Q2 Net Income Rises Amidst Higher Credit Losses, Significant Deposit Outflow, and Funding Shift to Borrowings
FSBW sits 16% above its 52-week low of $36.66.
Summary
FS Bancorp's Q2 net income grew, but was overshadowed by a sharp rise in credit loss provisions and net charge-offs, alongside a significant shift from deposits to higher-cost borrowings.
Key Events · Earnings and Guidance · FSBW
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Net Income and EPS Growth
Net income for Q2 2026 increased 2.7% to $7.9 million, with diluted earnings per share rising 5.1% to $1.04 compared to Q2 2025.
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Increased Credit Loss Provision and Net Charge-offs
Year-to-date provision for credit losses surged 43.1% to $5.2 million, primarily due to a $2.3 million charge-off on a commercial construction loan and higher indirect home improvement loan charge-offs. Net loan charge-offs more than doubled to $6.0 million year-to-date.
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Significant Deposit Outflow and Increased Borrowings
Total deposits decreased by $225 million (8.4%) to $2.45 billion since December 31, 2025. This outflow was largely offset by a $195 million (150.9%) increase in FHLB and Federal Reserve Bank borrowings, indicating a shift to higher-cost funding.
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Improved Asset Quality Metrics
Nonperforming loans decreased by $3.1 million (16.6%) to $15.6 million, reducing the ratio of nonperforming loans to total gross loans to 0.59% from 0.71%. The coverage ratio of the Allowance for Credit Losses (ACL) on loans to nonperforming loans improved to 199.2% from 170.6%.
Analysis · FSBW · Finance
FS Bancorp reported a modest increase in net income and diluted EPS for Q2 2026. However, the filing reveals a substantial increase in the provision for credit losses and net loan charge-offs, driven by a significant commercial construction loan charge-off and higher indirect home improvement loan losses. Concurrently, the company experienced a large outflow of deposits, which was offset by a considerable increase in higher-cost borrowings. While asset quality metrics like nonperforming loans and ACL coverage improved, the underlying credit quality deterioration and the shift in funding structure are critical concerns. The ongoing Pacific West Bancorp merger and the approval of a new equity incentive plan (with potential future dilution) add further strategic and capital context.
At the time of this filing, FSBW was trading at $42.55 on NASDAQ in the Finance sector, with a market capitalization of approximately $315.9M. The 52-week trading range was $36.66 to $45.85. This filing was assessed with negative market sentiment and an importance score of 8 out of 10.