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First Financial Northwest, Inc. Reports Fourth Quarter Net Income of $2.4 Million or $0.23 per Diluted Share and $8.5 Million or $0.81 per Diluted Share for the Year Ended December 31, 2017

RENTON, Wash., Jan. 25, 2018 (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 December 31, 2017, of $2.4 million, or $0.23 per diluted share, compared to net income of $1.9 million, or $0.18 per diluted share, for the quarter ended September 30, 2017, and $3.0 million, or $0.29 per diluted share, for the quarter ended December 31, 2016. For the year ended December 31, 2017, net income was $8.5 million, or $0.81 per diluted share, compared to $8.9 million, or $0.74 per diluted share, for the year ended December 31, 2016.

Net loans receivable increased to $988.7 million for the quarter ended December 31, 2017, compared to $931.9 million at September 30, 2017, and $815.0 million at December 31, 2016. For the year ended December 31, 2017, net loans receivable increased $173.7 million to $988.7 million, from $815.0 million at December 31, 2016. Internally generated growth was supplemented through loan purchases of $77.9 million during the year. During the year ended December 31, 2017, the Bank purchased $49.5 million in one-to-four family residential and multifamily real estate loans secured by properties located in the states of Washington, Oregon and California, $25.2 million in commercial real estate loans with primarily single tenants located predominantly in the eastern half of the United States, and $3.2 million in aircraft loans. The average balance of net loans receivable totaled $963.1 million for the quarter ended December 31, 2017, compared to $879.1 million for the quarter ended September 30, 2017, and $845.3 million for the quarter ended December 31, 2016. For the year ended December 31, 2017, the average balance of net loans receivable was $878.4 million, compared to $765.9 million for the year ended December 31, 2016.

The Company had a $1.2 million recapture of provision for loan losses in the quarter ended December 31, 2017, compared to a provision for loan losses of $500,000 in the quarter ended September 30, 2017, and a recapture of provision of $100,000 in the quarter ended December 31, 2016. The recapture of provision in the quarter ended December 31, 2017, was due primarily to $2.0 million in recoveries during the quarter of amounts previously charged off, reduced by the provision for loan losses required as a result of the growth in net loans receivable, while the provision in the quarter ended September 30, 2017, was due primarily to the growth in net loans receivable, reduced by recoveries received on loans previously charged off. The recapture of provision in the quarter ended December 31, 2016, was due to a reduction in net loans receivable during that quarter. For the year ended December 31, 2017, the recapture of provision for loan losses totaled $400,000, compared to a provision for loan losses of $1.3 million recorded for the year ended December 31, 2016.

Following the passing of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”), the Company elected to restructure a portion of its investment portfolio. Specifically, the Company sold approximately $37 million in securities at a loss of $670,000. The investments sold were all fixed rate securities, with the proceeds reinvested primarily into adjustable rate securities. Also relating to passage of the Tax Act, 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 new lower enacted tax rates.

“I am very pleased with how we finished the year with two consecutive quarters of significant growth in loans and deposits,” stated Joseph W. Kiley III, President and Chief Executive Officer. “Specifically, net loans receivable increased $56.8 million in the fourth quarter, following $70.2 million growth in the third quarter. Organic loan growth was supplemented by loan purchases totaling $25.4 million in the fourth quarter and $52.4 million in the third quarter. For the year, net loans receivable increased $173.7 million, a 21.3% increase over prior year end figures. Deposits at year end were $839.5 million, compared to $717.5 million at December 31, 2016. This $122.0 million in deposit growth during 2017 reflects the acquisition of approximately $75.0 million in deposits from the four branches acquired in August 2017.”

As previously reported, the Bank expanded its geographic footprint during the year with the opening of a new branch in the Crossroads area of Bellevue, Washington, and with the acquisition of four branches from Opus Bank (the “Branch Acquisition”) that closed on August 25, 2017. These branches are located in Woodinville, Clearview, Lake Stevens, and Smokey Point, Washington. In connection with the Branch Acquisition, First Financial Northwest Bank acquired approximately $75.0 million in customer deposits. These deposits at the date of acquisition 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. In addition, a de novo branch office to be located at The Junction in Bothell, Washington is scheduled to open in the first quarter of 2018.

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

December 31, 2017
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$ 30,005 $ 18,099 $ 25,095 $ 225,714 $ 298,819 $ - $ 597,732
The Landing 2,634 405 44 11,555 7,807 - 22,445
Woodinville (1) 1,904 3,124 685 20,527 7,072 - 33,312
Crossroads 606 5,413 81 13,831 945 - 20,876
Total King County 35,149 27,041 25,905 271,627 314,643 - 674,365
Snohomish County:
Mill Creek 1,721 2,931 355 14,325 5,652 - 24,984
Edmonds 1,300 1,119 30 17,576 4,932 - 24,957
Clearview (1) 3,960 3,631 1,247 7,009 1,724 - 17,571
Lake Stevens (1) 1,466 1,266 475 2,829 2,608 - 8,644
Smokey Point (1) 1,838 2,236 444 5,270 3,705 - 13,493
Total Snohomish County 10,285 11,183 2,551 47,009 18,621 - 89,649
Total retail deposits 45,434 38,224 28,456 318,636 333,264 - 764,014
Brokered deposits - - - - - 75,488 75,488
Total deposits$ 45,434 $ 38,224 $ 28,456 $ 318,636 $ 333,264 $ 75,488 $ 839,502

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $107,000.

September 30, 2017
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$ 31,071 $ 17,016 $ 25,717 $ 202,896 $ 311,728 $ - $ 588,428
The Landing 1,148 442 39 11,778 6,279 - 19,686
Woodinville (1) 3,104 3,151 613 19,454 7,124 - 33,446
Crossroads 163 147 1 8,890 630 - 9,831
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
Edmonds 1,441 1,226 31 16,581 6,556 - 25,835
Clearview (1) 5,865 3,713 1,329 7,138 1,946 - 19,991
Lake Stevens (1) 1,914 1,444 535 2,833 2,680 - 9,406
Smokey Point (1) 1,754 2,372 409 4,171 3,739 - 12,445
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
Brokered deposits - - - - - 75,488 75,488
Total deposits$ 47,652 $ 31,590 $ 29,425 $ 285,460 $ 346,125 $ 75,488 $ 815,740

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

Highlights for the year ended December 31, 2017:

  • Net loans receivable increased $173.7 million, or 21.3% during the year, to $988.7 million at December 31, 2017, from $815.0 million at December 31, 2016.
  • The Bank acquired four branch offices and opened a fifth during 2017, more than doubling the number of branch offices from four to nine. A tenth new branch office located at The Junction in Bothell is scheduled to open during the first quarter of 2018.
  • Deposits increased $122.0 million during the year, to $839.5 million at December 31, 2017, a 17.0% increase from $717.5 million at December 31, 2016. Excluding certificates of deposits, deposit balances increased $145.4 million during the year.
  • The Company paid all of its 140 non-executive employees a one-time $1,000 after-tax bonus in response to the signing of the Tax Act.
  • During the year ended December 31, 2017, the Company repurchased 326,800 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. The plan, which expired on November 30, 2017, authorized the repurchase of up to 1.1 million shares of the Company’s common stock, or 10% of its outstanding shares.
  • The Company’s book value per share was $13.27 at December 31, 2017, compared to $13.08 at September 30, 2017, and $12.63 at December 31, 2016.
  • The Bank’s Tier 1 leverage and total capital ratios at December 31, 2017, were 10.2% and 13.8%, respectively, compared to 10.8% and 14.2% at September 30, 2017, and 11.2% and 15.6% at December 31, 2016.

Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”), there was a $1.2 million recapture of provision for loan losses during the quarter ended December 31, 2017. The following items contributed to the recapture of provision during the quarter:

  • The Bank received recoveries on loans previously charged off totaling $2.0 million, decreasing the provision necessary to support the Company’s net loan growth. Approximately $1.8 million of these recoveries related to repayment of loans previously charged off for a single customer. As of December 31, 2017, this customer had approximately $465,000 remaining under contract to be repaid in balances previously charged off. The Bank has one additional customer with approximately $3.9 million in balances previously charged off under contract to be repaid. In the fourth quarter of 2017, the Bank entered into an agreement with this customer relating to the repayment of said balances. The Bank is unable to predict the timing of these repayments. Payments made by these borrowers will result in recoveries that will reduce the amounts necessary to set aside as provisions for loan losses in the periods that repayments are received.
  • The Company’s net loans receivable increased $56.8 million during the quarter to $988.7 million at December 31, 2017, from $931.9 million at September 30, 2017, and was $815.0 million at December 31, 2016.
  • Delinquent loans (loans over 30 days past due) remained low at $101,000 at December 31, 2017, compared to $84,000 at September 30, 2017, and $473,000 at December 31, 2016.
  • Nonperforming loans totaled $179,000 at December 31, 2017, compared to $185,000 at September 30, 2017, and $858,000 at December 31, 2016.
  • Nonperforming loans as a percentage of total loans remained low at 0.02% at both December 31, 2017, and September 30, 2017, compared to 0.10% at December 31, 2016.

The ALLL represented 1.28% of total loans receivable, net of undisbursed funds, at both December 31, 2017, and September 30, 2017, compared to 1.32% at December 31, 2016. Nonperforming assets totaled $662,000 at December 31, 2017, compared to $2.0 million at September 30, 2017, and $3.2 million at December 31, 2016. The 79.2% decline in the Company’s nonperforming assets from the prior year was primarily due to sales of other real estate owned (“OREO”), market value adjustments of OREO, and a reduction in nonperforming loans.

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

Dec 31, Sep 30, Dec 31, Three
Month
One
Year
2017 2017 2016 Change Change
(Dollars in thousands)
Nonperforming loans:
One-to-four family residential$ 128 $ 132 $ 798 $ (4) $ (670)
Consumer 51 53 60 (2) (9)
Total nonperforming loans 179 185 858 (6) (679)
OREO 483 1,825 2,331 (1,342) (1,848)
Total nonperforming assets (1)$ 662 $ 2,010 $ 3,189 $ (1,348) $ (2,527)
Nonperforming assets as a
percent of total assets 0.05% 0.17% 0.31%

(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, 2017.

OREO totaled $483,000 at December 31, 2017, compared to $1.8 million at September 30, 2017, and $2.3 million at December 31, 2016, primarily due to sales of properties and, to a lesser extent, market value adjustments of OREO. We continue to actively market our 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,
2017
Sep 30,
2017
Dec 31,
2016
Three
Month
Change
One Year
Change
(Dollars in thousands)
Nonperforming TDRs:
One-to-four family residential$ $ $ 174 $ $ (174 )
Total nonperforming TDRs 174 (174 )
Performing TDRs:
One-to-four family residential 13,434 15,174 24,274 (1,740) (10,840)
Multifamily 1,134 1,140 1,564 (6) (430)
Commercial real estate 3,194 3,216 4,202 (22) (1,008)
Consumer 43 43 43 0 0
Total performing TDRs 17,805 19,573 30,083 (1,768) (12,278)
Total TDRs$ 17,805 $ 19,573 $ 30,257 $ (1,768) $ (12,452)

Net interest income for the quarter ended December 31, 2017, increased to $10.4 million, compared to $9.4 million for the quarter ended September 30, 2017, and $9.3 million for the quarter ended December 31, 2016, due primarily to the growth in the average balance of net loans outstanding between periods. For the year ended December 31, 2017, net interest income totaled $37.6 million, compared to $34.2 million for the year ended December 31, 2016.

Total interest income increased to $13.3 million during the quarter ended December 31, 2017, compared to $12.0 million in the quarter ended September 30, 2017, and $11.4 million in the quarter ended December 31, 2016. For the year ended December 31, 2017, total interest income increased to $47.6 million compared to $41.7 million in 2016. These increases were due primarily to the growth in the average balances of net loans receivable to $963.1 million for the quarter ended December 31, 2017, compared to $845.3 million for the same period in 2016, and $879.1 million for the quarter ended September 30, 2017. For the year ended December 31, 2017, the average balance of net loans receivable was $878.4 million compared to $765.9 million for the prior year. Additional information related to average balances is provided in “Key Financial Measures” below.

Total interest expense increased to $2.9 million for the quarter ended December 31, 2017, compared to $2.6 million for the quarter ended September 30, 2017, and $2.1 million for the quarter ended December 31, 2016. The higher level of interest expense in the quarter ended December 31, 2017, was due to increases in average deposits and borrowings outstanding, and in short term market interest rates, which adversely impacted the rates paid on our liabilities, many of which are short term in nature. For the year ended December 31, 2017, total interest expense totaled $10.0 million, compared to $7.5 million for the year ended December 31, 2016. This increase was due to the increase in average balances of outstanding interest bearing liabilities and the increase in short term market interest rates experienced in 2017. Advances from the FHLB totaled $216.0 million at December 31, 2017, compared to $191.5 million at September 30, 2017, and $171.5 million at December 31, 2016, as the Company borrowed from the FHLB to support its loan growth. The average cost of FHLB advances was 1.46% for the quarter ended December 31, 2017, compared to 1.40% for the quarter ended September 30, 2017, and 0.83% for the quarter ended December 31, 2016. For the year ended December 31, 2017, the average cost of FHLB advances was 1.30%, compared to 0.86% for the prior year. The balance of brokered certificates of deposits was unchanged at $75.5 million at December 31, 2017, September 30, 2017, and December 31, 2016.

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

Dec 31,
2017
Sep 30,
2017
Dec 31,
2016
Three
Month
Change
One Year
Change
Deposits:(Dollars in thousands)
Noninterest-bearing $ 45,434 $ 47,652 $ 33,422 $ (2,218) $ 12,012
Interest-bearing demand 38,224 31,590 18,532 6,634 19,692
Statement savings 28,456 29,425 28,383 (969) 73
Money market 318,636 285,460 204,998 33,176 113,638
Certificates of deposit, retail (1) 333,264 346,125 356,653 (12,861) (23,389)
Certificates of deposit, brokered 75,488 75,488 75,488 - -
Total deposits$ 839,502 $ 815,740 $ 717,476 $ 23,762 $ 122,026

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $107,000 at December 31, 2017, and $122,000 at September 30, 2017.

Our net interest margin was 3.65% for the quarter ended December 31, 2017, compared to 3.53% for the quarter ended September 30, 2017, and 3.65% for the quarter ended December 31, 2016. The increase in the quarter ended December 31, 2017, from the prior quarter, was influenced by payments received from one borrower on amounts previously charged off. In addition to recognizing the recoveries on amounts previously charged off, the Company recorded $436,000 in additional interest related to these payments during the quarter. Net interest margin for the year ended December 31, 2017, was 3.60%, unchanged from the prior year period.

Noninterest income for the quarter ended December 31, 2017, totaled $211,000, compared to $731,000 in the quarter ended September 30, 2017, and $790,000 in the quarter ended December 31, 2016. The decreases were due primarily to the $670,000 loss on sale of investments due to our portfolio restructuring at year end, as discussed earlier. For the year ended December 31, 2017, noninterest income declined to $2.2 million, from $2.7 million in 2016, primarily due to the loss on sales of securities related to portfolio restructuring.

Noninterest expense for the quarter ended December 31, 2017, increased to $7.1 million from $6.8 million in the quarter ended September 30, 2017, and $5.9 million in the quarter ended December 31, 2016. The quarter ended December 31, 2017, was the first full quarter that included the Bank’s entire nine branch offices, as the four offices included in the Branch Acquisition were acquired on August 25, 2017. Noninterest expense increased to $26.8 million for the year ended December 31, 2017, compared to $22.9 million in 2016. The increase in noninterest expense compared to the year ago period was due primarily to the growth of the Company’s operations, increases in salaries and employee benefits which were mainly a result of standard salary increases and increased staffing as a result of our de novo branches, the Branch Acquisition and the development of new products, as well as increased occupancy and one-time equipment expenses related to converting the Bank’s ATM processing system and continuing to upgrade the original branch location to better serve the Bank’s 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 $690,000 for the year ended December 31, 2017, compared to none in the year ended December 31, 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 $38,000 recognized for the quarter ended December 31, 2017, and $53,000 for the year ended December 31, 2017.

The efficiency ratio improved to 66.69% for the quarter ended December 31, 2017, compared to 67.64% for the quarter ended September 30, 2017, but increased from 57.96% for the quarter ended December 31, 2016. For the year, the efficiency ratio increased to 67.31% in 2017, compared to 62.27% in 2016, primarily as a result of the greater number of locations and employees to support the Company’s growth strategy.

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 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 2018 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)

AssetsDec 31,
2017
Sep 30,
2017
Dec 31,
2016
Three Month
Change
One Year
Change
Cash on hand and in banks$ 9,189 $ 7,910 $ 5,779 16.2% 59.0%
Interest-earning deposits 6,942 14,093 25,573 (50.7) (72.9)
Investments available-for-sale, at fair value 132,242 137,847 129,260 (4.1) 2.3
Loans receivable, net of allowance of $12,882,
$12,110, and $10,951, respectively
988,662 931,862 815,043 6.1 21.3
Premises and equipment, net 20,614 20,568 18,461 0.2 11.7
Federal Home Loan Bank ("FHLB") stock, at cost 9,882 8,902 8,031 11.0 23.0
Accrued interest receivable 4,084 3,709 3,147 10.1 29.8
Deferred tax assets, net 1,211 2,381 3,142 (49.1) (61.5)
Other real estate owned ("OREO") 483 1,825 2,331 (73.5) (79.3)
Bank owned life insurance ("BOLI"), net 29,027 28,894 24,153 0.5 20.2
Prepaid expenses and other assets 5,738 3,304 2,664 73.7 115.4
Goodwill 889 979 - (9.2) n/a
Core deposit intangible 1,266 1,304 - (2.9) n/a
Total assets$ 1,210,229 $ 1,163,578 $ 1,037,584 4.0% 16.6%
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits$ 45,434 $ 47,652 $ 33,422 (4.7)% 35.9%
Interest-bearing deposits 794,068 768,088 684,054 3.4 16.1
Total deposits 839,502 815,740 717,476 2.9 17.0
Advances from the FHLB 216,000 191,500 171,500 12.8 25.9
Advance payments from borrowers for taxes and
insurance
2,515 4,267 2,259 (41.1) 11.3
Accrued interest payable 326 280 231 16.4 41.1
Other liabilities 9,252 11,031 7,993 (16.1) 15.8
Total liabilities 1,067,595 1,022,818 899,459 4.4% 18.7%
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, $0.01 par value; authorized
90,000,000 shares; issued and outstanding
10,748,437 shares at December 31, 2017,
10,763,915 shares at September 30, 2017 and
10,938,251 shares at December 31, 2016 107 108 109 (0.9)% (1.8)%
Additional paid-in capital 94,173 94,168 96,852 0.0 (2.8)
Retained earnings, substantially restricted (1) 54,683 52,984 48,981 3.2 11.6
Accumulated other comprehensive loss, net of tax (1) (969) (857) (1,328) 13.1 (27.0)
Unearned Employee Stock Ownership Plan ("ESOP") shares (5,360) (5,643) (6,489) (5.0) (17.4)
Total stockholders' equity 142,634 140,760 138,125 1.3 3.3
Total liabilities and stockholders' equity$ 1,210,229 $ 1,163,578 $ 1,037,584 4.0% 16.6%

(1) Included in accumulated other comprehensive loss is a $41,000 net gain related to the tax effects on items included in accumulated other comprehensive income (referred to as stranded tax effects) resulting from the Tax Act that may be reclassified to retained earnings if the Financial Accounting Standards Board approves the proposed accounting standard on this topic.

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

Quarter Ended
Dec 31,
2017
Sep 30,
2017
Dec 31,
2016
Three
Month
Change
One Year
Change
Interest income
Loans, including fees $ 12,269 $ 10,959 $ 10,476 12.0% 17.1%
Investments available-for-sale 903 869 830 3.9 8.8
Interest-earning deposits with banks 43 108 37 (60.2) 16.2
Dividends on FHLB Stock 85 67 66 26.9 28.8
Total interest income 13,300 12,003 11,409 10.8 16.6
Interest expense
Deposits 2,117 1,933 1,632 9.5 29.7
FHLB advances and other borrowings 795 695 473 14.4 68.1
Total interest expense 2,912 2,628 2,105 10.8 38.3
Net interest income 10,388 9,375 9,304 10.8 11.7
(Recapture of provision) provision for loan losses (1,200) 500 (100) (340.0) 1,100.0
Net interest income after (recapture of provision)
provision for loan losses
11,588 8,875 9,404 30.6 23.2
Noninterest income
Net (loss) gain on sale of investments (670) 47 17 (1,525.5) (4,041.2)
BOLI income 133 173 203 (23.1) (34.5)
Wealth management revenue 220 252 157 (12.7) 40.1
Deposit related fees 169 113 70 49.6 141.4
Loan related fees 356 144 340 147.2 4.7
Other 3 2 3 50.0 0.0
Total noninterest income 211 731 790 (71.1) (73.3)
Noninterest expense
Salaries and employee benefits 4,673 4,406 3,941 6.1 18.6
Occupancy and equipment 721 726 521 (0.7) 38.4
Professional fees 430 458 492 (6.1) (12.6)
Data processing 326 372 211 (12.4) 54.5
OREO related reimbursements, net (81) (6) (5) 1,250.0 1,520.0
Regulatory assessments 161 122 101 32.0 59.4
Insurance and bond premiums 97 105 89 (7.6) 9.0
Marketing 68 102 49 (33.3) 38.8
Other general and administrative 674 551 451 22.3 49.4
Total noninterest expense 7,069 6,836 5,850 3.4 20.8
Income before federal income tax provision 4,730 2,770 4,344 70.8 8.9
Federal income tax provision 2,324 909 1,323 155.7 75.7
Net income $ 2,406 $ 1,861 $ 3,021 29.3% (20.4)%
Basic earnings per share $ 0.24 $ 0.18 $ 0.29
Diluted earnings per share$ 0.23 $ 0.18 $ 0.29
Weighted average number of common shares
outstanding
10,184,804 10,287,663 10,357,634
Weighted average number of diluted shares
outstanding
10,313,114 10,427,038 10,527,669


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

Year Ended December 31,
2017 2016 2015 One
Year
Change
Two
Year
Change
Interest income
Loans, including fees $ 43,607 $ 38,218 $ 34,612 14.1% 26.0%
Investments available-for-sale 3,504 3,054 2,242 14.7 56.3
Interest-earning deposits with banks 237 235 274 0.9 (13.5)
Dividends on FHLB Stock 296 202 69 46.5 329.0
Total interest income 47,644 41,709 37,197 14.2 28.1
Interest expense
Deposits 7,517 6,101 5,478 23.2 37.2
FHLB advances 2,505 1,406 1,273 78.2 96.8
Total interest expense 10,022 7,507 6,751 33.5 48.5
Net interest income 37,622 34,202 30,446 10.0 23.6
(Recapture of provision) provision for loan losses (400) 1,300 (2,200) (130.8) (81.8)
Net interest income after (recapture of provision)
provision for loan losses
38,022 32,902 32,646 15.6 16.5
Noninterest income
Net (loss) gain on sale of investments (567) 50 92 (1,234.0) (716.3)
BOLI 623 844 533 (26.2) 16.9
Wealth management revenue 919 813 183 13.0 402.2
Deposit related fees 446 261 208 70.9 114.4
Loan related fees 776 671 151 15.6 413.9
Other 11 12 112 (8.3) (90.2)
Total noninterest income 2,208 2,651 1,279 (16.7) 72.6
Noninterest expense
Salaries and employee benefits 17,773 15,377 13,940 15.6 27.5
Occupancy and equipment 2,506 1,984 1,440 26.3 74.0
Professional fees 1,809 1,979 1,631 (8.6) 10.9
Data processing 1,457 911 759 59.9 92.0
OREO related (reimbursements) expenses, net (67) 294 (484) (122.8) (86.2)
Regulatory assessments 491 420 470 16.9 4.5
Insurance and bond premiums 399 349 359 14.3 11.1
Marketing 270 194 211 39.2 28.0
Other general and administrative 2,171 1,441 1,552 50.7 39.9
Total noninterest expense 26,809 22,949 19,878 16.8 34.9
Income before federal income tax provision 13,421 12,604 14,047 6.5 (4.5)
Federal income tax provision 4,942 3,712 4,887 33.1 1.1
Net income $ 8,479 $ 8,892 9,160 (4.6)% (7.4)%
Basic earnings per share $ 0.82 $ 0.75 $ 0.67
Diluted earnings per share$ 0.81 $ 0.74 $ 0.67
Weighted average number of common shares
outstanding
10,289,049 11,868,278 13,528,393
Weighted average number of diluted shares
outstanding
10,437,449 12,028,428 13,685,982


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

December 31, 2017 September 30, 2017 December 31, 2016
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
Commercial real estate:
Residential:
Micro-unit apartments$ 7,020 0.6%$ 7,053 0.7%$ 7,878 0.9%
Other multifamily 177,882 16.3 166,628 16.1 115,372 12.8
Total multifamily 184,902 16.9 173,681 16.8 123,250 13.7
Non-residential:
Office 112,327 10.2 99,350 9.6 101,688 11.3
Retail 129,875 11.9 101,787 9.8 106,294 11.8
Mobile home park 19,970 1.8 21,344 2.1 20,689 2.3
Warehouse 22,701 2.1 22,788 2.2 15,338 1.7
Storage 32,201 2.9 32,365 3.1 34,816 3.9
Other non-residential 44,768 4.1 42,782 4.1 24,869 2.8
Total non-residential 361,842 33.0 320,416 30.9 303,694 33.8
Construction/land development:
One-to-four family residential 87,404 8.0 85,593 8.3 67,842 7.5
Multifamily 108,439 9.9 115,345 11.1 111,051 12.3
Commercial 5,325 0.5 5,325 0.5 - 0.0
Land 36,405 3.3 38,423 3.7 30,055 3.3
Total construction/land development 237,573 21.7 244,686 23.6 208,948 23.1
One-to-four family residential:
Permanent owner occupied 148,304 13.6 139,736 13.5 137,834 15.3
Permanent non-owner occupied 130,351 11.9 126,711 12.2 111,601 12.4
Total one-to-four family residential 278,655 25.5 266,447 25.7 249,435 27.7
Business:
Aircraft 12,491 1.1 11,317 1.1 366 0.0
Other business 10,596 1.0 10,926 1.0 7,572 0.9
Total business 23,087 2.1 22,243 2.1 7,938 0.9
Consumer 9,133 0.8 9,301 0.9 6,922 0.8
Total loans 1,095,192 100.0% 1,036,774 100.0% 900,187 100.0%
Less:
Loans in Process ("LIP") 92,498 91,316 72,026
Deferred loan fees, net 1,150 1,486 2,167
ALLL 12,882 12,110 10,951
Loans receivable, net$ 988,662 $ 931,862 $ 815,043
Concentrations of credit: (1)
Construction loans as % of total capital 108.6% 114.4% 105.9%
Total non-owner occupied commercial
real estate as % of total capital 514.0% 478.9% 428.8%

(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
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
2017 2017 2017 2017 2016
(Dollars in thousands, except per share data)
Performance Ratios:
Return on assets 0.80% 0.66% 0.70% 0.91% 1.12%
Return on equity 6.70 5.13 5.22 6.76 8.58
Dividend payout ratio 29.17 38.89 38.89 26.09 20.62
Equity-to-assets ratio 11.79 12.10 13.27 13.37 13.31
Interest rate spread 3.51 3.38 3.47 3.51 3.53
Net interest margin 3.65 3.53 3.60 3.64 3.65
Average interest-earning assets to average interest-
bearing liabilities
113.32 114.08 114.29 114.74 113.75
Efficiency ratio 66.69 67.64 70.27 64.57 57.96
Noninterest expense as a percent of average total
assets
2.34 2.42 2.57 2.35 2.17
Book value per common share$ 13.27 $ 13.08 $ 13.00 $ 12.84 $ 12.63
Capital Ratios: (1)
Tier 1 leverage ratio 10.20% 10.80% 11.46% 11.57% 11.17%
Common equity tier 1 capital ratio 12.52 12.95 13.94 14.40 14.38
Tier 1 capital ratio 12.52 12.95 13.94 14.40 14.38
Total capital ratio 13.77 14.20 15.19 15.65 15.63
Asset Quality Ratios: (2)
Nonperforming loans as a percent of total loans 0.02% 0.02% 0.07% 0.07% 0.10%
Nonperforming assets as a percent of total assets 0.05 0.17 0.22 0.27 0.31
ALLL as a percent of total loans 1.28 1.28 1.29 1.31 1.32
ALLL as a percent of nonperforming loans 7,196.65 6,545.95 1,935.68 1,853.49 1,276.34
(Recoveries) charge-offs, net to average loans
receivable, net
(0.20) (0.04) (0.00) (0.00) (0.01)
Allowance for Loan Losses:
ALLL, beginning of the quarter$ 12,110 $ 11,285 $ 11,158 $ 10,951 $ 11,006
(Recapture of provision) provision (1,200) 500 100 200 (100)
Charge-offs - - - - (37)
Recoveries 1,972 325 27 7 82
ALLL, end of the quarter$ 12,882 $ 12,110 $ 11,285 $ 11,158 $ 10,951

(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)

At or For the Quarter Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31,
2017 2017 2017 2017 2016
(Dollars in thousands, except per share data)
Yields and Costs:
Yield on loans 5.05% 4.95% 4.91% 4.93% 4.92%
Yield on investments available-for-sale 2.52 2.59 2.69 2.66 2.49
Yield on interest-earning deposits 1.23 1.27 1.00 0.74 0.59
Yield on FHLB stock 3.42 2.91 2.89 4.14 2.57
Yield on interest-earning assets 4.67 4.51 4.54 4.52 4.47
Cost of deposits 1.08 1.05 1.03 1.00 0.97
Cost of borrowings 1.46 1.40 1.24 1.05 0.83
Cost of interest-bearing liabilities 1.16 1.13 1.07 1.01 0.94
Average Balances:
Loans $ 963,097 $ 879,075 $ 844,853 $ 825,251 $ 845,276
Investments available-for-sale 141,962 132,959 132,375 128,993 132,077
Interest-earning deposits 13,843 33,854 16,831 24,233 25,082
FHLB stock 9,859 9,126 8,616 8,034 10,205
Total interest-earning assets $ 1,128,761 $ 1,055,014 $ 1,002,675 $ 986,511 $ 1,012,640
Deposits $ 780,671 $ 727,702 $ 692,922 $ 688,298 $ 664,416
Borrowings 215,418 197,098 184,357 171,500 225,848
Total interest-bearing liabilities$ 996,089 $ 924,800 $ 877,279 $ 859,798 $ 890,264
Average assets$ 1,199,774 $ 1,120,176 $ 1,066,477 $ 1,046,473 $ 1,071,597
Average stockholders' equity$ 142,390 $ 143,975 $ 143,643 $ 140,546 $ 139,658



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

At or For the Year Ended December 31,
2017 2016 2015 2014 2013
(Dollars in thousands, except per share data)
Performance Ratios:
Return on assets 0.76% 0.88% 0.96% 1.17% 2.73%
Return on equity 5.94 5.55 5.15 5.85 13.12
Dividend payout ratio 32.93 32.02 35.57 27.73 8.11
Equity-to-assets 11.79 13.31 17.42 19.36 20.02
Interest rate spread 3.47 3.47 3.23 3.62 3.49
Net interest margin 3.60 3.60 3.38 3.77 3.68
Average interest-earning assets to average
interest-bearing liabilities
114.07 117.11 120.45 121.15 121.77
Efficiency ratio 67.31 62.27 62.66 56.37 66.08
Noninterest expense as a percent of average total
assets
2.42 2.27 2.07 2.03 2.36
Book value per common share$ 13.27 $ 12.63 $ 12.40 $ 11.96 $ 11.25
Capital Ratios: (1)
Tier 1 leverage ratio 10.20% 11.17% 11.61% 11.79% 18.60%
Common equity tier 1 capital ratio 12.52 14.38 16.36 n/a n/a
Tier 1 capital ratio 12.52 14.38 16.36 18.30 27.18
Total capital ratio 13.77 15.63 17.62 19.56 28.44
Asset Quality Ratios: (2)
Nonperforming loans as a percent of total loans 0.02% 0.10% 0.16% 0.20% 0.59%
Nonperforming assets as a percent of total assets 0.05 0.31 0.48 1.13 1.68
ALLL as a percent of total loans 1.28 1.32 1.36 1.55 1.91
ALLL as a percent of nonperforming loans 7,196.65 1,276.34 872.17 783.50 325.26
(Recoveries) charge-offs, net to average loans
receivable, net
(0.27) (0.02) (0.18) 0.06 (0.08)
Allowance for Loan Losses:
ALLL, beginning of the year$ 10,951 $ 9,463 $ 10,491 $ 12,994 $ 12,542
(Recapture of provision) provision (400) 1,300 (2,200) (2,100) (100)
Charge-offs - (83) (362) (642) (1,596)
Recoveries 2,331 271 1,534 239 2,148
ALLL, end of the year$ 12,882 $ 10,951 $ 9,463 $ 10,491 $ 12,994

(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)

At or For the Year Ended December 31,
2017 2016 2015 2014 2013
(Dollars in thousands, except per share data)
Yields and Costs:
Yield on loans 4.96% 4.99% 5.18% 5.37% 5.54%
Yield on investments available-for-sale 2.61 2.31 1.84 1.74 1.49
Yield on interest-earning deposits 1.07 0.52 0.26 0.25 0.26
Yield on FHLB stock 3.32 2.62 1.06 0.10 0.04
Yield on interest-earning assets 4.57% 4.39% 4.13% 4.50% 4.58%
Cost of deposits 1.04% 0.94% 0.89% 0.87% 1.09%
Cost of borrowings 1.30 0.86 0.95 0.91 1.08
Cost of interest-bearing liabilities 1.10% 0.92% 0.90% 0.88% 1.09%
Average Balances:
Loans $ 878,449 $ 765,948 $ 667,739 $ 675,353 $ 653,238
Investments available-for-sale 134,105 132,372 121,893 131,474 150,507
Interest-earning deposits 22,194 45,125 104,476 46,776 30,749
FHLB stock 8,914 7,714 6,527 6,899 7,170
Total interest-earning assets $ 1,043,662 $ 951,159 $ 900,635 $ 860,502 $ 841,664
Deposits $ 722,666 $ 648,324 $ 614,185 $ 581,435 $ 623,392
Borrowings 192,227 163,893 133,527 128,839 67,796
Total interest-bearing liabilities$ 914,893 $ 812,217 $ 747,712 $ 710,274 $ 691,188
Average assets$ 1,108,656 $ 1,010,243 $ 958,154 $ 910,448 $ 895,118
Average stockholders' equity$ 142,647 $ 160,192 $ 177,904 $ 182,598 $ 186,537

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.

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