FS Bancorp Completes Pacific West Deal, Lifts Deposits
Third-quarter net income was $4.9 million, or $0.63 a share, as merger costs and a Home Lending loss offset the Pacific West close.
FS Bancorp, Inc. (FSBW), the holding company for 1st Security Bank of Washington, closed its Pacific West Bancorp acquisition on August 19, 2026, and used the deal to reverse a second-quarter deposit decline and refill the loan book after a near-stall in organic growth.
Net income was $4.9 million, or $0.63 a share, compared with $7.9 million, or $1.04 a share, in the second quarter. The company incurred $2.5 million of merger-related expenses and recognized a preliminary, non-taxable bargain-purchase gain of $1.7 million in noninterest income.
Total deposits rose $418.3 million, or 17.1%, to $2.87 billion at September 30, 2026, from $2.45 billion at June 30, reversing a $188.7 million, or 7.2%, second-quarter decline. Pacific West contributed $442.8 million of deposits. Transactional deposits increased $377.6 million, of which $351.6 million came from the acquisition, and fintech partner deposits of $177.5 million appeared after the close.
Loans receivable, net increased $379.1 million to $3.01 billion, including $252.7 million of acquired loans still outstanding and $131.5 million of organic growth, after only a $4.9 million rise in the second quarter. Excluding the deal, growth concentrated in non-owner occupied commercial real estate, up $29.8 million, and one-to-four-family residential loans, up $76.6 million, including a $36.7 million purchase of adjustable-rate mortgages.
Commercial and Consumer Banking net income declined to $5.7 million from $6.8 million. Home Lending swung to an $806,000 loss from $1.1 million of profit as rising rates hit the mortgage franchise. Consolidated net interest income was $35.7 million, with Commercial and Consumer Banking contributing $31.9 million and Home Lending $3.8 million.
The provision for credit losses rose to $3.5 million from $2.6 million in the prior quarter. Under early-adopted ASU 2025-08, a $3.9 million day-one allowance on acquired loans was booked through a loan gross-up rather than the provision. Gross charge-offs were $2.1 million versus $4.4 million in the second quarter, with recoveries of $582,000, leaving the allowance at $36.5 million.
One-to-four-family originations totaled $213.2 million, with $179.8 million of purchases and $33.4 million of refinances. Sales of $122.9 million were below $156.1 million in the prior quarter. Gross margins on sales rose to 3.55% from 2.98%.
Borrowings increased $49.0 million to $373.5 million as brokered deposits declined, a mix the company said offered a slightly lower cost of funds after the second-quarter deposit cost of 2.18%. Bank total risk-based capital fell to 12.6% from 14.0% and Tier 1 leverage to 11.2% from 11.4%; CET1 was 11.44% at the Bank. The Bank remained well capitalized.
The company repurchased 44,664 shares for $1.9 million, down from 87,000 shares for $3.6 million in the second quarter, and declared a 55th consecutive $0.29 dividend. President and CEO Matthew Mullet said the combined teams completed systems integration on October 5 and would expand deposit and loan opportunities in greater Portland and Vancouver.
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