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First Financial Northwest, Inc. Reports Net Income For The Fourth Quarter Of $1.5 Million Or $0.09 Per Share And $2.7 Million Or $0.15 Per Share For The Year Ended December 31, 2012

Stocks in this article: FFNW

Pursuant to the amended Settlement Agreement, the Company will instead appoint Kevin D. Padrick to its Board, rather than Mr. Schneider, subject to any required regulatory approvals, and will then nominate Mr. Padrick at the 2013 Annual Meeting of Shareholders for a full three-year term. Mr. Padrick is a Senior Principal of Obsidian Finance Group, LLC, whose offices are located in Lake Oswego, Oregon. All other significant terms of the settlement remain the same.

For more information regarding the settlement, please see the Company's Form 8-Ks that were filed on December 19, 2012 and January 17, 2013.

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 as well as the Russell 2000 and 3000 Indices. For additional information about us, please visit our website at www.fsbnw.com and click on the "Investor Relations" section.

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 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 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 Board of Governors of the Federal Reserve System ("Federal Reserve") and our bank subsidiary by the Federal Deposit Insurance Corporation ("FDIC"), the Washington State Department of Financial Institutions, Division of Banks ("Washington DFI") 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 and the Bank under the memoranda of understanding with the Federal Reserve, the FDIC and the Washington DFI, respectively, and the possibility that either the Company or the Bank will be unable to fully comply with this enforcement action which could result in the imposition of additional requirements or restrictions; our ability to pay dividends on our common stock; 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 the 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 or as a result of Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations; 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, 2011. 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.

     
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES    
Consolidated Balance Sheets    
(Dollars in thousands, except share data)    
(Unaudited)    
     
  December 31,
Assets 2012 2011
     
Cash on hand and in banks  $ 4,289  $ 4,620
Interest-bearing deposits  83,452  160,141
Investments available-for-sale, at fair value  152,262  129,002
Loans receivable, net of allowance of $12,542 and $16,559  650,468  703,288
Premises and equipment, net  18,073  18,922
Federal Home Loan Bank stock, at cost  7,281  7,413
Accrued interest receivable  3,484  3,856
Federal income tax receivable  60  1,060
Deferred tax assets  1,000  --
OREO  17,347  26,044
Prepaid expenses and other assets  4,939  5,044
Total assets  $ 942,655  $ 1,059,390
     
Liabilities and Stockholders' Equity    
     
Interest-bearing deposits  $ 659,643  $ 782,652
Noninterest-bearing deposits  6,154  6,013
Advances from the Federal Home Loan Bank  83,066  83,066
Advance payments from borrowers for taxes and insurance  2,186  2,093
Accrued interest payable  179  184
Other liabilities  4,310  4,062
Total liabilities  755,538  878,070
     
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 shares at December 31, 2012 and 2011  188  188
Additional paid-in capital  190,534  188,816
Retained earnings, substantially restricted  6,650  3,937
Accumulated other comprehensive income, net of tax  748  511
Unearned Employee Stock Ownership Plan ("ESOP") shares  (11,003)  (12,132)
Total stockholders' equity  187,117  181,320
Total liabilities and stockholders' equity  $ 942,655  $ 1,059,390
     
           
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statement of Income
(Dollars in thousands, except share data)
(Unaudited)
           
  Quarter Ended  Three Month   One Year 
  December 31, September 30, December 31,  Increase /   Increase / 
  2012 2012 2011  (Decrease)   (Decrease) 
Interest income          
Loans, including fees  $ 9,143  $ 9,539  $ 10,892 (4.2)% (16.1)%
Investments available-for-sale  543  507  647 7.1 (16.1)
Interest-bearing deposits  62  111  107 (44.1) (42.1)
Total interest income  $ 9,748  $ 10,157  $ 11,646 (4.0) (16.3)
Interest expense          
Deposits  2,194  2,429  3,501 (9.7) (37.3)
Federal Home Loan Bank advances  516  517  522 (0.2) (1.1)
Total interest expense $  2,710  $ 2,946  $ 4,023 (8.0) (32.6)
Net interest income  7,038  7,211  7,623 (2.4) (7.7)
Provision for loan losses  --  700  600 (100.0) (100.0)
Net interest income after provision for loan losses  $ 7,038  $ 6,511  $ 7,023 8.1 0.2
Noninterest income          
Net gain on sale of investments  13  --  485 100.0 (97.3)
Other  105  107  70 (1.9) 50.0
Total noninterest income  $ 118  $ 107  $ 555 10.3 (78.7)
           
Noninterest expense          
Salaries and employee benefits  3,268  3,680  3,212 (11.2) 1.7
Occupancy and equipment  361  391  388 (7.7) (7.0)
Professional fees  449  460  535 (2.4) (16.1)
Data processing  161  174  188 (7.5) (14.4)
Gain on sale of OREO property, net  (180)  (78)  (134) 130.8 34.3
OREO market value adjustments  344  1,157  492 (70.3) (30.1)
OREO related expenses, net  343  486  597 (29.4) (42.5)
Regulatory assessments  295  298  537 (1.0) (45.1)
Insurance and bond premiums  101  100  247 1.0 (59.1)
Proxy contest and related litigation  186  264  -- (29.5)  100.0
Marketing  46  68  51 (32.4) (9.8)
Other general and administrative  271  457  538 (40.7) (49.6)
Total noninterest expense  $ 5,645  $ 7,457  $ 6,651 (24.3) (15.1)
Income (loss) before federal income tax benefit  1,511  (839)  927 280.1 63.0
Federal income tax benefit  --  (48)  -- 100.0  -- 
Net income (loss)  $ 1,511  $ (791)  $ 927 291.0 63.0
           
Basic earnings (loss) per share  $ 0.09  $ (0.04)  $ 0.05 325.0 80.0
Diluted earnings (loss) per share  $ 0.09  $ (0.04)  $ 0.05 325.0 80.0
           
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)
       
   Year Ended December 31, 
  2012 2011 2010
Interest income      
Loans, including fees  $ 38,956  $ 46,608  $ 55,783
Investments available-for-sale  2,143  4,040  4,485
Interest-bearing deposits with banks  367  404  276
Total interest income  $ 41,466  $ 51,052  $ 60,544
Interest expense      
Deposits  10,191  16,215  23,370
Federal Home Loan Bank advances  2,055  2,270  4,189
Total interest expense  $ 12,246  $ 18,485  $ 27,559
Net interest income  29,220  32,567  32,985
Provision for loan losses  3,050  4,700  53,100
Net interest income (loss) after provision for loan losses  $ 26,170  $ 27,867  $ (20,115)
Noninterest income      
Net gain on sale of investments  301  2,226  843
Other  535  307  198
Total noninterest income  $ 836  $ 2,533  $ 1,041
       
Noninterest expense      
Salaries and employee benefits  13,826  13,259  12,347
Occupancy and equipment  1,552  1,555  1,657
Professional fees  1,850  1,966  2,148
Data processing  701  761  723
Gain on sale of OREO property, net  (607)  (1,561)  (185)
OREO market value adjustments  2,046  1,924  5,624
OREO related expenses, net  1,764  2,973  3,419
Regulatory assessments  1,004  2,437  2,837
Insurance and bond premiums  401  990  597
Proxy contest and related litigation  1,054  --  --
Marketing  227  205  233
Other general and administrative  1,474  1,649  1,663
Total noninterest expense  $ 25,292  $ 26,158  $ 31,063
Income (loss) before provision (benefit) for federal income tax  1,714  4,242  (50,137)
Federal income tax provision (benefit)  (999)  --  3,999
Net income (loss)  $ 2,713  $ 4,242  $ (54,136)
       
Basic earnings (loss) per share  $ 0.15  $ 0.24 $ (3.11)
Diluted earnings (loss) per share  $ 0.15  $ 0.24  $ (3.11)
       

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

  December 31,
  2012 2011
   Amount  Percent Amount Percent
  (Dollars in thousands)
One-to-four family residential: (1)        
Permanent  $ 306,851  45.5%  $ 335,412  46.4%
Construction  177  0.1  --  -- 
   307,028  45.6  335,412  46.4
Multifamily:        
Permanent  105,936  15.7  110,148  15.2
Construction  5,585  0.8  3,526  0.5
   111,521  16.5  113,674  15.7
Commercial real estate:        
Permanent  207,436  30.8  218,032  30.2
Construction  12,500  1.8  12,500  1.7
Land  1,942  0.3  1,811  0.2
   221,878  32.9  232,343  32.1
Construction/land development: (2)        
One-to-four family residential  608  0.1  6,194  0.9
Multifamily  8,375  1.2  855  0.1
Commercial  --  --   1,104  0.2
Land development  10,435  1.6  16,990  2.3
   19,418  2.9  25,143  3.5
         
Business  2,968  0.4  3,909  0.6
Consumer  11,110  1.7  12,499  1.7
Total loans  673,923  100.0%  722,980  100.0%
Less:        
Loans in process  8,856    1,372  
Deferred loan fees, net  2,057    1,761  
ALLL  12,542    16,559  
Loans receivable, net  $ 650,468    $ 703,288  
         
(1) Includes $139.8 million and $147.4 million of non-owner occupied loans at December 31, 2012 and December 31, 2011, respectively.
 
(2) Excludes construction loans that will convert to permanent loans. We consider these loans to be "rollovers" in that one loan is originated for both the construction loan and permanent financing. These loans are classified according to the underlying collateral. At December 31, 2012, we had $12.5 million, or 5.6% of our total commercial real estate portfolio, $5.6 million, or 5.0% of our total multifamily loans and $177,000, or 0.1% of our total one-to-four family loan portfolio in these "rollover" type of loans. At December 31, 2011, we had $12.5 million, or 5.4% of our total commercial real estate portfolio and $3.5 million, or 3.1% of our total multifamily loan portfolio in these rollover type of loans. At December 31, 2012 and 2011, $1.9 million and $1.8 million, respectively, of commercial real estate loans were not included in the construction/land development category because we classify raw land or buildable lots where we do not intend to finance the construction as commercial real estate land loans.
         
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Ratios
(Unaudited)
           
  At or For the Quarter Ended
  December 31, September 30, June 30, March 31, December 31,
  2012 2012 2012 2012 2011
   (Dollars in thousands, except share data)
Performance Ratios:          
Return (loss) on assets  0.63%  (0.32)%  0.54%  0.24%  0.34%
Return (loss) on equity  3.25  (1.70)  2.97  1.36  2.05
Equity-to-assets  19.85  19.01  18.44  17.61  17.12
Interest rate spread  2.86  2.84  2.80  2.88  2.72
Net interest margin  3.09  3.08  3.03  3.11  2.96
Average interest-earning assets to average interest-bearing liabilities  119.82  118.96  117.64  116.28  115.03
Efficiency ratio  78.88  101.90  86.54  70.34  81.33
Noninterest expense as a percent of average total assets  2.35  3.01  2.60  2.14  2.44
Book value per common share  $ 9.95  $ 9.84  $ 9.79  $ 9.71  $ 9.64
           
Capital Ratios (1):          
Tier 1 leverage  15.79%  15.16%  14.85%  14.15%  13.54%
Tier 1 risk-based  26.11  26.04  25.98  24.36  23.49
Total risk-based  27.37  27.31  27.24  25.62  24.76
           
Asset Quality Ratios:          
Nonperforming loans as a percent of total loans  3.42%  3.54%  3.40%  3.78%  3.28%
Nonperforming assets as a percent of total assets  4.25  4.40  4.49  4.71  4.69
ALLL as a percent of total loans, net of undisbursed funds  1.89  2.13  2.17  2.13  2.29
ALLL as a percent of nonperforming loans, net of undisbursed funds  55.11  60.08  63.86  56.22  69.89
Net charge-offs to average loans receivable, net  0.25  0.15  0.16  0.49  0.09
           
Allowance for Loan Losses:          
ALLL, beginning of the quarter  $ 14,168  $ 14,450  $ 14,832  $ 16,559  $ 16,634
Provision  --  700  650  1,700  600
Charge-offs  (2,202)  (2,341)  (1,349)  (3,699)  (688)
Recoveries  576  1,359  317  272  13
ALLL, end of the quarter  $ 12,542  $ 14,168  $ 14,450  $ 14,832  $ 16,559
           
Nonperforming Assets (2):          
Nonperforming loans (3):          
Nonaccrual loans  $ 18,231  $ 18,570  $ 17,853  $ 22,739  $ 18,613
Nonaccrual troubled debt restructured loans  4,528  5,013  4,773  3,644  5,079
Total nonperforming loans  22,759  23,583  22,626  26,383  23,692
OREO  17,347  19,209  22,206  22,448  26,044
Total nonperforming assets  $ 40,106  $ 42,792  $ 44,832  $ 48,831  $ 49,736
           
Performing troubled debt restructured loans  $ 65,848  $ 64,768  $ 62,762  $ 65,556  $ 66,225
           
(1) Capital ratios are for First Savings Bank Northwest only.
(2) Loans are reported net of undisbursed funds.
(3) There were no loans 90 days or more past due and still accruing interest.
           
 
FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Ratios
(Unaudited)
           
  At or For the Year Ended
  2012 2011 2010 2009 2008
  (Dollars in thousands, except share data)
Performance Ratios:          
Return (loss) on assets  0.27%  0.37%  (4.18)%  (3.14)%  0.39%
Return (loss) on equity  1.47  2.36  (26.59)  (15.18)  1.50
Dividend payout ratio  --  --  (2.73)  (15.60)  109.09
Equity-to-assets  19.85  17.12  14.62  17.37  23.31
Interest rate spread  2.85  2.78  2.40  1.86  1.84
Net interest margin  3.08  3.01  2.70  2.49  2.81
Average interest-earning assets to average interest-bearing liabilities  118.12  113.33  113.35  123.31  131.20
Efficiency ratio  84.15  74.52  91.29  105.78  44.75
Noninterest expense as a percent of average total assets  2.52  2.28  2.40  2.71  1.22
Book value per common share  $ 9.95  $ 9.64  $ 9.28  $ 12.14  $ 13.62
           
Capital Ratios (1):          
Tier 1 leverage  15.79%  13.54%  11.73%  12.46%  15.61%
Tier 1 risk-based  26.11  23.49  18.38  19.20  23.04
Total risk-based  27.37  24.76  19.65  20.49  24.30
           
Asset Quality Ratios:          
Nonperforming loans as a percent of total loans  3.42%  3.28%  7.14%  11.23%  5.56%
Nonperforming assets as a percent of total assets  4.25  4.69  7.79  10.08  4.71
ALLL as a percent of total loans, net of undisbursed funds  1.89  2.29  2.56  3.07  1.61
ALLL as a percent of nonperforming loans, net of undisbursed funds  55.11  69.89  35.80  27.37  28.96
Net charge-offs to average loans receivable, net  1.07  1.39  6.55  3.38  0.04
           
Allowance for Loan Losses:          
ALLL, beginning of the year  $ 16,559  $ 22,534  $ 33,039  $ 16,982  $ 7,971
Provision  3,050  4,700  53,100  51,300  9,443
Charge-offs  (9,591)  (11,025)  (65,476)  (35,302)  (432)
Recoveries  2,524  350  1,871  59  --
ALLL, end of the year  $ 12,542  $ 16,559  $ 22,534  $ 33,039  $ 16,982
           
Nonperforming Assets (2):          
Nonperforming loans (3):          
90 days or more past due and still accruing  $ --  $ -- $ --  $ --  $ 2,104
Nonaccrual loans  18,231  18,613  46,637  94,682  35,720
Nonaccrual troubled debt restructured loans  4,528  5,079  16,299  26,021  20,818
Total nonperforming loans  22,759  23,692  62,936  120,703  58,642
OREO  17,347  26,044  30,102  11,835  --
Total nonperforming assets  $ 40,106  $ 49,736  $ 93,038  $ 132,538  $ 58,642
           
Performing troubled debt restructured loans  $ 65,848  $ 66,225  $ 58,375  $ 35,458  $ 2,226
           
(1) Capital ratios are for First Savings Bank Northwest only.
(2) Loans are reported net of undisbursed funds.
(3) There were no loans 90 days or more past due and still accruing interest.
           
CONTACT: For more information, contact:
         Joseph W. Kiley III, President
         and Chief Executive Officer of First Savings Bank Northwest
         Kari Stenslie, Chief Financial Officer
         (425) 255-4400

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