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CST: 21/11/2019 02:30:56   

First Financial Northwest, Inc. Reports Third Quarter Net Income of $2.5 Million or $0.25 per Diluted Share

27 Days ago

RENTON, Wash., Oct. 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 September 30, 2019, of $2.5 million, or $0.25 per diluted share, compared to net income of $3.3 million, or $0.33 per diluted share, for the quarter ended June 30, 2019, and $2.8 million, or $0.27 per diluted share, for the quarter ended September 30, 2018. For the nine months ended September 30, 2019, net income was $7.8 million, or $0.77 per diluted share, compared to net income of $12.7 million, or $1.22 per diluted share, for the comparable nine-month period in 2018.

Fluctuations in the Company’s provision for loan and lease losses accounted for the majority of the difference in net income in the quarter ended September 30, 2019, compared to June 30, 2019. The Company recorded a $100,000 provision for loan losses in the quarter ended September 30, 2019, compared to an $800,000 recapture of provision for loan losses in the quarter ended June 30, 2019, and a $200,000 provision for loan losses in the quarter ended September 30, 2018. The provision for loan losses in the most recent quarter was primarily due to growth in loans receivable. The recapture of provision in the quarter ended June 30, 2019, was primarily related to a single construction loan that was classified as impaired; however, the Bank’s impairment analysis concluded that there were no anticipated losses from the loan, therefore funds previously allocated in the allowance for loan and lease loss calculations to this loan were recaptured during that quarter. All payments on the loan were current at both June 30, 2019, and September 30, 2019, and the loan is well collateralized. The provision for loan losses in the quarter ended September 30, 2018, was primarily due to growth in net loans receivable, partially offset by recoveries received on loans previously charged off.

“I am encouraged by the loan growth and progress being made on various initiatives throughout the Bank,” stated Joseph W. Kiley III, President and Chief Executive Officer. “We continue to build expertise in our efforts to expand the Bank’s product mix and diversify our balance sheet, hiring experienced business bankers, branch personnel and support staff. Our 12th branch office will open in Kirkland, Washington in the fourth quarter, as we continue to expand our footprint through deployment of micro branches with highly experienced bankers. We intend to continue to look for additional branch expansion opportunities to further support our growth,” concluded Kiley.

Net loans receivable totaled $1.08 billion at September 30, 2019, compared to $1.05 billion at June 30, 2019, and $995.6 million at September 30, 2018. The average balance of net loans receivable totaled $1.07 billion for the quarter ended September 30, 2019, compared to $1.05 billion for the quarter ended June 30, 2019, and $993.3 million for the quarter ended September 30, 2018.

Additional highlights for the quarter ended September 30, 2019:

  • Total loans grew by $31.0 million in the quarter to $1.10 billion led by an increase of $9.7 million in multifamily residential real estate, $9.1 million in one-to-four family residential, $8.6 million in classic auto consumer loans, and $4.8 million in construction/land loans, partially offset by lower non-residential commercial real estate loans.
  • Total deposits declined slightly to $1.02 billion at September 30, 2019, compared to $1.03 billion at June 30, 2019, but up from $916.3 million at September 30, 2018. Organic deposit growth was $33.3 million, increasing to $878.2 million in the quarter ended September 30, 2019, while brokered deposits declined $42.2 million to $138.6 million. Noninterest-bearing deposits increased modestly to $49.4 million at September 30, 2019.
  • The Company’s book value per share was $15.06 at September 30, 2019, compared to $14.83 at June 30, 2019, and $14.17 at September 30, 2018.
  • The Company repurchased 87,852 shares during the quarter at an average price of $14.05 per share pursuant to its stock repurchase plan, which commenced on July 30, 2019, and is set to expire on December 17, 2019. The plan authorizes the repurchase of up to 520,000 shares of the Company’s common stock, or approximately 5.0% of its outstanding shares. A total of 432,148 shares remain available for repurchase under the plan at September 30, 2019.
  • The Bank’s Tier 1 leverage and total capital ratios at September 30, 2019, were 10.1% and 14.4%, respectively, compared to 10.3% and 14.7% at June 30, 2019, and 10.4% and 14.8% at September 30, 2018.
  • Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”), there was a $100,000 provision for loan losses during the quarter ended September 30, 2019.

The ALLL represented 1.20% of total loans receivable, net of undisbursed funds, at September 30, 2019, compared to 1.22% at June 30, 2019, and 1.30% at September 30, 2018. Nonperforming assets totaled $591,000 at September 30, 2019, compared to $600,000 at June 30, 2019, and $967,000 at September 30, 2018.

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

    Sep 30,
2019
      Jun 30,
2019
      Sep 30,
2018
    Three Month
Change
  One Year
Change
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $ 98     $ 103     $ 113     $ (5 )   $ (15 )
Commercial real estate               325             (325 )
Consumer   39       43       46       (4 )     (7 )
Total nonperforming loans   137       146       484       (9 )     (347 )
                   
Other real estate owned (“OREO”)   454       454       483             (29 )
                   
Total nonperforming assets (1) $ 591     $ 600     $ 967     $ (9 )   $ (376 )
                   
Nonperforming assets as a percent of total assets   0.05 %     0.05 %     0.08 %        
                               

(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 September 30, 2019.

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

In circumstances where a customer is experiencing significant financial difficulties, the Company may elect to restructure the loan so the customer can continue to make payments while minimizing the potential loss to the Company. Such restructures must be classified as TDRs. At September 30, 2019, TDRs totaled $6.6 million, compared to $6.7 million at June 30, 2019, and $13.2 million at September 30, 2018.

Net interest income for both the quarters ended September 30, 2019, and June 30, 2019, totaled $9.7 million, compared to $10.1 million for the quarter ended September 30, 2018. Net interest income remained stable in the current quarter compared to the quarter ended June 30, 2019, and was down from the quarter ended September 30, 2018, despite higher average net loan balances than both prior periods as deposit repricing lagged the reduction in market rates.

Total interest income increased to $15.2 million during the quarter ended September 30, 2019, compared to $14.9 million in the quarter ended June 30, 2019, and $13.9 million for the quarter ended September 30, 2018. The increase in total interest income from the prior periods was due primarily to the higher average net loan balances in the quarter ended September 30, 2019.

Total interest expense increased to $5.6 million for the quarter ended September 30, 2019, compared to $5.2 million for the quarter ended June 30, 2019, and $3.8 million for the quarter ended September 30, 2018. The higher level of interest expense in the quarter ended September 30, 2019, was due primarily to higher interest paid on money market and certificates of deposit in a continuing competitive marketplace for deposits, partially offset by lower interest expense related to Federal Home Loan Bank (“FHLB”) advances and other borrowings. The balance of brokered certificates of deposits totaled $138.6 million at September 30, 2019, compared to $180.8 million at June 30, 2019, and $102.1 million at September 30, 2018. The Bank replaced a portion of its callable brokered certificates of deposit portfolio with lower rate alternatives in the quarter ended September 30, 2019. Specifically, in addition to replacing certain maturing brokered deposits with short term FHLB advances, the Bank redeemed $17.4 million in callable brokered deposits with a weighted average rate of 3.17% and weighted average remaining term of 2.4 years. These funds were replaced with lower rate FHLB advances and a concurrent 5-year, $15.0 million notional pay fixed interest rate swap for which the Bank will pay 1.44% monthly and in exchange will receive variable rate amounts from the interest rate swap counter party based on one-month LIBOR. Based on current interest rates, this redemption is estimated to save the Bank in excess of $600,000 over the next 2.4 years compared to what would have been paid on the redeemed callable brokered deposits if the call options were not exercised. This redemption accelerated approximately $60,000 in unamortized fees relating to the original acquisition of the callable brokered deposits, increasing interest expense by this amount in the quarter ended September 30, 2019. Advances from the FHLB totaled $121.0 million at September 30, 2019, compared to $105.0 million at June 30, 2019, and $149.0 million at September 30, 2018. The average cost of FHLB advances was 2.02% for the quarter ended September 30, 2019, compared to 2.28% for the quarter ended June 30, 2019, and 2.05% for the quarter ended September 30, 2018.

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

  Sep 30,
2019
  Jun 30,
2019
  Sep 30, 
2018
  Three Month
Change
  One Year
Change
Deposits: (Dollars in thousands)  
Noninterest-bearing $ 49,398   $ 49,219   $ 51,180   $ 179     $ (1,782 )
Interest-bearing demand   53,197     50,414     41,954     2,783       11,243  
Statement savings   21,647     22,593     24,106     (946 )     (2,459 )
Money market   332,722     310,587     323,025     22,135       9,697  
Certificates of deposit, retail (1)   421,274     412,134     373,931     9,140       47,343  
Certificates of deposit, brokered   138,590     180,763     102,083     (42,173 )     36,507  
Total deposits $ 1,016,828   $ 1,025,710   $ 916,279   $ (8,882 )   $ 100,549  
                                 

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $34,000 at September 30, 2019, $41,000 at June 30, 2019, and $69,000 at September 30, 2018.

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

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

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

  June 30, 2019
  Noninterest-bearing demand Interest-bearing demand Statement savings Money market Certificates
of deposit,
retail
Certificates
of deposit,
brokered
Total
   (Dollars in thousands)
King County              
Renton $   24,692 $   22,315 $   18,848 $   196,902 $   331,260 $   - $   594,017
Landing   3,837   2,357   25   14,068   10,655     -   30,942
Woodinville (1)   1,737   2,107   610   13,466   7,019     -   24,939
Bothell   505   79   5   2,285   3,928     -   6,802
Crossroads   2,773   6,842   53   26,733   12,840     -   49,241
Kent (2)   51   1,773   47   3,859   793     -   6,523
Total King County   33,595   35,473   19,588   257,313   366,495     -   712,464
               
Snohomish County              
Mill Creek   1,681   2,088   700   14,521   10,545     -   29,535
Edmonds   7,260   4,409   255   16,635   17,170     -   45,729
Clearview (1)   3,491   3,942   998   6,281   3,540     -   18,252
Lake Stevens (1)   1,955   1,938   439   5,625   4,012     -   13,969
Smokey Point (1)   1,237   2,564   613   10,212   10,372     -   24,998
Total Snohomish County   15,624   14,941   3,005   53,274   45,639     -   132,483
               
Total retail deposits   49,219   50,414   22,593   310,587   412,134     -   844,947
Brokered deposits     -      -      -      -      -      180,763   180,763
Total deposits $   49,219 $   50,414 $   22,593 $   310,587 $   412,134 $   180,763 $   1,025,710
                             

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $41,000.
(2) Kent branch opened January 31, 2019.

The net interest margin was 3.07% for the quarter ended September 30, 2019, compared to 3.23% for the quarter ended June 30, 2019, and 3.46% for the quarter ended September 30, 2018. The declines in the most recent two quarters were due to the increasing cost of liabilities and decreasing yields on interest earning assets between the periods. This continues to be a very challenging environment to acquire low-cost deposits. In addition, loan yields declined in each of the two most recent quarters, primarily related to the reduction in Prime and LIBOR lending rates.

Noninterest income for the quarter ended September 30, 2019, totaled $1.0 million, compared to $879,000 in the quarter ended June 30, 2019, and $841,000 in the quarter ended September 30, 2018. The increase in noninterest income for the quarter ended September 30, 2019, was due primarily to an $88,000 net gain on sale of investments, higher loan related fees and BOLI income recognition, partially offset by lower deposit related fees and wealth management revenue, compared to the quarter ended June 30, 2019. With the exception of BOLI income recognition and other noninterest income, all other categories of noninterest income were higher for the quarter ended September 30, 2019, compared to the quarter ended September 30, 2018.

Noninterest expense increased to $7.5 million for the quarter ended September 30, 2019, compared to $7.3 million in June 30, 2019, and $7.2 million in the quarter ended September 30, 2018. Noninterest expense increased 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, partially offset by lower other general and administrative expenses and a $120,000 small bank assessment credit that reduced the regulatory assessment for the quarter ended September 30, 2019.

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 11 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

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

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 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 Sep 30,
2019
   Jun 30,
2019
  Sep 30,
2018
  Three
Month
Change
  One
Year
Change
                   
Cash on hand and in banks $   7,615     $   8,119     $   7,167     (6.2 )%   6.3 %
Interest-earning deposits     6,103         22,579         19,094     (73.0 )   (68.0 )
Investments available-for-sale, at fair value     138,224         141,581         140,868     (2.4 )   (1.9 )
Loans receivable, net of allowance of $13,161, $13,057, and $13,116, respectively     1,083,850         1,052,676         995,557     3.0     8.9  
Federal Home Loan Bank ("FHLB") stock, at cost     6,341         5,701         7,410     11.2     (14.4 )
Accrued interest receivable     4,407         4,650         4,664     (5.2 )   (5.5 )
Deferred tax assets, net     1,202         1,379         2,092     (12.8 )   (42.5 )
Other real estate owned ("OREO")     454         454         483     0.0     (6.0 )
Premises and equipment, net     22,346         21,944         21,277     1.8     5.0  
Bank owned life insurance ("BOLI")     31,681         31,446         29,745     0.7     6.5  
Prepaid expenses and other assets     4,242         5,101         4,460     (16.8 )   (4.9 )
Goodwill     889         889         889     0.0     0.0  
Core deposit intangible     1,005         1,042         1,153     (3.6 )   (12.8 )
Total assets $   1,308,359     $   1,297,561     $   1,234,859     0.8 %   6.0 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $   49,398     $   49,219     $   51,180     0.4 %   (3.5 )%
Interest-bearing deposits     967,430         976,491         865,099     (0.9 )   11.8  
Total deposits     1,016,828         1,025,710         916,279     (0.9 )   11.0  
Advances from the FHLB     121,000         105,000         149,000     15.2     (18.8 )
Advance payments from borrowers for taxes and insurance     5,043         2,844         4,737     77.3     6.5  
Accrued interest payable     382         461         541     (17.1 )   (29.4 )
Other liabilities     10,004         9,718         9,589     2.9     4.3  
Total liabilities     1,153,257         1,143,733         1,080,146     0.8     6.8  
                   
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                  
10,296,053 shares at September 30, 2019, 10,375,325 shares at June 30, 2019, and 10,914,556 shares at September 30, 2018     103         104         109     (1.0 )%   (5.5 )%
Additional paid-in capital     87,835         88,725         96,664     (1.0 )   (9.1 )
Retained earnings     71,592         69,976         65,004     2.3     10.1  
Accumulated other comprehensive loss, net of tax     (1,042 )       (1,309 )       (2,550 )   (20.4 )   (59.1 )
Unearned Employee Stock Ownership Plan ("ESOP") shares     (3,386 )       (3,668 )       (4,514 )   (7.7 )   (25.0 )
Total stockholders' equity     155,102         153,828         154,713     0.8     0.3  
Total liabilities and stockholders' equity $   1,308,359     $   1,297,561     $   1,234,859     0.8 %   6.0 %
                                   

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

  Quarter Ended        
  Sep 30,
2019
  Jun 30,
2019
  Sep 30,
2018
  Three
Month
Change
   One
Year
Change
Interest income                  
Loans, including fees $ 13,897   $ 13,606     $ 12,631   2.1 %   10.0 %
Investments available-for-sale   1,066     1,109       1,063   (3.9 )   0.3  
Interest-earning deposits with banks   158     48       59   229.2     167.8  
Dividends on FHLB Stock   97     102       135   (4.9 )   (28.1 )
Total interest income   15,218     14,865       13,888   2.4     9.6  
Interest expense                  
Deposits   5,037     4,330       2,912   16.3     73.0  
FHLB advances and other borrowings   529     829       917   (36.2 )   (42.3 )
Total interest expense   5,566     5,159       3,829   7.9     45.4  
Net interest income   9,652     9,706       10,059   (0.6 )   (4.0 )
Provision (recapture of provision) for loan losses   100     (800 )     200   (112.5 )   (50.0 )
Net interest income after provision (recapture of provision) for loan losses   9,552     10,506       9,859   (9.1 )   (3.1 )
                   
Noninterest income                  
Net gain on sale of investments   88     -       1   n/a   8,700.0  
BOLI income   235     189       245   24.3     (4.1 )
Wealth management revenue   245     261       145   (6.1 )   69.0  
Deposit related fees   179     205       167   (12.7 )   7.2  
Loan related fees   290     209       273   38.8     6.2  
Other   2     15       10   (86.7 )   (80.0 )
Total noninterest income   1,039     879       841   18.2     23.5  
                   
Noninterest expense                  
Salaries and employee benefits   4,813     4,734       4,732   1.7     1.7  
Occupancy and equipment   924     898       814   2.9     13.5  
Professional fees   440     326       353   35.0     24.6  
Data processing   478     397       356   20.4     34.3  
OREO related expenses, net   1     1       1   0.0     0.0  
Regulatory assessments   13     136       126   (90.4 )   (89.7 )
Insurance and bond premiums   95     88       95   8.0     0.0  
Marketing   118     76       85   55.3     38.8  
Other general and administrative   573     627       639   (8.6 )   (10.3 )
Total noninterest expense   7,455     7,283       7,201   2.4     3.5  
Income before federal income tax  provision   3,136     4,102       3,499   (23.5 )   (10.4 )
Federal income tax provision   631     798       707   (20.9 )   (10.7 )
Net income $ 2,505   $ 3,304     $ 2,792   (24.2 )%   (10.3 )%
                   
Basic earnings per share $ 0.25   $ 0.33     $ 0.27        
Diluted earnings per share $ 0.25   $ 0.33     $ 0.27        
Weighted average number of common shares outstanding   9,901,586     9,952,419       10,356,994        
Weighted average number of diluted shares outstanding   9,991,011     10,046,355       10,468,802        
                           

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

  Nine Months Ended    
  September 30,    
  2019   2018   One
Year
Change
Interest income           
Loans, including fees $   40,784     $   38,103     7.0 %
Investments available-for-sale      3,334         3,002     11.1  
Interest-earning deposits with banks     246         141     74.5  
Dividends on FHLB Stock     290         343     (15.5 )
Total interest income      44,654         41,589     7.4  
Interest expense           
Deposits      13,189         7,623     73.0  
FHLB advances and other borrowings     2,255         2,794     (19.3 )
Total interest expense      15,444         10,417     48.3  
Net interest income      29,210         31,172     (6.3 )
Recapture of provision for loan losses     (300 )       (4,200 )   (92.9 )
Net interest income after recapture of provision for loan losses     29,510         35,372     (16.6 )
           
Noninterest income          
Net gain (loss) on sale of investments      80         (20 )   (500.0 )
BOLI income     693         718     (3.5 )
Wealth management revenue     702         400     75.5  
Deposit related fees     555         503     10.3  
Loan related fees     562         533     5.4  
Other      26         16     62.5  
Total noninterest income     2,618         2,150     21.8  
           
Noninterest expense           
Salaries and employee benefits      14,547         14,325     1.5  
Occupancy and equipment      2,688         2,412     11.4  
Professional fees     1,262         1,123     12.4  
Data processing     1,393         1,031     35.1  
OREO related expenses, net     33         4     725.0  
Regulatory assessments     286         391     (26.9 )
Insurance and bond premiums     288         355     (18.9 )
Marketing     280         269     4.1  
Other general and administrative      1,670         1,805     (7.5 )
Total noninterest expense      22,447         21,715     3.4  
Income before federal income tax provision     9,681         15,807     (38.8 )
Federal income tax provision     1,927         3,071     (37.3 )
Net income $   7,754     $   12,736     (39.1 )%
           
Basic earnings per share $   0.77     $   1.24      
Diluted earnings per share $   0.77     $   1.22      
Weighted average number of common shares outstanding     9,989,970         10,280,287      
Weighted average number of diluted shares outstanding     10,091,631         10,405,315      
                   

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

  September 30, 2019   June 30, 2019   September 30, 2018
  Amount   Percent   Amount   Percent   Amount   Percent
                   
  (Dollars in thousands)
Commercial real estate:                      
Multifamily residential:                      
Micro-unit apartments $    13,877     1.3 %   $   13,943     1.3 %   $   14,141     1.4 %
Other multifamily      157,275     14.3         147,517     13.8         162,380     16.1  
Total multifamily residential      171,152     15.6         161,460     15.1         176,521     17.5  
                       
Non-residential:                      
Office      98,738     9.0         100,620     9.5         96,542     9.6  
Retail      142,639     12.9         144,050     13.5         139,085     13.8  
Mobile home park      23,070     2.1         21,533     2.0         15,649     1.5  
Motel      27,572     2.5         27,725     2.6         17,201     1.7  
Nursing Home      16,104     1.5         16,172     1.5         16,162     1.6  
Warehouse      18,200     1.7         18,303     1.7         22,252     2.2  
Storage      35,908     3.3         36,096     3.4         32,625     3.2  
Other non-residential      19,659     1.8         19,703     1.8         20,746     2.1  
Total non-residential      381,890     34.8         384,202     36.0         360,262     35.7  
                       
Construction/land:                      
One-to-four family residential      47,524     4.3         45,953     4.3         48,528     4.8  
Multifamily      40,078     3.7         37,032     3.5         36,400     3.6  
Commercial      15,913     1.5         13,793     1.3         11,086     1.1  
Land development      6,400     0.6         8,356     0.8         6,994     0.7  
Total construction/land      109,915     10.1         105,134     9.9         103,008     10.2  
                       
One-to-four family residential:                      
Permanent owner occupied      205,679     18.7         201,989     18.9         184,698     18.3  
Permanent non-owner occupied      164,707     15.0         159,267     14.9         143,226     14.2  
Total one-to-four family residential      370,386     33.7         361,256     33.8         327,924     32.5  
                       
Business:                      
Aircraft      14,186     1.3         14,459     1.4         10,172     1.0  
Other business      23,321     2.1         21,899     2.1         19,483     1.9  
Total business      37,507     3.4         36,358     3.5         29,655     2.9  
                       
Consumer:                      
Classic auto      14,636     1.3         6,056     0.6         -     0.0  
Other consumer      11,815     1.1         11,834     1.1         12,419     1.2  
Total consumer      26,451     2.4         17,891     1.7         12,419     1.2  
                       
Total loans      1,097,301     100.0 %       1,066,301     100.0 %       1,009,789     100.0 %
Less:                      
Deferred loan fees, net      290             568             1,116      
ALLL      13,161             13,057             13,116      
Loans receivable, net $  1,083,850         $   1,052,676         $   995,557      
                       
Concentrations of credit: (1)                      
Construction loans as % of total capital     82.6 %         80.1 %         77.1 %    
Total non-owner occupied commercial real estate as % of total capital     444.9 %         441.0 %         454.5 %    
                                   

(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 Ended
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
    2019       2019       2019       2018       2018  
  (Dollars in thousands, except per share data)
Performance Ratios:                  
Return on assets   0.75 %     1.04 %     0.63 %     0.69 %     0.90 %
Return on equity   6.41       8.70       5.16       5.54       7.17  
Dividend payout ratio    36.00       27.27       42.11       38.10       29.63  
Equity-to-assets ratio   11.85       11.86       11.78       12.28       12.53  
Tangible equity ratio (1)   11.73       11.72       11.64       12.13       12.38  
Net interest margin   3.07       3.23       3.37       3.41       3.46  
Average interest-earning assets to average interest-bearing liabilities   113.17       113.23       113.87       114.27       115.20  
Efficiency ratio   69.73       68.80       73.06       72.18       66.06  
Noninterest expense as a percent of average total assets   2.24       2.28       2.48       2.49       2.33  
Book value per share $   15.06     $   14.83     $   14.50     $  14.35     $  14.17  
Tangible book value per share (1)   14.88       14.64       14.32       14.17       13.99  
                   
Capital Ratios: (2)                  
Tier 1 leverage ratio   10.13 %     10.34 %     10.28 %     10.37 %     10.37 %
Common equity tier 1 capital ratio   13.14       13.46       13.13       13.43       13.58  
Tier 1 capital ratio   13.14       13.46       13.13       13.43       13.58  
Total capital ratio   14.39       14.71       14.38       14.68       14.83  
                   
Asset Quality Ratios:                  
Nonperforming loans as a percent of total loans   0.01 %     0.01 %     0.01 %     0.07 %     0.05 %
Nonperforming assets as a percent of total assets   0.05       0.05       0.05       0.10       0.08  
ALLL as a percent of total loans   1.20       1.22       1.30       1.29       1.30  
Net (recoveries) charge-offs to average loans receivable, net   (0.00 )     (0.00 )     (0.01 )     (0.00 )     (0.02 )
                   
Allowance for Loan Losses:                  
ALLL, beginning of the quarter $   13,057     $   13,808     $   13,347     $   13,116     $   12,754  
Provision (Recapture of provision)     100         (800 )       400         200         200  
Charge-offs     -         -         -         -         -  
Recoveries     4         49         61         31         162  
ALLL, end of the quarter $    13,161     $    13,057     $   13,808     $   13,347     $   13,116  
                                       

(1) Tangible equity ratio and tangible book value are non-GAAP financial measures. Refer to page 13 for reconciliation between the GAAP and non‑GAAP financial measures.
(2) Capital ratios are for First Financial Northwest Bank only.

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

  At or For the Quarter Ended
  Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
    2019       2019       2019       2018       2018  
  (Dollars in thousands, except per share data)
Yields and Costs:                  
Yield on loans   5.14 %     5.19 %     5.22 %     5.13 %     5.05 %
Yield on investments available-for-sale   3.02       3.21       3.35       3.17       3.00  
Yield on interest-earning deposits   2.24       2.33       2.50       2.27       1.92  
Yield on FHLB stock   6.81       5.58       4.68       6.63       6.27  
Yield on interest-earning assets   4.84 %     4.94 %     4.98 %     4.88 %     4.77 %
                   
Cost of interest-bearing deposits   2.00 %     1.89 %     1.76 %     1.61 %     1.40 %
Cost of FHLB advances   2.02       2.28       2.26       2.12       2.05  
Cost of interest-bearing liabilities   2.00 %     1.94 %     1.84 %     1.68 %     1.52 %
                   
Cost of total deposits   1.91 %     1.80 %     1.67 %     1.53 %     1.31 %
Cost of funds   1.92       1.86       1.76       1.61       1.44  
                   
Average Balances:                  
Loans $   1,073,283     $   1,051,894     $   1,031,994     $ 1,006,905     $   993,272  
Investments available-for-sale     140,031         138,634         140,433         140,568         140,584  
Interest-earning deposits     27,992         8,275         6,484         10,653         12,223  
FHLB stock     5,649         7,337         7,888         6,886         8,540  
Total interest-earning assets $   1,246,955     $   1,206,140     $   1,186,799     $ 1,165,012     $ 1,154,619  
                   
Interest-bearing deposits $   998,123     $   919,306     $   881,260     $   883,672     $   825,055  
Borrowings     103,707         145,895         160,950         135,886         177,250  
Total interest-bearing liabilities $   1,101,830     $   1,065,201     $   1,042,210     $ 1,019,558     $ 1,002,305  
Noninterest-bearing deposits     47,613         48,137         47,002         47,580         53,982  
Total deposits and borrowings $   1,149,443     $   1,113,338     $   1,089,212     $ 1,067,138     $ 1,056,287  
                   
Average assets $   1,319,777     $   1,279,880     $   1,258,902     $ 1,236,460     $ 1,225,189  
Average stockholders' equity     155,057         152,267         152,850         154,958         154,444  
                                       

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 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:

  Sep 30,
2019
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sep 30,
2018
  (Dollars in thousands, except per share data)
Total stockholders' equity (GAAP) $ 155,102     $ 153,828     $ 151,684     $ 153,738     $ 154,713  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible   1,005       1,042       1,079       1,116       1,153  
Tangible equity (Non-GAAP) $ 153,208     $ 151,897     $ 149,716     $ 151,733     $ 152,671  
                   
Total assets (GAAP)   1,308,359       1,297,561       1,287,862       1,252,424       1,234,859  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible   1,005       1,042       1,079       1,116       1,153  
Tangible assets (Non-GAAP) $ 1,306,465     $ 1,295,630     $ 1,285,894     $ 1,250,419     $ 1,232,817  
                   
Common shares outstanding at period end   10,296,053       10,375,325       10,457,625       10,710,656       10,914,556  
                   
Equity to assets ratio   11.85 %     11.86 %     11.78 %     12.28 %     12.53 %
Tangible equity ratio   11.73       11.72       11.64       12.13       12.38  
Book value per share $ 15.06     $ 14.83     $ 14.50     $ 14.35     $ 14.17  
Tangible book value per share   14.88       14.64       14.32       14.17       13.99  
                   

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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