Exhibit 99.1

 

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 Third Quarter Net Income of $1.9 Million or $0.18 per Diluted Share

Renton, Washington – October 26, 2017 - First Financial Northwest, Inc. (the "Company") (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the "Bank"), today reported net income for the quarter ended 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.

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):

⁽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):

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):

⁽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.

 

 

 

 

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

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