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Section 1: 8-K (FORM 8-K)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  October 24, 2019

                First Financial Northwest, Inc.                
(Exact name of registrant as specified in its charter)

Washington
 
001-33652
 
26-0610707
State or other jurisdiction of
incorporation
 
Commission
File Number
 
(I.R.S. Employer
Identification No.)
         
201 Wells Avenue South, Renton, Washington
 
98057
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number (including area code) (425) 255-4400

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.

[  ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))

[  ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4 (c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on
which registered
Common Stock, par value $0.01 per share
 
FFNW
 
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]


Item 2.02 Results of Operations and Financial Condition

On October 24, 2019, First Financial Northwest, Inc. (the “Company”) issued its earnings release for the quarter ended September 30, 2019. A copy of the earnings release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.


Item 9.01. Financial Statements and Exhibits

(d)           Exhibits

The following exhibit is being furnished herewith and this list shall constitute the exhibit index:

99.1 First Financial Northwest, Inc.’s earnings release dated October 24, 2019










2

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 
FIRST FINANCIAL NORTHWEST, INC.
 
 


DATE: October  24, 2019 By:  /s/ Richard P. Jacobson                        
 
        Richard P. Jacobson
 
        Executive Vice President and  
        Chief Financial Officer


       









3



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit 99.1






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




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

Renton, Washington – October 24, 2019 - 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,
   
Jun 30,
   
Sep 30,
   
Three
Month
   
One
Year
 
   
2019
   
2019
   
2018
   
Change
   
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.

2


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.


3


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.

4

   
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.

5

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.





6

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
%

7

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
                 

8

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
         

9

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.

10


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.

11

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
 



12

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