FS Bancorp Inc

Base Salary. Our objective is to provide base salaries that are competitive within the financial services industry and reasonable as compared to our peers. We also consider the executive’s abilities, experience and tenure and our overall ability to pay. The Board recognizes that in order to attract and retain highly qualified executives, we have to compete with larger institutions with a greater ability to pay and that to acquire such candidates, we must sometimes offer base salaries higher than survey ranges for peer banks. The Compensation Committee is charged with final oversight of base pay offered to senior executive candidates and will consider all of the factors described above before approving any out-of-market salary offer.

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The Compensation Committee’s standard practice is to review the base salaries of our most highly compensated employees every two years. Not all of the executives have the same performance review period. As a result, two of our six named executive officers did not receive a salary review and a base salary increase in 2023. Ms. Allen’s increase in base pay due to her promotion to Executive Vice President, effective on January 1, 2023.

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

Annual cash incentives are intended to reward both incremental improvement and continued strong performance. Accordingly, when making final award decisions, the Compensation Committee takes a holistic view of performance results and considers the following key factors:

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comparison to peers (relative financial performance);

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financial performance compared to prior year and budget expectations;

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general economic conditions and degree of difficulty in attaining target levels;

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non-recurring events, whether positive or negative;

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input from the Chief Executive Officer on the individual performance of the other named executive officers; and

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an executive’s support and commitment to the Bank’s culture and to ensuring the Bank is in compliance with regulatory requirements and guidelines.

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In addition to the compensation peer group described above, the Compensation Committee uses various other groups of competitors against which it tracks and assesses our relative performance to ensure a balanced perspective (i.e., regulatory, business/strategy mode, geographic, etc.). The financial and strategic goals are not individually weighted.

The Compensation Committee may use its business judgement to increase or decrease the recommended bonuses based on all available information, including performance to peers, individual performance and any other relevant factor. In addition, awards may be paid only if the following conditions are met: (1) the most recent regulatory examination(s) must be satisfactory or better; (2) bonus expense cannot cause 1st Security Bank to fall below the well-capitalized level set by regulators; (3) payment of bonuses cannot cause the Bank to fall outside regulatory guidance on

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liquidity; (4) there must have been a matching contribution by FS Bancorp to the Bank’s 401(k) plan; and (5) dividends must have been declared and paid to shareholders during the plan year.

2023 Results and Award Payouts. For 2023, actual annual incentive award payouts were based on a combination of specific financial results and strategic achievements as assessed by the Compensation Committee.

Financial results for 2023 included the following:

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increased net interest income before provision expense by 18% to $123.3 million in 2023 from $104.2 million in 2023;

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net income of $36.1 million for 2023 compared to $29.6 million for 2022;

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completed the acquisition of seven branches from Columbia State Bank, resulting in an expansion into Oregon in February 2023 and $425.5 million in new deposits as of the acquisition date of February 24, 2023;

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net interest margin increased to 4.48% for 2023, compared to 4.46% for 2022 due to the acquisition of seven (7) branches in the first quarter of 2023;

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non-interest bearing deposits totaled $670.8 million at year end 2023 compared to $554.2 million at year end 2023 as a result of the Branch acquisition;

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13% asset growth funded by 19% deposit growth including the seven (7) branch acquisition;

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continued focus on strong asset quality with only 0.37% of assets at the end of 2023 classified as nonperforming, a slight increase from 0.35% at year-end 2022;

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book value per share of $34.36 at year end 2023, compared to $30.42 at year end 2022, which includes -$3.03 attributable to unrealized investment mark to market losses in accumulated other comprehensive loss in 2023;

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increased cash dividends paid to shareholders to $1.00 per share in 2023 from $0.90 per share in 2022, an 11% annual increase; and

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repurchased 43,780 of shares at an average price of $30.53 in 2023.

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Book Value Per Share

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Key strategic and human capital achievements for 2023 included the following:

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ranked #1 in the Extra Large category by Puget Sound Business Journal as Washington’s Best Workplaces;

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continued focus on staff reallocation from the home lending segment to the commercial and consumer banking segment, resulting in nine fewer full-time equivalent employees in home lending in 2023; and

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donated over $225,000 to local food banks during our annual food drive in all the communities we serve.

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Our executive team continues to adjust to varying economic conditions including the recent 100 basis point increase in the Federal funds rate. Although higher interest rates have slowed our lending production, the branch acquisition allowed the Bank to maintain strong margins and expand profitability in 2023. We remain focused on disciplined execution, risk mitigation, cost control and our ability to execute well under volatile market conditions. As a result, the Compensation Committee approved varied annual incentive awards ranging from 50% to 87% of the named executive officers’ base salaries.

Upon a holistic assessment of the performance described above, the Compensation Committee approved annual cash incentive awards for 2023 performance as follows: