First Financial Northwest, Inc. - FORM 8-K - EX-99 - EXHIBIT 99.1

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8-K - FORM 8-K - First Financial Northwest, Inc.	ffnw8k12518.htm

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 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, Washington – January 25, 2018 - First Financial Northwest, Inc. (the "Company") (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the "Bank"), today reported net income for the quarter ended December 31, 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)

Assets	Dec 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

First Financial Northwest, Inc. - FORM 8-K - EX-99 - EXHIBIT 99.1 - January 25, 2018

Attached files

First Financial Northwest, Inc. Reports