FS Bancorp, Inc. 10-Q Summary: Quarter Ended September 30, 2025
Business Context and Reporting Period
FS Bancorp, Inc. (FS Bancorp) is the holding company for 1st Security Bank of Washington, a community-based savings bank operating primarily in the Puget Sound area, the Tri-Cities region of Washington, and the Oregon Coast. The company operates two reportable segments: Commercial and Consumer Banking and Home Lending. This report covers the quarterly period ended September 30, 2025. As of June 30, 2025, the company's total consolidated assets exceeded $3.0 billion, causing it to cease qualifying as a "small bank holding company" and subjecting it to enhanced regulatory reporting and capital standards.
Key Financial Metrics
| Metric | Q3 2025 | Q3 2024 | 9M 2025 | 9M 2024 |
|---|---|---|---|---|
| Net Income | $9.18 million | $10.29 million | $24.93 million | $27.64 million |
| Diluted EPS | $1.18 | $1.29 | $3.18 | $3.45 |
| Net Interest Income | $33.69 million | $31.24 million | $96.78 million | $91.99 million |
| Net Interest Margin (NIM) | 4.37% | 4.35% | 4.33% | 4.30% |
| Provision for Credit Losses | $2.31 million | $1.51 million | $5.92 million | $3.99 million |
| Total Assets | $3.21 billion | $2.97 billion | $3.21 billion | $2.97 billion |
| Total Deposits | $2.69 billion | $2.34 billion | $2.69 billion | $2.34 billion |
| Stockholders' Equity | $300.51 million | $288.90 million | $300.51 million | $288.90 million |
| Book Value Per Share | $40.43 | $38.26 | $40.43 | $38.26 |
Material Changes vs. Prior Period
- Asset Growth: Total assets increased $179.6 million (5.9%) from December 31, 2024, driven by a $97.7 million increase in loans receivable and a $30.5 million increase in securities available-for-sale. Loan growth was concentrated in commercial construction, multi-family, and residential real estate.
- Deposit Strategy: Total deposits increased $347.1 million, primarily due to a strategic shift toward brokered certificates of deposit (CDs) to fund asset growth and reduce reliance on higher-cost borrowings. Non-retail CDs (including brokered) increased $220.0 million.
- Profitability Decline: Net income decreased 10.8% year-over-year for the quarter and 9.8% for the nine-month period. The decline was driven by a significant increase in the provision for income taxes (due to the absence of alternative energy tax credits available in the prior year) and a higher provision for credit losses.
- Asset Quality: Nonperforming loans increased to $18.4 million (0.70% of total loans) from $13.6 million at year-end 2024. This increase was primarily due to a $2.3 million partial charge-off on a commercial construction loan and elevated losses in indirect home improvement loans. The allowance for credit losses (ACL) coverage ratio to nonperforming loans declined to 163.8% from 234.3%.
Guidance, Outlook, and Risks
Management Commentary: Management continues to focus on diversifying revenues and expanding lending channels. The company is actively managing indirect exposures in the consumer loan portfolio due to volatile economic conditions. The efficiency ratio improved to 64.63% for the quarter but weakened slightly to 67.40% for the nine-month period compared to the prior year.
Capital and Liquidity: The Bank remains "well capitalized" under regulatory requirements. FS Bancorp has $504.0 million in unused FHLB borrowing capacity and $265.5 million in FRB line of credit capacity. The company recently announced an additional $5.0 million stock repurchase program.
Risks and Contingencies:
- Credit Risk: Elevated net charge-offs in the consumer portfolio (specifically indirect home improvement loans) and a collateral deficiency in a commercial construction project pose risks to future earnings.
- Interest Rate Risk: The company utilizes derivatives (interest rate swaps) to manage exposure to interest rate fluctuations. Changes in market rates impact the fair value of mortgage servicing rights (MSRs) and investment securities.
- Regulatory Changes: As a bank holding company with assets exceeding $3.0 billion, the company is now subject to enhanced reporting, capital, and governance standards.
Investor Verification Checklist
- Consumer Loan Quality: Verify the trend of net charge-offs in the indirect home improvement loan segment, which contributed significantly to the increased provision for credit losses.
- Commercial Construction Exposure: Review the specific details of the $2.3 million partial charge-off on the commercial construction loan and the status of the remaining collateral deficiency.
- Deposit Mix Sustainability: Assess the reliance on brokered CDs (now 28.8% of total CDs) and the associated cost of funds compared to core deposits.
- Tax Credit Impact: Confirm the absence of alternative energy tax credits in future quarters, which significantly impacted the effective tax rate compared to the prior year.
- Regulatory Capital Ratios: Monitor the company's ability to maintain "well capitalized" status under the new, stricter regulatory framework applicable to institutions with assets over $3.0 billion.