First Financial Northwest, Inc. - FORM 8-K - EX-99 - EXHIBIT 99.1 FOR THE FORM 8-K FOR THE EVENT ON JANUARY 30, 2014

Attached files

file	filename
8-K - FIRST FINANCIAL NORTHWEST, INC. FOR FORM 8-K FOR THE EVENT ON JANUARY 30, 2014 - First Financial Northwest, Inc.	k813014.htm

Exhibit 99.1

**For Immediate Release**

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

First Financial Northwest, Inc.

Reports Net Income for the Fourth Quarter of $3.9 Million or $0.25 Per Share and $24.5 Million or $1.47

Per Share for the Year Ended December 31, 2013

Renton, Washington – January 30, 2014 - First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Savings Bank Northwest (the “Bank”), today reported net income for the quarter ended December 31, 2013 of $3.9 million, or $0.25 per diluted share, compared to a net income of $2.6 million, or $0.16 per diluted share for the quarter ended September 30, 2013 and net income of $1.5 million, or $0.09 per diluted share for the comparable quarter in 2012. For the year ended December 31, 2013, net income was $24.5 million or $1.47 per diluted share, compared to $2.7 million, or $0.15 per diluted share for the year ended December 31, 2012.

“Net income of $3.9 million for the fourth quarter is a significant improvement for our Company. Our efforts to reduce nonperforming assets are reflected in our nonperforming loan totals which declined to $4.0 million at December 31, 2013, compared to $9.4 million at September 30, 2013 and $22.8 million at December 31, 2012. Another bright spot for 2013 was the decline in other real estate owned (“OREO”) to $11.5 million at year end, from $12.6 million at September 30, 2013 and $17.3 million at the end of 2012,” stated Joseph W. Kiley III, President and Chief Executive Officer.

“In addition, despite significant loan prepayment activity as a result of the low interest rate environment throughout most of 2013, we increased net loans receivable to $663.2 million at December 31, 2013, a $12.7 million increase from $650.5 million one year earlier, including increasing the amount of higher yielding non-residential loans,” continued Kiley. “We are also pleased with the improvement in the Company’s stock price per share which closed at $10.37 on December 31, 2013 compared to $7.55 on December 31, 2012 and $5.90 on December 31, 2011. The Company’s market capitalization (as measured by multiplying shares outstanding by closing share price) increased to $170 million at December 31, 2013 compared to $142 million at December 31, 2012 and $111 million at December 31, 2011. This increase occurred even with the reduction in shares outstanding primarily as a product of our share repurchase programs conducted in 2013, through which we repurchased 2.7 million shares,” concluded Kiley.

As reported previously, the Company reversed most of the valuation allowance on its deferred tax asset (“DTA”) during the quarter ended June 30, 2013, reflecting its return to profitability and its expectation of sustainable profitability for future periods. During the quarter ended September 30, 2013, the Company reversed an additional $135,000 of its DTA allowance and in the quarter ended December 31, 2013 it reversed the remainder of the valuation allowance, exclusive of a $431,000 valuation allowance associated with capital loss carry-forwards. At December 31, 2013, the Company’s balance sheet reflects a net DTA of $14.8 million which is expected to be utilized in future periods when the Company recognizes future taxable earnings. During the quarter ended December 31, 2013, the Company recorded a tax expense of $343,000 as a result of actual earnings exceeding previously projected amounts.

Highlights for the quarter ended December 31, 2013 included:

·	Nonperforming assets at December 31, 2013 decreased to $15.5 million from $22.0 million at September 30, 2013 and $40.1 million at December 31, 2012;

Expenses and market value adjustments related to OREO and gains on sale of OREO properties decreased to $78,000 in the aggregate for the quarter, compared to $123,000 during the third quarter of 2013 and totaled a net gain of $108,000 for the year ended December 31, 2013 compared to a expense of $3.2 million for the prior year; Gains on sale of OREO improved to $1.1 million for the year ended December 31, 2013 up from $607,000 for the prior year.

·	The Company’s book value per share at December 31, 2013, increased to $11.25 from $11.05 at September 30, 2013 and $9.95 at December 31, 2012;

·	The Bank’s Tier 1 and total risk-based capital ratios at December 31, 2013 were 18.60% and 28.44%, respectively;

Based on management’s evaluation of the adequacy of the allowance for loan and lease losses (“ALLL”), a $200,000 recovery from the allowance for loan losses was appropriate for the fourth quarter of 2013. The following items contributed to this recovery during the quarter ended December 31, 2013:

The Bank received recoveries of amounts previously charged off totaling $1.3 million during the quarter, offsetting current period loan charge-offs of $333,000. For the year ended December 31, 2013, recoveries of amounts previously charged off totaled $2.1 million, offsetting loan charge-offs of $1.6 million.

·	Delinquent loans (loans over 30 days past due), decreased to $4.3 million at December 31, 2013, from $5.5 million at September 30, 2013 and $20.9 million at December 31, 2012;

·	Nonperforming loans decreased to $4.0 million at December 31, 2013, from $9.4 million at September 30, 2013 and $22.8 million at December 31, 2012, reflecting continuing improvement in the quality of our loan portfolio;

·	Nonperforming loans as a percentage of total loans improved to 0.59% at December 31, 2013, compared to 1.41% at September 30, 2013 and 3.42% at December 31, 2012; and

·	Nonperforming assets decreased to $15.5 million at December 31, 2013, compared to $22.0 million at September 30, 2013, and $40.1 million at December 31, 2012.

The ALLL represented 325.3% of nonperforming loans and 1.91% of net loans receivable at December 31, 2013 compared to 130.1% and 1.84%, respectively, at September 30, 2013 and 55.11% and 1.89% respectively at December 31, 2012.

The following table presents a breakdown of our nonperforming assets:

		December 31, 2013		September 30, 2013		December 31, 2012		Three Month Decrease		One Year Decrease
	(dollars in thousands)
Nonperforming loans:
One-to-four family residential	$	2,297	$	3,003	$	6,248	$	(706)	$	(3,951)
Multifamily		233		238		4,711		(5)		(4,478)
Commercial real estate		1,198		1,204		6,274		(6)		(5,076)
Construction/land development		223		4,328		4,767		(4,105)		(4,544)
Consumer		44		662		759		(618)		(715)
Total nonperforming loans	$	3,995	$	9,435	$	22,759	$	(5,440)	$	(18,764)

OREO		11,465		12,600		17,347		(1,135)		(5,882)

Total nonperforming assets (1)	$	15,460	$	22,035	$	40,106	$	(6,575)	$	(24,646)

Nonperforming assets as a percent of total assets		1.68%		2.47%		4.25%

(1) The difference between the $15.5 million of nonperforming assets at December 31, 2013, reported above, and the amount reported by certain analysts of our nonperforming assets is due to the analysts’ inclusion of all Troubled Debt Restructured Loans (“TDRs”) as nonperforming loans, although 98.4% of our TDRs are performing in accordance with their restructured terms. The remaining 1.6% of TDRs that were nonperforming at December 31, 2013 are reported above as nonperforming loans.

The following table presents a breakdown of our OREO by county and property type at December 31, 2013:

	County
		King		Pierce		Kitsap		All Other		Total OREO	Number of Properties	Percent of Total OREO
	(dollars in thousands)
OREO:
One-to-four family residential	$	884	$	328	$	-	$	-	$	1,212	7	10.6%
Commercial real estate (1)		-		7,865		920		912		9,697	12	84.6%
Construction/land development		-		223		-		333		556	2	4.8%

Total OREO	$	884	$	8,416	$	920	$	1,245	$	11,465	21	100.0%

(1) Of the 12 properties classified as commercial real estate, seven are office/retail buildings, two are mixed-use buildings and three are undeveloped lots.

OREO decreased $ 1.1 million to $11.5 million at December 31, 2013, from $12.6 million at September 30, 2013, as sales and write-downs of OREO exceeded transfers of loans into OREO during the quarter. We sold $1.2 million of OREO during the fourth quarter of 2013, generating net gains of $62,000. We evaluate our OREO inventory quarterly. As a result of this evaluation, we expensed $47,000 related to the decline in the market values of OREO properties during the quarter, as compared to $135,000 during the third quarter of 2013. OREO market value adjustment for the year ended December 31, 2013, also declined significantly to $403,000 as compared to $2.0 million for the prior year. We continue to actively market our OREO properties in an effort to minimize the amount of holding costs incurred.

The following table presents a breakdown of our TDRs:

		December 31, 2013		September 30, 2013		December 31, 2012		Three Month Increase/ Decrease		One Year Increase/ Decrease
	(in thousands)
Nonperforming TDRs:
One-to-four family residential	$	924	$	783	$	3,422	$	141	$	(2,498)
Multifamily		-		-		1,058		-		(1,058)
Consumer		44		45		48		(1)		(4)

Total nonperforming TDRs	$	968	$	828	$	4,528	$	140	$	(3,560)

Performing TDRs:
One-to-four family residential	$	45,851	$	48,512	$	52,644	$	(2,661)	$	(6,793)
Multifamily		2,208		2,218		1,239		(10)		969
Commercial real estate		12,111		12,158		11,965		(47)		146

Total performing TDRs	$	60,170	$	62,888	$	65,848	$	(2,718)	$	(5,678)

Total TDRs	$	61,138	$	63,716	$	70,376	$	(2,578)	$	(9,238)

During the fourth quarter of 2013, TDRs decreased to $61.1 million, compared to $63.7 million at September 30, 2013 and $70.4 million at December 31, 2012. The Company’s philosophy is to restructure the loan so that the customer can continue to make payments while minimizing the potential loss to the Bank. As part of the restructure, the portion of the loan that is determined to be uncollectable is charged-off. After the restructure, the Bank expects full payment of the restructured amount. At December 31, 2013, $60.1 million, or 98.4% of TDRs were performing in accordance with their repayment terms.

Net interest income for the fourth quarter of 2013 increased to $8.1 million, compared to $7.7 million in the third quarter of 2013, and $7.0 million in the fourth quarter of 2012. Net interest income for the year ended December 31, 2013 increased $1.8 million, or 6.1%, to $31.0 million, as compared to $29.2 million for the year ended December 31, 2012.

Interest income for the fourth quarter of 2013 increased to $9.8 million, compared to $9.5 million in the quarter ended September 30, 2013. This increase was due largely to a $3.8 million construction/land development loan that returned to accrual status during the quarter ended December 31, 2013. Interest income for the year ended December 31, 2013 was $38.5 million compared to $41.5 million a year earlier. This decrease was due primarily to the low interest rate environment during 2013 which resulted in a significant number of loans being refinanced during the year and a decline in the average balance of loans outstanding during the year ended December 31, 2013 as compared to last year.

Interest expense decreased to $1.7 million for the quarter ended December 31, 2013, as compared to $1.8 million in the quarter ended September 30, 2013. Interest expense for the year ended December 31, 2013 decreased $4.7 million to $7.5 million, compared to $12.2 million for the year ended December 31, 2012. The primary reason for these declines in interest expense was related to our certificates of deposit, most of which continue to mature and reprice at rates lower than the previously contracted rate and a decrease in the average balance of certificates of deposit, as a number of certificates of deposit were not renewed at maturity. Also contributing to the year over year improvement in interest expense was the restructuring of the Bank’s wholesale borrowings from the Federal Home Loan Bank of Seattle. Specifically, the Bank repaid in January 2013, upon its maturity, a $50 million advance which had a rate of 2.17%. In addition, in March 2013 the Bank replaced $33.1 million in advances with lower rate advances reducing the average rate being paid on the advances from 2.93% to 0.81%.

Our net interest margin improved to 3.82% for the quarter ended December 31, 2013, compared to 3.71% for the quarter ended September 30, 2013. For the year ended December 31, 2013, our net interest margin increased to 3.68% compared to 3.08% for the year ended December 31, 2012, due in large part to the interest expense reductions noted above.

Noninterest income for the quarter ended December 31, 2013 increased to $372,000 compared to $120,000 in the quarter ended September 30, 2013. The primary reason for this increase relates to a $325,000 gain on the sale of an investment property during the fourth quarter. For the year ending December 31, 2013, noninterest income decreased to $751,000 compared to $836,000 in the prior year.

Noninterest expense for the quarter ended December 31, 2013 decreased $1.0 million to $4.4 million from $5.4 million during the quarter ended September 30, 2013. This decrease was primarily the result of reductions in salary and employee benefits expense relating to management changes announced previously and from reductions in stock based compensation expenses as most of our outstanding stock options and restricted shares were issued under the Company’s 2008 Equity Incentive Plan and have now been fully expensed following completion of their five year vesting period.

Noninterest expense for the year ended December 31, 2013 decreased $4.4 million to $20.9 million compared to $25.3 million in 2012. The decrease in noninterest expense during the year ended December 31, 2013 compared to the prior year was primarily due to improvements in expenses, market value adjustments and gains on sale related to our OREO. Net gains on sale of OREO property improved to $1.1 million for the year ended December 31, 2013 from $607,000 in the prior year while OREO market value adjustments improved to $403,000 during 2013 from $2.0 million for 2012. Net OREO related expenses improved to $601,000 in 2013 from $1.8 million a year earlier. Regulatory assessments also contributed to the improvement in noninterest expense, declining to $693,000 in 2013 compared to $1.0 million in 2012, as a result of the Bank’s improved condition and regulatory assessment. Finally, proxy contest and related litigation expenses in 2013 declined to $106,000 compared to $1.1 million in 2012. These items all contributed to the improvement in noninterest expense in 2013, as reflected in our improved efficiency ratio of 65.93% for the year ended December 31, 2013 compared to 84.15% in the prior year.

First Financial Northwest, Inc. is the parent company of First Savings Bank Northwest, a Washington chartered stock savings bank headquartered in Renton, Washington, serving the Puget Sound Region through its full-service banking office. We are a part of the ABA NASDAQ Community Bank Index as well as the Russell 2000 and 3000 Indices. For additional information about us, please visit our website at www.fsbnw.com and click on the “Investor Relations” section.

Forward-looking statements:

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and nonperforming assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and our bank subsidiary by the Federal Deposit Insurance Corporation (“FDIC”), the Washington State Department of Financial Institutions, Division of Banks (“Washington DFI”) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against the Company or the Bank,which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; our ability to pay dividends on our common stock; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules or as a result of Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012. Any of the forward-looking statements that we make in this Press Release and in the other public statements we make 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. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made by or on our behalf. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We undertake no responsibility to update or revise any forward-looking statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands, except share data)

(Unaudited)

	December 31,
Assets	2013			2012			One Year Increase/ (Decrease)

Cash on hand and in banks	$	6,074		$	4,289			41.6	%
Interest-bearing deposits		49,501			83,452			(40.7	)
Investments available-for-sale, at fair value		144,364			152,262			(5.2	)
Loans receivable, net of allowance of $12,994 and $12,542		663,153			650,468			2.0
Premises and equipment, net		17,291			18,073			(4.3	)
FHLB stock, at cost		7,017			7,281			(3.6	)
Accrued interest receivable		3,698			3,484			6.1
Deferred tax assets, net		14,835			1,000			1,383.5
OREO		11,465			17,347			(33.9	)
Prepaid expenses and other assets		3,581			4,999			(28.4	)
Total Assets	$	920,979		$	942,655			(2.3	)%

Liabilities and Stockholder’s Equity

Interest-bearing deposits	$	601,446		$	659,643			(8.8	)
Noninterest-bearing deposits		10,619			6,154			72.6
Advances from the FHLB		119,000			83,066			43.3
Advance payments from borrowers for taxes and insurance		1,846			2,186			(15.6	)
Accrued interest payable		88			179			(50.8	)
Other liabilities		3,625			4,310			(15.9	)
Total Liabilities	$	736,624		$	755,538			(2.5	)%

Commitments and contingencies

Stockholders’ Equity
Preferred stock, $0.01 par value; authorized 10,00,000 shares; no shares issued or outstanding	$	-		$	-			-		-

Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding 16,392,139 shares at December 31, 2013, and 18,805,168 shares at December 31, 2012		164			188			(12.8	)
Additional paid-in capital		166,866			190,534			(12.4	)
Retained earnings, substantially restricted		29,220			6,650			339.4
Accumulated other comprehensive income (loss), net of tax		(2,020	)		748			(370.1	)
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(9,875	)		(11,003	)		(10.3	)

Total Stockholders’ Equity	$	184,355		$	187,117			(1.5	)%

Total Liabilities and Stockholders’ Equity	$	920,979		$	942,655			(2.3	)%

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except share data)

(Unaudited)


	Quarter Ended
	December 31, 2013			September 30, 2013			December 31, 2012			Three Month Increase/ (Decrease) %			One Year Increase/ (Decrease) %

Interest income
Loans, including fees	$	9,105		$	8,995		$	9,143			1.2	%		(0.4	) %
Investments available-for-sale		641			533			543			20.3			18.0
Interest-bearing deposits		21			19			62			10.5			(66.1	)
Dividends on FHLB stock		1			2			-			(50.0	)		n/a
Total interest income	$	9,768		$	9,549		$	9,748			2.3			0.2
Interest Expense
Deposits		1,483			1,655			2,194			(10.4	)		(32.4	)
FHLB advances		211			149			516			41.6			(59.1	)
Total interest expense	$	1,694		$	1,804		$	2,710			(6.1	)		(37.5	)
Net interest income	$	8,074		$	7,745		$	7,038			4.2			14.7
Provision for loan losses		(200	)		-			-			n/a			n/a
Net interest income after provision for loan losses
Net interest income after provision for loan losses	$	8,274		$	7,745		$	7,038			6.8			17.6
Noninterest income
Net gain (loss) on sale of investments		-			(39	)		13			(100.0	)		(100.0	)
Other		372			159			105			134.0			254.3
Total noninterest income	$	372		$	120		$	118			210.0			215.3
Noninterest expense
Salaries and employee benefits		2,694			3,822			3,268			(29.5	)		(17.6	)
Occupancy and equipment		332			339			361			(2.1	)		(8.0	)
Professional fees		424			452			449			(6.2	)		(5.6	)
Data processing		164			175			161			(6.3	)		1.9
Gain on sale of OREO property, net		(62	)		(35	)		(180	)		77.1			(65.6	)
OREO market value adjustments		47			135			344			(65.2	)		(86.3	)
OREO related expenses, net		93			23			343			304.3			(72.9	)
Regulatory assessments		144			172			295			(16.3	)		(51.2	)
Insurance and bond premiums		115			109			101			5.5			13.9
Proxy contest and related litigation		-			1			186			(100.0	)		(100.0	)
Marketing		15			29			46			(48.3	)		(67.4	)
Other general and administrative		404			166			271			143.4			49.1
Total noninterest expense	$	4,370		$	5,388		$	5,645			(18.9	)		(22.6	)
Income before federal income tax provision (benefit)
Income before federal income tax provision (benefit)		4,276			2,477			1,511			72.6			183.0
Federal income tax provision (benefit)		343			(135	)		-			(354.1	)		n/a
Net income	$	3,933		$	2,612		$	1,511			50.6			160.3

Basic earnings per share	$	0.25		$	0.16		$	0.09			56.3			177.8
Diluted earnings per share	$	0.25		$	0.16		$	0.09			56.3			177.8

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except share data)

(Unaudited)


	Year Ended December 31,
	2013			2012			2011

Interest income
Loans, including fees	$	36,207		$	38,956		$	46,608
Investments available-for-sale		2,250			2,143			4,040
Interest-bearing deposits		79			367			404
Dividends on FHLB stock		3			-			-

Total interest income	$	38,539		$	41,466		$	51,052
Interest Expense
Deposits		6,794			10,191			16,215
FHLB advances		732			2,055			2,270
Total interest expense	$	7,526		$	12,246		$	18,485
Net interest income	$	31,013		$	29,220		$	32,567
Provision for loan losses		(100	)		3,050			4,700
Net interest income after provision for loan losses
Net interest income after provision for loan losses	$	31,113		$	26,170		$	27,867
Noninterest income
Net gain (loss) on sale of investments		(38	)		301			2,226
Other		789			535			307
Total noninterest income	$	751		$	836		$	2,533
Noninterest expense
Salaries and employee benefits		13,885			13,826			13,259
Occupancy and equipment		1,370			1,552			1,555
Professional fees		1,619			1,850			1,966
Data processing		677			701			761
Gain on sale of OREO property, net		(1,112	)		(607	)		(1,561	)
OREO market value adjustments		403			2,046			1,924
OREO related expenses, net		601			1,764			2,973
Regulatory assessments		693			1,004			2,437
Insurance and bond premiums		459			401			990
Proxy contest and related litigation		106			1,054			-
Marketing		104			227			205
Prepayment penalty on FHLB advances		679			-			-
Other general and administrative		1,458			1,474			1,649
Total noninterest expense	$	20,942		$	25,292		$	26,158
Income before federal income tax benefit
Income before federal income tax benefit		10,922			1,714			4,242
Federal income tax benefit		(13,543	)		(999	)		-
Net income	$	24,465		$	2,713		$	4,242

Basic earnings per share	$	1.48		$	0.15		$	0.24
Diluted earnings per share	$	1.47		$	0.15		$	0.24

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

	December 31,
	2013					2012
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
One-to-four family residential: (1)
Permanent	$	280,674		40.7	%	$	306,851		45.5	%
Construction		-		-			177		0.1
		280,674		40.7			307,028		45.6
Multifamily:
Permanent		106,152		15.4			105,936		15.7
Construction		12,360		1.8			5,585		0.8
		118,512		17.2			111,521		16.5
Commercial real estate:
Permanent		227,016		32.9			207,436		30.8
Construction		19,905		2.9			12,500		1.8
Land		1,831		0.3			1,942		0.3
		248,752		36.1			221,878		32.9
Construction/land development: (2)
One-to-four family residential		3,977		0.6			608		0.1
Multifamily		12,491		1.8			8,375		1.2
Commercial		6,726		1.0			-		-
Land Development		7,461		1.1			10,435		1.6
		30,655		4.5			19,418		2.9

Business		1,142		0.2			2,968		0.4
Consumer		9,201		1.3			11,110		1.7
Total loans	$	688,936		100.0	%	$	673,923		100.0	%
Less:
Loans in Process (“LIP”)		10,209					8,856
Deferred loan fees, net		2,580					2,057
ALLL		12,994					12,542
Loans receivable, net		663,153					650,468

(1) Includes $121.9 million and $139.8 million of non-owner occupied loans at December 31, 2013 and December 31, 2012, respectively.

(2) Excludes construction loans that will convert to permanent loans. We consider these loans to be "rollovers" in that one loan is originated for both the construction loan and permanent financing. These loans are classified according to underlying collateral. At December 31, 2013, we had $19.9 million, or 8.0% of our total commercial real estate portfolio and $12.4 million, or 10.4% of our multifamily loans in these "rollover" type of loans. At December 31, 2012, we had $12.5 million, or 5.6% of our total commercial real estate portfolio, $5.6 million, or 5.0% of our total multifamily loans and $177,000, or 0.1% of our total one-to-four family loan portfolio in these "rollover" type of loans. At December 31, 2013 and December 31, 2012, $1.8 million and $1.9 million, respectively, of commercial real estate loans were not included in the construction/land development category because we classify raw land or buildable lots where we do not intend to finance the construction as commercial real estate land loans.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Key Financial Ratios

(Unaudited)

	At or For the Quarter Ended
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012
	(Dollars in thousands, except share data)
Performance Ratios:
Return on assets (1)		1.86	%		1.12	%		2.70	%		0.70	%		0.63		%
Return on equity (1)		9.06			5.37			12.94			3.30			3.25
Dividend payout ratio		16.00			25.00			4.17			-			-
Equity-to-assets		20.02			20.82			20.74			21.29			19.85
Interest rate spread		3.65			3.52			3.51			3.28			2.86
Net interest margin		3.82			3.71			3.71			3.51			3.09
Average interest-earning assets to average interest-bearing liabilities		120.85			121.31			122.52			122.44			119.82
Efficiency ratio		51.74			68.51			66.66			78.45			78.88
Noninterest expense as a percent of average total assets		1.93			2.41			2.39			2.64			2.35
Book value per common share	$	11.25		$	11.05		$	10.88		$	10.04		$	9.95

Capital Ratios (2):
Tier 1 leverage		18.60	%		18.51	%		19.24	%		17.46	%		15.79		%
Tier 1 risk-based		27.18			26.88			27.99			26.56			26.11
Total risk-based		28.44			28.14			29.25			27.82			27.37

Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.59	%		1.41	%		2.18	%		2.86	%		3.42		%
Nonperforming assets as a percent of total assets		1.68			2.47			3.19			3.98			4.25
ALLL as a percent of total loans, net of undisbursed funds		1.91			1.84			1.84			1.81			1.89
ALLL as a percent of nonperforming loans, net of undisbursed funds		325.26			130.06			84.57			63.28			55.11
Net charge-offs (recoveries) to average loans receivable, net		(0.14	)		0.01			(0.03	)		0.08			0.25

Allowance for Loan Losses:
ALLL, beginning of the quarter	$	12,271		$	12,313		$	12,002		$	12,542			14,168
Provision		(200	)		-			100			-			-
Charge-offs		(333	)		(107	)		(537	)		(619	)		(2,202	)
Recoveries		1,256			65			748			79			576
ALLL, end of the quarter	$	12,994		$	12,271		$	12,313		$	12,002			12,542

Nonperforming Assets (3):
Nonperforming loans (4):
Nonaccrual loans	$	3,027		$	8,607		$	11,655		$	16,239			18,231
Nonaccrual TDRs		968			828			2,904			2,726			4,528
Total nonperforming loans	$	3,995		$	9,435		$	14,559		$	18,965			22,759
OREO		11,465			12,600			14,226			16,310			17,347
Total nonperforming assets	$	15,460		$	22,035		$	28,785		$	35,275			40,106

Performing TDRs	$	60,170		$	62,888		$	61,189		$	65,755			65,848

(1) Deferred tax asset valuation allowance reversals during the quarters ended December 31, 2013, September 30, 2013 and June 30, 2013 were not annualized in the calculation of these ratios. (2) Capital ratios are for First Savings Bank Northwest only.
(3) Loans are reported net of undisbursed funds.
(4) There were no loans 90 days or more past due and still accruing interest.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Ratios
(Unaudited)

	At or For the Year Ended
	2013			2012			2011			2010				2009
	(Dollars in thousands, except share data)
Performance Ratios:
Return (loss) on assets		2.73	%		0.27	%		0.37	%		(4.18)	%			(3.14)	%
Return (loss) on equity		13.12			1.47			2.36			(26.59)				(15.18)
Dividend payout ratio		8.11			-			-			(2.73)				(15.60)
Equity-to-assets		20.02			19.85			17.12			14.62				17.37
Interest rate spread		3.49			2.85			2.78			2.40				1.86
Net interest margin		3.68			3.08			3.01			2.70				2.49
Average interest-earning assets to average interest-bearing liabilities		121.77			118.12			113.33			113.35				123.31
Efficiency ratio		65.93			84.15			74.52			91.29				105.78
Noninterest expense as a percent of average total assets		2.34			2.52			2.28			2.40				2.71
Book value per common share	$	11.25		$	9.95		$	9.64		$	9.28		$		12.14

Capital Ratios (1):
Tier 1 leverage		18.60	%		15.79	%		13.54	%		11.73	%			12.46	%
Tier 1 risk-based		27.18			26.11			23.49			18.38				19.20
Total risk-based		28.44			27.37			24.76			19.65				20.49

Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.59	%		3.42	%		3.28	%		7.14	%			11.23	%
Nonperforming assets as a percent of total assets		1.68			4.25			4.69			7.79				10.08
ALLL as a percent of total loans, net of undisbursed		1.91			1.89			2.29			2.56				3.07
ALLL as a percent of nonperforming loans, net of undisbursed funds		325.26			55.11			69.89			35.80				27.37
Net charge-offs (recoveries) to average loans receivable, net		(0.08)			1.07			1.39			6.55				3.38

Allowance for Loan Losses:
ALLL, beginning of the year	$	12,542		$	16,559		$	22,534		$	33,039			$	16,982
Provision		(100)			3,050			4,700			53,100				51,300
Charge-offs		(1,596)			(9,591)			(11,025)			(65,476)				(35,302)
Recoveries		2,148			2,524			350			1,871				59
ALLL, end of the year	$	12,994		$	12,542		$	16,559		$	22,534			$	33,039

Nonperforming Assets (2):
Nonperforming loans (3):
Nonaccrual loans		3,027			18,231			18,613			46,637				94,682
Nonaccrual troubled debt restructured loans		968			4,528			5,079			16.299				26,021
Total nonperforming loans		3,995			22,759			23,692			62,936				120,703
OREO		11,465			17,347			26,044			30,102				11,835
Total nonperforming assets	$	15,460		$	40,106		$	49,736		$	93,038			$	132,538

Performing troubled debt restructured loans	$	60,170		$	65,848		$	66,225		$	58,375			$	35,458

(1) Capital ratios are for First Savings Bank Northwest only.
(2) Loans are reported net of undisbursed funds.
(3) There were no loans 90 days or more past due and still accruing interest.

First Financial Northwest, Inc. - FORM 8-K - EX-99 - EXHIBIT 99.1 FOR THE FORM 8-K FOR THE EVENT ON JANUARY 30, 2014 - January 30, 2014

Attached files

First Financial Northwest, Inc. Reports