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

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

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

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

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

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

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

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

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

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


Additional highlights for the quarter ended September 30, 2017:

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

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

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

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

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

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

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although all of our TDRs were performing in accordance with their restructured terms at September 30, 2017.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, now serving the Puget Sound Region through nine full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 3000 Index. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

Forward-looking statements:

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

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2017 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
AssetsSep 30,
2017
Jun 30,
2017
Sep 30,
2016
Three
Month
Change
One Year
Change
Cash on hand and in banks$ 7,910 $ 7,418 $ 5,803 6.6% 36.3%
Interest-earning deposits 14,093 10,996 26,708 28.2 (47.2)
Investments available-for-sale, at fair value 137,847 133,951 133,865 2.9 3.0
Loans receivable, net of allowance of $12,110,
$11,285, and $11,006, respectively
931,862 861,672 845,930 8.1 10.2
Premises and equipment, net 20,568 19,501 18,296 5.5 12.4
Federal Home Loan Bank ("FHLB") stock, at cost 8,902 8,902 10,031 0.0 (11.3)
Accrued interest receivable 3,709 3,165 3,378 17.2 9.8
Deferred tax assets, net 2,381 2,620 3,053 (9.1) (22.0)
Other real estate owned ("OREO") 1,825 1,825 2,331 0.0 (21.7)
Bank owned life insurance ("BOLI"), net 28,894 28,721 23,950 0.6 20.6
Prepaid expenses and other assets 3,304 2,937 1,353 12.5 144.2
Goodwill 979 - - n/a n/a
Core deposit intangible 1,304 - - n/a n/a
Total assets$ 1,163,578 $ 1,081,708 $1,074,698 7.6% 8.3%
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits$ 47,652 $ 35,126 $ 33,060 35.7% 44.1%
Interest-bearing deposits 768,088 700,449 659,111 9.7 16.5
Total deposits 815,740 735,575 692,171 10.9 17.9
Advances from the FHLB 191,500 191,500 221,500 0.0 (13.5)
Advance payments from borrowers for taxes and
insurance
4,267 2,183 3,752 95.5 13.7
Accrued interest payable 280 286 116 (2.1) 141.4
Other liabilities 11,031 8,650 6,105 27.5 80.7
Total liabilities 1,022,818 938,194 923,644 9.0% 10.7%
Commitments and contingencies
Stockholders' Equity
Preferred stock, $0.01 par value; authorized
10,000,000 shares; no shares issued or
outstanding$ - $ - $ - n/a n/a
Common stock, $0.01 par value; authorized
90,000,000 shares; issued and outstanding
10,763,915 shares at September 30, 2017,
11,041,865 shares at June 30, 2017, and
11,898,149 shares at September 30, 2016 108 110 119 (1.8)% (9.2)%
Additional paid-in capital 94,168 98,469 111,066 (4.4) (15.2)
Retained earnings, substantially restricted 52,984 51,844 46,569 2.2 13.8
Accumulated other comprehensive (loss) income,
net of tax
(857) (984) 71 (12.9) (1307.0)
Unearned Employee Stock Ownership Plan
("ESOP") shares
(5,643) (5,925) (6,771) (4.8) (16.7)
Total stockholders' equity 140,760 143,514 151,054 (1.9) (6.8)
Total liabilities and stockholders' equity$ 1,163,578 $ 1,081,708 $1,074,698 7.6% 8.3%
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
Sep 30,
2017
Jun 30,
2017
Sep 30,
2016
Three
Month
Change
One
Year
Change
Interest income
Loans, including fees$ 10,959 $ 10,352 $ 9,967 5.9% 10.0%
Investments available-for-sale 869 887 792 (2.0) 9.7
Interest-earning deposits with banks 108 42 38 157.1 184.2
Dividends on FHLB Stock 67 62 45 8.1 48.9
Total interest income 12,003 11,343 10,842 5.8 10.7
Interest expense
Deposits 1,933 1,776 1,545 8.8 25.1
FHLB advances and other borrowings 695 570 363 21.9 91.5
Total interest expense 2,628 2,346 1,908 12.0 37.7
Net interest income 9,375 8,997 8,934 4.2 4.9
Provision for loan losses 500 100 900 400.0 (44.4)
Net interest income after provision for loan losses 8,875 8,897 8,034 (0.2) 10.5
Noninterest income
Net gain on sale of investments 47 56 33 (16.1) 42.4
BOLI income 173 116 251 49.1 (31.1)
Wealth management revenue 252 307 165 (17.9) 52.7
Other 259 252 224 2.8 15.6
Total noninterest income 731 731 673 0.0 8.6
Noninterest expense
Salaries and employee benefits 4,406 4,409 3,821 (0.1) 15.3
Occupancy and equipment 726 579 467 25.4 55.5
Professional fees 458 482 458 (5.0) 0.0
Data processing 372 519 259 (28.3) 43.6
OREO related (reimbursements), net (6) (20) (11) (70.0) (45.5)
Regulatory assessments 122 112 82 8.9 48.8
Insurance and bond premiums 105 98 86 7.1 22.1
Marketing 102 52 67 96.2 52.2
Other general and administrative 551 605 25 (8.9) 2,104.0
Total noninterest expense 6,836 6,836 5,254 0.0 30.1
Income before federal income tax provision 2,770 2,792 3,453 (0.8) (19.8)
Federal income tax provision 909 924 847 (1.6) 7.3
Net income$ 1,861 $ 1,868 $ 2,606 (0.4)% (28.6)%
Basic earnings per share$ 0.18 $ 0.18 $ 0.22
Diluted earnings per share$ 0.18 $ 0.18 $ 0.22
Weighted average number of common shares
outstanding
10,287,663 10,363,345 11,859,683
Weighted average number of diluted shares
outstanding
10,427,038 10,500,829 12,011,952


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


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

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

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


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

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


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

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

Source:First Financial Northwest, Inc.