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First Financial Northwest, Inc. Reports First Quarter Net Income of $1.9 Million or $0.19 per Diluted Share

RENTON, Wash., April 25, 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 March 31, 2019, of $1.9 million, or $0.19 per diluted share, compared to net income of $2.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2018, and $6.8 million, or $0.66 per diluted share, for the quarter ended March 31, 2018.

“The flattening of the yield curve continues to present challenges, as evidenced by our interest expense increasing more rapidly than our interest income,” stated Joseph W. Kiley III, President and Chief Executive Officer. “A significant part of our strategy to improve our deposit mix and ultimately reduce our cost of funds is our expansion into new markets to further support deposit growth and diversification of our customer base. To this end, we opened an office at Kent Station during the quarter and I am pleased to announce that we recently signed a lease to open an office in Kirkland, continuing our expansion along the I-405 corridor east of Seattle,” continued Kiley. “Finally, as previously announced, we are pleased to add Patricia Remch to our Board of Directors. Her extensive experience will be an asset to our Board of Directors and we look forward to her contributions,” concluded Kiley.

Net loans receivable increased to $1.05 billion at March 31, 2019, compared to $1.02 billion at December 31, 2018, and $991.1 million at March 31, 2018. The average balance of net loans receivable totaled $1.03 billion for the quarter ended March 31, 2019, compared to $1.01 billion for the quarter ended December 31, 2018, and $985.8 million for the quarter ended March 31, 2018.

The Company recorded a $400,000 provision for loan losses in the quarter ended March 31, 2019, compared to a provision for loan losses of $200,000 in the quarter ended December 31, 2018, and a recapture of provision for loan losses of $4.0 million in the quarter ended March 31, 2018. The provision in the quarter ended March 31, 2019, was due primarily to growth in net loans receivable, while the provision for loan losses in the quarter ended December 31, 2018, was due primarily to growth in net loans receivable and a change in loan mix. The recapture of provision for loan losses in the quarter ended March 31, 2018, was due primarily to $4.3 million in recoveries received during the quarter of loans previously charged off.

Additional highlights for the quarter ended March 31, 2019:

  • Net loans receivable increased to $1.05 billion at March 31, 2019, compared to $1.02 billion at December 31, 2018, and $991.1 million at March 31, 2018.
  • Total deposits increased to $955.3 million at March 31, 2019, compared to $939.0 million at December 31, 2018, and $863.2 million at March 31, 2018.
  • The Company’s book value per share was $14.50 at March 31, 2019, compared to $14.35 at December 31, 2018, and $13.80 at March 31, 2018.
  • The Company repurchased 263,800 shares during the quarter at an average price of $15.76 per share pursuant to its stock repurchase plan. Since the plan commenced on November 5, 2018, a total of 467,700 shares have been repurchased through March 31, 2019, at an average price of $15.62. The current stock repurchase plan expires on May 3, 2019, and there are 82,300 shares that still may be repurchased under this plan.
  • The Bank’s Tier 1 leverage and total capital ratios at March 31, 2019, were 10.3% and 14.4%, respectively, compared to 10.4% and 14.7% at December 31, 2018, and 10.4% and 14.4% at March 31, 2018.
  • Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”), there was a $400,000 provision for loan losses during the quarter ended March 31, 2019.

The ALLL represented 1.30% of total loans receivable, net of undisbursed funds, at March 31, 2019, compared to 1.29% at December 31, 2018, and 1.31% at March 31, 2018. Nonperforming assets totaled $605,000 at March 31, 2019, compared to $1.2 million at December 31, 2018, and $658,000 at March 31, 2018. A total of $597,000 of nonperforming loans were paid off during the quarter ended March 31, 2019.

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

                   
  Mar 31,   Dec 31,   Mar 31,   Three
Month
  One
Year
    2019       2018       2018     Change   Change
  (Dollars in thousands)
Nonperforming loans:                  
One-to-four family residential $ 107     $ 382     $ 125     $ (275 )   $ (18 )
Commercial real estate   -       326       -       (326 )     -  
Consumer   44       44       50       -       (6 )
Total nonperforming loans   151       752       175       (601 )     (24 )
                   
OREO   454       483       483       (29 )     (29 )
                   
Total nonperforming assets (1) $ 605     $ 1,235     $ 658     $ (630 )   $ (53 )
                   
Nonperforming assets as a percent of total assets   0.05 %     0.10 %     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, 2019.
 

OREO totaled $454,000 at March 31, 2019, compared to $483,000 at both December 31, 2018 and March 31, 2018. The change during the quarter ended March 31, 2019, represents a write down in value of the remaining OREO properties, which consisted of two undeveloped lots located in Pierce County.

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 March 31, 2019, TDRs totaled $7.8 million, compared to $9.4 million at December 31, 2018, and $16.2 million at March 31, 2018.

Net interest income for the quarter ended March 31, 2019, totaled $9.9 million, compared to $10.0 million for the quarter ended December 31, 2018, and $11.0 million for the quarter ended March 31, 2018. The decline from the December 31, 2018, quarter was a result of interest expense increasing more rapidly than interest income in the current flat yield curve environment. The quarter ended March 31, 2018, included an additional $1.0 million in interest income relating to payments received on loans previously charged off.

Total interest income increased to $14.6 million during the quarter ended March 31, 2019, compared to $14.3 million in the quarter ended December 31, 2018, and $14.1 million in the quarter ended March 31, 2018.

Total interest expense increased to $4.7 million for the quarter ended March 31, 2019, compared to $4.3 million for the quarter ended December 31, 2018, and $3.1 million for the quarter ended March 31, 2018. The higher level of interest expense in the quarter ended March 31, 2019, was due primarily to increases in short-term interest rates and a competitive market for attracting deposits. Advances from the Federal Home Loan Bank (“FHLB”) totaled $163.5 million at March 31, 2019, compared to $146.5 million at December 31, 2018, and $200.0 million at March 31, 2018. The Bank borrows from the FHLB to supplement its deposit gathering efforts when needed to support the Company’s growth. The average cost of FHLB advances was 2.26% for the quarter ended March 31, 2019, compared to 2.12% for the quarter ended December 31, 2018, and 1.66% for the quarter ended March 31, 2018. The balance of brokered certificates of deposits was $123.4 million at March 31, 2019, compared to $97.8 million at December 31, 2018, and $75.5 million at March 31, 2018. The primary reason for the increase in brokered deposits in the quarter ended March 31, 2019, was an opportunity to raise funds in the brokered deposit market at an interest rate of 2.34% for three months commencing in early March 2019. The Bank raised $35.0 million on those terms and used the funds to pay down approximately the same amount in overnight FHLB advances that cost approximately 2.60%.

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

 
  Mar 31,
2019
  Dec 31,
2018
  Mar 31,
2018
  Three
Month
Change
  One Year
Change
                   
Deposits: (Dollars in thousands)  
Noninterest-bearing $ 46,026     $ 46,108     $ 48,135     $ (82 )   $ (2,109 )
Interest-bearing demand   51,096       40,079       40,804       11,017       10,292  
Statement savings   23,770       24,799       26,388       (1,029 )     (2,618 )
Money market   312,057       339,047       334,508       (26,990 )     (22,451 )
Certificates of deposit, retail (1)   398,956       391,174       337,906       7,782       61,050  
Certificates of deposit, brokered   123,367       97,825       75,488       25,542       47,879  
Total deposits $ 955,272     $ 939,032     $ 863,229     $ 16,240     $ 92,043  
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $49,000 at March 31, 2019, $58,000 at December 31, 2018, and $93,000 at March 31, 2018.
 

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

 
  March 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 $ 27,344 $ 25,277 $ 19,920 $ 202,635 $ 324,345 $ - $ 599,521
Landing   2,473   1,332   25   16,228   10,519   -   30,577
Woodinville (1)   1,522   3,324   628   14,719   6,814   -   27,007
Bothell   217   47   128   2,941   3,596   -   6,929
Crossroads   3,241   2,600   83   24,591   12,323   -   42,838
Kent (2)   7   1,565   1   4,946   638     7,157
Total King County   34,804   34,145   20,785   266,060   358,235   -   714,029
               
Snohomish County              
Mill Creek   1,816   5,711   629   12,865   10,555   -   31,576
Edmonds   3,443   2,867   195   14,520   13,945   -   34,970
Clearview (1)   3,037   4,163   1,080   5,923   2,672   -   16,875
Lake Stevens (1)   1,627   1,935   490   4,046   3,942   -   12,040
Smokey Point (1)   1,299   2,275   591   8,643   9,607   -   22,415
Total Snohomish County   11,222   16,951   2,985   45,997   40,721   -   117,876
               
Total retail deposits   46,026   51,096   23,770   312,057   398,956   -   831,905
Brokered deposits   -   -   -   -   -   123,367   123,367
Total deposits $ 46,026 $ 51,096 $ 23,770 $ 312,057 $ 398,956 $ 123,367 $ 955,272
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $49,000.
(2) Kent branch opened January 31, 2019.


  December 31, 2018
  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 $ 29,355 $ 18,896 $ 20,694 $ 228,475 $ 318,705 $ - $ 616,125
Landing   2,453   495   256   17,853   10,480   -   31,537
Woodinville (1)   1,362   3,771   549   19,024   7,217   -   31,923
Bothell   198   97   100   2,636   3,066   -   6,097
Crossroads   2,530   3,199   83   24,383   11,474   -   41,669
Total King County   35,898   26,458   21,682   292,371   350,942   -   727,351
               
Snohomish County              
Mill Creek   1,485   3,226   658   12,272   10,524   -   28,165
Edmonds   2,698   2,532   157   15,175   16,123   -   36,685
Clearview (1)   3,496   3,968   1,283   6,743   2,489   -   17,979
Lake Stevens (1)   1,415   1,702   428   3,926   3,644   -   11,115
Smokey Point (1)   1,116   2,193   591   8,560   7,452   -   19,912
Total Snohomish County   10,210   13,621   3,117   46,676   40,232   -   113,856
               
Total retail deposits   46,108   40,079   24,799   339,047   391,174   -   841,207
Brokered deposits   -   -   -   -   -   97,825   97,825
Total deposits $ 46,108 $ 40,079 $ 24,799 $ 339,047 $ 391,174 $ 97,825 $ 939,032
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000.
 

The net interest margin was 3.37% for the quarter ended March 31, 2019, compared to 3.41% for the quarter ended December 31, 2018, and 3.88% for the quarter ended March 31, 2018. The Company recorded $1.0 million in additional interest related to payments received on amounts previously charged off in the quarter ended March 31, 2018, which increased net interest margin for this period.

Noninterest income for the quarter ended March 31, 2019, totaled $700,000, compared to $728,000 in the quarter ended December 31, 2018, and $646,000 in the quarter ended March 31, 2018. An increase in BOLI income recognition and a decrease in other loan related fees essentially offset each other between the quarters ended March 31, 2019, and December 31, 2018. In addition, wealth management revenues were slightly lower in the quarter ended March 31, 2018.

Noninterest expense remained unchanged at $7.7 million, for both the quarters ended March 31, 2019, and December 31, 2018, and increased from $7.0 million in the quarter ended March 31, 2018. Noninterest expense for the quarter ended March 31, 2019, benefited from the receipt of a $125,000 insurance claim relating to the $225,000 fraud loss reported in the prior quarter. Noninterest expense increased from the prior year period due primarily to growth in the Bank’s number of locations in the last twelve months, including the opening of a new branch at The Junction in Bothell in April 2018 and at Kent Station in January 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)
 
Assets Mar 31,
2019
  Dec 31,
2018
  Mar 31,
2018
  Three
Month
Change
  One Year
Change
                   
Cash on hand and in banks $ 9,366     $ 8,122     $ 6,595     15.3 %   42.0 %
Interest-earning deposits   14,596       8,888       13,954     64.2     4.6  
Investments available-for-sale, at fair value   138,658       142,170       142,872     (2.5 )   (2.9 )
Loans receivable, net of allowance of $13,808, $13,347 and $13,136 respectively   1,051,711       1,022,904       991,138     2.8     6.1  
Federal Home Loan Bank ("FHLB") stock, at cost   8,041       7,310       9,450     10.0     (14.9 )
Accrued interest receivable   4,861       4,068       3,981     19.5     22.1  
Deferred tax assets, net   1,728       1,844       1,362     (6.3 )   26.9  
Other real estate owned ("OREO")   454       483       483     (6.0 )   (6.0 )
Premises and equipment, net   21,370       21,331       21,208     0.2     0.8  
Bank owned life insurance ("BOLI"), net   30,162       29,841       29,276     1.1     3.0  
Prepaid expenses and other assets   4,947       3,458       3,922     43.1     26.1  
Goodwill   889       889       889     0.0     0.0  
Core deposit intangible   1,079       1,116       1,228     (3.3 )   (12.1 )
Total assets $ 1,287,862     $ 1,252,424     $ 1,226,358     2.8 %   5.0 %
                   
Liabilities and Stockholders' Equity                  
                   
Deposits                  
Noninterest-bearing deposits $ 46,026     $ 46,108     $ 48,135     (0.2 )%   (4.4 )%
Interest-bearing deposits   909,246       892,924       815,094     1.8     11.6  
Total deposits   955,272       939,032       863,229     1.7     10.7  
Advances from the FHLB   163,500       146,500       200,000     11.6     (18.3 )
Advance payments from borrowers for taxes and insurance   5,374       2,933       4,478     83.2     20.0  
Accrued interest payable   478       478       270     0.0     77.0  
Other liabilities   11,554       9,743       9,626     18.6     20.0  
Total liabilities   1,136,178       1,098,686       1,077,603     3.4     5.4  
                   
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 shares 10,457,625 at March 31, 2019, 10,710,656 at December 31, 2018 and 10,779,424 at March 31, 2018   104       107       108     (2.8 )%   (3.7 )%
Additional paid-in capital   89,800       93,773       94,527     (4.2 )   (5.0 )
Retained earnings   67,568       66,343       60,767     1.8     11.2  
Accumulated other comprehensive loss, net of tax   (1,838 )     (2,253 )     (1,568 )   (18.4 )   17.2  
Unearned Employee Stock Ownership Plan ("ESOP") shares   (3,950 )     (4,232 )     (5,079 )   (6.7 )   (22.2 )
Total stockholders' equity   151,684       153,738       148,755     (1.3 )   2.0  
Total liabilities and stockholders' equity $ 1,287,862     $ 1,252,424     $ 1,226,358     2.8 %   5.0 %


...
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
 
  Quarter Ended        
  Mar 31,
2019
  Dec 31,
2018
  Mar 31,
2018
  Three
Month
Change
  One Year
Change
Interest income                  
Loans, including fees $ 13,281     $ 13,024     $ 13,042     2.0 %   1.8 %
Investments available-for-sale   1,159       1,124       929     3.1     24.8  
Interest-earning deposits with banks   40       61       38     (34.4 )   5.3  
Dividends on FHLB Stock   91       115       104     (20.9 )   (12.5 )
Total interest income   14,571       14,324       14,113     1.7     3.2  
Interest expense                  
Deposits   3,822       3,595       2,276     6.3     67.9  
FHLB advances   897       726       853     23.6     5.2  
Total interest expense   4,719       4,321       3,129     9.2     50.8  
Net interest income   9,852       10,003       10,984     (1.5 )   (10.3 )
Provision (recapture of provision) for loan losses   400       200       (4,000 )   100.0     (110.0 )
Net interest income after provision (recapture of provision) for loan losses   9,452       9,803       14,984     (3.6 )   (36.9 )
                   
                   
Noninterest income                  
Net loss on sale of investments   (8 )     -       -     n/a     n/a  
BOLI   269       96       249     180.2     8.0  
Wealth management revenue   196       211       99     (7.1 )   98.0  
Deposit related fees   171       178       161     (3.9 )   6.2  
Loan related fees   63       235       134     (73.2 )   (53.0 )
Other   9       8       3     12.5     200.0  
Total noninterest income   700       728       646     (3.8 )   8.4  
                   
                   
Noninterest expense                  
Salaries and employee benefits   5,000       4,977       4,662     0.5     7.3  
Occupancy and equipment   866       871       769     (0.6 )   12.6  
Professional fees   496       415       328     19.5     51.2  
Data processing   518       361       324     43.5     59.9  
OREO related expenses, net   31       3       1     933.3     3,000.0  
Regulatory assessments   137       111       155     23.4     (11.6 )
Insurance and bond premiums   105       88       106     19.3     (0.9 )
Marketing   86       75       107     14.7     (19.6 )
Other general and administrative   470       845       575     (44.4 )   (18.3 )
Total noninterest expense   7,709       7,746       7,027     (0.5 )   9.7  
Income before federal income tax provision   2,443       2,785       8,603     (12.3 )   (71.6 )
Federal income tax provision   498       622       1,761     (19.9 )   (71.7 )
Net income $ 1,945     $ 2,163     $ 6,842     (10.1 )%   (71.6 )%
                   
                   
Basic earnings per share $ 0.19     $ 0.21     $ 0.67