First Financial Northwest, Inc. Reports Third Quarter Net Income of $1.9 Million or $0.18 per Diluted Share

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| Source: First Financial Northwest, Inc.

RENTON, Wash., Oct. 26, 2017 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ:FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended September 30, 2017, of $1.9 million, or $0.18 per diluted share, unchanged from the quarter ended June 30, 2017, and down from $2.6 million, or $0.22 per diluted share, for the quarter ended September 30, 2016. In the nine months ended September 30, 2017, net income was $6.1 million, or $0.58 per diluted share, compared to net income of $5.9 million, or $0.47 per diluted share, for the comparable nine‑month period in 2016.

Net loans receivable increased to $931.9 million at September 30, 2017, from $861.7 million at June 30, 2017, and $845.9 million at September 30, 2016. Average balances of net loans receivable totaled $879.1 million in the quarter ended September 30, 2017, compared to $844.9 million in the quarter ended June 30, 2017, and $804.0 million in the quarter ended September 30, 2016. The increase in our third quarter average balance of net loans receivable reflects that much of our loan growth occurred late in the current quarter, including the purchase of a $36.6 million pool of multifamily loans that closed during the final week of the quarter.

The Company recorded a $500,000 provision for loan losses in the quarter ended September 30, 2017, compared to a $100,000 provision for loan losses in the quarter ended June 30, 2017, and a $900,000 provision for loan losses in the quarter ended September 30, 2016. The provision for loan losses in the most recent quarter was primarily due to growth in net loans receivable, reduced by recoveries received on loans previously charged off. The provision in the quarter ended June 30, 2017, was due to the growth in net loan receivables, offset by payoffs and credit improvements in certain adversely graded loans, while the provision in the quarter ended September 30, 2016, was primarily due to growth in net loans receivable.

“In addition to the significant loan growth achieved during the quarter, we are pleased with the successful acquisition of four branch offices and approximately $75 million in deposits from Opus Bank,” stated Joseph W. Kiley III, President and Chief Executive Officer. “We are excited to welcome these new employees and customers as we expand our presence in the region,” continued Kiley. “Loan purchases supported an active quarter of internal loan production. Specifically, we purchased $52.4 million in loans during the quarter, including $46.4 million in multi-family loans secured by properties in Washington, Oregon, and California, $2.9 million in one‑to-four family residential loans secured by properties in California, and $3.2 million in aircraft loans, all of which met our underwriting criteria,” added Kiley. “It is important to note that a significant portion of our loan growth occurred late in the quarter, thus reducing the positive benefit to interest income normally resulting from significant loan growth during the quarter, while contributing to the $500,000 provision for loan losses which negatively impacted quarterly earnings,” concluded Kiley.

As previously reported, the Bank expanded its geographic footprint with the acquisition of four branches from Opus Bank (the “Branch Acquisition”). The Branch Acquisition closed on August 25, 2017. In connection with the Branch Acquisition, First Financial Northwest Bank acquired approximately $75 million in customer deposits. These four branches are located in Woodinville, Clearview, Lake Stevens, and Smokey Point, Washington. The deposits acquired at these locations consisted of approximately 31% checking accounts, 48% savings and money market accounts, and 21% in certificates of deposit, with an average cost of funds of 0.58%. The Bank did not acquire any loans as part of the Branch Acquisition. A new branch office located at The Junction in Bothell, Washington is scheduled to open in the first quarter of 2018.

The following tables present a breakdown of our total deposits and average cost of funds by branch office (unaudited):

 At or For the Three Months Ended September 30, 2017 
 Noninterest-
bearing
demand
 Interest-
bearing
demand
 Statement
savings
  Money
market
 Certificates
of deposit,
retail
 Certificates
of deposit,
brokered
 Total  Average
cost of
deposits
  (Dollars in thousands)
King County:               
Renton$  31,071 $  17,016 $  25,717 $ 202,896 $  311,728 $  - $  588,428 0.93%
The Landing   1,148    442     39    11,778     6,279    -    19,686 1.05 
Woodinville (1)   3,104    3,151    613    19,454    7,124     -    33,446 0.74 
Crossroads    163     147    1    8,890    630    -    9,831 0.93 
Total King County   35,486    20,756    26,370    243,018    325,761    -    651,391  
                
Snohomish County:               
Mill Creek   1,192    2,079    751    11,719    5,443    -    21,184 0.86 
Edmonds   1,441    1,226    31    16,581    6,556    -    25,835 1.02 
Clearview (1)   5,865    3,713    1,329    7,138    1,946    -    19,991 0.38 
Lake Stevens (1)   1,914    1,444    535    2,833    2,680    -    9,406 0.44 
Smokey Point (1)   1,754    2,372    409    4,171    3,739    -    12,445 0.53 
Total Snohomish County      12,166     10,834    3,055    42,442    20,364    -    88,861  
                
Total retail deposits   47,652    31,590    29,425    285,460    346,125    -    740,252 0.92 
Brokered deposits   -    -    -     -    -    75,488    75,488 1.67 
Total deposits$  47,652 $  31,590 $  29,425 $  285,460 $  346,125 $  75,488 $  815,740 1.00%

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $122,000.

 At or For the Three Months Ended June 30, 2017 
 Noninterest-
bearing
demand
 Interest-
bearing
demand
 Statement
savings
 Money
market
 Certificates
of deposit,
retail
 Certificates
of deposit,
brokered
 Total  Average
cost of
deposits
  (Dollars in thousands)
King County:               
Renton$  31,899 $  17,689 $  25,909 $  199,682 $  327,788 $  - $  602,967 0.88%
The Landing   426    319    26    9,163    5,898    -    15,832 1.12 
Crossroads   8    4    -    1,731    25    -    1,768 1.03 
Total King County   32,333    18,012     25,935    210,576    333,711    -    620,567  
                
Snohomish County:               
Mill Creek   1,557    1,694    699    10,319    5,413    -    19,682 0.90 
Edmonds   1,236    1,353    34    11,311    5,904    -    19,838 1.01 
Total Snohomish County      2,793    3,047    733    21,630    11,317    -    39,520  
                
Total retail deposits   35,126    21,059    26,668    232,206    345,028    -    660,087 0.90 
Brokered deposits   -    -    -    -    -    75,488    75,488 1.67 
Total deposits$  35,126 $  21,059 $ 26,668 $  232,206 $  345,028 $ 75,488 $  735,575 0.98%


Additional highlights for the quarter ended September 30, 2017:

  • During the quarter ended September 30, 2017, the Company repurchased 290,500 shares of its common stock at an average price of $15.99 per share under a stock repurchase plan authorized by the Board of Directors on May 22, 2017. From May 22, 2017, through October 25, 2017, the Company repurchased 313,200 shares under the plan at an average price of $15.99 per share. The stock repurchase plan authorizes the repurchase of up to 1.1 million shares of the Company’s common stock, or 10% of its outstanding shares and expires on or before November 30, 2017.
  • Our portfolio of aircraft loans increased to $11.3 million at September 30, 2017, compared to $6.2 million at June 30, 2017, and none at September 30, 2016.
  • The Company’s book value per share was $13.08 at September 30, 2017, compared to $13.00 at June 30, 2017, and $12.70 at September 30, 2016.
  • The Bank’s Tier 1 leverage and total capital ratios at September 30, 2017, were 10.8% and 14.2%, respectively, compared to 11.5% and 15.2% at June 30, 2017, and 11.4% and 14.4% at September 30, 2016.

Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”), there was a $500,000 provision for loan losses for the quarter ended September 30, 2017. The following items contributed to this provision during the quarter:

  • The Company’s net loans receivable increased $70.2 million during the quarter to $931.9 million at September 30, 2017, from $861.7 million at June 30, 2017, and $845.9 million at September 30, 2016.
  • During the quarter, the Bank received recoveries on loans previously charged off totaling $325,000, decreasing the provision necessary to support the Company’s net loan growth.
  • There were $84,000 in delinquent loans (loans over 30 days past due) at September 30, 2017, compared to $85,000 in delinquent loans at June 30, 2017, and $206,000 at September 30, 2016.
  • Nonperforming loans declined to $185,000 at September 30, 2017, compared to $583,000 at June 30, 2017, and $1.1 million at September 30, 2016.
  • Nonperforming loans as a percentage of total loans declined to 0.02% at September 30, 2017, compared to 0.07% at June 30, 2017, and 0.12% at September 30, 2016.

The ALLL represented 1.28% of total loans receivable, net of undisbursed funds, at September 30, 2017, compared to 1.29% at June 30, 2017, and 1.28% at September 30, 2016. Nonperforming assets totaled $2.0 million at September 30, 2017, compared to $2.4 million at June 30, 2017, and $3.4 million at September 30, 2016.

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

       Three  
 Sep 30, Jun 30, Sep 30, Month One Year
 2017 2017 2016 Change Change
 (Dollars in thousands)
Nonperforming loans:         
One-to-four family residential     $   132  $  528  $ 986  $ (396) $   (854)
Consumer   53     55     87     (2)    (34)
Total nonperforming loans    185     583      1,073      (398)     (888)
          
OREO   1,825     1,825     2,331      -     (506)
          
Total nonperforming assets (1)$  2,010  $ 2,408  $ 3,404  $ (398) $ (1,394)
          
Nonperforming assets as a         
percent of total assets 0.17%  0.22%  0.32%    

(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 all of our TDRs were performing in accordance with their restructured terms at September 30, 2017.

OREO totaled $1.8 million at both September 30, 2017, and June 30, 2017, compared to $2.3 million at September 30, 2016, with the declining balance attributable to sales of properties and market value adjustments of OREO. We continue to actively market our OREO properties in an effort to minimize holding costs.

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

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

 Sep 30,
2017
 Jun 30,
2017
 Sep 30,
2016
 Three
Month
Change
 One Year
Change
 (Dollars in thousands)
Nonperforming TDRs:         
One-to-four family residential   $  - $  106 $  182 $  (106) $   (182)
Total nonperforming TDRs   -    106    182    (106)     (182)
          
Performing TDRs:         
One-to-four family residential   15,174    19,152 $  27,268 $  (3,978) $   (12,094)
Multifamily   1,140    1,146    1,572    (6)     (432)
Commercial real estate   3,216    3,660    4,917    (444)     (1,701)
Consumer   43    43    43    (0)     (0)
Total performing TDRs   19,573    24,001    33,800    (4,427)     (14,227)
Total TDRs$  19,573 $  24,107 $  33,982 $  (4,533) $   (14,409)

Net interest income for the quarter ended September 30, 2017, increased to $9.4 million, compared to $9.0 million for the quarter ended June 30, 2017, and $8.9 million at September 30, 2016, due primarily to the growth in net loans receivable.

Total interest income increased to $12.0 million during the quarter ended September 30, 2017, compared to $11.3 million during the quarter ended June 30, 2017, and $10.8 million in the quarter ended September 30, 2016. The increase related primarily to growth in average balances in loans receivable, in particular multifamily loans with an additional increase in yield from the growth in construction and other commercial real estate loans.

Total interest expense was $2.6 million for the quarter ended September 30, 2017, compared to $2.3 million for the quarter ended June 30, 2017, and $1.9 million for the quarter ended September 30, 2016. The higher level of interest expense in the most recent two quarters compared to the quarter ended September 30, 2016, was due primarily to increased costs as a result of a higher interest rate environment and higher average balances of deposits and Federal Home Loan Bank (“FHLB”) advances that were utilized primarily to fund the growth in net loans receivable. Average balances outstanding for FHLB advances were $197.1 million for the quarter ended September 30, 2017, compared to $184.4 million for the quarter ended June 30, 2017, and $182.8 million for the quarter ended September 30, 2016. A portion of this borrowing growth included the addition of $50 million in short term FHLB advances, concurrent with an interest rate swap for the same amount entered into in October 2016. Under the terms of the interest rate swap, the Bank committed to pay a fixed rate of 1.34% for five years on a notional amount of $50 million, and in exchange, will receive a floating rate of return paid quarterly, based on three-month LIBOR for the five-year term of the agreement. At September 30, 2017, the value of this interest rate swap was $1.1 million. The Bank entered into this arrangement in its efforts to manage its interest rate risk, providing protection in a rising rate environment. The average cost of FHLB advances and other borrowings was 1.40% for the quarter ended September 30, 2017, compared to 1.24% for the quarter ended June 30, 2017, and 0.79% for the quarter ended September 30, 2016. Brokered certificates of deposit totaled $75.5 million at September 30, 2017, June 30, 2017, and September 30, 2016.

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

 Sep 30,
2017
 Jun 30,
2017
 Sep 30,
2016
 Three
Month
Change
 One Year
Change
Deposits:(Dollars in thousands) 
Noninterest-bearing$   47,652 $ 35,126 $   33,060 $ 12,526   $ 14,592 
Interest-bearing demand    31,590    21,059    15,864    10,531       15,726 
Statement savings    29,425    26,668    28,939    2,757       486 
Money market    285,460    232,206    188,298    53,254       97,162 
Certificates of deposit, retail (1)    346,125    345,028    350,522    1,097       (4,397)
Certificates of deposit, brokered    75,488  75,488  75,488  -  - 
Total deposits$   815,740 $   735,575 $ 692,171 $ 80,165   $   123,569 

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $122,000.

Our net interest margin was 3.53% for the quarter ended September 30, 2017, compared to 3.60% for the quarter ended June 30, 2017, and 3.64% for the quarter ended September 30, 2016. The change between quarters is primarily attributed to increased costs for interest bearing liabilities associated with the increases in short term interest rates over the last year.

Noninterest income totaled $731,000 for the quarters ended September 30, 2017, and June 30, 2017, compared to $673,000 for the quarter ended September 30, 2016. 

Noninterest expense totaled $6.8 million for the quarters ended September 30, 2017, and June 30, 2017, compared to $5.3 million in the quarter ended September 30, 2016. The increase in noninterest expense compared to the year ago period was due primarily to the growth of the Company’s operations, as well as increased occupancy and equipment expense related to converting our ATM processing system and continuing to upgrade our original branch location to better serve our customers’ needs. The Company also recognized the acquisition costs related to the Branch Acquisition, such as system conversion costs, consulting, legal fees, and marketing and advertising costs over the last year. Expenses related to the Branch Acquisition totaled $290,000 for the quarter ended September 30, 2017, compared to $319,000 in the quarter ended June 30, 2017 and none in the quarter ended September 30, 2016. As a result of the Branch Acquisition, the Bank recognized a core deposit intangible (“CDI”) of $1.3 million, which represents the fair value of the acquired deposits. The CDI will be amortized over ten years into noninterest expense, with amortization expense of $15,000 recognized for the period between the closing on August 25, 2017, and September 30, 2017.

 In addition, changes to the Company’s unfunded commitment reserve, which is included in other general and administrative expenses, also contributed to the variances in noninterest expense between periods. For the quarter ended September 30, 2017, these expenses totaled $11,000 compared to $98,000 in the quarter ended June 30, 2017, and a recapture of $373,000 during the quarter ended September 30, 2016. The increase in our construction lending activity was the primary reason for the increase to the unfunded commitment reserve in the quarters ended September 30, 2017, and June 30, 2017, compared to a year ago. This unfunded commitment reserve expense can vary significantly each quarter, based on the amount believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities, and reflects changes in the amounts that the Company has committed to fund but has not yet disbursed.

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, now serving the Puget Sound Region through nine full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 3000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

Forward-looking statements:

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

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2017 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)
AssetsSep 30,
2017
 Jun 30,
2017
 Sep 30,
2016
 Three
Month
Change
 One Year
Change
          
Cash on hand and in banks$ 7,910  $  7,418  $  5,803  6.6% 36.3%
Interest-earning deposits   14,093     10,996     26,708  28.2  (47.2)
Investments available-for-sale, at fair value    137,847     133,951     133,865  2.9  3.0 
Loans receivable, net of allowance of $12,110,
  $11,285, and $11,006, respectively
    931,862     861,672     845,930  8.1  10.2 
Premises and equipment, net   20,568     19,501     18,296  5.5  12.4 
Federal Home Loan Bank ("FHLB") stock, at cost    8,902     8,902     10,031  0.0  (11.3)
Accrued interest receivable    3,709     3,165      3,378  17.2  9.8 
Deferred tax assets, net   2,381     2,620     3,053  (9.1) (22.0)
Other real estate owned ("OREO")    1,825     1,825      2,331  0.0  (21.7)
Bank owned life insurance ("BOLI"), net    28,894     28,721     23,950  0.6  20.6 
Prepaid expenses and other assets   3,304     2,937     1,353  12.5  144.2 
Goodwill   979     -       -   n/a n/a 
Core deposit intangible   1,304     -      -   n/a n/a 
Total assets$  1,163,578  $  1,081,708  $1,074,698  7.6% 8.3%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$   47,652  $  35,126  $  33,060  35.7% 44.1%
Interest-bearing deposits   768,088      700,449     659,111  9.7  16.5 
Total deposits   815,740     735,575     692,171  10.9  17.9 
Advances from the FHLB   191,500     191,500      221,500  0.0  (13.5)
Advance payments from borrowers for taxes and
  insurance
   4,267     2,183      3,752  95.5  13.7 
Accrued interest payable   280     286     116  (2.1) 141.4 
Other liabilities   11,031     8,650     6,105  27.5  80.7 
Total liabilities   1,022,818     938,194     923,644  9.0% 10.7%
          
Commitments and contingencies         
          
Stockholders' Equity         
Preferred stock, $0.01 par value; authorized
10,000,000 shares; no shares issued or
         
outstanding$ -   $  -   $  -   n/a n/a
Common stock, $0.01 par value; authorized
  90,000,000 shares; issued and outstanding
         
10,763,915 shares at September 30, 2017,
11,041,865 shares at June 30, 2017, and
         
11,898,149 shares at September 30, 2016   108     110      119  (1.8)% (9.2)%
Additional paid-in capital    94,168     98,469     111,066  (4.4) (15.2)
Retained earnings, substantially restricted   52,984     51,844     46,569  2.2  13.8 
Accumulated other comprehensive (loss) income,
  net of tax
   (857)    (984)    71  (12.9) (1307.0)
Unearned Employee Stock Ownership Plan
  ("ESOP") shares
   (5,643)    (5,925)     (6,771) (4.8) (16.7)
Total stockholders' equity   140,760     143,514     151,054  (1.9) (6.8)
Total liabilities and stockholders' equity$  1,163,578  $  1,081,708  $1,074,698  7.6% 8.3%
   
   
 FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES 
 Consolidated Income Statements 
 (Dollars in thousands, except share data) 
 (Unaudited) 
  Sep 30,
2017
 Jun 30,
2017
 Sep 30,
2016
 Three
Month
Change
 One
Year
Change
 
 Interest income           
 Loans, including fees$  10,959  $  10,352  $  9,967  5.9% 10.0% 
 Investments available-for-sale    869     887      792  (2.0) 9.7  
 Interest-earning deposits with banks   108     42      38  157.1  184.2  
 Dividends on FHLB Stock   67     62     45  8.1  48.9  
 Total interest income    12,003     11,343     10,842  5.8  10.7  
 Interest expense           
 Deposits    1,933     1,776     1,545  8.8  25.1  
 FHLB advances and other borrowings   695     570     363  21.9  91.5  
 Total interest expense    2,628     2,346     1,908  12.0  37.7  
 Net interest income    9,375     8,997     8,934  4.2  4.9  
 Provision for loan losses   500     100     900  400.0  (44.4) 
 Net interest income after provision for loan losses   8,875     8,897     8,034  (0.2) 10.5  
            
 Noninterest income          
 Net gain on sale of investments    47     56     33  (16.1) 42.4  
 BOLI income   173     116     251  49.1  (31.1) 
 Wealth management revenue   252     307     165  (17.9) 52.7  
 Other    259     252     224  2.8  15.6  
 Total noninterest income   731     731      673  0.0  8.6  
            
 Noninterest expense           
 Salaries and employee benefits    4,406     4,409     3,821  (0.1) 15.3  
 Occupancy and equipment    726     579      467  25.4  55.5  
 Professional fees   458     482     458  (5.0) 0.0  
 Data processing   372      519     259  (28.3) 43.6  
 OREO related (reimbursements), net   (6)     (20)    (11) (70.0) (45.5) 
 Regulatory assessments   122      112     82  8.9  48.8  
 Insurance and bond premiums   105     98     86  7.1  22.1  
 Marketing   102      52      67  96.2  52.2  
 Other general and administrative    551     605     25  (8.9) 2,104.0  
 Total noninterest expense    6,836     6,836     5,254  0.0  30.1  
 Income before federal income tax  provision   2,770     2,792     3,453  (0.8) (19.8) 
 Federal income tax provision   909     924      847  (1.6) 7.3  
 Net income$  1,861  $  1,868  $ 2,606  (0.4)% (28.6)% 
            
 Basic earnings per share$  0.18  $  0.18  $  0.22      
 Diluted earnings per share$  0.18  $  0.18  $  0.22      
 Weighted average number of common shares
  outstanding
   10,287,663     10,363,345     11,859,683      
 Weighted average number of diluted shares
  outstanding
   10,427,038     10,500,829     12,011,952      


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
      
 Nine Months Ended  
 September 30,  
       One Year 
Change
 2017 2016 
Interest income      
Loans, including fees$  31,338 $  27,742 13.0%
Investments available-for-sale    2,601    2,224 17.0 
Interest-earning deposits with banks   194    198 (2.0)
Dividends on FHLB Stock   211    136 55.1 
Total interest income    34,344    30,300 13.3 
Interest expense      
Deposits    5,400    4,469 20.8 
FHLB advances and other borrowings   1,710    933 83.3 
Total interest expense    7,110    5,402 31.6 
Net interest income    27,234    24,898 9.4 
Provision for loan losses   800    1,400 (42.9)
Net interest income after provision for loan losses   26,434    23,498 12.5 
      
Noninterest income     
Net gain on sale of investments    103    33 212.1 
BOLI income   490    641 (23.6)
Wealth management revenue   699    656 6.6 
Other    705    531 32.8 
Total noninterest income   1,997    1,861 7.3 
      
Noninterest expense      
Salaries and employee benefits    13,100    11,436 14.6 
Occupancy and equipment    1,785    1,463 22.0 
Professional fees   1,379    1,487 (7.3)
Data processing   1,131    700 61.6 
OREO related expenses, net   14    299 (95.3)
Regulatory assessments   330    319 3.4 
Insurance and bond premiums   302    260 16.2 
Marketing   202    145 39.3 
Other general and administrative    1,497    990 51.2 
Total noninterest expense    19,740    17,099 15.4 
Income before federal income tax  provision   8,691    8,260 5.2 
Federal income tax provision   2,618    2,389 9.6 
Net income$  6,073 $  5,871 3.4%
      
Basic earnings per share$  0.59 $  0.47  
Diluted earnings per share$  0.58 $  0.47  
Weighted average number of common shares outstanding      10,323,459    12,329,815  
Weighted average number of diluted shares outstanding   10,480,061    12,481,379  


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

 September 30, 2017 June 30, 2017 September 30, 2016
 Amount Percent Amount Percent Amount Percent
 (Dollars in thousands)
Commercial real estate:           
Residential:           
Micro-unit apartments$  7,053  0.7% $  5,580  0.6% $   7,914  0.9%
Other multifamily   166,628  16.1     120,304  12.5     127,500  13.7 
   Total Multifamily   173,681  16.8     125,884  13.1     135,414  14.6 
            
Non-residential:           
Office   99,350  9.6     95,256  9.9     104,448  11.3 
Retail   101,787  9.8     99,482  10.3     128,561  13.8 
Mobile home park   21,344  2.1     21,851  2.3     23,120  2.5 
Warehouse   22,788  2.2     21,491  2.2     15,399  1.7 
Storage   32,365  3.1     35,121  3.6     34,988  3.8 
Other non-residential   42,782  4.1     44,017  4.6     22,688  2.4 
   Total non-residential   320,416  30.9     317,218  32.9     329,204  35.5 
            
Construction/land development:           
One-to-four family residential   85,593  8.3     76,404  7.9     64,444  6.9 
Multifamily   115,345  11.1     123,497  12.8     98,796  10.6 
Commercial   5,325  0.5     1,100  0.1     -  0.0 
Land   38,423  3.7     39,012  4.1     31,709  3.4 
   Total construction/land development   244,686  23.6     240,013  24.9     194,949  20.9 
            
One-to-four family residential:           
Permanent owner occupied   139,736  13.5     137,816  14.3     148,304  16.0 
Permanent non-owner occupied   126,711  12.2     118,816  12.3     105,277  11.3 
   Total one-to-four family residential   266,447  25.7     256,632  26.6     253,581  27.3 
            
Business:           
Aircraft   11,317  1.1     6,235  0.7     -  0.0 
Other business   10,926  1.0     8,971  0.9     8,023  0.9 
   Total business   22,243  2.1     15,206  1.6     8,023  0.9 
            
Consumer   9,301  0.9     9,031  0.9     6,526  0.7 
Total loans   1,036,774  100.0%    963,984  100.0%    927,697  100.0%
Less:           
Loans in Process ("LIP")   91,316       88,475       68,492   
Deferred loan fees, net   1,486       2,552       2,269   
ALLL   12,110       11,285       11,006   
Loans receivable, net$  931,862    $  861,672    $  845,930   
            
Concentrations of credit: (1)           
Construction loans as % of total capital 114.4%    115.3%    97.1%  
Total non-owner occupied commercial real
   estate as % of total capital
 478.9%    443.0%    446.9%  

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


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
 
 At or For the Quarter Ended
 Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
 2017 2017 2017 2016 2016
 (Dollars in thousands, except per share data)
Performance Ratios:         
Return on assets 0.66%  0.70%  0.91%  1.12%  1.00%
Return on equity 5.13   5.22   6.76   8.58   6.39 
Dividend payout ratio 38.89   38.89   26.09   20.62   27.38 
Equity-to-assets ratio 12.10   13.27   13.37   13.31   14.06 
Interest rate spread 3.38   3.47   3.51   3.53   3.51 
Net interest margin 3.53   3.60   3.64   3.65   3.64 
Average interest-earning assets to average
   interest-bearing liabilities
 114.08   114.29   114.74   113.75   117.43 
Efficiency ratio 67.64   70.27   64.57   57.96   54.69 
Noninterest expense as a percent of average
   total assets
 2.42   2.57   2.35   2.17   2.01 
Book value per common share$  13.08  $  13.00  $  12.84  $  12.63  $  12.70 
          
Capital Ratios: (1)         
Tier 1 leverage ratio 10.80%  11.46%  11.57%  11.17%  11.37%
Common equity tier 1 capital ratio 12.94
   13.95   14.39   14.36   13.13 
Tier 1 capital ratio 12.94
   13.95   14.39   14.36   13.13 
Total capital ratio 14.19   15.20   15.64   15.61   14.38 
          
Asset Quality Ratios: (2)         
Nonperforming loans as a percent of total loans    0.02%  0.07%  0.07%  0.10%  0.12%
Nonperforming assets as a percent of total
   assets
 0.17   0.22   0.27   0.31   0.32 
ALLL as a percent of total loans 1.28   1.29   1.31   1.32   1.28 
ALLL as a percent of nonperforming loans 6,545.95   1,935.68   1,853.49   1,276.34   1,025.72 
Net charge-offs (recoveries) to average loans
   receivable, net
 (0.04)  0.00   0.00   (0.01)  0.00 
          
Allowance for Loan Losses:         
ALLL, beginning of the quarter$  11,285  $  11,158  $  10,951  $  11,006  $  10,134 
Provision (Recapture of provision)   500     100     200     (100)    900 
Charge-offs   -      -      -      (37)    (28)
Recoveries   325     27     7     82     -  
ALLL, end of the quarter$  12,110  $  11,285  $  11,158  $  10,951  $  11,006 

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


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
  
 At or For the Quarter Ended
 Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
 2017 2017 2017 2016 2016
 (Dollars in thousands, except per share data)
Yields and Costs:         
Yield on loans 4.95%  4.91%  4.93%  4.92%  4.92%
Yield on investments available-for-sale    2.59   2.69   2.66   2.49   2.36 
Yield on interest-earning deposits 1.27   1.00   0.74   0.59   0.53 
Yield on FHLB stock 2.91   2.89   4.14   2.57   2.10 
Yield on interest-earning assets 4.51   4.54   4.52   4.47   4.42 
          
Cost of deposits 1.05   1.03   1.00   0.97   0.95 
Cost of borrowings 1.40   1.24   1.05   0.83   0.79 
Cost of interest-bearing liabilities 1.13   1.07   1.01   0.94   0.91 
          
Average Balances:         
Loans receivable, net$  879,075  $  844,853  $  825,251  $  845,276  $  804,014 
Investments available-for-sale   132,959     132,375     128,993     132,077     133,258 
Interest-earning deposits with banks   33,854     16,831     24,233      25,082     28,275 
FHLB stock   9,126     8,616     8,034      10,205     8,483 
Total interest-earning assets$1,055,014  $1,002,675  $  986,511  $1,012,640  $  974,030 
          
Deposits$  727,702  $  692,922  $  688,298  $  664,416  $  646,658 
Borrowings   197,098     184,357     171,500     225,848     182,804 
Total interest-bearing liabilities$  924,800  $  877,279  $  859,798  $  890,264  $   829,462 
          
Average assets$1,120,176  $1,066,477  $1,046,473  $1,071,597  $1,034,811 
Average stockholders' equity$  143,975  $  143,643  $  140,546  $  139,658  $  161,690 

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