Market Overview

First Financial Northwest, Inc. Reports Second Quarter Net Income of $3.1 Million or $0.30 per Diluted Share

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RENTON, Wash., July 26, 2018 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the "Company") (NASDAQ GS:FFNW), the holding company for First Financial Northwest Bank (the "Bank"), today reported net income for the quarter ended June 30, 2018, of $3.1 million, or $0.30 per diluted share, compared to net income of $6.8 million, or $0.66 per diluted share, for the quarter ended March 31, 2018, and $1.9 million, or $0.18 per diluted share, for the quarter ended June 30, 2017. For the six months ended June 30, 2018, net income was $9.9 million, or $0.96 per diluted share, compared to net income of $4.2 million, or $0.40 per diluted share, for the comparable six‑month period in 2017. The quarter ended March 31, 2018, benefited from the impact of $4.3 million in recoveries during the quarter, primarily relating to payment in full of loan balances previously charged off from two customers, including an additional $1.0 million in loan interest income, and the recognition of a $4.0 million recapture of provision for loan loss.

Net loans receivable totaled $989.3 million at June 30, 2018, compared to $991.1 million at March 31, 2018, and $861.7 million at June 30, 2017. The average balance of net loans receivable totaled $997.1 million for the quarter ended June 30, 2018, compared to $985.8 million for the quarter ended March 31, 2018, and $844.9 million for the quarter ended June 30, 2017.

The Company recorded a $400,000 recapture of provision for loan losses in the quarter ended June 30, 2018, compared to a $4.0 million recapture of provision for loan losses in the quarter ended March 31, 2018, and a $100,000 provision for loan losses in the quarter ended June 30, 2017. The recapture of provision for loan losses in the most recent quarter was primarily due to a reduction in balances in construction loans outstanding. The recapture of provision in the quarter ended March 31, 2018, was due primarily to $4.3 million in recoveries received during that quarter of loans previously charged off, while the provision in the same quarter last year was primarily due to growth in net loans receivable, offset by payoffs and credit improvements to certain adversely graded loans.

"Loan paydowns slightly outpaced our loan origination activity during the quarter, slowing down our pace of growth for the year," stated Joseph W. Kiley III, President and Chief Executive Officer. "Average balances of loans outstanding were higher, however, helping to support our interest income in the quarter. Competition for loans and deposits remains strong and I am pleased with the efforts of our employees to expand relationships throughout the markets we serve," continued Kiley. "We opened our tenth branch office in April 2018 at The Junction in Bothell, which exceeded $500,000 in deposits at June 30, 2018. Also worth highlighting is the success of our Crossroads office in Bellevue that opened in June 2017. Our employees in this office have exceeded our expectations, growing deposit balances to $37 million in just twelve months of operations," concluded Kiley.

The following tables present an analysis of total deposits by branch office (unaudited):

  June 30, 2018
  Noninterest-
bearing
demand
  Interest-
bearing
demand
  Statement
savings
  Money
market
  Certificates
of deposit,
retail
  Certificates
of deposit,
brokered
  Total  
          (Dollars in thousands)          
King County:                            
Renton $ 33,117   $ 17,899   $ 22,678   $ 201,264   $ 292,394   $ -   $ 567,352  
The Landing   2,161     777     56     11,667     7,924     -     22,585  
Woodinville (1)   1,495     3,484     618     22,015     5,837     -     33,449  
Bothell   44     45     1     502     -     -     592  
Crossroads   964     5,352     91     23,492     7,552     -     37,451  
Total King County   37,781     27,557     23,444     258,940     313,707     -     661,429  
                             
Snohomish County:                            
Mill Creek   1,499     2,800     909     12,282     6,788     -     24,278  
Edmonds   5,189     2,231     42     15,393     6,210     -     29,065  
Clearview (1)   3,690     3,138     1,134     7,127     1,682     -     16,771  
Lake Stevens (1)   1,786     1,384     552     3,409     2,546     -     9,677  
Smokey Point (1)   1,509     2,121     516     7,391     4,507     -     16,044  
Total Snohomish County   13,673     11,674     3,153     45,602     21,733     -     95,835  
                             
Total retail deposits   51,454     39,231     26,597     304,542     335,440     -     757,264  
Brokered deposits   -     -     -     -     -     75,488     75,488  
Total deposits $ 51,454   $ 39,231   $ 26,597   $ 304,542   $ 335,440   $ 75,488   $ 832,752  

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $80,000.

  March 31, 2018
  Noninterest-
bearing
demand
  Interest-
bearing
demand
  Statement
savings
  Money
market
  Certificates
of deposit,
retail
  Certificates
of deposit,
brokered
  Total  
          (Dollars in thousands)          
King County:                            
Renton $ 31,945   $ 19,620   $ 22,637   $ 228,134   $ 294,434   $ -   $ 596,770  
The Landing   3,176     980     59     11,571     8,096     -     23,822  
Woodinville (1)   1,617     3,431     711     19,744     8,112     -     33,615  
Bothell   31     -     -     -     -     -     31  
Crossroads   1,074     6,388     82     25,104     7,006     -     39,654  
Total King County   37,843     30,419     23,489     284,553     317,648     -     693,952  
                             
Snohomish County:                            
Mill Creek   1,395     2,314     710     14,814     6,313     -     25,546  
Edmonds   1,632     1,305     45     17,619     5,747     -     26,348  
Clearview (1)   3,881     3,225     1,080     7,408     1,734     -     17,328  
Lake Stevens (1)   1,517     1,359     517     3,131     2,645     -     9,169  
Smokey Point (1)   1,867     2,182     547     6,983     3,819     -     15,398  
Total Snohomish County   10,292     10,385     2,899     49,955     20,258     -     93,789  
                             
Total retail deposits   48,135     40,804     26,388     334,508     337,906     -     787,741  
Brokered deposits   -     -     -     -     -     75,488     75,488  
Total deposits $ 48,135   $ 40,804   $ 26,388   $ 334,508   $ 337,906   $ 75,488   $ 863,229  

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $93,000.

Additional noteworthy items for the quarter ended June 30, 2018:

  • Net loans receivable decreased slightly to $989.3 million at June 30, 2018, from $991.1 million at March 31, 2018, but up from $861.7 million at June 30, 2017.
  • Deposits were $832.8 million at June 30, 2018, compared to $863.2 million at March 31, 2018, and $735.6 million at June 30, 2017. With reduced loan growth due primarily to higher than usual payoffs, certain higher cost deposits were allowed to run off in the most recent quarter. Checking deposits, however, increased to $90.7 million at June 30, 2018, compared to $88.9 million at March 31, 2018, and $56.2 million at June 30, 2017. Competition for deposits in our markets remained strong.
  • The Company's book value per share was $13.97 at June 30, 2018, compared to $13.80 at March 31, 2018, and $13.00 at June 30, 2017. Tangible book value per share was $13.78 at June 30, 2018, compared to $13.60 at March 31, 2018, and $13.00 at June 30, 2017.
  • The Bank's Tier 1 leverage and total capital ratios at June 30, 2018, were 10.2% and 14.5%, respectively, compared to 10.4% and 14.4% at March 31, 2018, and 11.5% and 15.2% at June 30, 2017.

Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL"), there was a $400,000 recapture of provision for loan losses for the quarter ended June 30, 2018. The following items contributed to this recapture of provision during the quarter:

  • The Company's net loans receivable decreased slightly during the quarter to $989.3 million at June 30, 2018, from $991.1 million at March 31, 2018.
  • Construction/land development loans outstanding, net of LIP, declined to $98.2 million at June 30, 2018, compared to $117.6 million at March 31, 2018, reducing the amounts necessary in the ALLL, as there is a higher ALLL allocation to this segment of loans.
  • Nonperforming loans declined to $164,000 at June 30, 2018, compared to $175,000 at March 31, 2018, and $583,000 at June 30, 2017.
  • Nonperforming loans as a percentage of total loans remained low at 0.02% at both June 30, 2018, and March 31, 2018, compared to 0.07% at June 30, 2017.

The ALLL represented 1.27% of total loans receivable, net of undisbursed funds, at June 30, 2018, compared to 1.31% at March 31, 2018, and 1.29% at June 30, 2017.

The following table presents a breakdown of our nonperforming assets (unaudited):

  Jun 30,
2018
  Mar 31,
2018
  Jun 30,
2017
  Three
Month
Change
  One
Year
Change
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $ 116   $ 125   $ 528   $ (9 )   $ (412 )
Consumer   48     50     55     (2 )     (7 )
Total nonperforming loans   164     175     583     (11 )     (419 )
                   
Other real estate owned ("OREO")   483     483     1,825     -       (1,342 )
                   
Total nonperforming assets (1) $ 647   $ 658   $ 2,408   $ (11 )   $ (1,761 )
                   
Nonperforming assets as a percent of total assets   0.05%     0.05%     0.22%        

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of our TDRs were performing in accordance with their restructured terms at June 30, 2018.

The decrease in OREO over the past year, as shown in the table above, is primarily due to the Bank's continued efforts to actively market its OREO properties in an effort to minimize holding costs. There were $532,000 in delinquent loans (loans over 30 days past due) at June 30, 2018, compared to $225,000 in delinquent loans at March 31, 2018, and $85,000 at June 30, 2017.

In circumstances where a customer is experiencing significant financial difficulties, the Company may elect to restructure the loan so the customer can continue to make payments while minimizing the potential loss to the Company. Such restructures must be classified as TDRs.

The following table presents a breakdown of our TDRs (unaudited):

  Jun 30,
2018
  Mar 31,
2018
  Jun 30,
2017
  Three
Month
Change
  One
Year
Change
  (Dollars in thousands)
Nonperforming TDRs:                  
One-to-four family residential $   $   $ 106   $     $ (106 )
Total nonperforming TDRs           106           (106 )
                   
Performing TDRs:                  
One-to-four family residential   9,990     11,904     19,152     (1,914 )     (9,162 )
Multifamily   1,122     1,128     1,146     (6 )     (24 )
Commercial real estate   2,624     3,173     3,660     (549 )     (1,036 )
Consumer   43     43     43            
Total performing TDRs   13,779     16,248     24,001     (2,469 )     (10,222 )
                   
Total TDRs $ 13,779   $ 16,248   $ 24,107   $ (2,469 )   $ (10,328 )

Net interest income for the quarter ended June 30, 2018, was $10.1 million, compared to $11.0 million for the quarter ended March 31, 2018, and $9.0 million in the quarter ended June 30, 2017. The decline in net interest income from the first quarter of 2018, was due primarily to the decline in total interest income, as discussed below, while the increase compared to the quarter ended June 30, 2017, was due primarily to the Company's growth in loans receivable, partially offset by higher balances of interest-bearing liabilities and a higher cost of funds.

Total interest income was $13.6 million for the quarter ended June 30, 2018, compared to $14.1 million for the quarter ended March 31, 2018, and $11.3 million for the quarter ended June 30, 2017. The decrease from the previous quarter was due to the recognition of $1.0 million in interest income related to payments received on interest owed on the balances of previously charged off loans during the first quarter of 2018, partially offset by an increase during the current quarter in average loan receivables to $997.1 million from $985.8 million for the quarter ended March 31, 2018. The increase in total interest income from the second quarter of 2017 was due primarily to the growth in average loan balances from $844.9 million last year.

Total interest expense was $3.5 million for the quarter ended June 30, 2018, compared to $3.1 million for the quarter ended March 31, 2018, and $2.3 million for the quarter ended June 30, 2017. The higher level of interest expense in the most recent two quarters compared to the quarter ended June 30, 2017, was the result of higher short term market interest rates as a result of actions taken by the Federal Open Market Committee ("FOMC") that adversely impacted our cost of deposits and cost of borrowings. Advances from the Federal Home Loan Bank ("FHLB") totaled $224.0 million at June 30, 2018, compared to $200.0 million at March 31, 2018, and $191.5 million at June 30, 2017. The Bank borrows from the FHLB primarily to supplement its deposit gathering efforts when needed to support asset growth. The average cost of FHLB advances and other borrowings was 1.92% for the quarter ended June 30, 2018, compared to 1.66% for the quarter ended March 31, 2018, and 1.24% for the quarter ended June 30, 2017. Brokered certificates of deposit totaled $75.5 million at June 30, 2018, March 31, 2018, and June 30, 2017.

The following table presents a breakdown of our total deposits (unaudited):

  Jun 30,
2018
  Mar 31,
2018
  Jun 30,
2017
  Three Month
Change
  One Year
Change
Deposits: (Dollars in thousands)        
Noninterest-bearing $ 51,454   $ 48,135   $ 35,126   $ 3,319     $ 16,328  
Interest-bearing demand   39,231     40,804     21,059     (1,573 )     18,172  
Statement savings   26,597     26,388     26,668     209       (71 )
Money market   304,542     334,508     232,206     (29,966 )     72,336  
Certificates of deposit, retail (1)   335,440     337,906     345,028     (2,466 )     (9,588 )
Certificates of deposit, brokered   75,488     75,488     75,488     -       -  
Total deposits $ 832,752   $ 863,229   $ 735,575   $ (30,477 )   $ 97,177  

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $80,000 at June 30, 2018, and $93,000 at March 31, 2018.

Our net interest margin was 3.50% for the quarter ended June 30, 2018, compared to 3.88% for the quarter ended March 31, 2018, and 3.60% for the quarter ended June 30, 2017. The change between quarters was primarily attributed to the additional $1.0 million in interest income from previously charged-off loans recognized in the quarter ended March 31, 2018, as discussed above. The decrease from the year ago period relates to a narrowing of our net interest margin between periods, primarily due to a 15.8% growth in average interest-bearing liabilities and an increase in the average cost of interest-bearing liabilities to 1.37% from 1.07%.

Noninterest income for the quarter ended June 30, 2018, totaled $663,000 compared to $646,000 for the quarter ended March 31, 2018, and $731,000 for the quarter ended June 30, 2017. The increase from the first quarter of 2018 was due primarily to an increase in wealth management revenue and deposit related fees, partially offset by a decline in income from bank owned life insurance ("BOLI") and loan related fees. Noninterest income for the quarter ended June 30, 2018, was also impacted by a $21,000 net loss on sale of investments as we elected to sell certain securities and replace them with investments that are expected to perform better in a rising rate environment.

Noninterest expense for the quarter ended June 30, 2018, increased to $7.5 million from $7.0 million in the quarter ended March 31, 2018, and $6.8 million in the quarter ended June 30, 2017. The increase in noninterest expense in the current quarter compared to the prior quarter was due primarily to higher salaries and employee benefits expense (including accruals for incentive compensation), professional fees, and occupancy and equipment, partially offset by lower regulatory assessments and marketing expense. The increase from the prior year period was due primarily to growth in the Bank's number of locations in the past year.

The Company's federal income tax provision was $603,000 for the quarter ended June 30, 2018, compared to $1.8 million for the quarter ended March 31, 2018, and $924,000 for the quarter ended June 30, 2017. Both the June 30, 2018, and June 30, 2017, periods benefited from stock option exercises that resulted in significantly lower federal income tax provisions than the quarter ended March 31, 2018, when no such stock option exercise activity occurred. The stock option exercises occurred at prices higher than originally estimated, resulting in higher allowable expense recognition for tax purposes in both the current and year ago quarterly periods. The Company's federal income tax provision during 2018 also benefitted from the impact of the Tax Cuts and Jobs Act enacted December 31, 2017, which lowered the corporate income tax rate from 35% to 21%.

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 10 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 Index. For additional information about us, please visit our website at ffnwb.com and click on the "Investor Relations" link at the bottom of the page.

Forward-looking statements:

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the "SEC"), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "believe," "will," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "plans," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include, but are not limited to, the following: increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in the Company's latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – that are available on our website at www.ffnwb.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2018 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
Assets Jun 30,
2018
  Mar 31,
2018
  Jun 30,
2017
  Three
Month
Change
  One
Year
Change
                   
Cash on hand and in banks $ 9,017     $ 6,595     $ 7,418     36.7 %   21.6 %
Interest-earning deposits   14,056       13,954       10,996     0.7     27.8  
Investments available-for-sale, at fair value   138,055       142,872       133,951     (3.4 )   3.1  
Loans receivable, net of allowance of $12,754, $13,136, and $11,285, respectively   989,256       991,138       861,672     (0.2 )   14.8  
Federal Home Loan Bank ("FHLB") stock, at cost   10,410       9,450       8,902     10.2     16.9  
Accrued interest receivable   4,084       3,981       3,165     2.6     29.0  
Deferred tax assets, net   1,296       1,362       2,620     (4.8 )   (50.5 )
Other real estate owned ("OREO")   483       483       1,825     0.0     (73.5 )
Premises and equipment, net   21,436       21,208       19,501     1.1     9.9  
Bank owned life insurance ("BOLI")   29,501       29,276       28,721     0.8     2.7  
Prepaid expenses and other assets   4,391       3,922       2,937     12.0     49.5  
Goodwill   889       889       -     0.0     n/a
Core deposit intangible   1,191       1,228       -     (3.0 )   n/a
Total assets $ 1,224,065     $ 1,226,358     $ 1,081,708     (0.2 )%   13.2 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $ 51,454     $ 48,135     $ 35,126     6.9 %   46.5 %
Interest-bearing deposits   781,298       815,094       700,449     (4.1 )   11.5  
Total Deposits   832,752       863,229       735,575     (3.5 )   13.2  
Advances from the FHLB   224,000       200,000       191,500     12.0     17.0  
Advance payments from borrowers for taxes and insurance   2,545       4,478       2,183     (43.2 )   16.6  
Accrued interest payable   570       270       286     111.1     99.3  
Other liabilities   11,644       9,626       8,650     21.0     34.6  
Total liabilities   1,071,511       1,077,603       938,194     (0.6 )   14.2  
                   
Commitments and contingencies                  
                   
Stockholders' Equity                  
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding
$ -     $ -     $ -     n/a   n/a
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding shares 10,916,556 at June 30, 2018, 10,779,424 at March 31, 2018, and 11,041,865 shares at June 30, 2017   109       108       110     0.9 %   (0.9 )%
Additional paid-in capital   96,344       94,527       98,469     1.9     (2.2 )
Retained earnings, substantially restricted   63,042       60,767       51,844     3.7     21.6  
Accumulated other comprehensive loss, net of tax   (2,145 )     (1,568 )     (984 )   36.8     118.0  
Unearned Employee Stock Ownership Plan ("ESOP") shares   (4,796 )     (5,079 )     (5,925 )   (5.6 )   (19.1 )
Total stockholders' equity   152,554       148,755       143,514     2.6     6.3  
Total liabilities and stockholders' equity $ 1,224,065     $ 1,226,358     $ 1,081,708     (0.2 )%   13.2 %
 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
  Quarter Ended          
  Jun 30,
2018
  Mar 31,
2018
  Jun 30,
2017
  Three
Month
Change
  One
Year
Change
 
Interest income                    
Loans, including fees $ 12,429     $ 13,042     $ 10,352     (4.7 )%   20.1 %  
Investments available-for-sale   1,010       929       887     8.7     13.9    
Interest-earning deposits with banks   44       38       42     15.8     4.8    
Dividends on FHLB Stock   105       104       62     1.0     69.4    
Total interest income   13,588       14,113       11,343     (3.7 )   19.8    
Interest expense                    
Deposits   2,435       2,276       1,776     7.0     37.1    
FHLB advances and other borrowings   1,024       853       570     20.0     79.6    
Total interest expense   3,459       3,129       2,346     10.5     47.4    
Net interest income   10,129       10,984       8,997     (7.8 )   12.6    
(Recapture of provision) provision for loan losses   (400 )     (4,000 )     100     (90.0 )   (500.0 )  
Net interest income after (recapture of provision) provision for loan losses   10,529       14,984       8,897     (29.7 )   18.3    
                     
Noninterest income                    
Net (loss) gain on sale of investments   (21 )     -       56     n/a   (137.5 )  
BOLI income   224       249       116     (10.0 )   93.1    
Wealth management revenue   156       99       307     57.6     (49.2 )  
Deposit related fees   175       161       94     8.7     86.2    
Loan related fees   126       134       155     (6.0 )   (18.7 )  
Other   3       3       3     0.0     0.0    
Total noninterest income   663       646       731     2.6     (9.3 )  
                     
Noninterest expense                    
Salaries and employee benefits   4,931       4,662       4,409     5.8     11.8    
Occupancy and equipment   829       769       579     7.8     43.2    
Professional fees   442       328       482     34.8     (8.3 )  
Data processing   351       324       519     8.3     (32.4 )  
OREO related expenses (reimbursements), net   2       1       (20 )   100.0     (110.0 )  
Regulatory assessments   110       155       112     (29.0 )   (1.8 )  
Insurance and bond premiums   154       106       98     45.3     57.1    
Marketing   77       107       52     (28.0 )   48.1    
Other general and administrative   591       575       605     2.8     (2.3 )  
Total noninterest expense   7,487       7,027       6,836     6.5     9.5    
Income before federal income tax  provision   3,705       8,603       2,792     (56.9 )   32.7    
Federal income tax provision   603       1,761       924     (65.8 )   (34.7 )  
Net income $ 3,102     $ 6,842     $ 1,868     (54.7 )%   66.1 %  
                     
Basic earnings per share $ 0.30     $ 0.67     $ 0.18            
Diluted earnings per share $ 0.30     $ 0.66     $ 0.18            
Weighted average number of common shares outstanding   10,271,432       10,210,828       10,363,345            
Weighted average number of diluted shares outstanding   10,405,949       10,336,566       10,500,829            


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
  Six Months Ended    
  June 30,    
    2018       2017    One Year Change
Interest income          
Loans, including fees $ 25,472     $ 20,379   25.0 %
Investments available-for-sale   1,939       1,732   12.0  
Interest-earning deposits with banks   82       86   (4.7 )
Dividends on FHLB Stock   208       144   44.4  
Total interest income   27,701       22,341   24.0  
Interest expense          
Deposits   4,711       3,467   35.9  
FHLB advances and other borrowings   1,877       1,015   84.9  
Total interest expense   6,588       4,482   47.0  
Net interest income   21,113       17,859   18.2  
(Recapture of provision) provision for loan losses   (4,400 )     300   (1,566.7 )
Net interest income after (recapture of provision) provision for loan losses   25,513       17,559   45.3  
           
Noninterest income          
Net (loss) gain on sale of investments   (21 )     56   (137.5 )
BOLI   473       317   49.2  
Wealth management revenue   255       447   (43.0 )
Deposit related fees   336       165   103.6  
Loan related fees   260       275   (5.5 )
Other   6       6   0.0  
Total noninterest income   1,309       1,266   3.4  
           
Noninterest expense          
Salaries and employee benefits   9,593       8,694   10.3  
Occupancy and equipment   1,598       1,059   50.9  
Professional fees   770       921   (16.4 )
Data processing   675       759   (11.1 )
OREO related expenses, net   3       20   (85.0 )
Regulatory assessments   265       208   27.4  
Insurance and bond premiums   260       197   32.0  
Marketing   184       100   84.0  
Other general and administrative   1,166       946   23.3  
Total noninterest expense   14,514       12,904   12.5  
Income before federal income tax  provision   12,308       5,921   107.9  
Federal income tax provision   2,364       1,709   38.3  
Net income $ 9,944     $ 4,212   136.1 %
           
Basic earnings per share $ 0.97     $ 0.41    
Diluted earnings per share $ 0.96     $ 0.40    
Weighted average number of common shares outstanding   10,241,297       10,341,654    
Weighted average number of diluted shares outstanding   10,372,474       10,503,023    

The following table presents a breakdown of our loan portfolio (unaudited):

  June 30, 2018 March 31, 2018   June 30, 2017
  Amount   Percent   Amount   Percent   Amount   Percent
  (Dollars in thousands)
Commercial real estate:                      
Residential:                      
Micro-unit apartments $ 14,204     1.3 %   $ 14,266     1.3 %   $ 5,580     0.6 %
Other multifamily   180,649     16.7       176,126     16.2       120,304     12.5  
Total multifamily   194,853     18.0       190,392     17.5       125,884     13.1  
                       
Non-residential:                      
Office   99,739     9.2       107,966     9.9       95,256     9.9  
Retail   141,451     13.1       131,978     12.1       99,482     10.3  
Mobile home park   15,655     1.4       20,783     1.9       21,851     2.3  
Warehouse   28,185     2.6       22,611     2.1       21,491     2.2  
Storage   30,383     2.8       32,031     2.9       35,121     3.6  
Other non-residential   56,820     5.2       51,405     4.7       44,017     4.6  
Total non-residential   372,233     34.3       366,774     33.6       317,218     32.9  
                       
Construction/land development:                      
One-to-four family residential   85,218     7.9       97,779     9.0       76,404     7.9  
Multifamily   75,433     7.0       85,773     7.9       123,497     12.8  
Commercial   5,735     0.5       5,735     0.5       1,100     0.1  
Land development   12,911     1.2       13,299     1.2       39,012     4.1  
Total construction/land development   179,297     16.6       202,586     18.6       240,013     24.9  
                       
One-to-four family residential:                      
Permanent owner occupied   169,275     15.6       162,544     14.9       137,816     14.3  
Permanent non-owner occupied   134,297     12.4       133,351     12.2       118,816     12.3  
Total one-to-four family residential   303,572     28.0       295,895     27.1       256,632     26.6  
                       
Business:                      
Aircraft   9,978     0.9       10,514     1.0       6,235     0.7  
Other business   12,143     1.1       13,723     1.2       8,971     0.9  
Total business   22,121     2.0       24,237     2.2       15,206     1.6  
                       
Consumer   12,329     1.1       11,131     1.0       9,031     0.9  
Total loans   1,084,405     100.0 %     1,091,015     100.0 %     963,984     100.0 %
Less:                      
Loans in Process ("LIP")   81,616           85,576           88,475      
Deferred loan fees, net   779           1,165           2,552      
ALLL   12,754           13,136           11,285      
Loans receivable, net $ 989,256         $ 991,138         $ 861,672      
                       
Concentrations of credit: (1)                      
Construction loans as % of total capital   73.5 %         84.9 %         115.3 %    
Total non-owner occupied commercial real estate as % of total capital   475.2 %         484.8 %         443.0 %    

(1) Concentrations of credit percentages are for First Financial Northwest Bank only using classifications in accordance with FDIC guidelines.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
 
  At or For the Quarter Ended
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,
  2018
  2018
  2017
  2017
  2017
  (Dollars in thousands, except per share data)
Performance Ratios:                  
Return on assets   1.01 %     2.28 %     0.80 %     0.66 %     0.70 %
Return on equity   8.28       19.16       6.70       5.13       5.22  
Dividend payout ratio   26.67       10.47       29.17       38.89       38.89  
Equity-to-assets ratio   12.46       12.13       11.79       12.10       13.27  
Tangible equity ratio   12.31       11.98       11.63       11.92       13.27  
Interest rate spread   3.33       3.73       3.51       3.38       3.47  
Net interest margin   3.50       3.88       3.65       3.53       3.60  
Average interest-earning assets to average interest-bearing liabilities   114.21       113.46       113.32       114.08       114.29  
Efficiency ratio   69.38       60.42       66.69       67.64       70.27  
Noninterest expense as a percent of average total assets   2.44       2.34       2.34       2.42       2.57  
Book value per common share $ 13.97     $ 13.80     $ 13.27     $ 13.08     $ 13.00  
Tangible book value per share   13.78       13.60       13.07       12.86       13.00  
                   
Capital Ratios: (1)                  
Tier 1 leverage ratio   10.22 %     10.44 %     10.20 %     10.80 %     11.46 %
Common equity tier 1 capital ratio   13.21       13.13       12.52       12.95       13.94  
Tier 1 capital ratio   13.21       13.13       12.52       12.95       13.94  
Total capital ratio   14.47       14.38       13.77       14.20       15.19  
                   
Asset Quality Ratios: (2)                  
Nonperforming loans as a percent of total loans   0.02 %     0.02 %     0.02 %     0.02 %     0.07 %
Nonperforming assets as a percent of total assets   0.05       0.05       0.05       0.17       0.22  
ALLL as a percent of total loans   1.27       1.31       1.28       1.28       1.29  
ALLL as a percent of nonperforming loans   7,776.83       7,508.90       7,196.65       6,545.95       1,935.68  
Net (recoveries) charge-offs to average loans receivable, net   (0.00 )     (0.43 )     (0.20 )     (0.04 )     (0.00 )
                   
Allowance for Loan Losses:                  
ALLL, beginning of the quarter $ 13,136     $ 12,882     $ 12,110     $ 11,285     $ 11,158  
(Recapture of provision) provision   (400 )     (4,000 )     (1,200 )     500       100  
Charge-offs   -       -       -       -       -  
Recoveries   18       4,254       1,972       325       27  
ALLL, end of the quarter $ 12,754     $ 13,136     $ 12,882     $ 12,110     $ 11,285  

(1) Capital ratios are for First Financial Northwest Bank only.
(2) Loans are reported net of undisbursed funds.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
 
  At or For the Quarter Ended
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,
  2018
  2018
  2017
  2017
  2017
  (Dollars in thousands, except per share data)
Yields and Costs:                  
Yield on loans   5.00 %     5.37 %     5.05 %     4.95 %     4.91 %
Yield on investments available-for-sale   2.87       2.65       2.52       2.59       2.69  
Yield on interest-earning deposits   1.48       1.32       1.23       1.27       1.00  
Yield on FHLB stock   4.21       4.40       3.42       2.91       2.89  
Yield on interest-earning assets   4.70       4.98       4.67       4.51       4.54  
                   
Cost of deposits   1.22       1.15       1.08       1.05       1.03  
Cost of borrowings   1.92       1.66       1.46       1.40       1.24  
Cost of interest-bearing liabilities   1.37       1.25       1.16       1.13       1.07  
                   
Average Balances:                  
Loans $ 997,059     $ 985,799     $ 963,097     $ 879,075     $ 844,853  
Investments available-for-sale   141,035       142,236       141,962       132,959       132,375  
Interest-earning deposits   11,927       11,717       13,843       33,854       16,831  
FHLB stock   10,004       9,593       9,859       9,126       8,616  
Total interest-earning assets $ 1,160,025     $ 1,149,345     $ 1,128,761     $ 1,055,014     $ 1,002,675  
                   
Deposits $ 801,852     $ 804,451     $ 780,671     $ 727,702     $ 692,922  
Borrowings   213,857       208,544       215,418       197,098       184,357  
Total interest-bearing liabilities $ 1,015,709     $ 1,012,995     $ 996,089     $ 924,800     $ 877,279  
                   
Average assets $ 1,229,341     $ 1,218,418     $ 1,199,774     $ 1,120,176     $ 1,066,477  
Average stockholders' equity $ 150,243     $ 144,786     $ 142,390     $ 143,975     $ 143,643  

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains non-GAAP financial measures of the tangible equity ratio and tangible book value. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholder's equity. Tangible assets is calculated by subtracting intangible assets from total assets. The tangible equity ratio is tangible equity divided by tangible assets. Tangible book value per share is calculated by dividing tangible equity by the number of common shares outstanding. The Company believes that these non-GAAP measures provide a more consistent presentation of our capital and facilitate peer comparison that is desired by investors.

Non-GAAP financial measures have limitations, are not audited and should only be used in conjunction with the other measures in this earnings release that are presented in accordance with GAAP.

The following table provides a reconciliation between the GAAP and non-GAAP measures:

  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
  Sep 30,
2017
  Jun 30,
2017
  (Dollars in thousands)
Total stockholders' equity $ 152,554     $ 148,755     $ 142,634     $ 140,760     $ 143,514  
Less:                  
Goodwill   889       889       889       979       -  
Core deposit intangible   1,191       1,228       1,266       1,304       -  
Tangible equity $ 150,474     $ 146,638     $ 140,479     $ 138,477     $ 143,514  
                   
Total assets   1,224,065       1,226,358       1,210,229       1,163,578       1,081,708  
Less:                  
Goodwill   889       889       889       979       -  
Core deposit intangible   1,191       1,228       1,266       1,304       -  
Tangible assets $ 1,221,985     $ 1,224,241     $ 1,208,074     $ 1,161,295     $ 1,081,708  
                   
Common shares outstanding at period end   10,916,556       10,779,424       10,748,437       10,763,915       11,041,865  
                   
Equity to assets ratio   12.46 %     12.13 %     11.79 %     12.10 %     13.27 %
Tangible equity ratio   12.31 %     11.98 %     11.63 %     11.92 %     13.27 %
Book value per share $ 13.97     $ 13.80     $ 13.27     $ 13.08     $ 13.00  
Tangible book value per share $ 13.78     $ 13.60     $ 13.07     $ 12.86     $ 13.00  

For more information, contact:
Joseph W. Kiley III, President and Chief Executive Officer
Rich Jacobson, Executive Vice President and Chief Financial Officer
(425) 255-4400

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