Market Overview

First Financial Northwest, Inc. Reports Fourth Quarter Net Income of $2.6 Million or $0.26 per Diluted Share and $10.4 Million or $1.03 per Diluted Share for the Year Ended December 31, 2019

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RENTON, Wash., Jan. 23, 2020 (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 December 31, 2019, of $2.6 million, or $0.26 per diluted share, compared to net income of $2.5 million, or $0.25 per diluted share, for the quarter ended September 30, 2019, and $2.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2018. For the year ended December 31, 2019, net income was $10.4 million, or $1.03 per diluted share, compared to net income of $14.9 million, or $1.43 per diluted share, for the year ended December 31, 2018.

"I am pleased with the growth in both deposit and loan balances during the quarter," stated Joseph W. Kiley III, President and Chief Executive Officer. "I am also encouraged by the slight improvement in our net interest margin this quarter, after experiencing declines in each of the preceding six quarters," continued Kiley. "The modest increase in net interest margin was primarily the result of a 10 basis point reduction in our cost of funds, an area receiving significant attention throughout the Bank. To this end, we continue to expand into new markets to attract lower cost deposits and enhance our growth prospects. During the fourth quarter, we entered the vibrant Kirkland, Washington market and we intend to expand into the University Place market, opening our first office in Pierce County in the first quarter of 2020. Different from traditional branch models, our expansion strategy starts with identifying a team of bankers with extensive experience and relationships in a particular market. Subsequently, we locate them in a small, efficient office space in that market, equipped with current technology to allow our bankers to demonstrate digital banking to their customers," continued Kiley. "Offices in each of our markets include a conference room equipped with leading edge technologies that is made available to the local community," concluded Kiley.

Net loans receivable totaled $1.11 billion at December 31, 2019, compared to $1.08 billion at September 30, 2019, and $1.02 billion at December 31, 2018. The average balance of net loans receivable totaled $1.09 billion for the quarter ended December 31, 2019, compared to $1.07 billion for the quarter ended September 30, 2019, and $1.01 billion for the quarter ended December 31, 2018. For the year ended December 31, 2019, the average balance of net loans receivable was $1.06 billion, compared to $995.8 million for the year ended December 31, 2018.

The Company did not record a provision for loan losses in the quarter ended December 31, 2019, compared to a $100,000 provision for loan losses in the quarter ended September 30, 2019, and a $200,000 provision for loan losses in the quarter ended December 31, 2018. There was no provision for loan losses in the most recent quarter despite our loan growth primarily due to credit upgrades for certain loan relationships reducing the amounts required to be allocated for loan losses for those credits and the continued strength in our loan portfolio quality metrics. In addition, the Bank realized recoveries of $57,000 on loans previously charged off and balances declined in loan categories typically associated with higher allowances due to loan payoffs, further reducing the need for additions to the allowance for loan and lease losses. The provision in the quarter ended September 30, 2019, was primarily due to growth in loans receivable. The provision for loan losses in the quarter ended December 31, 2018, was primarily due to a combination of growth in net loans receivable and a change in loan mix. For the year ended December 31, 2019, the recapture of provision for loan losses totaled $300,000, compared to a recapture of provision for loan losses of $4.0 million, which included $4.5 million in recoveries, recorded for the year ended December 31, 2018.

The Bank continued to expand its geographic footprint during the year opening its twelfth new office in Kirkland, King County, Washington, in the fourth quarter of 2019. The Bank has received regulatory approval to open its thirteenth office location in University Place, Pierce County, Washington, in the first quarter of 2020.

Highlights for the quarter and year ended December 31, 2019:

  • Net loans increased to $1.11 billion at December 31, 2019, from $1.08 billion at September 30, 2019, and $1.02 billion at December 31, 2018.
  • Total deposits increased to $1.03 billion at December 31, 2019, from $1.02 billion at September 30, 2019, and $939.0 million at December 31, 2018.
  • The Company increased the regular quarterly cash dividend to shareholders to $0.09 per share in the quarter ended June 30, 2019, from $0.08 per share previously.
  • The Company's book value per share was $15.25 at December 31, 2019, compared to $15.06 at September 30, 2019, and $14.35 at December 31, 2018.
  • The Company repurchased 45,100 shares at an average price of $14.52 per share in the quarter ended December 31, 2019. For the year ended December 31, 2019, the Company repurchased a total of 479,052 shares at an average price of $15.42 per share pursuant to two separate stock repurchase plans approved by its Board of Directors.
  • The Bank's Tier 1 leverage and total capital ratios at December 31, 2019, were 10.3% and 14.4%, respectively, compared to 10.1% and 14.4% at September 30, 2019, and 10.4% and 14.7% at December 31, 2018.
  • Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL"), there was no provision for loan losses required for the quarter ended December 31, 2019.

The ALLL represented 1.18% of total loans receivable, net of undisbursed funds, at December 31, 2019, compared to 1.20% at September 30, 2019, and 1.29% at December 31, 2018. Nonperforming assets totaled $549,000 at December 31, 2019, compared to $591,000 at September 30, 2019, and $1.2 million at December 31, 2018.

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

  Dec 31,   Sep 30,   Dec 31,   Three
Month
  One
Year
                               
    2019       2019       2018     Change   Change
   
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $   95     $   98     $   382     $    (3 )   $    (287 )
Commercial real estate                326             (326 )
Consumer         39         44        (39 )     (44 )
Total nonperforming loans   95       137       752       (42 )     (657 )
                   
Other real estate owned ("OREO")   454       454       483             (29 )
                   
Total nonperforming assets (1) $   549     $   591     $   1,235     $   (42 )   $   (686 )
                   
Nonperforming assets as a percent of total assets   0.04 %     0.05 %     0.10 %        

(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 December 31, 2019.

OREO remained at $454,000 for both December 31, 2019, and September 30, 2019, but declined from $483,000 at December 31, 2018, as a result of a write down in value of the two remaining OREO properties during the quarter ended March 31, 2019.

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. At December 31, 2019, TDRs totaled $5.2 million following $1.4 million in payoffs and payments in the quarter, compared to $6.6 million at September 30, 2019, and $9.4 million at December 31, 2018.

Net interest income totaled $9.7 million for both the quarters ended December 31 and September 30, 2019, compared to $10.0 million for the quarter ended December 31, 2018. The change in net interest income compared to the prior year period was due primarily to a reduction in the Company's net interest margin between periods. For the year ended December 31, 2019, net interest income totaled $38.9 million, compared to $41.2 million for the year ended December 31, 2018. The reduction in 2019 was due to the net interest margin reduction noted above, as the cost of interest-bearing liabilities increased significantly in 2019.

Total interest income was $15.0 million during the quarter ended December 31, 2019, compared to $15.2 million during the quarter ended September 30, 2019, and $14.3 million in the quarter ended December 31, 2018. The decline from the quarter ended September 30, 2019, was due primarily to a decline in the average yield on interest-earning assets, while the increase over the quarter ended December 31, 2018, was due to growth in the average balance of total interest-earning assets outpacing the reduction in average yield on interest-earnings assets between the periods.

Total interest expense declined to  $5.3 million for the quarter ended December 31, 2019, from $5.6 million in the quarter ended September 30, 2019, and increased from $4.3 million for the quarter ended December 31, 2018. The decline from the quarter ended September 30, 2019, was due primarily to lower wholesale funding liabilities. Specifically, we redeemed higher rate brokered certificates of deposit and replaced them with lower cost alternatives during the quarter, as discussed in detail below. In addition, interest on FHLB advances declined as we replaced higher cost advances using interest rate swaps to secure lower interest rate advances. An overall higher cost of interest-bearing liabilities contributed to increased interest expense in the quarter ended December 31, 2019, compared to the quarter ended December 31, 2018. For the year ended December 31, 2019, the cost of interest-bearing liabilities increased to 1.92% compared to 1.46% for the year ended December 31, 2018. This higher interest rate environment, along with an increase in the average balance of total interest-bearing liabilities, resulted in the significant increase in total interest expense for the year. The balance of brokered certificates of deposits were reduced to $94.5 million at December 31, 2019, from $138.6 million at September 30, 2019, and $97.8 million at December 31, 2018. For the second quarter in a row, the Bank replaced a portion of its callable brokered certificates of deposit portfolio with lower rate alternatives. Specifically, in addition to replacing certain maturing brokered deposits with short term FHLB advances, the Bank redeemed $10.2 million in callable brokered deposits with a weighted average rate of 3.33% and weighted average remaining term of 2.4 years. These funds were replaced with lower rate three-month FHLB advances and a concurrent 4-year, $10.0 million notional pay fixed interest rate swap for which the Bank will pay 1.59% and in exchange will receive variable rate amounts from the interest rate swap counter party based on three-month LIBOR. This redemption accelerated approximately $33,000 in unamortized fees relating to the original acquisition of the callable brokered deposits, increasing interest expense by this amount in the quarter ended December 31, 2019. Advances from the FHLB totaled $137.7 million at December 31, 2019, compared to $121.0 million at September 30, 2019, and $146.5 million at December 31, 2018. The average cost of FHLB advances was 1.66% for the quarter ended December 31, 2019, compared to 2.02% for the quarter ended September 30, 2019, and 2.12% for the quarter ended December 31, 2018. For the year ended December 31, 2019, the average cost of FHLB advances was 2.09%, compared to 1.92% for the prior year.

The following table presents a breakdown of our total deposits at the dates indicated (unaudited):

  Dec 31,
2019
  Sep 30,
2019
  Dec 31, 
2018
  Three
Month
Change
  One Year
Change
     
Deposits: (Dollars in thousands)  
Noninterest-bearing $   52,849   $   49,398   $    46,108   $   3,451     $    6,741  
Interest-bearing demand     65,897       53,197       40,079     12,700       25,818  
Statement savings     17,447       21,647       24,799     (4,200 )     (7,352 )
Money market     377,766       332,722       339,047     45,044       38,719  
Certificates of deposit, retail (1)     425,103       421,274       391,174     3,829       33,929  
Certificates of deposit, brokered     94,472       138,590       97,825     (44,118 )     (3,353 )
Total deposits $   1,033,534   $   1,016,828   $   939,032   $   16,706     $    94,502  

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $28,000 at December 31, 2019, $34,000 at September 30, 2019, and $58,000 at December 31, 2018.

 

The following tables present an analysis of total deposits by office at the dates indicated (unaudited):

  December 31, 2019
  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 $   28,909 $   35,384 $   14,112 $   219,482 $   345,476 $   - $   643,363
Landing   4,625   1,855   32   13,919   9,095     -   29,526
Woodinville (1)   1,772   3,228   699   13,076   7,110     -   25,885
Bothell   545   1,178   31   5,779   4,312     -   11,845
Crossroads   3,751   7,943   107   52,042   11,481     -   75,324
Kent (2)   370   2,753   -   4,036   1,055     -   8,214
Kirkland (3)   -   43   -   -   -     -   43
Total King County   39,972   52,384   14,981   308,334   378,529     -   794,200
               
Snohomish County              
Mill Creek   2,295   1,790   504   19,440   10,687     -   34,716
Edmonds   4,243   3,718   177   24,644   17,007     -   49,789
Clearview (1)   3,194   3,538   807   7,445   4,775     -   19,759
Lake Stevens (1)   2,036   2,033   415   7,015   3,940     -   15,439
Smokey Point (1)   1,109   2,434   563   10,888   10,165     -   25,159
Total Snohomish County   12,877   13,513   2,466   69,432   46,574     -   144,862
               
Total retail deposits   52,849   65,897   17,447   377,766   425,103     -   939,062
Brokered deposits     -      -      -      -      -      94,472   94,472
Total deposits $   52,849 $   65,897  $   17,447 $   377,766 $   425,103 $   94,472 $   1,033,534

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $28,000.
(2) Kent office opened January 31, 2019.
(3) Kirkland office opened November 12, 2019.

  September 30, 2019
  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 $   27,163 $   21,905 $   17,980 $   208,086 $   340,156 $   -  $   615,290
Landing   3,323   1,826   39   16,432   10,606     -    32,226
Woodinville (1)   2,287   2,130   672   13,303   6,996     -    25,388
Bothell   420   690   9   5,207   4,091     -    10,417
Crossroads   2,647   7,047   53   29,124   12,740     -    51,611
Kent (2)   134   2,657   6   4,524   849     -    8,170
Total King County   35,974   36,255   18,759   276,676   375,438     -    743,102
               
Snohomish County              
Mill Creek   2,456   3,088   622   16,196   11,077     -    33,439
Edmonds   4,166   5,474   286   17,421   17,222     -    44,569
Clearview (1)   3,504   3,839   874   6,696   3,527     -    18,440
Lake Stevens (1)   1,817   1,935   509   6,216   3,666     -    14,143
Smokey Point (1)   1,481   2,606   597   9,517   10,344     -    24,545
Total Snohomish County   13,424   16,942   2,888   56,046   45,836     -    135,136
               
Total retail deposits   49,398   53,197   21,647   332,722   421,274     -    878,238
Brokered deposits     -      -      -      -      -      138,590   138,590
Total deposits $   49,398 $   53,197 $   21,647 $   332,722 $   421,274 $   138,590 $   1,016,828

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $34,000.
(2) Kent office opened January 31, 2019.

The net interest margin was 3.09% for the quarter ended December 31, 2019, compared to 3.07% for the quarter ended September 30, 2019, and 3.41% for the quarter ended December 31, 2018. The modest improvement in the quarter ended December 31, 2019, compared to the quarter ended September 30, 2019, relates primarily to the reduction in rates paid on brokered deposits and FHLB advances. The resulting improvement in the Company's cost of funds more than outpaced the reduction in yields on interest-earning assets. The decline in net interest margin for the quarter ended December 31, 2019, compared to the quarter ended December 31, 2018, was due to an increase in the average cost of funds to 1.82% from 1.61%, along with a reduction in yield on average interest-earning assets yields, which declined to 4.78% from 4.88%, between periods. Net interest margin for the year ended December 31, 2019, was 3.19%, compared to 3.56% for the year ended December 31, 2018, primarily due to an increase in the average cost of funds to 1.84% from 1.39%, partially offset by a five basis point increase in the average yield on interest-earning assets between periods.

Noninterest income for the quarter ended December 31, 2019, totaled $1.5 million, compared to $1.0 million in the quarter ended September 30, 2019, and $728,000 in the quarter ended December 31, 2018. The increase in noninterest income for the quarter ended December 31, 2019, compared to the quarters ended September 30, 2019 and December 31, 2018, was due almost entirely to increases in loan related fees during a strong quarter for loan activity, including an increase of $175,000 in swap related fees and an increase in prepayment penalties received of $218,000. For the year ended December 31, 2019, noninterest income increased to $4.1 million, from $2.9 million in 2018, due primarily to increases in loan related fees, wealth management revenue, BOLI income recognition and net gain on sale of investments.

Noninterest expense totaled $8.0 million for the quarter ended December 31, 2019, compared to $7.5 million for the quarter ended September 30, 2019, and $7.7 million in the quarter ended December 31, 2018. Salaries and employee benefits for the quarter ended December 31, 2019, increased from the quarter ended September 30, 2019, primarily due to $271,000 in severance related expenses due to the termination of the Bank's Chief Credit Officer during the quarter. In the quarter ended December 31, 2019, the Company significantly enhanced its online banking capabilities, resulting in higher data processing expense for the quarter. Regulatory assessments varied in the quarters ended December 31, 2019, and September 30, 2019, due to regulatory assessment credits received during those two quarters, with no such credit during the quarter ended December 31, 2018. Noninterest expense totaled $30.4 million for the year ended December 31, 2019, compared to $29.5 million in 2018. The increase in noninterest expense was due primarily to higher data processing, occupancy and equipment expenses and a modest increase in salaries and employee benefits.

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 12 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 2020 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 Dec 31,
2019
   Sep 30,
2019
  Dec 31,
2018
  Three
Month
Change
  One
Year
Change
                   
Cash on hand and in banks $  10,094     $  7,615     $    8,122     32.6 %   24.3 %
Interest-earning deposits   12,896       6,103       8,888     111.3     45.1  
Investments available-for-sale, at fair value   136,601       138,224       142,170     (1.2 )   (3.9 )
Loans receivable, net of allowance of $13,218, $13,161, and $13,347, respectively   1,108,462       1,083,850       1,022,904     2.3     8.4  
Federal Home Loan Bank ("FHLB") stock, at cost   7,009       6,341       7,310     10.5     (4.1 )
Accrued interest receivable   4,138       4,407       4,068     (6.1 )   1.7  
Deferred tax assets, net   1,501       1,202       1,844     24.9     (18.6 )
Other real estate owned ("OREO")   454       454       483     0.0     (6.0 )
Premises and equipment, net   22,466       22,346       21,331     0.5     5.3  
Bank owned life insurance ("BOLI")   31,982       31,681       29,841     1.0     7.2  
Prepaid expenses and other assets   4,425       4,242       3,458     4.3     28.0  
Goodwill   889       889       889     0.0     0.0  
Core deposit intangible   968       1,005       1,116     (3.7 )   (13.3 )
Total assets $ 1,341,885     $ 1,308,359     $ 1,252,424     2.6 %   7.1 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $  52,849     $  49,398     $  46,108     7.0 %   14.6 %
Interest-bearing deposits   980,685       967,430       892,924     1.4     9.8  
Total Deposits   1,033,534       1,016,828       939,032     1.6     10.1  
Advances from the FHLB   137,700       121,000       146,500     13.8     (6.0 )
Advance payments from borrowers for taxes and insurance   2,921       5,043       2,933     (42.1 )   (0.4 )
Accrued interest payable   285       382       478     (25.4 )   (40.4 )
Other liabilities   11,126       10,004       9,743     11.2     14.2  
Total liabilities   1,185,566       1,153,257       1,098,686     2.8 %   7.9 %
                   
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 10,252,953 shares at December 31, 2019, 10,296,053 shares at September 30, 2019, and 10,710,656 shares at December 31, 2018   103       103       107     0.0 %   (3.7 )%
Additional paid-in capital   87,370       87,835       93,773     (0.5 )   (6.8 )
Retained earnings, substantially restricted   73,321       71,592       66,343     2.4     10.5  
Accumulated other comprehensive loss, net of tax    (1,371 )      (1,042 )      (2,253 )   31.6     (39.1 )
Unearned Employee Stock Ownership Plan ("ESOP") shares    (3,104 )      (3,386 )      (4,232 )   (8.3 )   (26.7 )
Total stockholders' equity   156,319       155,102       153,738     0.8     1.7  
Total liabilities and stockholders' equity $ 1,341,885     $ 1,308,359     $ 1,252,424     2.6 %   7.1 %
 

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)

  Quarter Ended        
  Dec 31,
2019
  Sep 30,
2019
  Dec 31,
2018
  Three
Month
Change
  One
Year
Change
Interest and dividend income                   
Loans, including fees $   13,852   $   13,897   $   13,024   (0.3 )%   6.4 %
Investments available-for-sale    995     1,066     1,124   (6.7 )   (11.5 )
Interest-earning deposits with banks   47     158     61   (70.3 )   (23.0 )
Dividends on FHLB Stock   72     97     115   (25.8 )   (37.4 )
Total interest and dividend income    14,966     15,218     14,324   (1.7 )   4.5  
Interest expense                   
Deposits    4,807     5,037     3,595   (4.6 )   33.7  
FHLB advances and other borrowings   461     529     726   (12.9 )   (36.5 )
Total interest expense    5,268     5,566     4,321   (5.4 )   21.9  
Net interest income    9,698     9,652     10,003   0.5     (3.0 )
Provision for loan losses       100     200   (100.0 )   (100.0 )
Net interest income after provision for loan losses   9,698     9,552     9,803   1.5     (1.1 )
                   
Noninterest income                  
Net gain on sale of investments    71     88       (19.3 )   n/a  
BOLI income   301     235     96   28.1     213.5  
Wealth management revenue   177     245     211   (27.8 )   (16.1 )
Deposit related fees   178     179     178   (0.6 )   0.0  
Loan related fees   782     290     235   169.7     232.8  
Other    14     2     8   600.0     75.0  
Total noninterest income   1,523     1,039     728   46.6     109.2  
                   
Noninterest expense                   
Salaries and employee benefits    5,048     4,813     4,977   4.9     1.4  
Occupancy and equipment    1,024     924     871   10.8     17.6  
Professional fees   428     440     415   (2.7 )   3.1  
Data processing   638     478     361   33.5     76.7  
OREO related expenses, net   1     1     3   0.0     (66.7 )
Regulatory assessments   21     13     111   61.5     (81.1 )
Insurance and bond premiums   87     95     88   (8.4 )   (1.1 )
Marketing   59     118     75   (50.0 )   (21.3 )
Other general and administrative    665     573     845   16.1     (21.3 )
Total noninterest expense    7,971     7,455     7,746   6.9     2.9  
Income before federal income tax  provision   3,250     3,136     2,785   3.6     16.7  
Federal income tax provision   635     631     622   0.6     2.1  
Net income $   2,615   $   2,505   $   2,163   4.4 %   20.9 %
                   
Basic earnings per share $    0.26   $   0.25   $   0.21        
Diluted earnings per share $  0.26   $   0.25   $   0.21        
Weighted average number of common shares outstanding   9,934,768     9,901,586     10,385,612        
Weighted average number of diluted shares outstanding   10,032,979     9,991,011     10,484,350        
                         

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)

  Year Ended December 31        
    2019       2018       2017      One
Year
Change
  Two
Year
Change
Interest and dividend income                   
Loans, including fees $    54,636     $   51,127     $   43,607     6.9 %   25.3 %
Investments available-for-sale    4,329       4,126       3,504     4.9     23.5  
Interest-earning deposits with banks   293       202       237     45.0     23.6  
Dividends on FHLB Stock   362       458       296     (21.0 )   22.3  
Total interest and dividend income    59,620       55,913       47,644     6.6     25.1  
Interest expense                   
Deposits    17,996       11,218       7,517     60.4     139.4  
FHLB advances   2,716       3,520       2,505     (22.8 )   8.4  
Total interest expense    20,712       14,738       10,022     40.5     106.7  
Net interest income    38,908       41,175       37,622     (5.5 )   3.4  
Recapture of provision for loan losses    (300 )      (4,000 )      (400 )   (92.5 )   (25.0 )
Net interest income after recapture of provision for loan losses   39,208       45,175       38,022     (13.2 )   3.1  
                   
Noninterest income                  
Net gain (loss) on sale of investments    151       (20 )      (567 )   (855.0 )   (126.6 )
BOLI income   994       814       623     22.1     59.6  
Wealth management revenue   879       611       919     43.9     (4.4 )
Deposit accounts related fees   733       681       446     7.6     64.3  
Loan related fees   1,344       768       776     75.0     73.2  
Other    40       24       11     66.7     263.6  
Total noninterest income   4,141       2,878       2,208     43.9     87.5  
                   
Noninterest expense                   
Salaries and employee benefits    19,595       19,302       17,773     1.5     10.3  
Occupancy and equipment    3,712       3,283       2,506     13.1     48.1  
Professional fees   1,690       1,538       1,809     9.9     (6.6 )
Data processing   2,031       1,392       1,457     45.9     39.4  
OREO related expenses (reimbursements), net   34       7        (67 )   385.7     (150.7 )
Regulatory assessments   307       502       491     (38.8 )   (37.5 )
Insurance and bond premiums   375       443       399     (15.3 )   (6.0 )
Marketing   339       344       270     (1.5 )   25.6  
Other general and administrative    2,335       2,650       2,171     (11.9 )   7.6  
Total noninterest expense    30,418       29,461       26,809     3.2     13.5  
Income before federal income tax  provision   12,931       18,592       13,421     (30.4 )   (3.7 )
Federal income tax provision   2,562       3,693       4,942     (30.6 )   (48.2 )
Net income $    10,369     $    14,899     $   8,479     (30.4 )%   22.3 %
                   
Basic earnings per share $  1.04     $   1.44     $   0.82          
Diluted earnings per share $    1.03     $   1.43     $   0.81          
Weighted average number of common shares outstanding   9,976,056       10,306,835       10,289,049          
Weighted average number of diluted shares outstanding   10,075,906       10,424,187       10,437,449          
                               

The following table presents a breakdown of the loan portfolio, net of undisbursed funds (unaudited):

  December 31, 2019 September 30, 2019 December 31, 2018
  Amount   Percent   Amount   Percent   Amount   Percent
   
  (Dollars in thousands)
Commercial real estate:                      
Residential:                      
Micro-unit apartments $    13,809     1.2 %   $    13,877     1.3 %   $    14,076     1.3 %
Other multifamily   159,106     14.2       157,275     14.3       155,279     15.0  
Total multifamily residential   172,915     15.4       171,152     15.6       169,355     16.3  
                       
Non-residential:                      
Office   100,744     9.0       98,738     9.0       100,495     9.7  
Retail   133,094     11.8       142,639     12.9       131,222     12.7  
Mobile home park   26,099     2.3       23,070     2.1       16,003     1.5  
Hotel   42,971     3.8       27,572     2.5       28,035     2.7  
Nursing Home   11,831     1.1       16,104     1.5       16,315     1.6  
Warehouse   17,595     1.6       18,200     1.7       25,398     2.4  
Storage   37,190     3.3       35,908     3.3       32,462     3.1  
Other non-residential   25,628     2.3       19,659     1.8       23,868     2.3  
Total non-residential   395,152     35.2       381,890     34.8       373,798     36.0  
                       
Construction/land:                      
One-to-four family residential   44,491     4.0       47,524     4.3       51,747     5.0  
Multifamily   40,954     3.6       40,078     3.7       40,502     3.9  
Commercial   19,550     1.7       15,913     1.5       9,976     1.0  
Land development   8,670     0.8       6,400     0.6       6,629     0.6  
Total construction/land   113,665     10.1       109,915     10.1       108,854     10.5  
                       
One-to-four family residential:                      
Permanent owner occupied   210,898     18.8       205,679     18.7       194,141     18.7  
Permanent non-owner occupied   161,630     14.4       164,707     15.0       147,825     14.3  
Total one-to-four family residential   372,528     33.2       370,386     33.7       341,966     33.0  
                       
Business                      
Aircraft   14,012     1.3       14,186     1.3       11,058     1.1  
Small Business Administration ("SBA")   362     0.0         -     0.0         -     0.0  
Other business   23,405     2.1       23,321     2.1       19,428     1.9  
Total business   37,779     3.4       37,507     3.4       30,486     3.0  
                       
Consumer                      
Classic Auto   18,454     1.7       14,636     1.3         -     0.0  
Other consumer   11,745     1.0       11,815     1.1       12,970     1.2  
Total consumer   30,199     2.7       26,451     2.4       12,970     1.2  
Total loans   1,122,238     100.0 %     1,097,301     100.0 %     1,037,429     100.0 %
Less:                      
Deferred loan fees, net   558           290           1,178      
ALLL   13,218           13,161           13,347      
Loans receivable, net $    1,108,462         $   1,083,850         $   1,022,904      
                       
Concentrations of credit: (1)                      
Construction loans as % of total capital   81.9 %         82.6 %         81.9 %    
Total non-owner occupied commercial real estate as % of total capital   449.7 %         444.9 %         451.8 %    

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

 

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
(Dollars in thousands, except per share data)
(Unaudited)

  At or For the Quarter Ended
  Dec 31   Sep 30   Jun 30   Mar 31,   Dec 31,
    2019       2019       2019       2019       2018  
Performance Ratios:                  
Return on assets   0.79 %     0.75 %     1.04 %     0.63 %     0.69 %
Return on equity   6.64       6.41       8.70       5.16       5.54  
Dividend payout ratio    34.62       36.00       27.27       42.11       38.10  
Equity-to-assets ratio   11.65       11.85       11.86       11.78       12.28  
Tangible equity ratio (1)   11.53       11.73       11.72       11.64       12.13  
Net interest margin   3.09       3.07       3.23       3.37       3.41  
Average interest-earning assets to average interest-bearing liabilities   113.50       113.17       113.23       113.87       114.27  
Efficiency ratio   71.04       69.73       68.80       73.06       72.18  
Noninterest expense as a percent of average total assets   2.40       2.24       2.28       2.48       2.49  
Book value per share $   15.25     $   15.06     $   14.83     $   14.50     $   14.35  
Tangible book value per share (1)   15.07       14.88       14.64       14.32       14.17  
                   
Capital Ratios: (2)                  
Tier 1 leverage ratio   10.27 %     10.13 %     10.34 %     10.28 %     10.37 %
Common equity tier 1 capital ratio   13.13       13.14       13.46       13.13       13.43  
Tier 1 capital ratio   13.13       13.14       13.46       13.13       13.43  
Total capital ratio   14.38       14.39       14.71       14.38       14.68  
                   
Asset Quality Ratios:                  
Nonperforming loans as a percent of total loans, net of undisbursed funds   0.01 %     0.01 %     0.01 %     0.01 %     0.07 %
Nonperforming assets as a percent of total assets   0.04       0.05       0.05       0.05       0.10  
ALLL as a percent of total loans, net of undisbursed funds   1.18       1.20       1.22       1.30       1.29  
Net recoveries to average loans receivable, net   (0.01 )     (0.00 )     (0.00 )     (0.01 )     (0.00 )
                   
Allowance for Loan Losses:                  
ALLL, beginning of the quarter $   13,161     $   13,057     $  13,808     $   13,347     $   13,116  
Provision (Recapture of provision)     -         100       (800 )       400         200  
Charge-offs     -         -       -         -         -  
Recoveries     57         4       49         61         31  
ALLL, end of the quarter $    13,218     $    13,161     $  13,057     $   13,808     $   13,347  

(1) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 16 for reconciliation between the GAAP and non‑GAAP financial measures.
(2) Capital ratios are for First Financial Northwest Bank only.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Dollars in thousands, except per share data)
(Unaudited)

  At or For the Quarter Ended
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,
    2019       2019       2019       2019       2018  
Yields and Costs:                  
Yield on loans   5.05 %     5.14 %     5.19 %     5.22 %     5.13 %
Yield on investments available-for-sale   2.85       3.02       3.21       3.35       3.17  
Yield on interest-earning deposits   1.61       2.24       2.33       2.50       2.27  
Yield on FHLB stock   4.84       6.81       5.58       4.68       6.63  
Yield on interest-earning assets   4.78 %     4.84 %     4.94 %     4.98 %     4.88 %
                   
Cost of interest-bearing deposits   1.94 %     2.00 %     1.89 %     1.76 %     1.61 %
Cost of FHLB advances   1.66       2.02       2.28       2.26       2.12  
Cost of interest-bearing liabilities   1.91 %     2.00 %     1.94 %     1.84 %     1.68 %
                   
Cost of total deposits   1.84 %     1.91 %     1.80 %     1.67 %     1.53 %
Cost of funds   1.82       1.92       1.86       1.76       1.61  
                   
Average Balances:                  
Loans $   1,087,558     $   1,073,283     $   1,051,894     $   1,031,994     $ 1,006,905  
Investments available-for-sale     138,331         140,031         138,634         140,433         140,568  
Interest-earning deposits     11,572         27,992         8,275         6,484         10,653  
FHLB stock     5,897         5,649         7,337         7,888         6,886  
Total interest-earning assets $   1,243,358     $   1,246,955     $   1,206,140     $   1,186,799     $ 1,165,012  
                   
Interest-bearing deposits $   985,532     $   998,123     $   919,306     $   881,260     $   883,672  
Borrowings     109,895         103,707         145,895         160,950         135,886  
Total interest-bearing liabilities $   1,095,427     $   1,101,830     $   1,065,201     $   1,042,210     $ 1,019,558  
Noninterest-bearing deposits     50,951         47,613         48,137         47,002         47,580  
Total deposits and borrowings $   1,146,378     $   1,149,443     $   1,113,338     $   1,089,212     $ 1,067,138  
                   
Average assets $   1,317,586     $   1,319,777     $   1,279,880     $   1,258,902     $ 1,236,460  
Average stockholders' equity     156,147         155,057         152,267         152,850         154,958  
                                       


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Key Financial Measures
(Dollars in thousands, except per share data)
(Unaudited)

  At or For the Year Ended December 31,
    2019       2018       2017       2016       2015  
Performance Ratios:                  
Return on assets   0.80 %     1.21 %     0.76 %     0.88 %     0.96 %
Return on equity   6.73       9.86       5.94       5.55       5.15  
Dividend payout ratio   33.65       21.53       32.93       32.02       35.57  
Equity-to-assets   11.65       12.28       11.79       13.31       17.42  
Tangible equity ratio (1)   11.53       12.13       11.63       13.31       17.42  
Net interest margin   3.19       3.56       3.60       3.60       3.38  
Average interest-earning assets to average interest-bearing liabilities   113.44       114.28       114.07       117.11       120.45  
Efficiency ratio   70.66       66.88       67.31       62.27       62.66  
Noninterest expense as a percent of average total assets   2.35       2.40       2.42       2.27       2.07  
Book value per common share $   15.25     $   14.35     $   13.27     $   12.63     $   12.40  
Tangible book value per share (1) $   15.07     $   14.17     $   13.07     $   12.63     $   12.40  
                   
Capital Ratios: (2)                  
Tier 1 leverage ratio   10.27 %     10.37 %     10.20 %     11.17 %     11.61 %
Common equity tier 1 capital ratio   13.13       13.43       12.52       14.38       16.36  
Tier 1 capital ratio   13.13       13.43       12.52       14.38       16.36  
Total capital ratio   14.38       14.68       13.77       15.63       17.62  
                   
Asset Quality Ratios:                  
Nonperforming loans as a percent of total loans, net of undisbursed funds   0.01 %     0.07 %     0.02 %     0.10 %     0.16 %
Nonperforming assets as a percent of total assets   0.04       0.10       0.05       0.31       0.48  
ALLL as a percent of total loans, net of undisbursed funds   1.18       1.29       1.28       1.32       1.36  
Net recoveries to average loans receivable, net   (0.02 )     (0.45 )     (0.27 )     (0.02 )     (0.18 )
                   
Allowance for Loan Losses:                  
ALLL, beginning of the year $    13,347     $    12,882     $  10,951     $  9,463     $    10,491  
Provision (Recapture of provision) $   (300 )        (4,000 )       (400 )       1,300         (2,200 )
Charge-offs     -         -         -         (83 )       (362 )
Recoveries $   171         4,465         2,331         271         1,534  
ALLL, end of the year $   13,218     $   13,347     $  12,882     $  10,951     $  9,463  

(1) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 16 for reconciliation between the GAAP and non‑GAAP financial measures.
(2) Capital ratios are for First Financial Northwest Bank only.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Dollars in thousands, except per share data)
(Unaudited)

  At or For the Year Ended December 31,
    2019       2018       2017       2016       2015  
Yields and Costs:                  
Yield on loans   5.15 %     5.13 %     4.96 %     4.99 %     5.18 %
Yield on investments available-for-sale   3.11       2.92       2.61       2.31       1.84  
Yield on interest-earning deposits   2.15       1.74       1.07       0.52       0.26  
Yield on FHLB stock   5.42       5.24       3.32       2.62       1.06  
Yield on interest-earning assets   4.88 %     4.83 %     4.57 %     4.39 %     4.13 %
                   
Cost of interest-bearing deposits   1.90 %     1.35 %     1.04 %     0.94 %     0.89 %
Cost of FHLB advances   2.09       1.92       1.30       0.86       0.95  
Cost of interest-bearing liabilities   1.92 %     1.46 %     1.10 %     0.92 %     0.90 %
                   
Cost of total deposits   1.81 %     1.28 %     0.99 %     0.90 %     0.86 %
Cost of funds   1.84       1.39       1.05       0.89       0.88  
                   
Average Balances:                  
Loans $   1,061,367     $   995,810     $   878,449     $   765,948     $   667,739  
Investments available-for-sale     139,354         141,100         134,105         132,372         121,893  
Interest-earning deposits     13,634         11,628         22,194         45,125         104,476  
FHLB stock     6,684         8,748         8,914         7,714         6,527  
Total interest-earning assets $   1,221,039     $   1,157,286     $   1,043,662     $   951,159     $   900,635  
                   
Interest-bearing deposits $   946,484     $   828,965     $   722,666     $   648,324     $   614,185  
Borrowings     129,899         183,667         192,227         163,893         133,527  
Total interest-bearing liabilities $   1,076,383     $   1,012,632     $   914,893     $   812,217     $   747,712  
Noninterest-bearing deposits     48,434         49,461         39,127         27,596         23,509  
Total deposits and borrowings $   1,124,817     $   1,062,093     $   954,020     $   839,813     $   771,221  
                   
Average assets $   1,294,164     $   1,227,396     $   1,108,656     $   1,010,243     $   958,154  
Average stockholders' equity     154,092         151,145         142,647         160,192         177,904  
                                       

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 per share. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholders' equity. Tangible assets are 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 its capital and facilitate peer comparison that is desired by investors.

Non-GAAP financial measures have limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation and are not a substitute for other measures in this earnings release that are presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

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

  Dec 31,
2019
  Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Dec 31,
2017
   
  (Dollars in thousands, except per share data)
Total stockholders' equity (GAAP) $    156,319     $  155,102     $  153,828     $    151,684     $    153,738     $   142,634  
Less:                      
Goodwill   889       889       889       889       889       889  
Core deposit intangible   968        1,005       1,042       1,079       1,116       1,266  
Tangible equity (Non-GAAP) $    154,462     $    153,208     $  151,897     $    149,716     $    151,733     $   140,479  
                       
Total assets (GAAP)   1,341,885        1,308,359        1,297,561       1,287,862       1,252,424       1,210,229  
Less:                      
Goodwill   889       889       889       889       889       889  
Core deposit intangible   968       1,005       1,042       1,079       1,116       1,266  
Tangible assets (Non-GAAP) $   1,340,028     $   1,306,465     $   1,295,630     $   1,285,894     $   1,250,419     $   1,208,074  
                       
Common shares outstanding at period end   10,252,953       10,296,053       10,375,325       10,457,625       10,710,656       10,748,437  
                       
Equity to assets ratio   11.65 %     11.85 %     11.86 %     11.78 %     12.28 %     11.79 %
Tangible equity ratio   11.53       11.73       11.72       11.64       12.13       11.63  
Book value per share $    15.25     $    15.06     $    14.83     $    14.50     $   14.35     $   13.27  
Tangible book value per share   15.07       14.88       14.64       14.32       14.17       13.07  
                       

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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