First Financial Northwest, Inc. Reports First Quarter Net Income of $1.7 Million or $0.17 per Diluted Share


RENTON, Wash., April 28, 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 March 31, 2020, of $1.7 million, or $0.17 per diluted share, compared to net income of $2.6 million, or $0.26 per diluted share, for the quarter ended December 31, 2019, and $1.9 million, or $0.19 per diluted share, for the quarter ended March 31, 2019.

“In response to the current situation surrounding the global COVID-19 pandemic, we are providing assistance to our customers in a variety of ways, including participating in the Paycheck Protection Program offered under the Coronavirus Aid, Relief, and Economic Security Act as a Small Business Administration lender, working with our customers to modify loans in these difficult economic times and taking the steps necessary to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis,” stated Joseph W. Kiley III, President and Chief Executive Officer. “We expect to do our part to support further measures that may be undertaken by our government and our regulators to address this crisis and to assist in the anticipated economic recovery.  Since mid-March 2020, the vast majority of our employees have been working remotely. We have been able to keep every office open and I am incredibly grateful to the employees who continue to staff each office to provide needed assistance to their customers and communities. I am very proud of the way our employees have adapted to this uniquely difficult operating environment while complying with the health and safety recommendations from various state and federal government entities,” continued Kiley. “As a result of the COVID-19 pandemic and concern about economic conditions, we increased our allowance for loan loss risk factors for all loan categories, which resulted in a provision for loan losses of $300,000 for the first quarter. Without the adjustment for economic factors, conversely, we would have recorded a recapture of provision for loan losses of approximately $500,000,” concluded Kiley.

Highlights for the quarter ended March 31, 2020:

  • Net loans receivable decreased slightly to $1.09 billion at March 31, 2020, compared to $1.11 billion at December 31, 2019, and increased from $1.05 billion at March 31, 2019.
  • Deposits totaled $1.00 billion at March 31, 2020, compared to $1.03 billion at December 31, 2019, and $955.3 million at March 31, 2019.
  • The Company continued to reduce its brokered deposits outstanding. Brokered deposits totaled $25.5 million at March 31, 2020, compared to $94.5 million at December 31, 2019 and $123.4 million at March 31, 2019.
  • The Bank opened its first office in Pierce County at University Place, Washington, bringing the total number of offices in the Puget Sound region to thirteen, and announced plans for further expansion into Pierce County in Gig Harbor, Washington.
  • The Company increased the regular quarterly cash dividend paid to shareholders by 11.0% to $0.10 per share in the first quarter, from $0.09 per share previously.
  • The Company repurchased 79,395 shares during the quarter at an average price of $14.06 per share and has authorization to repurchase an additional 433,605 shares pursuant to its stock repurchase plan that expires on July 27, 2020. The Company considers several factors including share price and capital levels in determining the size and pace of its share repurchase activities and at this time intends to continue repurchasing its common stock in accordance with Rule 10b-18 of the Securities Exchange Act of 1934.
  • The Company’s book value per share was $15.03 at March 31, 2020, compared to $15.25 at December 31, 2019, and $14.50 at March 31, 2019.
  • The Bank’s Tier 1 leverage and total capital ratios at March 31, 2020, were 10.3% and 14.7%, respectively, compared to 10.3% and 14.4%, respectively at both December 31, 2019, and March 31, 2019.
  • Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”) and taking into account the estimated impact of the COVID-19 pandemic, there was a $300,000 provision for loan losses during the quarter ended March 31, 2020.

While total deposits declined during the quarter ended March 31, 2020, primarily due to a managed reduction in higher cost brokered deposits, the reduction was largely replaced by increased retail deposits and additional advances from the Federal Home Loan Bank (“FHLB”). Total deposits at March 31, 2020, declined $33.6 million to $1.00 billion due to the $69.0 million decline in brokered deposits. Excluding the reduction in brokered deposits, total deposits increased $35.5 million during the quarter. The continued success of our deposit gathering efforts throughout our branch network was the primary reason for the ability to reduce the levels of brokered deposits from prior period levels.

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

 Mar 31,
2020
 Dec 31,
2019
 Mar 31,
2019
 Three
Month
Change
 One Year Change
Deposits:(Dollars in thousands) 
Noninterest-bearing$  53,519 $  52,849 $  46,026 $  670  $  7,493 
Interest-bearing demand   68,803    65,897    51,096    2,906     17,707 
Statement savings   17,040    17,447    23,770    (407)    (6,730)
Money market   397,489    377,766    312,057    19,723     85,432 
Certificates of deposit, retail (1)   437,676    425,103    398,956    12,573     38,720 
Certificates of deposit, brokered   25,457    94,472    123,367    (69,015)    (97,910)
Total deposits$  999,984 $  1,033,534 $   955,272 $  (33,550) $  44,712 

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $22,000 at March 31, 2020, $28,000 at December 31, 2019, and $49,000 at March 31, 2019.

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

 March 31, 2020
 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$  28,624$  22,619$  13,811$  230,235$  355,710$  -$  650,999
Landing 4,476 2,173 36 13,286 9,821   - 29,792
Woodinville (1) 1,705 5,623 733 15,790 6,908   - 30,759
Bothell 556 886 20 6,221 3,297   - 10,980
Crossroads 4,894 10,197 5 47,714 11,689   - 74,499
Kent (2) 472 2,961   -  10,736 1,061   - 15,230
Kirkland (3) 253 11   -    -    -    - 264
Total King County 40,980 44,470 14,605 323,982 388,486   - 812,523
        
Snohomish County       
Mill Creek 2,292 3,610 467 18,619 10,552   - 35,540
Edmonds 3,352 10,952 210 22,591 18,920   - 56,025
Clearview (1) 3,627 4,596 753 13,288 4,775   - 27,039
Lake Stevens (1) 2,024 2,446 468 7,142 4,240   - 16,320
Smokey Point (1) 1,244 2,715 537 11,656 10,703   - 26,855
Total Snohomish County 12,539 24,319 2,435 73,296 49,190   - 161,779
        
Pierce County       
University Place (4)   -  14   -  211   -    - 225
Total Pierce County   -  14   -  211   -    - 225
        
Total retail deposits 53,519 68,803 17,040 397,489 437,676   - 974,527
Brokered deposits   -    -    -    -    -    25,457 25,457
Total deposits$  53,519$  68,803$  17,040$  397,489$  437,676$  25,457$  999,984

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $22,000.
(2) Kent office opened January 31, 2019.
(3) Kirkland office opened November 12, 2019.
(4) University Place office opened March 2, 2020.

 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.

Net loans receivable decreased slightly to $1.09 billion at March 31, 2020, compared to $1.11 billion at December 31, 2019, and increased slightly from $1.05 billion at March 31, 2019. The average balance of net loans receivable totaled $1.10 billion for the quarter ended March 31, 2020, compared to $1.09 billion for the quarter ended December 31, 2019, and $1.03 billion for the quarter ended March 31, 2019.

The Company recorded a $300,000 provision for loan losses in the quarter ended March 31, 2020, compared to no provision for loan losses in the quarter ended December 31, 2019, and a provision for loan losses of $400,000 in the quarter ended March 31, 2019. The provision in the quarter ended March 31, 2020, was due primarily to COVID-19 related adjustments to the economic factors considered in evaluating the ALLL against the probable losses inherent in the loan portfolio. There was no provision for loan losses recorded in the quarter ended December 31, 2019, despite loan growth in the quarter, primarily due to credit upgrades for certain loan relationships and continued strength in the loan portfolio quality metrics. The provision for loan losses in the quarter ended March 31, 2019, was due primarily to growth in net loan receivables.

The ALLL represented 1.22% of total loans receivable at March 31, 2020, compared to 1.18% at December 31, 2019, and 1.30% at March 31, 2019. There was $2.2 million in delinquent loans (loans over 30 days past due) at both March 31, 2020 and December 31, 2019, primarily comprised of one $2.1 million multifamily loan, compared to $317,000 at March 31, 2019. Nonperforming loans totaled $2.2 million at March 31, 2020, compared to $95,000 at December 31, 2019, and $151,000 at March 31, 2019. The increase is due to the $2.1 million multifamily loan that is currently in foreclosure. We completed an impairment analysis of this credit during the quarter and do not anticipate incurring a loss at this time.

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

 Mar 31, Dec 31, Mar 31, Three
Month
 One
Year
 2020 2019 2019 Change Change
 (Dollars in thousands)
Nonperforming loans:         
One-to-four family residential$  91  $  95   $  107  $  (4) $  (16)
Multifamily 2,104     ─     2,104     2,104 
Consumer     44     (44)
Total nonperforming loans 2,195   95   151     2,100     2,044 
          
Other real estate owned (“OREO”) 454   454   454     
          
Total nonperforming assets (1)$  2,649  $  549  $  605  $  2,100  $  2,044 
          
Nonperforming assets as a         
percent of total assets 0.20%  0.04%  0.05%    

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of our TDRs were performing in accordance with their restructured terms at March 31, 2020.

OREO remained unchanged at $454,000 at March 31, 2020, December 31, 2019 and March 31, 2019.

The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At March 31, 2020, TDRs totaled $5.0 million, compared to $5.2 million at December 31, 2019, and $7.8 million at March 31, 2019.

Net interest income for both the quarters ended March 31, 2020, and December 31, 2019, was $9.7 million, compared to $9.9 million for the quarter ended March 31, 2019.

Interest income totaled $14.5 million for the quarter ended March 31, 2020, compared to $15.0 million in the quarter ended December 31, 2019, and $14.6 million in the quarter ended March 31, 2019. The decline in the current quarter compared to the quarter ended December 31, 2019, was primarily due to the rapid decline in interest rates as the Federal Reserve’s Open Market Committee dramatically reduced its short-term interest rate targets by 150 basis points in March 2020 in response to the COVID-19 pandemic.

Total interest expense was $4.8 million for the quarter ended March 31, 2020, compared to $5.3 million for the quarter ended December 31, 2019, and $4.7 million for the quarter ended March 31, 2019. In the quarter ended December 31, 2019, the higher cost of interest-bearing liabilities contributed to increased interest expense compared to the quarter ended March 31, 2019. The decline from the quarter ended December 31, 2019, was due primarily to a reduced level of brokered deposits and a declining interest rate environment. Specifically, we replaced higher cost brokered deposits with retail deposits through our branch network and FHLB advances obtained in conjunction with interest rate swaps to secure lower long-term interest rates. We reduced the balance of brokered deposits to $25.5 million at March 31, 2020, from $94.5 million at December 31, 2019, and $123.4 million at March 31, 2019. Advances from the FHLB totaled $160.0 million at March 31, 2020, compared to $137.7 million at December 31, 2019, and $163.5 million at March 31, 2019. The average cost of other borrowings was 1.48% for the quarter ended March 31, 2020, compared to 1.66% for the quarter ended December 31, 2019, and 2.26% for the quarter ended March 31, 2019. For the third consecutive quarter, the Bank replaced a portion of its brokered deposit portfolio with lower rate alternatives, including FHLB advances and retail deposits. At March 31, 2020, $120.0 million of our borrowings were short-term FHLB advances tied to long-term interest rate swaps. During the quarter ended March 31, 2020, we entered into interest rate swap transactions totaling $45.0 million, at rates between 0.91% to 0.98% for terms from six to eight years. In addition, we entered into $25.0 million in forward starting interest rate swaps beginning October 25, 2021, to partially replace a $50.0 million swap maturing on that date. These forward starting interest rate swaps carry rates of 0.79% for seven years and 0.80% for eight years.

The changes in fair market value of our interest rate swaps are reflected in the stockholders’ equity portion of the balance sheet as accumulated other comprehensive loss, net of tax. The $3.2 million increase in accumulated other comprehensive loss, net of tax during the first quarter is due primarily to the historic low interest rate environment in effect at March 31, 2020, compared to the prior periods, and to the rates in effect at the times we executed each interest rate swap agreement. Total stockholders’ equity declined to $153.1 million at March 31, 2020, from $156.3 million at December 31, 2019, and book value per common share declined to $15.03 at March 31, 2020, from $15.25 at December 31, 2019, primarily due to this decline in fair market value of our interest rate swaps.

The net interest margin was 3.11% for the quarter ended March 31, 2020, compared to 3.09% for the quarter ended December 31, 2019, and 3.37% for the quarter ended March 31, 2019. The modest improvement in the quarter ended March 31, 2020, from the quarter ended December 31, 2019, relates primarily to the reduction in rates paid on brokered deposits, FHLB advances, and the interest rate swap activity discussed above. The resulting improvement in the Company’s cost of funds modestly outpaced the reduction in yield on interest-earning assets. The decline in net interest margin for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, was due primarily to a significant decline in interest-earning asset yields, partially offset by a decline in cost of interest-bearing liabilities.

Noninterest income for the quarter ended March 31, 2020, totaled $990,000, compared to $1.5 million in the quarter ended December 31, 2019, and $700,000 in the quarter ended March 31, 2019. The decrease in noninterest income for the quarter ended March 31, 2020, compared to the quarter ended December 31, 2019, was primarily due to a significantly higher level of loan related fees and prepayment penalties in the quarter ended December 31, 2019. The increase in noninterest income for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019, was primarily due to a low level of loan related fees in the quarter ended March 31, 2019.

Noninterest expense totaled $8.3 million for the quarter ended March 31, 2020, compared to $8.0 million for the quarter ended December 31, 2019, and $7.7 million in the quarter ended March 31, 2019. Salaries and employee benefits for the quarter ended March 31, 2020, increased slightly from the quarter ended December 31, 2019, primarily due to annual salary increases that went into effect on January 1, 2020. Regulatory assessments increased to normal levels as the Bank utilized all of its remaining regulatory assessment credits last quarter, substantially offsetting the impact of lower other general and administrative expenses in the quarter. Noninterest expense increased from the same quarter last year 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, and the receipt during the quarter ended March 31, 2019, of a $125,000 insurance claim relating to a previously reported $225,000 fraud loss.

COVID-19 Related Information

As noted above, in response to the current global situation surrounding the COVID-19 pandemic, we are providing assistance to our customers in a variety of ways and participating in the Paycheck Protection Program offered under the CARES Act as a Small Business Administration (“SBA”) lender, and taking the steps necessary while working with our loan customers to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis. The following is presented to outline certain activities in this regard:

Modifications
As of April 24, 2020, we had received requests for some type of payment relief on loans totaling $166.8 million, representing 15.1% of total loans as of March 31, 2020, of which $71.3 million had been approved and processed as of April 24, 2020. We will continue to review and process outstanding requests over the coming weeks. The primary method of relief is to allow the borrower to defer their loan payments for three to six months, while others have been provided the opportunity to pay interest only depending upon their specific circumstances. The CARES Act and regulatory guidelines suspend the determination of certain loan modifications related to the COVID‑19 pandemic from being treated as troubled debt restructurings (“TDRs”). The following table provides detail on the modifications approved and processed through April 24, 2020:

 April 24, 2020
 Balance of loans with modifications of 1-3 months Balance of loans with modifications of greater than 3 months Total balance of loans with modifications granted Total loans
as of
Mar 31, 2020
 Modifications as % of total loans as of Mar 31, 2020
One-to-four family residential$  16,693 $   6,395 $   23,087 $  371,253 6.2%
Multifamily   1,726    2,877     4,603    169,468 2.7 
          
Commercial:         
Office    1,778    -    1,778     95,911 1.9 
Retail    14,405     4,128    18,533    122,460 15.1 
Mobile home park   -    -     -    25,370 - 
Hotel/motel   996     5,566     6,562    52,515 12.5 
Nursing home   -    6,368    6,368    11,783 54.0 
Warehouse   -     5,635     5,635    17,489 32.2 
Storage   -    -    -    34,551 - 
Other non-residential    828    -    828    25,831 3.2 
Total commercial    18,007     21,697     39,704    385,910 10.3 
          
Construction/land   -    -    -     107,401 - 
          
Business:         
Aircraft   1,074    -    1,074    13,741 7.8 
SBA   -    -    -    753 - 
Other business    165     657    822    20,208 4.1 
Total business   1,239    657    1,896    34,702 5.5 
          
Consumer:         
Classic/collectible auto    1,202    -    1,202    22,029 5.5 
Other consumer   760    -    760    15,196 5.0 
Total consumer    1,962    -     1,962    37,225 5.3 
          
Total loans with pandemic modifications$  39,627 $  31,626 $  71,252 $  1,105,959 6.4%

Paycheck Protection Program (“PPP” or “Program”)
As of April 17, 2020, we had received approximately 388 requests for PPP loans totaling approximately $62.2 million. We were successful in obtaining SBA Loan Authorizations on 180 of these loans totaling approximately $24.2 million before the SBA exhausted the funds allocated for the Program. According to data received from customers in this process, these funds will allow these small businesses to retain more than 2,200 employees. We are very proud of the countless hours our employees spent processing these applications and we are continuing to work diligently to process the remaining applications.

Additional Portfolio Details
Total balances drawn on outstanding lines of credit were $47.1 million as of December 31, 2019, on total lines of credit available of $86.3 million. As of March 31, 2020, total balances drawn increased slightly to $48.4 million on total lines of credit available of $79.6 million. At April 18, 2020, total balances drawn were $48.9 million on total lines of credit available of $79.8 million.

The following table presents the loan to value ratios of select segments of our loan portfolio that we consider to be more likely to be impacted by COVID-19 pandemic considerations at March 31, 2020. The loan to value ratio (“LTV”) is the ratio derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:

 March 31, 2020
 LTV 0-60 LTV 61-75 LTV 76+ Total Average LTV
Category: (1)(Dollars in thousands)
One-to-four family$ 234,572 $ 144,202 $ 33,502 $ 412,276 48.85%
Church 1,398  -  -  1,398 48.06 
Classic auto 2,864  7,210  11,955  22,029 70.01 
Gas station 3,572  -  521  4,093 52.76 
Hotel / motel 58,772  -  9,392  68,164 55.08 
Marina 7,821  -  -  7,821 38.13 
Mobile home park 19,905  5,465  -  25,370 31.54 
Nursing home 12,883  -  -  12,883 20.90 
Office 62,327  30,072  2,937  95,336 50.89 
Other non-residential 6,496  4,777  -  11,273 50.91 
Retail 75,839  40,870  -  116,709 50.76 
Storage 25,997  11,296  -  37,293 55.97 
Warehouse 15,418  1,941  -  17,359 50.83 

(1) Represents select segments of loans that may include construction loans; classifications may differ from those used elsewhere in this report.

Delinquencies
As of April 24, 2020, there were 9 loans totaling $3.2 million that had not requested a deferral and were 10 or more days past due, including the $2.1 million multifamily loan currently in foreclosure disclosed earlier in this release.

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 13 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: the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions; increased competitive pressures; changes in the interest rate environment; 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.

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

Assets Mar 31, 2020  Dec 31, 2019  Mar 31, 2019 Three
Month Change
 One Year Change
          
Cash on hand and in banks$  6,453  $  10,094  $   9,366  (36.1)% (31.1)%
Interest-earning deposits with banks   22,063     12,896      14,596  71.1  51.2 
Investments available-for-sale, at fair value   132,159     136,601     138,658  (3.3) (4.7)
Investments held-to-maturity   2,371     -     -  n/a  n/a 
Loans receivable, net of allowance of $13,530, $13,218, and $13,808, respectively   1,092,128    1,108,462     1,051,711  (1.5) 3.8 
Federal Home Loan Bank ("FHLB") stock, at cost   8,010     7,009     8,041  14.3  (0.4)
Accrued interest receivable   4,302     4,138     4,861  4.0  (11.5)
Deferred tax assets, net   2,227     1,501     1,728  48.4  28.9 
Other real estate owned ("OREO")   454     454     454  0.0  0.0 
Premises and equipment, net   22,591     22,466     21,370  0.6  5.7 
Bank owned life insurance ("BOLI")   32,290     31,982     30,162  1.0  7.1 
Prepaid expenses and other assets   1,898     2,216     3,217  (14.4) (41.0)
Right of use asset ("ROU")   2,446     2,209     1,730  10.7  41.4 
Goodwill   889     889     889  0.0  0.0 
Core deposit intangible   932     968     1,079  (3.7) (13.6)
Total assets$ 1,331,213  $1,341,885  $ 1,287,862  (0.8)% 3.4%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$  53,519  $  52,849  $  46,026  1.3% 16.3%
Interest-bearing deposits   946,465     980,685     909,246  (3.5) 4.1 
Total Deposits   999,984    1,033,534     955,272  (3.2) 4.7 
Advances from the FHLB   160,000     137,700     163,500  16.2  (2.1)
Advance payments from borrowers for taxes and insurance   4,960     2,921     5,374  69.8  (7.7)
Lease liability   2,538     2,279     1,745  11.4  45.4 
Accrued interest payable   236     285     478  (17.2) (50.6)
Other liabilities   10,403     8,847      9,809  17.6  6.1 
Total liabilities   1,178,121    1,185,566     1,136,178  (0.6)% 3.7%
          
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, $0.01 par value; authorized 90,000,000 shares; issued and outstanding 10,184,411 shares at March 31, 2020, 10,252,953 shares at December 31, 2019, and 10,457,625 at March 31, 2019   102     103     104  (1.0)% (1.9)%
Additional paid-in capital   86,357     87,370     89,800  (1.2) (3.8)
Retained earnings, substantially restricted   74,017     73,321     67,568  0.9  9.5 
Accumulated other comprehensive loss, net of tax   (4,563)    (1,371)    (1,838) 232.8  148.3 
Unearned Employee Stock Ownership Plan ("ESOP") shares   (2,821)    (3,104)    (3,950) (9.1) (28.6)
Total stockholders' equity   153,092     156,319     151,684  (2.1) 0.9 
Total liabilities and stockholders' equity$ 1,331,213  $ 1,341,885  $ 1,287,862  (0.8)% 3.4%


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

 Quarter Ended    
 Mar 31, 2020 Dec 31, 2019 Mar 31, 2019 Three Month Change  One Year Change
Interest income          
Loans, including fees$  13,474 $  13,852 $  13,281  (2.7)% 1.5%
Investments available-for-sale    919    995    1,159  (7.6) (20.7)
Interest-earning deposits with banks   31    47    40  (34.0) (22.5)
Dividends on FHLB Stock   76    72    91  5.6  (16.5)
Total interest income    14,500    14,966    14,571  (3.1) (0.5)
Interest expense          
Deposits    4,366    4,807    3,822  (9.2) 14.2 
Other borrowings   470    461    897  2.0  (47.6)
Total interest expense    4,836    5,268    4,719  (8.2) 2.5 
Net interest income    9,664    9,698    9,852  (0.4) (1.9)
Provision for loan losses   300    -    400  n/a  (25.0)
Net interest income after provision for loan losses   9,364    9,698    9,452  (3.4) (0.9)
          
Noninterest income         
Net gain (loss) on sale of investments    -    71    (8) (100.0) (100.0)
BOLI   254    301    269  (15.6) (5.6)
Wealth management revenue   165    177    196  (6.8) (15.8)
Deposit related fees   176    178    171  (1.1) 2.9 
Loan related fees   392    782    63  (49.9) 522.2 
Other    3    14    9  (78.6) (66.7)
Total noninterest income   990    1,523    700  (35.0) 41.4 
          
Noninterest expense          
Salaries and employee benefits    5,212    5,048    5,000  3.2  4.2 
Occupancy and equipment    1,071    1,024    866  4.6  23.7 
Professional fees   430    428    496  0.5  (13.3)
Data processing   694    638    518  8.8  34.0 
OREO related expenses, net   1    1    31  0.0  (96.8)
Regulatory assessments   144    21    137  585.7  5.1 
Insurance and bond premiums   120    87    105  37.9  14.3 
Marketing   64    59    86  8.5  (25.6)
Other general and administrative    532    665    470  (20.0) 13.2 
Total noninterest expense    8,268    7,971    7,709  3.7  7.3 
Income before federal income tax provision   2,086    3,250    2,443  (35.8) (14.6)
Federal income tax provision   402    635    498  (36.7) (19.3)
Net income$  1,684 $  2,615 $  1,945  (35.6)% (13.4)%
          
Basic earnings per share$  0.17 $  0.26 $  0.19     
Diluted earnings per share$  0.17 $  0.26 $  0.19     
Weighted average number of common shares outstanding   9,896,234    9,934,768  10,118,286     
Weighted average number of diluted shares outstanding   9,978,060  10,032,979  10,220,900     

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

 March 31, 2020December 31, 2019 March 31, 2019 
 Amount Percent Amount Percent Amount Percent
 (Dollars in thousands)
Commercial real estate:           
Residential:           
Micro-unit apartments$  11,230  1.0% $  13,809  1.2% $  14,008  1.3%
Other multifamily 158,238  14.3   159,106  14.2     153,835  14.4 
Total multifamily 169,468  15.3   172,915  15.4     167,843  15.7 
            
Non-residential:           
Office 95,911  8.7   100,744  9.0     99,639  9.3 
Retail 122,460  11.1   133,094  11.8     146,864  13.8 
Mobile home park 25,370  2.3   26,099  2.3     15,697  1.5 
Hotel/motel 52,515  4.7   42,971  3.8     27,882  2.6 
Nursing home 11,783  1.1   11,831  1.1     16,243  1.5 
Warehouse 17,489  1.6   17,595  1.6     18,274  1.7 
Storage 34,551  3.1   37,190  3.3     36,283  3.4 
Other non-residential 25,831  2.3   25,628  2.3     23,804  2.2 
Total non-residential 385,910  34.9   395,152  35.2     384,686  36.0 
            
Construction/land:           
One-to-four family residential 43,279  3.9   44,491  4.0     47,661  4.5 
Multifamily 35,201  3.2   40,954  3.6     47,006  4.4 
Commercial 22,946  2.1   19,550  1.7     12,878  1.2 
Land development 5,975  0.5   8,670  0.8     6,965  0.7 
Total construction/land 107,401  9.7   113,665  10.1     114,510  10.8 
            
One-to-four family residential:           
Permanent owner occupied 203,045  18.4   210,898  18.8     194,648  18.3 
Permanent non-owner occupied 168,208  15.2   161,630  14.4     156,684  14.7 
Total one-to-four family residential 371,253  33.6   372,528  33.2     351,332  33.0 
            
Business           
Aircraft 13,741  1.2   14,012  1.3     11,860  1.1 
Small Business Administration (“SBA”) 753  0.1   362  0.0     -  0.0 
Other business 20,208  1.8   23,405  2.1     21,653  2.0 
Total business 34,702  3.1   37,779  3.4     33,513  3.1 
            
Consumer           
Classic auto 22,029  2.0   18,454  1.7     -  0.0 
Other consumer 15,196  1.4   11,745  1.0     14,336  1.4 
Total consumer 37,225  3.4   30,199  2.7     14,336  1.4 
Total loans 1,105,959  100.0%  1,122,238  100.0%    1,066,220  100.0%
Less:           
Deferred loan fees, net 301     558       701   
ALLL 13,530     13,218       13,808   
Loans receivable, net$  1,092,128    $  1,108,462    $  1,051,711   
            
Concentrations of credit: (1)           
Construction loans as % of total capital 77.6%    81.9%    87.5%  
Total non-owner occupied commercial
real estate as % of total capital
 437.7%    449.7%    460.9%  

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

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures

 At or For the Quarter End
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
  2020   2019   2019   2019   2019 
 (Dollars in thousands, except per share data)
Performance Ratios: (1)         
Return on assets 0.51%  0.79%  0.75%  1.04%  0.63%
Return on equity 4.30   6.64   6.41   8.70   5.16 
Dividend payout ratio 58.82   34.62   36.00   27.27   42.11 
Equity-to-assets ratio 11.50   11.65   11.85   11.86   11.78 
Tangible equity ratio (2) 11.38   11.53   11.73   11.72   11.64 
Net interest margin 3.11   3.09   3.07   3.23   3.37 
Average interest-earning assets to average interest-bearing liabilities 113.78   113.50   113.17   113.23   113.87 
Efficiency ratio 77.60   71.04   69.73   68.80   73.06 
Noninterest expense as a percent of average total assets 2.51   2.40   2.24   2.28   2.48 
Book value per common share$  15.03  $  15.25  $  15.06  $ 14.83  $ 14.50 
Tangible book value per share (2) 14.85   15.07   14.88   14.64   14.32 
          
Capital Ratios: (3)         
Tier 1 leverage ratio 10.25%  10.27%  10.13%  10.34%  10.28%
Common equity tier 1 capital ratio 13.42   13.13   13.14   13.46   13.13 
Tier 1 capital ratio 13.42   13.13   13.14   13.46   13.13 
Total capital ratio 14.67   14.38   14.39   14.71   14.38 
          
Asset Quality Ratios:         
Nonperforming loans as a percent of total loans 0.20%  0.01%  0.01%  0.01%  0.01%
Nonperforming assets as a percent of total assets 0.20   0.04   0.05   0.05   0.05 
ALLL as a percent of total loans 1.22   1.18   1.20   1.22   1.30 
Net (recoveries) charge-offs to average loans receivable, net (0.00)  (0.01)  (0.00)  (0.00)  (0.01)
          
Allowance for Loan Losses:         
ALLL, beginning of the quarter$  13,218  $  13,161  $ 13,057  $ 13,808  $ 13,347 
Provision (Recapture of provision) 300     -   100   (800)  400 
Charge-offs   -     -     -     -     - 
Recoveries 12   57   4   49   61 
ALLL, end of the quarter$  13,530  $  13,218  $ 13,161  $ 13,057  $  13,808 

(1) Performance ratios are calculated on an annualized basis.
(2) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 15 for reconciliation between the GAAP and non‑GAAP financial measures.
(3) Capital ratios are for First Financial Northwest Bank only.

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

 At or For the Quarter Ended
 Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
  2020   2019   2019   2019   2019 
Yields and Costs:         
Yield on loans 4.94%  5.05%  5.14%  5.19%  5.22%
Yield on investments available-for-sale 2.72   2.85   3.02   3.21   3.35 
Yield on interest-earning deposits 1.18   1.61   2.24   2.33   2.50 
Yield on FHLB stock 4.62   4.84   6.81   5.58   4.68 
Yield on interest-earning assets 4.67%  4.78%  4.84%  4.94%  4.98%
          
Cost of interest-bearing deposits 1.81%  1.94%  2.00%  1.89%  1.76%
Cost of other borrowings 1.48   1.66   2.02   2.28   2.26 
Cost of interest-bearing liabilities 1.77%  1.91%  2.00%  1.94%  1.84%
          
Cost of total deposits 1.72%  1.84%  1.91%  1.80%  1.67%
Cost of funds 1.69   1.82   1.92   1.86   1.76 
          
Average Balances:         
Loans$  1,096,091  $  1,087,558  $  1,073,283  $  1,051,894  $  1,031,994 
Investments available-for-sale   135,765     138,331     140,031     138,634     140,433 
Interest-earning deposits   10,555     11,572     27,992     8,275     6,484 
FHLB stock   6,615     5,897     5,649     7,337     7,888 
Total interest-earning assets$  1,249,026  $  1,243,358  $  1,246,955  $  1,206,140  $  1,186,799 
          
Interest-bearing deposits$  970,062  $  985,532  $  998,123  $  919,306  $  881,260 
Borrowings   127,707     109,895     103,707     145,895     160,950 
Total interest-bearing liabilities$  1,097,769  $  1,095,427  $  1,101,830  $  1,065,201  $  1,042,210 
Noninterest-bearing deposits   53,199     50,951     47,613     48,137     47,002 
Total deposits and borrowings$  1,150,968  $  1,146,378  $  1,149,443  $  1,113,338  $  1,089,212 
          
Average assets$  1,324,845  $  1,317,586  $  1,319,777  $  1,279,880  $  1,258,902 
Average stockholders' equity   157,492     156,147     155,057     152,267     152,850 

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 per share. 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:

 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019
 (Dollars in thousands, except per share data)
Total stockholders' equity (GAAP)$ 153,092  $   156,319  $ 155,102  $ 153,828  $   151,684 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible 932   968   1,005   1,042   1,079 
Tangible equity (Non-GAAP)$ 151,271  $   154,462  $   153,208  $  151,897  $   149,716 
          
Total assets (GAAP) 1,331,213   1,341,885    1,308,359    1,297,561   1,287,862 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible 932   968   1,005   1,042   1,079 
Tangible assets (Non-GAAP)$  1,329,392  $  1,340,028  $  1,306,465  $  1,295,630  $  1,285,894 
          
Common shares outstanding at period end 10,184,411   10,252,953   10,296,053   10,375,325   10,457,625 
          
Equity to assets ratio 11.50%  11.65%  11.85%  11.86%  11.78%
Tangible equity ratio 11.38   11.53   11.73   11.72   11.64 
Book value per share$  15.03  $   15.25  $   15.06  $   14.83  $   14.50 
Tangible book value per share 14.85   15.07   14.88   14.64   14.32