EX-99.1 2 ex991102210.htm EXHIBIT 99.1 ex991102210.htm
Exhibit 99.1


 
**For Immediate Release**

For more information, contact:
Victor Karpiak: (425) 255-4400
Scott Gaspard: (425) 254-2002



First Financial Northwest, Inc.
Reports Third Quarter 2010 Financial Results

 
Renton, Washington - October 22, 2010 - First Financial Northwest, Inc. (the “Company”) (Nasdaq GS: FFNW), the holding company for First Savings Bank Northwest (the “Bank”), today reported a net loss for the third quarter ended September 30, 2010 of $12.1 million, or $0.69 per diluted share, as compared to a net loss of $1.7 million, or $0.09 per diluted share for the quarter ended September 30, 2009.  For the nine months ended September 30, 2010, the Company reported a net loss of $54.7 million, or $3.14 per diluted share as compared to a net loss of $28.5 million, or $1.50 per diluted share for the comparable period in 2009.
 
“Although we continue to experience quarterly losses, our year-to-date pretax, pre-provision core earnings increased $1.6 million to $8.1 million1 from the same nine-month period in 2009.  These results indicate that the Company is maintaining solid core earnings. We continue to concentrate on reducing our nonperforming assets which decreased $20.8 million during the third quarter of 2010 from the prior quarter. By taking possession of the underlying properties supporting these non-earning assets, it expedites the conversion of these properties into cash,” stated Victor Karpiak, Chairman, President and Chief Executive Officer of First Financial Northwest, Inc.
 
 

 
_______________________________________
1 Pretax, pre-provision core operating earnings exclusive of net expenses related to other real estate owned (“OREO”) and goodwill represent non-Generally Accepted Accounting Principles (“GAAP”) financial measures.  Management has presented these non-GAAP financial measures in this earnings release because we believe that they provide useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter’s results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.
 

 
1
 
During the quarter ended September 30, 2010, the following items contributed to our financial results:
 
 
·  
Provision for loan losses of $12.0 million;
 
·  
Net loan charge-offs of $13.5 million;
 
·  
Nonperforming assets decreased $20.8 million to $116.4 million at September 30, 2010 and now represent 9.09% of total assets compared to 10.50% at June 30, 2010;
 
·  
Interest rate spread increased 17 basis points to 2.43% as compared to the quarter ended June 30, 2010;
 
·  
Cost of funds declined 25 basis points to 2.42% as compared to the quarter ended June 30, 2010;
 
·  
The overall risk level of our loan portfolio was decreased by the amount of speculative construction/land development loans to $73.8 million, or 7.68% of total loans from $94.5 million, or 9.24% at June 30, 2010 and $164.0 million, or 14.70% at December 31, 2009;
 
·  
The Company’s consolidated ratio of average tangible common equity to average tangible assets ended the quarter at 14.75%2.
 
“Our capital levels remain strong and continue to exceed the definition of a well capitalized institution. As part of the Consent Order (“Order”) entered into on September 27, 2010 with the FDIC and Washington State Department of Financial Institutions (DFI), we continue to make substantial progress in complying with the items outlined in the Order and continue to work diligently towards being in full compliance with the Order as quickly as possible,” stated Victor Karpiak.

During the quarter ended September 30, 2010, management continued to evaluate the adequacy of the allowance for loan losses and concluded that a provision of $12.0 million was required for the quarter. The amount of the provision was based on management’s analysis of various quantitative and qualitative factors affecting loans to provide reserves adequate to support known and inherent losses within the loan portfolio. The continued deterioration in the underlying collateral values of nonperforming loans was the primary reason for the provision.
_______________________________________
2 The average tangible common equity to average tangible assets ratio would be the same under GAAP accounting standards as the Company has an immaterial amount of intangible assets at September 30, 2010.

 

 
2
 
The effect of the $12.0 million provision for loan losses combined with net charge-offs of $13.5 million decreased the allowance for loan losses to $28.4 million at September 30, 2010 from $29.9 million at June 30, 2010. Allowance for loan losses as a percent of nonperforming loans improved to 30.4% at September 30, 2010 compared to 24.8% at June 30, 2010.

Nonperforming loans include loans to borrowers who are experiencing deteriorating financial conditions and there is doubt as to the ultimate recoverability of the full principal and interest due the Bank in accordance with the terms of the loan agreement. Nonperforming loans decreased $27.2 million to $93.4 million at September 30, 2010, from $120.6 million at June 30, 2010. This decrease was achieved primarily by the transfer of $17.2 million of nonperforming loans to OREO.

The following table presents a breakdown of our nonperforming assets:
 
                           
September 30,
                           
2010 Compared to
 
September 30,
  
June 30,
    
March 31,
  
December 31,
    
June 30, 2010
 
2010
  
2010
    
2010
  
2009
    
Increase(Decrease)
 
(In thousands)
One-to-four family
residential (1)
$
              37,420
  
$
            48,246
  
$
              48,035
  
$
               36,874
  
$
                      (10,826)
Commercial real estate
  
                8,170
    
            14,657
    
              14,108
    
               11,535
    
                        (6,487)
Construction/land
development
  
              47,672
    
            56,995
    
              83,016
    
               71,780
    
                        (9,323)
Consumer
  
                   181
    
                 747
    
                   759
    
                    514
    
                           (566)
Total nonperforming loans
(2)
$
              93,443
  
$
          120,645
  
$
            145,918
  
$
             120,703
  
$
                      (27,202)
                             
Other real estate owned
  
              22,927
    
            16,493
    
              20,500
    
               11,835
    
                          6,434
                             
                             
Total nonperforming assets
$
            116,370
  
$
          137,138
  
$
            166,418
  
$
             132,538
  
$
                      (20,768)
_______________________                             
(1) The majority of these loans are related to our merchant builders rental properties.
            
(2) There were no loans accruing interest which were contractually past due 90 days or more at the dates indicated.
      
 
Nonperforming assets continued to decrease for the second quarter in a row. On a sequential quarterly basis nonperforming assets decreased $29.3 million, or 17.6% from the first quarter to the second quarter of 2010 and $20.8 million, or 15.1% from the second quarter to the third quarter of 2010. Nonperforming assets as a percent of total assets was 9.09%, 10.50% and 12.60% for the quarters ended September 30, June 30 and March 31, 2010, respectively.
 
3

The following table presents a breakdown of our OREO at September 30, 2010:
 
 
 King
County
  
 Pierce
County
  
 Snohomish
County
  
 Kitsap
County
  
 All other
counties
  
Total Other
Real Estate
Owned
  
Percent of
Total Other
Real Estate
Owned
 
 (Dollars in thousands)
One-to-four family residential
$
     3,938
  
$
     2,964
  
$
                 285
  
$
     3,799
  
$
             1,218
  
$
              12,204
  
           53.42
%
Commercial
  
        573
    
     1,995
    
                     -
    
        155
    
                     -
    
                2,723
  
           11.76
  
Construction/land development
  
     1,642
    
     1,544
    
              1,318
    
     1,570
    
             1,926
    
                8,000
  
           34.82
  
                                         
Total other real estate owned
$
     6,153
  
$
     6,503
  
$
              1,603
  
$
     5,524
  
$
             3,144
  
$
              22,927
  
         100.00
%

OREO increased $6.4 million or 38.8% to $22.9 million at September 30, 2010 from $16.5 million at June 30, 2010. We sold $8.9 million of OREO during the third quarter of 2010 which was comprised of 23 properties and generated a net gain of $205,000. We evaluate the market value of our OREO inventory quarterly. As a result of the evaluation of our OREO properties, we expensed $2.0 million related to the decline in the market value of our OREO during the quarter ended September 30, 2010. Additional expenses related to OREO were $962,000 for the third quarter of 2010. We anticipate that our OREO inventory will continue to increase throughout the fourth quarter as we take possession of the underlying collateral of nonperforming loans.
 
Net interest income for the quarter ended September 30, 2010 was $8.4 million compared to $8.1 million for the quarter ended June 30, 2010. Net interest income for the third quarter of 2010 increased $742,000 to $8.4 million from $7.6 million for the same period in 2009. The reason for this change was a decrease of $2.0 million in interest expense partially offset by a decrease of $1.2 million in interest income. The decline in our total interest expense was primarily the result of $171.0 million of certificates of deposit maturing during the third quarter of 2010, with renewing and new certificates repricing at a lower interest rate. Our cost of funds declined 87 basis points to 2.42% for the quarter ended September 30, 2010 from 3.29% for the same quarter in 2009.  Our interest rate spread increased 63 basis points to 2.43% from 1.80% while the net interest margin increased to 2.71% from 2.40% for the same period in 2009.
 
Noninterest expense for the third quarter of 2010 increased to $8.5 million compared to $7.0 million for the second quarter of 2010, primarily due to OREO related expenses. Noninterest expense for the quarter ended September 30, 2010 increased $3.6 million from the same quarter in 2009.  The increase was the result of
 
4
 
the rise in expenses related to OREO of $2.7 million combined with the increase in FDIC/OTS assessments of $558,000 which is predominately related to the increase in our FDIC deposit insurance rates.

We have utilized all the tax benefits available to us at this time. As a result, no tax benefit was recorded for the third quarter of 2010.
 
Status of Order
 
The Bank’s Tier 1 capital ratio was 10.95% and our Total risk-based capital ratio was 18.63% at September 30, 2010 which exceeded the Order requirements of 10% and 12%, respectively. During the third quarter of 2010, the Company increased its investment in the Bank by $30.0 million utilizing a portion of the proceeds it received from the Company’s initial public offering. As the Bank represents our primary investment, this capital downstream was necessary for the Bank to exceed the capital levels stipulated in the Order. This contribution of capital to the Bank did not dilute our shareholders’ ownership in the Company.
 
Adversely classified assets as a percent of Tier 1 capital plus the allowance for loan losses was 128% at the beginning of 2010. The Order requires assets classified as substandard at the time of the most recent examination be below 65% by March 2011. As of September 30, 2010, we have met this requirement and continue to reduce these adversely classified assets.
 
We continue to work on the remaining issues contained in the Order and are confident that all of the deadlines contained in the Order will be met.
 
First Financial Northwest, Inc. is the parent company of First Savings Bank Northwest, a Washington chartered stock savings bank headquartered in Renton, Washington, serving the Puget Sound Region through its full-service banking office. We are a part of the ABA NASDAQ Community Bank Index. For additional information about us, please visit our website at www.fsbnw.com and click on the “Investor Relations” section.


 
5 
 


 
NON-GAAP FINANCIAL INFORMATION
This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures include pretax, pre-provision core earnings. Our management uses these non-GAAP measures in its analysis of our performance. Management believes that pretax, pre-provision core earnings are a useful measure in assessing our core operating performance, particularly during times of economic stress. Management also believes that by excluding net gains and losses on OREO sales, net OREO valuation expense, OREO related expenses and goodwill impairment charges it will better reflect our core operating performance. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Pretax, Pre-Provision Core Earnings, Exclusive of Net Expenses Related to OREO and Goodwill
 
Three Months Ended
  
 
September 30,
  
September 30,
  
 
2010
  
2009
  
 
(In thousands)
  
Net loss as reported on GAAP financial statements
$
                        (12,071
 ) 
$
                          (1,659
 ) 
Provision for loan losses
  
                          12,000
    
                            7,795
  
Benefit for federal income taxes
  
                                    -
    
                          (3,304
 ) 
Gain on sale of OREO property, net
  
                             (205
 )   
                                    -
  
OREO valuation expense
  
                            2,016
    
                                    -
  
OREO related expenses, net
  
                               962
    
                                 37
  
Goodwill impairment
  
                                    -
    
                                    -
  
Pretax, pre-provision core earnings, exclusive of
            
    net expenses related to OREO and goodwill
$
                            2,702
  
$
                            2,869
  


 
Nine Months Ended
  
 
September 30,
  
September 30,
  
 
2010
  
2009
  
 
(In thousands)
  
Net loss as reported on GAAP financial statements
$
                        (54,704
 ) 
$
                        (28,460
 ) 
Provision for loan losses
  
                          51,000
    
                          27,595
  
Provision (benefit) for federal income taxes
  
                            3,999
    
                          (6,959
 ) 
Loss on sale of OREO property, net
  
                               218
    
                                    -
  
OREO valuation expense
  
                            5,184
    
                                    -
  
OREO related expenses, net
  
                            2,372
    
                               152
  
Goodwill impairment
  
                                    -
    
                          14,206
  
Pretax, pre-provision core earnings, exclusive of
            
    net expenses related to OREO and goodwill
$
                            8,069
  
$
                            6,534
  


 
6 
 

Forward-looking statements:
 
Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations of the business environment in which we operate, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and nonperforming assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Office of Thrift Supervision and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute additional enforcement actions against the Company or the Bank, to take additional corrective action and refrain from unsafe and unsound practices, which may also require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; our compliance with regulatory enforcement actions; the requirements and restrictions that have been imposed upon the Company under the memoranda of understanding with the Office of Thrift Supervision and the consent order the Bank entered into with the FDIC and the Washington DFI and the possibility that the Company and the Bank will be unable to fully comply with these enforcement actions which could result in the imposition of additional requirements or restrictions; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2009. Any of the forward-looking statements that we make in this Press Release and in the other public statements we make 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. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made by or on our behalf. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We undertake no responsibility to update or revise any forward-looking statements.
 
 
 
7
 


 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
             
At
            
             
September 30,
  
December 31,
  
September 30,
  
Nine Month
  
One Year
Assets
2010
  
2009
  
2009
  
Change
  
Change
                                         
Cash on hand and in banks
$
7,809
 
$
8,937
 
$
4,238
 
(12.62
)%
  
84.26
%
Interest-bearing deposits
  
132,058
   
96,033
   
36,681
 
37.51
    
260.02
  
Federal funds sold
  
— 
    
— 
    
2,295
 
                          -
    
(100.00
 ) 
Investments available for sale
  
157,563
   
97,383
   
172,207
 
61.80
    
(8.50
 ) 
Loans receivable, net of allowance of $28,400, $33,039
                            
 
and $31,134
    
915,562
   
1,039,300
   
1,055,906
 
(11.91
 )   
(13.29
 ) 
Premises and equipment, net
  
20,077
   
19,585
   
16,609
 
2.51
    
20.88
  
Federal Home Loan Bank stock, at cost
  
7,413
   
7,413
   
7,413
 
                          -
    
                          -
  
Accrued interest receivable
  
4,711
   
4,880
   
5,265
 
(3.46
 )   
(10.52
 ) 
Federal income tax receivable
  
5,720
   
9,499
   
1,266
 
(39.78
 )   
351.82
  
Deferred tax assets, net
  
— 
    
12,139
   
14,128
 
(100.00
 )   
(100.00
 ) 
Other real estate owned
  
22,927
   
11,835
   
— 
  
93.72
    
100.00
  
Prepaid expenses and other assets
  
6,617
   
8,330
   
3,414
 
(20.56
 )   
93.82
  
         
Total assets
$
1,280,457
 
$
1,315,334
 
$
1,319,422
 
(2.65
)%
  
(2.95
)%
                                         
Liabilities and Stockholders' Equity
                            
                                         
Deposits
      
$
952,748
 
$
939,423
 
$
908,213
 
1.42
 %
  
4.90
%
Advances from the Federal Home Loan Bank
  
143,066
   
139,900
   
149,900
 
2.26
    
(4.56
 ) 
Advance payments from borrowers for taxes
                            
 
and insurance
  
4,506
   
2,377
   
4,375
 
89.57
    
2.99
  
Accrued interest payable
  
395
   
457
   
522
 
(13.57
 )   
(24.33
 ) 
Other liabilities
    
5,073
   
4,660
   
5,550
 
8.86
    
(8.59
 ) 
         
Total liabilities
  
1,105,788
    
1,086,817
   
1,068,560
 
1.75
    
3.48
  
                                         
                  Commitments and contingencies
                            
                                         
Stockholders' Equity
                            
 
Preferred stock, $0.01 par value; authorized 10,000,000
                            
   
shares, no shares issued or outstanding
  
—
    
— 
    
— 
  
—  
    
—
  
 
Common stock, $0.01 par value; authorized 90,000,000
                            
   
shares; issued and outstanding 18,805,168; 18,823,068
                          
   
and 20,038,320 shares at September 30, 2010,
                            
   
December 31, 2009 and September 30, 2009
  
188
    
188
   
200
 
0.00
    
(6.00
 ) 
 
Additional paid-in capital
  
187,069
    
186,120
   
193,634
 
0.51
    
(3.39
 ) 
 
Retained earnings (deficit), substantially restricted
  
(874
 )   
55,251
   
69,059
 
(101.58
 )   
(101.27
 ) 
 
Accumulated other comprehensive income, net of tax
  
1,828
    
1,347
   
2,640
 
35.71
    
(30.76
 ) 
 
Unearned Employee Stock Ownership Plan shares
  
(13,542
 )   
(14,389
 )   
(14,671
 ) 
(5.89
 )   
(7.70
 ) 
         
Total stockholders' equity
  
174,669
   
228,517
   
250,862
 
(23.56
 )   
(30.37
 ) 
         
   Total liabilities and stockholders' equity
$
1,280,457
 
$
1,315,334
  
$
1,319,422
 
(2.65
)%
  
(2.95
)%

 
8 
 


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)
(Unaudited)
 
                                   
                                   
       
Quarter Ended
            
       
September 30, 2010
  
June 30, 2010
  
September 30, 2009
  
Three Month Change
    
One Year Change
  
Interest income
                              
 
Loans, including fees
$
13,677   
  
$
14,245   
  
$
14,376   
  
(3.99
)%
  
(4.86
)%
 
Investments available for sale
  
1,254   
    
1,106   
    
1,813   
  
13.38
    
(30.83
 ) 
 
Federal funds sold and interest-bearing deposits with banks
  
80   
    
73   
    
32   
  
9.59
    
150.00
  
   
Total interest income
$
15,011   
  
$
15,424   
  
$
16,221   
  
(2.68
)%
  
(7.46
)%
                             
Interest expense
                            
 
Deposits
      
5,563   
    
6,322   
    
7,262   
  
(12.01
 )   
(23.40
 ) 
 
Federal Home Loan Bank advances
  
1,057   
    
1,035   
    
1,310   
  
2.13
    
(19.31
 ) 
                                 
   
Total interest expense
$
6,620   
  
$
7,357   
  
$
8,572   
  
(10.02
)%
  
(22.77
)%
                                 
   
Net interest income
  
8,391   
    
8,067   
    
7,649   
  
4.02
    
9.70
  
                             
Provision for loan losses
  
12,000   
    
26,000   
    
7,795   
  
(53.85
 )   
53.94
  
                                 
   
Net interest loss after provision for loan losses
$
(3,609)  
  
$
(17,933)  
  
$
(146)  
  
(79.88
)%
  
2371.92
%
                             
Noninterest income
                            
 
Net loss on sale of investments
  
—    
    
—    
    
(2)  
  
                            -
    
(100.00
 ) 
 
Other
      
38   
    
62   
    
74   
  
(38.71
 )   
(48.65
 ) 
                                 
   
Total noninterest income
$
38   
  
$
62   
  
$
72   
  
(38.71
)%
  
(47.22
)%
                             
Noninterest expense
                            
 
Salaries and employee benefits
  
3,258   
    
2,892   
    
3,077   
  
12.66
    
5.88
  
 
Occupancy and equipment
  
411   
    
424   
    
343   
  
(3.07
 )   
19.83
  
 
Professional fees
  
664   
    
487   
    
332   
  
36.34
    
100.00
  
 
Data processing
  
191   
    
172   
    
178   
  
11.05
    
7.30
  
 
Loss (gain) on sale of OREO property, net
  
(205)  
    
(14)  
    
—    
  
1364.29
    
(100.00
 ) 
 
OREO valuation expense
  
2,016   
    
897   
    
—    
  
124.75
    
100.00
  
 
OREO related expenses, net
  
962   
    
708   
    
37   
  
35.88
    
2500.00
  
 
FDIC/OTS assessments
  
910   
    
515   
    
352   
  
76.70
    
158.52
  
 
Insurance and bond premiums
  
150   
    
150   
    
17   
  
                            -
    
782.35
  
 
Other general and administrative
  
143   
    
779   
    
553   
  
(81.64
 )   
(74.14
 ) 
                                 
   
Total noninterest expense
$
8,500   
  
$
7,010   
  
$
4,889   
  
21.26
%
  
73.86
%
                                 
   
Loss before benefit for federal income taxes
  
(12,071)  
    
(24,881)  
    
(4,963)  
  
(51.49
 )   
143.22
  
                             
Benefit for federal income taxes
  
—    
    
—    
    
(3,304)  
  
                            -
    
(100.00
 ) 
                                 
   
Net loss
$
(12,071)  
  
$
(24,881)  
  
$
(1,659)  
  
(51.49
)%
  
627.61
%
                                 
   
Basic loss per share
$
                           (0.69)  
 
$
                                (1.43)  
 
$
                          (0.09)  
 
(51.75
)%
  
666.67
%
                                 
   
Diluted loss per share
$
                           (0.69)
  
$
                                (1.43)
  
$
                          (0.09)
  
(51.75)
%
  
666.67
%

 
9 
 


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)
(Unaudited)
                       
                 
       
Nine Months Ended September 30,
  
One Year
       
2010
  
2009
  
Change
Interest income
                  
 
Loans, including fees
$
42,516   
  
$
43,515   
  
(2.30
)%
 
Investments available for sale
  
3,367   
    
5,129   
  
(34.35
 ) 
 
Federal funds sold and interest-bearing deposits with banks
  
214   
    
54   
  
296.30
  
                     
   
Total interest income
$
46,097   
  
$
48,698   
  
(5.34
)%
                 
Interest expense
                
 
Deposits
      
18,456   
    
22,019   
  
(16.18
 ) 
 
Federal Home Loan Bank advances
  
3,115   
    
3,868   
  
(19.47
 ) 
                     
   
Total interest expense
$
21,571   
  
$
25,887   
  
(16.67
)%
                     
   
Net interest income
  
24,526   
    
22,811   
  
7.52
  
                 
Provision for loan losses
  
51,000   
    
27,595   
  
84.82
  
                     
   
Net interest loss after provision for loan losses
$
(26,474)  
  
$
(4,784)  
  
453.39
%
                 
Noninterest income
                
 
Net gain on sale of investments
  
—    
    
74   
  
(100.00
 ) 
 
Other-than-temporary impairment loss on investments
  
—    
    
(152)  
  
(100.00
 ) 
 
Other
      
146   
    
183   
  
(20.22
 ) 
                     
   
Total noninterest income
$
146   
  
$
105   
  
39.05
%
                 
Noninterest expense
                
 
Salaries and employee benefits
  
9,339   
    
9,153   
  
2.03
  
 
Occupancy and equipment
  
1,260   
    
1,986   
  
(36.56
 ) 
 
Professional fees
  
1,610   
    
1,028   
  
56.61
  
 
Data processing
  
533   
    
472   
  
12.92
  
 
Loss on sale of OREO property, net
  
218   
    
—    
  
100.00
  
 
OREO valuation expense
  
5,184   
    
—    
  
100.00
  
 
OREO related expenses, net
  
2,372   
    
152   
  
1460.53
  
 
FDIC/OTS assessments
  
2,005   
    
1,930   
  
3.89
  
 
Insurance and bond premiums
  
449   
    
54   
  
731.48
  
 
Goodwill impairment
  
—    
    
14,206   
  
(100.00
 ) 
 
Other general and administrative
  
1,407   
    
1,759   
  
(20.01
 ) 
                     
   
Total noninterest expense
$
24,377   
  
$
30,740   
  
(20.70
)%
                     
   
Loss before provision (benefit) for federal income taxes
  
(50,705)  
    
(35,419)  
  
43.16
  
                 
Provision (benefit) for federal income taxes
  
3,999   
    
(6,959)  
  
(157.47
 ) 
                     
   
Net loss
$
(54,704)  
  
$
(28,460)  
  
92.21
%
                     
   
Basic loss per share
$
                     (3.14)  
 
$
                      (1.50)  
 
109.33
%
                     
   
Diluted loss per share
$
                     (3.14)  
 
$
                      (1.50)  
 
109.33
%

 
10 
 

The following table presents a breakdown of our loan portfolio:
 
               
September 30, 2010
  
December 31, 2009
               
Amount
  
Percent
  
Amount
  
Percent
               
(Dollars in thousands)
One-to-four family residential: (1)
                        
 
Permanent
      
$
424,959  
  
                   44.18
  %
$
481,046  
  
                   43.13
  %
 
Construction
      
6,648  
  
                     0.69
      
15,685  
  
                     1.41
  
                 
431,607  
  
44.87
     
496,731  
  
                   44.54
  
                                     
Multifamily residential:
                        
 
Permanent
        
137,842  
  
                   14.34
      
128,943  
  
                   11.56
  
 
Construction
      
19,364  
  
                     2.01
      
17,565  
  
                     1.58
  
                 
157,206  
  
16.35
     
146,508  
  
                   13.14
  
                                     
Commercial real estate:
                        
 
Permanent
        
241,996  
  
                   25.16
      
251,185  
  
                   22.52
  
 
Construction
      
31,112  
  
                     3.24
      
31,605  
  
                     2.83
  
 
Land
            
6,474  
  
                     0.67
      
6,206  
  
                     0.56
  
                 
279,582  
  
29.07
      
288,996  
  
                   25.91
  
                                     
Speculative construction/land development:
                        
 
One-to-four family residential
    
42,266  
  
                     4.40
      
95,699  
  
                     8.58
  
 
Multifamily residential
    
1,283  
  
                     0.13
      
3,624  
  
                     0.33
  
 
Commercial
      
1,108  
  
                     0.12
      
1,129  
  
                     0.10
  
 
Land development
    
29,173  
  
                     3.03
      
63,501  
  
                     5.69
  
                 
73,830  
  
7.68
     
163,953  
  
                   14.70
  
                                     
Business
          
323  
  
                     0.03
      
353  
  
                     0.03
  
                                     
Consumer
          
19,239  
  
                     2.00
      
18,678  
  
                     1.68
  
Total loans
      
$
961,787  
  
                 100.00
  %
  
$
1,115,219  
  
                 100.00
  %
                                     
Less:
                                
 
Loans in process
    
15,138  
          
39,942  
      
 
Deferred loan fees
    
2,687  
          
2,938  
      
 
Allowance for loan losses
    
28,400  
          
33,039  
      
Loans receivable, net
  
$
915,562  
        
$
1,039,300  
      
                                     
(1)   Includes $191.7 million and $230.8 million of non-owner occupied loans at September 30, 2010 and December 31, 2009,
               respectively.
  
     
 
                        

 
11 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES  
Key Financial Ratios
  
(Unaudited)
  
                                 
   
At or For the Quarter Ended
  
   
September 30,
2010
    
June 30,
2010
  
March 31,
2010
  
December 31, 2009
    
September 30,
2009
  
   
(Dollars in thousands, except share data)
    
Performance Ratios:
                              
Loss on assets
  
                    (3.70
)%
  
            (7.50
)%
  
          (5.36
)%
  
                     (3.70
)%
  
                         (0.50
)%
Loss on equity
  
                  (25.10
 )   
          (47.06
 )   
        (30.29
 )   
                   (19.74
 )   
                         (2.61
 ) 
Average equity-to-average assets ratio
  
                    14.75
    
           15.95
    
          17.69
    
                    18.74
    
                         19.37
  
Interest rate spread
  
                      2.43
    
             2.26
    
            2.23
    
                      2.11
    
                           1.80
  
Net interest margin
  
                      2.71
    
             2.58
    
            2.59
    
                      2.61
    
                           2.40
  
Average interest-earning assets to
                              
   average interest-bearing liabilities
  
                  112.88
    
         113.65
    
        115.09
    
                  119.87
    
                       122.15
  
Efficiency ratio
  
                  100.84
    
           86.23
    
        109.28
    
                    42.27
    
                         63.32
  
Noninterest expense as a percent of
                              
   average total assets
  
                      2.61
    
             2.11
    
            2.68
    
                      1.31
    
                           1.49
  
Book value per common share
$
                      9.29
  
$
             9.93
  
$
          11.17
  
$
                    12.14
  
$
                         12.52
  
                                 
Capital Ratios (1):
                              
   Tier 1 leverage
     10.95
%
  
             9.40
%
  
          11.33
%
  
                    12.46
%
  
                         13.47
%
   Tier 1 risk-based
     17.34    
           14.49
    
          16.43
    
                    19.20
    
                         20.43
  
   Total risk-based
     18.63    
           15.78
    
          17.73
    
                    20.49
    
                         21.72
  
                                 
Asset Quality Ratios:
                              
Nonaccrual and 90 days or more past due loans
                              
   as a percent of total loans
  
                      9.87
%
  
           12.01
%
  
          13.81
%
  
                    11.23
%
  
                         13.67
%
Nonperforming assets as a percent
                              
   of total assets
  
                      9.09
    
           10.50
    
          12.60
    
                    10.08
    
                         11.29
  
Allowance for loan losses as a percent of
                              
   total loans
  
                      3.00
    
             2.97
    
            3.45
    
                      3.07
    
                           2.86
  
Allowance for loan losses as a percent of
                              
   nonperforming loans
  
                    30.39
    
           24.75
    
          25.00
    
                    27.37
    
                         20.90
  
Net charge-offs to average loans
                              
   receivable, net
  
                      1.41
    
             3.24
    
            0.92
    
                      2.06
    
                           0.88
  
                                 
Allowance for Loan Losses:
                              
Allowance for loan losses, beginning of the quarter
$
                  29,858
  
$
         36,479
  
$
        33,039
  
$
                  31,134
  
$
                       32,450
  
 
Provision
  
                  12,000
    
         26,000
    
        13,000
    
                  23,705
    
                         7,795
  
 
Charge-offs
  
                (14,121
 )   
        (32,703
 )   
        (9,682
 )   
                 (21,816
 )   
                       (9,154
 ) 
 
Recoveries
  
                       663
    
                82
    
             122
    
                         16
    
                              43
  
Allowance for loan losses, end of the quarter
$
                  28,400
  
$
         29,858
  
$
        36,479
  
$
                  33,039
  
$
                       31,134
  
                                 
Reserve for unfunded commitments,
                              
   beginning of the quarter
$
                       359
  
$
              282
  
$
             336
  
$
                       450
  
$
                            330
  
 
Adjustments
  
                     (263
 )   
                77
    
             (54
 )   
                      (114
 )   
                            120
  
Reserve for unfunded commitments,
                              
   end of the quarter
$
                         96
  
$
              359
  
$
             282
  
$
                       336
  
$
                            450
  
                                 
Nonperforming Assets:
                              
Nonperforming loans
                              
 
90 days or more past due and still accruing
$
                            -
  
$
                   -
  
$
                 -
  
$
                            -
  
$
                            907
  
 
Nonaccrual loans
  
                  65,056
    
         87,437
    
      108,135
    
                  94,682
    
                     120,956
  
 
Nonaccrual troubled debt restructured loans
  
                  28,387
    
         33,208
    
        37,783
    
                  26,021
    
                       27,127
  
Total nonperforming loans
$
                  93,443
  
$
       120,645
  
$
      145,918
  
$
                120,703
  
$
                     148,990
  
 
OREO
  
                  22,927
    
         16,493
    
        20,500
    
                  11,835
    
                                -
  
Total nonperforming assets
$
                116,370
  
$
       137,138
  
$
      166,418
  
$
                132,538
  
$
                     148,990
  
                                 
Performing troubled debt restructured loans
$
                  42,891
  
$
         46,575
  
$
        22,948
  
$
                  35,458
  
$
                       24,192
  
_________________                               
(1)   Capital ratios are for First Savings Bank Northwest only.
            

 
12