Press Release

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

Company Release - 1/23/2020 9:15 AM ET

RENTON, Wash., Jan. 23, 2020 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended December 31, 2019, of $2.6 million, or $0.26 per diluted share, compared to net income of $2.5 million, or $0.25 per diluted share, for the quarter ended September 30, 2019, and $2.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2018. For the year ended December 31, 2019, net income was $10.4 million, or $1.03 per diluted share, compared to net income of $14.9 million, or $1.43 per diluted share, for the year ended December 31, 2018.

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

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

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

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

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

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

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

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

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

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of our TDRs were performing in accordance with their restructured terms at December 31, 2019.

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

In circumstances where a customer is experiencing significant financial difficulties, the Company may elect to restructure the loan so the customer can continue to make payments while minimizing the potential loss to the Company. Such restructures must be classified as TDRs. At December 31, 2019, TDRs totaled $5.2 million following $1.4 million in payoffs and payments in the quarter, compared to $6.6 million at September 30, 2019, and $9.4 million at December 31, 2018.

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 12 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

Forward-looking statements:

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

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

 

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

AssetsDec 31,
2019
  Sep 30,
2019
 Dec 31,
2018
 Three
Month
Change
 One
Year
Change
          
Cash on hand and in banks$ 10,094  $ 7,615  $   8,122  32.6% 24.3%
Interest-earning deposits 12,896   6,103   8,888  111.3  45.1 
Investments available-for-sale, at fair value 136,601   138,224   142,170  (1.2) (3.9)
Loans receivable, net of allowance of $13,218, $13,161, and $13,347, respectively 1,108,462   1,083,850   1,022,904  2.3  8.4 
Federal Home Loan Bank ("FHLB") stock, at cost 7,009   6,341   7,310  10.5  (4.1)
Accrued interest receivable 4,138   4,407   4,068  (6.1) 1.7 
Deferred tax assets, net 1,501   1,202   1,844  24.9  (18.6)
Other real estate owned ("OREO") 454   454   483  0.0  (6.0)
Premises and equipment, net 22,466   22,346   21,331  0.5  5.3 
Bank owned life insurance ("BOLI") 31,982   31,681   29,841  1.0  7.2 
Prepaid expenses and other assets 4,425   4,242   3,458  4.3  28.0 
Goodwill 889   889   889  0.0  0.0 
Core deposit intangible 968   1,005   1,116  (3.7) (13.3)
Total assets$1,341,885  $1,308,359  $1,252,424  2.6% 7.1%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$ 52,849  $ 49,398  $ 46,108  7.0% 14.6%
Interest-bearing deposits 980,685   967,430   892,924  1.4  9.8 
Total Deposits 1,033,534   1,016,828   939,032  1.6  10.1 
Advances from the FHLB 137,700   121,000   146,500  13.8  (6.0)
Advance payments from borrowers for taxes and insurance 2,921   5,043   2,933  (42.1) (0.4)
Accrued interest payable 285   382   478  (25.4) (40.4)
Other liabilities 11,126   10,004   9,743  11.2  14.2 
Total liabilities 1,185,566   1,153,257   1,098,686  2.8% 7.9%
          
Commitments and contingencies         
          
Stockholders' Equity         
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding$  -  $  -  $ -  n/a  n/a 
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding 10,252,953 shares at December 31, 2019, 10,296,053 shares at September 30, 2019, and 10,710,656 shares at December 31, 2018 103   103   107  0.0% (3.7)%
Additional paid-in capital 87,370   87,835   93,773  (0.5) (6.8)
Retained earnings, substantially restricted 73,321   71,592   66,343  2.4  10.5 
Accumulated other comprehensive loss, net of tax  (1,371)   (1,042)   (2,253) 31.6  (39.1)
Unearned Employee Stock Ownership Plan ("ESOP") shares  (3,104)   (3,386)   (4,232) (8.3) (26.7)
Total stockholders' equity 156,319   155,102   153,738  0.8  1.7 
Total liabilities and stockholders' equity$1,341,885  $1,308,359  $1,252,424  2.6% 7.1%
 

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

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

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

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

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

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

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

 

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

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

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

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

 At or For the Quarter Ended
 Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
  2019   2019   2019   2019   2018 
Yields and Costs:         
Yield on loans 5.05%  5.14%  5.19%  5.22%  5.13%
Yield on investments available-for-sale 2.85   3.02   3.21   3.35   3.17 
Yield on interest-earning deposits 1.61   2.24   2.33   2.50   2.27 
Yield on FHLB stock 4.84   6.81   5.58   4.68   6.63 
Yield on interest-earning assets 4.78%  4.84%  4.94%  4.98%  4.88%
          
Cost of interest-bearing deposits 1.94%  2.00%  1.89%  1.76%  1.61%
Cost of FHLB advances 1.66   2.02   2.28   2.26   2.12