FSBW's Q3 Net Income Dips Amid Rising Interest Expenses, Loan Growth

TL;DR

**FSBW's net income is down, but strong deposit growth and reduced borrowings could signal a more stable, albeit less profitable, future.**

AI Summary

FS Bancorp, Inc. (FSBW) reported a net income of $9.177 million for the three months ended September 30, 2025, a decrease from $10.286 million in the same period of 2024, representing a 10.78% decline. For the nine months ended September 30, 2025, net income was $24.926 million, down from $27.642 million in 2024, a 9.82% decrease. Total interest and dividend income increased to $50.973 million for the three months ended September 30, 2025, up from $47.043 million in 2024, a 8.35% rise, primarily driven by a 6.54% increase in interest on loans receivable to $46.664 million. However, total interest expense also rose significantly by 9.39% to $17.283 million for the quarter, largely due to a 10.20% increase in deposit interest expense to $14.862 million. The provision for credit losses increased by 52.61% to $2.309 million for the quarter, indicating a more cautious lending environment. Total assets grew to $3.208 billion as of September 30, 2025, from $3.029 billion at December 31, 2024, a 5.90% increase, with loans receivable, net, increasing by 3.90% to $2.599 billion. Total deposits increased by 14.84% to $2.686 billion, while borrowings decreased by 58.00% to $129.305 million, reflecting a shift in funding strategy. Stockholders' equity saw a modest increase to $300.511 million from $295.767 million.

Why It Matters

FSBW's Q3 performance reveals a common challenge for regional banks: navigating a high-interest rate environment. While loan interest income is up, the significant increase in deposit interest expense is squeezing net interest margins, directly impacting profitability for investors. The substantial reduction in borrowings and corresponding increase in deposits suggest a strategic shift towards more stable, albeit more expensive, funding, which could improve long-term stability but pressure short-term earnings. For employees and customers, the continued growth in loans receivable and total assets indicates ongoing business activity and demand for banking services, but the increased provision for credit losses signals potential economic headwinds that could affect future lending and employment. In a competitive landscape, managing these interest rate dynamics effectively is crucial for FSBW to maintain its market position against larger, more diversified financial institutions.

Risk Assessment

Risk Level: medium — The provision for credit losses increased significantly by 52.61% to $2.309 million for the three months ended September 30, 2025, compared to $1.513 million in the prior year, and by 48.45% to $5.922 million for the nine months. This indicates a heightened concern for potential loan defaults. Additionally, while total assets grew, net income declined by 10.78% for the quarter and 9.82% for the nine months, suggesting profitability pressures despite asset growth.

Analyst Insight

Investors should closely monitor FSBW's net interest margin and the trajectory of its provision for credit losses in upcoming quarters. While the shift to deposit funding is positive for stability, the cost of these deposits is impacting profitability. Consider if the current valuation adequately reflects the trade-off between reduced borrowing risk and lower net income, and look for signs of margin stabilization or improvement.

Financial Highlights

revenue

$50.973M

total Assets

$3.208B

total Debt

$178.949M

net Income

$9.177M

cash Position

$61.280M

revenue Growth

+8.35%

Revenue Breakdown

Key Numbers

• $9.177M — Net Income (Q3 2025) (10.78% decrease from $10.286M in Q3 2024)
• $24.926M — Net Income (9M 2025) (9.82% decrease from $27.642M in 9M 2024)
• $50.973M — Total Interest & Dividend Income (Q3 2025) (8.35% increase from $47.043M in Q3 2024)
• $17.283M — Total Interest Expense (Q3 2025) (9.39% increase from $15.799M in Q3 2024)
• $2.309M — Provision for Credit Losses (Q3 2025) (52.61% increase from $1.513M in Q3 2024)
• $3.208B — Total Assets (Sep 30, 2025) (5.90% increase from $3.029B at Dec 31, 2024)
• $2.599B — Loans Receivable, Net (Sep 30, 2025) (3.90% increase from $2.501B at Dec 31, 2024)
• $2.686B — Total Deposits (Sep 30, 2025) (14.84% increase from $2.339B at Dec 31, 2024)
• $129.305M — Borrowings (Sep 30, 2025) (58.00% decrease from $307.806M at Dec 31, 2024)
• $300.511M — Total Stockholders' Equity (Sep 30, 2025) (Modest increase from $295.767M at Dec 31, 2024)

Key Players & Entities

• FS Bancorp, Inc. (company) — registrant
• 1st Security Bank of Washington (company) — wholly owned subsidiary
• Securities and Exchange Commission (regulator) — regulatory body
• $9.177 million (dollar_amount) — net income for Q3 2025
• $10.286 million (dollar_amount) — net income for Q3 2024
• $2.309 million (dollar_amount) — provision for credit losses for Q3 2025
• $1.513 million (dollar_amount) — provision for credit losses for Q3 2024
• $3.208 billion (dollar_amount) — total assets as of September 30, 2025
• $2.686 billion (dollar_amount) — total deposits as of September 30, 2025
• $129.305 million (dollar_amount) — borrowings as of September 30, 2025

FAQ

Risk Factors

• Increased Provision for Credit Losses [medium — financial]: The provision for credit losses increased by 52.61% to $2.309 million for the quarter ended September 30, 2025, compared to $1.513 million in the prior year. This indicates a more cautious outlook on loan portfolio quality and potential future economic headwinds.
• Rising Interest Expense on Deposits [medium — financial]: Total interest expense rose by 9.39% to $17.283 million, largely driven by a 10.20% increase in deposit interest expense to $14.862 million. This suggests increased competition for deposits or a shift in deposit mix towards higher-cost accounts.
• Regulatory Oversight [low — regulatory]: As a community-based savings bank, FS Bancorp, Inc. and its subsidiary are subject to regulation by federal and state agencies. Periodic examinations by these agencies are standard, and compliance with evolving regulatory requirements is a continuous operational consideration.
• Interest Rate Sensitivity [medium — market]: The company's net interest income is sensitive to changes in interest rates. Fluctuations in market interest rates can impact both interest income from assets and interest expense on liabilities, affecting profitability.
• Loan Portfolio Concentration [low — operational]: While not explicitly detailed in the provided text, a concentration in specific loan types or geographic areas could pose an operational risk if those sectors or regions experience economic downturns.

Industry Context

FS Bancorp, Inc. operates as a community-based savings bank, primarily serving small and middle-market businesses and individuals in the greater Puget Sound area and Oregon. The banking industry is characterized by intense competition, evolving regulatory landscapes, and sensitivity to interest rate movements. Community banks like FS Bancorp often differentiate themselves through personalized service and local market knowledge, while facing challenges from larger national banks and fintech competitors.

Regulatory Implications

As a regulated financial institution, FS Bancorp is subject to oversight from federal and state agencies. Compliance with capital requirements, lending standards, and consumer protection regulations is paramount. Changes in regulatory policy, such as those related to capital adequacy or lending practices, could impact the company's operations and profitability.

What Investors Should Do

1. Monitor Net Interest Margin (NIM) trends.
2. Analyze the increase in Provision for Credit Losses.
3. Evaluate the shift in funding strategy.
4. Assess loan growth relative to asset growth.

Glossary

Allowance for credit losses (ACL)

An estimate of the amount of uncollectible loans in a company's loan portfolio. It is a contra-asset account that reduces the carrying value of loans on the balance sheet. (The provision for credit losses increased significantly, indicating potential concerns about loan quality or future economic conditions affecting borrowers.)

Securities available-for-sale

Investments in debt or equity securities that are not classified as held-to-maturity or trading securities. They are reported at fair value on the balance sheet, with unrealized gains and losses recorded in other comprehensive income. (The company holds $311.695 million in these securities, which contribute to its investment portfolio and are subject to fair value fluctuations.)

Securities held-to-maturity

Investments in debt securities that the company has the intent and ability to hold until their maturity date. They are reported at amortized cost on the balance sheet. (The company holds $31.386 million in these securities, which are less susceptible to short-term market volatility but do not reflect current market values.)

Federal Home Loan Bank (FHLB) stock

Stock purchased as a requirement for membership in the Federal Home Loan Bank system, which provides a source of funding for member institutions. (FS Bancorp's holdings decreased from $15.621 million to $7.975 million, potentially reflecting a reduced reliance on FHLB for funding.)

Bank owned life insurance (BOLI)

Life insurance policies owned by a bank on the lives of its key employees or directors. The cash surrender value of these policies is recorded as an asset. (The company maintains a stable $38.531 million investment in BOLI, which is typically used to offset the costs of employee benefit plans.)

Mortgage servicing rights (MSRs)

The right to service a mortgage loan in exchange for a fee. MSRs are recognized as assets and are typically valued based on expected future cash flows. (The company's MSRs decreased slightly to $8.506 million, reflecting changes in mortgage origination and servicing activities.)

Goodwill

An intangible asset that arises when a company acquires another company for a price greater than the fair value of its net identifiable assets. (The company has $3.592 million in goodwill, indicating past acquisitions. This asset is not amortized but is tested annually for impairment.)

Core deposit intangible

An intangible asset representing the value of a bank's stable, low-cost core deposit base acquired in a business combination. It is typically amortized over its useful life. (The core deposit intangible decreased to $11.284 million, suggesting amortization of this asset over time.)

Year-Over-Year Comparison

Compared to the prior year's comparable periods, FS Bancorp, Inc. experienced a decline in net income for both the third quarter (10.78% decrease) and the year-to-date period (9.82% decrease). While total interest and dividend income saw an increase of 8.35%, this was outpaced by a 9.39% rise in total interest expense, primarily due to higher deposit costs. A notable concern is the 52.61% increase in the provision for credit losses, signaling a more cautious approach to risk. The company has also significantly reduced its reliance on borrowings, decreasing them by 58.00%, while substantially growing its deposit base by 14.84%.

Key Financial Figures

• $1.0 m — share amounts. If the amounts are above $1.0 million, they are rounded one decimal poi
• $1.0 b — ne decimal point, and if they are above $1.0 billion, they are rounded two decimal poi

Filing Documents

• fsbw20250930_10q.htm (10-Q) — 5504KB
• ex_852016.htm (EX-31.1) — 14KB
• ex_852017.htm (EX-31.2) — 14KB
• ex_852018.htm (EX-32.1) — 8KB
• ex_852019.htm (EX-32.2) — 6KB
• 0001437749-25-034119.txt ( ) — 26338KB
• fsbw-20250930.xsd (EX-101.SCH) — 106KB
• fsbw-20250930_cal.xml (EX-101.CAL) — 82KB
• fsbw-20250930_def.xml (EX-101.DEF) — 852KB
• fsbw-20250930_lab.xml (EX-101.LAB) — 704KB
• fsbw-20250930_pre.xml (EX-101.PRE) — 909KB
• fsbw20250930_10q_htm.xml (XML) — 7900KB

Financial Statements

Financial Statements Consolidated Balance Sheets at September 30, 2025 (Unaudited) and December 31, 2024 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 4 Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 5 Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended September 30, 2025 and 2024 (Unaudited) 6 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (Unaudited) 8 - 9

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 10 - 50 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 51 - 64 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 64 Item 4.

Controls and Procedures

Controls and Procedures 64 PART II OTHER INFORMATION 65 Item 1.

Legal Proceedings

Legal Proceedings 65 Item 1A.

Risk Factors

Risk Factors 65 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 65 Item 3. Defaults Upon Senior Securities 66 Item 4. Mine Safety Disclosures 66 Item 5. Other Information 66 Item 6. Exhibits 67

SIGNATURES

SIGNATURES 68 When 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. 2 Table of Contents

Financial Statements

Item 1. Financial Statements FS BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except shares and per share amounts) (Unaudited) September 30, December 31, ASSETS 2025 2024 Cash and due from banks $ 12,391 $ 19,280 Interest-bearing deposits at other financial institutions 48,889 12,355 Total cash and cash equivalents 61,280 31,635 Certificates of deposit at other financial institutions — 1,727 Securities available-for-sale, at fair value (amortized cost of $ 335,152 and $ 310,272 , net of allowance for credit losses of $ 0 and $ 0 , respectively) 311,695 281,175 Securities held-to-maturity, at amortized cost (fair value of $ 32,142 and $ 8,144 , net of allowance for credit losses of $ 220 and $ 45 , respectively) 31,386 8,455 Loans held for sale, at fair value 38,579 27,835 Loans receivable, net of allowance for credit losses of $ 30,056 and $ 31,870 (includes loans of $ 12,571 and $ 12,728 , at fair value, respectively) 2,599,601 2,501,951 Accrued interest receivable 15,122 13,881 Premises and equipment, net 32,444 29,756 Operating lease right-of-use ("ROU") assets 6,832 5,378 Federal Home Loan Bank ("FHLB") stock, at cost 7,975 15,621 Deferred tax asset, net 6,767 7,059 Bank owned life insurance ("BOLI"), net 38,531 38,528 Mortgage servicing rights ("MSRs"), held at the lower of cost or fair value 8,506 9,204 Goodwill 3,592 3,592 Core deposit intangible, net 11,284 13,710 Other assets 35,231 39,670 TOTAL ASSETS $ 3,208,825 $ 3,029,177 LIABILITIES Deposits: Noninterest-bearing accounts $ 665,852 $ 638,158 Interest-bearing accounts 2,020,640 1,701,260 Total deposits 2,686,492 2,339,418 Borrowings 129,305 307,806 Subordinated notes: Principal amount 50,000 50,000 Unamortized debt issuance costs ( 356 ) ( 406 ) Total subordinated notes less unamortized debt issuance costs 49,644 49,594 Operating lease liabilities 6,993 5,556 Other liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Amounts) NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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 10Q 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 10K which includes all the audited financial statements and footnotes required by U.S. GAAP for complete financial statements for the year ended December 31, 2024 . In the opinion of management, all normal adjustments and recurrin

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