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 $2.8 Million or $0.27 per Diluted Share

Renton, Washington – October 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 September 30, 2018, of $2.8 million, or $0.27 per diluted share, compared to net income of $3.1 million, or $0.30 per diluted share, for the quarter ended June 30, 2018, and $1.9 million, or $0.18 per diluted share, for the quarter ended September 30, 2017. For the nine months ended September 30, 2018, net income was $12.7 million, or $1.22 per diluted share, compared to net income of $6.1 million, or $0.58 per diluted share, for the comparable nine‑month period in 2017.

"Deposit growth was a significant focus during the quarter. We elected to aggressively attract deposits at current rates in advance of potentially higher rates in the future, since market expectations indicate a likelihood that the Federal Open Market Committee ("FOMC") will continue to increase short term interest rates," stated Joseph W. Kiley III, President and Chief Executive Officer. "Deposits increased $83.5 million, or 10 percent, from the second quarter to $916.3 million at September 30, 2018, with nearly all our branches achieving an increase in local deposits," continued Kiley. "We supplemented the increase in local deposits with $26.6 million in additional funds through national brokered certificates of deposit during the quarter. Of the brokered certificates of deposits received during the quarter, $22.6 million have call options, providing us the opportunity to return the deposits without penalty in the future, when it is in our best interest to do so," continued Kiley. "We also have plans to open a new branch in the next several months at Kent Station, a contemporary, open air urban village located eight miles south of our main Renton office, as we continue to look for opportunities to expand our presence in the region," concluded Kiley.

Net loans receivable totaled $995.6 million at September 30, 2018, compared to $989.3 million at June 30, 2018, and $931.9 million at September 30, 2017.  The average balance of net loans receivable totaled $993.3 million for the quarter ended September 30, 2018, compared to $997.1 million for the quarter ended June 30, 2018, and $879.1 million for the quarter ended September 30, 2017.

The Company recorded a $200,000 provision for loan losses in the quarter ended September 30, 2018, compared to a $400,000 recapture of provision for loan losses in the quarter ended June 30, 2018, and a $500,000 provision for loan losses in the quarter ended September 30, 2017. The provision for loan losses in the most recent quarter was primarily due to growth in loans receivable, reduced by recoveries received on loans previously charged off. The recapture of provision in the quarter ended June 30, 2018, was due primarily to a reduction in balances in construction loans outstanding, while the provision for loan losses in the quarter ended September 30, 2017, was primarily due to growth in net loans receivable, partially offset by recoveries received on loans previously charged off.


The following tables present an analysis of total deposits by branch office (unaudited):
 
 
September 30, 2018
 
 
 
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
 
$
31,796
   
$
19,998
   
$
20,508
   
$
213,882
   
$
317,126
   
$
-
   
$
603,310
 
The Landing
   
2,458
     
772
     
58
     
17,796
     
8,944
     
-
     
30,028
 
Woodinville (1)
   
1,535
     
3,874
     
538
     
20,335
     
6,813
     
-
     
33,095
 
Bothell
   
48
     
103
     
8
     
2,435
     
1,684
     
-
     
4,278
 
Crossroads
   
1,249
     
4,797
     
84
     
21,846
     
9,339
     
-
     
37,315
 
Total King County
   
37,086
     
29,544
     
21,196
     
276,294
     
343,906
     
-
     
708,026
 
 
                                                       
Snohomish County:
                                                       
Mill Creek
   
1,437
     
2,952
     
571
     
11,287
     
8,779
     
-
     
25,026
 
Edmonds
   
4,416
     
2,033
     
45
     
16,452
     
11,007
     
-
     
33,953
 
Clearview (1)
   
4,187
     
3,058
     
1,037
     
7,101
     
2,272
     
-
     
17,655
 
Lake Stevens (1)
   
2,434
     
2,452
     
483
     
3,901
     
2,576
     
-
     
11,846
 
Smokey Point (1)
   
1,620
     
1,915
     
774
     
7,990
     
5,391
     
-
     
17,690
 
Total Snohomish County
   
14,094
     
12,410
     
2,910
     
46,731
     
30,025
     
-
     
106,170
 
 
                                                       
Total retail deposits
   
51,180
     
41,954
     
24,106
     
323,025
     
373,931
     
-
     
814,196
 
Brokered deposits
   
-
     
-
     
-
     
-
     
-
     
102,083
     
102,083
 
Total deposits
 
$
51,180
   
$
41,954
   
$
24,106
   
$
323,025
   
$
373,931
   
$
102,083
   
$
916,279
 
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $69,000.

 
 
June 30, 2018
 
 
 
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
 
$
33,117
   
$
17,899
   
$
22,678
   
$
201,264
   
$
292,394
   
$
-
   
$
567,352
 
The Landing
   
2,161
     
777
     
56
     
11,667
     
7,924
     
-
     
22,585
 
Woodinville (1)
   
1,495
     
3,484
     
618
     
22,015
     
5,837
     
-
     
33,449
 
Bothell
   
44
     
45
     
1
     
502
     
-
     
-
     
592
 
Crossroads
   
964
     
5,352
     
91
     
23,492
     
7,552
     
-
     
37,451
 
Total King County
   
37,781
     
27,557
     
23,444
     
258,940
     
313,707
     
-
     
661,429
 
 
                                                       
Snohomish County:
                                                       
Mill Creek
   
1,499
     
2,800
     
909
     
12,282
     
6,788
     
-
     
24,278
 
Edmonds
   
5,189
     
2,231
     
42
     
15,393
     
6,210
     
-
     
29,065
 
Clearview (1)
   
3,690
     
3,138
     
1,134
     
7,127
     
1,682
     
-
     
16,771
 
Lake Stevens (1)
   
1,786
     
1,384
     
552
     
3,409
     
2,546
     
-
     
9,677
 
Smokey Point (1)
   
1,509
     
2,121
     
516
     
7,391
     
4,507
     
-
     
16,044
 
Total Snohomish County
   
13,673
     
11,674
     
3,153
     
45,602
     
21,733
     
-
     
95,835
 
 
                                                       
Total retail deposits
   
51,454
     
39,231
     
26,597
     
304,542
     
335,440
     
-
     
757,264
 
Brokered deposits
   
-
     
-
     
-
     
-
     
-
     
75,488
     
75,488
 
Total deposits
 
$
51,454
   
$
39,231
   
$
26,597
   
$
304,542
   
$
335,440
   
$
75,488
   
$
832,752
 
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $80,000.
 
2
 
Additional noteworthy items for the quarter ended September 30, 2018:
·
Net loans receivable increased to $995.6 million at September 30, 2018, from $989.3 million at June 30, 2018, and from $931.9 million at September 30, 2017.
·
Despite continued strong competition for deposits in the Bank's markets, total deposits increased $83.5 million to $916.3 million at September 30, 2018, compared to $832.8 million at June 30, 2018, and $815.7 million at September 30, 2017. Retail branch deposits were up $56.9 million to $814.2 million, from $757.3 million at June 30, 2018. To supplement the increase in local deposits, the Company generated a net increase of $26.6 million in additional funds through national brokered certificates of deposit in the current quarter. At September 30, 2018, $102.1 million of total deposits were brokered deposits, compared to $75.5 million at June 30, 2018, and September 30, 2017.
·
The Company's book value per share was $14.17 at September 30, 2018, compared to $13.97 at June 30, 2018, and $13.08 at September 30, 2017. Tangible book value per share was $13.99 at September 30, 2018, compared to $13.78 at June 30, 2018, and $12.86 at September 30, 2017.
·
The Bank's Tier 1 leverage and total capital ratios at September 30, 2018, were 10.4% and 14.8%, respectively, compared to 10.2% and 14.5% at June 30, 2018, and 10.8% and 14.2% at September 30, 2017.
Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL"), there was a $200,000 provision for loan losses for the quarter ended September 30, 2018. The following items contributed to this provision during the quarter:
·
The Company's total loans outstanding, net of LIP, increased during the quarter to $1.01 billion at September 30, 2018, from $1.00 billion at June 30, 2018.
·
Construction/land development loans outstanding, net of LIP, increased to $103.0 million at September 30, 2018, from $98.2 million at June 30, 2018, and business loans grew by $7.5 million to $29.7 million. The higher levels of construction and business loans increased the amounts necessary in the ALLL, as the Company maintains a higher ALLL allocation for these types of loans.
·
The Company received $162,000 in recoveries on loans previously charged off, reducing the amount that would otherwise need to be added to the ALLL through the provision for loan losses.
·
Nonperforming loans increased to $484,000 at September 30, 2018, compared to $164,000 at June 30, 2018, and $185,000 at September 30, 2017.
·
Nonperforming loans as a percentage of total loans increased slightly to 0.05% at September 30, 2018, compared to 0.02% at both June 30, 2018, and September 30, 2017.
The ALLL represented 1.30% of total loans receivable, net of undisbursed funds, at September 30, 2018, compared to 1.27% at June 30, 2018, and 1.28% at September 30, 2017. Nonperforming assets rose to $967,000 at September 30, 2108, compared to $647,000 at June 30, 2018, but decreased compared to $2.0 million at September 30, 2017. During the quarter, one commercial real estate loan totaling $325,000 moved into nonaccrual status.

3
The following table presents a breakdown of our nonperforming assets (unaudited):
   
Sep 30,
   
Jun 30,
   
Sep 30,
   
Three
Month
   
One
Year
 
   
2018
   
2018
   
2017
   
Change
   
Change
 
   
(Dollars in thousands)
 
Nonperforming loans:
                             
One-to-four family residential
 
$
113
   
$
116
   
$
132
   
$
(3
)
 
$
(19
)
Commercial real estate
   
325
     
-
     
-
     
325
     
325
 
Consumer
   
46
     
48
     
53
     
(2
)
   
(7
)
Total nonperforming loans
   
484
     
164
     
185
     
320
     
299
 
                                         
Other real estate owned ("OREO")
   
483
     
483
     
1,825
     
-
     
(1,342
)
                                         
Total nonperforming assets (1)
 
$
967
   
$
647
   
$
2,010
   
$
320
   
$
(1,043
)
                                         
Nonperforming assets as a
                                       
percent of total assets
   
0.08
%
   
0.05
%
   
0.17
%
               
(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 for all periods presented.

The decrease in OREO over the past year, as shown in the table above, is primarily due to the Bank's continued efforts to actively market its OREO properties in an effort to minimize holding costs. There were $821,000 in delinquent loans (loans over 30 days past due) at September 30, 2018, compared to $532,000 in delinquent loans at June 30, 2018, and $84,000 at September 30, 2017.

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, all of which were performing in accordance with their restructured terms at the dates indicated (unaudited):
   
Sep 30,
2018
   
Jun 30,
2018
   
Sep 30,
2017
   
Three
Month
Change
   
One
Year
Change
 
   
(Dollars in thousands)
 
Performing TDRs:
                             
One-to-four family residential
 
$
9,458
   
$
9,990
   
$
15,174
   
$
(532
)
 
$
(5,716
)
Multifamily
   
1,116
     
1,122
     
1,140
     
(6
)
   
(24
)
Commercial real estate
   
2,601
     
2,624
     
3,216
     
(23
)
   
(615
)
Consumer
   
43
     
43
     
43
     
     
 
Total TDRs
 
$
13,218
   
$
13,779
   
$
19,573
   
$
(561
)
 
$
(6,355
)

Net interest income for the quarter ended September 30, 2018, remained relatively stable at $10.1 million, down $70,000 from the quarter ended June 30, 2018, but up from $9.4 million in the quarter ended September 30, 2017. Total interest income was $13.9 million for the quarter ended September 30, 2018, compared to $13.6 million for the quarter ended June 30, 2018, and $12.0 million for the quarter ended September 30, 2017. The increase from the quarter ended June 30, 2018, was due to an increase in average yields on both loans and investment securities, while the increase in total interest income from the third quarter of 2017 was due primarily to an increase in average balances in interest earning assets, along with increased average asset yields.

4
Total interest expense was $3.8 million for the quarter ended September 30, 2018, compared to $3.5 million for the quarter ended June 30, 2018, and $2.6 million for the quarter ended September 30, 2017. The higher level of interest expense in the most recent two quarters compared to the quarter ended September 30, 2017, was the result of higher short term market interest rates as a result of the FOMC increasing the Federal Funds targeted rate that adversely impacted the Company's average cost of deposits and borrowings. Average balances of advances outstanding from the Federal Home Loan Bank ("FHLB") were $177.3 million during the quarter ended September 30, 2018, compared to $213.9 million in the quarter ended June 30, 2018, and $197.1 million for the quarter ended September 30, 2017, as the Bank reduced its balance of FHLB advances by $75.0 million this quarter from the increased deposits. The Bank borrows from the FHLB primarily to supplement its deposit gathering efforts when needed to support asset growth. The average cost of FHLB advances and other borrowings was 2.05% for the quarter ended September 30, 2018, compared to 1.92% for the quarter ended June 30, 2018, and 1.40% for the quarter ended September 30, 2017. The average cost of deposits was 1.40% for the quarter ended September 30, 2018, compared to 1.22% for the quarter ended June 30, 2018, and 1.05% for the quarter ended September 30, 2017.

The following table presents a breakdown of our total deposits, including brokered deposits (unaudited):
   
Sep 30,
2018
   
Jun 30,
2018
   
Sep 30,
2017
   
Three Month
Change
   
One Year
Change
 
Deposits:
 
(Dollars in thousands)
             
Noninterest-bearing
 
$
51,180
   
$
51,454
   
$
47,652
   
$
(274
)
 
$
3,528
 
Interest-bearing demand
   
41,954
     
39,231
     
31,590
     
2,723
     
10,364
 
Statement savings
   
24,106
     
26,597
     
29,425
     
(2,491
)
   
(5,319
)
Money market
   
323,025
     
304,542
     
285,460
     
18,483
     
37,565
 
Certificates of deposit, retail (1)
   
373,931
     
335,440
     
346,125
     
38,491
     
27,806
 
Certificates of deposit, brokered
   
102,083
     
75,488
     
75,488
     
26,595
     
26,595
 
Total deposits
 
$
916,279
   
$
832,752
   
$
815,740
   
$
83,527
   
$
100,539
 
(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $69,000 at September 30, 2018, $80,000 at June 30, 2018, and $122,000 at September 30, 2017.

Our net interest margin was 3.46% for the quarter ended September 30, 2018, compared to 3.50% for the quarter ended June 30, 2018, and 3.53% for the quarter ended September 30, 2017. The continued narrowing of the net interest margin between periods was primarily due to the cost of our interest-bearing liabilities outpacing the yield on interest-earning assets.

Noninterest income for the quarter ended September 30, 2018, totaled $841,000 compared to $663,000 for the quarter ended June 30, 2018, and $731,000 for the quarter ended September 30, 2017. The increase from the second quarter of 2018 was due primarily to an increase in income from loan-related fees and bank owned life insurance ("BOLI"), partially offset by a decline in wealth management revenue and deposit related fees. The quarter ended June 30, 2018, was also impacted by a $21,000 net loss on sale of investments as the Company elected to sell certain securities and replace them with investments that are expected to perform better in a rising interest rate environment. The increase from the year-ago period was due primarily to higher income from loan related fees, BOLI, and deposit related fees, partially offset by lower wealth management revenue and the absence of the benefit of a net gain on sale of investments, which amounted to $47,000 during the quarter ended September 30, 2017.

Noninterest expense for the quarter ended September 30, 2018, decreased to $7.2 million from $7.5 million in the quarter ended June 30, 2018, and increased from $6.8 million in the quarter ended September 30, 2017. The decrease in noninterest expense in the current quarter compared to the prior quarter was due primarily to lower salaries and employee benefits expense, professional fees, insurance
 
5
 
and bond premiums, and occupancy and equipment expenses, partially offset by higher regulatory assessments, marketing expense, and other general and administrative expenses. Salaries and employee benefits were lower in the quarter ended September 30, 2018, compared to the quarter ended June 30, 2018, because a higher proportion of the annual compensation paid to the Company's directors is incurred in the second quarter than the other quarters during the year, and due to payroll taxes that typically decline during the second half of the year. The increase from the prior year period was due primarily to the increase in expenses associated with the growth in the Bank's number of employees and locations during the past year.

The Company's federal income tax provision was $707,000 for the quarter ended September 30, 2018, compared to $603,000 for the quarter ended June 30, 2018, and $909,000 for the quarter ended September 30, 2017. The federal income tax provision for June 30, 2018, benefited from stock option exercises that occurred at prices higher than originally estimated, resulting in higher allowable expense recognition for tax purposes. The Company's federal income tax provision during 2018 continued to benefit from the impact of the Tax Cuts and Jobs Act of 2017 that lowered the corporate income tax rate from 35% to 21%.

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 10 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 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.
6

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
 
Consolidated Balance Sheets
 
(Dollars in thousands, except share data)
 
(Unaudited)
 
Assets
 
Sep 30,
2018
   
Jun 30,
2018
   
Sep 30,
2017
   
Three
Month
Change
   
One
Year
Change
 
                               
Cash on hand and in banks
 
$
7,167
   
$
9,017
   
$
7,910
     
(20.5
)%
   
(9.4
)%
Interest-earning deposits
   
19,094
     
14,056
     
14,093
     
35.8
     
35.5
 
Investments available-for-sale, at fair value
   
140,868
     
138,055
     
137,847
     
2.0
     
2.2
 
Loans receivable, net of allowance of $13,116,
   $12,754, and $12,110, respectively
   
995,557
     
989,256
     
931,862
     
0.6
     
6.8
 
Federal Home Loan Bank ("FHLB") stock, at cost
   
7,410
     
10,410
     
8,902
     
(28.8
)
   
(16.8
)
Accrued interest receivable
   
4,664
     
4,084
     
3,709
     
14.2
     
25.7
 
Deferred tax assets, net
   
2,092
     
1,296
     
2,381
     
61.4
     
(12.1
)
Other real estate owned ("OREO")
   
483
     
483
     
1,825
     
0.0
     
(73.5
)
Premises and equipment, net
   
21,277
     
21,436
     
20,568
     
(0.7
)
   
3.4
 
Bank owned life insurance ("BOLI")
   
29,745
     
29,501
     
28,894
     
0.8
     
2.9
 
Prepaid expenses and other assets
   
4,460
     
4,391
     
3,304
     
1.6
     
35.0
 
Goodwill
   
889
     
889
     
979
     
0.0
     
(9.2
)
Core deposit intangible
   
1,153
     
1,191
     
1,304
     
(3.2
)
   
(11.6
)
Total assets
 
$
1,234,859
   
$
1,224,065
   
$
1,163,578
     
0.9
%
   
6.1
%
                                         
Liabilities and Stockholders' Equity
                                       
                                         
Deposits
                                       
Noninterest-bearing deposits
 
$
51,180
   
$
51,454
   
$
47,652
     
(0.5
)%
   
7.4
%
Interest-bearing deposits
   
865,099
     
781,298
     
768,088
     
10.7
     
12.6
 
Total deposits
   
916,279
     
832,752
     
815,740
     
10.0
     
12.3
 
Advances from the FHLB
   
149,000
     
224,000
     
191,500
     
(33.5
)
   
(22.2
)
Advance payments from borrowers for taxes and
   insurance
   
4,737
     
2,545
     
4,267
     
86.1
     
11.0
 
Accrued interest payable
   
541
     
570
     
280
     
(5.1
)
   
93.2
 
Other liabilities
   
9,589
     
11,644
     
11,031
     
(17.6
)
   
(13.1
)
Total liabilities
   
1,080,146
     
1,071,511
     
1,022,818
     
0.8
%
   
5.6
%
                                         
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
                                       
   10,914,556 shares at September 30, 2018,
   10,916,556 shares at June 30, 2018, and
                                       
   10,763,915 shares at September 30, 2017
   
109
     
109
     
108
     
0.0
%
   
0.9
%
Additional paid-in capital
   
96,664
     
96,344
     
94,168
     
0.3
     
2.7
 
Retained earnings, substantially restricted
   
65,004
     
63,042
     
52,984
     
3.1
     
22.7
 
Accumulated other comprehensive loss, net of tax
   
(2,550
)
   
(2,145
)
   
(857
)
   
18.9
     
197.5
 
Unearned Employee Stock Ownership Plan
   ("ESOP") shares
   
(4,514
)
   
(4,796
)
   
(5,643
)
   
(5.9
)
   
(20.0
)
Total stockholders' equity
   
154,713
     
152,554
     
140,760
     
1.4
     
9.9
 
Total liabilities and stockholders' equity
 
$
1,234,859
   
$
1,224,065
   
$
1,163,578
     
0.9
%
   
6.1
%
7

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
 
Consolidated Income Statements
 
(Dollars in thousands, except share data)
 
(Unaudited)
 
                               
   
Quarter Ended
             
   
Sep 30,
2018
   
Jun 30,
2018
   
Sep 30,
2017
   
Three
Month
Change
   
One
Year
Change
 
Interest income
                             
Loans, including fees
 
$
12,631
   
$
12,429
   
$
10,959
     
1.6
%
   
15.3
%
Investments available-for-sale
   
1,063
     
1,010
     
869
     
5.2
     
22.3
 
Interest-earning deposits with banks
   
59
     
44
     
108
     
34.1
     
(45.4
)
Dividends on FHLB Stock
   
135
     
105
     
67
     
28.6
     
101.5
 
Total interest income
   
13,888
     
13,588
     
12,003
     
2.2
     
15.7
 
Interest expense
                                       
Deposits
   
2,912
     
2,435
     
1,933
     
19.6
     
50.6
 
FHLB advances and other borrowings
   
917
     
1,024
     
695
     
(10.4
)
   
31.9
 
Total interest expense
   
3,829
     
3,459
     
2,628
     
10.7
     
45.7
 
Net interest income
   
10,059
     
10,129
     
9,375
     
(0.7
)
   
7.3
 
Provision (recapture of provision) for loan losses
   
200
     
(400
)
   
500
     
(150.0
)
   
(60.0
)
Net interest income after provision (recapture of
   provision) for loan losses
   
9,859
     
10,529
     
8,875
     
(6.4
)
   
11.1
 
                                         
Noninterest income
                                       
Net gain (loss) on sale of investments
   
1
     
(21
)
   
47
     
(104.8
)
   
(97.9
)
BOLI income
   
245
     
224
     
173
     
9.4
     
41.6
 
Wealth management revenue
   
145
     
156
     
252
     
(7.1
)
   
(42.5
)
Deposit related fees
   
167
     
175
     
113
     
(4.6
)
   
47.8
 
Loan related fees
   
273
     
126
     
144
     
116.7
     
89.6
 
Other
   
10
     
3
     
2
     
233.3
     
400.0
 
Total noninterest income
   
841
     
663
     
731
     
26.8
     
15.0
 
                                         
Noninterest expense
                                       
Salaries and employee benefits
   
4,732
     
4,931
     
4,406
     
(4.0
)
   
7.4
 
Occupancy and equipment
   
814
     
829
     
726
     
(1.8
)
   
12.1
 
Professional fees
   
353
     
442
     
458
     
(20.1
)
   
(22.9
)
Data processing
   
356
     
351
     
372
     
1.4
     
(4.3
)
OREO related expenses (reimbursements), net
   
1
     
2
     
(6
)
   
(50.0
)
   
(116.7
)
Regulatory assessments
   
126
     
110
     
122
     
14.5
     
3.3
 
Insurance and bond premiums
   
95
     
154
     
105
     
(38.3
)
   
(9.5
)
Marketing
   
85
     
77
     
102
     
10.4
     
(16.7
)
Other general and administrative
   
639
     
591
     
551
     
8.1
     
16.0
 
Total noninterest expense
   
7,201
     
7,487
     
6,836
     
(3.8
)
   
5.3
 
Income before federal income tax provision
   
3,499
     
3,705
     
2,770
     
(5.6
)
   
26.3
 
Federal income tax provision
   
707
     
603
     
909
     
17.2
     
(22.2
)
Net income
 
$
2,792
   
$
3,102
   
$
1,861
     
(10.0
)%
   
50.0
%
                                         
Basic earnings per share
 
$
0.27
   
$
0.30
   
$
0.18
                 
Diluted earnings per share
 
$
0.27
   
$
0.30
   
$
0.18
                 
Weighted average number of common shares
   outstanding
   
10,356,994
     
10,271,432
     
10,287,663
                 
Weighted average number of diluted shares
   outstanding
   
10,468,802
     
10,405,949
     
10,427,038
                 
8

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
 
Consolidated Income Statements
 
(Dollars in thousands, except share data)
 
(Unaudited)
 
                   
   
Nine Months Ended
       
   
September 30,
       
   
2018
   
2017
   
One
Year
Change
 
Interest income
                 
Loans, including fees
 
$
38,103
   
$
31,338
     
21.6
%
Investments available-for-sale
   
3,002
     
2,601
     
15.4
 
Interest-earning deposits with banks
   
141
     
194
     
(27.3
)
Dividends on FHLB Stock
   
343
     
211
     
62.6
 
Total interest income
   
41,589
     
34,344
     
21.1
 
Interest expense
                       
Deposits
   
7,623
     
5,400
     
41.2
 
FHLB advances and other borrowings
   
2,794
     
1,710
     
63.4
 
Total interest expense
   
10,417
     
7,110
     
46.5
 
Net interest income
   
31,172
     
27,234
     
14.5
 
(Recapture of provision) provision for loan losses
   
(4,200
)
   
800
     
(625.0
)
Net interest income after (recapture of provision) provision for
loan losses
   
35,372
     
26,434
     
33.8
 
                         
Noninterest income
                       
Net (loss) gain on sale of investments
   
(20
)
   
103
     
(119.4
)
BOLI
   
718
     
490
     
46.5
 
Wealth management revenue
   
400
     
699
     
(42.8
)
Deposit related fees
   
503
     
277
     
81.6
 
Loan related fees
   
533
     
420
     
26.9
 
Other
   
16
     
8
     
100.0
 
Total noninterest income
   
2,150
     
1,997
     
7.7
 
                         
Noninterest expense
                       
Salaries and employee benefits
   
14,325
     
13,100
     
9.4
 
Occupancy and equipment
   
2,412
     
1,785
     
35.1
 
Professional fees
   
1,123
     
1,379
     
(18.6
)
Data processing
   
1,031
     
1,131
     
(8.8
)
OREO related expenses, net
   
4
     
14
     
(71.4
)
Regulatory assessments
   
391
     
330
     
18.5
 
Insurance and bond premiums
   
355
     
302
     
17.5
 
Marketing
   
269
     
202
     
33.2
 
Other general and administrative
   
1,805
     
1,497
     
20.6
 
Total noninterest expense
   
21,715
     
19,740
     
10.0
 
Income before federal income tax  provision
   
15,807
     
8,691
     
81.9
 
Federal income tax provision
   
3,071
     
2,618
     
17.3
 
Net income
 
$
12,736
   
$
6,073
     
109.7
%
                         
Basic earnings per share
 
$
1.24
   
$
0.59
         
Diluted earnings per share
 
$
1.22
   
$
0.58
         
Weighted average number of common shares outstanding
   
10,280,287
     
10,323,459
         
Weighted average number of diluted shares outstanding
   
10,405,315
     
10,480,061
         
9

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

   
September 30, 2018
   
June 30, 2018
   
September 30, 2017
 
   
Amount
   
Percent
   
Amount
   
Percent
   
Amount
   
Percent
 
   
(Dollars in thousands)
 
Commercial real estate:
                                   
Residential:
                                   
Micro-unit apartments
 
$
14,141
     
1.3
%
 
$
14,204
     
1.3
%
 
$
7,053
     
0.7
%
Other multifamily
   
162,380
     
14.7
     
180,649
     
16.7
     
166,628
     
16.1
 
Total multifamily
   
176,521
     
16.0
     
194,853
     
18.0
     
173,681
     
16.8
 
                                                 
Non-residential:
                                               
Office
   
96,542
     
8.8
     
99,739
     
9.2
     
99,350
     
9.6
 
Retail
   
139,085
     
12.6
     
141,451
     
13.1
     
101,787
     
9.8
 
Mobile home park
   
15,649
     
1.4
     
15,655
     
1.4
     
21,344
     
2.1
 
Warehouse
   
22,252
     
2.0
     
28,185
     
2.6
     
22,788
     
2.2
 
Storage
   
32,625
     
3.0
     
30,383
     
2.8
     
32,365
     
3.1
 
Other non-residential
   
54,332
     
4.9
     
56,820
     
5.2
     
42,782
     
4.1
 
Total non-residential
   
360,485
     
32.7
     
372,233
     
34.3
     
320,416
     
30.9
 
                                                 
Construction/land development:
                                               
One-to-four family residential
   
84,912
     
7.7
     
85,218
     
7.9
     
85,593
     
8.3
 
Multifamily
   
80,607
     
7.3
     
75,433
     
7.0
     
115,345
     
11.1
 
Commercial
   
21,385
     
2.0
     
5,735
     
0.5
     
5,325
     
0.5
 
Land development
   
7,113
     
0.7
     
12,911
     
1.2
     
38,423
     
3.7
 
Total construction/land development
   
194,017
     
17.7
     
179,297
     
16.6
     
244,686
     
23.6
 
                                                 
One-to-four family residential:
                                               
Permanent owner occupied
   
184,698
     
16.8
     
169,275
     
15.6
     
139,736
     
13.5
 
Permanent non-owner occupied
   
143,226
     
13.0
     
134,297
     
12.4
     
126,711
     
12.2
 
Total one-to-four family residential
   
327,924
     
29.8
     
303,572
     
28.0
     
266,447
     
25.7
 
                                                 
Business
                                               
Aircraft
   
10,172
     
0.9
     
9,978
     
0.9
     
11,317
     
1.1
 
Other business
   
19,483
     
1.8
     
12,143
     
1.1
     
10,926
     
1.0
 
Total business
   
29,655
     
2.7
     
22,121
     
2.0
     
22,243
     
2.1
 
                                                 
Consumer
   
12,419
     
1.1
     
12,329
     
1.1
     
9,301
     
0.9
 
Total loans
   
1,101,021
     
100.0
%
   
1,084,405
     
100.0
%
   
1,036,774
     
100.0
%
Less:
                                               
Loans in Process ("LIP")
   
91,232
             
81,616
             
91,316
         
Deferred loan fees, net
   
1,116
             
779
             
1,486
         
ALLL
   
13,116
             
12,754
             
12,110
         
Loans receivable, net
 
$
995,557
           
$
989,256
           
$
931,862
         
                                                 
Concentrations of credit: (1)
                                               
Construction loans as % of total capital
   
77.1
%
           
73.5
%
           
114.4
%
       
Total non-owner occupied commercial
real estate as % of total capital
   
454.5
%
           
475.2
%
           
478.9
%
       
(1) Concentrations of credit percentages are for First Financial Northwest Bank only using classifications in accordance with FDIC guidelines.
10

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
 
Key Financial Measures
 
                               
   
At or For the Quarter Ended
 
   
Sep 30,
   
Jun 30,
   
Mar 31,
   
Dec 31,
   
Sep 30,
 
   
2018
   
2018
   
2018
   
2017
   
2017
 
   
(Dollars in thousands, except per share data)
 
Performance Ratios:
                             
Return on assets
   
0.90
%
   
1.01
%
   
2.28
%
   
0.80
%
   
0.66
%
Return on equity
   
7.17
     
8.28
     
19.16
     
6.70
     
5.13
 
Dividend payout ratio
   
29.63
     
26.67
     
10.47
     
29.17
     
38.89
 
Equity-to-assets ratio
   
12.53
     
12.46
     
12.13
     
11.79
     
12.10
 
Tangible equity ratio
   
12.38
     
12.31
     
11.98
     
11.63
     
11.92
 
Net interest margin
   
3.46
     
3.50
     
3.88
     
3.65
     
3.53
 
Average interest-earning assets to average
   interest-bearing liabilities
   
115.20
     
114.21
     
113.46
     
113.32
     
114.08
 
Efficiency ratio
   
66.06
     
69.38
     
60.42
     
66.69
     
67.64
 
Noninterest expense as a percent of average
   total assets
   
2.33
     
2.44
     
2.34
     
2.34
     
2.42
 
Book value per common share
 
$
14.17
   
$
13.97
   
$
13.80
   
$
13.27
   
$
13.08
 
Tangible book value per share
   
13.99
     
13.78
     
13.60
     
13.07
     
12.86
 
                                         
Capital Ratios: (1)
                                       
Tier 1 leverage ratio
   
10.37
%
   
10.22
%
   
10.44
%
   
10.20
%
   
10.80
%
Common equity tier 1 capital ratio
   
13.58
     
13.21
     
13.13
     
12.52
     
12.95
 
Tier 1 capital ratio
   
13.58
     
13.21
     
13.13
     
12.52
     
12.95
 
Total capital ratio
   
14.83
     
14.47
     
14.38
     
13.77
     
14.20
 
                                         
Asset Quality Ratios: (2)
                                       
Nonperforming loans as a percent of total
   loans
   
0.05
%
   
0.02
%
   
0.02
%
   
0.02
%
   
0.02
%
Nonperforming assets as a percent of total
   assets
   
0.08
     
0.05
     
0.05
     
0.05
     
0.17
 
ALLL as a percent of total loans
   
1.30
     
1.27
     
1.31
     
1.28
     
1.28
 
Net (recoveries) charge-offs to average loans
   receivable, net
   
(0.02
)
   
(0.00
)
   
(0.43
)
   
(0.20
)
   
(0.04
)
                                         
Allowance for Loan Losses:
                                       
ALLL, beginning of the quarter
 
$
12,754
   
$
13,136
   
$
12,882
   
$
12,110
   
$
11,285
 
Provision (Recapture of provision)
   
200
     
(400
)
   
(4,000
)
   
(1,200
)
   
500
 
Charge-offs
   
-
     
-
     
-
     
-
     
-
 
Recoveries
   
162
     
18
     
4,254
     
1,972
     
325
 
ALLL, end of the quarter
 
$
13,116
   
$
12,754
   
$
13,136
   
$
12,882
   
$
12,110
 
(1) Capital ratios are for First Financial Northwest Bank only.
(2) Loans are reported net of undisbursed funds.
11

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
 
Key Financial Measures
 
                               
   
At or For the Quarter Ended
 
   
Sep 30,
   
Jun 30,
   
Mar 31,
   
Dec 31,
   
Sep 30,
 
   
2018
   
2018
   
2018
   
2017
   
2017
 
   
(Dollars in thousands)
 
Yields and Costs:
                             
Yield on loans
   
5.05
%
   
5.00
%
   
5.37
%
   
5.05
%
   
4.95
%
Yield on investments available-for-sale
   
3.00
     
2.87
     
2.65
     
2.52
     
2.59
 
Yield on interest-earning deposits
   
1.92
     
1.48
     
1.32
     
1.23
     
1.27
 
Yield on FHLB stock
   
6.27
     
4.21
     
4.40
     
3.42
     
2.91
 
Yield on interest-earning assets
   
4.77
%
   
4.70
%
   
4.98
%
   
4.67
%
   
4.51
%
                                         
Cost of interest-bearing deposits
   
1.40
%
   
1.22
%
   
1.15
%
   
1.08
%
   
1.05
%
Cost of borrowings
   
2.05
     
1.92
     
1.66
     
1.46
     
1.40
 
Cost of interest-bearing liabilities
   
1.52
%
   
1.37
%
   
1.25
%
   
1.16
%
   
1.13
%
                                         
Average Balances:
                                       
Loans
 
$
993,272
   
$
997,059
   
$
985,799
   
$
963,097
   
$
879,075
 
Investments available-for-sale
   
140,584
     
141,035
     
142,236
     
141,962
     
132,959
 
Interest-earning deposits
   
12,223
     
11,927
     
11,717
     
13,843
     
33,854
 
FHLB stock
   
8,540
     
10,004
     
9,593
     
9,859
     
9,126
 
Total interest-earning assets
 
$
1,154,619
   
$
1,160,025
   
$
1,149,345
   
$
1,128,761
   
$
1,055,014
 
                                         
Interest-bearing deposits
 
$
825,055
   
$
801,852
   
$
804,451
   
$
780,671
   
$
727,702
 
Borrowings
   
177,250
     
213,857
     
208,544
     
215,418