First Financial Northwest, Inc. Reports Third Quarter 2024 Results
RENTON, Wash., Oct. 29, 2024 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the "Company") (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the "Bank"), today reported a net loss of $608,000, or $(0.07) per diluted share, for the quarter ended September 30, 2024, compared to net income of $1.6 million, or $0.17 per diluted share, for the quarter ended June 30, 2024, and net income of $1.5 million, or $0.16 per diluted share, for the quarter ended September 30, 2023. For the nine months ended September 30, 2024, the Company reported a net loss of $128,000, or $(0.01) per diluted share, compared to net income of $5.1 million, or $0.56 per diluted share, for the comparable period in 2023.
The net loss for the quarter was primarily the result of a $1.6 million provision for credit losses. Our allowance for credit losses ("ACL") analysis determined that a provision for credit losses of $1.6 million was appropriate as of September 30, 2024. This provision mainly relates to two participation loans totaling $6.0 million, for which we are not the lead lender. These loans, secured by short-term rehabilitation and assisted living facilities, have been individually evaluated and classified as "substandard" since March 2022 due to a decline in demand for the services provided at such facilities post-COVID. While payments on the loans were current as of September 30, 2024, updated appraisals received during the quarter resulted in an increase in our ACL. The loan guarantors are under contract to sell another property, with the sale expected to close in the fourth quarter of 2024. Proceeds from this sale are expected to be applied to the two loans, which would improve our position. Additionally, the guarantors reported interest from a national real estate developer in purchasing one of the facilities, though no purchase agreement was entered into as of September 30, 2024. The ACL was also impacted by higher forecasted unemployment rates and increased construction and land development loan balances. Additionally, reserves for unfunded commitments increased by $75,000 due to increased construction lending activity during the quarter.
"While we recorded a provision for credit losses during the quarter ended September 30, 2024, our credit quality remained strong, with only $853,000 in nonaccrual loans relative to our $1.14 billion total loan portfolio. Our strong credit quality is directly related to our top-notch lending department employees who originate, document and underwrite these loans," stated Joseph W. Kiley III, President and CEO.
"We also continue to work closely with Global Federal Credit Union ("Global") to prepare for the closing of the pending transaction and to ensure a smooth transition for our customers and employees. I truly appreciate the efforts and patience of our employees, customers, and shareholders as we await the final required approval from the National Credit Union Administration before we can close the transaction," concluded Kiley.
Highlights for the quarter ended September 30, 2024:
Net loans receivable totaled $1.13 billion at September 30, 2024, down $8.9 million from the prior quarter end.
Book value per share was $17.39 at September 30, 2024, compared to $17.51 at June 30, 2024, and $17.35 at September 30, 2023.
The Bank's Tier 1 leverage and total capital ratios were 10.9% and 16.7% at September 30, 2024, compared to 10.9% and 16.6% at June 30, 2024, and 10.3% and 16.0% at September 30, 2023, respectively.
Credit quality remained strong with nonaccrual loans totaling only $853,000, or 0.07% of total loans.
A $1.6 million provision for credit losses was recorded in the current quarter, compared to a $200,000 recapture of provision for credit losses in the prior quarter and a $300,000 recapture of provision for credit losses in the comparable quarter in 2023.
Deposits totaled $1.17 billion at September 30, 2024, compared to $1.09 billion at June 30, 2024, and $1.21 billion at September 30, 2023. The $79.2 million increase in deposits at September 30, 2024, compared to June 30, 2024, was due primarily to a $81.9 million increase in retail certificates of deposit and a $624,000 increase in noninterest-bearing demand deposits, partially offset by a $1.5 million, $1.4 million, $392,000, and $104,000 decline in interest-bearing demand deposits, money market deposits, savings and brokered deposits, respectively. The increased deposits were used to pay down our FHLB advances to $100.0 million at September 30, 2024, from $176.0 million at June 30, 2024.
Advances from the FHLB totaled $100.0 million at September 30, 2024, down from $176.0 million at June 30, 2024, and $125.0 million at September 30, 2023, as the increase in deposits during the current quarter allowed us to reduce our reliance on FHLB advances. At September 30, 2024, the $100.0 million in 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 30.8 months and a weighted average fixed interest rate of 1.93% as of September 30, 2024. The average cost of borrowings was 3.19% for the quarter ended September 30, 2024, compared to 2.64% for the quarter ended June 30, 2024, and 2.42% for the quarter ended September 30, 2023.
The following table presents a breakdown of our total deposits (unaudited):
Sep 30,2024
Jun 30,2024
Sep 30,2023
ThreeMonthChange
One Year Change
Deposits:
(Dollars in thousands)
Noninterest-bearing demand
$
100,466
$
99,842
$
104,164
$
624
$
(3,698
)
Interest-bearing demand
55,506
57,033
60,816
(1,527
)
(5,310
)
Savings
17,031
17,423
18,844
(392
)
(1,813
)
Money market
495,978
497,345
501,168
(1,367
)
(5,190
)
Certificates of deposit, retail
447,474
365,527
349,446
81,947
98,028
Brokered deposits
50,900
51,004
175,972
(104
)
(125,072
)
Total deposits
$
1,167,355
$
1,088,174
$
1,210,410
$
79,181
$
(43,055
)
The following tables present an analysis of total deposits by branch office (unaudited):
September 30, 2024
Noninterest-bearing demand
Interest-bearing demand
Savings
Money market
Certificates of deposit, retail
Brokered deposits
Total
(Dollars in thousands)
King County
Renton
$
29,388
$
14,153
$
10,654
$
305,836
$
315,721
$
-
$
675,752
Landing
3,442
1,660
237
8,348
12,733
-
26,420
Woodinville
1,968
2,234
959
8,852
11,522
-
25,535
Bothell
2,965
1,151
401
1,536
5,918
-
11,971
Crossroads
14,770
2,039
107
31,665
18,136
-
66,717
Kent
5,417
10,502
44
16,053
8,562
-
40,578
Kirkland
10,967
1,890
206
11,243
2,240
-
26,546
Issaquah
1,186
294
18
2,547
6,580
-
10,625
Total King County
70,103
33,923
12,626
386,080
381,412
-
884,144
Snohomish County
Mill Creek
3,990
2,171
384
14,628
10,312
-
31,485
Edmonds
9,254
6,831
330
18,549
13,281
-
48,245
Clearview
5,587
5,242
1,462
21,206
12,251
-
45,748
Lake Stevens
3,970
4,282
1,244
23,257
15,571
-
48,324
Smokey Point
2,994
1,664
969
29,353
11,387
-
46,367
Total Snohomish County
25,795
20,190
4,389
106,993
62,802
-
220,169
Pierce County
University Place
2,940
53
4
1,848
1,458
-
6,303
Gig Harbor
1,628
1,340
12
1,057
1,802
-
5,839
Total Pierce County
4,568
1,393
16
2,905
3,260
-
12,142
Brokered deposits
-
-
-
-
-
50,900
50,900
Total deposits
$
100,466
$
55,506
$
17,031
$
495,978
$
447,474
$
50,900
$
1,167,355
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
Net loans receivable totaled $1.13 billion at September 30, 2024, compared to $1.14 billion at June 30, 2024, and $1.17 billion at September 30, 2023. During the quarter ended September 30, 2024, loan repayments outpaced new loan fundings across all loan categories except construction and land development. The average balance of net loans receivable totaled $1.13 billion for the quarter ended September 30, 2024, compared to $1.14 billion for the quarter ended June 30, 2024, and $1.17 billion for the quarter ended September 30, 2023.
The ACL represented 1.42% of total loans receivable at September 30, 2024, compared to 1.29% at both June 30, 2024, and September 30, 2023.
Nonaccrual loans totaled $853,000 at September 30, 2024, compared to $4.7 million at June 30, 2024, and $201,000 at September 30, 2023. The decrease compared to the prior quarter was due primarily to the payoff of a $4.1 million commercial real estate loan that had been reported as nonaccrual as of June 30, 2024. The Bank did not incur any loss related to this credit. Additionally, there was no other real estate owned at September 30, 2024, June 30, 2024, or September 30, 2023.
Net interest income totaled $8.5 million for the quarter ended September 30, 2024, compared to $9.0 million for the quarter ended June 30, 2024, and $9.7 million for the quarter ended September 30, 2023.
Total interest income was $19.4 million for the quarter ended September 30, 2024, compared to $19.3 million for the quarter ended June 30, 2024, and $19.7 million for the quarter ended September 30, 2023. The increase in total interest income during the current quarter was primarily due to interest income on interest-earning deposits held with banks which increased to $863,000 in the quarter ended September 30, 2024, up 79.0% from $482,000 in the quarter ended June 30, 2024, partially offset by decreases in interest income on loans and investments of $147,000 or 0.9% and $142,000 or 7.5%, respectively. The decrease in total interest income during the current quarter compared to the comparable quarter in 2023, was primarily due to decreases in interest income on loans of $260,000 or 1.5% and on investments of $374,000 or 17.7%, partially offset by increases in interest income on interest-earning deposits held with banks and dividends on FHLB stock of $338,000 or 64.4% and $37,000 or 32.7%, respectively.
Yield on loans decreased to 5.86% during the recent quarter from 5.93% for the quarter ended June 30, 2024, and increased from 5.73% for the quarter ended September 30, 2023. During the June 30, 2024 quarter, the Bank modified over $130 million in loans under its agreement with Global, resulting in a $214,000 increase in net deferred loan fees and costs, which increased the loan yield. In the most recent quarter, these fees and costs decreased by $266,000. The yield on investment securities for the current quarter was 4.30%, down from 4.38% last quarter and up from 3.98% a year ago.
Total interest expense was $11.0 million for the quarter ended September 30, 2024, compared to $10.3 million for the quarter ended June 30, 2024, and $10.0 million for the quarter ended September 30, 2023. The increase from the quarters ended June 30, 2024 and September 30, 2023, was due to increases in funding costs. Interest expense on deposits increased $250,000 or 2.6% to $9.7 million, while interest expense on other borrowings increased $364,000 or 42.9% to $1.2 million during the current quarter, compared to the prior quarter. The increase in interest expense on deposits was primarily due to a $32.5 million increase in the average balances of certificates of deposit, partially offset by declines of $28.9 million and $10.7 million in the average balances of brokered deposits and money market deposits, respectively. In addition, the average cost of interest-bearing deposits was 3.80% for the quarter ended September 30, 2024, up from 3.71% for the quarter ended June 30, 2024. The increase in interest expense on other borrowings was due to a $22.4 million increase in the average balance of borrowings, coupled with a 55-basis point increase in the average cost of other borrowings to 3.19% during the quarter ended September 30, 2024, compared to the prior quarter. The increase in interest expense during the current quarter compared to the same quarter in 2023, was also due to increases in both the average balance and cost of outstanding borrowings, which increased by $26.1 million and 77 basis points, respectively.
Net interest margin was 2.46% for the quarter ended September 30, 2024, compared to 2.66% for the quarter ended June 30, 2024, and 2.69% for the quarter ended September 30, 2023. The decrease in the net interest margin for the quarter ended September 30, 2024, was due primarily to continued pressure on funding costs. The average yield on interest-earning assets decreased seven basis points to 5.66% during the quarter ended September 30, 2024, from 5.73% during the quarter ended June 30, 2024, and increased 20 basis points from 5.46% during the quarter ended September 30, 2023. The average cost of interest-bearing liabilities increased 13 basis points to 3.72% during the quarter, from 3.59% during the quarter ended June 30, 2024, and increased 48 basis points from 3.24% during the quarter ended September 30, 2023. The net interest margin for the month of September 2024 was 2.49%.
Noninterest income for the quarter ended September 30, 2024, totaled $677,000, up slightly from $673,000 for the quarter ended June 30, 2024, and unchanged from $677,000 for the quarter ended September 30, 2023. The increase compared to the quarter ended June 30, 2024, was primarily due to fluctuations related to our fintech focused venture capital investment more than offsetting the decreases in BOLI income, wealth management revenue and deposit and loan related fees in the quarter.
Noninterest expense totaled $8.5 million for the quarter ended September 30, 2024, compared to $7.9 million for the prior quarter, and $8.8 million for the same period in 2023. The increase from the June 30, 2024 quarter was primarily due to a $789,000 increase in salaries and employee benefits. This was because the June 2024 quarter included $939,000 in deferred loan costs related to loan modifications, which reduced salary and employee benefit expenses, compared to $117,000 in deferred loan costs in the quarter ended September 30, 2024. Partially offsetting this was a $411,000 refund from the defined benefit plan buyout following a final census review of remaining plan participants. Professional fees also declined by $164,000 in the current quarter, largely due to a $101,000 decline in transaction-related expenses and a $54,000 decline in legal fees. Compared to the September 30, 2023 quarter, the decline in noninterest expense was primarily due to a $412,000 decrease in salaries and employee benefits, a $51,000 decrease in marketing expenses, a $35,000 decline in regulatory assessments, and $10,000 in lower occupancy and equipment expense. These reductions were partially offset by higher data processing, other general and administrative expenses and professional fees.
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; 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 recession or slowed economic growth; changes in the interest rate environment, including increases or decreases in the Federal Reserve benchmark rate and duration at which such 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 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, civil unrest 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
Sep 30,2024
Jun 30,2024
Sep 30,2023
ThreeMonthChange
OneYearChange
Cash on hand and in banks
$
8,423
$
10,811
$
8,074
(22.1
)%
4.3
%
Interest-earning deposits with banks
72,884
48,173
49,618
51.3
46.9
Investments available-for-sale, at fair value
156,609
160,693
204,975
(2.5
)
(23.6
)
Investments held-to-maturity, at amortized cost
2,462
2,456
2,450
0.2
0.5
Loans receivable, net of allowance of $16,265, $14,796, and $15,306 respectively
1,126,146
1,135,067
1,168,079
(0.8
)
(3.6
)
Federal Home Loan Bank ("FHLB") stock, at cost
5,403
8,823
6,803
(38.8
)
(20.6
)
Accrued interest receivable
6,638
6,632
7,263
0.1
(8.6
)
Deferred tax assets, net
2,690
2,360
3,156
14.0
(14.8
)
Premises and equipment, net
18,584
19,007
19,921
(2.2
)
(6.7
)
Bank owned life insurance ("BOLI"), net
38,661
38,368
37,398
0.8
3.4
Prepaid expenses and other assets
8,898
11,447
13,673
(22.3
)
(34.9
)
Right of use asset ("ROU"), net
2,473
2,670
2,818
(7.4
)
(12.2
)
Goodwill
889
889
889
0.0
0.0
Core deposit intangible, net
326
357
451
(8.7
)
(27.7
)
Total assets
$
1,451,086
$
1,447,753
$
1,525,568
0.2
(4.9
)
Liabilities and Stockholders' Equity
