First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income of $1.6 million, or $0.17 per diluted share, for the quarter ended June 30, 2024, compared to a net loss of $1.1 million, or $(0.12) per diluted share, for the quarter ended March 31, 2024, and net income of $1.5 million, or $0.16 per diluted share, for the quarter ended June 30, 2023. For the six months ended June 30, 2024, net income was $480,000, or $0.05 per diluted share, compared to net income of $3.6 million, or $0.39 per diluted share, for the comparable period in 2023.

“During the second quarter, our financial results were positively impacted by the successful completion of a project to modify a large number of loans relating to our previously announced sale of the Bank to Global Federal Credit Union. Specifically, our balance sheet contained over $250 million of loans that are ineligible for a federally chartered credit union like Global to hold due to various aspects, primarily an original term greater than 15 years for non-owner occupied residential and commercial loans. As part of our Purchase and Assumption Agreement with Global, the Bank agreed to use its good faith efforts to modify or refinance these loans. I am very pleased that the outstanding efforts of our employees resulted in the modification or refinance of over $130 million of this portfolio,” stated Joseph W. Kiley III, President and CEO.

“As previously reported, our first quarter earnings were adversely impacted by the purchase of a single premium group annuity to satisfy the Company’s obligations to current and former employees covered by a legacy defined benefit plan. Extinguishing this liability at a pretax cost of $1.2 million was a strategic move considered to be an appropriate use of capital in light of the elevated rate environment. We also recognized $767,000 in pretax transaction related expenses in the first quarter of 2024, further adversely impacting our first quarter earnings. During the quarter ended June 30, 2024, we recognized $284,000 in pretax transaction expenses,” continued Kiley.

“While nonaccrual loans increased $4.5 million during the quarter ended June 30, 2024, overall credit quality remained strong, with only $4.7 million of nonaccrual loans relative to our $1.15 billion total loan portfolio. The increase in nonaccrual loans was due primarily to a $4.1 million commercial real estate loan moving to nonaccrual in the quarter. The loan is secured by a well-collateralized mixed-use property, and as such, we do not expect to incur a loss related to this credit. The property is currently under contract to sell, and we are in the early stages of working with the purchaser to potentially allow an assumption of the existing loan. Finally, we performed an analysis of the allowance for credit losses, which considered various factors including declines in loan balances, shifts in the composition of the loan portfolio, and credit grade changes. After careful consideration, our analysis concluded that a $200,000 recapture of provision for credit losses was appropriate,” concluded Kiley.

Highlights for the quarter ended June 30, 2024:

  • Net loans receivable totaled $1.14 billion at June 30, 2024, down $7.8 million from the prior quarter end.
  • Book value per share was $17.51 at June 30, 2024, compared to $17.46 at March 31, 2024, and $17.35 at June 30, 2023.
  • Paid a quarterly cash dividend to shareholders of $0.13 per share.
  • The Bank’s Tier 1 leverage and total capital ratios were 10.9% and 16.6% at June 30, 2024, compared to 10.4% and 16.2% at March 31, 2024, and 10.0% and 15.8% at June 30, 2023, respectively.
  • Credit quality remained strong with nonaccrual loans totaling $4.7 million, or 0.41% of total loans.
  • Recorded a $200,000 net recapture of provision for credit losses in the current quarter, compared to a $175,000 net recapture of provision for credit losses in the prior quarter and a $247,000 net recapture of provision for credit losses in the comparable quarter in 2023.

Deposits totaled $1.09 billion at June 30, 2024, compared to $1.17 billion at March 31, 2024, and $1.22 billion at June 30, 2023. The $78.7 million decline in deposits at June 30, 2024, compared to March 31, 2024, was due predominantly to a $38.2 million decrease in money market balances, $10.2 million reduction in brokered certificates of deposit and a $25.1 million decline in brokered deposits through the IntraFi Network, which was consistent with management’s strategy to reduce these higher cost deposits.

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

  Jun 30,2024   Mar 31,2024   June 30,2023   ThreeMonthChange   One Year Change
Deposits: (Dollars in thousands)
Noninterest-bearing demand $ 99,842   $ 100,846   $ 111,768   $ (1,004 )   $ (11,926 )
Interest-bearing demand   57,033     58,489     89,080     (1,456 )     (32,047 )
Savings   17,423     19,314     20,364     (1,891 )     (2,941 )
Money market   497,345     535,594     467,411     (38,249 )     29,934  
Certificates of deposit, retail   365,527     366,507     359,919     (980 )     5,608  
Brokered deposits   51,004     86,146     176,422     (35,142 )     (125,418 )
Total deposits $ 1,088,174   $ 1,166,896   $ 1,224,964   $ (78,722 )   $ (136,790 )
                                 

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

June 30, 2024
  Noninterest-bearing demand Interest-bearing demand Savings Money market Certificates of deposit, retail Brokered deposits Total
  (Dollars in thousands)
King County               
Renton $         30,336 $          14,380 $         11,186 $      306,176 $       246,076 $ - $       608,154
Landing   2,079   566   113   7,895   9,881   -   20,534
Woodinville   1,953   2,949   987   10,931   10,845   -   27,665
Bothell   3,336   847   398   1,595   6,055   -   12,231
Crossroads   13,585   2,858   28   25,599   17,748   -   59,818
Kent   7,729   8,142   42   14,525   7,448   -   37,886
Kirkland   8,326   1,789   210   15,007   1,752   -   27,084
Issaquah   1,287   232   22   3,971   6,202   -   11,714
Total King County   68,631   31,763   12,986   385,699   306,007   -   805,086
Snohomish County              
Mill Creek   5,823   2,306   420   15,209   9,578   -   33,336
Edmonds   10,418   9,470   402   20,255   12,753   -   53,298
Clearview   4,810   4,888   1,444   18,695   9,504   -   39,341
Lake Stevens   4,111   4,445   1,171   22,618   14,090   -   46,435
Smokey Point   2,700   3,152   982   31,808   10,435   -   49,077
Total Snohomish County   27,862   24,261   4,419   108,585   56,360   -   221,487
Pierce County              
University Place   2,385   41   2   1,819   1,503   -   5,750
Gig Harbor   964   968   16   1,242   1,657   -   4,847
Total Pierce County   3,349   1,009   18   3,061   3,160   -   10,597
               
Brokered deposits   -   -   -   -   -   51,004   51,004
               
Total deposits $         99,842 $          57,033 $         17,423 $      497,345 $       365,527 $         51,004 $     1,088,174
                             
March 31, 2024
  Noninterest-bearing demand Interest-bearing demand Savings Money market Certificates of deposit, retail Brokered deposits Total
  (Dollars in thousands)
King County               
Renton $ 34,134 $ 17,394 $ 12,802 $     328,526    $ 249,288 $ - $        642,144
Landing   3,759   767   98   7,019   9,571   -   21,214
Woodinville   2,137   2,207   1,011   10,707   10,866   -   26,928
Bothell   3,025   947   32   1,835   5,158   -   10,997
Crossroads   12,007   3,320   35   25,107   17,689   -   58,158
Kent   5,875   5,579   6   15,046   7,207   -   33,713
Kirkland   8,804   1,861   155   14,339   2,055   -   27,214
Issaquah   1,435   373   113   2,781   6,053   -   10,755
Total King County   71,176   32,448   14,252   405,360   307,887   -   831,123
Snohomish County              
Mill Creek   5,241   2,327   685   12,600   8,426   -   29,279
Edmonds   9,838   9,487   576   29,314   13,054   -   62,269
Clearview   4,802   4,646   1,452   17,701   9,076   -   37,677
Lake Stevens   3,841   4,134   1,165   22,557   14,043   -   45,740
Smokey Point   2,661   4,415   1,167   45,123   10,800   -   64,166
Total Snohomish County   26,383   25,009   5,045   127,295   55,399   -   239,131
Pierce County              
University Place   2,034   63   1   1,748   1,487   -   5,333
Gig Harbor   1,253   969   16   1,191   1,734   -   5,163
Total Pierce County   3,287   1,032   17   2,939   3,221   -   10,496
               
Brokered deposits   -   -   -   -   -   86,146   86,146
               
Total deposits $       100,846 $ 58,489 $         19,314 $      535,594 $       366,507 $ 86,146 $     1,166,896
                             

Net loans receivable totaled $1.14 billion at both June 30, 2024, and March 31, 2024, down from $1.17 billion at June 30, 2023. During the quarter ended June 30, 2024, loan repayments outpaced new originations across all loan categories except one-to-four family residential. The average balance of net loans receivable totaled $1.14 billion for the quarter ended June 30, 2024, compared to $1.16 billion for the quarter ended March 31, 2024, and $1.18 billion for the quarter ended June 30, 2023.

The allowance for credit losses (“ACL”) represented 1.29% of total loans receivable at June 30, 2024, compared to 1.30% at March 31, 2024, and 1.31% at June 30, 2023.

Nonaccrual loans totaled $4.7 million at June 30, 2024, compared to $201,000 at both March 31, 2024, and June 30, 2023. The increase in nonaccrual loans during the quarter was due primarily to the previously mentioned $4.1 million commercial real estate loan and an additional $400,000 in consumer loans moving to nonaccrual. The commercial real estate loan is well collateralized, and no losses are anticipated on this credit. There was no other real estate owned (“OREO”) at June 30, 2024, March 31, 2024, or June 30, 2023.

Net interest income totaled $9.0 million for the quarter ended June 30, 2024, compared to $8.9 million for the quarter ended March 31, 2024, and $10.3 million for the quarter ended June 30, 2023.

Total interest income was $19.3 million for the quarter ended June 30, 2024, compared to $19.6 million for the quarter ended March 31, 2024, and $19.7 million for the quarter ended June 30, 2023. The decline in total interest income during the current quarter was due to average interest-earning asset balances declining by $50.1 million and $99.8 million, respectively, compared to the prior periods. Yield on loans increased to 5.93% during the recent quarter, compared to 5.88% and 5.71% for the quarters ended March 31, 2024, and June 30, 2023, respectively. During the quarter ended June 30, 2024, the Bank modified over $130 million in loans in accordance with terms in its Purchase and Assumption Agreement (the “Agreement”) with Global Federal Credit Union (“Global”). Net deferred loan fees and costs recognition increased $214,000 compared to the quarter ended March 31, 2024, due in large part to this activity, which positively impacted the yield on loans in the current quarter. Yield on investment securities was 4.38% for the current quarter, up from 4.11% and 3.93% for the quarters ended March 31, 2024, and June 30, 2023, respectively, while the average balances of investment securities declined $29.0 million from the prior quarter, primarily due to the maturity of low yielding securities in recent months.

Total interest expense was $10.3 million for the quarter ended June 30, 2024, compared to $10.7 million for the quarter ended March 31, 2024, and $9.4 million for the quarter ended June 30, 2023. The decline from the quarter ended March 31, 2024, was due primarily to lower levels of deposits, particularly the managed decrease in brokered deposits, offset slightly by an increase in the cost of interest-bearing liabilities. The average cost of interest-bearing deposits was 3.71% for the quarter ended June 30, 2024, up from 3.69% and 3.06% for the quarters ended March 31, 2024 and June 30, 2023, respectively. Advances from the FHLB totaled $176.0 million at June 30, 2024, compared to $115.0 million at March 31, 2024, and $120.0 million at June 30, 2023. The increase in FHLB advances during the current quarter was to replace the decrease in money market deposits and management’s intentional reduction in brokered deposits. At June 30, 2024, $115.0 million of our FHLB advances were tied to cash flow hedge agreements where the Bank pays a fixed rate and receives a variable rate in return to assist in the Bank’s interest rate risk management efforts. These cash flow hedge agreements had a weighted average remaining term of 29.6 months and a weighted average fixed interest rate of 1.87% as of June 30, 2024. The average cost of borrowings was 2.64% for the quarter ended June 30, 2024, compared to 2.65% for the quarter ended March 31, 2024, and 2.55% for the quarter ended June 30, 2023.

Net interest margin was 2.66% for the quarter ended June 30, 2024, compared to 2.55% for the quarter ended March 31, 2024, and 2.84% for the quarter ended June 30, 2023. The increase in the quarter ended June 30, 2024, was due primarily to the increase in net deferred loan fee recognition compared to the quarter ended March 31, 2024. This activity contributed to an increase in the average yield on interest-earning assets of 11 basis points to 5.73% during the second quarter of 2024, from 5.62% during the first quarter of 2024, and increased 30 basis points from 5.43% during the quarter ended June 30, 2023. The average cost of interest-bearing liabilities increased one basis point to 3.59% during the quarter, from 3.58% during the quarter ended March 31, 2024, and increased 58 basis points from 3.01% during the quarter ended June 30, 2023. The net interest margin for the month of June 2024 was 2.66%.

Noninterest income for the quarter ended June 30, 2024, totaled $673,000, down from $787,000 and $798,000 for the quarters ended March 31, 2024, and June 30, 2023, respectively. The decrease compared to the quarter ended March 31, 2024, was primarily due to fluctuations related to our fintech focused venture capital investment, a $41,000 decrease in wealth management revenue, and a $41,000 decrease in BOLI income due to timing differences, partially offset by a combined $58,000 increase in loan and deposit related fees.

Noninterest expense totaled $7.9 million for the quarter ended June 30, 2024, compared to $11.3 million for the quarter ended March 31, 2024, and $9.5 million for the quarter ended June 30, 2023. The decrease compared to the quarter ended March 31, 2024, was primarily due to a $2.9 million decrease in salaries and employee benefits, of which $1.4 million was related to the purchase of a single premium group annuity and accelerated amortization of related prepaid expense to satisfy the defined benefit liability, with no such expense in the current quarter. In addition, the aforementioned loan modification activity in the current quarter resulted in a $939,000 increase in deferred loan costs, which further decreased salaries and employee benefits expenses in the current period, along with reductions in estimates for profitability relative to targets causing in a $151,000 reduction in profit sharing contributions between quarters. Payroll taxes declined by $94,000 in the current quarter compared to the quarter ended March 31, 2024, as seasonal annual limits were reached during the second quarter. Professional fees declined by $551,000 during the current quarter compared to the March 31, 2024 quarter, due mostly to a $489,000 decrease in professional services related to our pending transaction with Global, since the signing of the Agreement with Global and related filings occurred during the first quarter of 2024. Also contributing to the decline in professional fees was an $83,000 reduction in external audit and accounting fees in the current quarter compared to the quarter ended March 31, 2024. The decrease compared to the quarter ended June 30, 2023, was primarily due to a $1.2 million decrease in salaries and employee benefits, a $243,000 decrease in other general and administrative expense, a $138,000 decrease in professional fees, a $97,000 decline in regulatory assessments and a $51,000 decrease in marketing expense, partially offset by higher data processing and occupancy and equipment expense.

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 15 full-service banking offices. 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. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, our pending transaction with Global Federal Credit Union (“Global”) whereby Global, pursuant to the definitive purchase and assumption agreement (the “P&A Agreement”), will acquire substantially all of the assets and assume substantially all of the liabilities of the Bank, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based on current management expectations and may, therefore, involve risks and uncertainties. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance. 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: the occurrence of any event, change or other circumstances that could give rise to the right of one or all of the parties to terminate the P&A Agreement; delays in completing the P&A Agreement; the failure to obtain necessary regulatory approvals or to satisfy any of the other conditions to the Global transaction, including the P&A Agreement, on a timely basis or at all; delays or other circumstances arising from the dissolution of the Bank and the Company following completion of the P&A Agreement; diversion of management’s attention from ongoing business operations and opportunities during the pending Global transaction; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the Global transaction; potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; changes in the interest rate environment, including the recent increases in the Federal Reserve benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; increased competitive pressures; legislative and regulatory changes; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; effects of critical accounting policies and judgments, including the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other reports filed with or furnished to 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.

For more information, contact:Joseph W. Kiley III, President and Chief Executive OfficerRich Jacobson, Executive Vice President and Chief Financial Officer(425) 255-4400

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated Balance Sheets(Dollars in thousands)(Unaudited)

Assets Jun 30,2024   Mar 31,2024   Jun 30, 2023   ThreeMonthChange   OneYearChange
                   
Cash on hand and in banks $ 10,811     $ 8,789     $ 10,621     23.0 %   1.8 %
Interest-earning deposits with banks   48,173       40,272       42,956     19.6     12.1  
Investments available-for-sale, at fair value   160,693       180,376       208,927     (10.9 )   (23.1 )
Investments held-to-maturity, at amortized cost   2,456       2,451       2,444     0.2     0.5  
Loans receivable, net of allowance of $14,796, $14,996, and $15,606 respectively   1,135,067       1,142,909       1,171,916     (0.7 )   (3.1 )
Federal Home Loan Bank ("FHLB") stock, at cost   8,823       6,078       6,603     45.2     33.6  
Accrued interest receivable   6,632       7,176       6,690     (7.6 )   (0.9 )
Deferred tax assets, net   2,360       2,399       3,275     (1.6 )   (27.9 )
Premises and equipment, net   19,007       19,323       20,283     (1.6 )   (6.3 )
Bank owned life insurance ("BOLI"), net   38,368       38,058       36,922     0.8     3.9  
Prepaid expenses and other assets   11,447       16,827       13,051     (32.0 )   (12.3 )
Right of use asset ("ROU"), net   2,670       2,415       3,018     10.6     (11.5 )
Goodwill   889       889       889     0.0     0.0  
Core deposit intangible, net   357       388       484     (8.0 )   (26.2 )
Total assets $ 1,447,753     $ 1,468,350     $ 1,528,079     (1.4 )   (5.3 )
                   
Liabilities and Stockholders' Equity                      
                   
Deposits                  
Noninterest-bearing deposits $ 99,842     $ 100,846     $ 111,768     (1.0 )   (10.7 )
Interest-bearing deposits   988,332       1,066,050       1,113,196     (7.3 )   (11.2 )
Total deposits   1,088,174       1,166,896       1,224,964     (6.7 )   (11.2 )
Advances from the FHLB   176,000       115,000       120,000     53.0     46.7  
Advance payments from borrowers for taxes and insurance   2,764       5,649       2,524     (51.1 )   9.5  
Lease liability, net   2,866       2,598       3,213     10.3     (10.8 )
Accrued interest payable   1,117       1,134       2,045     (1.5 )   (45.4 )
Other liabilities   16,139       16,890       16,618     (4.4 )   (2.9 )
Total liabilities   1,287,060       1,308,167       1,369,364     (1.6 )   (6.0 )
                   
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 9,179,825 shares at June 30 2024, 9,174,425 shares at March 31 2024, and 9,148,086 shares at June 30 2023   92       92       92     0.0     0.0  
Additional paid-in capital   72,953       72,871       72,544     0.1     0.6  
Retained earnings   94,300       93,938       95,896     0.4     (1.7 )
Accumulated other comprehensive loss, net of tax   (6,652 )     (6,718 )     (9,817 )   (1.0 )   (32.2 )
Total stockholders' equity   160,693       160,183       158,715     0.3     1.2  
Total liabilities and stockholders' equity $ 1,447,753     $ 1,468,350     $ 1,528,079     (1.4 )   (5.3 )
                                   

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

  Quarter Ended        
  Jun 30, 2024   Mar 31,2024   Jun 30, 2023   ThreeMonthChange   OneYearChange
Interest income                  
Loans, including fees $ 16,805     $ 16,966     $ 16,849     (0.9 )%   (0.3 )%
Investments   1,886       2,064       2,108     (8.6 )   (10.5 )
Interest-earning deposits with banks   482       486       620     (0.8 )   (22.3 )
Dividends on FHLB Stock   144       127       120     13.4     20.0  
Total interest income   19,317       19,643       19,697     (1.7 )   (1.9 )
Interest expense                  
Deposits   9,498       9,916       8,590     (4.2 )   10.6  
Other borrowings   849       827       798     2.7     6.4  
Total interest expense   10,347       10,743       9,388     (3.7 )   10.2  
Net interest income   8,970       8,900       10,309     0.8     (13.0 )
Recapture of provision for credit losses   (200 )     (175 )     (247 )   14.3     (19.0 )
Net interest income after recapture of provision for credit losses   9,170       9,075       10,556     1.0     (13.1 )
                   
Noninterest income                  
BOLI income   310       351       274     (11.7 )   13.1  
Wealth management revenue   54       95       95     (43.2 )   (43.2 )
Deposit related fees   240       221       252     8.6     (4.8 )
Loan related fees   97       58       44     67.2     120.5  
Other (expense) income, net   (28 )     62       133     (145.2 )   (121.1 )
Total noninterest income   673       787       798     (14.5 )   (15.7 )
                   
Noninterest expense                  
Salaries and employee benefits   3,817       6,763       5,064     (43.6 )   (24.6 )
Occupancy and equipment   1,225       1,226       1,160     (0.1 )   5.6  
Professional fees   749       1,300       887     (42.4 )   (15.6 )
Data processing   856       786       711     8.9     20.4  
Regulatory assessments   170       166       267     2.4     (36.3 )
Insurance and bond premiums   118       132       115     (10.6 )   2.6  
Marketing   47       64       98     (26.6 )   (52.0 )
Other general and administrative   959       894       1,202     7.3     (20.2 )
Total noninterest expense   7,941       11,331       9,504     (29.9 )   (16.4 )
Income (loss) before federal income tax provision (benefit)   1,902       (1,469 )     1,850     (229.5 )   2.8  
Federal income tax provision (benefit)   347       (393 )     362     (188.3 )   (4.1 )
Net income (loss) $ 1,555     $ (1,076 )   $ 1,488     (244.5 )   4.5  
                   
Basic earnings (loss) per share $ 0.17     $ (0.12 )   $ 0.16          
Diluted earnings (loss) per share $ 0.17     $ (0.12 )   $ 0.16          
Weighted average number of common shares outstanding   9,168,414       9,159,339       9,120,468          
Weighted average number of diluted shares outstanding   9,235,446       9,159,339       9,124,227          
                               

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

  June 30, 2024   March 31, 2024   June 30, 2023
  Amount   Percent   Amount   Percent   Amount   Percent
  (Dollars in thousands)
Commercial real estate:                      
Residential:                      
Multifamily $ 134,302     11.7 %   $ 134,386     11.6 %   $ 141,413     11.9 %
Total residential   134,302     11.7       134,386     11.6       141,413     11.9  
                       
Non-residential:                      
Retail   118,154     10.4       118,958     10.4                131,877     11.1  
Office   74,032     6.4       72,303     6.2                     79,338     6.7  
Hotel / motel   55,018     4.8       57,263     4.9                   64,297     5.4  
Storage   32,636     2.8       32,834     2.8                   33,418     2.8  
Mobile home park   23,159     2.0       23,351     2.0                   22,798     1.9  
Warehouse   18,868     1.6       19,086     1.6       19,557     1.6  
Nursing Home   11,474     1.0       11,538     1.0                   11,739     1.0  
Other non-residential   32,139     2.8       32,041     2.8       43,332     3.7  
  Total non-residential   365,480     31.8       367,374     31.7       406,356     34.2  
                           
Construction/land:                      
One-to-four family residential   39,908     3.5       43,411     3.7       47,168     4.0  
Multifamily   6,078     0.5       5,266     0.5       547     0.0  
Land development   9,800     0.8       8,330     0.7       10,113     0.9  
Total construction/land   55,786     4.8       57,007     4.9       57,828     4.9  
                           
One-to-four family residential:                      
Permanent owner occupied   283,516     24.7       283,398     24.5       246,585     20.8  
Permanent non-owner occupied   225,423     19.6       223,302     19.3       235,008     19.8  
Total one-to-four family residential   508,939     44.3       506,700     43.8       481,593     40.6  
                       
Business:                      
Aircraft   -     0.0       1,907     0.2       2,017     0.2  
Small Business Administration ("SBA")   1,763     0.2       1,778     0.2       1,824     0.2  
Paycheck Protection Plan ("PPP")   316     0.0       395     0.0       629     0.1  
Other business   12,984     1.1       16,344     1.4       22,957     1.8  
Total business   15,063     1.3       20,424     1.8       27,427     2.3  
                           
Consumer:                      
Classic, collectible and other auto   56,758     4.9       58,003     5.0       61,611     5.1  
Other consumer   13,535     1.2       14,011     1.2       11,294     1.0  
Total consumer   70,293     6.1       72,014     6.2       72,905     6.1  
                       
Total loans   1,149,863     100.0 %     1,157,905     100.0 %     1,187,522     100.0 %
Less:                      
ACL   14,796           14,996           15,606      
Loans receivable, net $ 1,135,067         $ 1,142,909         $ 1,171,916      
                       
Concentrations of credit: (1)                      
Construction loans as % of total capital   34.8 %         36.3 %         40.0 %    
Total non-owner occupied commercial real estate as % of total capital   298.8 %         307.2 %         336.8 %    
                                   

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

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESKey Financial Measures(Unaudited)

  At or For the Quarter Ended
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,
    2024       2024       2023       2023       2023  
  (Dollars in thousands, except per share data)
Performance Ratios: (1)                  
Return on assets   0.43 %     (0.29 )%     0.31 %     0.39 %     0.39 %
Return on equity   3.88       (2.67 )     2.97       3.71       3.74  
Dividend payout ratio   76.47       (108.33 )     100.00       79.26       79.90  
Equity-to-assets ratio   11.10       10.91       10.74       10.44       10.39  
Tangible equity ratio (2)   11.02       10.83       10.66       10.36       10.31  
Net interest margin   2.66       2.55       2.54       2.69       2.84  
Average interest-earning assets to average interest-bearing liabilities   117.01       116.40       115.84       116.94       116.27  
Efficiency ratio   82.35       116.97       85.17       84.49       85.57  
Noninterest expense as a percent of average total assets   2.21       3.05       2.18       2.29       2.50  
Book value per common share $          17.51     $          17.46     $          17.61     $          17.35     $         17.35  
Tangible book value per share (2)   17.37       17.32       17.47       17.20       17.20  
                   
Capital Ratios: (3)                  
Tier 1 leverage ratio   10.91 %     10.41 %     10.18 %     10.25 %     10.02 %
Common equity tier 1 capital ratio   15.39       14.98       14.90       14.75       14.49  
Tier 1 capital ratio   15.39       14.98       14.90       14.75       14.49  
Total capital ratio   16.64       16.24       16.15       16.00       15.75  
                   
Asset Quality Ratios: (4)                  
Nonaccrual loans as a percent of total loans   0.41 %     0.02 %     0.02 %     0.02 %     0.02 %
Nonaccrual as a percent of total assets   0.32       0.01       0.01       0.01       0.01  
ACL as a percent of total loans   1.29       1.30       1.28       1.29       1.31  
Net charge-offs to average loans receivable, net   0.00       0.00       0.00       0.00       0.00  
                   
Allowance for Credit Losses:                  
ACL - loans                  
Beginning balance $ 14,996     $ 15,306     $ 15,306     $ 15,606     $ 16,028  
Recapture of provision   (200 )     (300 )     -       (300 )     (400 )
Charge-offs   -       (10 )     -       -       (22 )
Recoveries   -       -       -       -       -  
Ending balance $ 14,796     $ 14,996     $ 15,306     $ 15,306     $ 15,606  
                   
Allowance for unfunded commitments                      
Beginning balance $ 564     $ 439     $ 439     $ 439     $ 286  
Provision for credit losses   -       125       -       -       153  
Ending balance $ 564     $ 564     $ 439     $ 439     $ 439  
                   
Provision for credit losses                  
ACL - loans $ (200 )   $ (300 )   $ -     $ (300 )   $ (400 )
Allowance for unfunded commitments   -       125       -       -       153  
Total $ (200 )   $ (175 )   $ -     $ (300 )   $ (247 )
                                       

(1) Performance ratios are calculated on an annualized basis.
(2) Tangible equity, tangible assets, tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to Non-GAAP Financial Measures at the end of this press release for a reconciliation to the nearest GAAP equivalents.
(3) Capital ratios are for First Financial Northwest Bank only.
(4) Loans are reported net of undisbursed funds.
   

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESKey Financial Measures(Unaudited)

  At or For the Quarter Ended
  Jun 30,   Mar 31,   Dec 31,   Sep 30,   Jun 30,
    2024       2024       2023       2023       2023  
  (Dollars in thousands)
Yields and Costs: (1)                  
Yield on loans   5.93 %     5.88 %     5.83 %     5.73 %     5.71 %
Yield on investments   4.38       4.11       4.11       3.98       3.93  
Yield on interest-earning deposits   5.25       5.28       5.32       5.18       4.91  
Yield on FHLB stock   8.63       7.79       7.29       6.57       7.06  
Yield on interest-earning assets   5.73 %     5.62 %     5.56 %     5.46 %     5.43 %
                   
Cost of interest-bearing deposits   3.71 %     3.69 %     3.62 %     3.33 %     3.06 %
Cost of borrowings   2.64       2.65       2.40       2.42       2.55  
Cost of interest-bearing liabilities   3.59 %     3.58 %     3.50 %     3.24 %     3.01 %
                   
Cost of total deposits (2)   3.38 %     3.38 %     3.31 %     3.03 %     2.78 %
Cost of funds (3)   3.30       3.31       3.23       2.97       2.76  
                   
Average Balances:                  
Loans $ 1,139,017     $ 1,160,156     $ 1,167,339     $ 1,171,483     $ 1,182,939  
Investments   173,102       202,106       206,837       211,291       215,113  
Interest-earning deposits   36,959       37,032       65,680       40,202       50,691  
FHLB stock   6,714       6,554       6,584       6,820       6,814  
Total interest-earning assets $ 1,355,792     $ 1,405,848     $ 1,446,440     $ 1,429,796     $ 1,455,557  
                   
Interest-bearing deposits $ 1,029,608     $ 1,082,168     $ 1,127,690     $ 1,097,324     $ 1,126,598  
Borrowings   129,126       125,604       120,978       125,402       125,275  
Total interest-bearing liabilities $ 1,158,734     $ 1,207,772     $ 1,248,668     $ 1,222,726     $ 1,251,873  
Noninterest-bearing deposits   101,196       99,173       102,869       109,384       111,365  
Total deposits and borrowings $ 1,259,930     $ 1,306,945     $ 1,351,537     $ 1,332,110     $ 1,363,238  
                   
Average assets $ 1,446,207     $ 1,495,753     $ 1,538,955     $ 1,522,224     $ 1,547,321  
Average stockholders' equity   161,057       161,823       159,659       160,299       159,764  
                                       

(1) Yields and costs are annualized.(2) Includes noninterest-bearing deposits.(3) Includes total borrowings and deposits (including noninterest-bearing deposits).

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains non-GAAP financial measures that include tangible equity, tangible assets, tangible book value per share, and the tangible equity-to-assets ratio. The Company believes that these non-GAAP financial measures and ratios as presented are useful for both investors and management to understand the effects of goodwill and core deposit intangible, net and provides an alternative view of the Company’s performance over time and in comparison to the Company’s competitors. Non-GAAP financial measures have limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation and are not a substitute for other measures in this earnings release that are presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

The following tables provide a reconciliation between the GAAP and non-GAAP measures:

  Quarter Ended
    Jun 30,2024       Mar 31,2024       Dec 31,2023       Sep 30,2023       Jun 30,2023  
  (Dollars in thousands, except per share data)
Tangible equity to tangible assets and tangible book value per share:
                                       
Total stockholders' equity (GAAP) $ 160,693     $      160,183     $      161,660     $      159,235     $      158,715  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible, net   357       388       419       451       484  
Tangible equity (Non-GAAP) $ 159,447     $      158,906     $      160,352     $      157,895     $      157,342  
                   
Total assets (GAAP) $ 1,447,753     $ 1,468,350     $ 1,505,082     $ 1,525,568     $ 1,528,079  
Less:                  
Goodwill   889       889       889       889       889  
Core deposit intangible, net   357       388       419       451       484  
Tangible assets (Non-GAAP) $ 1,446,507     $ 1,467,073     $ 1,503,774     $ 1,524,228     $ 1,526,706  
                   
Common shares outstanding at period end   9,179,825       9,174,425       9,179,510       9,179,510       9,148,086  
                   
Equity-to-assets ratio (GAAP)   11.10 %     10.91 %     10.74 %     10.44 %     10.39 %
Tangible equity-to-tangible assets ratio (Non-GAAP)   11.02       10.83       10.66       10.36       10.31  
Book value per common share (GAAP) $    17.51     $     17.46     $     17.61     $     17.35     $     17.35  
Tangible book value per share (Non-GAAP)      17.37       17.32       17.47       17.20       17.20  
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