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CST: 17/09/2019 16:04:20   

First Financial Northwest, Inc. Reports Fourth Quarter Net Income of $2.2 Million or $0.21 per Diluted Share and $14.9 Million or $1.43 per Diluted Share for the Year Ended December 31, 2018

236 Days ago

RENTON, Wash., Jan. 24, 2019 (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, 2018, of $2.2 million, or $0.21 per diluted share, compared to net income of $2.8 million, or $0.27 per diluted share, for the quarter ended September 30, 2018, and $2.4 million, or $0.23 per diluted share, for the quarter ended December 31, 2017. For the year ended December 31, 2018, net income was $14.9 million, or $1.43 per diluted share, compared to $8.5 million, or $0.81 per diluted share, for the year ended December 31, 2017.

“I am very pleased with how we finished the year with significant lending momentum, particularly the strong growth in one-to-four family residential lending, and continued growth in our deposits across our network,” stated Joseph W. Kiley III, President and Chief Executive Officer. “Our one-to-four residential team led our loan portfolio growth as net loans receivable increased $34.2 million during the year to exceed $1.0 billion at year end.” Kiley continued, “We grew deposits across our network, increasing deposits by $22.8 million in the fourth quarter and $99.5 million during the year, as we ended the year with $939.0 million in total deposits, compared to $839.5 million at December 31, 2017.” Kiley concluded, “I am also pleased to welcome Randy Riffle, Executive Vice President and Chief Credit Officer to lead our efforts to further modernize our credit culture by enhancing our overall customer experience thereby creating a competitive advantage for our sales teams, organically expand our business loan portfolio, including establishing an SBA lending platform in further support of our growth and loan and deposit portfolio diversification goals. Our focus on expanding our customer base and building deposits continues and our eleventh branch location is set to open at Kent Station in the first quarter of 2019.”

Net loans receivable increased $34.2 million to $1.02 billion for the year ended December 31, 2018, from $988.7 million at December 31, 2017, and $27.3 million from $995.6 million at September 30, 2018. One-to-four family residential lending increased $63.3 million during the year to $342.0 million at December 31, 2018, more than offsetting the $57.8 million combined reduction in our multifamily real estate and construction/land development loan portfolios. The average balance of net loans receivable totaled $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million, compared to $878.4 million for the year ended December 31, 2017.

The Company recorded a $200,000 provision for loan losses for both the quarters ended December 31, 2018, and September 30, 2018, compared to a $1.2 million recapture of provision in the quarter ended December 31, 2017. The provision during the quarter ended December 31, 2018, was due to growth in net loans receivable and a change in loan mix, while the provision in the third quarter of 2018, was due primarily to growth in net loans receivable. The recapture of provision in the quarter ended December 31, 2017, was due primarily to $2.0 million in recoveries during the quarter, reduced by the provision for loan losses required to increase the Allowance for Loan and Lease Losses (“ALLL”), as a result of the growth in net loans receivable. For the year ended December 31, 2018, the recapture of provision for loan losses totaled $4.0 million, which included $4.5 million in recoveries, compared to a recapture of provision for loan losses of $400,000 recorded for the year ended December 31, 2017, which included $2.3 million in recoveries.

As previously reported, the Bank expanded its geographic footprint during the year with the opening of a new branch at The Junction in Bothell, King County, in the second quarter of 2018. The Bank plans to open its eleventh branch location at Kent Station, located about eight miles south of its Renton headquarters, in the first quarter of 2019.

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

   December 31, 2018
  Noninterest-
bearing
demand
Interest-
bearing
demand
 Statement
savings
 Money
market
Certificates
of deposit,
retail
 Certificates
of deposit,
brokered
 Total
   (Dollars in thousands)
King County              
Renton $   29,355 $   18,896 $   20,694 $   228,475 $   318,705 $   - $   616,125
Landing     2,453     495     256     17,853     10,480     -     31,537
Woodinville (1)     1,362     3,771     549     19,024     7,217     -     31,923
Bothell     198     97     100     2,636     3,066     -     6,097
Crossroads     2,530     3,199     83     24,383     11,474     -     41,669
Total King County     35,898     26,458     21,682     292,371     350,942     -     727,351
               
Snohomish County              
Mill Creek     1,485     3,226     658     12,272     10,524     -     28,165
Edmonds     2,698     2,532     157     15,175     16,123     -     36,685
Clearview (1)     3,496     3,968     1,283     6,743     2,489     -     17,979
Lake Stevens (1)     1,415     1,702     428     3,926     3,644     -     11,115
Smokey Point (1)     1,116     2,193     591     8,560     7,452     -     19,912
Total Snohomish County     10,210     13,621     3,117     46,676     40,232     -     113,856
               
Total retail deposits     46,108     40,079     24,799     339,047     391,174     -     841,207
Brokered deposits     -     -     -      -     -     97,825     97,825
Total deposits $   46,108 $   40,079 $   24,799 $   339,047 $   391,174 $   97,825 $   939,032

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000.

  September 30, 2018
  Noninterest-
bearing
demand
  Interest-
bearing
demand
  Statement
savings
   Money
market
  Certificates
of deposit,
retail
  Certificates
of deposit,
brokered
  Total  
          (Dollars in thousands)          
King County:                            
Renton $   31,796   $   19,998   $   20,508   $   213,882   $   317,126   $   -   $   603,310  
The Landing     2,458       772       58       17,796       8,944       -       30,028  
Woodinville (1)     1,535       3,874       538       20,335       6,813       -       33,095  
Bothell     48       103       8       2,435       1,684       -       4,278  
Crossroads     1,249       4,797       84       21,846       9,339       -       37,315  
Total King County     37,086       29,544       21,196       276,294       343,906       -       708,026  
                             
Snohomish County:                            
Mill Creek     1,437       2,952       571       11,287       8,779       -       25,026  
Edmonds     4,416       2,033       45       16,452       11,007       -       33,953  
Clearview (1)     4,187       3,058       1,037       7,101       2,272       -       17,655  
Lake Stevens (1)     2,434       2,452       483       3,901       2,576       -       11,846  
Smokey Point (1)     1,620       1,915       774       7,990       5,391       -       17,690  
Total Snohomish County     14,094       12,410       2,910       46,731       30,025       -       106,170  
                             
Total retail deposits     51,180        41,954        24,106        323,025        373,931       -       814,196  
Brokered deposits     -        -        -        -        -       102,083       102,083  
Total deposits $   51,180   $    41,954   $    24,106   $    323,025   $    373,931   $ 102,083   $   916,279  

 (1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $69,000.

Highlights for the quarter and the year ended December 31, 2018:

  • Net loans receivable increased to $1.02 billion at December 31, 2018, from $995.6 million at September 30, 2018, and $988.7 million at December 31, 2017. The Company’s one-to-four residential loan portfolio increased to $342.0 million at December 31, 2018, compared to $327.9 million at September 30, 2018, and $278.7 million at December 31, 2017, representing a year over year growth of $63.3 million in one-to-four residential loans.
  • Total deposits increased to $939.0 million at December 31, 2018, from $916.3 million at September 30, 2018, and $839.5 million at December 31, 2017.
  • The Company increased the regular quarterly cash dividend to shareholders to $0.08 per share in the quarter ended June 30, 2018, from $0.07 per share previously.
  • During the year ended December 31, 2018, the Company repurchased 203,900 shares of its common stock at an average price of $15.43 per share under a stock repurchase plan authorized by the Board of Directors on October 24, 2018. The plan, which commenced on November 5, 2018, and will expire no later than May 3, 2019, authorizes the repurchase of up to 550,000 shares of the Company’s common stock, or approximately 5.0% of its outstanding shares.
  • The Company’s book value per share was $14.35 at December 31, 2018, compared to $14.17 at September 30, 2018, and $13.27 at December 31, 2017.
  • The Bank’s Tier 1 leverage and total capital ratios at December 31, 2018, were 10.4% and 14.7%, respectively, compared to 10.4% and 14.8% at September 30, 2018, and 10.2% and 13.8% at December 31, 2017.
  • Based on management’s evaluation of the adequacy of the ALLL, there was a $200,000 provision for loan losses during the quarter ended December 31, 2018.

The ALLL represented 1.29% of total loans receivable, net of undisbursed funds, at December 31, 2018, compared to 1.30% at September 30, 2018, and 1.28% at December 31, 2017. Nonperforming assets totaled $1.2 million at December 31, 2018, compared to $967,000 at September 30, 2018, and $662,000 at December 31, 2017. The increase in the Company’s nonperforming assets since December 31, 2017, was primarily due to one $325,000 nonperforming commercial real estate loan in the quarter ended September 30, 2018, and one $272,000 nonperforming one-to-four family residential loan in the quarter ended December 31, 2018. The $325,000 nonperforming commercial real estate loan was paid in full in the first quarter of 2019.

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

  Dec 31,   Sep 30,   Dec 31,   Three
Month
  One
Year
    2018       2018       2017     Change   Change
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $   382     $   113     $   128     $   269     $    254  
Commercial real estate   326       325       -          1         326  
Consumer   44       46       51         (2 )       (7 )
Total nonperforming loans   752       484       179         268          573   
                   
Other real estate owned (“OREO”)   483       483       483         -           -  
                   
Total nonperforming assets (1) $   1,235     $   967     $    662     $  268      $    573  
                   
Nonperforming assets as a                  
percent of total assets   0.10 %     0.08 %     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 December 31, 2018.

OREO totaled $483,000 at December 31, 2018, September 30, 2018, and December 31, 2017. The Company continues to actively market its two remaining OREO properties in an effort to minimize holding costs.

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

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

  Dec 31,
2018
  Sep 30,
2018
  Dec 31,
2017
  Three
Month
Change
  One
Year
Change
  (Dollars in thousands)
Performing TDRs:                  
One-to-four family residential $   6,941   $   9,458   $   13,434   $   (2,517 )   $   (6,493 )
Multifamily     –          1,116       1,134       (1,116 )       (1,134 )
Commercial real estate     2,415       2,601       3,194        (186 )       (779 )
Consumer     43       43       43       –         –   
Total TDRs $    9,399   $   13,218   $   17,805   $   (3,819 )   $   (8,406 )

Net interest income for the quarter ended December 31, 2018, totaled $10.0 million, compared to $10.1 million for the quarter ended September 30, 2018, and $10.4 million for the quarter ended December 31, 2017. The decline in net interest income was due primarily to increases in the cost of interest bearing liabilities that outpaced the increases in income from interest earning assets. For the year ended December 31, 2018, net interest income totaled $41.2 million, compared to $37.6 million for the year ended December 31, 2017. The primary contributor to the increase in the year ended December 31, 2018, was higher average loan balances. In addition, the Company received $1.0 million in additional interest income in the quarter ended March 31, 2018, relating to interest payments on loans previously charged off.

Total interest income increased to $14.3 million during the quarter ended December 31, 2018, compared to $13.9 million in the quarter ended September 30, 2018, and $13.3 million in the quarter ended December 31, 2017. For the year ended December 31, 2018, total interest income increased to $55.9 million compared to $47.6 million in 2017. These increases were due primarily to the growth in the average balances of net loans receivable to $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million compared to $878.4 million for the prior year.

Total interest expense increased to $4.3 million for the quarter ended December 31, 2018, compared to $3.8 million for the quarter ended September 30, 2018, and $2.9 million for the quarter ended December 31, 2017. The higher level of interest expense in the quarter ended December 31, 2018, was due primarily to growth in total deposits along with increases in interest rates on deposits in a competitive, rising short term interest rate environment. Total deposits increased to $939.0 million at December 31, 2018, from $839.5 million at December 31, 2017. For the year ended December 31, 2018, interest expense totaled $14.7 million, compared to $10.0 million for the year ended December 31, 2017. This increase was primarily due to growth in deposit balances along with increasing short term interest rates. The Federal Reserve’s Open Market Committee continued increasing their Fed Funds target rates throughout the year, impacting the rates paid on the Company’s interest bearing liabilities. Total cost of deposits increased to 1.53% for the quarter ended December 31, 2018, from 1.31% for the quarter ended September 30, 2018, and 1.02% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the total cost of deposits was 1.28% compared to 0.99% for the year ended December 31, 2017.  Advances from the FHLB totaled $146.5 million at December 31, 2018, compared to $149.0 million at September 30, 2018, and $216.0 million at December 31, 2017, as the Company’s deposit gathering success allowed for a reduction in FHLB advances. The average cost of FHLB advances was 2.12% for the quarter ended December 31, 2018, compared to 2.05% for the quarter ended September 30, 2018, and 1.46% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average cost of FHLB advances was 1.92%, compared to 1.30% for the prior year. The balance of brokered certificates of deposits was $97.8 million at December 31, 2018, compared to $102.1 million at September 30, 2018, and $75.5 million at December 31, 2017.

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

  Dec 31,
2018
  Sep 30,
2018
  Dec 31,
2017
  Three
Month
Change
  One
Year
Change
Deposits: (Dollars in thousands)        
Noninterest-bearing $   46,108   $   51,180   $   45,434   $    (5,072 )   $    674  
Interest-bearing demand     40,079       41,954       38,224        (1,875 )        1,855  
Statement savings     24,799       24,106       28,456        693         (3,657 )
Money market     339,047       323,025       318,636       16,022         20,411  
Certificates of deposit, retail (1)     391,174       373,931       333,264       17,243         57,910  
Certificates of deposit, brokered     97,825       102,083       75,488        (4,258 )       22,337  
Total deposits $   939,032   $   916,279   $   839,502   $   22,753     $    99,530  

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000 at December 31, 2018, $69,000 at September 30, 2018, and $107,000 at December 31, 2017.

The Company’s net interest margin was 3.41% for the quarter ended December 31, 2018, compared to 3.46% for the quarter ended September 30, 2018, and 3.65% for the quarter ended December 31, 2017. The compression in net interest margin during these periods was due to interest rates paid on interest bearing liabilities increasing more rapidly than yields earned on interest earning assets. Net interest margin for the year ended December 31, 2018, was 3.56%, compared to 3.60% for the year ended December 31, 2017.

Noninterest income for the quarter ended December 31, 2018, totaled $728,000, compared to $841,000 in the quarter ended September 30, 2018, and $211,000 in the quarter ended December 31, 2017. The decline from the prior quarter was due primarily to a reduction in the amount of Bank Owned Life Insurance (“BOLI”) income recorded. For the year ended December 31, 2018, noninterest income increased to $2.9 million, from $2.2 million in 2017, due primarily to a net loss of $567,000 on the sale of investments recorded in 2017. After the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law in December 2017, the Company elected to restructure a portion of its investment portfolio and sold approximately $37 million in fixed rate securities and reinvested the proceeds, primarily into adjustable rate securities.

Noninterest expense for the quarter ended December 31, 2018, increased to $7.7 million from $7.2 million in the quarter ended September 30, 2018, and $7.1 million in the quarter ended December 31, 2017. Salaries and employee benefits increased $245,000 from the prior quarter due primarily to an increase in the number of work days in the fourth quarter. Other general and administrative expenses increased $206,000, as the Company incurred a $225,000 wire related fraud loss in the fourth quarter. The Company has filed an insurance claim for the loss and expects to receive payment on the claim in the first quarter of 2019, subject to a $100,000 deductible. Noninterest expense increased to $29.5 million for the year ended December 31, 2018, compared to $26.8 million in 2017. This increase in noninterest expense was due primarily to our branch expansion over the past year. Salaries and employee benefits expense increased due to increased staffing in support of the new branches and development of new products, as well as standard salary increases. Higher occupancy and equipment expenses reflect our recently opened branch locations, while the increase in other general and administrative expenses also reflects the growth in the Company’s operations.

The Company’s federal income tax provision was $622,000 for the quarter ended December 31, 2018, compared to $707,000 for the quarter ended September 30, 2018, and $2.3 million for the quarter ended December 31, 2017. The primary reason for the change in the 2018 periods compared to the quarter ended December 31, 2017, was the reduction in the federal corporate income tax rate from 35% to 21% in 2018 due to the Tax Act. In addition, during the quarter ended December 31, 2017, the Company recorded a charge of $807,000 through its federal income tax provision relating to changes to the Company’s net deferred tax asset valuation as a result of the Tax Act’s reduction in the federal corporate income tax rate.

 For the year ended December 31, 2018, the Company’s federal income tax provision totaled $3.7 million on income before federal income tax provision of $18.6 million, compared to $4.9 million on pretax income of $13.4 million for the year ended December 31, 2017. The Company’s federal income tax provision in 2018 benefited from the reduction in the federal corporate income tax rate, as well as from stock option exercises that occurred at prices higher than originally estimated, resulting in higher allowable expense recognition for tax purposes.

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 10 full-service banking offices. The Bank expects to open its eleventh branch location at Kent Station in the first quarter of 2019. We are a part of the ABA NASDAQ Community Bank Index and the Russell 3000 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 2019 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,
2018
  Sep 30,
2018
  Dec 31,
2017
  Three
Month
Change
  One
Year
Change
                   
Cash on hand and in banks $   8,122     $   7,167     $   9,189     13.3 %   (11.6 )%
Interest-earning deposits     8,888         19,094         6,942     (53.5 )   28.0  
Investments available-for-sale, at fair value     142,170         140,868         132,242     0.9     7.5  
Loans receivable, net of allowance of $13,347, $13,116, and $12,882, respectively     1,022,904         995,557         988,662     2.7     3.5  
Federal Home Loan Bank ("FHLB") stock, at cost     7,310         7,410         9,882     (1.3 )   (26.0 )
Accrued interest receivable     4,068         4,664         4,084     (12.8 )   (0.4 )
Deferred tax assets, net     1,844         2,092         1,211     (11.9 )   52.3  
Other real estate owned ("OREO")     483         483         483     0.0     0.0  
Premises and equipment, net     21,331         21,277         20,614     0.3     3.5  
Bank owned life insurance ("BOLI")     29,841         29,745         29,027     0.3     2.8  
Prepaid expenses and other assets     3,458         4,460         5,738     (22.5 )   (39.7 )
Goodwill     889         889         889     0.0     0.0  
Core deposit intangible     1,116         1,153         1,266     (3.2 )   (11.8 )
Total assets $   1,252,424     $   1,234,859     $   1,210,229     1.4 %   3.5 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $   46,108     $   51,180     $   45,434     (9.9 )%   1.5 %
Interest-bearing deposits     892,924         865,099         794,068     3.2     12.4  
Total deposits     939,032         916,279         839,502     2.5     11.9  
Advances from the FHLB     146,500         149,000         216,000     (1.7 )   (32.2 )
Advance payments from borrowers for taxes and insurance     2,933         4,737         2,515     (38.1 )   16.6  
Accrued interest payable     478         541         326     (11.6 )   46.6  
Other liabilities     9,743         9,589         9,252     1.6     5.3  
Total liabilities     1,098,686         1,080,146         1,067,595     1.7 %   2.9 %
                   
Commitments and contingencies                  
                   
Stockholders' Equity                  
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or                  
outstanding $    -      $    -      $    -           
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding                  
10,710,656 shares at December 31, 2018, 10,914,556 shares at September 30, 2018, and                  
10,748,437 shares at December 31, 2017     107         109         107     (1.8 )%   0.0 %
Additional paid-in capital     93,773         96,664         94,173     (3.0 )   (0.4 )
Retained earnings, substantially restricted     66,343         65,004         54,642     2.1     21.4  
Accumulated other comprehensive loss, net of tax     (2,253 )       (2,550 )       (928 )   (11.6 )   142.8  
Unearned Employee Stock Ownership Plan ("ESOP") shares     (4,232 )       (4,514 )       (5,360 )   (6.2 )   (21.0 )
Total stockholders' equity     153,738         154,713         142,634     (0.6 )   7.8  
Total liabilities and stockholders' equity $   1,252,424     $   1,234,859     $   1,210,229     1.4 %   3.5 %



 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
 
  Quarter Ended        
  Dec 31,
2018
  Sep 30,
2018
  Dec 31,
2017
   Three
Month
Change
   One
Year
Change
Interest income                   
Loans, including fees $   13,024   $   12,631   $   12,269      3.1 %   6.2 %
Investments available-for-sale    1,124       1,063       903      5.7     24.5  
Interest-earning deposits with banks   61       59       43      3.4     41.9  
Dividends on FHLB Stock   115       135       85      (14.8 )   35.3  
Total interest income    14,324       13,888       13,300      3.1     7.7  
Interest expense                   
Deposits    3,595       2,912       2,117      23.5     69.8  
FHLB advances   726       917       795      (20.8 )   (8.7 )
Total interest expense    4,321       3,829       2,912      12.8     48.4  
Net interest income    10,003       10,059       10,388      (0.6 )   (3.7 )
Provision (recapture of provision) for loan losses   200       200       (1,200 )   0.0     (116.7 )
Net interest income after provision (recapture of provision) for loan losses   9,803       9,859       11,588      (0.6 )   (15.4 )
                   
                   
Noninterest income                  
Net gain (loss) on sale of investments     -        1       (670 )   (100.0 )   (100.0 )
BOLI income     96       245       133      (60.8 )   (27.8 )
Wealth management revenue     211       145       220      45.5     (4.1 )
Deposit related fees     178       167       169      6.6     5.3  
Loan related fees     235       273       356      (13.9 )   (34.0 )
Other      8       10       3      (20.0 )   166.7  
Total noninterest income     728       841       211      (13.4 )   245.0  
                   
                   
Noninterest expense                  
Salaries and employee benefits     4,977       4,732       4,673      5.2     6.5  
Occupancy and equipment     871       814       721      7.0     20.8  
Professional fees     415       353       430      17.6     (3.5 )
Data processing     361       356       326      1.4     10.7  
OREO related expenses (reimbursements), net     3       1       (81 )   200.0     (103.7 )
Regulatory assessments     111       126       161      (11.9 )   (31.1 )
Insurance and bond premiums     88       95       97      (7.4 )   (9.3 )
Marketing     75       85       68      (11.8 )   10.3  
Other general and administrative     845       639       674      32.2     25.4  
Total noninterest expense      7,746       7,201       7,069      7.6     9.6  
Income before federal income tax  provision     2,785       3,499       4,730      (20.4 )   (41.1 )
Federal income tax provision     622       707       2,324      (12.0 )   (73.2 )
Net income $   2,163   $   2,792   $   2,406      (22.5 )%   (10.1 )%
                   
                   
Basic earnings per share $   0.21   $   0.27   $   0.24           
Diluted earnings per share $   0.21   $   0.27   $   0.23           
                   
Weighted average number of common shares outstanding    

  10,385,612
     

  10,356,994
      10,184,804           
Weighted average number of diluted shares outstanding    

  10,484,350
     

  10,468,802
      10,313,114           


 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
 
  Year Ended December 31,    
    2018       2017       2016    One
Year
Change
   Two
Year
Change
Interest income                   
Loans, including fees $   51,127     $   43,607     $   38,218   17.2 %   33.8 %
Investments available-for-sale      4,126         3,504         3,054   17.8     35.1  
Interest-earning deposits with banks     202         237         235   (14.8 )   (14.0 )
Dividends on FHLB Stock     458         296         202   54.7     126.7  
Total interest income      55,913         47,644         41,709   17.4     34.1  
Interest expense                   
Deposits      11,218         7,517         6,101   49.2     83.9  
FHLB advances     3,520         2,505         1,406   40.5     150.4  
Total interest expense      14,738         10,022         7,507   47.1     96.3  
Net interest income      41,175         37,622         34,202   9.4     20.4  
(Recapture of provision) provision for loan losses     (4,000 )       (400 )       1,300   900.0     (407.7 )
Net interest income after (recapture of provision) provision for loan losses     45,175         38,022         32,902   18.8     37.3  
                   
Noninterest income                  
Net (loss) gain on sale of investments      (20 )       (567 )       50   (96.5 )   (140.0 )
BOLI     814         623         844   30.7     (3.6 )
Wealth management revenue     611         919         813   (33.5 )   (24.8 )
Deposit related fees     681         446         261   52.7     160.9  
Loan related fees     768         776         671   (1.0 )   14.5  
Other      24         11         12   118.2     100.0  
Total noninterest income     2,878         2,208         2,651   30.3     8.6  
                   
Noninterest expense                   
Salaries and employee benefits      19,302         17,773         15,377   8.6     25.5  
Occupancy and equipment      3,283         2,506         1,984   31.0     65.5  
Professional fees     1,538         1,809         1,979   (15.0 )   (22.3 )
Data processing     1,392         1,457         911   (4.5 )   52.8  
OREO related expenses (reimbursements), net     7         (67 )       294   (110.4 )   (97.6 )
Regulatory assessments     502         491         420   2.2     19.5  
Insurance and bond premiums     443         399         349   11.0     26.9  
Marketing     344         270         194   27.4     77.3  
Other general and administrative      2,650         2,171         1,441   22.1     83.9  
Total noninterest expense      29,461         26,809         22,949   9.9     28.4  
Income before federal income tax  provision     18,592         13,421         12,604   38.5     47.5  
Federal income tax provision     3,693         4,942         3,712   (25.3 )   (0.5 )
Net income $   14,899     $   8,479     $   8,892   75.7 %   67.6 %
                   
Basic earnings per share $  1.44     $   0.82     $  0.75        
Diluted earnings per share $  1.43     $   0.81     $    0.74        
                   
Weighted average number of common shares outstanding     10,306,835          10,289,049          11,868,278        
Weighted average number of diluted shares outstanding     10,424,187         10,437,449          12,028,428        


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

  December 31, 2018   September 30, 2018   December 31, 2017  
  Amount   Percent   Amount   Percent   Amount   Percent  
  (Dollars in thousands)
Commercial real estate:                        
Residential:                        
Micro-unit apartments $   14,076     1.3 % $   14,141     1.3 % $   7,020     0.6 %
Other multifamily     155,279     13.8       162,380     14.7       177,882     16.3  
Total multifamily     169,355     15.1       176,521     16.0       184,902     16.9  
                         
Non-residential:                        
Office     100,495     8.9       96,542     8.8       112,327     10.2  
Retail     131,222     11.7       139,085     12.6       129,875     11.9  
Mobile home park     16,003     1.4       15,649     1.4       19,970     1.8  
Warehouse     25,398     2.3       22,252     2.0       22,701     2.1  
Storage     32,462     2.9       32,625     3.0       32,201     2.9  
Other non-residential     68,239     6.1       54,332     4.9       44,768     4.1  
Total non-residential     373,819     33.3       360,485     32.7       361,842     33.0  
                         
Construction/land development:                        
One-to-four family residential     86,604     7.7       84,912     7.7       87,404     8.0  
Multifamily     83,642     7.4       80,607     7.3       108,439     9.9  
Commercial     18,300     1.6       21,385     2.0       5,325     0.5  
Land     6,740     0.7       7,113     0.7       36,405     3.3  
Total construction/land development     195,286     17.4       194,017     17.7       237,573     21.7  
                         
One-to-four family residential:                        
Permanent owner occupied     194,141     17.3       184,698     16.8       148,304     13.6  
Permanent non-owner occupied     147,825     13.2       143,226     13.0       130,351     11.9  
Total one-to-four family residential     341,966     30.5       327,924     29.8       278,655     25.5  
                         
Business                        
Aircraft     11,058     1.0       10,172     0.9       12,491     1.1  
Other business     19,428     1.7       19,483     1.8       10,596     1.0  
Total business     30,486     2.7       29,655     2.7       23,087     2.1  
                         
Consumer     12,970     1.0       12,419     1.1       9,133     0.8  
Total loans     1,123,882     100.0 %     1,101,021     100.0 %     1,095,192     100.0 %
Less:                        
Loans in Process ("LIP")     86,453             91,232             92,498        
Deferred loan fees, net     1,178             1,116             1,150        
ALLL     13,347             13,116             12,882        
Loans receivable, net $   1,022,904         $   995,557         $   988,662        
                         
Concentrations of credit: (1)                        
Construction loans as % of total capital   81.9 %         77.1 %         108.6 %      
Total non-owner occupied commercial real estate as % of total capital   451.8 %         454.5 %         514.0 %      
                         

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


 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
(Dollars in thousands, except per share data)
(Unaudited)
 
  At or For the Quarter Ended
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,
    2018       2018       2018       2018       2017  
   
Performance Ratios :                  
Return on assets   0.69 %     0.90 %     1.01 %     2.28 %     0.80 %
Return on equity   5.54       7.17       8.28       19.16       6.70  
Dividend payout ratio   38.10       29.63       26.67       10.47       29.17  
Equity-to-assets ratio   12.28       12.53       12.46       12.13       11.79  
Tangible equity ratio   12.13       12.38       12.31       11.98       11.63  
Net interest margin   3.41       3.46       3.50       3.88       3.65  
Average interest-earning assets to average interest-bearing liabilities   114.27       115.20       114.21       113.46       113.32  
Efficiency ratio   72.18       66.06       69.38       60.42       66.69  
Noninterest expense as a percent of average total assets   2.49       2.33       2.44       2.34       2.34  
Book value per share $   14.35     $   14.17     $   13.97     $ 13.80     $   13.27  
Tangible book value per share   14.17         13.99         13.78         13.60       13.07  
                   
Capital Ratios : (1)                  
Tier 1 leverage ratio   10.37 %     10.37 %     10.22 %     10.44 %     10.20 %
Common equity tier 1 capital ratio   13.43       13.58       13.21       13.13       12.52  
Tier 1 capital ratio   13.43       13.58       13.21       13.13       12.52  
Total capital ratio   14.68       14.83       14.47       14.38       13.77  
                   
Asset Quality Ratios : (2)                  
Nonperforming loans as a percent of total loans   0.07 %     0.05 %     0.02 %     0.02 %     0.02 %
Nonperforming assets as a percent of total assets   0.10       0.08       0.05       0.05       0.05  
ALLL as a percent of total loans   1.29       1.30       1.27       1.31       1.28  
Net (recoveries) charge-offs to average loans receivable, net   (0.00 )     (0.02 )     (0.00 )     (0.43 )     (0.20 )
                   
Allowance for Loan Losses :                  
ALLL, beginning of the quarter $   13,116     $  12,754     $   13,136     $ 12,882     $    12,110  
Provision (Recapture of provision)     200         200          (400 )       (4,000 )        (1,200 )
Charge-offs      -         -         -         -          -  
Recoveries     31         162         18         4,254         1,972  
ALLL, end of the quarter $   13,347     $   13,116     $   12,754     $ 13,136     $   12,882  

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


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

  At or For the Quarter Ended
  Dec 31,   Sep 30,   Jun 30,   Mar 31,   Dec 31,  
    2018     2018       2018       2018     2017    
     
Yields and Costs:                    
Yield on loans   5.13 %     5.05 %     5.00 %     5.37 %     5.05 %  
Yield on investments available-for-sale   3.17       3.00       2.87       2.65       2.52    
Yield on interest-earning deposits   2.27       1.92       1.48       1.32       1.23    
Yield on FHLB stock   6.63       6.27       4.21       4.40       3.42    
Yield on interest-earning assets   4.88 %     4.77 %     4.70 %     4.98 %     4.67 %  
                     
Cost of interest-bearing deposits   1.61 %     1.40 %     1.22 %     1.15 %     1.08 %  
Cost of FHLB advances   2.12       2.05       1.92       1.66       1.46    
Cost of interest-bearing liabilities   1.68 %     1.52 %     1.37 %     1.25 %     1.16 %  
                     
Cost of total deposits   1.53 %     1.31 %     1.15 %     1.09 %     1.02 %  
Cost of funds   1.61       1.44       1.30       1.20       1.11    
                     
Average Balances:                    
Loans $  1,006,905     $  993,272     $   997,059     $   985,799     $   963,097    
Investments available-for-sale     140,568         140,584         141,035          142,236         141,962    
Interest-earning deposits     10,653         12,223         11,927         11,717          13,843    
FHLB stock     6,886          8,540         10,004         9,593         9,859    
Total interest-earning assets $   1,165,012     $ 1,154,619     $   1,160,025     $ 1,149,345     $   1,128,761    
                     
Interest-bearing deposits $   883,672     $   825,055     $    801,852     $   804,451     $   780,671    
FHLB advances     135,886         177,250          213,857         208,544         215,418    
Total interest-bearing liabilities $   1,019,558     $ 1,002,305     $    1,015,709     $ 1,012,995     $   996,089    
Noninterest-bearing deposits     47,580          53,982          50,145          46,071          46,029    
Total deposits and borrowings $   1,067,138     $ 1,056,287     $    1,065,854     $ 1,059,066     $   1,042,118    
                     
Average assets $   1,236,460     $ 1,225,189     $  1,229,341     $ 1,218,418     $   1,199,774    
Average stockholders' equity     154,958         154,444          150,243         144,786         142,390    



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,
    2018       2017       2016       2015       2014  
   
Performance Ratios:                  
Return on assets   1.21 %     0.76 %     0.88 %     0.96 %     1.17 %
Return on equity   9.86       5.94       5.55       5.15       5.85  
Dividend payout ratio   21.53       32.93       32.02       35.57       27.73  
Equity-to-assets   12.28       11.79       13.31       17.42       19.36  
Tangible equity ratio   12.13       11.63       13.31       17.42       19.36  
Net interest margin   3.56       3.60       3.60       3.38       3.77  
Average interest-earning assets to average interest-bearing liabilities   114.28       114.07       117.11       120.45       121.15  
Efficiency ratio   66.88       67.31       62.27       62.66       56.37  
Noninterest expense as a percent of average total assets   2.40       2.42       2.27       2.07       2.03  
Book value per share $ 14.35     $ 13.27     $ 12.63     $ 12.40     $ 11.96  
Tangible book value per share   14.17       13.07       12.63       12.40       11.96  
                   
Capital Ratios: (1)                  
Tier 1 leverage ratio   10.37 %     10.20 %     11.17 %     11.61 %     11.79 %
Common equity tier 1 capital ratio   13.43       12.52       14.38       16.36      n/a
Tier 1 capital ratio   13.43       12.52       14.38       16.36       18.30  
Total capital ratio   14.68       13.77       15.63       17.62       19.56  
                   
Asset Quality Ratios: (2)                  
Nonperforming loans as a percent of total loans   0.07 %     0.02 %     0.10 %     0.16 %     0.20 %
Nonperforming assets as a percent of total assets   0.10       0.05       0.31       0.48       1.13  
ALLL as a percent of total loans   1.29       1.28       1.32       1.36       1.55  
Net charge-offs (recoveries) to average loans receivable, net   (0.45 )     (0.27 )     (0.02 )     (0.18 )     0.06  
                   
Allowance for Loan Losses:                  
ALLL, beginning of the year $ 12,882     $ 10,951     $   9,463     $   10,491     $ 12,994  
Provision (recapture of provision)      (4,000 )       (400 )       1,300          (2,200 )       (2,100 )
Charge-offs     -         -          (83 )       (362 )       (642 )
Recoveries     4,465         2,331         271         1,534         239  
ALLL, end of the year $ 13,347     $ 12,882     $ 10,951     $  9,463     $ 10,491  

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


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

  At or For the Year Ended December 31,
    2018       2017       2016       2015       2014  
   
Yields and Costs:                  
Yield on loans   5.13 %     4.96 %     4.99 %     5.18 %     5.37 %
Yield on investments available-for-sale   2.92       2.61       2.31       1.84       1.74  
Yield on interest-earning deposits   1.74       1.07       0.52       0.26       0.25  
Yield on FHLB stock   5.24       3.32       2.62       1.06       0.10  
Yield on interest-earning assets   4.83       4.57       4.39       4.13       4.50  
                   
Cost of deposits   1.35 %     1.04 %     0.94 %     0.89 %     0.87 %
Cost of FHLB advances   1.92       1.30       0.86       0.95       0.91  
Cost of interest-bearing liabilities   1.46 %     1.10 %     0.92 %     0.90 %     0.88 %
                   
Cost of total deposits   1.28 %     0.99 %     0.90 %     0.86 %     0.85 %
Cost of funds   1.39       1.05       0.89       0.88       0.87  
                   
Average Balances:                  
Loans $   995,810     $   878,449     $   765,948     $   667,739     $   675,353  
Investments available-for-sale     141,100         134,105         132,372         121,893         131,474  
Interest-earning deposits     11,628         22,194         45,125         104,476         46,776  
FHLB stock     8,748         8,914         7,714         6,527         6,899  
Total interest-earning assets $   1,157,286     $   1,043,662     $   951,159     $   900,635     $   860,502  
                   
Deposits $   828,965     $   722,666     $   648,324     $   614,185     $   581,435  
FHLB advances     183,667         192,227         163,893         133,527         128,839  
Total interest-bearing liabilities $   1,012,632     $   914,893     $   812,217     $   747,712     $   710,274  
Noninterest-bearing deposits     49,461         39,127         27,596         23,509         11,022  
Total deposits and borrowings $   1,062,093     $   954,020     $   839,813     $   771,221     $   721,296  
                   
Average assets $   1,227,396     $   1,108,656     $   1,010,243     $   958,154     $   910,448  
Average stockholders' equity     151,145         142,647         160,192         177,904         182,598  


Non-GAAP Financial Measures

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

Non-GAAP financial measures have limitations, are not 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. All financial measures reported for periods prior to December 31, 2017, are considered GAAP financial measures:

  Dec 31,
2018
  Sep 30,
2018
  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
                   
Total stockholders' equity $   153,738     $   154,713     $   152,554     $   148,755     $   142,634  
Less:                  
Goodwill     889         889         889         889         889  
Core deposit intangible     1,116         1,153         1,191         1,228          1,266  
Tangible equity $   151,733     $   152,671     $   150,474     $   146,638     $   140,479  
                   
Total assets     1,252,424         1,234,859         1,224,065         1,226,358         1,210,229  
Less:                  
Goodwill     889         889         889         889          889  
Core deposit intangible      1,116         1,153         1,191         1,228          1,266  
Tangible assets $   1,250,419     $   1,232,817     $   1,221,985     $   1,224,241     $    1,208,074  
                   
Common shares outstanding at period end     10,710,656         10,914,556         10,916,556         10,779,424         10,748,437  
                   
Equity to assets ratio   12.28 %     12.53 %     12.46 %     12.13 %     11.79 %
Tangible equity ratio   12.13       12.38       12.31       11.98       11.63  
Book value per share $    14.35     $    14.17     $    13.97     $   13.80     $    13.27  
Tangible book value per share   14.17       13.99       13.78        13.60         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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