First Financial Northwest, Inc. Reports Net Income of $2.6 Million or $0.28 per Diluted Share for the Fourth Quarter and $8.6 Million or $0.88 per Diluted Share for the Year Ended December 31, 2020
RENTON, Wash., Jan. 28, 2021 (GLOBE NEWSWIRE) — 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, 2020, of $2.6 million, or $0.28 per diluted share, compared to net income of $2.1 million, or $0.21 per diluted share, for the quarter ended September 30, 2020, and $2.6 million, or $0.26 per diluted share, for the quarter ended December 31, 2019. For the year ended December 31, 2020, net income was $8.6 million, or $0.88 per diluted share, compared to net income of $10.4 million, or $1.03 per diluted share, for the year ended December 31, 2019.
“While 2020 certainly presented significant challenges, it also created many opportunities,” stated Joseph W. Kiley III, President and CEO. “We were able to keep all our offices open and available to our customers throughout the year. Thanks to the efforts of our fantastic team of employees, balances in checking accounts increased by $80.7 million in 2020, allowing us to decrease our balance of higher cost certificates of deposit. Due in large part to our improved deposit mix and the impact of the current low interest rate environment, our cost of funds declined to 1.07% in the quarter ended December 31, 2020, from 1.19% in the quarter ended September 30, 2020, and 1.82% in the quarter ended December 31, 2019. If interest rates remain low, we expect this trend to continue as we have approximately $266 million in certificates of deposit maturing in the next 12 months at a weighted average rate of 1.87%,” continued Kiley.“In the third quarter of 2015, we embarked on a branch expansion strategy, focused on leasing small, efficient office spaces that provide a presence for our teams of community bankers in each market we serve, with many of these offices staffed with just two to three employees and equipped with cash recycling machines to assist with handling traditional teller work. We have now grown from a single office thrift institution in 2015 to a multi-branch, full-service community bank. We will open our 15th office in Issaquah, Washington, in the first quarter of 2021 and then pause our expansion with a focus on growing relationships and improving efficiency throughout our branch network. As an example of how the Bank has changed, checking account balances now total $199.5 million compared to $38.6 million at June 30, 2015, just prior to the beginning of our branch expansion efforts. Our strategy remains focused on improving the Bank’s deposit composition from a reliance on certificates of deposit to a more balanced deposit mix, and expanding our network for lending opportunities,” stated Kiley.“Our lending teams are working closely with our customers and continue to assist borrowers that may require additional support or closer monitoring due to the COVID-19 pandemic. In the fourth quarter, borrowers that had requested an additional COVID-19 related loan deferral or concession were evaluated, ultimately resulting in downgrades in loan classifications on 16 loans totaling approximately $34.2 million. While these loans remain classified as ‘pass’ credits and the Bank still expects to receive full payment on the loans, including the deferred interest, these downgrades were the primary reason for our provision for loan losses of $600,000 in the quarter ended December 31, 2020, bringing the total provision for the year to $1.9 million, an increase of $2.2 million from the prior year. Nonetheless, our pre-tax, pre-provision income(1) was $12.4 million for the year ended December 31, 2020, a slight change from $12.6 million in 2019, despite the challenges presented in 2020,” concluded Kiley.(1) Pre-tax, pre-provision income is a non-GAAP financial measure. Refer to Non-GAAP Financial Measures at the end of this press release for a reconciliation to the nearest GAAP equivalent.Highlights for the quarter and year ended December 31, 2020:Demand deposits increased $80.7 million for the year ended December 31, 2020.The strong growth in retail deposits allowed the Bank to reduce its brokered certificates of deposit by $94.5 million in 2020 to none at December 31, 2020.The Company’s book value per share was $16.05 at December 31, 2020, compared to $15.62 at September 30, 2020, and $15.25 at December 31, 2019.The Company repurchased 544,626 shares during the year at an average price of $10.44 per share, an amount equal to approximately 5.3% of shares outstanding at the beginning of 2020.The Company paid regular quarterly cash dividends to shareholders totaling $0.40 per share for the year.The Bank’s Tier 1 leverage and total capital ratios at December 31, 2020, were 10.3% and 15.6%, respectively, compared to 10.0% and 15.3%, at September 30, 2020, and 10.3% and 14.4% at December 31, 2019.Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”) and taking into account the estimated future impact of the COVID-19 pandemic, the Bank recorded a $600,000 provision for loan losses during the quarter, bringing the total provision for loan losses to $1.9 million for the year.
Total deposits increased $24.0 million to $1.09 billion at December 31, 2020, from $ 1.07 billion at September 30, 2020, and increased $60.1 million from $1.03 billion at December 31, 2019. Demand deposits increased $6.2 million and certificates of deposit decreased $19.1 million during the quarter, including a $10 million reduction in brokered deposits.The following table presents a breakdown of our total deposits (unaudited):(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $12,000 at December 31, 2020, $14,000 at September 30, 2020, and $28,000 at December 31, 2019.
The following tables present an analysis of total deposits by branch office (unaudited):(1) Kent opened January 31, 2019; Kirkland, November 12, 2019; University Place, March 2, 2020; and Gig Harbor, October 5, 2020.
(1) Kent opened January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.
Net loans receivable totaled $1.10 billion at December 31, 2020, compared to $1.13 billion at September 30, 2020, and $1.11 billion at December 31, 2019. New commercial loan activity remains muted as many borrowers are focused on maintaining their existing loans in lieu of seeking out new opportunities. The average balance of net loans receivable totaled $1.13 billion for the quarter ended December 31, 2020, compared to $1.14 billion for the quarter ended September 30, 2020, and $1.09 billion for the quarter ended December 31, 2019. For the year ended December 31, 2020, the average balance of net loans receivable was $1.12 billion, compared to $1.06 billion for the year ended December 31, 2019.The Company recorded a $600,000 provision for loan losses in the quarter ended December 31, 2020, compared to a $700,000 provision for loan losses in the quarter ended September 30, 2020, and no provision for loan losses in the quarter ended December 31, 2019. The provision in the quarter ended December 31, 2020, was primarily due to risk rating downgrades on $34.2 million in commercial real estate loans, as any relationship that requested an additional loan payment deferral and demonstrated other weaknesses received additional scrutiny. Somewhat offsetting this impact, net loans receivable declined by $33.4 million during the quarter. The provision in the quarter ended September 30, 2020, was primarily attributed to loan downgrades during the quarter, including the downgrade of $26.8 million in commercial real estate loans. Strong loan portfolio quality metrics and credit upgrades for certain loan relationships resulted in no provision for loan losses in the quarter ended December 31, 2019. For the year ended December 31, 2020, the provision for loan losses totaled $1.9 million, compared to a recapture of provision for loan losses of $300,000 for the year ended December 31, 2019.The ALLL represented 1.36% of total loans receivable at December 31, 2020, compared to 1.27% of total loans receivable at September 30, 2020, and 1.18% of total loans receivable at December 31, 2019. Excluding Paycheck Protection Program (“PPP”) loan balances, which are 100% guaranteed by the Small Business Administration (“SBA”), the ALLL represented 1.41% of total loans receivable at December 31, 2020, compared to 1.33% of total loans receivable at September 30, 2020. The ALLL as a percent of total loans excluding PPP loans is a non-GAAP financial measure. See Non-GAAP Financial Measures at the end of this press release for a reconciliation to its nearest GAAP equivalent. Nonperforming loans are comprised of a single $2.1 million multifamily loan in foreclosure at both December 31, 2020, and September 30, 2020, and were $95,000 at December 31, 2019. Based on an impairment analysis and ongoing monitoring, the Company does not expect to incur a loss on this multifamily loan. OREO also remained unchanged at $454,000 at December 31, 2020, September 30, 2020, and December 31, 2019.The following table presents a breakdown of our nonperforming assets (unaudited):(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans (“TDRs”) as nonperforming loans, although 100% of the Bank’s TDRs were performing in accordance with their restructured terms at December 31, 2020.
The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At December 31, 2020, TDRs totaled $3.9 million, compared to $4.1 million at September 30, 2020, and $5.2 million at December 31, 2019. All TDRs were performing according to their modified repayment terms for the periods presented. As discussed further below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), signed into law on March 27, 2020, provided guidance around the modification of loans as a result of the COVID19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. The recently enacted Consolidated Appropriations Act, 2021 provides additional COVID relief, including, among other things, additional PPP funding of $284.5 billion and extends TDR relief to the earlier of 60 days after the national emergency termination date or January 1, 2022.Net interest income totaled $10.7 million for the quarter ended December 31, 2020, compared to $10.1 million for the quarter ended September 30, 2020, and $9.7 million for the quarter ended December 31, 2019. The $562,000 increase in the quarter ended December 31, 2020, was due primarily to higher loan related fees including a $187,000 increase in net deferred fee recognition relating to the forgiveness of PPP loans. For the year ended December 31, 2020, net interest income totaled $40.5 million, compared to $38.9 million for the year ended December 31, 2019, due to changes in the average balances in net loans receivable to $1.12 million in 2020 compared to $1.06 million in 2019, and reductions in the cost of interestbearing liabilities that declined to 1.41% for the year ended December 31, 2020, from 1.92% for the year ended December 31, 2019.Total interest income was $13.8 million for the quarter ended December 31, 2020, compared to $13.7 million for the quarter ended September 30, 2020, and $15.0 million for the quarter ended December 31, 2019. For the year ended December 31, 2020, interest income totaled $56.1 million, compared to $59.6 million for the prior year. The increase in the current quarter compared to the quarter ended September 30, 2020, was primarily due to the recognition of deferred fees on PPP loans, as noted above.Total interest expense was $3.2 million for the quarter ended December 31, 2020, compared to $3.6 million for the quarter ended September 30, 2020, and $5.3 million for the quarter ended December 31, 2019. The average cost of interest-bearing deposits declined to 1.12% for the quarter ended December 31, 2020, compared to 1.27% for the quarter ended September 30, 2020, and 1.94% for the quarter ended December 31, 2019. The decline from the quarter ended September 30, 2020, was due primarily to a reduced level of brokered deposits and retail certificates of deposits, along with lower rates paid on the Bank’s other interestbearing deposit balances. During the quarter ended December 31, 2020, the Bank redeemed its remaining $10.0 million in callable brokered certificates of deposit with an average coupon of 1.475%, resulting in the recognition of $60,000 in unamortized fees in the quarter, compared to $20,000 in unamortized fees related to a $5.0 million redemption in the quarter ended September 30, 2020. Advances from the FHLB remained unchanged at $120.0 million at December 31, 2020 and September 30, 2020, compared to $137.7 million at December 31, 2019, and were comprised of short-term FHLB advances tied to cash flow hedge agreements utilized to assist in the Bank’s interest rate risk management efforts. The average cost of borrowings was 1.40% for the quarter ended December 31, 2020, compared to 1.28% for the quarter ended September 30, 2020, and 1.66% for the quarter ended December 31, 2019. For the year ended December 31, 2020, total interest expense declined to $15.6 million, compared to $20.7 million for the year ended December 31, 2019, due to the significant reduction in short term interest rates following decreases in the federal funds target rates in 2020 in response to COVID-19.The net interest margin was 3.29% for the quarter ended December 31, 2020, compared to 3.07% for the quarter ended September 30, 2020, and 3.09% for the quarter ended December 31, 2019. The expansion in the net interest margin is due primarily to the 12 basis point reduction in the Company’s cost of interestbearing liabilities during the quarter to 1.15%, compared to 1.27% in the quarter ended September 30, 2020. The 10basis point increase in the yield on interest earning assets to 4.26% in the quarter ended December 31, 2020, from 4.16% in the quarter ended September 30, 2020, was impacted favorably by the quarter over quarter increase in net deferred fee recognition on PPP loans, with deferred fees totaling $420,000 recognized in the quarter ended December 31, 2020, compared to $232,000 in the quarter ended September 30, 2020. At December 31, 2020, the net balance of deferred fees relating to PPP loans totaled $1.0 million, which will be recognized in future periods.Noninterest income for the quarter ended December 31, 2020, totaled $1.7 million, compared to $1.0 million for the quarter ended September 30, 2020, and $1.5 million for the quarter ended December 31, 2019. The increase in noninterest income for the quarter ended December 31, 2020, compared to the quarter ended September 30, 2020, was primarily due to a $706,000 increase in loan related fees, including an increase of $411,000 in swap related fees and an increase of $202,000 in prepayment penalty income. For the year ended December 31, 2020, noninterest income increased to $4.4 million, from $4.1 million for the year ended December 31, 2019, due primarily to an increase in loan related fees.Noninterest expense totaled $8.4 million for the quarter ended December 31, 2020, compared to $7.9 million for the quarter ended September 30, 2020, and $8.0 million in the quarter ended December 31, 2019. Salaries and employee benefits for the quarter ended December 31, 2020, increased $266,000 compared to the quarter ended September 30, 2020, due primarily to accruals for employee incentives, based in large part on successful deposit growth, earned in 2020. Occupancy and equipment expenses increased $160,000 in the quarter ended December 31, 2020, compared to the quarter ended September 30, 2020, due primarily to expenses relating to our branch expansion efforts. Noninterest expense totaled $32.5 million for the year ended December 31, 2020, compared to $30.4 million in 2019. The increase in noninterest expense year over year was due primarily to increases in salaries and employee benefits, occupancy and equipment, and data processing expenses relating to the Company’s growth. As a result of ongoing efforts to identify operational efficiencies and to align with near-term growth expectations, the Bank eliminated eight full-time positions in mid-January 2021, representing approximately 6% of its employee base.COVID-19 Related InformationThe Bank is committed to assisting its customers and communities in response to the COVID-19 pandemic, including providing certain short-term loan modifications. In addition, the Bank is participating in the PPP as an SBA lender. The Bank continues to take the steps necessary while working with its loan customers to effectively manage the portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis.Paycheck Protection Program
The SBA provides assistance to small businesses impacted by COVID-19 through the PPP, which was designed to provide near-term relief to help small businesses sustain operations. The deadline for PPP loan applications to the SBA under the original PPP was August 8, 2020. Under this program, as of December 31, 2020, there were 372 PPP loans outstanding totaling $41.3 million, down from 462 PPP loans totaling $52.0 million as of September 30, 2020, and $51.7 million representing 455 loans as of June 30, 2020. A total of 307, or more than 82%, of the remaining loans at December 31, 2020, are for loan amounts of $150,000 or less and represent $13.5 million of the total, of which 199 loans, representing $3.6 million, are for loan amounts of $50,000 or less. As of December 31, 2020, a total of 146 PPP loans totaling $11.2 million had been approved for forgiveness under the SBA program. Recent legislation reopened the PPP through March 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and nonprofits. In January, the Bank began accepting and processing loan applications under this second PPP program.Modifications
The primary method of relief is to allow the borrower to defer their loan payments for three to six months, while certain borrowers are allowed to pay interest only or have payment deferrals for periods longer than six months depending upon their specific circumstances. The CARES Act and regulatory guidelines suspend the determination of certain loan modifications related to the COVID19 pandemic from being treated as TDRs. Recent legislation extended this accounting treatment through the earlier of 60 days after the national emergency termination date or January 1, 2022. The following table provides detail on the balance of loans remaining on deferral status as of December 31, 2020:
Total loans with modifications granted were $45.2 million, or 4.0% of total loans outstanding, at December 31, 2020, down from $65.5 million, or 5.7% of total loans outstanding at September 30, 2020, and $132.1 million, or 11.4% of total loans outstanding, at June 30, 2020. As of December 31, 2020, $44.4 million in loans had been granted modifications of greater than six months, of which $30.5 million were for loans in the hotel/motel category.Additional Loan Portfolio Details
The Bank is monitoring its loan portfolio for delinquent loans that have not requested modification qualifying under the CARES Act or regulatory guidance. The following table presents the loan to value (“LTV”) ratios of select segments of our loan portfolio at December 31, 2020, that may be more likely to be impacted by COVID-19 pandemic considerations. The LTV ratio is derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:(1) Represents select segments of loans that may include construction loans; classifications may differ from those used elsewhere in this release because they are based on type of collateral rather than loan category.
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 14 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. 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: the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; 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 2021 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)
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
The following table presents a breakdown of the loan portfolio (unaudited):(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 SUBSIDIARIES
Key Financial Measures
(Unaudited)(1) Performance ratios are calculated on an annualized basis.
(2) 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.
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Unaudited)(1) Yields and costs are annualized.
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Unaudited)(1) 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.
(2) Capital ratios are for First Financial Northwest Bank only.
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Unaudited)
Non-GAAP Financial MeasuresIn 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: pre-tax, pre-provision income; tangible assets; tangible book value per share; tangible equity to tangible assets ratio; and ALLL as a percent of total loans excluding PPP loans. 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 certain items 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:Tangible equity to tangible assets and tangible book value per share:ALLL on loans to total loans receivable, excluding PPP loans:
Pre-tax, pre-provision income:Tangible equity to tangible assets and tangible book value per share:ALLL on loans to total loans receivable, excluding PPP loans:
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
