FS Bancorp(FSBW) - 2020 Q1 - Quarterly Report

Loan Loss Provisions and Modifications - The Company recorded a provision for loan losses of $3.7 million for Q1 2020, compared to $750,000 in Q1 2019, primarily due to credit deterioration related to COVID-19 [166]. - As of March 31, 2020, the Company modified 66 loans totaling $12.5 million due to COVID-19 related issues, which were not classified as Troubled Debt Restructurings (TDRs) under the CARES Act [166]. - For the three months ended March 31, 2020, the provision for loan losses increased to $3.7 million from $750,000 in the same period of 2019, primarily due to the impact of the COVID-19 pandemic and growth in the loan portfolio [213]. Loan Portfolio and Originations - The Company funded $34.3 million in fixture secured loans during Q1 2020, representing approximately 2,000 loans, with Washington accounting for 43.1% of the total funded amount [174]. - One-to-four-family residential mortgage loans originated by the Company totaled $285.6 million in Q1 2020, with $212.4 million sold to investors [174]. - Consumer loans represented 23.7% of the Company's total gross loan portfolio as of March 31, 2020, up from 21.9% a year earlier [173]. - One-to-four-family loan originations increased by $141.9 million, or 98.8%, to $285.6 million during the three months ended March 31, 2020, compared to $143.7 million during the same period in 2019 [192]. - The Company emphasizes growing and diversifying its loan portfolio, with a focus on residential mortgage and commercial construction lending [173]. Financial Performance - Net income remained stable at $5.2 million for the three months ended March 31, 2020, compared to the same period in 2019 [205]. - Net interest income decreased by $216,000 to $17.5 million for the three months ended March 31, 2020, from $17.7 million in the prior year [207]. - Noninterest income rose by $4.3 million, or 95.2%, to $8.9 million for the three months ended March 31, 2020, driven by a $3.5 million increase in gain on sale of loans and a $1.6 million increase in other noninterest income [214]. - Noninterest expense increased by $1.4 million, or 9.4%, to $16.2 million for the three months ended March 31, 2020, mainly due to strong loan production growth and increased salaries and benefits [215]. - The efficiency ratio improved to 61.39% for the three months ended March 31, 2020, compared to 66.52% for the same period in 2019, indicating better management of expenses relative to income [216]. Assets and Liabilities - Total assets increased by $134.1 million, or 7.8%, to $1.85 billion at March 31, 2020, compared to $1.71 billion at December 31, 2019 [189]. - Loans receivable, net increased by $56.7 million to $1.39 billion at March 31, 2020, from $1.34 billion at December 31, 2019 [190]. - Total liabilities increased by $133.5 million to $1.65 billion at March 31, 2020, from $1.51 billion at December 31, 2019 [197]. - Total deposits increased by $53.9 million to $1.45 billion at March 31, 2020, from $1.39 billion at December 31, 2019 [198]. Capital and Borrowing - The allowance for loan and lease losses (ALLL) was $16.9 million, or 1.20% of gross loans receivable, at March 31, 2020, compared to $13.2 million, or 0.98%, at December 31, 2019 [193]. - Borrowings increased by $74.3 million to $159.1 million at March 31, 2020, from $84.9 million at December 31, 2019 [201]. - The Bank maintained a short-term borrowing line with the Federal Reserve Bank, with a current limit of $160.3 million, and held approximately $327.4 million in loans qualifying as collateral for this line [220][221]. - As of March 31, 2020, the Bank's total borrowing capacity with the FHLB of Des Moines was $521.6 million, with unused borrowing capacity of $356.6 million [219]. Impact of COVID-19 - The Company expects its net interest income and net interest margin to be adversely affected in 2020 due to the COVID-19 pandemic and recent 150 basis point reductions in the federal funds rate [177]. - Management downgraded $84.4 million of loans based on industry risk ratings due to the COVID-19 pandemic [196]. - The Company has accepted over 400 applications for Paycheck Protection Program (PPP) loans, aimed at supporting small to midsize businesses [164]. - The Company intends to utilize the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF) to pledge its PPP loans as collateral for obtaining non-recourse loans [165]. Deposits and Interest Rates - Noninterest-bearing checking accounts rose by $7.8 million to $267.97 million, while interest-bearing checking accounts increased by $30.98 million to $208.95 million [199]. - The average cost of total deposits decreased by four basis points to 1.09% for the three months ended March 31, 2020, compared to 1.13% for the same period in 2019 [210]. - Management remains focused on increasing lower-cost relationship-based deposits to fund long-term asset growth [198]. Tax and Equity - The effective corporate income tax rate decreased to 20.4% for the three months ended March 31, 2020, down from 22.5% in the same period of 2019, due to a decrease in pre-tax income and the absence of non-deductible acquisition costs [217]. - Total stockholders' equity increased by $587,000 to $200.8 million at March 31, 2020, from $200.2 million at December 31, 2019 [203].