.htm\n\n0001530249\nFS Bancorp, Inc.\nfalse\n--12-31\nQ1\n2026\n293,844\n310,097\n0\n0\n34,303\n34,396\n277\n277\n32,443\n31,937\n12,977\n13,183\n\n0.01\n0.01\n5,000,000\n5,000,000\n0\n0\n0\n0\n0.01\n0.01\n45,000,000\n45,000,000\n7,501,542\n7,501,542\n7,507,519\n7,507,519\n0.28\n0.29\n0\n0\n0\n0\n0\n0\n0\n6\n9.33\n5\n0\n137\n135\n1\n4\n5\n1\n4\n5\n0.31\n4\n5\n1\n2\n5,852\n327\n5,698\n3.6\n4\nfalse\nfalse\nfalse\nfalse\nIncludes loans less than 90 days past due as applicable.\nIncludes $140.2 million and no brokered deposits at December 31, 2025 and 2024, respectively.\nRelating to items held at end of period included in income.\nNoninterest-bearing accounts.\nOther segments items include operations, occupancy, data processing, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.\nRelating to items held at end of period included in other comprehensive income.\nIncludes $20.3 million and $279,000 of brokered deposits at December 31, 2025 and 2024, respectively.\nIncludes $202.1 million and $143.1 million of brokered certificates of deposit at December 31, 2025 and 2024, respectively.\nThese 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 March 31, 2026, the amortized cost basis of the closed portfolios used in these hedging relationships was $178.1 million; the cumulative basis adjustments associated with these hedging relationships was $2.4 million; and the amount of the designated hedged items was $60.0 million. At December 31, 2025, the amortized cost basis of the closed portfolios used in these hedging relationships was $179.4 million; the cumulative basis adjustment associated with these hedging relationships was a loss of $2.1 million; and the amount of the designated hedged items was $60.0 million.\nForfeiture rate has been calculated and estimated, based on historical employment data, to assume a forfeiture of 3.1% of the options over 10 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of Contents](#toc)\n\n \n\n**UNITED STATES**\n\n**SECURITIES AND EXCHANGE COMMISSION**\n\nWashington, D.C. 20549\n\n \n\n**FORM** **10-Q**\n\n(Mark One)\n\n \n\n☒         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\n \n\nFor the quarterly period ended **March 31, 2026**        \n\n \n\nor\n\n \n\n☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934\n\n \n\nFor the transition period from                     to                    \n\n \n\nCommission File Number: 001-35589\n\n \n\n**FS BANCORP,** **INC.**\n\n(Exact name of registrant as specified in its charter)\n\n \n\n**Washington**\n \n**45-4585178**\n\n(State or other jurisdiction of incorporation or organization)\n \n(IRS Employer Identification No.)\n\n \n\n**6920 220th Street SW, Mountlake Terrace, Washington**  **98043**\n\n(Address of principal executive offices; Zip Code)\n\n \n\n**(425)****771**‑**5299******\n\n \n\n(Registrant’s telephone number, including area code)\n\n \n\n**None**\n\n \n\n(Former name, former address and former fiscal year, if changed since last report)\n\n \n\nSecurities registered pursuant to Section 12(b) of the Act:\n\nTitle of each class\n\nTrading Symbol(s)\n\nName of each exchange on which registered\n\nCommon Stock, par value $.01 per share\n\nFSBW\n\nThe NASDAQ Stock Market LLC\n\n \n\nIndicate 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 ☐\n\n \n\nIndicate 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 ☐\n\n \n\nIndicate 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.\n\n \n\nLarge accelerated filer ☐\n \nAccelerated filer ☒\n\nNon-accelerated filer ☐\n \nSmaller reporting company ☐\n\nEmerging growth company ☐\n  \n\n \n\nIf 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. ☐\n\n \n\nIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).    Yes ☐          No ☒\n\n \n\nIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 5, 2026, there were 5,414,542 outstanding shares of the registrant’s common stock.\n\n \n\n \n\n[Table of Contents](#toc)\n\n \n\n \n\n**FS Bancorp,** **Inc.**\n\n**Form** **10**‑**Q**\n\n \n\nTable of Contents\n\n \n\n \n\n \n \n \n \n\n**Page** **Number**\n\n**PART** **I**\n\n \n\n**FINANCIAL INFORMATION**\n\n \n \n\n \n \n \n \n \n\n[Item 1.](#fs)\n\n \n\n[Financial Statements](#fs)\n\n \n \n\n \n \n \n \n \n\n \n \n\n[Consolidated Balance Sheets at March 31, 2026 (Unaudited) and December 31, 2025](#bs)\n\n \n\n[3](#bs)\n\n \n \n \n \n \n\n \n \n\n[Consolidated Statements of Income for the Three Months Ended March 31, 2026 and 2025 (Unaudited)](#income)\n\n \n\n[4](#income)\n\n \n \n \n \n \n\n \n \n\n[Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2026 and 2025 (Unaudited)](#compincome)\n\n \n\n[5](#compincome)\n\n \n \n \n \n \n\n \n \n\n[Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2026 and 2025 (Unaudited)](#equity)\n\n \n\n[6](#equity)\n\n \n \n \n \n \n\n \n \n\n[Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2026 and 2025 (Unaudited)](#cashflow)\n\n \n\n[7](#cashflow) - [8](#cashflowsupp)\n\n \n \n \n \n \n\n \n \n\n[Notes to Consolidated Financial Statements](#notes)\n\n \n\n[9](#notes) - [44](#Notes_end)\n\n \n \n \n \n \n\n[Item 2.](#mda)\n\n \n\n[Management’s Discussion and Analysis of Financial Condition and Results of Operations](#mda)\n\n \n\n[46](#mda) - [56](#mdaend)\n\n \n \n \n \n \n\n[Item 3.](#qqd)\n\n \n\n[Quantitative and Qualitative Disclosures About Market Risk](#qqd)\n\n \n\n[56](#qqd)\n\n \n \n \n \n \n\n[Item 4.](#controls)\n\n \n\n[Controls and Procedures](#controls)\n\n \n\n[56](#controls)\n\n \n \n \n \n \n\n[**PART** **II**](#part2other)\n\n \n\n[**OTHER INFORMATION**](#part2other)\n\n \n\n[57](#part2other)\n\n \n \n \n \n \n\n[Item 1.](#legal)\n\n \n\n[Legal Proceedings](#legal)\n\n \n\n[57](#legal)\n\n \n \n \n \n \n\n[Item 1A.](#risk)\n\n \n\n[Risk Factors](#risk)\n\n \n\n[57](#risk)\n\n \n \n \n \n \n\n[Item 2.](#unregistered)\n\n \n\n[Unregistered Sales of Equity Securities and Use of Proceeds](#unregistered)\n\n \n\n[57](#unregistered)\n\n \n \n \n \n \n\n[Item 3.](#defaults)\n\n \n\n[Defaults Upon Senior Securities](#defaults)\n\n \n\n[58](#defaults)\n\n \n \n \n \n \n\n[Item 4.](#mine)\n\n \n\n[Mine Safety Disclosures](#mine)\n\n \n\n[58](#mine)\n\n \n \n \n \n \n\n[Item 5.](#otheritem5)\n\n \n\n[Other Information](#otheritem5)\n\n \n\n[58](#otheritem5)\n\n \n \n \n \n \n\n[Item 6.](#exhibits)\n\n \n\n[Exhibits](#exhibits)\n\n \n\n[59](#exhibits)\n\n \n \n \n \n \n\n[**SIGNATURES**](#signatures)\n\n \n\n[60](#signatures)\n\n \n\nWhen 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.\n\n \n\n \n\n2\n\n[Table of Contents](#toc)\n\n \n\n \n\n**Item** **1. Financial Statements**\n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED BALANCE SHEETS**\n\n*(In thousands, except shares and per share amounts) (Unaudited)*\n\n \n\n  \n*March 31,*\n  \n*December 31,*\n \n\n**ASSETS**\n \n*2026*\n  \n*2025*\n \n\nCash and due from banks\n $12,424  $13,504 \n\nInterest-bearing deposits at other financial institutions\n  26,278   14,715 \n\nTotal cash and cash equivalents\n  38,702   28,219 \n\nSecurities available-for-sale, at fair value (amortized cost of $293,844 and $310,097, net of allowance for credit losses of $0 and $0, respectively)\n  271,007   288,667 \n\nSecurities held-to-maturity, at amortized cost (fair value of $34,303 and $34,396, net of allowance for credit losses of $277 and $277, respectively)\n  33,267   33,224 \n\nLoans held for sale, at fair value\n  56,275   43,705 \n\nLoans receivable, net of allowance for credit losses of $32,443 and $31,937 (includes loans of $12,977 and $13,183, at fair value, respectively)\n  2,624,091   2,623,172 \n\nAccrued interest receivable\n  15,333   14,614 \n\nPremises and equipment, net\n  43,612   44,065 \n\nLong-lived assets held for sale\n  3,258   3,258 \n\nOperating lease right-of-use (“ROU”) assets\n  5,472   5,789 \n\nFederal Home Loan Bank (“FHLB”) stock, at cost\n  8,701   7,971 \n\nDeferred tax asset, net\n  7,175   6,993 \n\nBank owned life insurance (“BOLI”), net\n  36,508   36,249 \n\nMortgage servicing rights (“MSRs”), held at the lower of cost or fair value\n  8,676   8,608 \n\nGoodwill\n  3,592   3,592 \n\nCore deposit intangible, net\n  9,774   10,518 \n\nOther assets\n  38,072   38,203 \n\n**TOTAL ASSETS**\n $3,203,515  $3,196,847 \n\n**LIABILITIES**\n   ** **   ** **\n\nDeposits:\n        \n\nNoninterest-bearing accounts\n $653,691  $658,123 \n\nInterest-bearing accounts\n  1,983,885   2,015,519 \n\nTotal deposits\n  2,637,576   2,673,642 \n\nBorrowings\n  167,305   129,305 \n\nSubordinated notes:\n        \n\nPrincipal amount\n  50,000   50,000 \n\nUnamortized debt issuance costs\n  (322)  (339)\n\nTotal subordinated notes less unamortized debt issuance costs\n  49,678   49,661 \n\nOperating lease liabilities\n  5,570   5,889 \n\nOther liabilities\n  29,534   30,656 \n\nTotal liabilities\n  2,889,663   2,889,153 \n\n**COMMITMENTS AND CONTINGENCIES (NOTE 8)**\n    ** **    ** **\n\n**STOCKHOLDERS’ EQUITY**\n   ** **   ** **\n\nPreferred stock, $.01 par value; 5,000,000 shares authorized; none issued or outstanding\n  —   — \n\nCommon stock, $.01 par value; 45,000,000 shares authorized; 7,501,542 and 7,507,519 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively\n  75   75 \n\nAdditional paid-in capital\n  43,668   43,251 \n\nRetained earnings\n  285,854   280,197 \n\nAccumulated other comprehensive loss, net of tax\n  (15,745)  (15,829)\n\nTotal stockholders’ equity\n  313,852   307,694 \n\n**TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**\n $3,203,515  $3,196,847 \n\n \n\n*See accompanying notes to these consolidated financial statements.*\n\n \n\n3\n\n[Table of Contents](#toc)\n\n \n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED STATEMENTS OF INCOME**\n\n*(In thousands, except shares and per share amounts) (Unaudited)*\n\n \n\n \n \n\n*Three Months Ended March 31,*\n\n \n\n**INTEREST INCOME**\n\n \n\n*2026*\n\n \n \n\n*2025*\n\n \n\nLoans receivable, including fees\n\n \n$\n46,012\n \n \n$\n43,303\n \n\nInterest and dividends on investment securities, cash and cash equivalents, and interest-bearing deposits at other financial institutions\n\n \n \n3,321\n \n \n \n3,485\n \n\nTotal interest and dividend income\n\n \n \n49,333\n \n \n \n46,788\n \n\n**INTEREST EXPENSE**\n\n \n \n \n** **\n \n \n \n** **\n\nDeposits\n\n \n \n14,713\n \n \n \n13,058\n \n\nBorrowings\n\n \n \n1,384\n \n \n \n2,263\n \n\nSubordinated notes\n\n \n \n691\n \n \n \n485\n \n\nTotal interest expense\n\n \n \n16,788\n \n \n \n15,806\n \n\n**NET INTEREST INCOME**\n\n \n \n32,545\n \n \n \n30,982\n \n\n**PROVISION FOR CREDIT LOSSES**\n\n \n \n2,529\n \n \n \n1,592\n \n\n**NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES**\n\n \n \n30,016\n \n \n \n29,390\n \n\n**NONINTEREST INCOME**\n\n \n \n \n** **\n \n \n \n** **\n\nService charges and fee income\n\n \n \n2,073\n \n \n \n2,244\n \n\nGain on sale of loans\n\n \n \n2,384\n \n \n \n1,700\n \n\nEarnings on cash surrender value of BOLI\n\n \n \n259\n \n \n \n250\n \n\nOther noninterest income\n\n \n \n685\n \n \n \n932\n \n\nTotal noninterest income\n\n \n \n5,401\n \n \n \n5,126\n \n\n**NONINTEREST EXPENSE**\n\n \n \n \n** **\n \n \n \n** **\n\nSalaries and benefits\n\n \n \n14,854\n \n \n \n14,533\n \n\nOperations\n\n \n \n3,380\n \n \n \n3,445\n \n\nOccupancy\n\n \n \n1,876\n \n \n \n1,717\n \n\nData processing\n\n \n \n1,594\n \n \n \n2,045\n \n\nLoan costs\n\n \n \n882\n \n \n \n548\n \n\nProfessional and board fees\n\n \n \n1,014\n \n \n \n1,186\n \n\nFederal Deposit Insurance Corporation (“FDIC”) insurance\n\n \n \n627\n \n \n \n538\n \n\nMarketing and advertising\n\n \n \n309\n \n \n \n221\n \n\nAcquisition costs\n\n \n \n295\n \n \n \n—\n \n\nAmortization of core deposit intangible\n\n \n \n744\n \n \n \n831\n \n\nRecovery of MSRs\n\n \n \n(55\n)\n \n \n(9\n)\n\nTotal noninterest expense\n\n \n \n25,520\n \n \n \n25,055\n \n\n**INCOME BEFORE PROVISION FOR INCOME TAXES**\n\n \n \n9,897\n \n \n \n9,461\n \n\n**PROVISION FOR INCOME TAXES**\n\n \n \n2,067\n \n \n \n1,440\n \n\n**NET INCOME**\n\n \n$\n7,830\n \n \n$\n8,021\n \n\nBasic earnings per share\n\n \n$\n1.04\n \n \n$\n1.02\n \n\nDiluted earnings per share\n\n \n$\n1.02\n \n \n$\n1.01\n \n\n \n\n*See accompanying notes to these consolidated financial statements.*\n\n \n\n4\n\n[Table of Contents](#toc)\n\n \n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**\n\n*(In thousands*) *(Unaudited)*\n\n \n\n \n \n*Three Months Ended*\n \n\n \n \n\n*March 31,*\n\n \n\n \n \n\n*2026*\n\n \n \n\n*2025*\n\n \n\n**Net income**\n\n \n$\n7,830\n \n \n$\n8,021\n \n\n**Other comprehensive income:**\n\n \n \n \n** **\n \n \n \n** **\n\nSecurities available-for-sale:\n\n \n \n \n \n \n \n \n \n\nUnrealized (loss) gain during period\n\n \n \n(1,407\n)\n \n \n3,496\n \n\nIncome tax benefit (provision) related to unrealized gain\n\n \n \n303\n \n \n \n(752\n)\n\nDerivative financial instruments:\n\n \n \n \n \n \n \n \n \n\nUnrealized derivative gain (loss) during period\n\n \n \n1,750\n \n \n \n(2,423\n)\n\nIncome tax (provision) benefit related to unrealized derivative gain\n\n \n \n(376\n)\n \n \n514\n \n\nReclassification adjustment for realized gain, net included in net income\n\n \n \n(237\n)\n \n \n(871\n)\n\nIncome tax provision related to reclassification, net\n\n \n \n51\n \n \n \n188\n \n\n**Other comprehensive income, net of tax**\n\n \n \n84\n \n \n \n152\n \n\n**COMPREHENSIVE INCOME**\n\n \n$\n7,914\n \n \n$\n8,173\n \n\n \n\n*See accompanying notes to these consolidated financial statements*.\n\n \n\n5\n\n[Table of Contents](#toc)\n\n \n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS**’**EQUITY**\n\n*(Dollars in thousands, except per share amounts) (Unaudited)*\n\n \n\n**Three Months Ended March 31, 2026 and 2025**\n\n \n\n \n\n   * *   * *   * *   * *  \n*Accumulated*\n   * * \n\n   * *   * *   * *   * *  \n*Other*\n   * * \n\n   * *   * *  \n*Additional*\n   * *  \n*Comprehensive*\n  \n*Total*\n \n\n  \n*Common Stock*\n  \n*Paid-in*\n  \n*Retained*\n  \n*Loss,*\n  \n*Stockholders'*\n \n\n  \n*Shares*\n  \n*Amount*\n  \n*Capital*\n  \n*Earnings*\n  \n*Net of Tax*\n  \n*Equity*\n \n\n**BALANCE, January 1, 2025**\n  7,833,014  $78  $55,716  $257,113  $(17,140) $295,767 \n\nNet income\n  *—*   —   —   8,021   —   8,021 \n\nDividends paid ($0.28 per share)\n  *—*   —   —   (2,189)  —   (2,189)\n\nShare-based compensation\n  *—*   —   512   —   —   512 \n\nIssuance of common stock - employee stock purchase plan\n  8,210   —   336   —   —   336 \n\nCommon stock repurchased – repurchase plan\n  (98,317)  (1)  (3,758)  —   —   (3,759)\n\nOther comprehensive income, net of tax\n  *—*   —   —   —   152   152 \n\n**BALANCE, March 31, 2025**\n  7,742,907  $77  $52,806  $262,945  $(16,988) $298,840 \n\n                         \n\n**BALANCE, January 1, 2026**\n  7,507,519  $75  $43,251  $280,197  $(15,829) $307,694 \n\nNet income\n  *—*   —   —   7,830   —   7,830 \n\nDividends paid ($0.29 per share)\n  *—*   —   —   (2,173)  —   (2,173)\n\nShare-based compensation\n  *—*   —   627   —   —   627 \n\nIssuance of common stock - employee stock purchase plan\n  9,048   —   383   —   —   383 \n\nCommon stock repurchased for employee/director taxes paid on restricted stock awards\n  —   —   27   —   —   27 \n\nCommon stock repurchased - repurchase plan\n  (15,025)  —   (620)  —   —   (620)\n\nOther comprehensive income, net of tax\n  *—*   —   —   —   84   84 \n\n**BALANCE, March 31, 2026**\n  7,501,542  $75  $43,668  $285,854  $(15,745) $313,852 \n\n \n\n*See accompanying notes to these consolidated financial statements.*\n\n \n\n6\n\n[Table of Contents](#toc)\n\n \n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED STATEMENTS OF CASH FLOWS**\n\n*(In thousands) (Unaudited)*\n\n \n\n  *Three Months Ended March 31,* \n\n**CASH FLOWS FROM OPERATING ACTIVITIES**\n \n*2026*\n  \n*2025*\n \n\nNet income\n $7,830  $8,021 \n\n*Adjustments to reconcile net income to net cash from operating activities*\n   * *   * *\n\nProvision for credit losses\n  2,529   1,592 \n\nDepreciation, amortization and accretion\n  2,278   2,337 \n\nCompensation expense related to stock options and restricted stock awards\n  627   512 \n\nEarnings on cash surrender value of BOLI\n  (259)  (250)\n\nGain on sale of loans held for sale\n  (2,384)  (1,700)\n\nChange in fair value on portfolio loans measured under the fair value option\n  101   (263)\n\nOrigination of loans held for sale\n  (158,613)  (84,728)\n\nProceeds from sale of loans held for sale\n  155,758   93,068 \n\nGain on purchase of tax credits\n  —   (660)\n\nPurchase of tax credits\n  —   (7,587)\n\nRecovery of MSRs\n  (55)  (9)\n\n*Changes in operating assets and liabilities*\n   * *   * *\n\nAccrued interest receivable\n  (719)  (525)\n\nOther assets\n  1,737   1,932 \n\nOther liabilities\n  (118)  (3,564)\n\nNet cash from operating activities\n  8,712   8,176 \n\n**CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES**\n   ** **   ** **\n\nActivity in securities available-for-sale:\n        \n\nMaturities, prepayments, and calls\n  20,961   6,278 \n\nPurchases\n  (5,195)  (13,049)\n\nActivity in securities held-to-maturity:\n        \n\nPurchases\n  (975)  (2,000)\n\nMaturities, prepayments, and calls\n  1,000   — \n\nMaturities of certificates of deposit at other financial institutions\n  —   493 \n\nPortfolio loan originations and principal collections, net\n  (11,726)  (9,916)\n\nPurchase of portfolio loans\n  (383)  — \n\nPurchase of premises and equipment\n  (273)  (350)\n\nChange in FHLB stock, net\n  (730)  10,365 \n\nCapital contributions to affordable housing tax credit investments\n  (452)  — \n\nNet cash from (used by) investing activities\n  2,227   (8,179)\n\n**CASH FLOWS (USED BY) FROM FINANCING ACTIVITIES**\n   ** **   ** **\n\nNet (decrease) increase in deposits\n  (36,073)  275,722 \n\nProceeds from borrowings\n  105,000   152,999 \n\nRepayments of borrowings\n  (67,000)  (392,000)\n\nDividends paid on common stock\n  (2,173)  (2,189)\n\nCommon stock repurchased for employee/director taxes paid on restricted stock awards\n  27   — \n\nIssuance of common stock - employee stock purchase plan\n  383   336 \n\nCommon stock repurchased\n  (620)  (3,759)\n\nNet cash (used by) from financing activities\n  (456)  31,109 \n\n**NET INCREASE IN CASH AND CASH EQUIVALENTS**\n  10,483   31,106 \n\n         \n\n**CASH AND CASH EQUIVALENTS, beginning of period**\n  28,219   31,635 \n\n**CASH AND CASH EQUIVALENTS, end of period**\n $38,702  $62,741 \n\n \n\n7\n\n[Table of Contents](#toc)\n\n \n\n**FS BANCORP,** **INC. AND SUBSIDIARY**\n\n**CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**\n\n*(In thousands) (Unaudited)*\n\n \n\n**SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION**\n   ** **   ** **\n\nCash paid during the period for:\n        \n\nInterest on deposits and borrowings\n $15,874  $14,902 \n\nIncome taxes\n  —   34 \n\n         \n\n**SUPPLEMENTARY DISCLOSURES OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES**\n   ** **   ** **\n\nChange in fair value on available-for-sale investment securities\n $(1,406) $3,496 \n\nChange in fair value on fair value and cash flow hedges\n  1,497   (3,258)\n\nRetention of gross MSRs from loan sales\n  866   308 \n\n \n\n*See accompanying notes to these consolidated financial statements.*\n\n \n\n8\n\n[Table of Contents](#toc)\n\n \n\n**FS BANCORP, INC. AND SUBSIDIARY**\n\n**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**\n\n(Unaudited)\n\n(Table Dollar Amounts in Thousands, Except Per Share Amounts)\n\n \n\n \n\n**NOTE** **1** –**BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**\n\n \n\n**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.\n\n \n\n****\n\n**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, 2025*. 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. These matters did *not* have an impact on net income or earnings per share for the periods presented.\n\n \n\nOn *February 25, 2026,*FS Bancorp, Inc. announced the signing of a definitive merger agreement whereby the Company will acquire Pacific West Bancorp (“Pacific West”) in a stock and cash transaction valued at approximately $34.6 million.  The transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the agreement by the shareholders of Pacific West.  See “Note *15* – Definitive Agreement.”\n\n \n\nThe results for the *three* months ended *March 31, 2026*, are *not* necessarily indicative of the results that *may*be expected for the year ending *December 31,**2026*, 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”).\n\n \n\nAmounts 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.\n\n \n\n****\n\n**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.\n\n \n\n****\n\n**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.”\n\n \n\n****\n\n**Subsequent Events**– The Company has evaluated events and transactions after *March 31, 2026*, for potential recognition or disclosure. \n\n \n\n \n\n*9*\n\n[Table of Contents](#toc)\n\n \n\n****\n\n**RECENT ACCOUNTING PRONOUNCEMENTS**\n\n \n\nIn *October **2023,* the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) *2023*-*06,* *Disclosure Improvements: Codification Amendments in Response to the SEC*’*s Disclosure Update and Simplification Initiative*. The amendments incorporate into the Accounting Standards Codification certain disclosure and presentation requirements currently included in SEC regulations. Each amendment will become effective prospectively upon the SEC’s removal of the related disclosure requirement from its rules. The Company is currently evaluating the impact of ASU *2023*-*06* and does *not* expect the adoption to have a material effect on its consolidated financial statements.\n\n \n\nIn *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.\n\n \n\nIn *December 2025,*the FASB issued guidance within ASU *2025*-*11,* *Interim Reporting*.  The ASU intends to improve the navigability of the guidance in ASC *270* and clarify when it applies.  Under the amendments, an entity is subject to ASC *270* if it provides “interim financial statements and notes in accordance with GAAP.”  The ASU is effective for interim periods in fiscal years beginning after *December 15, 2027*for public business entities, with a *one*-year deferral for all other entities. Early adoption is permitted for all entities. 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.\n\n \n\n**Application of New Accounting Guidance Adopted in 2026**\n\n \n\nIn *November 2025,*the FASB issued ASU *2025‑08,* *Financial Instruments*—*Credit Losses (Topic 326): Purchased Loans*, which expands and clarifies acquisition‑date accounting for certain purchased loans under the Current Expected Credit Loss (\"CECL\") model, including the use of a gross‑up approach for specified acquired loans. Although the ASU is effective for annual reporting periods beginning after *December 15, 2026,*and interim periods within those fiscal years, the Company early adopted the guidance effective *January 1, 2026.*Adoption of the ASU did *not* have a material impact on the Company’s accounting for acquired loans or related disclosures.\n\n \n\n*10*\n\n[Table of Contents](#toc)\n\n  \n\n \n\n**NOTE** **2** –**INVESTMENTS**\n\n \n\nThe 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 *March 31, 2026* and *December 31, 2025*:\n\n \n\n  \n*March 31, 2026*\n \n\n   * *   * *   * *  \n*Estimated*\n   * * \n\n  \n*Amortized*\n  \n*Unrealized*\n  \n*Unrealized*\n  \n*Fair*\n   * * \n\n**SECURITIES AVAILABLE-FOR-SALE**\n \n*Cost*\n  \n*Gains*\n  \n*Losses*\n  \n*Values*\n  \n*ACL*\n \n\nU.S. agency securities\n $20,268  $63  $(2,223) $18,108  $— \n\nCorporate securities\n  16,000   3   (665)  15,338   — \n\nMunicipal bonds\n  80,877   6   (10,817)  70,066   — \n\nMortgage-backed securities\n  166,729   757   (9,364)  158,122   — \n\nAsset-backed securities\n  9,970   —   (597)  9,373   — \n\nTotal securities available-for-sale\n  293,844   829   (23,666)  271,007   — \n\n                     \n\n**SECURITIES HELD-TO-MATURITY**\n   ** **   ** **   ** **   ** **   ** **\n\nCorporate securities\n  31,424   883   (485)  31,822   277 \n\nMunicipal bonds\n  2,120   361   —   2,481   — \n\nTotal securities held-to-maturity\n  33,544   1,244   (485)  34,303   277 \n\n                     \n\nTotal securities\n $327,388  $2,073  $(24,151) $305,310  $277 \n\n \n\n  \n*December 31, 2025*\n \n\n   * *   * *   * *  \n*Estimated*\n   * * \n\n  \n*Amortized*\n  \n*Unrealized*\n  \n*Unrealized*\n  \n*Fair*\n   * * \n\n**SECURITIES AVAILABLE-FOR-SALE**\n \n*Cost*\n  \n*Gains*\n  \n*Losses*\n  \n*Values*\n  \n*ACL*\n \n\nU.S. agency securities\n $20,264  $66  $(2,203) $18,127  $— \n\nCorporate securities\n  16,000   5   (619)  15,386   — \n\nMunicipal bonds\n  81,156   4   (9,755)  71,405   — \n\nMortgage-backed securities\n  181,849   757   (9,039)  173,567   — \n\nAsset-backed securities\n  10,828   1   (647)  10,182   — \n\nTotal securities available-for-sale\n  310,097   833   (22,263)  288,667   — \n\n                     \n\n**SECURITIES HELD-TO-MATURITY**\n   ** **   ** **   ** **   ** **   ** **\n\nCorporate securities\n  31,393   831   (149)  32,075   277 \n\nMunicipal bonds\n  2,108   213   —   2,321   — \n\nTotal securities held-to-maturity\n  33,501   1,044   (149)  34,396   277 \n\n                     \n\nTotal securities\n $343,598  $1,877  $(22,412) $323,063  $277 \n\n \n\nThe following table presents the activity in the ACL on securities held-to-maturity by major security type for the *three* months ended *March 31, 2026*and *2025*:\n\n \n\n**SECURITIES HELD-TO-MATURITY**\n \n*For the Three Months Ended March 31,*\n \n\nCorporate Securities\n \n*2026*\n  \n*2025*\n \n\nBeginning ACL balance\n $277  $45 \n\nProvision for credit losses\n  —   21 \n\nTotal ending ACL balance\n $277  $66 \n\n \n\n*11*\n\n[Table of Contents](#toc)\n\n \n\nManagement 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. There were *no* changes in credit loss reserves during the period, as there were *no* changes to the credit loss model and securities balances remained relatively flat. Accrued interest receivable totaled $675,000 and $271,000 on held-to-maturity debt securities and $1.5 million and $1.2 million on available-for-sale debt securities as of *March 31, 2026* and *December 31, 2025*, 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.\n\n \n\nThe 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:\n\n \n\n  *March 31,*  *December 31,* \n\nCorporate securities\n \n*2026*\n  \n*2025*\n \n\nBBB\n $29,546  $29,521 \n\nBB\n  1,878   1,872 \n\nMunicipal bonds\n        \n\nA\n  2,120   2,108 \n\nTotal\n $33,544  $33,501 \n\n \n\nAt *March 31, 2026* and *December 31, 2025*, 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.\n\n \n\nThe following table presents, as of *March 31, 2026*, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law:\n\n \n\n  \n*March 31, 2026*\n \n\nPurpose or beneficiary\n \n*Carrying Value*\n  \n*Amortized Cost*\n  \n*Fair Value*\n \n\nState and local government public deposits\n $22,250  $25,737  $22,250 \n\n \n\nInvestment 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.\n\n \n\n  \n*March 31, 2026*\n \n\n  \n*Less than 12 Months*\n  \n*12 Months or Longer*\n  \n*Total*\n \n\n**SECURITIES AVAILABLE-FOR-SALE**\n \n*Fair Value*\n  \n*Unrealized Losses*\n  \n*Fair Value*\n  \n*Unrealized Losses*\n  \n*Fair Value*\n  \n*Unrealized Losses*\n \n\nU.S. agency securities\n $—  $—  $16,045  $(2,223) $16,045  $(2,223)\n\nCorporate securities\n  3,839   (160)  8,496   (505)  12,335   (665)\n\nMunicipal bonds\n  774   (6)  67,213   (10,811)  67,987   (10,817)\n\nMortgage-backed securities\n  34,891   (578)  63,255   (8,786)  98,146   (9,364)\n\nAsset-backed securities\n  3,301   (23)  6,072   (574)  9,373   (597)\n\nTotal securities available-for-sale\n  42,805   (767)  161,081   (22,899)  203,886   (23,666)\n\n                         \n\n**SECURITIES HELD-TO-MATURITY**\n   ** **   ** **   ** **   ** **   ** **   ** **\n\nCorporate securities\n  14,057   (419)  934   (66)  14,991   (485)\n\nTotal securities held-to-maturity\n  14,057   (419)  934   (66)  14,991   (485)\n\n                         \n\nTotal securities\n $56,862  $(1,186) $162,015  $(22,965) $218,877  $(24,151)\n\n \n\n*12*\n\n[Table of Contents](#toc)\n\n \n\n  \n*December 31, 2025*\n \n\n  \n*Less than 12 Months*\n  \n*12 Months or Longer*\n  \n*Total*\n \n\n**SECURITIES AVAILABLE-FOR-SALE**\n \n*Fair Value*\n  \n*Unrealized Losses*\n  \n*Fair Value*\n  \n*Unrealized Losses*\n  \n*Fair Value*\n  \n*Unrealized Losses*\n \n\nU.S. agency securities\n $—  $—  $16,061  $(2,203) $16,061  $(2,203)\n\nCorporate securities\n  3,961   (39)  8,420   (580)  12,381   (619)\n\nMunicipal bonds\n  —   —   70,228   (9,755)  70,228   (9,755)\n\nMortgage-backed securities\n  35,194   (380)  64,321   (8,659)  99,515   (9,039)\n\nAsset-backed securities\n  3,047   (25)  6,644   (622)  9,691   (647)\n\nTotal securities available-for-sale\n  42,202   (444)  165,674   (21,819)  207,876   (22,263)\n\n                         \n\n**SECURITIES HELD-TO-MATURITY**\n   ** **   ** **   ** **   ** **   ** **   ** **\n\nCorporate securities\n  6,788   (84)  935   (65)  7,723   (149)\n\nTotal securities held-to-maturity\n  6,788   (84)  935   (65)  7,723   (149)\n\n                         \n\nTotal securities\n $48,990  $(528) $166,609  $(21,884) $215,599  $(22,412)\n\n \n\n \n\nThe unrealized losses associated with our investment 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.\n\n \n\nAll 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 *three* months ended *March 31, 2026*and *2025*.\n\n \n\n*13*\n\n[Table of Contents](#toc)\n\n \n\nThe 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.\n\n \n\n  \n*March 31, 2026*\n  \n*December 31, 2025*\n \n\n**SECURITIES AVAILABLE-FOR-SALE**\n \n*Amortized*\n  \n*Fair*\n  \n*Amortized*\n  \n*Fair*\n \n\n**U.S. agency securities**\n \n*Cost*\n  \n*Value*\n  \n*Cost*\n  \n*Value*\n \n\nDue after one year through five years\n $4,979  $4,793  $4,976  $4,785 \n\nDue after five years through ten years\n  15,289   13,315   15,288   13,342 \n\nSubtotal\n  20,268   18,108   20,264   18,127 \n\n**Corporate securities**\n   ** **   ** **   ** **   ** **\n\nDue within one year\n  6,000   6,000   6,000   6,001 \n\nDue after one year through five years\n  8,000   7,760   8,000   7,858 \n\nDue after five years through ten years\n  2,000   1,578   2,000   1,527 \n\nSubtotal\n  16,000   15,338   16,000   15,386 \n\n**Municipal bonds**\n   ** **   ** **   ** **   ** **\n\nDue after one year through five years\n  2,122   2,127   2,135   2,137 \n\nDue after five years through ten years\n  7,057   6,378   7,080   6,441 \n\nDue after ten years\n  71,698   61,561   71,941   62,827 \n\nSubtotal\n  80,877   70,066   81,156   71,405 \n\n**Mortgage-backed securities**\n   ** **   ** **   ** **   ** **\n\nFederal National Mortgage Association (“FNMA”)\n  80,369   73,273   82,555   75,492 \n\nFederal Home Loan Mortgage Corporation (“FHLMC”)\n  44,234   43,460   47,170   46,556 \n\nGovernment National Mortgage Association (“GNMA”)\n  42,126   41,389   52,124   51,519 \n\nSubtotal\n  166,729   158,122   181,849   173,567 \n\n**Asset-backed securities**\n   ** **   ** **   ** **   ** **\n\nDue within one year\n  459   451   130   129 \n\nDue after one year through five years\n  276   270   743   730 \n\nDue after five years through ten years\n  2,390   2,281   2,598   2,458 \n\nDue after ten years\n  6,845   6,371   7,357   6,865 \n\nSubtotal\n  9,970   9,373   10,828   10,182 \n\nTotal securities available-for-sale\n  293,844   271,007   310,097   288,667 \n\n                 \n\n**SECURITIES HELD-TO-MATURITY**\n   ** **   ** **   ** **   ** **\n\n**Corporate securities**\n   ** **   ** **   ** **   ** **\n\nDue after one year through five years\n  2,000   1,994   3,000   2,986 \n\nDue after five years through ten years\n  29,424   29,828   26,143   26,839 \n\nDue after ten years\n  —   —   2,250   2,250 \n\nSubtotal\n  31,424   31,822   31,393   32,075 \n\n**Municipal bonds**\n                \n\nDue after ten years\n  2,120   2,481   2,108   2,321 \n\nTotal securities held-to-maturity\n  33,544   34,303   33,501   34,396 \n\nTotal securities\n $327,388  $305,310  $343,598  $323,063 \n\n \n\nThere were no sales of securities available-for-sale for the *three* months ended *March 31, 2026*and *2025*.\n\n \n\n \n\n*14*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **3** –**LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES**–**LOANS**\n\n \n\nThe composition of the loan portfolio was as follows at the dates indicated:\n\n \n\n  *March 31,*  *December 31,* \n\n  \n*2026*\n  \n*2025*\n \n\n**COMMERCIAL REAL ESTATE (\"CRE\") LOANS**\n        \n\nCRE owner occupied\n $182,260  $176,078 \n\nCRE non-owner occupied\n  182,568   177,113 \n\nCommercial and speculative construction and development\n  358,657   354,130 \n\nMulti-family\n  263,353   262,150 \n\nTotal CRE loans\n  986,838   969,471 \n\n**RESIDENTIAL REAL ESTATE LOANS**\n        \n\nOne-to-four-family\n  630,996   628,761 \n\nHome equity\n  88,468   88,271 \n\nResidential custom construction\n  44,134   42,329 \n\nTotal residential real estate\n  763,598   759,361 \n\n**CONSUMER LOANS**\n   ** **   ** **\n\nIndirect home improvement\n  513,437   525,842 \n\nMarine\n  67,126   68,115 \n\nOther consumer\n  2,921   3,029 \n\nTotal consumer loans\n  583,484   596,986 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **\n\nCommercial and industrial (“C&I”)\n  304,470   301,111 \n\nWarehouse lending\n  18,144   28,180 \n\nTotal commercial business loans\n  322,614   329,291 \n\nTotal loans receivable, gross\n  2,656,534   2,655,109 \n\nACL on loans\n  (32,443)  (31,937)\n\nTotal loans receivable, net\n $2,624,091  $2,623,172 \n\n \n\nLoan amounts are net of unearned loan fees in excess of unamortized costs, unamortized net discounts on acquired loans, and premiums on purchased loans of $7.5 million as of *March 31, 2026* and $8.6 million as of *December 31, 2025*. Net loans do *not* include accrued interest receivable. \n\n \n\nMost of the Company’s CRE and multi-family real estate, construction, residential, and commercial business lending activities are with customers located in Western Washington, the Oregon Coast, or near our loan production offices in Vancouver and the Tri-Cities, Washington. 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.\n\n \n\nAt *March 31, 2026*, the Company held approximately $1.12 billion in loans that are pledged as collateral for FHLB borrowings, compared to approximately $1.08 billion at *December 31, 2025*. The Company held approximately $567.1 million in loans that are pledged as collateral for the Federal Reserve Bank of San Francisco (the “FRB”) line of credit at *March 31, 2026*, compared to approximately $580.9 million at *December 31, 2025*.\n\n \n\nThe 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 segment is further disaggregated into classes based on the risk characteristics of the borrower and/or the collateral securing the loan. The following is a summary of the Company’s loan portfolio segments and classes:\n\n \n\n**CRE Loans**\n\n \n\n*Multi-Family Lending*. Apartment term lending (*five* or more units) and community reinvestment loans for low to moderate income borrowers in the Company’s footprint.\n\n \n\n \n\n*15*\n\n[Table of Contents](#toc)\n\n \n\n \n\n*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.\n\n \n\n*Commercial and Speculative Construction and Development Lending*. Loans originated for the construction of, and secured by, commercial real estate, *one*-to-*four*-family, and multi-family properties 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 described below.\n\n \n\n**Residential Real Estate Loans**\n\n \n\n*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).\n\n \n\n*Home Equity Lending*. Loans originated by the Company secured by *second* mortgages on *one*-to-*four*-family residences, including home equity lines of credit within our market areas.\n\n \n\n*Residential Custom Construction Lending*.  Custom construction loans to intended occupants of *one*-to-*four* family residences.\n\n \n\n**Consumer Loans**\n\n \n\n*Indirect Home Improvement*. Fixture secured loans for home improvement are originated by the Company through its network of home improvement contractors and dealers.  These loans 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.\n\n \n\n*Marine*. Loans originated by the Company, secured by boats, to borrowers primarily located in states where the Company originates consumer loans.\n\n \n\n*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.\n\n \n\n**Commercial Business Loans**\n\n \n\n*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, and 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 repay from the cash flow of the borrower’s business. At *March 31, 2026* and *December 31, 2025*, C&I loans included Small Business Administration and United States Department of Agriculture guaranteed certificates of $43.7 million and $44.8 million, respectively.\n\n \n\n*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 related to *one*-to-*four*-family loans. The Company’s commercial construction warehouse lines are secured by notes related to construction loans and typically guaranteed by principals with experience in construction lending.  Mortgage warehouse lines are funded through *third*-party residential mortgage bankers. Under this program, the Company provides short-term funding to mortgage banking companies for the purpose of originating residential mortgage loans for sale into the secondary market.\n\n \n\n*16*\n\n[Table of Contents](#toc)\n\n \n\n**Allowance for Credit Losses**\n\n \n\nThe following tables detail activity in the ACL on loans by loan categories at or for the *three* months ended *March 31, 2026*and *2025*:\n\n \n\n  \n*At or For the Three Months Ended March 31, 2026*\n \n\n   * *  \n*Residential*\n   * *  \n*Commercial*\n   * * \n\n**ACL ON LOANS**\n \n*CRE*\n  \n*Real Estate*\n  \n*Consumer*\n  \n*Business*\n  \n*Total*\n \n\nBeginning balance\n $5,959  $7,402  $15,934  $2,642  $31,937 \n\nProvision for (reversal of) credit losses on loans\n  598   3   2,719   (670)  2,650 \n\nCharge-offs\n  —   —   (2,620)  (230)  (2,850)\n\nRecoveries\n  —   —   628   78   706 \n\nNet charge-offs\n  —   —   (1,992)  (152)  (2,144)\n\nEnding balance\n $6,557  $7,405  $16,661  $1,820  $32,443 \n\n \n\n  \nAt or For the Three Months Ended March 31, 2025\n \n\n      \nResidential\n      \nCommercial\n     \n\n**ACL ON LOANS**\n \nCRE\n  \nReal Estate\n  \nConsumer\n  \nBusiness\n  \nTotal\n \n\nBeginning balance\n $7,001  $7,440  $14,185  $3,244  $31,870 \n\n(Reversal of) provision for credit losses on loans.\n  (97)  35   1,960   (393)  1,505 \n\nCharge-offs\n  —   —   (1,636)  (433)  (2,069)\n\nRecoveries\n  —   —   347   —   347 \n\nNet charge-offs\n  —   —   (1,289)  (433)  (1,722)\n\nEnding balance\n $6,904  $7,475  $14,856  $2,418  $31,653 \n\n \n\nThe increase in the provision for credit losses on loans for the *three* months ended *March 31, 2026*, was primarily attributable to elevated net charge-offs in the consumer loan portfolio, particularly within indirect home improvement loans.  \n\n \n\n**Loan Modifications to Borrowers Experiencing Financial Difficulty**\n\n \n\nThe 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.\n\n \n\nThe following tables present the amortized cost basis of loans that were both experiencing financial difficulty and modified during the *three* months ended *March 31, 2026*and *2025*, by class and by type of modification. The tables also present the percentage of the amortized cost basis of loans that were modified to 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.\n\n \n\n  \n*For the Three Months Ended March 31, 2026*\n \n\n   * *   * *  \n*Weighted-*\n \n\n   * *   * *  \n*Average*\n \n\n   * *   * *  *Term* \n\n  * *  \n*Total*\n  \n*Extension*\n \n\n  * *  \n*Class of*\n  \n*Payment*\n \n\n**COMMERCIAL BUSINESS**\n *Payment*  *Financing*  *Delay* \n\n**LOANS**\n \n*Delay*\n  \n*Receivable*\n  \n*(in years)*\n \n\nC&I\n $545   0.18%  1.0 \n\n \n\n \n\n*17*\n\n[Table of Contents](#toc)\n\n \n\n \n\n  \n*For the Three Months Ended March 31, 2025*\n \n\n   * *   * *  \n*Weighted-*\n \n\n   * *   * *  \n*Average*\n \n\n  \n*Combination*\n   * *  \n*Term*\n \n\n  \n*Term*\n  \n*Total*\n  \n*Extension*\n \n\n  \n*Extension*\n  \n*Class of*\n  \n*Payment*\n \n\n  \n*Payment*\n  \n*Financing*\n  \n*Delay*\n \n\n**CRE LOANS**\n \n*Delay*\n  \n*Receivable*\n  \n*(in years)*\n \n\nCRE owner occupied\n $1,196   0.70%  2.7 \n\n \n\nAs of *March 31, 2026,*there were no commitments to lend additional funds to borrowers experiencing financial difficulty whose terms had been modified during the *three* months ended *March 31, 2026.*As of *December 31, 2025,*there were no commitments to lend additional funds to borrowers experiencing financial difficulty whose terms had been modified during the year ended *December 31, 2025.*\n\n \n\nThe Company closely monitors the performance of loans modified to borrowers experiencing financial difficulty to evaluate the effectiveness of its modification efforts.  There were no loans modified within the prior *12* months that were delinquent as of *March 31, 2026*. The following table presents the performance of such loans that were modified within the prior *12* months as of *March 31, 2025*: \n\n \n\n \n\n  \nMarch 31, 2025\n \n\n  \n30-59\n  \n60-89\n         \n\n  \nDays\n  \nDays\n  \n90 Days\n  \nTotal\n \n\n  \nPast\n  \nPast\n  \nor More\n  \nPast\n \n\n**CRE LOANS**\n \nDue\n  \nDue\n  \nPast Due\n  \nDue\n \n\nCommercial and speculative construction and development\n $—  $—  $6,487  $6,487 \n\n \n\nThere were no loans to borrowers experiencing financial difficulty that had a payment default during the *three* months ended *March 31, 2026*and *2025*, and were modified in the *12* months prior to that default.\n\n \n\n**Nonaccrual and Past Due Loans**\n\n \n\nThe following tables provide information pertaining to the aging analysis of contractually past due loans and nonaccrual loans at *March 31, 2026* and *December 31, 2025*:\n\n \n\n  \n*March 31, 2026*\n \n\n  *30*-*59*  *60*-*89*   * *   * *   * *   * *   * * \n\n  \n*Days*\n  \n*Days*\n  \n*90 Days*\n  \n*Total*\n   * *  \n*Total*\n   * * \n\n  \n*Past*\n  \n*Past*\n  \n*or More*\n  \n*Past*\n   * *  \n*Loans*\n  \n*Non-*\n \n\n**CRE LOANS**\n \n*Due*\n  \n*Due*\n  \n*Past Due*\n  \n*Due*\n  \n*Current*\n  \n*Receivable*\n  \nAccrual (1)\n \n\nCRE owner occupied\n $—  $—  $1,081  $1,081  $181,179  $182,260  $1,081 \n\nCRE non-owner occupied\n  —   —   —   —   182,568   182,568   — \n\nCommercial and speculative construction and development\n     —   9,442   9,442   349,215   358,657   9,442 \n\nMulti-family\n  —   —   —   —   263,353   263,353   — \n\nTotal CRE loans\n  —   —   10,523   10,523   976,315   986,838   10,523 \n\n**RESIDENTIAL REAL ESTATE LOANS**\n                            \n\nOne-to-four-family (excludes loans held for sale)\n  2,241   —   772   3,013   627,983   630,996   1,983 \n\nHome equity\n  126   —   —   126   88,342   88,468   475 \n\nResidential custom construction\n  238   —   —   238   43,896   44,134   — \n\nTotal residential real estate loans\n  2,605   —   772   3,377   760,221   763,598   2,458 \n\n**CONSUMER LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nIndirect home improvement\n  5,190   2,082   1,405   8,677   504,760   513,437   4,622 \n\nMarine\n  213   91   —   304   66,822   67,126   466 \n\nOther consumer\n  18   13   14   45   2,876   2,921   34 \n\nTotal consumer loans\n  5,421   2,186   1,419   9,026   574,458   583,484   5,122 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nC&I\n  96   3   165   264   304,206   304,470   165 \n\nWarehouse lending\n  —   —   —   —   18,144   18,144   — \n\nTotal commercial business loans\n  96   3   165   264   322,350   322,614   165 \n\nTotal loans\n $8,122  $2,189  $12,879  $23,190  $2,633,344  $2,656,534  $18,268 \n\n \n\n \n\n*18*\n\n[Table of Contents](#toc)\n\n \n\n \n\n  \n*December 31, 2025*\n \n\n  *30*-*59*  *60*-*89*   * *   * *   * *   * *   * * \n\n  \n*Days*\n  \n*Days*\n  \n*90 Days*\n  \n*Total*\n   * *  \n*Total*\n   * * \n\n  \n*Past*\n  \n*Past*\n  \n*or More*\n  \n*Past*\n   * *  \n*Loans*\n  \n*Non-*\n \n\n**CRE LOANS**\n \n*Due*\n  \n*Due*\n  \n*Past Due*\n  \n*Due*\n  \n*Current*\n  \n*Receivable*\n  \nAccrual (1)\n \n\nCRE owner occupied\n $587  $—  $844  $1,431  $174,647  $176,078  $2,049 \n\nCRE non-owner occupied\n  —   —   —   —   177,113   177,113   — \n\nCommercial and speculative construction and development\n  —   —   9,236   9,236   344,894   354,130   9,236 \n\nMulti-family\n  —   —   —   —   262,150   262,150   — \n\nTotal CRE loans\n  587   —   10,080   10,667   958,804   969,471   11,285 \n\n**RESIDENTIAL REAL ESTATE LOANS**\n                            \n\nOne-to-four-family (excludes loans held for sale)\n  1,244   214   84   1,542   627,219   628,761   1,778 \n\nHome equity\n  228   —   71   299   87,972   88,271   390 \n\nResidential custom construction\n  —   —   —   —   42,329   42,329   — \n\nTotal residential real estate loans\n  1,472   214   155   1,841   757,520   759,361   2,168 \n\n**CONSUMER LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nIndirect home improvement\n  4,829   2,292   1,480   8,601   517,241   525,842   4,256 \n\nMarine\n  254   9   69   332   67,783   68,115   454 \n\nOther consumer\n  54   27   1   82   2,947   3,029   2 \n\nTotal consumer loans\n  5,137   2,328   1,550   9,015   587,971   596,986   4,712 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nC&I\n  122   —   580   702   300,409   301,111   580 \n\nWarehouse lending\n  —   —   —   —   28,180   28,180   — \n\nTotal commercial business loans\n  122   —   580   702   328,589   329,291   580 \n\nTotal loans\n $7,318  $2,542  $12,365  $22,225  $2,632,884  $2,655,109  $18,745 \n\n \n\n \n(*1*)\n\nIncludes loans less than *90* days past due, as applicable.\n\n \n\nThere were no loans *90* days or more past due and still accruing interest at both *March 31, 2026* and *December 31, 2025*.\n\n \n\nThere were $776,000 and $156,000 in residential real estate loans in the process of foreclosure at *March 31, 2026* and *December 31, 2025*, respectively.\n\n \n\n*19*\n\n[Table of Contents](#toc)\n\n \n\n**Credit Quality Indicators**\n\n \n\nAs part of the Company’s on-going monitoring of credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grading of loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, and (v) the general economic conditions in the Company’s markets.\n\n \n\nThe 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.\n\n \n\nA description of the *10* risk grades is as follows:\n\n \n\n \n●\n\n*Grades 1 and 2* *-* These grades include loans to very high-quality borrowers with excellent or desirable business credit.\n\n \n\n \n●\n\n*Grade 3* *-* This grade includes loans to borrowers of good business credit with moderate risk.\n\n \n\n \n●\n\n*Grades 4 and 5* *-* These grades include “Pass” grade loans to borrowers of average credit quality and risk.\n\n \n\n \n●\n\n*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.\n\n \n\n \n●\n\n*Grade 7* *-* This grade is for “Other Assets Especially Mentioned (“OAEM”)” or “Special Mention” loans in accordance with regulatory guidelines and includes borrowers where performance is poor or significantly less than expected.\n\n \n\n \n●\n\n*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.\n\n \n\n \n●\n\n*Grade 9* *-* This grade includes “Doubtful” loans in accordance with regulatory guidelines where a loss is highly probable.\n\n \n\n \n●\n\n*Grade 10* *-* This grade includes “Loss” loans in accordance with regulatory guidelines for which total loss is expected and when identified are charged off.\n\n \n\nHomogeneous 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.\n\n \n\nCRE (owner occupied, non-owner occupied, commercial construction and development, and 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, non-owner-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.\n\n \n\n*20*\n\n[Table of Contents](#toc)\n\n \n\nThe 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.\n\n \n\n  \n*March 31, 2026*\n \n\n   * *   * *   * *   * *   * *   * *   * *  \n*Revolving*\n   * * \n\n   * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\n**CRE LOANS**\n \n*Term Loans by Year of Origination*\n  \n*Revolving*\n  \n*Converted*\n  \n*Total*\n \n\nCRE owner occupied\n \n*2026*\n  \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $10,257  $37,386  $4,122  $21,366  $34,917  $41,151  $—  $—  $149,199 \n\nWatch\n  —   —   600   4,065   6,095   21,220   —   —   31,980 \n\nSubstandard\n  —   —   —   —   —   1,081   —   —   1,081 \n\nTotal CRE owner occupied\n  10,257   37,386   4,722   25,431   41,012   63,452   —   —   182,260 \n\nCRE non-owner occupied\n                                    \n\nPass\n  21,926   9,421   8,358   15,865   35,656   84,862   —   —   176,088 \n\nSpecial mention\n  —   —   —   —   1,345   2,094   —   —   3,439 \n\nSubstandard\n  —   —   —   3,041   —   —   —   —   3,041 \n\nTotal CRE non-owner occupied\n  21,926   9,421   8,358   18,906   37,001   86,956   —   —   182,568 \n\nCommercial and speculative construction and development\n                                    \n\nPass\n  26,236   200,608   81,224   2,814   22,347   10,054   5,932   —   349,215 \n\nSubstandard\n  —   —   —   —   9,442   —   —   —   9,442 \n\nTotal commercial and speculative construction and development\n  26,236   200,608   81,224   2,814   31,789   10,054   5,932   —   358,657 \n\nMulti-family\n                                    \n\nPass\n  2,522   26,391   20,759   6,990   19,824   186,867   —   —   263,353 \n\nTotal multi-family\n  2,522   26,391   20,759   6,990   19,824   186,867   —   —   263,353 \n\nTotal CRE loans\n $60,941  $273,806  $115,063  $54,141  $129,626  $347,329  $5,932  $—  $986,838 \n\n \n\n  \n*March 31, 2026*\n \n\n**RESIDENTIAL**\n  * *   * *   * *   * *   * *   * *   * *  \n*Revolving*\n   * * \n\n**REAL ESTATE LOANS**\n  * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\nOne-to-four-family\n \n*Term Loans by Year of Origination*\n  \n*Revolving*\n  \n*Converted*\n  \n*Total*\n \n\n(excludes loans held for sale)\n \n*2026*\n  \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $35,311  $89,332  $48,518  $91,669  $147,036  $214,029  $—  $—  $625,895 \n\nWatch\n  —   —   —   —   704   582   —   —   1,286 \n\nSubstandard\n  —   —   —   671   —   3,144   —   —   3,815 \n\nTotal one-to-four-family\n  35,311   89,332   48,518   92,340   147,740   217,755   —   —   630,996 \n\nHome equity\n                                    \n\nPass\n  1,111   7,425   1,282   1,609   279   7,322   68,965   —   87,993 \n\nSubstandard\n  —   —   —   —   —   75   400   —   475 \n\nTotal home equity\n  1,111   7,425   1,282   1,609   279   7,397   69,365   —   88,468 \n\nResidential custom construction\n                                    \n\nPass\n  5,081   33,740   3,469   833   1,011   —   —   —   44,134 \n\nTotal residential custom construction\n  5,081   33,740   3,469   833   1,011   —   —   —   44,134 \n\nTotal residential real estate loans\n $41,503  $130,497  $53,269  $94,782  $149,030  $225,152  $69,365  $—  $763,598 \n\n \n\n*21*\n\n[Table of Contents](#toc)\n\n \n\n \n\n  \n*March 31, 2026*\n \n\n   * *   * *   * *   * *   * *   * ** *  * *  \n*Revolving*\n   * * \n\n   * *   * *   * *   * *   * *   * ** *  * *  *Loans*   * * \n\n**CONSUMER LOANS**\n *Term Loans by Year of Origination* *Revolving*  *Converted*  *Total* \n\nIndirect home improvement\n \n*2026*\n  \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*Prior*\n* * \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $23,901  $102,789  $61,602  $94,506  $123,542  $102,475* * $—  $—  $508,815 \n\nSubstandard\n  —   573   887   1,015   1,224   923* *  —   —   4,622 \n\nTotal indirect home improvement\n  23,901   103,362   62,489   95,521   124,766   103,398* *  —   —   513,437 \n\nIndirect home improvement gross charge-offs\n  —   467   388   546   615   433* *  —   —   2,449 \n\nMarine\n                                    \n\nPass\n  1,411   7,448   9,759   9,257   16,825   21,960* *  —   —   66,660 \n\nSubstandard\n  —   —   —   —   110   356* *  —   —   466 \n\nTotal marine\n  1,411   7,448   9,759   9,257   16,935   22,316* *  —   —   67,126 \n\nMarine gross charge-offs\n  —   —   8   4   —   63* *  —   —   75 \n\nOther consumer\n                                    \n\nPass\n  158   218   68   28   65   92* *  2,258   —   2,887 \n\nSubstandard\n  —   —   10   —   1   —* *  23   —   34 \n\nTotal other consumer\n  158   218   78   28   66   92* *  2,281   —   2,921 \n\nOther consumer gross charge-offs\n  —   —   —   —   —   46* *  50   —   96 \n\nTotal consumer loans\n $25,470  $111,028  $72,326  $104,806  $141,767  $125,806* * $2,281  $—  $583,484 \n\nTotal consumer loans gross charge-offs\n $—  $467  $396  $550  $615  $542* * $50  $—  $2,620 \n\n \n\n  \n*March 31, 2026*\n \n\n  * *   * *  \n*Revolving*\n   * * \n\n**COMMERCIAL**\n  * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\n**BUSINESS LOANS**\n *Term Loans by Year of Origination*  *Revolving*  *Converted*  *Total* \n\nC&I\n \n*2026*\n  \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $1,546  $28,302  $53,730  $23,962  $11,622  $21,668  $133,989  $139  $274,958 \n\nWatch\n  —   18,308   —   —   239   944   5,566   —   25,057 \n\nSpecial mention\n  —   —   —   —   —   144   1,143   —   1,287 \n\nSubstandard\n  —   180   49   22   51   2,120   746   —   3,168 \n\nTotal C&I\n  1,546   46,790   53,779   23,984   11,912   24,876   141,444   139   304,470 \n\nC&I gross charge-offs\n  —   —   —   82   —   —   148   —   230 \n\nWarehouse lending\n                                    \n\nPass\n  —   —   —   —   —   —   18,142   —   18,142 \n\nSpecial mention\n  —   —   —   —   —   —   2   —   2 \n\nTotal warehouse lending\n  —   —   —   —   —   —   18,144   —   18,144 \n\nTotal commercial business loans\n $1,546  $46,790  $53,779  $23,984  $11,912  $24,876  $159,588  $139  $322,614 \n\nTotal commercial business loans gross charge-offs\n $—  $—  $—  $82  $—  $—  $148  $—  $230 \n\n                                     \n\n**TOTAL LOANS RECEIVABLE, GROSS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nPass\n $129,460  $543,060  $292,891  $268,899  $413,124  $690,480  $229,286  $139  $2,567,339 \n\nWatch\n  —   18,308   600   4,065   7,038   22,746   5,566   —   58,323 \n\nSpecial mention\n  —   —   —   —   1,345   2,238   1,145   —   4,728 \n\nSubstandard\n  —   753   946   4,749   10,828   7,699   1,169   —   26,144 \n\nTotal loans receivable, gross\n $129,460  $562,121  $294,437  $277,713  $432,335  $723,163  $237,166  $139  $2,656,534 \n\nTotal gross charge-offs\n $—  $467  $396  $632  $615  $542  $198  $—  $2,850 \n\n \n\n*22*\n\n[Table of Contents](#toc)\n\n \n\n \n\n  \n*December 31, 2025*\n \n\n   * *   * *   * *   * *   * *   * *   * *  \n*Revolving*\n   * * \n\n   * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\n**CRE LOANS**\n \n*Term Loans by Year of Origination*\n  \n*Revolving*\n  \n*Converted*\n  \n*Total*\n \n\nCRE owner occupied\n \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*2021*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $37,809  $4,148  $21,485  $35,169  $10,625  $34,840  $—  $—  $144,076 \n\nWatch\n  142   600   4,084   6,167   14,137   4,438   —   —   29,568 \n\nSpecial mention\n  —   —   —   —   —   —   —   —   — \n\nSubstandard\n  —   —   —   —   —   2,434   —   —   2,434 \n\nTotal CRE owner occupied\n  37,951   4,748   25,569   41,336   24,762   41,712   —   —   176,078 \n\nCRE non-owner occupied\n                                    \n\nPass\n  9,467   8,362   15,734   49,708   34,888   51,951   —   475   170,585 \n\nSpecial mention\n  —   —   —   1,354   —   2,113   —   —   3,467 \n\nSubstandard\n  —   —   3,061   —   —   —   —   —   3,061 \n\nTotal CRE non-owner occupied\n  9,467   8,362   18,795   51,062   34,888   54,064   —   475   177,113 \n\nCommercial and speculative construction and development\n                                    \n\nPass\n  188,568   96,592   19,623   22,343   10,004   63   7,701   —   344,894 \n\nSubstandard\n  —   —   —   9,236   —   —   —   —   9,236 \n\nTotal commercial and speculative construction and development\n  188,568   96,592   19,623   31,579   10,004   63   7,701   —   354,130 \n\nCommercial and speculative construction and development gross charge-offs\n  —   —   —   2,300   —   —   —   —   2,300 \n\nMulti-family\n                                    \n\nPass\n  26,491   20,750   7,017   19,921   85,961   102,010   —   —   262,150 \n\nTotal multi-family\n  26,491   20,750   7,017   19,921   85,961   102,010   —   —   262,150 \n\nTotal CRE loans\n $262,477  $130,452  $71,004  $143,898  $155,615  $197,849  $7,701  $475  $969,471 \n\nTotal CRE loans gross charge-offs\n $—  $—  $—  $2,300  $—  $—  $—  $—  $2,300 \n\n \n\n  \n*December 31, 2025*\n \n\n**RESIDENTIAL**\n  * *   * *   * *   * *   * *   * *   * *  \n*Revolving*\n   * * \n\n**REAL ESTATE LOANS**\n  * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\nOne-to-four-family\n \n*Term Loans by Year of Origination*\n  \n*Revolving*\n  \n*Converted*\n  \n*Total*\n \n\n(excludes loans held for sale)\n \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*2021*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $93,883  $56,292  $102,074  $149,010  $97,732  $124,942  $—  $502  $624,435 \n\nWatch\n  —   —   —   710   —   —   —   —   710 \n\nSubstandard\n  —   —   673   —   —   2,943   —   —   3,616 \n\nTotal one-to-four-family\n  93,883   56,292   102,747   149,720   97,732   127,885   —   502   628,761 \n\nHome equity\n                                    \n\nPass\n  11,609   1,595   1,615   287   1,189   6,432   65,154   —   87,881 \n\nSubstandard\n  —   —   —   —   —   80   310   —   390 \n\nTotal home equity\n  11,609   1,595   1,615   287   1,189   6,512   65,464   —   88,271 \n\nResidential custom construction\n                                    \n\nPass\n  31,650   8,097   1,230   1,352   —   —   —   —   42,329 \n\nTotal residential custom construction\n  31,650   8,097   1,230   1,352   —   —   —   —   42,329 \n\nTotal residential real estate loans\n $137,142  $65,984  $105,592  $151,359  $98,921  $134,397  $65,464  $502  $759,361 \n\n \n\n*23*\n\n[Table of Contents](#toc)\n\n \n\n \n\n  \n*December 31, 2025*\n \n\n   * *   * *   * *   * *   * *   * ** *  * *  \n*Revolving*\n   * * \n\n   * *   * *   * *   * *   * *   * ** *  * *  *Loans*   * * \n\n**CONSUMER LOANS**\n *Term Loans by Year of Origination* *Revolving*  *Converted*  *Total* \n\nIndirect home improvement\n \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*2021*\n  \n*Prior*\n* * \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $111,727  $67,451  $100,504  $131,844  $58,058  $52,002* * $—  $—  $521,586 \n\nSubstandard\n  434   792   1,011   1,124   323   572* *  —   —   4,256 \n\nTotal indirect home improvement\n  112,161   68,243   101,515   132,968   58,381   52,574* *  —   —   525,842 \n\nIndirect home improvement gross charge-offs\n  261   1,763   1,647   2,025   884   753* *  —   —   7,333 \n\nMarine\n                                    \n\nPass\n  7,619   10,210   9,647   17,126   7,366   15,693* *  —   —   67,661 \n\nSubstandard\n  —   —   5   111   94   244* *  —   —   454 \n\nTotal marine\n  7,619   10,210   9,652   17,237   7,460   15,937* *  —   —   68,115 \n\nMarine gross charge-offs\n  —   63   42   —   11   101* *  —   —   217 \n\nOther consumer\n                                    \n\nPass\n  255   94   37   88   6   108* *  2,439   —   3,027 \n\nSubstandard\n  —   —   —   1   —   —* *  1   —   2 \n\nTotal other consumer\n  255   94   37   89   6   108* *  2,440   —   3,029 \n\nOther consumer gross charge-offs\n     6   —   —   2   56* *  117   —   181 \n\nTotal consumer loans\n $120,035  $78,547  $111,204  $150,294  $65,847  $68,619* * $2,440  $—  $596,986 \n\nTotal consumer loans gross charge-offs\n $261  $1,832  $1,689  $2,025  $897  $910* * $117  $—  $7,731 \n\n \n\n  \n*December 31, 2025*\n \n\n  * *   * *  \n*Revolving*\n   * * \n\n**COMMERCIAL**\n  * *   * *   * *   * *   * *   * *   * *  \n*Loans*\n   * * \n\n**BUSINESS LOANS**\n *Term Loans by Year of Origination*  *Revolving*  *Converted*  *Total* \n\nC&I\n \n*2025*\n  \n*2024*\n  \n*2023*\n  \n*2022*\n  \n*2021*\n  \n*Prior*\n  \n*Loans*\n  \n*to Term*\n  \n*Loans*\n \n\nPass\n $48,052  $55,033  $18,762  $12,437  $12,048  $11,105  $123,306  $2,121  $282,864 \n\nWatch\n  —   —   —   —   1,017   —   6,303   16   7,336 \n\nSpecial mention\n  —   —   5,000   —   —   1,391   648   —   7,039 \n\nSubstandard\n  191   —   84   —   1,592   1,199   806   —   3,872 \n\nTotal C&I\n  48,243   55,033   23,846   12,437   14,657   13,695   131,063   2,137   301,111 \n\nC&I gross charge-offs\n  —   —   —   —   433   —   —   —   433 \n\nWarehouse lending\n                                    \n\nPass\n  —   —   —   —   —   —   28,177   —   28,177 \n\nSpecial mention\n  —   —   —   —   —   —   3   —   3 \n\nTotal warehouse lending\n  —   —   —   —   —   —   28,180   —   28,180 \n\nTotal commercial business loans\n $48,243  $55,033  $23,846  $12,437  $14,657  $13,695  $159,243  $2,137  $329,291 \n\nTotal commercial business loans gross charge-offs\n $—  $—  $—  $—  $433  $—  $—  $—  $433 \n\n                                     \n\n**TOTAL LOANS RECEIVABLE, GROSS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nPass\n $567,130  $328,624  $297,728  $439,285  $317,877  $399,146  $226,777  $3,098  $2,579,665 \n\nWatch\n  142   600   4,084   6,877   15,154   4,438   6,303   16   37,614 \n\nSpecial mention\n  —   —   5,000   1,354   —   3,504   651   —   10,509 \n\nSubstandard\n  625   792   4,834   10,472   2,009   7,472   1,117   —   27,321 \n\nTotal loans receivable, gross\n $567,897  $330,016  $311,646  $457,988  $335,040  $414,560  $234,848  $3,114  $2,655,109 \n\nTotal gross charge-offs\n $261  $1,832  $1,689  $4,325  $1,330  $910  $117  $—  $10,464 \n\n \n\n*24*\n\n[Table of Contents](#toc)\n\n \n\nThe following table presents the amortized cost basis of loans on nonaccrual status as of the dates indicated:\n\n \n\n  \n*March 31, 2026*\n  \n*December 31, 2025*\n \n\n  \n*Nonaccrual with*\n  \n*Nonaccrual with*\n  \n*Total*\n  \n*Nonaccrual with*\n  \n*Nonaccrual with*\n  \n*Total*\n \n\n**CRE LOANS**\n \n*No ACL*\n  \n*ACL*\n  \n*Nonaccrual*\n  \n*No ACL*\n  \n*ACL*\n  \n*Nonaccrual*\n \n\nCRE owner occupied\n $1,081  $—  $1,081  $2,049  $—  $2,049 \n\nCommercial and speculative construction and development\n  —   9,442   9,442   —   9,236   9,236 \n\n   1,081   9,442   10,523   2,049   9,236   11,285 \n\n                         \n\n**RESIDENTIAL REAL ESTATE LOANS**\n                        \n\nOne-to-four-family\n  1,983   —   1,983   1,778   —   1,778 \n\nHome equity\n  475   —   475   390   —   390 \n\n   2,458   —   2,458   2,168   —   2,168 \n\n                         \n\n**CONSUMER LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **\n\nIndirect home improvement\n  —   4,622   4,622   —   4,256   4,256 \n\nMarine\n  —   466   466   —   454   454 \n\nOther consumer\n  —   34   34   —   2   2 \n\n   —   5,122   5,122   —   4,712   4,712 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **\n\nC&I\n  —   165   165   415   165   580 \n\nTotal\n $3,539  $14,729  $18,268  $4,632  $14,113  $18,745 \n\n \n\nThe Company recognized interest income on a cash basis for nonaccrual loans of $132,000 and $105,000 during the *three* months ended *March 31, 2026*and *2025*, respectively.\n\n \n\nThe following table presents the amortized cost basis of collateral dependent loans by class of loans as of the dates indicated:\n\n \n\n  \n*March 31, 2026*\n  \n*December 31, 2025*\n \n\n  * *  \n*Residential*\n  \n*Other*\n   * *  * *  \n*Residential*\n  \n*Other*\n   * * \n\n  * *  *Real*  *Non-Real*   * *  * *  *Real*  *Non-Real*   * * \n\n**CRE LOANS**\n \n*CRE*\n  \n*Estate*\n  \n*Estate*\n  \n*Total*\n  \n*CRE*\n  \n*Estate*\n  \n*Estate*\n  \n*Total*\n \n\nCRE owner occupied\n $1,081  $—  $—  $1,081  $2,049  $—  $—  $2,049 \n\nCommercial and speculative construction and development\n  9,442   —   —   9,442   9,236   —   * *   9,236 \n\n   10,523   —   —   10,523   11,285   —   —   11,285 \n\n                         \n\n**RESIDENTIAL REAL ESTATE LOANS**\n                                \n\nOne-to-four-family\n  —   1,983   —   1,983   —   1,778   —   1,778 \n\nHome equity\n  —   475   —   475   —   390   —   390 \n\n   —   2,458   —   2,458   —   2,168   —   2,168 \n\n                         \n\n**CONSUMER LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nIndirect home improvement\n  —   —   4,622   4,622   —   —   4,256   4,256 \n\nMarine\n  —   —   466   466   —   —   454   454 \n\n   —   —   5,088   5,088   —   —   4,710   4,710 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **   ** **   ** **   ** **   ** **   ** **   ** **\n\nC&I\n  —   —   165   165   —   —   398   398 \n\nTotal\n $10,523  $2,458  $5,253  $18,234  $11,285  $2,168  $5,108  $18,561 \n\n  \n\n \n\n*25*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **4** –** MORTGAGE SERVICING RIGHTS**\n\n \n\nLoans serviced for others are *not* included on the Consolidated Balance Sheets. The unpaid principal balance of residential mortgage loans serviced for others was $1.68 billion and $1.67 billion at *March 31, 2026* and *December 31, 2025*, respectively. Custodial escrow balances maintained in connection with loans serviced for others were $18.9 million and $10.9 million at *March 31, 2026* and *December 31, 2025*, respectively.\n\n \n\nThe following table summarizes MSRs activity at or for the dates indicated:\n\n \n\n  \n*At or For the Three Months Ended*\n \n\n  \n*March 31,*\n \n\n  \n*2026*\n  \n*2025*\n \n\nBeginning balance, at the lower of cost or fair value\n $8,608  $9,204 \n\nAdditions\n  866   308 \n\nMSRs amortized\n  (853)  (595)\n\nRecovery of MSRs\n  55   9 \n\nEnding balance, at the lower of cost or fair value\n $8,676  $8,926 \n\n \n\nThe fair value of the MSRs’ assets was $22.8 million and $21.8 million at *March 31, 2026* and *December 31, 2025*, 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.\n\n \n\nKey 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.\n\n \n\n  *March 31,*  *December 31,* \n\n  \n*2026*\n  \n*2025*\n \n\nAggregate portfolio principal balance\n $1,684,714  $1,673,501 \n\nWeighted average rate of loans in MSRs portfolio\n  4.5%  4.4%\n\nFair value MSRs\n $22,815  $21,800 \n\nWeighted average life in years\n  8.0   7.7 \n\nWeighted average constant prepayment rate\n  7.5%  8.5%\n\nDecline in fair value from 10% adverse change (prepayment-only)\n $738  $736 \n\nDecline in fair value from 20% adverse change (prepayment-only)\n $1,243  $1,253 \n\nEffective discount rate\n  9.1%  9.1%\n\nDecline in fair value from 10% adverse change (prepayment + discount rate)\n $958  $899 \n\nDecline in fair value from 20% adverse change (prepayment + discount rate)\n $1,843  $1,730 \n\n \n\nThese 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 this table, 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.\n\n \n\nThe Company recorded $1.2 million and $1.1 million of gross contractually specified servicing fees, late fees, and other ancillary fees resulting from servicing of loans for the *three* months ended *March 31, 2026*and *2025*, respectively. The income, net of amortization of MSRs, is reported in “Service charges and fee income” on the Consolidated Statements of Income.\n\n \n\n*26*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **5** –**DERIVATIVES**\n\n \n\nThe 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.\n\n \n\nThe 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.\n\n \n\n**Mortgage Banking Derivatives Not Designated as Hedges**\n\n \n\nThe 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.\n\n \n\n**Customer Swaps Not Designated as Hedges**\n\n \n\nThe 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.\n\n \n\n**Cash Flow Hedges**\n\n \n\nThe Company has entered into interest rate swaps to reduce its 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 a series of future adjustable-rate borrowings and deposits over the term of the interest rate swap. 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 the inception of hedges.\n\n \n\nThe Company expects that approximately $382,000 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.\n\n \n\n**Fair Value Hedges**\n\n \n\nThe 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.\n\n \n\n \n\n*27*\n\n[Table of Contents](#toc)\n\n \n\n \n\nThe following amounts were recorded on the balance sheet related to cumulative-basis adjustment for fair value hedges for the dates indicated:\n\n \n\nLine item in the Consolidated Balance Sheets in which the hedged item is included\n \n*Carrying Amount of the Hedged Assets*\n  \n*Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets*\n \n\nMarch 31, 2026\n        \n\nInvestment securities (1)\n $57,607  $2,393 \n\nTotal\n $57,607  $2,393 \n\n         \n\nDecember 31, 2025\n        \n\nInvestment securities (1)\n $57,869  $2,131 \n\nTotal\n $57,869  $2,131 \n\n \n\n(*1*)\n\nThese 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 *March 31, 2026*, the amortized cost basis of the closed portfolios used in these hedging relationships was $178.1 million; the cumulative basis adjustments associated with these hedging relationships was $2.4 million; and the amount of the designated hedged items was $60.0 million.  At *December 31, 2025*, the amortized cost basis of the closed portfolios used in these hedging relationships was $179.4 million; the cumulative basis adjustment associated with these hedging relationships was a loss of $2.1 million; and the amount of the designated hedged items was $60.0 million. \n\n \n\nThe 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:\n\n \n\n  \n*March 31, 2026*\n \n\n   * *  \n*Fair Value*\n \n\nCash flow and fair value hedges:\n \n*Notional*\n  \n*Asset*\n  \n*Liability*\n \n\nInterest rate swaps\n $300,000  $2,516  $222 \n\nNon-hedging derivatives:\n            \n\nFallout adjusted interest rate lock commitments with customers\n  36,373   313   — \n\nMandatory and best effort forward commitments with investors\n  28,038   353   — \n\nForward TBA mortgage-backed securities\n  62,000   559   — \n\nInterest rate swaps – customer swap positions\n  627   —   43 \n\nInterest rate swaps – dealer offsets to customer swap positions\n  627   44   — \n\n \n\n  \n*December 31, 2025*\n \n\n   * *  \n*Fair Value*\n \n\nCash flow and fair value hedges:\n \n*Notional*\n  \n*Asset*\n  \n*Liability*\n \n\nInterest rate swaps\n $300,000  $1,894  $656 \n\nNon-hedging derivatives:\n            \n\nFallout adjusted interest rate lock commitments with customers\n  25,468   241   — \n\nMandatory and best effort forward commitments with investors\n  8,985   8   — \n\nForward TBA mortgage-backed securities\n  56,000   —   146 \n\nInterest rate swaps – customer swap positions\n  627   —   36 \n\nInterest rate swaps – dealer offsets to customer swap positions\n  627   36   — \n\n \n\n \n\n*28*\n\n[Table of Contents](#toc)\n\n \n\n \n\nThe following table summarizes the effect of fair value and cash flow hedge accounting on the Consolidated Statements of Income for the *three* months ended *March 31, 2026*and *2025*:\n\n \n\n  \n*Three Months Ended March 31,*\n \n\n  \n*2026*\n  \n*2025*\n \n\n  \n*Interest Expense Deposits and Borrowings*\n  \n*Interest Income Securities*\n  \n*Interest Expense Deposits and Borrowings*\n  \n*Interest Income Securities*\n \n\nTotal amounts presented on the Consolidated Statements of Income\n $16,097  $3,321  $15,321  $3,485 \n\nNet gains (losses) on fair value hedging relationships:\n                \n\nInterest rate swaps – securities\n                \n\nRecognized on hedged items\n $—  $(262) $—  $392 \n\nRecognized on derivatives designated as hedging instruments\n  —   262   —   (392)\n\nNet interest income recognized on cash flows of derivatives designated as hedging instruments\n  —   164   —   297 \n\nNet income recognized on fair value hedges\n $—  $164  $—  $297 \n\nNet gain on cash flow hedging relationships:\n                \n\nInterest rate swaps – brokered deposits and borrowings\n                \n\nRealized gains, pre-tax, reclassified from accumulated other comprehensive loss into net income\n $73  $—  $574  $— \n\nNet income recognized on cash flow hedges\n $73  $—  $574  $— \n\n \n\nChanges in the fair value of the non-hedging derivatives were recorded in “Gain on sale of loans” on the Consolidated Statements of Income as net gains of $419,000 and $72,000 for the *three* months ended *March 31, 2026*and *2025*, respectively.\n\n \n\nThe 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.\n\n \n\n   * *  \n*Gross Amounts*\n  \n*Net Amounts of Assets*\n  \n*Gross Amounts Not Offset*\n \n\n  \n*Gross Amounts*\n  \n*Offset in the*\n  \n*Presented in the*\n  \n*in the Consolidated Balance Sheets*\n \n\n  \n*of Recognized*\n  \n*Consolidated*\n  \n*Consolidated*\n  \n*Financial*\n  \n*Cash Collateral*\n   * * \n\nOffsetting of derivative assets\n \n*Assets*\n  \n*Balance Sheets*\n  \n*Balance Sheets*\n  \n*Instruments*\n  \n*Received*\n  \n*Net Amount*\n \n\nAt March 31, 2026\n                        \n\nInterest rate swaps\n $2,585  $25  $2,560  $—  $—  $2,560 \n\n                         \n\nAt December 31, 2025\n                        \n\nInterest rate swaps\n $2,269  $339  $1,930  $—  $—  $1,930 \n\n \n\n  * *  * *  *Net Amounts of*  * *  * *  * * \n\n   * *  \n*Gross Amounts*\n  \n*Liabilities*\n  \n*Gross Amounts Not Offset*\n \n\n  \n*Gross Amounts*\n  \n*Offset in the*\n  \n*Presented in the*\n  \n*in the Consolidated Balance Sheets*\n \n\n  \n*of Recognized*\n  \n*Consolidated*\n  \n*Consolidated*\n  \n*Financial*\n  \n*Cash Collateral*\n   * * \n\nOffsetting of derivative liabilities\n \n*Liabilities*\n  \n*Balance Sheets*\n  \n*Balance Sheets*\n  \n*Instruments*\n  \n*Posted*\n  \n*Net Amount*\n \n\nAt March 31, 2026\n                        \n\nInterest rate swaps\n $415  $193  $222  $—  $40  $182 \n\n                         \n\nAt December 31, 2025\n                        \n\nInterest rate swaps\n $679  $23  $656  $—  $680  $— \n\n \n\n*Credit* **Risk**–**Related Contingent Features**\n\n \n\nThe 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 *March 31, 2026*, the Company had $40,000 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.\n\n \n\n \n\n*29*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE 6**–**LEASES**\n\n \n\nThe Company has operating leases for retail bank and home lending branches, loan production offices, and certain equipment.  At *March 31, 2026*, these leases have remaining terms ranging from six months to nine years and *four* months, with some including options to extend for up to five years.\n\n \n\nThe components of lease cost (included in occupancy expense on the Consolidated Statements of Income) for the *three* months ended *March 31, 2026*and *2025* are as follows:\n\n \n\n  *Three Months Ended March 31,* \n\nLease cost:\n \n*2026*\n  \n*2025*\n \n\nOperating lease cost\n $364  $471 \n\nShort-term lease cost\n  7   4 \n\nTotal lease cost\n $371  $475 \n\n \n\nThe following table provides supplemental information related to operating leases at or for the *three* months ended *March 31, 2026*and *2025*:\n\n \n\n  *At or For the Three months Ended March 31,*\n\nCash paid for amounts included in the measurement of lease liabilities:\n \n*2026*\n  \n*2025*\n* *\n\nOperating cash flows from operating leases\n $372  $483* *\n\nWeighted average remaining lease term- operating leases (in years)\n  4.9   3.4* *\n\nWeighted average discount rate- operating leases\n  4.00%  3.17*%*\n\n \n\nThe 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.\n\n \n\nMaturities of operating lease liabilities at *March 31, 2026* for future periods are as follows:\n\n \n\nRemainder of 2026\n $1,986 \n\n2027\n  1,729 \n\n2028\n  1,110 \n\n2029\n  947 \n\n2030\n  677 \n\nThereafter\n  1,254 \n\nTotal lease payments\n  7,703 \n\nLess imputed interest\n  (2,133)\n\nTotal\n $5,570 \n\n \n\n*30*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **7** –**DEPOSITS**\n\n \n\nDeposits are summarized as follows at the dates indicated:\n\n \n\n  *March 31,*  *December 31,* \n\n  \n*2026*\n  \n*2025*\n \n\nNoninterest-bearing checking\n $634,787  $647,197 \n\nInterest-bearing checking (1)\n  326,209   335,449 \n\nSavings\n  169,192   164,056 \n\nMoney market (2)\n  377,935   385,618 \n\nCertificates of deposit less than $100,000 (3)\n  501,103   512,808 \n\nCertificates of deposit of $100,000 through $250,000\n  441,795   452,666 \n\nCertificates of deposit greater than $250,000\n  167,651   164,922 \n\nEscrow accounts related to mortgages serviced (4)\n  18,904   10,926 \n\nTotal\n $2,637,576  $2,673,642 \n\n \n\n(*1*)\n\nIncludes $140.4 million and $140.2 million of brokered deposits at *March 31, 2026* and *December 31, 2025*, respectively.\n\n(*2*)\n\nIncludes $250,000 and $20.3 million of brokered deposits at *March 31, 2026* and *December 31, 2025*, respectively.\n\n(*3*)\n\nIncludes $186.7 million and $202.1 million of brokered deposits at *March 31, 2026* and *December 31, 2025*, respectively.\n\n(*4*)Noninterest-bearing accounts.\n\n \n\nScheduled maturities of time deposits at *March 31, 2026* for future periods ending are as follows:\n\n \n\nMaturing in 2026\n $989,490 \n\nMaturing in 2027\n  95,024 \n\nMaturing in 2028\n  12,123 \n\nMaturing in 2029\n  13,098 \n\nMaturing in 2030 and thereafter\n  814 \n\nTotal\n $1,110,549 \n\n \n\nInterest expense by deposit category for the periods indicated is as follows:\n\n \n\n  \n*Three Months Ended March 31,*\n \n\n  \n*2026*\n  \n*2025*\n \n\nInterest-bearing checking\n $2,304  $711 \n\nSavings and money market\n  2,319   1,925 \n\nCertificates of deposit\n  10,090   10,422 \n\nTotal\n $14,713  $13,058 \n\n \n\n \n\n**NOTE** **8** –**COMMITMENTS AND CONTINGENCIES**\n\n \n\n**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.\n\n \n\nThe 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.\n\n \n\n*31*\n\n[Table of Contents](#toc)\n\n \n\nThe following table provides a summary of the Company’s commitments at the dates indicated:\n\n \n\n**COMMITMENTS TO EXTEND CREDIT**\n *March 31,*  *December 31,* \n\n**CRE LOANS**\n \n*2026*\n  \n*2025*\n \n\nCRE\n $2,049  $2,204 \n\nCommercial and speculative construction and development\n  185,288   198,176 \n\nMulti-family\n  6,344   6,676 \n\nTotal CRE loans\n  193,681   207,056 \n\n**RESIDENTIAL REAL ESTATE LOANS**\n        \n\nOne-to-four-family (including loans held for sale)\n  48,694   28,977 \n\nHome equity\n  99,564   100,071 \n\nResidential custom construction\n  33,212   37,213 \n\nTotal residential real estate loans\n  181,470   166,261 \n\n**CONSUMER LOANS**\n  29,517   29,646 \n\n**COMMERCIAL BUSINESS LOANS**\n   ** **   ** **\n\nC&I\n  154,705   160,277 \n\nWarehouse lending\n  62,195   42,145 \n\nTotal commercial business loans\n  216,900   202,422 \n\nTotal commitments to extend credit\n $621,568  $605,385 \n\n \n\nCommitments to extend credit are agreements to lend to a customer provided there is *no* violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the amount of the total commitments does *not* necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but *may*include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.\n\n \n\nUnfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements represent potential future extensions of credit to existing customers. These commitments generally do *not* contain a specified maturity date and *may**not* be drawn upon to the total extent to which the Company is committed. The Company maintains an ACL – unfunded loan commitments for all arrangements that are *not* unconditionally cancellable, consistent with the Company's CECL methodology.  The ACL on unfunded loan commitments is recorded within “Other liabilities” on the Consolidated Balance Sheets.  The Company's ACL on unfunded loan commitments at *March 31, 2026* and *December 31, 2025* was $1.6 million and $1.8 million, respectively. The Company recorded a recovery of credit losses – unfunded loan commitments of $121,000 and a provision of $66,000 for the *three* months ended *March 31, 2026*and *2025*, respectively. The decrease in provision for the *three* months ended *March 31, 2026*and *2025* was primarily attributable to a $12.9 million decrease in commercial and speculative construction and development loan commitments.\n\n \n\nA 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.”\n\n \n\nThe Company also sells *one*-to-*four*-family loans to the FHLB of Des Moines under agreements that require a limited level of recourse in the event of borrower default. Under the recourse structure, losses on defaulted loans are *first* absorbed by a *first* loss account (“FLA”) established by the FHLB of Des Moines, and thereafter by a credit enhancement (“CE”) obligation required of the Bank.  The FLA and CE obligation function as sequential layers of credit protection for the FHLB of Des Moines on the sold loan portfolio. As of *March 31, 2026*, the outstanding unpaid principal balance of loans sold to the FHLB of Des Moines was $8.2 million. The FLA balance was $581,000 and the CE obligation balance was $389,000 at that date. Management has established a loss reserve holdback equal *to10%* of the outstanding CE obligation, or $39,000, based on management's analysis of historical loss experiences and additional market factors. This holdback is included in the Company's broader reserve for off-balance sheet credit exposures related to loans sold. At both *March 31, 2026* and *December 31, 2025*, there were no loans sold to the FHLB of Des Moines with contractual payments greater than *30* days past due.\n\n \n\n**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 $1.4 million and $1.8 million to cover loss exposure related to these guarantees for *one*-to-*four*-family loans sold into the secondary market at *March 31, 2026* and *December 31, 2025*, respectively, which is included in “Other liabilities” on the Consolidated Balance Sheets.\n\n \n\n \n\n*32*\n\n[Table of Contents](#toc)\n\n \n\nThe 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.\n\n \n\nThe 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.\n\n \n\nAs 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 *March 31, 2026*.\n\n \n\n \n\n**NOTE** **9** –**FAIR VALUE MEASUREMENTS**\n\n \n\nThe Company determines fair value based on the requirements established in ASC *Topic 820*, *Fair Value Measurements,* which provides a framework for measuring fair value in accordance with U.S. GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC *Topic 820* defines fair value as the exit price, or the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.\n\n \n\nThe following definitions describe the levels of inputs that *may*be used to measure fair value:\n\n \n\n**Level 1** – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.\n\n \n\n**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.\n\n \n\n**Level 3** – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.\n\n \n\nThe following methods were used to estimate the fair value of certain assets and liabilities on a recurring and nonrecurring basis:\n\n \n\n**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.\n\n \n\n**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*).\n\n \n\n**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 *March 31, 2026* and *December 31, 2025*, there were $13.0 million and $13.2 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 $13.7 million and $13.8 million as of *March 31, 2026* and *December 31, 2025*, 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 *March 31, 2026*, the Company recorded a net decrease in fair value of $101,000, as compared to a net increase in fair value of $263,000, for the *three* months ended *March 31, 2025*.   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*).\n\n \n\n \n\n*33*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**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.\n\n \n\n**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*).\n\n \n\n**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*).\n\n \n\nThe 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:\n\n \n\n**Financial Assets**\n \n*At March 31, 2026*\n \n\nSecurities available-for-sale:\n \n*Level 1*\n  \n*Level 2*\n  \n*Level 3*\n  \n*Total*\n \n\nU.S. agency securities\n $—  $18,108  $—  $18,108 \n\nCorporate securities\n  —   15,338   —   15,338 \n\nMunicipal bonds\n  —   70,066   —   70,066 \n\nMortgage-backed securities\n  —   158,122   —   158,122 \n\nAsset-backed securities\n  —   9,373   —   9,373 \n\nMortgage loans held for sale, at fair value\n  —   56,275   —   56,275 \n\nLoans receivable, at fair value\n  —   12,977   —   12,977 \n\nDerivatives:\n                \n\nMandatory and best effort forward commitments with investors\n  —   —   353   353 \n\nInterest rate lock commitments with customers\n  —   —   313   313 \n\nForward TBA mortgage-backed securities\n  —   559   —   559 \n\nInterest rate swaps - cash flow and fair value hedges\n  —   2,516   —   2,516 \n\nInterest rate swaps - dealer offsets to customer swap positions\n  —   44   —   44 \n\nTotal assets measured at fair value\n $—  $343,378  $666  $344,044 \n\n**Financial Liabilities**\n   ** **   ** **   ** **   ** **\n\nDerivatives:\n                \n\nInterest rate swaps - customer swap positions\n $—  $(43) $—  $(43)\n\nInterest rate swaps - cash flow and fair value hedges\n  —   (222)  —   (222)\n\nTotal liabilities measured at fair value\n $—  $(265) $—  $(265)\n\n \n\n \n\n*34*\n\n[Table of Contents](#toc)\n\n \n\n**Financial Assets**\n \n*At December 31, 2025*\n \n\nSecurities available-for-sale:\n \n*Level 1*\n  \n*Level 2*\n  \n*Level 3*\n  \n*Total*\n \n\nU.S. agency securities\n $—  $18,127  $—  $18,127 \n\nCorporate securities\n  —   15,386   —   15,386 \n\nMunicipal bonds\n  —   71,405   —   71,405 \n\nMortgage-backed securities\n  —   173,567   —   173,567 \n\nAsset-backed securities\n  —   10,182   —   10,182 \n\nMortgage loans held for sale, at fair value\n  —   43,705   —   43,705 \n\nLoans receivable, at fair value\n  —   13,183   —   13,183 \n\nDerivatives:\n                \n\nMandatory and best effort forward commitments with investors\n  —   —   8   8 \n\nInterest rate lock commitments with customers\n  —   —   241   241 \n\nInterest rate swaps- cash flow and fair value hedges\n  —   1,894   —   1,894 \n\nInterest rate swaps - dealer offsets to customer swap positions\n  —   36   —   36 \n\nTotal assets measured at fair value\n $—  $347,485  $249  $347,734 \n\n**Financial Liabilities**\n   ** **   ** **   ** **   ** **\n\nDerivatives:\n                \n\nInterest rate swaps - cash flow and fair value hedges\n  —   (36)  —   (36)\n\nInterest rate swaps - customer swap positions\n $—  $(656) $—  $(656)\n\nForward TBA mortgage-backed securities\n  —   (146)  —   (146)\n\nTotal liabilities measured at fair value\n $—  $(838) $—  $(838)\n\n \n\nThe following tables present financial assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy at *March 31, 2026* and *December 31, 2025*. Level *3* assets recorded at fair value on a nonrecurring basis included loans for which a partial charge-off was recorded based on the estimated fair value of the underlying collateral.\n\n \n\n  \n*March 31, 2026*\n \n\n  \n*Level 1*\n  \n*Level 2*\n  \n*Level 3*\n  \n*Total*\n \n\nCollateral dependent loans\n $—  $—  $9,442  $9,442 \n\nMSRs\n  —   —   22,815   22,815 \n\n \n\n  \n*December 31, 2025*\n \n\n  \n*Level 1*\n  \n*Level 2*\n  \n*Level 3*\n  \n*Total*\n \n\nCollateral dependent loans\n $—  $—  $9,236  $9,236 \n\nMSRs\n  —   —   21,800   21,800 \n\n \n\n**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:\n\n \n\n**Level 3**\n * * \n*Significant*\n  * *  \n*Weighted Average Input*\n \n\n**Fair Value**\n \n*Valuation*\n \n*Unobservable*\n  * *  \n*March 31,*\n  \n*December 31,*\n \n\n**Instruments**\n \n*Techniques*\n \n*Inputs*\n \n*Range*\n  \n*2026*\n  \n*2025*\n \n\n**RECURRING**\n       ** **   ** **   ** **\n\nInterest rate lock commitments with customers\n \n*Quoted market prices*\n \n*Pull-through expectations*\n  80% - 99%   93.2%  93.7%\n\nIndividual forward sale commitments with investors\n \n*Quoted market prices*\n \n*Pull-through expectations*\n  80% - 99%   93.2%  93.7%\n\n**NONRECURRING**\n       ** **   ** **   ** **\n\nCollateral dependent loans\n \n*Fair value of underlying collateral*\n \n*Discount applied to the obtained appraisal*\n  0% - 25%   7.5%  —%\n\nMSRs\n \n*Industry sources*\n \n*Pre-payment speeds*\n  0% - 50%   7.5%  8.5%\n\n \n\nThe pull-through expectation 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.\n\n \n\n \n\n*35*\n\n[Table of Contents](#toc)\n\n \n\nThe 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:\n\n \n\n   * *  \n*Purchases*\n   * *   * *  \n*Net change in*\n  \n*Net change in*\n \n\n**Three Months Ended**\n \n*Beginning*\n  \n*and*\n  \n*Sales and*\n  \n*Ending*\n  \n*fair value for*\n  \n*fair value for*\n \n\n**March 31, 2026**\n \n*Balance*\n  \n*Issuances*\n  \n*Settlements*\n  \n*Balance*\n  \ngains/(losses) (1)\n  \ngains/(losses) (2)\n \n\nInterest rate lock commitments with customers\n $241  $1,430  $(1,358) $313  $72  $— \n\nIndividual forward sale commitments with investors\n  8   439   (94)  353   345   — \n\n**March 31, 2025**\n   ** **   ** **   ** **   ** **   ** **   ** **\n\nInterest rate lock commitments with customers\n $103  $1,141  $(805) $439  $336  $— \n\nIndividual forward sale commitments with investors\n  31   (84)  (7)  (60)  (91)  — \n\n \n\n(*1*) Relating to items held at end of period included in income.\n\n(*2*) Relating to items held at end of period included in other comprehensive income.\n\n \n\nGains 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.\n\n \n\nThe 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:\n\n \n\n  \n*March 31, 2026*\n  \n*December 31, 2025*\n \n\n**Financial Assets**\n \n*Carrying*\n  \n*Fair*\n  \n*Carrying*\n  \n*Fair*\n \n\nLevel 1 inputs:\n \n*Amount*\n  \n*Value*\n  \n*Amount*\n  \n*Value*\n \n\nCash and cash equivalents\n $38,702  $38,702  $28,219  $28,219 \n\nLevel 2 inputs:\n                \n\nSecurities available-for-sale, at fair value\n  271,007   271,007   288,667   288,667 \n\nSecurities held-to-maturity, gross\n  33,544   34,303   33,501   34,396 \n\nLoans held for sale, at fair value\n  56,275   56,275   43,705   43,705 \n\nForward TBA mortgage-backed securities\n  559   559   —   — \n\nLoans receivable, at fair value\n  12,977   12,977   13,183   13,183 \n\nInterest rate swaps - cash flow and fair value hedges\n  2,516   2,516   1,894   1,894 \n\nInterest rate swaps - dealer offsets to customer swap positions\n  44   44   36   36 \n\nLevel 3 inputs:\n                \n\nLoans receivable, gross\n  2,643,557   2,582,586   2,641,926   2,578,744 \n\nMSRs, held at lower of cost or fair value\n  8,676   22,815   8,608   21,800 \n\nMandatory and best effort forward commitments with investors\n  353   353   8   8 \n\nFair value interest rate locks with customers\n  313   313   241   241 \n\n**Financial Liabilities**\n   ** **   ** **   ** **   ** **\n\nLevel 2 inputs:\n                \n\nTime deposits\n  1,110,549   1,108,051   1,130,396   1,129,892 \n\nBorrowings\n  167,305   166,050   129,305   128,360 \n\nSubordinated notes, excluding unamortized debt issuance costs\n  50,000   49,258   50,000   48,856 \n\nInterest rate swaps - cash flow and fair value hedges\n  222   222   656   656 \n\nForward TBA mortgage-backed securities\n  —   —   146   146 \n\nInterest rate swaps - customer swap positions\n  43   43   36   36 \n\n \n\n \n\n**NOTE** **10** –**EARNINGS PER SHARE**\n\n \n\nThe 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.\n\n \n\n*36*\n\n[Table of Contents](#toc)\n\n \n\nThe following table presents a reconciliation of the components used to compute basic and diluted earnings per share at or for the dates indicated:\n\n \n\n \n \n\n*At or For the Three Months Ended March 31,*\n\n \n\nNumerator:\n\n \n\n*2026*\n\n \n \n\n*2025*\n\n \n\nNet income\n\n \n$\n7,830\n \n \n$\n8,021\n \n\nDividends and undistributed earnings allocated to participating securities\n\n \n \n(137\n)\n \n \n(135\n)\n\nNet income available to common shareholders\n\n \n$\n7,693\n \n \n$\n7,886\n \n\nDenominator (shown as actual):\n\n \n \n \n \n \n \n \n \n\nBasic weighted average common shares outstanding\n\n \n \n7,402,375\n \n \n \n7,695,320\n \n\nDilutive shares\n\n \n \n128,916\n \n \n \n110,408\n \n\nDiluted weighted average common shares outstanding\n\n \n \n7,531,291\n \n \n \n7,805,728\n \n\nBasic earnings per share\n\n \n$\n1.04\n \n \n$\n1.02\n \n\nDiluted earnings per share\n\n \n$\n1.02\n \n \n$\n1.01\n \n\nPotentially 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.\n\n \n \n36,495\n \n \n \n—\n \n\n \n\n \n\n**NOTE** **11** –**STOCK-BASED COMPENSATION**\n\n \n\n**Stock Options and Restricted Stock**\n\n \n\nOn *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 *March 31, 2026*, there were 52,060 stock option awards and 500 RSAs available for future grants under the *2018* Plan.\n\n \n\nTotal share-based compensation expense was $627,000 and $512,000 for the *three* months ended *March 31, 2026*and *2025*, respectively.\n\n \n\nStock-based compensation awards are settled by issuing new shares from the Company's pool of authorized but unissued common stock, rather than previously repurchased treasury shares.\n\n \n\nStock Options\n\n \n\nThe *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.\n\n \n\nThe 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.  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.\n\n \n\n*37*\n\n[Table of Contents](#toc)\n\n \n\nThe following table presents a summary of the Company’s stock option awards during the dates indicated (shown as actual):\n\n \n\n  \n*Shares*\n  \n*Weighted-Average Exercise Price*\n  \n*Weighted-Average Remaining Contractual Term In Years*\n  \n*Aggregate Value*\n \n\nOutstanding at January 1, 2026\n  658,623  $33.47   6.63  $5,134,992 \n\nGranted\n  —   —   *—*   — \n\nLess exercised\n  —   —   *—*   — \n\nOutstanding at March 31, 2026\n  658,623  $33.47   6.39  $3,843,979 \n\n                 \n\nExpected to vest, assuming a 0.31% annual forfeiture rate at, March 31, 2026 (1)\n  645,202  $33.36   6.34   3,820,421 \n\n                 \n\nExercisable at March 31, 2026\n  371,448  $30.28   4.90  $3,166,704 \n\n  \n\n \n(*1*)\n\nForfeiture rate has been calculated and estimated, based on historical employment data, to assume a forfeiture of 3.1% of the options over 10 years.\n\n \n\nAt *March 31, 2026*, there was $2.5 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 1.5 years.\n\n \n\nRestricted Stock Awards\n\n \n\nThe RSA 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.\n\n \n\nThe following table presents a summary of the Company’s nonvested awards during the dates indicated (shown as actual):\n\n \n\nNonvested Shares\n \n*Shares*\n  \n*Weighted-Average Grant-Date Fair Value Per Share*\n \n\nNonvested at January 1, 2026\n  102,971  $37.73 \n\nGranted\n  —   — \n\nLess vested\n  —   — \n\nNonvested at March 31, 2026\n  102,971  $37.73 \n\n \n\nAt *March 31, 2026*, there was $3.0 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 1.5 years.\n\n \n\n \n\n*38*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **12** –**REGULATORY CAPITAL**\n\n \n\nThe 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.\n\n \n\nUnder 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).\n\n \n\nThe 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 *March 31, 2026*, 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 *March 31, 2026*, that the Bank met all capital adequacy requirements.\n\n \n\nThe 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:\n\n \n\n   * *   * *   * *   * *   * *   * *  \n*To be Well Capitalized*\n \n\n   * *   * *   * *   * *  \n*For Capital*\n  \n*Under Prompt*\n \n\n   * *   * *  \n*For Capital*\n  \n*Adequacy With*\n  \n*Corrective*\n \n\n  \n*Actual*\n  \n*Adequacy Purposes*\n  \n*Capital Buffer*\n  \n*Action Provisions*\n \n\n  \n*Amount*\n  \n*Ratio*\n  \n*Amount*\n  \n*Ratio*\n  \n*Amount*\n  \n*Ratio*\n  \n*Amount*\n  \n*Ratio*\n \n\nAt March 31, 2026\n                                \n\nTotal risk-based capital (to risk-weighted assets)\n                                \n\nConsolidated\n $390,597   13.77% $226,991   8.00% $297,926   10.50%  *N/A*   *N/A* \n\nBank Only\n  391,729   13.81%  226,991   8.00%  297,926   10.50%  283,739   10.00%\n\nTier 1 risk-based capital (to risk-weighted assets)\n                                \n\nConsolidated\n  316,230   11.15%  170,243   6.00% $241,178   8.50%  *N/A*   *N/A* \n\nBank Only\n  357,362   12.59%  170,243   6.00%  241,178   8.50%  226,991   8.00%\n\nTier 1 leverage capital (to average assets)\n                                \n\nConsolidated\n  316,230   9.87%  128,104   4.00%  *N/A*   *N/A*   *N/A*   *N/A* \n\nBank Only\n  357,362   11.16%  128,104   4.00%  *N/A*   *N/A*   160,129   5.00%\n\nCET 1 capital (to risk-weighted assets)\n                                \n\nConsolidated\n  316,230   11.15%  127,683   4.50% $198,617   7.00%  *N/A*   *N/A* \n\nBank Only\n  357,362   12.59%  127,683   4.50%  198,617   7.00%  184,430   6.50%\n\n                                 \n\nAt December 31, 2025\n                                \n\nTotal risk-based capital (to risk-weighted assets)\n                                \n\nConsolidated\n $393,396   14.25% $220,788   8.00% $289,785   10.50%  *N/A*   *N/A* \n\nBank Only\n  385,215   13.96%  220,788   8.00%  289,785   10.50%  275,986   10.00%\n\nTier 1 risk-based capital (to risk-weighted assets)\n                                \n\nConsolidated\n  309,413   11.21%  165,591   6.00%  234,588   8.50%  *N/A*   *N/A* \n\nBank Only\n  351,232   12.73%  165,591   6.00%  234,588   8.50%  220,788   8.00%\n\nTier 1 leverage capital (to average assets)\n                                \n\nConsolidated\n  309,413   9.66%  128,160   4.00%  *N/A*   *N/A*   *N/A*   *N/A* \n\nBank Only\n  351,232   10.96%  128,160   4.00%  *N/A*   *N/A*   160,200   5.00%\n\nCET 1 capital (to risk-weighted assets)\n                                \n\nConsolidated\n  309,413   11.21%  124,194   4.50%  193,190   7.00%  *N/A*   *N/A* \n\nBank Only\n  351,232   12.73%  124,194   4.50%  193,190   7.00%  179,391   6.50%\n\n  \n\n*39*\n\n[Table of Contents](#toc)\n\n \n\nIn 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 *March 31, 2026*, the Bank’s capital exceeded the conservation buffer.\n\n \n\nAs 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 must comply 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 requiring a bank holding company 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. \n\n \n\nUnder 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 exceeded *$3.0* billion as of *June 30, 2025,*and therefore, the Company did *not* qualify as a small bank holding company for regulatory purposes 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.\n\n \n\n \n\n**NOTE** **13** –**BUSINESS SEGMENTS**\n\n \n\nThe 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.\n\n \n\nThe Company uses various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:\n\n \n\n●\n\na 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;\n\n \n\n●\n\na 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;\n\n \n\n●\n\nan allocation based upon the approximate square footage utilized by the home lending segment in Company owned locations;\n\n \n\n●\n\nan 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\n\n \n\n●\n\nan 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.\n\n \n\n \n\n*40*\n\n[Table of Contents](#toc)\n\n \n\n \n\nSegment assets are primarily allocated based on 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 they provide is as follows:\n\n \n\n**Commercial and Consumer Banking Segment**\n\n \n\nThe 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 *March 31, 2026*, 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.\n\n \n\n**Home Lending Segment**\n\n \n\nThe 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.  \n\n \n\n \n\n*41*\n\n[Table of Contents](#toc)\n\n \n\n**Segment Financial Results**\n\n \n\nAccounting 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* months ended *March 31, 2026*and *2025*:\n\n \n\n  \n*At or For the Three Months Ended March 31, 2026*\n \n\nIncome:\n \n*Commercial and Consumer Banking*\n  \n*Home Lending*\n  \n*Total*\n \n\nInterest income - loans receivable, including fees\n $37,023  $8,989  $46,012 \n\nInterest income - other interest earnings assets\n  3,321   —   3,321 \n\nTotal interest income by segment\n  40,344   8,989   49,333 \n\n             \n\nGain on sale of loans\n  —   2,384   2,384 \n\nOther income\n  2,782   235   3,017 \n\nIntersegment income\n  (318)  318   — \n\nTotal noninterest income by segment\n  2,464   2,937   5,401 \n\n             \n\nTotal income by segment\n  42,808   11,926   54,734 \n\n             \n\nExpense:\n            \n\nInterest expense - deposits\n  14,712   1   14,713 \n\nInterest expense - borrowings\n  1,384   —   1,384 \n\nInterest expense - subordinated note\n  549   142   691 \n\nInterest expense - intersegment\n  (5,852)  5,852   — \n\nTotal interest expense by segment\n  10,793   5,995   16,788 \n\n             \n\nProvision (recovery) for credit losses by segment\n  2,544   (15)  2,529 \n\n             \n\nSalaries and benefits\n  8,311   2,004   10,315 \n\nOverhead allocation\n  6,091   1,884   7,975 \n\nOther segment items (1)\n  6,460   770   7,230 \n\nTotal noninterest expense by segment\n  20,862   4,658   25,520 \n\n             \n\nIncome before provision for income taxes by segment\n  8,609   1,288   9,897 \n\nProvision for income taxes by segment\n  (1,863)  (204)  (2,067)\n\nNet income by segment\n $6,746  $1,084  $7,830 \n\n             \n\nOther segment disclosures:\n            \n\nSegment assets\n $2,524,337  $679,178  $3,203,515 \n\nFTEs\n  469   116   585 \n\n \n\n \n\n*42*\n\n[Table of Contents](#toc)\n\n \n\n  \n*At or For the Three Months Ended March 31, 2025*\n \n\nIncome:\n \n*Commercial and Consumer Banking*\n  \n*Home Lending*\n  \n*Total*\n \n\nInterest income - loans receivable, including fees\n $34,928  $8,375  $43,303 \n\nInterest income - other interest earnings assets\n  3,485   —   3,485 \n\nTotal interest income by segment\n  38,413   8,375   46,788 \n\n             \n\nGain on sale of loans\n  —   1,700   1,700 \n\nOther income\n  2,572   854   3,426 \n\nIntersegment income\n  (327)  327   — \n\nTotal noninterest income by segment\n  2,245   2,881   5,126 \n\n             \n\nTotal income by segment\n  40,658   11,256   51,914 \n\n             \n\nExpense:\n            \n\nInterest expense - deposits\n  13,056   2   13,058 \n\nInterest expense - borrowings\n  2,263   —   2,263 \n\nInterest expense - subordinated note\n  386   99   485 \n\nInterest expense - intersegment\n  (5,698)  5,698   — \n\nTotal interest expense by segment\n  10,007   5,799   15,806 \n\n             \n\nProvision for credit losses by segment\n  1,321   271   1,592 \n\n             \n\nSalaries and benefits\n  7,670   2,273   9,943 \n\nOverhead allocation\n  5,377   1,824   7,201 \n\nOther segment items (1)\n  7,128   783   7,911 \n\nTotal noninterest expense by segment\n  20,175   4,880   25,055 \n\n             \n\nIncome before provision for income taxes by segment\n  9,155   306   9,461 \n\nProvision for income taxes by segment\n  (1,376)  (64)  (1,440)\n\nNet income by segment\n $7,779  $242  $8,021 \n\n             \n\nOther segment disclosures:\n            \n\nSegment assets\n $2,424,808  $641,270  $3,066,078 \n\nFTEs\n  454   113   567 \n\n \n\n(*1*)\n\nOther segment items include operations, occupancy, data processing, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.\n\n \n\n*43*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **14**–**GOODWILL AND OTHER INTANGIBLE ASSETS**\n\n \n\nGoodwill and certain other intangibles generally arise from business combinations accounted for under the acquisition method of accounting. Goodwill totaled $3.6 million at both *March 31, 2026*, and *December 31, 2025*, and represents the excess of the total consideration transferred over the net identifiable assets acquired 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. During the last annual evaluation, the Company elected to perform a qualitative assessment to determine whether it was more likely than *not* that the fair value of the reporting unit exceeded its carrying value, including goodwill.  In performing this assessment, management considered qualitative factors including macroeconomic conditions, industry and market trends, financial performance, and changes in the Company's stock price and market capitalization. Based on this assessment, management concluded that it was more likely than *not* the fair value of the reporting unit exceeded its carrying value, and therefore no impairment of goodwill was indicated.\n\n \n\nCore 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 *March 31, 2026*, management believes that there have been no events or changes in the circumstances that would indicate a potential impairment of CDI.\n\n \n\nThe following table summarizes the changes in the Company’s other intangible assets comprised solely of CDI for the year ended *December 31, 2025*, and the *three* months ended *March 31, 2026*.\n\n \n\n  \n*Other Intangible Assets*\n \n\n   * *  \n*Accumulated*\n   * * \n\n  \n*Gross CDI*\n  \n*Amortization*\n  \n*Net CDI*\n \n\nBalance, December 31, 2024\n $24,928  $(11,218) $13,710 \n\nAmortization\n  *—*   (3,192)  (3,192)\n\nBalance, December 31, 2025\n  24,928   (14,410)  10,518 \n\nAmortization\n  *—*   (744)  (744)\n\nBalance, March 31, 2026\n $24,928  $(15,154) $9,774 \n\n \n\nThe 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 $744,000 for the *three* months ended *March 31, 2026*, compared to $831,000 for the same period in *2025,* respectively.\n\n \n\nAmortization expense for CDI is expected to be as follows at *March 31, 2026*:\n\n \n\nRemainder of 2026\n $2,101 \n\n2027\n  2,500 \n\n2028\n  2,110 \n\n2029\n  1,283 \n\n2030\n  937 \n\nThereafter\n  843 \n\nTotal\n $9,774 \n\n \n\n*44*\n\n[Table of Contents](#toc)\n\n \n\n \n\n**NOTE** **15 **–** DEFINITIVE AGREEMENT**\n\n \n\nOn *February 25, 2026,*the Company entered into a definitive agreement (the “Agreement”) with Pacific West Bancorp, headquartered in West Linn, Oregon (\"Pacific West\"), pursuant to which Pacific West will be merged with and into the Company, and immediately thereafter Pacific West’s bank subsidiary, Pacific West Bank, will be merged with and into *1st* Security Bank of Washington.  Pacific West Bank primarily serves the Greater Portland, Oregon metropolitan area with *four* branch locations in Portland, Vancouver, West Linn, and Lake Oswego.\n\n \n\nUnder the terms of the Agreement, the aggregate consideration will consist of 430,176 shares of FS Bancorp common stock and $16,832,742 in cash.  Pacific West shareholders will have the right to elect shares of FS Bancorp common stock or cash, subject to proration as provided in the Agreement.  Based on the closing price of FS Bancorp common stock of $41.26 on *February 25, 2026,*the consideration value for Pacific West was $34.6 million, or approximately $12.52 per share.  Upon completion of the merger, Pacific West shareholders would hold, in aggregate, approximately 5.4% of FS Bancorp’s outstanding common stock.\n\n \n\nAll of the directors of Pacific West have agreed to vote their shares of Pacific West common stock in favor of approval of the Agreement. The proposed transaction is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the Agreement by the shareholders of Pacific West, and is expected to be completed in the *third* quarter of *2026.*\n\n \n\nAt *December 31, 2025,*Pacific West reported total assets of $386.0 million, total loans of $276.6 million and total deposits of $342.2 million.\n\n \n\n \n\n*45*\n\n[Table of Contents](#toc)\n\n  \n\n \n\n**Item** **2.** **Management**’**s Discussion and Analysis of Financial Condition and Results of Operations**\n\n \n\n**Forward**–**Looking Statements**\n\n \n\nThis report contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “projects,” or similar expressions. Forward-looking statements include, but are not limited to:\n\n \n\n●\n\nstatements regarding our goals, intentions, and expectations;\n\n●\n\nstatements regarding our business plans, prospects, growth, and operating strategies;\n\n●\n\nstatements regarding the quality of our loan and investment portfolios; and\n\n●\n\nestimates of our risks and future costs and benefits.\n\n \n\nThese 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 other things, the following factors:\n\n \n\n●\n\nadverse impacts on economic conditions in our local markets or other markets where we have lending relationships; or to other aspects of the Company's business operations;\n\n●\neffects of employment levels, labor shortages, persistent inflation, recessionary pressures or slowed economic growth;\n\n●\n\nchanges in interest rate levels and volatility, and the timing and pace of such changes, including actions 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;\n\n●\n\nthe impact of inflation and related monetary and fiscal policy responses thereto, and their impact on consumer and business behavior;\n\n●\ngeopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions that may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;\n\n●\nthe effects of any government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;\n\n●\n\ncredit risks inherent in lending activities, including loan delinquencies, charge-offs, changes in our allowance for credit losses (“ACL”), and provisions for credit losses;\n\n●\n\nsecondary market conditions and our ability to originate loans for sale and sell loans in the secondary market;\n\n●\n\nfluctuations in loan demand, unsold homes, and land and in property values;\n\n●\n\nstaffing fluctuations arising from product demand or corporate strategies;\n\n●\n\nuse of estimates in determining the fair value of assets, which may prove incorrect;\n\n●\n\nincreased competitive pressures among financial services companies;\n\n●\n\nour 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;\n\n●\n\nour ability to attract and retain deposits;\n\n●\n\nour ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire in the future into our operations, to realize related revenue synergies and cost savings within expected time frames, and the potential for goodwill impairments;\n\n●\n\nour ability to control operating costs and expenses;\n\n●\nexpectations regarding key growth initiatives and strategic priorities;\n\n●\n\nretention of key members of our senior management team;\n\n●\n\nchanges in consumer spending, borrowing, and savings habits;\n\n●\n\nour ability to successfully manage our growth;\n\n●\n\nbank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment;\n\n●\nour ability to adapt to rapid technological changes, including advancements related to artificial intelligence, digital banking platforms, and cybersecurity;\n\n●\n\nlegislation or regulatory changes including, but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;\n\n \n\n46\n\n[Table of Contents](#toc)\n\n \n\n●\n\nour ability to pay dividends on our common stock;\n\n●\n\nquality and composition of our securities portfolio and the impact of adverse changes in the securities markets;\n\n●\n\nchanges in accounting policies and practices adopted by the bank regulatory agencies, the Public Company Accounting Oversight Board or the Financial Accounting Standards Board (“FASB”);\n\n●\n\ncosts and effects of litigation, including settlements and judgments;\n\n●\n\nvulnerabilities in our information systems or those of third-party service providers, including disruptions, breaches, or cyberattacks;\n\n●\n\ninability of key third-party vendors to perform their obligations to us;\n\n●\n\neffects 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;\n\n●\n\nthe potential for new or increased tariffs, trade restrictions or geopolitical tensions that could affect economic activity or specific industry sectors;\n\n●\nenvironmental, social and governance goals and targets;\n\n●\n\nother economic, competitive, governmental, bank regulatory, consumer and technical factors affecting our operations, pricing, products and services; and\n\n●\n\nother risks described elsewhere in this Form 10‑Q and our other reports filed with or furnished to the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”).\n\n \n\nFurther, statements about the potential effects of the Company's proposed merger with Pacific West Bancorp, headquartered in West Linn, Oregon (“Pacific West”) on the Company's business, financial results, and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in the forward-looking statements due to factors and future developments which are uncertain, unpredictable, and in many cases, beyond the Company's control, including the following:\n\n \n\n●\n\nthe expected cost savings, synergies and other financial benefits from the merger might not be realized within the expected time frames or at all;\n\n●\n\ngovernmental approval of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger;\n\n●\n\nconditions to the closing of the merger may not be satisfied; the shareholders of Pacific West may fail to approve the consummation of the merger;\n\n●\n\nthe integration of the combined company, including personnel changes/retention, might not proceed as planned; and\n\n●\n\nthe combined company might not perform as well as expected.\n\n \n\nAny forward-looking statements in this Form 10‑Q and in other public statements may prove to be inaccurate because of incorrect assumptions, the factors described above, or other factors that we cannot foresee. Forward-looking statements are based on management’s beliefs and assumptions as of 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 in this report might not occur and you should not place undue reliance on any forward-looking statements.\n\n \n\n**Overview**\n\n \n\n1st Security Bank including the predecessor to Anchor Bank, one of its banking acquisitions, has been serving the Puget Sound area since 1907.  On July 9, 2012, the Bank converted from mutual to stock ownership, becoming the wholly owned subsidiary of FS Bancorp.\n\n \n\nThe Company is relationship-driven, delivering banking and financial services to families, businesses, and industry niches in suburban communities across the greater Puget Sound area, the Kennewick-Pasco-Richland metropolitan area (also known as the Tri-Cities), and the communities of Goldendale, Vancouver, and White Salmon, Washington, as well as Manzanita, Newport, Ontario, Tillamook and Waldport, Oregon.\n\n \n\nIn addition to its community banking presence, the Company maintains a long-standing indirect consumer lending platform operating primarily throughout the Western United States. Through active community involvement and a broad array of products and services, the Company emphasizes long-term relationships with the families and businesses it serves, working alongside them to meet their evolving financial needs. \n\n \n\n \n\n47\n\n[Table of Contents](#toc)\n\n \n\n \n\nThe Company's strategic focus involves diversifying revenues, expanding lending channels, and enhancing the banking franchise. Management is committed to building varied revenue streams while thoughtfully managing credit, interest rate, and concentration risks. This commitment is reflected in the following priorities:\n\n \n\n●\n\nGrowing and diversifying the loan portfolio;\n\n●\n\nMaintaining strong asset quality;\n\n●\n\nEmphasizing lower cost core deposits to reduce funding costs and support loan growth;\n\n●\n\nCapturing customers’ complete relationships through a broad array of products and services, leveraging community involvement, and selectively emphasizing offerings aligned with customers’ banking needs; and\n\n●\n\nExpanding into new markets.\n\n \n\nAs a diversified lender, the Company specializes in originating one-to-four-family residential loans, CRE mortgages, second mortgages, consumer loans, marine lending, and commercial business loans.\n\n \n\nAt March 31, 2026, the Company's loan portfolio consisted of the following major categories: CRE loans, residential real estate loans, consumer loans, and commercial business loans representing 37.2%, 28.8%, 21.9%, and 12.1% of the portfolio, respectively. \n\n \n\nIndirect home improvement loans to finance window, gutter, siding replacement, solar panels, spas, and other improvement renovations represent a large segment of the consumer loan portfolio. These loans are sourced through a contractor/dealer network of 30 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 March 31, 2026, the Company originated 1,181 indirect home improvement loans with an aggregate total of $26.6 million. Five contractor/dealers accounted for 71.7% of the dollar volume funded in this category, and four states – Washington, Oregon, California, and Utah – represented nearly three-quarters of total loan originations at 36.4%, 21.0%, 15.3%, and 4.7%, respectively.\n\n \n\nThe Company originates one-to-four-family residential mortgage loans through referrals from real estate agents, financial planners, builders, and existing customers with retail banking customers also serving as an important source of loan originations. During the three months ended March 31, 2026, the Company originated $204.9 million of one-to-four-family loans (including loans held for sale, loans held for investment, and fixed seconds).  In addition, $3.1 million of loans were brokered to other institutions through the home lending segment. Of the loans originated, $154.7 million were sold to investors, of which $73.6 million were sold to the FNMA and FHLMC with servicing rights retained to further develop these customer relationships. \n\n \n\nFor the three months ended March 31, 2026, one-to-four-family loan originations and refinancing activity increased compared to the prior period, driven by changes in interest rates and economic conditions. Residential construction and development lending, while less common than other origination options, remains an important element of the total loan portfolio.  The Company continues to take a disciplined approach concentrating its efforts on loans to builders and developers in its known market areas. These short-term loans typically carry a maturity of six to 18 months, with disbursements not fully realized at origination, resulting in a short-term reduction in net loans receivable.\n\n \n\nThe 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.\n\n \n\nThe 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.\n\n \n\nThe 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. \n\n \n\n**Critical Accounting Estimates**\n\n \n\nThere 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, 2025.\n\n \n\n \n\n48\n\n[Table of Contents](#toc)\n\n \n\n**Comparison of Financial Condition at March 31, 2026 and December 31, 2025**\n\n \n\n**Assets.**Total assets remained virtually unchanged at $3.20 billion at March 31, 2026, compared to December 31, 2025. The most significant changes between these periods were a $17.7 million decrease in securities available-for-sale, a $12.6 million increase in loans held for sale, a $10.5 million increase in total cash and cash equivalents, and a $919,000 increase in loans receivable, net.  Asset growth was primarily funded by brokered deposits.  \n\n \n\nLoans receivable, net, was $2.62 billion at both March 31, 2026, and December 31, 2025. \n\n \n\n● Commercial real estate (“CRE”) loans increased $17.4 million, primarily reflecting:\n\n○ $6.2 million in CRE owner occupied loans,\n\n○ $5.5 million in CRE non-owner occupied loans, \n\n○ $4.5 million in commercial and speculative construction and development loans, and\n\n○ $1.2 million in multi-family loans.\n\n \n\n● Residential real estate loans increased $4.2 million, driven by:\n\n○ $2.2 million in one-to-four-family loans (excluding loans held for sale),\n\n○ $1.8 million in residential custom construction loans, and\n\n○ $197,000 in home equity loans.\n\n \n\n● Total undisbursed construction and development loan commitments decreased $16.9 million to $218.5 million at March 31, 2026, from $235.4 million at December 31, 2025.\n\n \n\n● Commercial business loans decreased $6.7 million, reflecting a decrease of $10.0 million in warehouse lending, partially offset by an increase of $3.4 million in commercial and industrial (“C&I”) loans.\n\n \n\n● Consumer loans decreased $13.5 million, primarily due to declines of $12.4 million in indirect home improvement loans and $989,000 in marine loans.\n\n \n\nOverall, loan growth was concentrated in CRE, including owner occupied, non-owner occupied, and construction and development loans, and to a lesser extent, multi-family and residential real estate segments. Consumer balances declined, driven primarily by a reduction in indirect home improvement loans, reflecting the impact of current economic conditions on consumer demand.\n\n \n\nLoans held for sale, consisting of one-to-four-family loans, increased $12.6 million to $56.3 million at March 31, 2026, from $43.7 million at December 31, 2025, reflecting higher origination volume driven by increased refinance activity resulting from improved mortgage rates.\n\n \n\nFor the three months ended March 31, 2026, one-to-four-family loan originations and refinancing activity increased significantly compared to the prior period, driven by improved mortgage rates which resulted in a 175% increase in refinance volume.  Purchase originations also increased $18.9 million. or 15.7%, reflecting continued demand in the Company's market areas.\n\n \n\nOriginations of one-to-four-family loans for the periods indicated were as follows:\n\n \n\n(Dollars in thousands)\n\n \n\nFor the Three Months Ended March 31,\n\n \n \n \n \n \n \n\n \n \n\n2026\n\n \n \n\n2025\n\n \n \n \n \n \n \n\n \n \n\nAmount\n\n \n\nPercent\n\n \n \n\nAmount\n\n \n\nPercent\n\n \n \n\n$ Change\n\n \n\n% Change\n\n \n\nPurchase\n\n \n\n$\n\n139,626\n\n \n\n67.3\n\n%\n\n \n\n$\n\n120,719\n\n \n\n83.0\n\n%\n\n \n\n$\n\n18,907\n\n \n\n15.7\n\n%\n\nRefinance\n\n \n \n\n67,864\n\n \n\n32.7\n\n \n \n \n\n24,677\n\n \n\n17.0\n\n \n \n \n\n43,187\n\n \n\n175.0\n\n%\n\nTotal\n\n \n\n$\n\n207,490\n\n \n\n100.0\n\n%\n\n \n\n$\n\n145,396\n\n \n\n100.0\n\n%\n\n \n\n$\n\n62,094\n\n \n\n42.7\n\n%\n\n \n\nDuring the three months ended March 31, 2026, the Company sold $154.7 million of one-to-four-family loans, compared to $91.9 million for the same period one year ago. The increase in loan sales reflects improved mortgage rates which is also driving 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 3.03% for the three months ended March 31, 2026, compared to 3.26% for the three months ended March 31, 2025. The compression in gross margin reflects competitive pricing pressures in the current mortgage market environment as the Company maintained production volume consistent with market demand. Gross margin is defined as the margin on loans sold without the impact of deferred loan costs.\n\n \n\n49\n\n[Table of Contents](#toc)\n\n \n\nThe ACL on loans totaled $32.4 million, or 1.22%, of gross loans receivable (excluding loans held for sale), at \nMarch 31, 2026, compared to $31.9 million, or 1.20%, at \nDecember 31, 2025. The ACL on unfunded loan commitments decreased $121,000 to $1.6 million at \nMarch 31, 2026, from $1.8 million at \nDecember 31, 2025.  Total loans 30 days or more past due increased to $23.2 million, or 0.87% of total loans, from $22.2 million, or 0.84%, at December 31, 2025, reflecting softening credit performance across the broader loan portfolio, driven by current economic conditions and their impact on borrower cash flows.\n\n \n\nNonperforming loans, consisting solely of nonaccrual loans, decreased $477,000 to $18.3 million at \nMarch 31, 2026, from $18.7 million at\nDecember 31, 2025.  The decrease was primarily attributable to nonperforming CRE loans, which decreased $762,000 to $10.5 million, and nonperforming C&I loans, which decreased $415,000 to $165,000, partially offset by nonperforming indirect home improvement loans, which increased $366,000 to $4.6 million and nonperforming residential loans, which increased $290,000 to $2.5 million. The ratio of nonperforming loans to total gross loans reduced slightly to 0.69% at\nMarch 31, 2026, from 0.71% at\nDecember 31, 2025.             \n\n \n\nClassified loans totaled $26.1 million at \nMarch 31, 2026, compared to $27.3 million at\nDecember 31, 2025. The coverage ratio of the ACL on loans to nonperforming loans was 177.7% at \nMarch 31, 2026, compared to 170.6% at\nDecember 31, 2025. The increase in the coverage ratio primarily reflects increased provision for nonperforming loans.\n\n \n\nOverall, asset quality trends reflect growth in CRE, construction, multi-family, and residential loan segments, ongoing elevated losses in certain consumer loan portfolios, and continued risk management and monitoring of nonperforming and substandard exposures.\n\n \n\n**L****iabilities.** Total liabilities were $2.89 billion at both March 31, 2026 and December 31, 2025. The loan-to-deposit ratio was approximately 102.9% at March 31, 2026, compared to approximately 100.9% at December 31, 2025.\n\n \n\nTotal deposits decreased $36.1 million to $2.64 billion at March 31, 2026, from $2.67 billion at December 31, 2025, reflecting decreases in all deposit categories other than escrow accounts. Transactional accounts (noninterest-bearing checking, interest-bearing checking and escrow accounts) decreased $13.7 million to $980.0 million at March 31, 2026, from $993.6 million at December 31, 2025, primarily due to decreases of $12.4 million in noninterest-bearing checking, and $9.2 million in interest-bearing checking, partially offset by an $8.0 million  increase in escrow accounts related to mortgages serviced, reflecting higher customer balances and increased activity in mortgage servicing.  Money market and savings accounts decreased $2.5 million to $547.1 million at March 31, 2026, from $549.7 million at December 31, 2025, primarily reflecting a decline in money market balances, partially offset by an increase in retail and business savings accounts.\n\n \n\nCDs, which include both retail and non-retail CDs, decreased $19.8 million to $1.11 billion at March 31, 2026, from $1.13 billion at December 31, 2025.  Retail CDs decreased $5.0 million to $916.7 million at March 31, 2026, from $921.7 million at December 31, 2025. Non-retail CDs, which include brokered CDs, online CDs and public funds CDs decreased $14.9 million to $193.8 million, compared to $208.7 million at December 31, 2025, primarily due to a decrease of $15.3 million in brokered CDs. Non-retail CDs represented 17.5% and 18.5% of total CDs at March 31, 2026 and December 31, 2025, respectively. The decrease in non-retail CDs aligns with the Company's strategy to manage interest rate risk and liquidity by accessing larger and more diversified funding sources at competitive rates that were only slightly higher than local market rates, while reducing reliance on higher cost borrowings.\n\n \n\n \n\n50\n\n[Table of Contents](#toc)\n\n \n\nDeposits are summarized as follows at the dates indicated:\n\n \n\n(Dollars in thousands)\n\n \n\nMarch 31,\n\n \n \n\nDecember 31,\n\n \n\n \n \n\n2026\n\n \n \n\n2025\n\n \n\nNoninterest-bearing checking\n\n \n$\n634,787\n \n \n$\n647,197\n \n\nInterest-bearing checking (1)\n\n \n \n326,209\n \n \n \n335,449\n \n\nSavings\n\n \n \n169,192\n \n \n \n164,056\n \n\nMoney market (2)\n\n \n \n377,935\n \n \n \n385,618\n \n\nCertificates of deposit less than $100,000 (3)\n\n \n \n501,103\n \n \n \n512,808\n \n\nCertificates of deposit of $100,000 through $250,000\n\n \n \n441,795\n \n \n \n452,666\n \n\nCertificates of deposit greater than $250,000 (4)\n\n \n \n167,651\n \n \n \n164,922\n \n\nEscrow accounts related to mortgages serviced (5)\n\n \n \n18,904\n \n \n \n10,926\n \n\nTotal\n\n \n$\n2,637,576\n \n \n$\n2,673,642\n \n\n(1)\n\nIncludes $140.4 million and $140.2 million of brokered deposits at March 31, 2026 and December 31, 2025, respectively.\n\n(2)\n\nIncludes $250,000 and $20.3 million of brokered deposits at March 31, 2026 and December 31, 2025, respectively.\n\n(3)\nIncludes $186.7 million and $202.1 million of brokered deposits at March 31, 2026 and December 31, 2025, respectively.\n\n(4)\n\nCDs that meet or exceed the FDIC insurance limit.\n\n(5)\n\nNoninterest-bearing checking.\n\n \n\nThe Bank had uninsured deposits of approximately $704.2 million or 26.7% of total deposits, at March 31, 2026, compared to approximately $718.1 million or 26.9% of total deposits at December 31, 2025. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.\n\n \n\nBorrowings increased $38.0 million to $167.3 million at March 31, 2026, from $129.3 million at December 31, 2025.  The increase reflects competitive rates on borrowings, compared to brokered deposits, consistent with the Company's funding strategy.  At March 31, 2026, borrowings were comprised of FHLB and FRB advances.\n\n \n\n**Stockholders**’**Equity.** Total stockholders’ equity increased $6.2 million to $313.9 million at March 31, 2026, from $307.7 million at December 31, 2025.  The increase primarily reflects net income of $7.8 million. Declines in the fair value of available-for-sale securities recorded in accumulated other comprehensive income (“AOCI”) were largely offset by improvements in the fair value of interest rate swap cash flow hedges, resulting in a net improvement of $83,000, net of tax.  Gains and losses in fair value reflect changes in market interest rates during the periods.  The increase in shareholders’ equity was partially offset by cash dividends paid totaling $2.2 million, and share repurchases of $620,000.  \n\n \n\nBook value per common share was $42.42 at March 31, 2026, compared to $41.55 at December 31, 2025.  The calculation of book value per share at March 31, 2026, was based on 7,398,571 common shares, derived by subtracting the 102,971 unvested restricted stock shares from the 7,501,542 reported common shares outstanding as of that date. Similarly, the book value per share at December 31, 2025, was calculated based on 7,404,548 common shares, after deducting 102,971 unvested restricted stock shares from the 7,507,519 reported common shares outstanding as of that date.\n\n \n\n**Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025**\n\n \n\n**General.**Net income was $7.8 million for the three months ended March 31, 2026, compared to $8.0 million for the three months ended March 31, 2025. The decrease was primarily due to a $937,000, or 58.9%, increase in provision for credit losses, a $627,000, or 43.5%, increase in provision for income taxes, and a $465,000, or 1.9%, increase in total noninterest expense, partially offset by a $1.6 million, or 5.0%, increase in net interest income, and a $275,000, or 5.4%, increase in total noninterest income.   \n\n \n\n \n\n51\n\n[Table of Contents](#toc)\n\n \n\n**Average Balances, Interest and Average Yields/Cost**\n\n \n\nThe following table sets forth for the periods indicated, information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Also presented is the weighted average yield on interest-earning assets, rates paid on interest-bearing liabilities and the resultant spread at for the periods presented. Average balances are daily average balances. The yields on tax-exempt municipal bonds have not been computed on a tax equivalent basis.\n\n \n\n(Dollars in thousands)\n\n \nFor the Three Months Ended\n \n\n \n \n\nMarch 31, 2026\n\n \n \n\nMarch 31, 2025\n\n \n\n**Average Balances**\n\n \n\nAverage Balance Outstanding\n\n \n \n\nInterest Earned/ Paid\n\n \n \n\nYield/ Rate\n\n \n \n\nAverage Balance Outstanding\n\n \n \n\nInterest Earned/ Paid\n\n \n \n\nYield/ Rate\n\n \n\n**ASSETS**\n\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n\nLoans receivable, net and loans held for sale (1) (2)\n\n \n$\n2,700,993\n \n \n$\n46,012\n \n \n \n6.91\n%\n \n$\n2,559,944\n \n \n$\n43,303\n \n \n \n6.86\n%\n\nTaxable investment securities (3)(4)\n\n \n \n254,244\n \n \n \n2,503\n \n \n \n3.99\n%\n \n \n241,430\n \n \n \n2,586\n \n \n \n4.34\n%\n\nTax exempt securities (3)\n\n \n \n78,144\n \n \n \n443\n \n \n \n2.30\n%\n \n \n77,643\n \n \n \n450\n \n \n \n2.35\n%\n\nFHLB stock\n\n \n \n8,057\n \n \n \n175\n \n \n \n8.81\n%\n \n \n11,948\n \n \n \n275\n \n \n \n9.33\n%\n\nInterest-bearing deposits at other financial institutions\n\n \n \n23,082\n \n \n \n200\n \n \n \n3.51\n%\n \n \n16,161\n \n \n \n174\n \n \n \n4.37\n%\n\nTotal interest-earning assets\n\n \n \n3,064,520\n \n \n \n49,333\n \n \n \n6.53\n%\n \n \n2,907,126\n \n \n \n46,788\n \n \n \n6.53\n%\n\nNoninterest-earning assets\n\n \n \n136,839\n \n \n \n \n \n \n \n \n \n \n \n125,386\n \n \n \n \n \n \n \n \n \n\n**Total assets**\n\n \n$\n3,201,359\n \n \n \n \n \n \n \n \n \n \n$\n3,032,512\n \n \n \n \n \n \n \n \n \n\n**LIABILITIES**\n\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n \n \n \n** **\n\nSavings and money market\n\n \n$\n551,570\n \n \n \n2,319\n \n \n \n1.71\n%\n \n$\n495,895\n \n \n \n1,925\n \n \n \n1.57\n%\n\nInterest-bearing checking\n\n \n \n351,417\n \n \n \n2,304\n \n \n \n2.66\n%\n \n \n182,783\n \n \n \n711\n \n \n \n1.58\n%\n\nCertificates of deposit\n\n \n \n1,106,171\n \n \n \n10,090\n \n \n \n3.70\n%\n \n \n1,086,927\n \n \n \n10,422\n \n \n \n3.89\n%\n\nBorrowings\n\n \n \n132,250\n \n \n \n1,384\n \n \n \n4.24\n%\n \n \n218,639\n \n \n \n2,263\n \n \n \n4.20\n%\n\nSubordinated notes\n\n \n \n49,666\n \n \n \n691\n \n \n \n5.64\n%\n \n \n49,600\n \n \n \n485\n \n \n \n3.97\n%\n\n**Total interest-bearing liabilities**\n\n \n \n2,191,074\n \n \n \n16,788\n \n \n \n3.11\n%\n \n \n2,033,844\n \n \n \n15,806\n \n \n \n3.15\n%\n\nNoninterest-bearing accounts\n\n \n \n658,746\n \n \n \n \n \n \n \n \n \n \n \n663,824\n \n \n \n \n \n \n \n \n \n\nOther noninterest-bearing liabilities\n\n \n \n34,805\n \n \n \n \n \n \n \n \n \n \n \n33,739\n \n \n \n \n \n \n \n \n \n\n**Total liabilities**\n\n \n$\n2,884,625\n \n \n \n \n \n \n \n \n \n \n$\n2,731,407\n \n \n \n \n \n \n \n \n \n\n**Net interest income**\n\n \n \n \n \n \n$\n32,545\n \n \n \n \n \n \n \n \n \n \n$\n30,982\n \n \n \n \n \n\n**Net interest rate spread**\n\n \n \n \n \n \n \n \n \n \n \n3.42\n%\n \n \n \n \n \n \n \n \n \n \n3.38\n%\n\n**Net earning assets**\n\n \n$\n873,446\n \n \n \n \n \n \n \n \n \n \n$\n873,282\n \n \n \n \n \n \n \n \n \n\n**Net interest margin**\n\n \n \n \n \n \n \n \n \n \n \n4.31\n%\n \n \n \n \n \n \n \n \n \n \n4.32\n%\n\nAverage interest-earning assets to average interest-bearing liabilities\n\n \n \n139.86\n%\n \n \n \n \n \n \n \n \n \n \n142.94\n%\n \n \n \n \n \n \n \n \n\n \n\n(1)\n\nThe average loans receivable, net balances include nonaccrual loans carrying a zero yield.\n\n(2)\nIncludes net deferred fee recognition of $1.7 million and $1.2 million for the three months ended March 31, 2026 and 2025, respectively.\n\n(3)\n\nShown at amortized cost.\n\n(4)\nIncludes income from fair value hedges of $164,000 and $297,000 for the three months ended March 31, 2026 and 2025, respectively.\n\n \n\n52\n\n[Table of Contents](#toc)\n\n \n\n**Net Interest Income.**Net interest income increased $1.6 million to $32.5 million for the three months ended March 31, 2026, from $31.0 million for the three months ended March 31, 2025, primarily due to an increase in total interest income of $2.5 million, partially offset by an increase in total interest expense of $982,000. The increase in total interest income was primarily due to an increase of $2.7 million in interest income on loans receivable, including fees, driven primarily by a five-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 increase in total interest expense was primarily the result of a $1.7 million increase in deposit interest expense, reflecting significantly higher average balances in interest-bearing checking accounts, including brokered deposits, and a 108 basis point increase in the rate paid on those accounts.  Additionally, the repricing of the Company's subordinated notes to a floating rate on February 15, 2026, contributed $206,000 of incremental interest expense.  These increases were partially offset by an $879,000 decrease in borrowing costs, as the Company reduced average borrowings by $86.4 million in accordance with its funding and liquidity strategy.\n\n \n\nNet interest margin (“NIM”) (annualized) decreased one basis point to 4.31% for the three months ended March 31, 2026, from 4.32% for the same period the prior year. The change in NIM primarily reflects the repricing of the Company's subordinated notes to a floating rate on February 15, 2026, which resulted in an estimated two-basis point decline in NIM for the quarter, and higher funding costs associated with growth in interest-bearing checking balances, including brokered deposits. These effects were largely offset by a five-basis point improvement in average loan yields and a modest decline in CD rates.\n\n \n\n**Interest Income.**Total interest income for the three months ended March 31, 2026, increased $2.5 million to $49.3 million, from $46.8 million for the three months ended March 31, 2025. The increase was primarily due to a $2.7 million increase in interest income on loans receivable, including fees, as a result of higher average loan balances and a five-basis point increase in average loan yields.  Offsetting this growth were decreases in interest income on investment securities and FHLB stock, collectively totaling $190,000, reflecting yield compression on taxable investment securities from 4.34% to 3.99% and lower average FHLB stock balances.\n\n \n\nThe following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the three months ended March 31, 2026 and 2025:\n\n \n\n(Dollars in thousands)\n\n \n\nThree Months Ended March 31,\n\n \n\n \n \n\n2026\n\n \n \n\n2025\n\n \n \n \n \n \n\n \n \n\nAverage\n\n \n \n \n \n \n \n\nAverage\n\n \n \n \n \n \n \n\n$ Change\n\n \n\n \n \n\nBalance\n\n \n \n \n \n \n \n\nBalance\n\n \n \n \n \n \n \n\nin Interest\n\n \n\n \n \n\nOutstanding\n\n \n \n\nYield\n\n \n \n\nOutstanding\n\n \n \n\nYield\n\n \n \n\nIncome\n\n \n\nLoans receivable, net and loans held for sale (1)(2)\n\n \n$\n2,700,993\n \n \n \n6.91\n%\n \n$\n2,559,944\n \n \n \n6.86\n%\n \n$\n2,709\n \n\nInvestment securities – taxable (3)(4)\n\n \n \n254,244\n \n \n \n3.99\n \n \n \n241,430\n \n \n \n4.34\n \n \n \n(83\n)\n\nInvestment securities – nontaxable\n\n \n \n78,144\n \n \n \n2.30\n \n \n \n77,643\n \n \n \n2.35\n \n \n \n(7\n)\n\nFHLB stock\n\n \n \n8,057\n \n \n \n8.81\n \n \n \n11,948\n \n \n \n9.33\n \n \n \n(100\n)\n\nInterest-bearing deposits at other financial institutions\n\n \n \n23,082\n \n \n \n3.51\n \n \n \n16,161\n \n \n \n4.37\n \n \n \n26\n \n\nTotal interest-earning assets\n\n \n$\n3,064,520\n \n \n \n6.53\n%\n \n$\n2,907,126\n \n \n \n6.53\n%\n \n$\n2,545\n \n\n \n\n(1)\n\nThe average loans receivable, net balances include nonaccrual loans carrying a zero yield.\n\n(2)\nIncludes net deferred fee recognition of $1.7 million and $1.2 million for the three months ended March 31, 2026 and 2025, respectively.\n\n(3)\n\nShown at amortized cost.\n\n(4)\nIncludes income from fair value hedges of $164,000 and $297,000 for the three months ended March 31, 2026 and 2025, respectively.\n\n \n\n**Interest Expense.**Total interest expense increased $982,000 to $16.8 million for the three months ended March 31, 2026, from $15.8 million for the comparable quarter in 2025, primarily due to an increase of interest expense on deposits of $1.7 million, partially offset by a decrease of $879,000 of interest expense on borrowings. The higher deposit costs were the result of an increase in interest-bearing checking balances, including brokered deposits, combined with a 108-basis point increase in the rate paid on those accounts, partially offset by a $332,000 decrease in interest expense on CDs due to a 19-basis point decline in CD rates.  Additionally, the repricing of the Company's subordinated notes to a floating rate on February 15, 2026, contributed $206,000 of incremental interest expense.\n\n \n\n \n\n53\n\n[Table of Contents](#toc)\n\n \n\nThe average cost of total interest-bearing deposits decreased three-basis points to 2.97% for the three months ended March 31, 2026, compared to 3.00% for the three months ended March 31, 2025, primarily reflecting lower rates paid on certificates of deposit, which more than offset higher rates on interest-bearing checking accounts. The average balance of total interest-bearing deposits increased $243.6 million to $2.0 billion for the three months ended March 31, 2026, compared to $1.77 billion for the three months ended March 31, 2025, driven primarily by an increase in interest-bearing checking balances, including brokered deposits.\n\n \n\nThe average cost of total interest-bearing liabilities similarly decreased four basis points to 3.11%, reflecting the benefit of lower borrowing costs as average borrowings declined $86.4 million. The average cost of funds, which includes noninterest-bearing checking, increased one basis point to 2.39%, primarily reflecting a lower proportion of noninterest-bearing deposits in the overall funding mix.  \n\n \n\nThe following table details average balances of interest-bearing liabilities, associated rates, and resulting change in interest expense for the three months ended March 31, 2026 and 2025:\n\n \n\n(Dollars in thousands)\n\n \n\nThree Months Ended March 31,\n\n \n\n \n \n\n2026\n\n \n \n\n2025\n\n \n \n \n \n \n\n \n \n\nAverage\n\n \n \n \n \n \n \n\nAverage\n\n \n \n \n \n \n \n\n$ Change\n\n \n\n \n \n\nBalance\n\n \n \n \n \n \n \n\nBalance\n\n \n \n \n \n \n \n\nin Interest\n\n \n\n \n \n\nOutstanding\n\n \n \n\nRate\n\n \n \n\nOutstanding\n\n \n \n\nRate\n\n \n \n\nExpense\n\n \n\nSavings and money market\n\n \n$\n551,570\n \n \n \n1.71\n%\n \n$\n495,895\n \n \n \n1.57\n%\n \n$\n394\n \n\nInterest-bearing checking\n\n \n \n351,417\n \n \n \n2.66\n \n \n \n182,783\n \n \n \n1.58\n \n \n \n1,593\n \n\nCertificates of deposit\n\n \n \n1,106,171\n \n \n \n3.70\n \n \n \n1,086,927\n \n \n \n3.89\n \n \n \n(332\n)\n\nBorrowings\n\n \n \n132,250\n \n \n \n4.24\n \n \n \n218,639\n \n \n \n4.20\n \n \n \n(879\n)\n\nSubordinated note\n\n \n \n49,666\n \n \n \n5.64\n \n \n \n49,600\n \n \n \n3.97\n \n \n \n206\n \n\nTotal interest-bearing liabilities\n\n \n$\n2,191,074\n \n \n \n3.11\n%\n \n$\n2,033,844\n \n \n \n3.15\n%\n \n$\n982\n \n\n \n\n**Provision for Credit Losses.** For the three months ended March 31, 2026, the provision for credit losses was $2.5 million, consisting of a $2.6 million provision for credit losses on loans and a $121,000 recovery of credit losses on unfunded loan commitments. This compares to a $1.6 million provision for credit losses for the three months ended March 31, 2025. which consisted of a $1.5 million provision for credit losses on loans, a $21,000 provision for credit losses on held‑to‑maturity securities, and a $66,000 provision for credit losses on unfunded loan commitments. The increase in the provision for credit losses on loans primarily reflects an increase in nonperforming loans and higher net charge‑offs.\n\n \n\nNet loan charge-offs totaled $2.1 million for the three months ended March 31, 2026, compared to $1.7 million during the three months ended March 31, 2025. The increase was primarily due to a $624,000 increase in indirect home improvement loan net charge-offs, partially offset by a $281,000 decrease in commercial business loan net charge-offs, with the remainder attributable to slightly higher net charge-offs in marine and consumer loans. The rise in indirect home improvement and consumer loan net charge-offs reflects continued credit stress in those portfolios amid a challenging economic environment that could result in a material increase in the ACL on loans and adversely affect the Company’s financial condition and results of operations.\n\n \n\n**Noninterest Income.**Noninterest income increased $275,000 to $5.4 million for the three months ended March 31, 2026, from $5.1 million for the three months ended March 31, 2025.  The increase primarily reflects a $684,000 increase in gain on sale of loans, partially offset by a $246,000 decrease in other noninterest income, and a $171,000 decrease in service charges and fee income.  \n\n \n\n**Noninterest Expense.**Noninterest expense increased $465,000 to $25.5 million for the three months ended March 31, 2026, compared to $25.1 million for the three months ended March 31, 2025. The $465,000 increase was primarily due to the following increases: $334,000 in loan costs, due to higher origination activity, $321,000 in salaries and benefits, primarily due to competitive wage adjustments; $295,000 in acquisition cost related to the previously announced merger with Pacific West Bancorp; and $159,000 in occupancy expense related to branch renovations. These increases were partially offset by a $451,000 decrease in data processing expenses attributable to executed contract negotiations with the Company's data processing vendors, and a $172,000 decrease in professional and board fees.  \n\n \n\nThe efficiency ratio, which is calculated by dividing noninterest expense by total net interest income and noninterest income, improved to 67.25% for the three months ended March 31, 2026, compared to 69.39% for the three months ended March 31, 2025, due to revenue growth outpacing noninterest expense. \n\n \n\n \n\n54\n\n[Table of Contents](#toc)\n\n \n\n**Provision for Income Taxes.****For the three months ended March 31, 2026, the Company recorded a provision for income taxes of $2.1 million, compared to $1.4 million for the three months ended March 31, 2025.  The effective corporate income tax rates for the three months ended March 31, 2026 and 2025, were 20.9% and 15.2%, respectively. The increase in both the provision and effective tax rate was primarily attributable the absence of alternative energy tax credits under the Inflation Reduction Act of 2022, which benefited the comparable quarter in the prior year. \n\n \n\n**Liquidity**\n\n \n\nManagement 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.\n\n \n\nThe 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 March 31, 2026, the Bank’s total borrowing capacity was $737.7 million with the FHLB of Des Moines, with unused borrowing capacity of $588.1 million. The FHLB borrowing limit is based on certain categories of loans, primarily real estate loans that qualify as collateral for FHLB borrowings.  At March 31, 2026, the Bank held approximately $1.12 billion in loans that qualify as collateral for FHLB borrowings.\n\n \n\nIn 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 $273.3 million and a combined credit limit of $101.0 million in written federal funds lines of credit through correspondent banking relationships at March 31, 2026. The FRB borrowing limit is based on certain categories of loans, primarily consumer loans that qualify as collateral for FRB line of credit.  At March 31, 2026, the Bank held approximately $567.1 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 both March 31, 2026, and December 31, 2025.   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.\n\n \n\nThe Bank’s Asset and Liability Management Policy permits management to utilize brokered deposits up to 20% of deposits or $529.4 million at March 31, 2026. Total brokered deposits at March 31, 2026 were $327.4 million. Management utilizes brokered deposits to mitigate interest rate risk and to enhance liquidity when appropriate.\n\n \n\nLiquidity 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 March 31, 2026, outstanding loan commitments, including unused lines of credit totaled $621.6 million. The Company purchased $6.2 million in securities during the three months ended March 31, 2026. The Company purchased $15.0 million in securities during the three months ended March 31, 2025. Proceeds from securities repayments, maturities and sales were $22.0 million and $6.3 million during the three months ended March 31, 2026 and 2025, respectively.\n\n \n\nThe Bank’s liquidity is also affected by the volume of loans sold and loan principal payments. During the three months ended March 31, 2026 and 2025, the Bank sold $154.7 million and $91.9 million in loans, respectively.\n\n \n\nTotal deposits decreased $36.1 million during the three months ended March 31, 2026, partially driven by a net decrease in brokered deposits of $35.1 million. CDs scheduled to mature in three months or less at March 31, 2026, totaled $487.1 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. \n\n \n\nFor the remainder of 2026, we project that fixed commitments will include $2.0 million 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 $90.8 million are scheduled to mature within the next twelve months.  \n\n \n\nAs a separate legal entity from the Bank, FS Bancorp, Inc. must provide for its own liquidity. In addition to its own operating expenses, 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 that limit the Bank’s ability to make such distributions.\n\n \n\n \n\n55\n\n[Table of Contents](#toc)\n\n \n\nDividends and other capital distributions from the Bank are subject to regulatory notice and certain restrictions. Unrestricted cash held by FS Bancorp at the Bank on an unconsolidated basis totaled $9.2 million at March 31, 2026. The Company currently expects to continue 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. The current quarterly common stock dividend rate is $0.29 per share, which we believe balances our objectives of managing and investing in the Bank and returning a substantial portion of cash to shareholders. Assuming continued payment during 2026 at this rate of $0.29 per share, our total dividends paid each quarter would be approximately $2.2 million based on the number of the current outstanding shares as of March 31, 2026.\n\n \n\nUnder FS Bancorp’s existing stock repurchase program, approximately $3.3 million remained available for future repurchases as of March 31, 2026.  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.\n\n \n\n**Capital Resources**\n\n \n\nThe Bank is subject to minimum capital requirements imposed by the FDIC. Based on its capital levels at March 31, 2026, 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 March 31, 2026, the Bank was considered to be “well capitalized”. At March 31, 2026, 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 11.2%, 12.6%, 13.8%, and 12.6%, respectively.\n\n \n\nAs a bank holding company registered with the Federal Reserve, FS Bancorp is subject to the capital adequacy requirements of the Federal Reserve. Bank holding companies with $3.0 billion or more in total assets are required to comply with the Federal Reserve’s capital regulations, which are generally consistent with the capital regulations applicable to the Bank. Under these regulations, the Federal Reserve expects the holding company to serve as a source of financial and managerial strength to its subsidiary bank and expects the subsidiary bank to be well capitalized under prompt corrective action regulations.\n\n \n\nFS Bancorp is subject to these regulatory capital guidelines as of March 31, 2026, and has exceeded all applicable minimum capital requirements. The regulatory capital ratios calculated for FS Bancorp at March 31, 2026 were as follows: Tier 1 leverage-based capital ratio, 9.9%; Tier 1 risk-based capital ratio, 11.2%; total risk-based capital ratio, 13.8%; and CET 1 capital ratio, 11.2%.  For additional information regarding regulatory capital compliance and regulatory minimums, see “Note 12 – Regulatory Capital” of the Notes to Consolidated Financial Statements included in Part I. Item 1 of this report.\n\n \n\n**Item** **3.** **Quantitative and Qualitative Disclosures About Market Risk**\n\n \n\nThere have been no material changes in the market risk disclosures contained in FS Bancorp’s 2025 Form 10-K.\n\n \n\n**Item** **4.** **Controls and Procedures**\n\n \n\n**(a)**         **Evaluation of Disclosure Controls and Procedures**\n\n \n\nAn evaluation of the disclosure controls and procedures as defined in Rule 13a‑15(e) of the Exchange Act was carried out as of March 31, 2026, 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.\n\n \n\nBased upon the foregoing evaluation, the Company’s CEO and CFO concluded that as of March 31, 2026, 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.\n\n \n\n \n\n56\n\n[Table of Contents](#toc)\n\n \n\n**(b)**         **Changes in Internal Controls**\n\n \n\nThere were no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2026, 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.\n\n \n\n \n\n**** **PART II. OTHER INFORMATION**"}