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

Renton, Washington, UNITED STATES


RENTON, Wash., Oct. 24, 2019 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended September 30, 2019, of $2.5 million, or $0.25 per diluted share, compared to net income of $3.3 million, or $0.33 per diluted share, for the quarter ended June 30, 2019, and $2.8 million, or $0.27 per diluted share, for the quarter ended September 30, 2018. For the nine months ended September 30, 2019, net income was $7.8 million, or $0.77 per diluted share, compared to net income of $12.7 million, or $1.22 per diluted share, for the comparable nine-month period in 2018.

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

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

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

Additional highlights for the quarter ended September 30, 2019:

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

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

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

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

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of our TDRs were performing in accordance with their restructured terms at September 30, 2019.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Noninterest expense increased to $7.5 million for the quarter ended September 30, 2019, compared to $7.3 million in June 30, 2019, and $7.2 million in the quarter ended September 30, 2018. Noninterest expense increased as the Bank continued to pursue its branch expansion strategy, which resulted in higher salaries and benefits, occupancy and equipment and data processing expenses among others, partially offset by lower other general and administrative expenses and a $120,000 small bank assessment credit that reduced the regulatory assessment for the quarter ended September 30, 2019.

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 11 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

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

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2019 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

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

AssetsSep 30,
2019
  Jun 30,
2019
 Sep 30,
2018
 Three
Month
Change
 One
Year
Change
          
Cash on hand and in banks$  7,615  $  8,119  $  7,167  (6.2)% 6.3%
Interest-earning deposits   6,103     22,579     19,094  (73.0) (68.0)
Investments available-for-sale, at fair value   138,224     141,581     140,868  (2.4) (1.9)
Loans receivable, net of allowance of $13,161, $13,057, and $13,116, respectively   1,083,850     1,052,676     995,557  3.0  8.9 
Federal Home Loan Bank ("FHLB") stock, at cost   6,341     5,701     7,410  11.2  (14.4)
Accrued interest receivable   4,407     4,650     4,664  (5.2) (5.5)
Deferred tax assets, net   1,202     1,379     2,092  (12.8) (42.5)
Other real estate owned ("OREO")   454     454     483  0.0  (6.0)
Premises and equipment, net   22,346     21,944     21,277  1.8  5.0 
Bank owned life insurance ("BOLI")   31,681     31,446     29,745  0.7  6.5 
Prepaid expenses and other assets   4,242     5,101     4,460  (16.8) (4.9)
Goodwill   889     889     889  0.0  0.0 
Core deposit intangible   1,005     1,042     1,153  (3.6) (12.8)
Total assets$  1,308,359  $  1,297,561  $  1,234,859  0.8% 6.0%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$  49,398  $  49,219  $  51,180  0.4% (3.5)%
Interest-bearing deposits   967,430     976,491     865,099  (0.9) 11.8 
Total deposits   1,016,828     1,025,710     916,279  (0.9) 11.0 
Advances from the FHLB   121,000     105,000     149,000  15.2  (18.8)
Advance payments from borrowers for taxes and insurance   5,043     2,844     4,737  77.3  6.5 
Accrued interest payable   382     461     541  (17.1) (29.4)
Other liabilities   10,004     9,718     9,589  2.9  4.3 
Total liabilities   1,153,257     1,143,733     1,080,146  0.8  6.8 
          
Commitments and contingencies         
          
Stockholders' Equity         
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding$  -   $  -   $  -   n/a n/a
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding         
10,296,053 shares at September 30, 2019, 10,375,325 shares at June 30, 2019, and 10,914,556 shares at September 30, 2018   103     104     109  (1.0)% (5.5)%
Additional paid-in capital   87,835     88,725     96,664  (1.0) (9.1)
Retained earnings   71,592     69,976     65,004  2.3  10.1 
Accumulated other comprehensive loss, net of tax   (1,042)    (1,309)    (2,550) (20.4) (59.1)
Unearned Employee Stock Ownership Plan ("ESOP") shares   (3,386)    (3,668)    (4,514) (7.7) (25.0)
Total stockholders' equity   155,102     153,828     154,713  0.8  0.3 
Total liabilities and stockholders' equity$  1,308,359  $  1,297,561  $  1,234,859  0.8% 6.0%
                  

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

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

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

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

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

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

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

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures

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

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

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

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

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains non-GAAP financial measures of the tangible equity ratio and tangible book value. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholders’ equity. Tangible assets are calculated by subtracting intangible assets from total assets. The tangible equity ratio is tangible equity divided by tangible assets. Tangible book value per share is calculated by dividing tangible equity by the number of common shares outstanding. The Company believes that these non-GAAP measures provide a more consistent presentation of its capital and facilitate peer comparison that is desired by investors.

Non-GAAP financial measures have limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation and are not a substitute for other measures in this earnings release that are presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

The following table provides a reconciliation between the GAAP and non-GAAP measures:

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

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