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First Financial Northwest, Inc. Reports Fourth Quarter Net Income of $2.2 Million or $0.21 per Diluted Share and $14.9 Million or $1.43 per Diluted Share for the Year Ended December 31, 2018

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RENTON, Wash., Jan. 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 December 31, 2018, of $2.2 million, or $0.21 per diluted share, compared to net income of $2.8 million, or $0.27 per diluted share, for the quarter ended September 30, 2018, and $2.4 million, or $0.23 per diluted share, for the quarter ended December 31, 2017. For the year ended December 31, 2018, net income was $14.9 million, or $1.43 per diluted share, compared to $8.5 million, or $0.81 per diluted share, for the year ended December 31, 2017.

“I am very pleased with how we finished the year with significant lending momentum, particularly the strong growth in one-to-four family residential lending, and continued growth in our deposits across our network,” stated Joseph W. Kiley III, President and Chief Executive Officer. “Our one-to-four residential team led our loan portfolio growth as net loans receivable increased $34.2 million during the year to exceed $1.0 billion at year end.” Kiley continued, “We grew deposits across our network, increasing deposits by $22.8 million in the fourth quarter and $99.5 million during the year, as we ended the year with $939.0 million in total deposits, compared to $839.5 million at December 31, 2017.” Kiley concluded, “I am also pleased to welcome Randy Riffle, Executive Vice President and Chief Credit Officer to lead our efforts to further modernize our credit culture by enhancing our overall customer experience thereby creating a competitive advantage for our sales teams, organically expand our business loan portfolio, including establishing an SBA lending platform in further support of our growth and loan and deposit portfolio diversification goals. Our focus on expanding our customer base and building deposits continues and our eleventh branch location is set to open at Kent Station in the first quarter of 2019.”

Net loans receivable increased $34.2 million to $1.02 billion for the year ended December 31, 2018, from $988.7 million at December 31, 2017, and $27.3 million from $995.6 million at September 30, 2018. One-to-four family residential lending increased $63.3 million during the year to $342.0 million at December 31, 2018, more than offsetting the $57.8 million combined reduction in our multifamily real estate and construction/land development loan portfolios. The average balance of net loans receivable totaled $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million, compared to $878.4 million for the year ended December 31, 2017.

The Company recorded a $200,000 provision for loan losses for both the quarters ended December 31, 2018, and September 30, 2018, compared to a $1.2 million recapture of provision in the quarter ended December 31, 2017. The provision during the quarter ended December 31, 2018, was due to growth in net loans receivable and a change in loan mix, while the provision in the third quarter of 2018, was due primarily to growth in net loans receivable. The recapture of provision in the quarter ended December 31, 2017, was due primarily to $2.0 million in recoveries during the quarter, reduced by the provision for loan losses required to increase the Allowance for Loan and Lease Losses (“ALLL”), as a result of the growth in net loans receivable. For the year ended December 31, 2018, the recapture of provision for loan losses totaled $4.0 million, which included $4.5 million in recoveries, compared to a recapture of provision for loan losses of $400,000 recorded for the year ended December 31, 2017, which included $2.3 million in recoveries.

As previously reported, the Bank expanded its geographic footprint during the year with the opening of a new branch at The Junction in Bothell, King County, in the second quarter of 2018. The Bank plans to open its eleventh branch location at Kent Station, located about eight miles south of its Renton headquarters, in the first quarter of 2019.

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

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.

September 30, 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

$

31,796

$

19,998

$

20,508

$

213,882

$

317,126

$

-

$

603,310

The Landing

2,458

772

58

17,796

8,944

-

30,028

Woodinville (1)

1,535

3,874

538

20,335

6,813

-

33,095

Bothell

48

103

8

2,435

1,684

-

4,278

Crossroads

1,249

4,797

84

21,846

9,339

-

37,315

Total King County

37,086

29,544

21,196

276,294

343,906

-

708,026

Snohomish County:

Mill Creek

1,437

2,952

571

11,287

8,779

-

25,026

Edmonds

4,416

2,033

45

16,452

11,007

-

33,953

Clearview (1)

4,187

3,058

1,037

7,101

2,272

-

17,655

Lake Stevens (1)

2,434

2,452

483

3,901

2,576

-

11,846

Smokey Point (1)

1,620

1,915

774

7,990

5,391

-

17,690

Total Snohomish County

14,094

12,410

2,910

46,731

30,025

-

106,170

Total retail deposits

51,180

41,954

24,106

323,025

373,931

-

814,196

Brokered deposits

-

-

-

-

-

102,083

102,083

Total deposits

$

51,180

$

41,954

$

24,106

$

323,025

$

373,931

$

102,083

$

916,279

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $69,000.

Highlights for the quarter and the year ended December 31, 2018:

  • Net loans receivable increased to $1.02 billion at December 31, 2018, from $995.6 million at September 30, 2018, and $988.7 million at December 31, 2017. The Company’s one-to-four residential loan portfolio increased to $342.0 million at December 31, 2018, compared to $327.9 million at September 30, 2018, and $278.7 million at December 31, 2017, representing a year over year growth of $63.3 million in one-to-four residential loans.

  • Total deposits increased to $939.0 million at December 31, 2018, from $916.3 million at September 30, 2018, and $839.5 million at December 31, 2017.

  • The Company increased the regular quarterly cash dividend to shareholders to $0.08 per share in the quarter ended June 30, 2018, from $0.07 per share previously.

  • During the year ended December 31, 2018, the Company repurchased 203,900 shares of its common stock at an average price of $15.43 per share under a stock repurchase plan authorized by the Board of Directors on October 24, 2018. The plan, which commenced on November 5, 2018, and will expire no later than May 3, 2019, authorizes the repurchase of up to 550,000 shares of the Company’s common stock, or approximately 5.0% of its outstanding shares.

  • The Company’s book value per share was $14.35 at December 31, 2018, compared to $14.17 at September 30, 2018, and $13.27 at December 31, 2017.

  • The Bank’s Tier 1 leverage and total capital ratios at December 31, 2018, were 10.4% and 14.7%, respectively, compared to 10.4% and 14.8% at September 30, 2018, and 10.2% and 13.8% at December 31, 2017.

  • Based on management’s evaluation of the adequacy of the ALLL, there was a $200,000 provision for loan losses during the quarter ended December 31, 2018.

The ALLL represented 1.29% of total loans receivable, net of undisbursed funds, at December 31, 2018, compared to 1.30% at September 30, 2018, and 1.28% at December 31, 2017. Nonperforming assets totaled $1.2 million at December 31, 2018, compared to $967,000 at September 30, 2018, and $662,000 at December 31, 2017. The increase in the Company’s nonperforming assets since December 31, 2017, was primarily due to one $325,000 nonperforming commercial real estate loan in the quarter ended September 30, 2018, and one $272,000 nonperforming one-to-four family residential loan in the quarter ended December 31, 2018. The $325,000 nonperforming commercial real estate loan was paid in full in the first quarter of 2019.

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

Dec 31,

Sep 30,

Dec 31,

Three
Month

One
Year

2018

2018

2017

Change

Change

(Dollars in thousands)

Nonperforming loans:

One-to-four family residential

$

382

$

113

$

128

$

269

$

254

Commercial real estate

326

325

-

1

326

Consumer

44

46

51

(2

)

(7

)

Total nonperforming loans

752

484

179

268

573

Other real estate owned (“OREO”)

483

483

483

-

-

Total nonperforming assets (1)

$

1,235

$

967

$

662

$

268

$

573

Nonperforming assets as a

percent of total assets

0.10

%

0.08

%

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 December 31, 2018.

OREO totaled $483,000 at December 31, 2018, September 30, 2018, and December 31, 2017. The Company continues to actively market its two remaining OREO properties in an effort to minimize holding costs.

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

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

Dec 31,
2018

Sep 30,
2018

Dec 31,
2017

Three
Month
Change

One
Year
Change

(Dollars in thousands)

Performing TDRs:

One-to-four family residential

$

6,941

$

9,458

$

13,434

$

(2,517

)

$

(6,493

)

Multifamily

1,116

1,134

(1,116

)

(1,134

)

Commercial real estate

2,415

2,601

3,194

(186

)

(779

)

Consumer

43

43

43

Total TDRs

$

9,399

$

13,218

$

17,805

$

(3,819

)

$

(8,406

)

Net interest income for the quarter ended December 31, 2018, totaled $10.0 million, compared to $10.1 million for the quarter ended September 30, 2018, and $10.4 million for the quarter ended December 31, 2017. The decline in net interest income was due primarily to increases in the cost of interest bearing liabilities that outpaced the increases in income from interest earning assets. For the year ended December 31, 2018, net interest income totaled $41.2 million, compared to $37.6 million for the year ended December 31, 2017. The primary contributor to the increase in the year ended December 31, 2018, was higher average loan balances. In addition, the Company received $1.0 million in additional interest income in the quarter ended March 31, 2018, relating to interest payments on loans previously charged off.

Total interest income increased to $14.3 million during the quarter ended December 31, 2018, compared to $13.9 million in the quarter ended September 30, 2018, and $13.3 million in the quarter ended December 31, 2017. For the year ended December 31, 2018, total interest income increased to $55.9 million compared to $47.6 million in 2017. These increases were due primarily to the growth in the average balances of net loans receivable to $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million compared to $878.4 million for the prior year.

Total interest expense increased to $4.3 million for the quarter ended December 31, 2018, compared to $3.8 million for the quarter ended September 30, 2018, and $2.9 million for the quarter ended December 31, 2017. The higher level of interest expense in the quarter ended December 31, 2018, was due primarily to growth in total deposits along with increases in interest rates on deposits in a competitive, rising short term interest rate environment. Total deposits increased to $939.0 million at December 31, 2018, from $839.5 million at December 31, 2017. For the year ended December 31, 2018, interest expense totaled $14.7 million, compared to $10.0 million for the year ended December 31, 2017. This increase was primarily due to growth in deposit balances along with increasing short term interest rates. The Federal Reserve’s Open Market Committee continued increasing their Fed Funds target rates throughout the year, impacting the rates paid on the Company’s interest bearing liabilities. Total cost of deposits increased to 1.53% for the quarter ended December 31, 2018, from 1.31% for the quarter ended September 30, 2018, and 1.02% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the total cost of deposits was 1.28% compared to 0.99% for the year ended December 31, 2017. Advances from the FHLB totaled $146.5 million at December 31, 2018, compared to $149.0 million at September 30, 2018, and $216.0 million at December 31, 2017, as the Company’s deposit gathering success allowed for a reduction in FHLB advances. The average cost of FHLB advances was 2.12% for the quarter ended December 31, 2018, compared to 2.05% for the quarter ended September 30, 2018, and 1.46% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average cost of FHLB advances was 1.92%, compared to 1.30% for the prior year. The balance of brokered certificates of deposits was $97.8 million at December 31, 2018, compared to $102.1 million at September 30, 2018, and $75.5 million at December 31, 2017.

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

Dec 31,
2018

Sep 30,
2018

Dec 31,
2017

Three
Month
Change

One
Year
Change

Deposits:

(Dollars in thousands)

Noninterest-bearing

$

46,108

$

51,180

$

45,434

$

(5,072

)

$

674

Interest-bearing demand

40,079

41,954

38,224

(1,875

)

1,855

Statement savings

24,799

24,106

28,456

693

(3,657

)

Money market

339,047

323,025

318,636

16,022

20,411

Certificates of deposit, retail (1)

391,174

373,931

333,264

17,243

57,910

Certificates of deposit, brokered

97,825

102,083

75,488

(4,258

)

22,337

Total deposits

$

939,032

$

916,279

$

839,502

$

22,753

$

99,530

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000 at December 31, 2018, $69,000 at September 30, 2018, and $107,000 at December 31, 2017.

The Company’s net interest margin was 3.41% for the quarter ended December 31, 2018, compared to 3.46% for the quarter ended September 30, 2018, and 3.65% for the quarter ended December 31, 2017. The compression in net interest margin during these periods was due to interest rates paid on interest bearing liabilities increasing more rapidly than yields earned on interest earning assets. Net interest margin for the year ended December 31, 2018, was 3.56%, compared to 3.60% for the year ended December 31, 2017.

Noninterest income for the quarter ended December 31, 2018, totaled $728,000, compared to $841,000 in the quarter ended September 30, 2018, and $211,000 in the quarter ended December 31, 2017. The decline from the prior quarter was due primarily to a reduction in the amount of Bank Owned Life Insurance (“BOLI”) income recorded. For the year ended December 31, 2018, noninterest income increased to $2.9 million, from $2.2 million in 2017, due primarily to a net loss of $567,000 on the sale of investments recorded in 2017. After the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law in December 2017, the Company elected to restructure a portion of its investment portfolio and sold approximately $37 million in fixed rate securities and reinvested the proceeds, primarily into adjustable rate securities.

Noninterest expense for the quarter ended December 31, 2018, increased to $7.7 million from $7.2 million in the quarter ended September 30, 2018, and $7.1 million in the quarter ended December 31, 2017. Salaries and employee benefits increased $245,000 from the prior quarter due primarily to an increase in the number of work days in the fourth quarter. Other general and administrative expenses increased $206,000, as the Company incurred a $225,000 wire related fraud loss in the fourth quarter. The Company has filed an insurance claim for the loss and expects to receive payment on the claim in the first quarter of 2019, subject to a $100,000 deductible. Noninterest expense increased to $29.5 million for the year ended December 31, 2018, compared to $26.8 million in 2017. This increase in noninterest expense was due primarily to our branch expansion over the past year. Salaries and employee benefits expense increased due to increased staffing in support of the new branches and development of new products, as well as standard salary increases. Higher occupancy and equipment expenses reflect our recently opened branch locations, while the increase in other general and administrative expenses also reflects the growth in the Company’s operations.

The Company’s federal income tax provision was $622,000 for the quarter ended December 31, 2018, compared to $707,000 for the quarter ended September 30, 2018, and $2.3 million for the quarter ended December 31, 2017. The primary reason for the change in the 2018 periods compared to the quarter ended December 31, 2017, was the reduction in the federal corporate income tax rate from 35% to 21% in 2018 due to the Tax Act. In addition, during the quarter ended December 31, 2017, the Company recorded a charge of $807,000 through its federal income tax provision relating to changes to the Company’s net deferred tax asset valuation as a result of the Tax Act’s reduction in the federal corporate income tax rate.

For the year ended December 31, 2018, the Company’s federal income tax provision totaled $3.7 million on income before federal income tax provision of $18.6 million, compared to $4.9 million on pretax income of $13.4 million for the year ended December 31, 2017. The Company’s federal income tax provision in 2018 benefited from the reduction in the federal corporate income tax rate, as well as from stock option exercises that occurred at prices higher than originally estimated, resulting in higher allowable expense recognition for tax purposes.

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 10 full-service banking offices. The Bank expects to open its eleventh branch location at Kent Station in the first quarter of 2019. We are a part of the ABA NASDAQ Community Bank Index and the Russell 3000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

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

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

Dec 31,
2018

Sep 30,
2018

Dec 31,
2017

Three
Month
Change

One
Year
Change

Cash on hand and in banks

$

8,122

$

7,167

$

9,189

13.3

%

(11.6

)%

Interest-earning deposits

8,888

19,094

6,942

(53.5

)

28.0

Investments available-for-sale, at fair value

142,170

140,868

132,242

0.9

7.5

Loans receivable, net of allowance of $13,347, $13,116, and $12,882, respectively

1,022,904

995,557

988,662

2.7

3.5

Federal Home Loan Bank ("FHLB") stock, at cost

7,310

7,410

9,882

(1.3

)

(26.0

)

Accrued interest receivable

4,068

4,664

4,084

(12.8

)

(0.4

)

Deferred tax assets, net

1,844

2,092

1,211

(11.9

)

52.3

Other real estate owned ("OREO")

483

483

483

0.0

0.0

Premises and equipment, net

21,331

21,277

20,614

0.3

3.5

Bank owned life insurance ("BOLI")

29,841

29,745

29,027

0.3

2.8

Prepaid expenses and other assets

3,458

4,460

5,738

(22.5

)

(39.7

)

Goodwill

889

889

889

0.0

0.0

Core deposit intangible

1,116

1,153

1,266

(3.2

)

(11.8

)

Total assets

$

1,252,424

$

1,234,859

$

1,210,229

1.4

%

3.5

%

Liabilities and Stockholders' Equity

Deposits

Noninterest-bearing deposits

$

46,108

$

51,180

$

45,434

(9.9

)%

1.5

%

Interest-bearing deposits

892,924

865,099

794,068

3.2

12.4

Total deposits

939,032

916,279

839,502

2.5

11.9

Advances from the FHLB

146,500

149,000

216,000

(1.7

)

(32.2

)

Advance payments from borrowers for taxes and insurance

2,933

4,737

2,515

(38.1

)

16.6

Accrued interest payable

478

541

326

(11.6

)

46.6

Other liabilities

9,743

9,589

9,252

1.6

5.3

Total liabilities

1,098,686

1,080,146

1,067,595

1.7

%

2.9

%

Commitments and contingencies

Stockholders' Equity

Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or

outstanding

$

-

$

-

$

-

Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding

10,710,656 shares at December 31, 2018, 10,914,556 shares at September 30, 2018, and

10,748,437 shares at December 31, 2017

107

109

107

(1.8

)%

0.0

%

Additional paid-in capital

93,773

96,664

94,173

(3.0

)

(0.4

)

Retained earnings, substantially restricted

66,343

65,004

54,642

2.1

21.4

Accumulated other comprehensive loss, net of tax

(2,253

)

(2,550

)

(928

)

(11.6

)

142.8

Unearned Employee Stock Ownership Plan ("ESOP") shares

(4,232

)

(4,514

)

(5,360

)

(6.2

)

(21.0

)

Total stockholders' equity

153,738

154,713

142,634

(0.6

)

7.8

Total liabilities and stockholders' equity

$

1,252,424

$

1,234,859

$

1,210,229

1.4

%

3.5

%



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

Quarter Ended

Dec 31,
2018

Sep 30,
2018

Dec 31,
2017

Three
Month
Change

One
Year
Change

Interest income

Loans, including fees

$

13,024

$

12,631

$

12,269

3.1

%

6.2

%

Investments available-for-sale

1,124

1,063

903

5.7

24.5

Interest-earning deposits with banks

61

59

43

3.4

41.9

Dividends on FHLB Stock

115

135

85

(14.8

)

35.3

Total interest income

14,324

13,888

13,300

3.1

7.7

Interest expense

Deposits

3,595

2,912

2,117

23.5

69.8

FHLB advances

726

917

795

(20.8

)

(8.7

)

Total interest expense

4,321

3,829

2,912

12.8

48.4

Net interest income

10,003

10,059

10,388

(0.6

)

(3.7

)

Provision (recapture of provision) for loan losses

200

200

(1,200

)

0.0

(116.7

)

Net interest income after provision (recapture of provision) for loan losses

9,803

9,859

11,588

(0.6

)

(15.4

)

Noninterest income

Net gain (loss) on sale of investments

-

1

(670

)

(100.0

)

(100.0

)

BOLI income

96

245

133

(60.8

)

(27.8

)

Wealth management revenue

211

145

220

45.5

(4.1

)

Deposit related fees

178

167

169

6.6

5.3

Loan related fees

235

273

356

(13.9

)

(34.0

)

Other

8

10

3

(20.0

)

166.7

Total noninterest income

728

841

211

(13.4

)

245.0

Noninterest expense

Salaries and employee benefits

4,977

4,732

4,673

5.2

6.5

Occupancy and equipment

871

814

721

7.0

20.8

Professional fees

415

353

430

17.6

(3.5

)

Data processing

361

356

326

1.4

10.7

OREO related expenses (reimbursements), net

3

1

(81

)

200.0

(103.7

)

Regulatory assessments

111

126

161

(11.9

)

(31.1

)

Insurance and bond premiums

88

95

97

(7.4

)

(9.3

)

Marketing

75

85

68

(11.8

)

10.3

Other general and administrative

845

639

674

32.2

25.4

Total noninterest expense

7,746

7,201

7,069

7.6

9.6

Income before federal income tax provision

2,785

3,499

4,730

(20.4

)

(41.1

)

Federal income tax provision

622

707

2,324

(12.0

)

(73.2

)

Net income

$

2,163

$

2,792

$

2,406

(22.5

)%

(10.1

)%

Basic earnings per share

$

0.21

$

0.27

$

0.24

Diluted earnings per share

$

0.21

$

0.27

$

0.23

Weighted average number of common shares outstanding



10,385,612



10,356,994

10,184,804

Weighted average number of diluted shares outstanding



10,484,350



10,468,802

10,313,114


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

Year Ended December 31,

2018

2017

2016

One
Year
Change

Two
Year
Change

Interest income

Loans, including fees

$

51,127

$

43,607

$

38,218

17.2

%

33.8

%

Investments available-for-sale

4,126

3,504

3,054

17.8

35.1

Interest-earning deposits with banks

202

237

235

(14.8

)

(14.0

)

Dividends on FHLB Stock

458

296

202

54.7

126.7

Total interest income

55,913

47,644

41,709

17.4

34.1

Interest expense

Deposits

11,218

7,517

6,101

49.2

83.9

FHLB advances

3,520

2,505

1,406

40.5

150.4

Total interest expense

14,738

10,022

7,507

47.1

96.3

Net interest income

41,175

37,622

34,202

9.4

20.4

(Recapture of provision) provision for loan losses

(4,000

)

(400

)

1,300

900.0

(407.7

)

Net interest income after (recapture of provision) provision for loan losses

45,175

38,022

32,902

18.8

37.3

Noninterest income

Net (loss) gain on sale of investments

(20

)

(567

)

50

(96.5

)

(140.0

)

BOLI

814

623

844

30.7

(3.6

)

Wealth management revenue

611

919

813

(33.5

)

(24.8

)

Deposit related fees

681

446

261

52.7

160.9

Loan related fees

768

776

671

(1.0

)

14.5

Other

24

11

12

118.2

100.0

Total noninterest income

2,878

2,208

2,651

30.3

8.6

Noninterest expense

Salaries and employee benefits

19,302

17,773

15,377

8.6

25.5

Occupancy and equipment

3,283

2,506

1,984

31.0

65.5

Professional fees

1,538

1,809

1,979

(15.0

)

(22.3

)

Data processing

1,392

1,457

911

(4.5

)

52.8

OREO related expenses (reimbursements), net

7

(67

)

294

(110.4

)

(97.6

)

Regulatory assessments

502

491

420

2.2

19.5

Insurance and bond premiums

443

399

349

11.0

26.9

Marketing

344

270

194

27.4

77.3

Other general and administrative

2,650

2,171

1,441

22.1

83.9

Total noninterest expense

29,461

26,809

22,949

9.9

28.4

Income before federal income tax provision

18,592

13,421

12,604

38.5

47.5

Federal income tax provision

3,693

4,942

3,712

(25.3

)

(0.5

)

Net income

$

14,899

$

8,479

$

8,892

75.7

%

67.6

%

Basic earnings per share

$

1.44

$

0.82

$

0.75

Diluted earnings per share

$

1.43

$

0.81

$

0.74

Weighted average number of common shares outstanding

10,306,835

10,289,049

11,868,278

Weighted average number of diluted shares outstanding

10,424,187

10,437,449

12,028,428


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

December 31, 2018

September 30, 2018

December 31, 2017

Amount

Percent

Amount

Percent

Amount

Percent

(Dollars in thousands)

Commercial real estate:

Residential:

Micro-unit apartments

$

14,076

1.3

%

$

14,141

1.3

%

$

7,020

0.6

%

Other multifamily

155,279

13.8

162,380

14.7

177,882

16.3

Total multifamily

169,355

15.1

176,521

16.0

184,902

16.9

Non-residential:

Office

100,495

8.9

96,542

8.8

112,327

10.2

Retail

131,222

11.7

139,085

12.6

129,875

11.9

Mobile home park

16,003

1.4

15,649

1.4

19,970

1.8

Warehouse

25,398

2.3

22,252

2.0

22,701

2.1

Storage

32,462

2.9

32,625

3.0

32,201

2.9

Other non-residential

68,239

6.1

54,332

4.9

44,768

4.1

Total non-residential

373,819

33.3

360,485

32.7

361,842

33.0

Construction/land development:

One-to-four family residential

86,604

7.7

84,912

7.7

87,404

8.0

Multifamily

83,642

7.4

80,607

7.3

108,439

9.9

Commercial

18,300

1.6

21,385

2.0

5,325

0.5

Land

6,740

0.7

7,113

0.7

36,405

3.3

Total construction/land development

195,286

17.4

194,017

17.7

237,573

21.7

One-to-four family residential:

Permanent owner occupied

194,141

17.3

184,698

16.8

148,304

13.6

Permanent non-owner occupied

147,825

13.2

143,226

13.0

130,351

11.9

Total one-to-four family residential

341,966

30.5

327,924

29.8

278,655

25.5

Business

Aircraft

11,058

1.0

10,172

0.9

12,491

1.1

Other business

19,428

1.7

19,483

1.8

10,596

1.0

Total business

30,486

2.7

29,655

2.7

23,087

2.1

Consumer

12,970

1.0

12,419

1.1

9,133

0.8

Total loans

1,123,882

100.0

%

1,101,021

100.0

%

1,095,192

100.0

%

Less:

Loans in Process ("LIP")

86,453

91,232

92,498

Deferred loan fees, net

1,178

1,116

1,150

ALLL

13,347

13,116

12,882

Loans receivable, net

$

1,022,904

$

995,557

$

988,662

Concentrations of credit: (1)

Construction loans as % of total capital

81.9

%

77.1

%

108.6

%

Total non-owner occupied commercial real estate as % of total capital

451.8

%

454.5

%

514.0

%

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


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

At or For the Quarter Ended

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

2018

2018

2018

2018

2017

Performance Ratios:

Return on assets

0.69

%

0.90

%

1.01

%

2.28

%

0.80

%

Return on equity

5.54

7.17

8.28

19.16

6.70

Dividend payout ratio

38.10

29.63

26.67

10.47

29.17

Equity-to-assets ratio

12.28

12.53

12.46

12.13

11.79

Tangible equity ratio

12.13

12.38

12.31

11.98

11.63

Net interest margin

3.41

3.46

3.50

3.88

3.65

Average interest-earning assets to average interest-bearing liabilities

114.27

115.20

114.21

113.46

113.32

Efficiency ratio

72.18

66.06

69.38

60.42

66.69

Noninterest expense as a percent of average total assets

2.49

2.33

2.44

2.34

2.34

Book value per share

$

14.35

$

14.17

$

13.97

$

13.80

$

13.27

Tangible book value per share

14.17

13.99

13.78

13.60

13.07

Capital Ratios: (1)

Tier 1 leverage ratio

10.37

%

10.37

%

10.22

%

10.44

%

10.20

%

Common equity tier 1 capital ratio

13.43

13.58

13.21

13.13

12.52

Tier 1 capital ratio

13.43

13.58

13.21

13.13

12.52

Total capital ratio

14.68

14.83

14.47

14.38

13.77

Asset Quality Ratios: (2)

Nonperforming loans as a percent of total loans

0.07

%

0.05

%

0.02

%

0.02

%

0.02

%

Nonperforming assets as a percent of total assets

0.10

0.08

0.05

0.05

0.05

ALLL as a percent of total loans

1.29

1.30

1.27

1.31

1.28

Net (recoveries) charge-offs to average loans receivable, net

(0.00

)

(0.02

)

(0.00

)

(0.43

)

(0.20

)

Allowance for Loan Losses:

ALLL, beginning of the quarter

$

13,116

$

12,754

$

13,136

$

12,882

$

12,110

Provision (Recapture of provision)

200

200

(400

)

(4,000

)

(1,200

)

Charge-offs

-

-

-

-

-

Recoveries

31

162

18

4,254

1,972

ALLL, end of the quarter

$

13,347

$

13,116

$

12,754

$

13,136

$

12,882

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


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

At or For the Quarter Ended

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

2018

2018

2018

2018

2017

Yields and Costs:

Yield on loans

5.13

%

5.05

%

5.00

%

5.37

%

5.05

%

Yield on investments available-for-sale

3.17

3.00

2.87

2.65

2.52

Yield on interest-earning deposits

2.27

1.92

1.48

1.32

1.23

Yield on FHLB stock

6.63

6.27

4.21

4.40

3.42

Yield on interest-earning assets

4.88

%

4.77

%

4.70

%

4.98

%

4.67

%

Cost of interest-bearing deposits

1.61

%

1.40

%

1.22

%

1.15

%

1.08

%

Cost of FHLB advances

2.12

2.05

1.92

1.66

1.46

Cost of interest-bearing liabilities

1.68

%

1.52

%

1.37

%

1.25

%

1.16

%

Cost of total deposits

1.53

%

1.31

%

1.15

%

1.09

%

1.02

%

Cost of funds

1.61

1.44

1.30

1.20

1.11

Average Balances:

Loans

$

1,006,905

$

993,272

$

997,059

$

985,799

$

963,097

Investments available-for-sale

140,568

140,584

141,035

142,236

141,962

Interest-earning deposits

10,653

12,223

11,927

11,717

13,843

FHLB stock

6,886

8,540

10,004

9,593

9,859

Total interest-earning assets

$

1,165,012

$

1,154,619

$

1,160,025

$

1,149,345

$

1,128,761

Interest-bearing deposits

$

883,672

$

825,055

$

801,852

$

804,451

$

780,671

FHLB advances

135,886

177,250

213,857

208,544

215,418

Total interest-bearing liabilities

$

1,019,558

$

1,002,305

$

1,015,709

$

1,012,995

$

996,089

Noninterest-bearing deposits

47,580

53,982

50,145

46,071

46,029

Total deposits and borrowings

$

1,067,138

$

1,056,287

$

1,065,854

$

1,059,066

$

1,042,118

Average assets

$

1,236,460

$

1,225,189

$

1,229,341

$

1,218,418

$

1,199,774

Average stockholders' equity

154,958

154,444

150,243

144,786

142,390



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

At or For the Year Ended December 31,

2018

2017

2016

2015

2014

Performance Ratios:

Return on assets

1.21

%

0.76

%

0.88

%

0.96

%

1.17

%

Return on equity

9.86

5.94

5.55

5.15

5.85

Dividend payout ratio

21.53

32.93

32.02

35.57

27.73

Equity-to-assets

12.28

11.79

13.31

17.42

19.36

Tangible equity ratio

12.13

11.63

13.31

17.42

19.36

Net interest margin

3.56

3.60

3.60

3.38

3.77

Average interest-earning assets to average interest-bearing liabilities

114.28

114.07

117.11

120.45

121.15

Efficiency ratio

66.88

67.31

62.27

62.66

56.37

Noninterest expense as a percent of average total assets

2.40

2.42

2.27

2.07

2.03

Book value per share

$

14.35

$

13.27

$

12.63

$

12.40

$

11.96

Tangible book value per share

14.17

13.07

12.63

12.40

11.96

Capital Ratios: (1)

Tier 1 leverage ratio

10.37

%

10.20

%

11.17

%

11.61

%

11.79

%

Common equity tier 1 capital ratio

13.43

12.52

14.38

16.36

n/a

Tier 1 capital ratio

13.43

12.52

14.38

16.36

18.30

Total capital ratio

14.68

13.77

15.63

17.62

19.56

Asset Quality Ratios: (2)

Nonperforming loans as a percent of total loans

0.07

%

0.02

%

0.10

%

0.16

%

0.20

%

Nonperforming assets as a percent of total assets

0.10

0.05

0.31

0.48

1.13

ALLL as a percent of total loans

1.29

1.28

1.32

1.36

1.55

Net charge-offs (recoveries) to average loans receivable, net

(0.45

)

(0.27

)

(0.02

)

(0.18

)

0.06

Allowance for Loan Losses:

ALLL, beginning of the year

$

12,882

$

10,951

$

9,463

$

10,491

$

12,994

Provision (recapture of provision)

(4,000

)

(400

)

1,300

(2,200

)

(2,100

)

Charge-offs

-

-

(83

)

(362

)

(642

)

Recoveries

4,465

2,331

271

1,534

239

ALLL, end of the year

$

13,347

$

12,882

$

10,951

$

9,463

$

10,491

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


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

At or For the Year Ended December 31,

2018

2017

2016

2015

2014

Yields and Costs:

Yield on loans

5.13

%

4.96

%

4.99

%

5.18

%

5.37

%

Yield on investments available-for-sale

2.92

2.61

2.31

1.84

1.74

Yield on interest-earning deposits

1.74

1.07

0.52

0.26

0.25

Yield on FHLB stock

5.24

3.32

2.62

1.06

0.10

Yield on interest-earning assets

4.83

4.57

4.39

4.13

4.50

Cost of deposits

1.35

%

1.04

%

0.94

%

0.89

%

0.87

%

Cost of FHLB advances

1.92

1.30

0.86

0.95

0.91

Cost of interest-bearing liabilities

1.46

%

1.10

%

0.92

%

0.90

%

0.88

%

Cost of total deposits

1.28

%

0.99

%

0.90

%

0.86

%

0.85

%

Cost of funds

1.39

1.05

0.89

0.88

0.87

Average Balances:

Loans

$

995,810

$

878,449

$

765,948

$

667,739

$

675,353

Investments available-for-sale

141,100

134,105

132,372

121,893

131,474

Interest-earning deposits

11,628

22,194

45,125

104,476

46,776

FHLB stock

8,748

8,914

7,714

6,527

6,899

Total interest-earning assets

$

1,157,286

$

1,043,662

$

951,159

$

900,635

$

860,502

Deposits

$

828,965

$

722,666

$

648,324

$

614,185

$

581,435

FHLB advances

183,667

192,227

163,893

133,527

128,839

Total interest-bearing liabilities

$

1,012,632

$

914,893

$

812,217

$

747,712

$

710,274

Noninterest-bearing deposits

49,461

39,127

27,596

23,509

11,022

Total deposits and borrowings

$

1,062,093

$

954,020

$

839,813

$

771,221

$

721,296

Average assets

$

1,227,396

$

1,108,656

$

1,010,243

$

958,154

$

910,448

Average stockholders' equity

151,145

142,647

160,192

177,904

182,598


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 stockholder's equity. Tangible assets is 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 our 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. All financial measures reported for periods prior to December 31, 2017, are considered GAAP financial measures:

Dec 31,
2018

Sep 30,
2018

Jun 30,
2018

Mar 31,
2018

Dec 31,
2017

Total stockholders' equity

$

153,738

$

154,713

$

152,554

$

148,755

$

142,634

Less:

Goodwill

889

889

889

889

889

Core deposit intangible

1,116

1,153

1,191

1,228

1,266

Tangible equity

$

151,733

$

152,671

$

150,474

$

146,638

$

140,479

Total assets

1,252,424

1,234,859

1,224,065

1,226,358

1,210,229

Less:

Goodwill

889

889

889

889

889

Core deposit intangible

1,116

1,153

1,191

1,228

1,266

Tangible assets

$

1,250,419

$

1,232,817

$

1,221,985

$

1,224,241

$

1,208,074

Common shares outstanding at period end

10,710,656

10,914,556

10,916,556

10,779,424

10,748,437

Equity to assets ratio

12.28

%

12.53

%

12.46

%

12.13

%

11.79

%

Tangible equity ratio

12.13

12.38

12.31

11.98

11.63

Book value per share

$

14.35

$

14.17

$

13.97

$

13.80

$

13.27

Tangible book value per share

14.17

13.99

13.78

13.60

13.07


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