EX-99.1 2 pr12411.htm EXHIBIT 99.1 pr12411.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 Net Income of $568,000 for the Fourth Quarter 2010
and Financial Results for the Year Ended December 31, 2010

 
Renton, Washington – January 24, 2011 - First Financial Northwest, Inc. (the “Company”) (Nasdaq GS: FFNW), the holding company for First Savings Bank Northwest (the “Bank”), today reported net income for the fourth quarter ended December 31, 2010 of $568,000, or $0.03 per diluted share, as compared to a net loss of $12.2 million, or $0.69 per diluted share for the quarter ended December 31, 2009.  For the year ended December 31, 2010, the Company reported a net loss of $54.1 million, or $3.11 per diluted share as compared to a net loss of $40.7 million, or $2.18 per diluted share for the year ended December 31, 2009.
 
“Our fourth quarter 2010 results reflect that we are making progress on improving our financial results and reducing our problem assets. We have continued to reduce our concentration of speculative construction/land development loans as these loans have decreased by $107.5 million, or 66% over the last year. Our nonperforming assets at December 31, 2010 represented 7.79% of total assets compared to 10.08% at December 31, 2009, a $39.5 million decrease. As a result of our progress to reduce the amount of nonperforming loans and the improved performance of our loan portfolio, we were able to reduce our provision for loan losses in the fourth quarter of 2010 as compared to previous quarters.  Our net interest margin increased 24 basis points to 2.95% during the fourth quarter of 2010 as compared to the third quarter of 2010. These are all positive signs as we continue to work diligently to return the Company to sustained profitability,” stated Victor Karpiak, Chairman, President, and Chief Executive Officer of First Financial Northwest, Inc.
 
 

 
 
1
 
 
During the quarter and year ended December 31, 2010, the following items contributed to our financial results:
 
·  
Provision for loan losses of $2.1million and $53.1 million during the quarter and year ended December 31, 2010, respectively;
 
·  
Net loan charge-offs of $8.0 million and $63.6 million during the quarter and year ended December 31, 2010, respectively;
 
·  
Nonperforming assets decreased $23.3 million to $93.0 million at December 31, 2010 and represented 7.79% of total assets compared to 9.09% at September 30, 2010, and 10.08% at December 31, 2009;
 
·  
Net interest margin increased 24 basis points to 2.95% as compared to 2.71% for the quarter ended September 30, 2010 as compared to 2.70% and 2.49% for the years ended December 31, 2010 and 2009, respectively;
 
·  
The risk level of our loan portfolio decreased as a result of the reduction in the amount of speculative construction/land development loans to $56.5 million, or 6.33% of total  loans from $73.8 million, or 7.68% at September 30, 2010 and $164.0 million, or 14.70% at December 31, 2009;
 
·  
The Company’s ratio of tangible equity to tangible assets at December 31, 2010 was 14.62%(1).
 
During the quarter ended December 31, 2010, management continued to evaluate the adequacy of the allowance for loan losses and concluded that a provision of $2.1 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 decrease in the level of nonperforming loans, loan delinquencies and net charge-offs during the fourth quarter were the primary reasons for the decrease in the provision as compared to the third quarter of 2010. The effect of the $2.1 million provision for loan losses during the quarter ended December 31, 2010 combined with net charge-offs of $8.0 million resulted in a decrease in the allowance for loan losses to $22.5 million at December 31, 2010 from $28.4 million at September 30, 2010. The allowance for loan
_____________________________________
(1)The tangible equity to tangible assets ratio is the same as the equity to assets ratio under GAAP accounting standards as the Company has an immaterial amount of intangible assets at December 31, 2010.
 
 

 
 
2
 
losses as a percent of nonperforming loans improved to 35.8% at December 31, 2010 as compared to 30.4% at September 30, 2010 and 27.4% at December 31, 2009.
 
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 $30.5 million during the quarter to $62.9 million at December 31, 2010, compared to $93.4 million at September 30, 2010 and $120.7 million at December 31, 2009. The fourth quarter decrease was achieved primarily by the transfer of $14.9 million of nonperforming loans to other real estate owned (“OREO”) and $8.5 million of short sales during the quarter.

The following table presents a breakdown of our nonperforming assets:
                                 
December 31,
                                 
2010 Compared to
 
December 31,
  
September 30,
  
June 30,
    
March 31,
  
December 31,
    
December 31, 2009
 
2010
  
2010
  
2010
    
2010
  
2009
    
Increase/(Decrease)
 
(In thousands)
One-to-four family residential (1)
$
            22,688
  
$
            37,420
  
$
           48,246
  
$
            48,035
  
$
              36,874
  
$
                             (14,186)
Commercial real estate
  
              7,306
    
               8,170
    
           14,657
    
              14,108
    
               11,535
    
                              (4,229)
Construction/land development
  
            32,885
    
            47,672
    
           56,995
    
             83,016
    
              71,780
    
                            (38,895)
Consumer
  
                   57
    
                   181
    
                747
    
                 759
    
                   514
    
                                 (457)
Total nonperforming loans (2)
$
            62,936
  
$
            93,443
  
$
         120,645
  
$
            145,918
  
$
            120,703
  
$
                            (57,767)
                                   
Other real estate owned
  
             30,102
    
            22,927
    
           16,493
    
            20,500
    
               11,835
    
                              18,267
                                   
Total nonperforming assets
$
            93,038
  
$
            116,370
  
$
          137,138
  
$
            166,418
  
$
            132,538
  
$
                            (39,500)
                                   
(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 third consecutive quarter. At December 31, 2010, nonperforming assets decreased $23.3 million, or 20.0% compared to the third quarter of 2010 and $39.5 million, or 29.8% compared to December 31, 2009. Nonperforming assets as a percent of total assets decreased to 7.79% at December 31, 2010 from 9.09% at September 30, 2010 and 10.08% at December 31, 2009.
 
 
 
3
 

Troubled debt restructured (“TDR”) loans increased $3.4 million during the fourth quarter of 2010 and $13.2 million for the year ended December 31, 2010 to $74.7 million from $61.5 million at December 31, 2009. These loans represent loan relationships where the Bank modified the loan terms because the borrower was experiencing financial challenges and was not able to keep their loan payments current. Our priority is to negotiate a solution that is acceptable to the Bank while providing the borrower time to resolve their financial issues.  One strategy we have utilized this year for a limited number of our merchant builder borrowing relationships is to establish an “A” and “B” note structure in which we create an “A” note representing a reduced principal balance expected to be fully collected and at a debt service level and loan-to-value ratio acceptable to us. The “A” note is classified as a performing TDR loan as long as the borrower continues to perform in accordance with the note terms.  The “B” note represents the amount of the principal reduction portion of the original note and is immediately charged-off.  During the quarter ended December 31, 2010, $4.7 million of “B” notes were charged-off. The “B” note is held by the Bank and when the borrower pays off the “A” note, the Bank will proceed with collection efforts on the “B” note.  At December 31, 2010, 78.2% of our troubled debt restructured loans were classified as performing compared to 60.2% at September 30, 2010 and 57.7% at December 31, 2009. Of the $58.4 million of performing troubled debt restructured loans at December 31, 2010, $34.2 million were related to an “A” note as a result of an “A” and “B” note workout strategy.

The following table presents a breakdown of our OREO at December 31, 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
$
       2,669
  
$
    7,848
  
$
             625
  
$
     2,114
  
$
             597
  
$
           13,853
  
        46.02
%
Commercial real estate
  
          563
    
    2,622
    
                  -
    
       155
    
             450
    
            3,790
  
         12.59
  
Construction/land development
  
       6,221
    
    1,376
    
              136
    
    1,078
    
          3,648
    
           12,459
  
         41.39
  
Total other real estate owned
$
       9,453
  
$
   11,846
  
$
              761
  
$
   3,347
  
$
          4,695
  
$
           30,102
  
       100.00
%
                                         

OREO increased $7.2 million or 31.3% to $30.1 million at December 31, 2010 from $22.9 million at September 30, 2010. We sold $8.1 million of OREO during the fourth quarter of 2010 which was comprised of 36 properties and generated a net gain of $403,000. We evaluate the market value of our OREO inventory quarterly. As a result of this evaluation, we expensed $440,000 and $5.6 million related to the decline in the market value of our OREO during the quarter and year ended December 31, 2010,
 
 
 
4
 
 
respectively. Additional expenses related to OREO were $1.0 million for the quarter ended December 31, 2010 and $3.4 million for the year. We anticipate that our OREO inventory and related expenses will continue to increase over the next few months as we continue to aggressively manage our nonperforming loans and take possession of the underlying collateral.

Net interest income for the quarter ended December 31, 2010 was $8.5 million compared to $8.3 million for the comparable quarter in 2009. This increase was the result of a $1.9 million decline in interest income offset by a decrease of $2.0 million in interest expense. The decline in our interest income was predominately a result of the reduction in the size of our loan portfolio. The decline in our total interest expense was primarily the result of maturing/renewing certificates of deposit and new certificates repricing at lower interest rates. Our cost of funds declined 69 basis points to 2.33% for the quarter ended December 31, 2010 from 3.02% for the same quarter in 2009.  Our interest rate spread increased 59 basis points to 2.70% for the quarter ended December 31, 2010 from 2.11% for the same quarter last year while the net interest margin increased to 2.95% from 2.61% for the same period in 2009.
 
Noninterest income for the quarter ended December 31, 2010 decreased $1.0 million to $895,000 from $1.9 million as compared to the same quarter in 2009 as a result of a decrease in the net gain on sales of investments.
 
Noninterest expense for the fourth quarter of 2010 increased to $6.7 million compared to $4.3 million for the fourth quarter of 2009, primarily due to increases in net OREO related expenses of $981,000, FDIC/OTS assessments of $481,000 and salaries and employee benefits of $431,000.
 
Progress on Regulatory Order
 
On September 24, 2010, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (“Order”) with the FDIC and the Washington State Department of Financial Institutions (“DFI”). The Order required that a number of items be completed over various time frames. We are pleased to report that we believe we have complied with each item set forth in the Order in advance of all required due dates, and submitted the appropriate documentation to our regulators for their review. We will continue to work
 
 
5
 
 
towards reducing substandard assets and improving earnings in the upcoming quarters in our ongoing efforts to improve our operations.
 
The Bank’s Tier 1 capital ratio was 11.73% and our Total risk-based capital ratio was 19.65% at December 31, 2010 which exceeded the requirements of the Order of 10% and 12%, respectively.
 
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 this ratio to be below 65% by March 2011 for the adversely classified assets identified during the most recent examination.  As of December 31, 2010, we had already achieved the target in advance of the due date stipulated in the Order.
 
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.


 
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)
 
 
December 31,
  
                                                    Assets
  
2010
    
2009
  
             
Cash on hand and in banks
   $ 7,466     $ 8,937  
Interest-bearing deposits
     90,961       96,033  
Investments available for sale
     164,603       97,383  
Loans receivable, net of allowance of $22,534 and $33,039
     856,456       1,039,300  
Premises and equipment, net
     19,829       19,585  
Federal Home Loan Bank stock, at cost
     7,413       7,413  
Accrued interest receivable
     4,686       4,880  
Federal income tax receivable
     5,916       9,499  
Deferred tax assets, net
     —       12,139  
Other real estate owned
     30,102       11,835  
Prepaid expenses and other assets
     6,226       8,330  
           Total assets
   $ 1,193,658     $ 1,315,334  
                 
            Liabilities and Stockholders' Equity
                
                 
Deposits
   $ 920,226     $ 939,423  
Advances from the Federal Home Loan Bank
     93,066       139,900  
Advance payments from borrowers for taxes &
                
and insurance
     2,256       2,377  
Accrued interest payable
     214       457  
Other liabilities
     3,418       4,660  
             Total liabilities
     1,019,180       1,086,817  
                 
                  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 and
                
 18,823,068 shares at December 31, 2010 and
                
December 31, 2009
     188       188  
Additional paid-in capital
     187,371       186,120  
Retained earnings (deficit), substantially restricted
     (305 )     55,251  
Accumulated other comprehensive income, net of tax
     484       1,347  
Unearned Employee Stock Ownership Plan shares
     (13,260 )     (14,389 )
Total stockholders' equity
     174,478       228,517  
Total liabilities and stockholders' equity
   $ 1,193,658     $ 1,315,334  
                 

 
8
 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)
(Unaudited)
 

                                         
             
Quarter Ended
  
Three Month
    
One Year
  
             
December 31, 2010
   September 30, 2010  
December 31, 2009
  
Change
    
Change
  
Interest income
                            
 
Loans, including fees
$
13,267   
  
$
13,677   
  
$
14,817   
  
(3.00
)%
  
(10.46
)%
 
Investments available for sale
  
1,118   
    
1,254   
    
1,470   
  
(10.85
 )   
(23.95
 ) 
 
Federal funds sold and interest-bearing deposits with banks
  
62   
    
80   
    
48   
  
(22.50
 )   
29.17
  
         
Total interest income
$
14,447   
  
$
15,011   
  
$
16,335   
  
(3.76
)%
  
(11.56
)%
Interest expense
                            
 
Deposits
    
4,914   
    
5,563   
    
6,787   
  
(11.67
 )   
(27.60
 ) 
 
Federal Home Loan Bank advances
  
1,074   
    
1,057   
    
1,239   
  
1.61
    
(13.32
 ) 
         
Total interest expense
$
5,988   
  
$
6,620   
  
$
8,026   
  
(9.55
)%
  
(25.39
)%
         
Net interest income
  
8,459   
    
8,391   
    
8,309   
  
0.81
    
1.81
  
Provision for loan losses
  
2,100   
    
12,000   
    
23,705   
  
(82.50
 )   
(91.14
 ) 
         
Net interest income (loss) after provision for loan losses
$
6,359   
  
$
(3,609)  
  
$
(15,396)  
  
276.20
%
  
141.30
%
Noninterest income
                            
 
Net gain on sale of investments
  
843   
    
—    
    
1,880   
  
100.00
    
(55.16
 ) 
 
Other
        
52   
    
38   
    
47   
  
36.84
    
10.64
  
         
Total noninterest income
$
895   
  
$
38   
  
$
1,927   
  
2255.26
%
  
(53.55
)%
Noninterest expense
                            
 
Salaries and employee benefits
  
3,008   
    
3,258   
    
2,577   
  
(7.67
 )   
16.72
  
 
Occupancy and equipment
  
397   
    
411   
    
320   
  
(3.41
 )   
24.06
  
 
Professional fees
  
538   
    
664   
    
384   
  
(18.98
 )   
40.10
  
 
Data processing
  
189   
    
191   
    
162   
  
(1.05
 )   
16.67
  
 
Gain on sale of OREO property, net
  
(403)  
    
(205)  
    
—    
  
96.59
    
100.00
  
 
OREO market value adjustments
  
440   
    
2,016   
    
—    
  
(78.17
 )   
100.00
  
 
OREO related expenses, net
  
1,047   
    
962   
    
103   
  
8.84
    
916.50
  
 
FDIC/OTS assessments
  
832   
    
910   
    
351   
  
(8.57
 )   
137.04
  
 
Insurance and bond premiums
  
148   
    
150   
    
17   
  
(1.33
 )   
770.59
  
 
Other general and administrative
  
490   
    
143   
    
413   
  
242.66
    
18.64
  
         
Total noninterest expense
$
6,686   
  
$
8,500   
  
$
4,327   
  
(21.34
)%
  
54.52
%
         
Income (loss) before benefit for federal income taxes
  
568   
    
(12,071)  
    
(17,796)  
  
104.71
    
103.19
  
Benefit for federal income taxes
  
—    
    
—    
    
(5,548)  
  
0.00
    
(100.00
 ) 
         
Net income (loss)
$
568   
  
$
(12,071)  
  
$
(12,248)  
  
104.71
%
  
104.64
%
         
Basic income (loss) per share
$
                      0.03   
 
$
                  (0.69)  
 
$
                      (0.69)  
 
104.35
%
  
104.35
%
         
Diluted income (loss) per share
$
                      0.03   
 
$
                  (0.69)  
 
$
                      (0.69)  
 
104.35
%
  
104.35
%
                                         

 
9
 
 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)
(Unaudited)
 
             
Years Ended December 31,
  
               
2010
    
2009
    
2008
  
Interest income
                  
 
Loans, including fees
$
55,783   
  
$
58,332   
  
$
60,318   
  
 
Investments available for sale
  
4,485   
    
6,599   
    
7,426   
  
 
Federal funds sold and interest-bearing deposits with banks
  
276   
    
102   
    
810   
  
 
Dividends on Federal Home Loan Bank stock
  
—    
    
—    
    
47   
  
         
Total interest income
$
60,544   
  
$
65,033   
  
$
68,601   
  
Interest expense
                  
 
Deposits
      
23,370   
    
28,806   
    
31,632   
  
 
Federal Home Loan Bank advances
  
4,189   
    
5,107   
    
4,346   
  
         
Total interest expense
$
27,559   
  
$
33,913   
  
$
35,978   
  
         
Net interest income
  
32,985   
    
31,120   
    
32,623   
  
Provision for loan losses
  
53,100   
    
51,300   
    
9,443   
  
         
Net interest income (loss) after provision for loan losses
$
(20,115)  
  
$
(20,180)  
  
$
23,180   
  
Noninterest income
                  
 
Net gain on sale of investments
  
843   
    
1,954   
    
1,606   
  
 
Other-than-temporary impairment loss on investments
  
—    
    
(152)  
    
(1,640)  
  
 
Other
        
198   
    
230   
    
234   
  
         
Total noninterest income
$
1,041   
  
$
2,032   
  
$
200   
  
Noninterest expense
                  
 
Salaries and employee benefits
  
12,347   
    
11,730   
    
9,208   
  
 
Occupancy and equipment
  
1,657   
    
2,306   
    
1,188   
  
 
Professional fees
  
2,148   
    
1,412   
    
1,477   
  
 
Data processing
  
723   
    
634   
    
486   
  
 
Gain on sale of OREO property, net
  
(185)  
    
—    
    
—    
  
 
OREO market value adjustments
  
5,624   
    
—    
    
—    
  
 
OREO related expenses, net
  
3,419   
    
255   
    
—    
  
 
FDIC/OTS Assessments
  
2,837   
    
2,281   
    
484   
  
 
Insurance and bond premiums
  
597   
    
71   
    
67   
  
 
Goodwill Impairment
  
—    
    
14,206   
    
—    
  
 
Other general and administrative
  
1,896   
    
2,172   
    
1,777   
  
         
Total noninterest expense
$
31,063   
  
$
35,067   
  
$
14,687   
  
         
Income (loss) before provision (benefit) for federal income taxes
(50,137)  
    
(53,215)  
    
8,693   
  
Provision (benefit) for federal income taxes
  
3,999   
    
(12,507)  
    
4,033   
  
         
Net income (loss)
$
(54,136)  
  
$
(40,708)  
  
$
4,660   
  
         
Basic earnings (loss) per share
$
                  (3.11)  
 
$
                  (2.18)  
 
$
                   0.22   
 
         
Diluted earnings (loss) per share
$
                  (3.11)  
 
$
                  (2.18)  
 
$
                   0.22   
 
                               

 
10
 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Loan Portfolio Breakdown
(Dollars in thousands)
(Unaudited)

               
December 31,
  
               
2010
    
2009
  
               
Amount
  
Percent
    
Amount
  
Percent
  
                                     
One-to-four family residential: (1)
                        
 
Permanent
    
$
393,334  
  
                  44.08
%
  
$
481,046  
  
                   43.13
%
 
Construction
      
5,356  
  
                    0.60
      
15,685  
  
                      1.41
  
                 
398,690  
  
                  44.68
      
496,731  
  
                  44.54
  
                                     
Multifamily residential:
                        
 
Permanent
      
140,762  
  
                   15.77
      
128,943  
  
                    11.56
  
 
Construction
      
4,114  
  
                    0.46
      
17,565  
  
                     1.58
  
                 
144,876  
  
                   16.23
      
146,508  
  
                    13.14
  
                                     
Commercial real estate:
                        
 
Permanent
      
237,708  
  
                  26.64
      
251,185  
  
                  22.52
  
 
Construction
      
28,362  
  
                     3.18
      
31,605  
  
                    2.83
  
 
Land
        
6,643  
  
                    0.75
      
6,206  
  
                    0.56
  
                 
272,713  
  
                  30.57
      
288,996  
  
                   25.91
  
                                     
Speculative construction/land development:
                        
 
One-to-four family residential
    
26,848  
  
                     3.01
      
95,699  
  
                    8.58
  
 
Multifamily residential
    
1,283  
  
                     0.14
      
3,624  
  
                    0.33
  
 
Commercial
    
1,108  
  
                     0.12
      
1,129  
  
                     0.10
  
 
Land development
    
27,262  
  
                    3.06
      
63,501  
  
                    5.69
  
                 
56,501  
  
                    6.33
      
163,953  
  
                   14.70
  
                                     
Business
          
479  
  
                    0.05
      
353  
  
                    0.03
  
                                     
Consumer
          
19,127  
  
                     2.14
      
18,678  
  
                     1.68
  
Total loans
        
$
892,386  
  
                 100.00
%
  
$
1,115,219  
  
                 100.00
%
                                     
Less:
                                
 
Loans in process
    
10,975  
          
39,942  
      
 
Deferred loan fees
    
2,421  
          
2,938  
      
 
Allowance for loan losses
    
22,534  
          
33,039  
      
Loans receivable, net
  
$
856,456  
        
$
1,039,300  
      
                                     
(1)   Includes $173.4 million and $230.8 million of non-owner occupied loans at December 31, 2010 and December 31, 2009, respectively.

 
 
 
11
 
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Ratios
 (Dollars in thousands, except share data)
(Unaudited)
 
                                 
   
At or For the Quarter Ended
  
    December 31, 2010   September 30, 2010  
June 30, 2010
   March 31, 2010   December 31, 2009  
                                 
Performance Ratios:
                              
Return (loss) on assets
  
                        0.19
%
  
                        (3.70
)%
  
                    (7.50
)%
  
                 (5.36
)%
  
                      (3.70
)%
Return (loss) on equity
  
                        1.28
    
                      (25.10
 )   
                 (47.06
 )   
              (30.29
 )   
                    (19.74
 ) 
Equity-to-assets ratio
  
                     14.62
    
                        13.64
    
                    14.30
    
                 15.90
    
                      17.37
  
Interest rate spread
  
                       2.70
    
                          2.43
    
                      2.26
    
                   2.23
    
                          2.11
  
Net interest margin
  
                       2.95
    
                           2.71
    
                      2.58
    
                   2.59
    
                         2.61
  
Average interest-earning assets to
                              
   average interest-bearing liabilities
  
                    111.77
    
                      112.88
    
                  113.65
    
               115.09
    
                    119.87
  
Efficiency ratio
  
                     71.48
    
                     100.84
    
                   86.23
    
              109.28
    
                     42.27
  
Noninterest expense as a percent of
                              
   average total assets
  
                        2.19
    
                           2.61
    
                        2.11
    
                   2.68
    
                          1.31
  
Book value per common share
$
                       9.28
  
$
                          9.29
  
$
                      9.93
  
$
                   11.17
  
$
                       12.14
  
                                 
Capital Ratios (1):
                              
   Tier 1 leverage
  
                      11.73
%
  
                        10.95
%
  
                      9.40
%
  
                  11.33
%
  
                      12.46
%
   Tier 1 risk-based
  
                     18.38
    
                        17.34
    
                    14.49
    
                 16.43
    
                      19.20
  
   Total risk-based
  
                     19.65
    
                        18.63
    
                    15.78
    
                 17.73
    
                     20.49
  
                                 
Asset Quality Ratios:
                              
Nonaccrual and 90 days or more past due loans
                          
   as a percent of total loans
  
                        7.14
%
  
                          9.87
%
  
                     12.01
%
  
                  13.81
%
  
                       11.23
%
Nonperforming assets as a percent
                              
   of total assets
  
                       7.79
    
                          9.09
    
                    10.50
    
                 12.60
    
                      10.08
  
Allowance for loan losses as a percent of
  
 .
                          
   total loans
  
                       2.56
    
                          3.00
    
                      2.97
    
                   3.45
    
                        3.07
  
Allowance for loan losses as a percent of
                              
   nonperforming loans
  
                    35.80
    
                       30.39
    
                   24.75
    
                25.00
    
                     27.37
  
Net charge-offs to average loans
                              
   receivable, net
  
                       0.90
    
                            1.41
    
                      3.24
    
                   0.92
    
                        2.06
  
                                 
Allowance for Loan Losses:
                              
Allowance for loan losses, beginning of the quarter
$
                 28,400
  
$
                    29,858
  
$
                36,479
  
$
             33,039
  
$
                    31,134
  
 
Provision
  
                     2,100
    
                     12,000
    
                26,000
    
              13,000
    
                  23,705
  
 
Charge-offs
  
                  (8,970
 )   
                     (14,121
 )   
              (32,703
 )   
              (9,682
 )   
                  (21,816
 ) 
 
Recoveries
  
                     1,004
    
                            663
    
                           82
    
                      122
    
                              16
  
Allowance for loan losses, end of the quarter
$
                 22,534
  
$
                    28,400
  
$
                29,858
  
$
             36,479
  
$
                  33,039
  
                                 
Reserve for unfunded commitments,
                              
   beginning of the quarter
$
                           96
  
$
                            359
  
$
                        282
  
$
                     336
  
$
                          450
  
 
Adjustments
  
                           66
    
                          (263
 )   
                           77
    
                      (54
 )   
                          (114
 ) 
Reserve for unfunded commitments,
                              
   end of the quarter
$
                         162
  
$
                               96
  
$
                        359
  
$
                     282
  
$
                          336
  
                                 
Nonperforming Assets:
                              
Nonperforming loans
                              
 
90 days or more past due and still accruing
$
                             -
  
$
                                  -
  
$
                              -
  
$
                           -
  
$
                              -
  
 
Nonaccrual loans
  
                 46,637
    
                    65,056
    
                87,437
    
            108,135
    
                  94,682
  
 
Nonaccrual troubled debt restructured loans
  
                  16,299
    
                    28,387
    
                33,208
    
             37,783
    
                   26,021
  
Total nonperforming loans
$
                 62,936
  
$
                    93,443
  
$
              120,645
  
$
            145,918
  
$
                120,703
  
 
OREO
  
                  30,102
    
                    22,927
    
                 16,493
    
             20,500
    
                    11,835
  
Total nonperforming assets
$
                 93,038
  
$
                   116,370
  
$
               137,138
  
$
            166,418
  
$
                132,538
  
                                 
Performing troubled debt restructured loans
$
                 58,375
  
$
                     42,891
  
$
                46,575
  
$
             22,948
  
$
                  35,458
  
                                 
                                 
(1) Capital ratios are for First Savings Bank Northwest only.
                          

 
12
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Ratios
(Dollars in Thousands, except share data)
(Unaudited)

     
At or For the
  
     
Year Ended December 31,
  
     
2010
  
2009
  
2008
  
                     
Performance Ratios
                  
Return (loss) on assets
     (4.18 ) %     (3.14 ) %     0.39 %
Return (loss) on equity
     (26.59 )     (15.18 )     1.50  
Dividend payout ratio
     (2.73 )     (15.60 )     109.09  
Equity-to-assets ratio
     14.62       17.37       23.31  
Interest rate spread
     2.40       1.86       1.84  
Net interest margin
     2.70       2.49       2.81  
Average interest-earning assets to
                        
   average interest-bearing liabilities
     113.35       123.31       131.20  
Efficiency ratio
     91.29       105.78       44.75  
Noninterest expense as a percent of
                        
   average total assets
     2.40       2.71       1.22  
Book value per common share
   $ 9.28     $ 12.14     $ 13.62  
                           
Capital Ratios (1)
                        
   Tier 1 leverage
     11.73       12.46       15.61  
   Tier 1 risk-based
     18.38       19.20       23.04  
   Total risk-based
     19.65       20.49       24.30  
                           
Asset Quality Ratios:
                        
Nonaccrual and 90 days or more past due loans
                      
   as a percent of total loans
     7.14       11.23       5.56  
Nonperforming assets as a percent
                      
   of total assets
     7.79       10.08       4.71  
Allowance for losses as a percent of
                      
   total loans
     2.56       3.07       1.61  
Allowance for losses as a percent of
                      
   nonperforming loans
     35.80       27.37       28.96  
Net charge-offs to average loans
                      
   receivable, net
     6.55       3.38       0.04  
                           
Allowance for Loan Losses
                        
Allowance for loan losses, beginning of the period
 $ 33,039     $ 16,982     $ 7,971  
 
Provision
     53,100       51,300       9,443  
 
Charge-offs
     (65,476 )     (35,302 )     (432 )
 
Recoveries
     1,871       59       -  
Allowance for loan losses, end of the period
 $ 22,534     $ 33,039     $ 16,982  
                           
Reserve for unfunded commitments,
                      
   beginning of the period
     336       -       -  
 
Adjustments
     (174 )     336       -  
Reserve for unfunded commitments,
                      
   end of the period
   $ 162     $ 336     $ -  
                           
Nonperforming Assets:
                        
Nonperforming loans
                        
 
90 days or more past due and still accruing
   -       -       2,104  
 
Nonaccrual loans
     46,637       94,682       35,720  
 
Nonaccrual troubled debt restructured loans
   16,299       26,021       20,818  
Total nonperforming loans
     62,936       120,703       58,642  
 
OREO
     30,102       11,835       -  
Total nonperforming assets
   $ 93,038     $ 132,538     $ 58,642  
                           
Performing troubled debt restructured loans
 $ 58,375     $ 35,458     $ 2,226  
 
                           
 
(1)
Capital ratios are for First Savings Bank Northwest only.
                  
 
 13