Market Overview

First Financial Northwest, Inc. Reports First Quarter Net Income of $1.7 Million or $0.17 per Diluted Share

Share:

RENTON, Wash., April 28, 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 March 31, 2020, of $1.7 million, or $0.17 per diluted share, compared to net income of $2.6 million, or $0.26 per diluted share, for the quarter ended December 31, 2019, and $1.9 million, or $0.19 per diluted share, for the quarter ended March 31, 2019.

"In response to the current situation surrounding the global COVID-19 pandemic, we are providing assistance to our customers in a variety of ways, including participating in the Paycheck Protection Program offered under the Coronavirus Aid, Relief, and Economic Security Act as a Small Business Administration lender, working with our customers to modify loans in these difficult economic times and taking the steps necessary to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis," stated Joseph W. Kiley III, President and Chief Executive Officer. "We expect to do our part to support further measures that may be undertaken by our government and our regulators to address this crisis and to assist in the anticipated economic recovery.  Since mid-March 2020, the vast majority of our employees have been working remotely. We have been able to keep every office open and I am incredibly grateful to the employees who continue to staff each office to provide needed assistance to their customers and communities. I am very proud of the way our employees have adapted to this uniquely difficult operating environment while complying with the health and safety recommendations from various state and federal government entities," continued Kiley. "As a result of the COVID-19 pandemic and concern about economic conditions, we increased our allowance for loan loss risk factors for all loan categories, which resulted in a provision for loan losses of $300,000 for the first quarter. Without the adjustment for economic factors, conversely, we would have recorded a recapture of provision for loan losses of approximately $500,000," concluded Kiley.

Highlights for the quarter ended March 31, 2020:

  • Net loans receivable decreased slightly to $1.09 billion at March 31, 2020, compared to $1.11 billion at December 31, 2019, and increased from $1.05 billion at March 31, 2019.
  • Deposits totaled $1.00 billion at March 31, 2020, compared to $1.03 billion at December 31, 2019, and $955.3 million at March 31, 2019.
  • The Company continued to reduce its brokered deposits outstanding. Brokered deposits totaled $25.5 million at March 31, 2020, compared to $94.5 million at December 31, 2019 and $123.4 million at March 31, 2019.
  • The Bank opened its first office in Pierce County at University Place, Washington, bringing the total number of offices in the Puget Sound region to thirteen, and announced plans for further expansion into Pierce County in Gig Harbor, Washington.
  • The Company increased the regular quarterly cash dividend paid to shareholders by 11.0% to $0.10 per share in the first quarter, from $0.09 per share previously.
  • The Company repurchased 79,395 shares during the quarter at an average price of $14.06 per share and has authorization to repurchase an additional 433,605 shares pursuant to its stock repurchase plan that expires on July 27, 2020. The Company considers several factors including share price and capital levels in determining the size and pace of its share repurchase activities and at this time intends to continue repurchasing its common stock in accordance with Rule 10b-18 of the Securities Exchange Act of 1934.
  • The Company's book value per share was $15.03 at March 31, 2020, compared to $15.25 at December 31, 2019, and $14.50 at March 31, 2019.
  • The Bank's Tier 1 leverage and total capital ratios at March 31, 2020, were 10.3% and 14.7%, respectively, compared to 10.3% and 14.4%, respectively at both December 31, 2019, and March 31, 2019.
  • Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL") and taking into account the estimated impact of the COVID-19 pandemic, there was a $300,000 provision for loan losses during the quarter ended March 31, 2020.

While total deposits declined during the quarter ended March 31, 2020, primarily due to a managed reduction in higher cost brokered deposits, the reduction was largely replaced by increased retail deposits and additional advances from the Federal Home Loan Bank ("FHLB"). Total deposits at March 31, 2020, declined $33.6 million to $1.00 billion due to the $69.0 million decline in brokered deposits. Excluding the reduction in brokered deposits, total deposits increased $35.5 million during the quarter. The continued success of our deposit gathering efforts throughout our branch network was the primary reason for the ability to reduce the levels of brokered deposits from prior period levels.

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

  Mar 31,
2020
  Dec 31,
2019
  Mar 31,
2019
  Three
Month
Change
  One Year Change
Deposits: (Dollars in thousands)  
Noninterest-bearing $   53,519   $   52,849   $   46,026   $   670     $   7,493  
Interest-bearing demand     68,803       65,897       51,096       2,906         17,707  
Statement savings     17,040       17,447       23,770       (407 )       (6,730 )
Money market     397,489       377,766       312,057       19,723         85,432  
Certificates of deposit, retail (1)     437,676       425,103       398,956       12,573         38,720  
Certificates of deposit, brokered     25,457       94,472       123,367       (69,015 )       (97,910 )
Total deposits $   999,984   $   1,033,534   $    955,272   $   (33,550 )   $   44,712  

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $22,000 at March 31, 2020, $28,000 at December 31, 2019, and $49,000 at March 31, 2019.

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

  March 31, 2020
  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 $   28,624 $   22,619 $   13,811 $   230,235 $   355,710 $   - $   650,999
Landing   4,476   2,173   36   13,286   9,821     -   29,792
Woodinville (1)   1,705   5,623   733   15,790   6,908     -   30,759
Bothell   556   886   20   6,221   3,297     -   10,980
Crossroads   4,894   10,197   5   47,714   11,689     -   74,499
Kent (2)   472   2,961     -    10,736   1,061     -   15,230
Kirkland (3)   253   11     -      -      -      -   264
Total King County   40,980   44,470   14,605   323,982   388,486     -   812,523
               
Snohomish County              
Mill Creek   2,292   3,610   467   18,619   10,552     -   35,540
Edmonds   3,352   10,952   210   22,591   18,920     -   56,025
Clearview (1)   3,627   4,596   753   13,288   4,775     -   27,039
Lake Stevens (1)   2,024   2,446   468   7,142   4,240     -   16,320
Smokey Point (1)   1,244   2,715   537   11,656   10,703     -   26,855
Total Snohomish County   12,539   24,319   2,435   73,296   49,190     -   161,779
               
Pierce County              
University Place (4)     -    14     -    211     -      -   225
Total Pierce County     -    14     -    211     -      -   225
               
Total retail deposits   53,519   68,803   17,040   397,489   437,676     -   974,527
Brokered deposits     -      -      -      -      -      25,457   25,457
Total deposits $   53,519 $   68,803 $   17,040 $   397,489 $   437,676 $   25,457 $   999,984

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $22,000.
(2) Kent office opened January 31, 2019.
(3) Kirkland office opened November 12, 2019.
(4) University Place office opened March 2, 2020.

  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.

Net loans receivable decreased slightly to $1.09 billion at March 31, 2020, compared to $1.11 billion at December 31, 2019, and increased slightly from $1.05 billion at March 31, 2019. The average balance of net loans receivable totaled $1.10 billion for the quarter ended March 31, 2020, compared to $1.09 billion for the quarter ended December 31, 2019, and $1.03 billion for the quarter ended March 31, 2019.

The Company recorded a $300,000 provision for loan losses in the quarter ended March 31, 2020, compared to no provision for loan losses in the quarter ended December 31, 2019, and a provision for loan losses of $400,000 in the quarter ended March 31, 2019. The provision in the quarter ended March 31, 2020, was due primarily to COVID-19 related adjustments to the economic factors considered in evaluating the ALLL against the probable losses inherent in the loan portfolio. There was no provision for loan losses recorded in the quarter ended December 31, 2019, despite loan growth in the quarter, primarily due to credit upgrades for certain loan relationships and continued strength in the loan portfolio quality metrics. The provision for loan losses in the quarter ended March 31, 2019, was due primarily to growth in net loan receivables.

The ALLL represented 1.22% of total loans receivable at March 31, 2020, compared to 1.18% at December 31, 2019, and 1.30% at March 31, 2019. There was $2.2 million in delinquent loans (loans over 30 days past due) at both March 31, 2020 and December 31, 2019, primarily comprised of one $2.1 million multifamily loan, compared to $317,000 at March 31, 2019. Nonperforming loans totaled $2.2 million at March 31, 2020, compared to $95,000 at December 31, 2019, and $151,000 at March 31, 2019. The increase is due to the $2.1 million multifamily loan that is currently in foreclosure. We completed an impairment analysis of this credit during the quarter and do not anticipate incurring a loss at this time.

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

  Mar 31,   Dec 31,   Mar 31,   Three
Month
  One
Year
  2020   2019   2019   Change   Change
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $   91     $   95      $   107     $   (4 )   $   (16 )
Multifamily   2,104          ─         2,104         2,104  
Consumer           44           (44 )
Total nonperforming loans   2,195       95       151         2,100         2,044  
                   
Other real estate owned ("OREO")   454       454       454          
                   
Total nonperforming assets (1) $   2,649     $   549     $   605     $   2,100     $   2,044  
                   
Nonperforming assets as a                  
percent of total assets   0.20 %     0.04 %     0.05 %        

(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 March 31, 2020.

OREO remained unchanged at $454,000 at March 31, 2020, December 31, 2019 and March 31, 2019.

The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower's financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At March 31, 2020, TDRs totaled $5.0 million, compared to $5.2 million at December 31, 2019, and $7.8 million at March 31, 2019.

Net interest income for both the quarters ended March 31, 2020, and December 31, 2019, was $9.7 million, compared to $9.9 million for the quarter ended March 31, 2019.

Interest income totaled $14.5 million for the quarter ended March 31, 2020, compared to $15.0 million in the quarter ended December 31, 2019, and $14.6 million in the quarter ended March 31, 2019. The decline in the current quarter compared to the quarter ended December 31, 2019, was primarily due to the rapid decline in interest rates as the Federal Reserve's Open Market Committee dramatically reduced its short-term interest rate targets by 150 basis points in March 2020 in response to the COVID-19 pandemic.

Total interest expense was $4.8 million for the quarter ended March 31, 2020, compared to $5.3 million for the quarter ended December 31, 2019, and $4.7 million for the quarter ended March 31, 2019. In the quarter ended December 31, 2019, the higher cost of interest-bearing liabilities contributed to increased interest expense compared to the quarter ended March 31, 2019. The decline from the quarter ended December 31, 2019, was due primarily to a reduced level of brokered deposits and a declining interest rate environment. Specifically, we replaced higher cost brokered deposits with retail deposits through our branch network and FHLB advances obtained in conjunction with interest rate swaps to secure lower long-term interest rates. We reduced the balance of brokered deposits to $25.5 million at March 31, 2020, from $94.5 million at December 31, 2019, and $123.4 million at March 31, 2019. Advances from the FHLB totaled $160.0 million at March 31, 2020, compared to $137.7 million at December 31, 2019, and $163.5 million at March 31, 2019. The average cost of other borrowings was 1.48% for the quarter ended March 31, 2020, compared to 1.66% for the quarter ended December 31, 2019, and 2.26% for the quarter ended March 31, 2019. For the third consecutive quarter, the Bank replaced a portion of its brokered deposit portfolio with lower rate alternatives, including FHLB advances and retail deposits. At March 31, 2020, $120.0 million of our borrowings were short-term FHLB advances tied to long-term interest rate swaps. During the quarter ended March 31, 2020, we entered into interest rate swap transactions totaling $45.0 million, at rates between 0.91% to 0.98% for terms from six to eight years. In addition, we entered into $25.0 million in forward starting interest rate swaps beginning October 25, 2021, to partially replace a $50.0 million swap maturing on that date. These forward starting interest rate swaps carry rates of 0.79% for seven years and 0.80% for eight years.

The changes in fair market value of our interest rate swaps are reflected in the stockholders' equity portion of the balance sheet as accumulated other comprehensive loss, net of tax. The $3.2 million increase in accumulated other comprehensive loss, net of tax during the first quarter is due primarily to the historic low interest rate environment in effect at March 31, 2020, compared to the prior periods, and to the rates in effect at the times we executed each interest rate swap agreement. Total stockholders' equity declined to $153.1 million at March 31, 2020, from $156.3 million at December 31, 2019, and book value per common share declined to $15.03 at March 31, 2020, from $15.25 at December 31, 2019, primarily due to this decline in fair market value of our interest rate swaps.

The net interest margin was 3.11% for the quarter ended March 31, 2020, compared to 3.09% for the quarter ended December 31, 2019, and 3.37% for the quarter ended March 31, 2019. The modest improvement in the quarter ended March 31, 2020, from the quarter ended December 31, 2019, relates primarily to the reduction in rates paid on brokered deposits, FHLB advances, and the interest rate swap activity discussed above. The resulting improvement in the Company's cost of funds modestly outpaced the reduction in yield on interest-earning assets. The decline in net interest margin for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, was due primarily to a significant decline in interest-earning asset yields, partially offset by a decline in cost of interest-bearing liabilities.

Noninterest income for the quarter ended March 31, 2020, totaled $990,000, compared to $1.5 million in the quarter ended December 31, 2019, and $700,000 in the quarter ended March 31, 2019. The decrease in noninterest income for the quarter ended March 31, 2020, compared to the quarter ended December 31, 2019, was primarily due to a significantly higher level of loan related fees and prepayment penalties in the quarter ended December 31, 2019. The increase in noninterest income for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, was primarily due to a low level of loan related fees in the quarter ended March 31, 2019.

Noninterest expense totaled $8.3 million for the quarter ended March 31, 2020, compared to $8.0 million for the quarter ended December 31, 2019, and $7.7 million in the quarter ended March 31, 2019. Salaries and employee benefits for the quarter ended March 31, 2020, increased slightly from the quarter ended December 31, 2019, primarily due to annual salary increases that went into effect on January 1, 2020. Regulatory assessments increased to normal levels as the Bank utilized all of its remaining regulatory assessment credits last quarter, substantially offsetting the impact of lower other general and administrative expenses in the quarter. Noninterest expense increased from the same quarter last year as the Bank continued to pursue its branch expansion strategy, which resulted in higher salaries and benefits, occupancy and equipment and data processing expenses among others, and the receipt during the quarter ended March 31, 2019, of a $125,000 insurance claim relating to a previously reported $225,000 fraud loss.

COVID-19 Related Information

As noted above, in response to the current global situation surrounding the COVID-19 pandemic, we are providing assistance to our customers in a variety of ways and participating in the Paycheck Protection Program offered under the CARES Act as a Small Business Administration ("SBA") lender, and taking the steps necessary while working with our loan customers to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis. The following is presented to outline certain activities in this regard:

Modifications
As of April 24, 2020, we had received requests for some type of payment relief on loans totaling $166.8 million, representing 15.1% of total loans as of March 31, 2020, of which $71.3 million had been approved and processed as of April 24, 2020. We will continue to review and process outstanding requests over the coming weeks. The primary method of relief is to allow the borrower to defer their loan payments for three to six months, while others have been provided the opportunity to pay interest only depending upon their specific circumstances. The CARES Act and regulatory guidelines suspend the determination of certain loan modifications related to the COVID‑19 pandemic from being treated as troubled debt restructurings ("TDRs"). The following table provides detail on the modifications approved and processed through April 24, 2020:

  April 24, 2020
  Balance of loans with modifications of 1-3 months   Balance of loans with modifications of greater than 3 months   Total balance of loans with modifications granted   Total loans
as of
Mar 31, 2020
  Modifications as % of total loans as of Mar 31, 2020
One-to-four family residential $   16,693   $    6,395   $    23,087   $   371,253   6.2 %
Multifamily     1,726       2,877        4,603       169,468   2.7  
                   
Commercial:                  
Office      1,778       -       1,778        95,911   1.9  
Retail      14,405        4,128       18,533       122,460   15.1  
Mobile home park     -       -        -       25,370   -  
Hotel/motel     996        5,566        6,562       52,515   12.5  
Nursing home     -       6,368       6,368       11,783   54.0  
Warehouse     -        5,635        5,635       17,489   32.2  
Storage     -       -       -       34,551   -  
Other non-residential      828       -       828       25,831   3.2  
Total commercial      18,007        21,697        39,704       385,910   10.3  
                   
Construction/land     -       -       -        107,401   -  
                   
Business:                  
Aircraft     1,074       -       1,074       13,741   7.8  
SBA     -       -       -       753   -  
Other business      165        657       822       20,208   4.1  
Total business     1,239       657       1,896       34,702   5.5  
                   
Consumer:                  
Classic/collectible auto      1,202       -       1,202       22,029   5.5  
Other consumer     760       -       760       15,196   5.0  
Total consumer      1,962       -        1,962       37,225   5.3  
                   
Total loans with pandemic modifications $   39,627   $   31,626   $   71,252   $   1,105,959   6.4 %

Paycheck Protection Program ("PPP" or "Program")
As of April 17, 2020, we had received approximately 388 requests for PPP loans totaling approximately $62.2 million. We were successful in obtaining SBA Loan Authorizations on 180 of these loans totaling approximately $24.2 million before the SBA exhausted the funds allocated for the Program. According to data received from customers in this process, these funds will allow these small businesses to retain more than 2,200 employees. We are very proud of the countless hours our employees spent processing these applications and we are continuing to work diligently to process the remaining applications.

Additional Portfolio Details
Total balances drawn on outstanding lines of credit were $47.1 million as of December 31, 2019, on total lines of credit available of $86.3 million. As of March 31, 2020, total balances drawn increased slightly to $48.4 million on total lines of credit available of $79.6 million. At April 18, 2020, total balances drawn were $48.9 million on total lines of credit available of $79.8 million.

The following table presents the loan to value ratios of select segments of our loan portfolio that we consider to be more likely to be impacted by COVID-19 pandemic considerations at March 31, 2020. The loan to value ratio ("LTV") is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:

  March 31, 2020
  LTV 0-60   LTV 61-75   LTV 76+   Total   Average LTV
Category: (1) (Dollars in thousands)
One-to-four family $  234,572   $  144,202   $  33,502   $  412,276   48.85 %
Church   1,398     -     -     1,398   48.06  
Classic auto   2,864     7,210     11,955     22,029   70.01  
Gas station   3,572     -     521     4,093   52.76  
Hotel / motel   58,772     -     9,392     68,164   55.08  
Marina   7,821     -     -     7,821   38.13  
Mobile home park   19,905     5,465     -     25,370   31.54  
Nursing home   12,883     -     -     12,883   20.90  
Office   62,327     30,072     2,937     95,336   50.89  
Other non-residential   6,496     4,777     -     11,273   50.91  
Retail   75,839     40,870     -     116,709   50.76  
Storage   25,997     11,296     -     37,293   55.97  
Warehouse   15,418     1,941     -     17,359   50.83  

(1) Represents select segments of loans that may include construction loans; classifications may differ from those used elsewhere in this report.

Delinquencies
As of April 24, 2020, there were 9 loans totaling $3.2 million that had not requested a deferral and were 10 or more days past due, including the $2.1 million multifamily loan currently in foreclosure disclosed earlier in this release.

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 13 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: the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions; increased competitive pressures; changes in the interest rate environment; 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.

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


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

Assets  Mar 31, 2020    Dec 31, 2019    Mar 31, 2019   Three
Month Change
  One Year Change
                   
Cash on hand and in banks $   6,453     $   10,094     $    9,366     (36.1 )%   (31.1 )%
Interest-earning deposits with banks     22,063         12,896          14,596     71.1     51.2  
Investments available-for-sale, at fair value     132,159         136,601         138,658     (3.3 )   (4.7 )
Investments held-to-maturity     2,371         -         -     n/a     n/a  
Loans receivable, net of allowance of $13,530, $13,218, and $13,808, respectively     1,092,128        1,108,462         1,051,711     (1.5 )   3.8  
Federal Home Loan Bank ("FHLB") stock, at cost     8,010         7,009         8,041     14.3     (0.4 )
Accrued interest receivable     4,302         4,138         4,861     4.0     (11.5 )
Deferred tax assets, net     2,227         1,501         1,728     48.4     28.9  
Other real estate owned ("OREO")     454         454         454     0.0     0.0  
Premises and equipment, net     22,591         22,466         21,370     0.6     5.7  
Bank owned life insurance ("BOLI")     32,290         31,982         30,162     1.0     7.1  
Prepaid expenses and other assets     1,898         2,216         3,217     (14.4 )   (41.0 )
Right of use asset ("ROU")     2,446         2,209         1,730     10.7     41.4  
Goodwill     889         889         889     0.0     0.0  
Core deposit intangible     932         968         1,079     (3.7 )   (13.6 )
Total assets $  1,331,213     $ 1,341,885     $  1,287,862     (0.8 )%   3.4 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $   53,519     $   52,849     $   46,026     1.3 %   16.3 %
Interest-bearing deposits     946,465         980,685         909,246     (3.5 )   4.1  
Total Deposits     999,984        1,033,534         955,272     (3.2 )   4.7  
Advances from the FHLB     160,000         137,700         163,500     16.2     (2.1 )
Advance payments from borrowers for taxes and insurance     4,960         2,921         5,374     69.8     (7.7 )
Lease liability     2,538         2,279         1,745     11.4     45.4  
Accrued interest payable     236         285         478     (17.2 )   (50.6 )
Other liabilities     10,403         8,847          9,809     17.6     6.1  
Total liabilities     1,178,121        1,185,566         1,136,178     (0.6 )%   3.7 %
                   
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 10,184,411 shares at March 31, 2020, 10,252,953 shares at December 31, 2019, and 10,457,625 at March 31, 2019     102         103         104     (1.0 )%   (1.9 )%
Additional paid-in capital     86,357         87,370         89,800     (1.2 )   (3.8 )
Retained earnings, substantially restricted     74,017         73,321         67,568     0.9     9.5  
Accumulated other comprehensive loss, net of tax     (4,563 )       (1,371 )       (1,838 )   232.8     148.3  
Unearned Employee Stock Ownership Plan ("ESOP") shares     (2,821 )       (3,104 )       (3,950 )   (9.1 )   (28.6 )
Total stockholders' equity     153,092         156,319         151,684     (2.1 )   0.9  
Total liabilities and stockholders' equity $  1,331,213     $  1,341,885     $  1,287,862     (0.8 )%   3.4 %


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

  Quarter Ended        
  Mar 31, 2020   Dec 31, 2019   Mar 31, 2019   Three Month Change   One Year Change
Interest income                   
Loans, including fees $   13,474   $   13,852   $   13,281     (2.7 )%   1.5 %
Investments available-for-sale      919       995       1,159     (7.6 )   (20.7 )
Interest-earning deposits with banks     31       47       40     (34.0 )   (22.5 )
Dividends on FHLB Stock     76       72       91     5.6     (16.5 )
Total interest income      14,500       14,966       14,571     (3.1 )   (0.5 )
Interest expense                   
Deposits      4,366       4,807       3,822     (9.2 )   14.2  
Other borrowings     470       461       897     2.0     (47.6 )
Total interest expense      4,836       5,268       4,719     (8.2 )   2.5  
Net interest income      9,664       9,698       9,852     (0.4 )   (1.9 )
Provision for loan losses     300       -       400     n/a     (25.0 )
Net interest income after provision for loan losses     9,364       9,698       9,452     (3.4 )   (0.9 )
                   
Noninterest income                  
Net gain (loss) on sale of investments      -       71       (8 )   (100.0 )   (100.0 )
BOLI     254       301       269     (15.6 )   (5.6 )
Wealth management revenue     165       177       196     (6.8 )   (15.8 )
Deposit related fees     176       178       171     (1.1 )   2.9  
Loan related fees     392       782       63     (49.9 )   522.2  
Other      3       14       9     (78.6 )   (66.7 )
Total noninterest income     990       1,523       700     (35.0 )   41.4  
                   
Noninterest expense                   
Salaries and employee benefits      5,212       5,048       5,000     3.2     4.2  
Occupancy and equipment      1,071       1,024       866     4.6     23.7  
Professional fees     430       428       496     0.5     (13.3 )
Data processing     694       638       518     8.8     34.0  
OREO related expenses, net     1       1       31     0.0     (96.8 )
Regulatory assessments     144       21       137     585.7     5.1  
Insurance and bond premiums     120       87       105     37.9     14.3  
Marketing     64       59       86     8.5     (25.6 )
Other general and administrative      532       665       470     (20.0 )   13.2  
Total noninterest expense      8,268       7,971       7,709     3.7     7.3  
Income before federal income tax provision     2,086       3,250       2,443     (35.8 )   (14.6 )
Federal income tax provision     402       635       498     (36.7 )   (19.3 )
Net income $   1,684   $   2,615   $   1,945     (35.6 )%   (13.4 )%
                   
Basic earnings per share $   0.17   $   0.26   $   0.19          
Diluted earnings per share $   0.17   $   0.26   $   0.19          
Weighted average number of common shares outstanding     9,896,234       9,934,768     10,118,286          
Weighted average number of diluted shares outstanding     9,978,060     10,032,979     10,220,900          

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

  March 31, 2020 December 31, 2019   March 31, 2019  
  Amount   Percent   Amount   Percent   Amount   Percent
  (Dollars in thousands)
Commercial real estate:                      
Residential:                      
Micro-unit apartments $   11,230     1.0 %   $   13,809     1.2 %   $   14,008     1.3 %
Other multifamily   158,238     14.3       159,106     14.2         153,835     14.4  
Total multifamily   169,468     15.3       172,915     15.4         167,843     15.7  
                       
Non-residential:                      
Office   95,911     8.7       100,744     9.0         99,639     9.3  
Retail   122,460     11.1       133,094     11.8         146,864     13.8  
Mobile home park   25,370     2.3       26,099     2.3         15,697     1.5  
Hotel/motel   52,515     4.7       42,971     3.8         27,882     2.6  
Nursing home   11,783     1.1       11,831     1.1         16,243     1.5  
Warehouse   17,489     1.6       17,595     1.6         18,274     1.7  
Storage   34,551     3.1       37,190     3.3         36,283     3.4  
Other non-residential   25,831     2.3       25,628     2.3         23,804     2.2  
Total non-residential   385,910     34.9       395,152     35.2         384,686     36.0  
                       
Construction/land:                      
One-to-four family residential   43,279     3.9       44,491     4.0         47,661     4.5  
Multifamily   35,201     3.2       40,954     3.6         47,006     4.4  
Commercial   22,946     2.1       19,550     1.7         12,878     1.2  
Land development   5,975     0.5       8,670     0.8         6,965     0.7  
Total construction/land   107,401     9.7       113,665     10.1         114,510     10.8  
                       
One-to-four family residential:                      
Permanent owner occupied   203,045     18.4       210,898     18.8         194,648     18.3  
Permanent non-owner occupied   168,208     15.2       161,630     14.4         156,684     14.7  
Total one-to-four family residential   371,253     33.6       372,528     33.2         351,332     33.0  
                       
Business                      
Aircraft   13,741     1.2       14,012     1.3         11,860     1.1  
Small Business Administration ("SBA")   753     0.1       362     0.0         -     0.0  
Other business   20,208     1.8       23,405     2.1         21,653     2.0  
Total business   34,702     3.1       37,779     3.4         33,513     3.1  
                       
Consumer                      
Classic auto   22,029     2.0       18,454     1.7         -     0.0  
Other consumer   15,196     1.4       11,745     1.0         14,336     1.4  
Total consumer   37,225     3.4       30,199     2.7         14,336     1.4  
Total loans   1,105,959     100.0 %     1,122,238     100.0 %       1,066,220     100.0 %
Less:                      
Deferred loan fees, net   301           558             701      
ALLL   13,530           13,218             13,808      
Loans receivable, net $   1,092,128         $   1,108,462         $   1,051,711      
                       
Concentrations of credit: (1)                      
Construction loans as % of total capital   77.6 %         81.9 %         87.5 %    
Total non-owner occupied commercial
real estate as % of total capital
  437.7 %         449.7 %         460.9 %    

(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

  At or For the Quarter End
  Mar 31,   Dec 31,   Sep 30,   Jun 30,   Mar 31,
    2020       2019       2019       2019       2019  
  (Dollars in thousands, except per share data)
Performance Ratios: (1)                  
Return on assets   0.51 %     0.79 %     0.75 %     1.04 %     0.63 %
Return on equity   4.30       6.64       6.41       8.70       5.16  
Dividend payout ratio   58.82       34.62       36.00       27.27       42.11  
Equity-to-assets ratio   11.50       11.65       11.85       11.86       11.78  
Tangible equity ratio (2)   11.38       11.53       11.73       11.72       11.64  
Net interest margin   3.11       3.09       3.07       3.23       3.37  
Average interest-earning assets to average interest-bearing liabilities   113.78       113.50       113.17       113.23       113.87  
Efficiency ratio   77.60       71.04       69.73       68.80       73.06  
Noninterest expense as a percent of average total assets   2.51       2.40       2.24       2.28       2.48  
Book value per common share $   15.03     $   15.25     $   15.06     $  14.83     $  14.50  
Tangible book value per share (2)   14.85       15.07       14.88       14.64       14.32  
                   
Capital Ratios: (3)                  
Tier 1 leverage ratio   10.25 %     10.27 %     10.13 %     10.34 %     10.28 %
Common equity tier 1 capital ratio   13.42       13.13       13.14       13.46       13.13  
Tier 1 capital ratio   13.42       13.13       13.14       13.46       13.13  
Total capital ratio   14.67       14.38       14.39       14.71       14.38  
                   
Asset Quality Ratios:                  
Nonperforming loans as a percent of total loans   0.20 %     0.01 %     0.01 %     0.01 %     0.01 %
Nonperforming assets as a percent of total assets   0.20       0.04       0.05       0.05       0.05  
ALLL as a percent of total loans   1.22       1.18       1.20       1.22       1.30  
Net (recoveries) charge-offs to average loans receivable, net   (0.00 )     (0.01 )     (0.00 )     (0.00 )     (0.01 )
                   
Allowance for Loan Losses:                  
ALLL, beginning of the quarter $   13,218     $   13,161     $  13,057     $  13,808     $  13,347  
Provision (Recapture of provision)   300         -       100       (800 )     400  
Charge-offs     -         -         -         -         -  
Recoveries   12       57       4       49       61  
ALLL, end of the quarter $   13,530     $   13,218     $  13,161     $  13,057     $   13,808  

(1) Performance ratios are calculated on an annualized basis.
(2) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 15 for reconciliation between the GAAP and non‑GAAP financial measures.
(3) Capital ratios are for First Financial Northwest Bank only.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)

  At or For the Quarter Ended
  Mar 31,   Dec 31,   Sep 30,   Jun 30,   Mar 31,
    2020       2019       2019       2019       2019  
Yields and Costs:                  
Yield on loans   4.94 %     5.05 %     5.14 %     5.19 %     5.22 %
Yield on investments available-for-sale   2.72       2.85       3.02       3.21       3.35  
Yield on interest-earning deposits   1.18       1.61       2.24       2.33       2.50  
Yield on FHLB stock   4.62       4.84       6.81       5.58       4.68  
Yield on interest-earning assets   4.67 %     4.78 %     4.84 %     4.94 %     4.98 %
                   
Cost of interest-bearing deposits   1.81 %     1.94 %     2.00 %     1.89 %     1.76 %
Cost of other borrowings   1.48       1.66       2.02       2.28       2.26  
Cost of interest-bearing liabilities   1.77 %     1.91 %     2.00 %     1.94 %     1.84 %
                   
Cost of total deposits   1.72 %     1.84 %     1.91 %     1.80 %     1.67 %
Cost of funds   1.69       1.82       1.92       1.86       1.76  
                   
Average Balances:                  
Loans $   1,096,091     $   1,087,558     $   1,073,283     $   1,051,894     $   1,031,994  
Investments available-for-sale     135,765         138,331         140,031         138,634         140,433  
Interest-earning deposits     10,555         11,572         27,992         8,275         6,484  
FHLB stock     6,615         5,897         5,649         7,337         7,888  
Total interest-earning assets $   1,249,026     $   1,243,358     $   1,246,955     $   1,206,140     $   1,186,799  
                   
Interest-bearing deposits $   970,062     $   985,532     $   998,123     $   919,306     $   881,260  
Borrowings     127,707         109,895         103,707         145,895         160,950  
Total interest-bearing liabilities $   1,097,769     $   1,095,427     $   1,101,830     $   1,065,201     $   1,042,210  
Noninterest-bearing deposits     53,199         50,951         47,613         48,137         47,002  
Total deposits and borrowings $   1,150,968     $   1,146,378     $   1,149,443     $   1,113,338     $   1,089,212  
                   
Average assets $   1,324,845     $   1,317,586     $   1,319,777     $   1,279,880     $   1,258,902  
Average stockholders' equity     157,492         156,147         155,057         152,267         152,850  

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:

  Mar 31, 2020   Dec 31, 2019   Sep 30, 2019   Jun 30, 2019   Mar 31, 2019
  (Dollars in thousands, except per share data)
Total stockholders' equity (GAAP) $  153,092     $    156,319     $  155,102     $  153,828     $    151,684  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible   932       968       1,005       1,042       1,079  
Tangible equity (Non-GAAP) $  151,271     $    154,462     $    153,208     $   151,897     $    149,716  
                   
Total assets (GAAP)   1,331,213       1,341,885        1,308,359        1,297,561       1,287,862  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible   932       968       1,005       1,042       1,079  
Tangible assets (Non-GAAP) $   1,329,392     $   1,340,028     $   1,306,465     $   1,295,630     $   1,285,894  
                   
Common shares outstanding at period end   10,184,411       10,252,953       10,296,053       10,375,325       10,457,625  
                   
Equity to assets ratio   11.50 %     11.65 %     11.85 %     11.86 %     11.78 %
Tangible equity ratio   11.38       11.53       11.73       11.72       11.64  
Book value per share $   15.03     $    15.25     $    15.06     $    14.83     $    14.50  
Tangible book value per share   14.85       15.07       14.88       14.64       14.32  
                   

Primary Logo

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com