FS Bancorp Q1 2025 Earnings: Resilience Amid Rising Challenges

FS Bancorp (NASDAQ: FSBW) delivered a mixed but largely stable first-quarter 2025 earnings report, balancing robust deposit growth and capital returns against rising credit risks and margin pressures. With net income of $8.0 million and an EPS of $1.01—beating consensus estimates—the bank underscored its operational resilience, though lingering macroeconomic headwinds remain a concern.

Key Financial Highlights

• EPS and Revenue: The $1.01 diluted EPS marked a 4.7% decline from Q1 2024 but outperformed Zacks’ $0.93 estimate. Net interest income rose to $31.0 million (+2.1% year-over-year), driven by higher loan yields amid rising interest rates. Total revenue (net interest + noninterest) reached $36.1 million.
• Deposit Surge: Total deposits jumped 11.8% year-over-year to $2.62 billion, fueled by a $226.9 million increase in brokered deposits. This enabled the bank to slash borrowings by 77.6% to $68.8 million, improving liquidity and reducing costly funding.
• Loan Stability: Loans receivable held steady at $2.50 billion, up 3.5% year-over-year. Management highlighted strong CRE and residential construction pipelines, though consumer loans dipped 1.8% sequentially due to lower originations.

Credit Quality and Risks

While deposits and capital metrics remained strong, credit quality showed cracks:
- Nonperforming Loans (NPLs) rose to $14.5 million (+11% year-over-year), driven by delinquencies in construction and indirect home improvement loans.
- The Allowance for Credit Losses (ACL) increased by $174,000 to $31.7 million (1.25% of gross loans), reflecting heightened CRE lending.

Capital Returns and Shareholder Value

FS Bancorp reaffirmed its commitment to shareholders:
- Dividend: The 49th consecutive quarterly dividend of $0.28 per share was maintained, payable in May.
- Share Repurchases: The company repurchased $3.8 million in shares during Q1 and authorized an additional $5.0 million for future buybacks.
- Book Value: Rose to $39.12 per share (+2.2% sequentially, +8.5% year-over-year), bolstered by capital accretion and reduced borrowings.

Management Outlook and Challenges

CEO Joe Adams emphasized the bank’s focus on deposit growth and loan pipelines, while CFO Matthew Mullet noted strategic shifts to lower-cost brokered deposits. However, management acknowledged risks such as:
- Economic Volatility: Rising NPLs in construction and CRE suggest potential strain as borrowers face cash flow pressures.
- Interest Rate Sensitivity: While the net interest margin improved to 4.32%, sustained high rates could pressure deposit costs and loan demand.

Analyst Consensus and Valuation

• Full-Year 2025 Guidance: Analysts project an EPS of $4.16 and revenue of $145.05 million, slightly below 2024’s $4.24 EPS.
• Zacks Rank: The “Hold” rating (#3) reflects mixed earnings revisions and neutral near-term expectations.

Conclusion

FS Bancorp’s Q1 results paint a picture of a bank navigating challenges with discipline. Its deposit growth and capital returns position it well for future growth, particularly in CRE and residential lending. However, rising NPLs and macroeconomic uncertainties require close monitoring.

Investors should weigh the positives—robust balance sheet metrics, stable dividend, and strong liquidity—against the risks of credit deterioration. With a 14.4% total risk-based capital ratio and a $39.12 book value per share, the bank remains “well capitalized” and strategically positioned.

For long-term investors, FS Bancorp’s consistent shareholder returns and regional market strength offer appeal, but short-term volatility may persist. The consensus $4.16 EPS target aligns with management’s cautious optimism, making it a solid, if unexciting, play in the banking sector.

Data as of April 22, 2025. Past performance does not guarantee future results.