Company Quick10K Filing
Quick10K
First Financial Northwest
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$15.89 11 $170
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-29 Regulation FD, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-12-31 Officers, Exhibits
8-K 2018-12-20 Officers, Exhibits
8-K 2018-11-07 Regulation FD, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-25 Other Events, Exhibits
8-K 2018-08-22 Regulation FD, Exhibits
8-K 2018-07-30 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-06-13 Shareholder Vote, Regulation FD, Exhibits
8-K 2018-05-14 Regulation FD, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-05 Regulation FD, Exhibits
8-K 2018-01-31 Regulation FD, Exhibits
8-K 2018-01-25 Earnings, Exhibits
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FFNW 2018-09-30
Part 1. Financial Information
Item 1. Financial Statements
Note 1 - Description of Business
Note 2 - Basis of Presentation
Note 3 - Recently Issued Accounting Pronouncements
Note 4 - Investments
Note 5 - Loans Receivable
Note 6 - Other Real Estate Owned
Note 7 - Fair Value
Note 8 - Derivatives
Note 9 - Stock-Based Compensation
Note 10 - Earnings per Share
Note 11 - Branch Acquisition
Note 12 - Revenue Recognition
Note 13 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits and Financial Statement Schedules
EX-10.13 ffnw-2018930x10qexx1013.htm
EX-31.1 ffnw-2018930x10qexx311.htm
EX-31.2 ffnw-2018930x10qexx312.htm
EX-32 ffnw-2018930x10qexx32.htm

First Financial Northwest Earnings 2018-09-30

FFNW 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ffnw-2018930x10q.htm 10-Q Exhibit

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2018
 
 
or
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
           For the transition period from ____________ to ____________
 
Commission File Number: 001-33652
 
 
FIRST FINANCIAL NORTHWEST, INC.
(Exact name of registrant as specified in its charter)
 
Washington
 
26-0610707
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
201 Wells Avenue South, Renton, Washington
 
98057
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code:
 
(425) 255-4400
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES    X   NO      

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES    X   NO      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer _____
Accelerated filer    X    
  Non-accelerated filer _____
Smaller reporting company _____
Emerging growth company _____
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. _____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES       NO   X   

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: as of November 5, 2018, 10,914,556 shares of the issuer’s common stock, $0.01 par value per share, were outstanding.



FIRST FINANCIAL NORTHWEST, INC.
FORM 10-Q
TABLE OF CONTENTS
                                                                    
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
   PART II - OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
SIGNATURES
 
 


2

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)


Part 1. Financial Information

Item 1. Financial Statements
 
September 30, 2018
 
December 31, 2017
Assets
 
(Unaudited)
 
 
Cash on hand and in banks
$
7,167

 
$
9,189

Interest-earning deposits with banks
19,094

 
6,942

Investments available-for-sale, at fair value
140,868

 
132,242

Loans receivable, net of allowance of $13,116 and $12,882
995,557

 
988,662

Federal Home Loan Bank ("FHLB") stock, at cost
7,410

 
9,882

Accrued interest receivable
4,664

 
4,084

Deferred tax assets, net
2,092

 
1,211

Other real estate owned ("OREO")
483

 
483

Premises and equipment, net
21,277

 
20,614

Bank owned life insurance ("BOLI"), net
29,745

 
29,027

Prepaid expenses and other assets
4,460

 
5,738

Goodwill
889

 
889

Core deposit intangible
1,153

 
1,266

Total assets
$
1,234,859

 
$
1,210,229

 
 
 
 
Liabilities and Stockholders' Equity
 

 
 
Deposits:
 
 
 
Noninterest-bearing deposits
$
51,180

 
$
45,434

Interest-bearing deposits
865,099

 
794,068

Total deposits
916,279

 
839,502

FHLB Advances
149,000

 
216,000

Advance payments from borrowers for taxes and insurance
4,737

 
2,515

Accrued interest payable
541

 
326

Other liabilities
9,589

 
9,252

Total liabilities
1,080,146

 
1,067,595

 
 

 
 
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 10,914,556 shares at September 30, 2018, and 10,748,437
shares at December 31, 2017
109

 
107

Additional paid-in capital
96,664

 
94,173

Retained earnings, substantially restricted
65,004

 
54,642

Accumulated other comprehensive loss, net of tax
(2,550
)
 
(928
)
Unearned Employee Stock Ownership Plan ("ESOP") shares
(4,514
)
 
(5,360
)
Total stockholders' equity
154,713

 
142,634

Total liabilities and stockholders' equity
$
1,234,859

 
$
1,210,229


See accompanying selected notes to consolidated financial statements.

3


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except per share data)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
Loans, including fees
$
12,631

 
$
10,959

 
$
38,103

 
$
31,338

Investments available-for-sale
1,063

 
869

 
3,002

 
2,601

Interest-earning deposits with banks
59

 
108

 
141

 
194

Dividends on FHLB stock
135

 
67

 
343

 
211

Total interest income
13,888

 
12,003

 
41,589

 
34,344

Interest expense
 
 
 
 
 

 
 

Deposits
2,912

 
1,933

 
7,623

 
5,400

FHLB advances and other borrowings
917

 
695

 
2,794

 
1,710

Total interest expense
3,829

 
2,628

 
10,417

 
7,110

Net interest income
10,059

 
9,375

 
31,172

 
27,234

Provision (recapture of provision) for loan losses
200

 
500

 
(4,200
)
 
800

Net interest income after provision (recapture of provision) for loan losses
9,859

 
8,875

 
35,372

 
26,434

Noninterest income
 
 
 
 
 

 
 

Net gain (loss) on sale of investments
1

 
47

 
(20
)
 
103

BOLI income
245

 
173

 
718

 
490

Wealth management revenue
145

 
252

 
400

 
699

Deposit related fees
167

 
113

 
503

 
277

Loan related fees
273

 
144

 
533

 
420

Other
10

 
2

 
16

 
8

Total noninterest income
841

 
731

 
2,150

 
1,997

Noninterest expense
 

 
 
 
 

 
 

Salaries and employee benefits
4,732

 
4,406

 
14,325

 
13,100

Occupancy and equipment
814

 
726

 
2,412

 
1,785

Professional fees
353

 
458

 
1,123

 
1,379

Data processing
356

 
372

 
1,031

 
1,131

OREO related expenses (reimbursements), net
1

 
(6
)
 
4

 
14

Regulatory assessments
126

 
122

 
391

 
330

Insurance and bond premiums
95

 
105

 
355

 
302

Marketing
85

 
102

 
269

 
202

Other general and administrative
639

 
551

 
1,805

 
1,497

Total noninterest expense
7,201

 
6,836

 
21,715

 
19,740

Income before federal income tax provision
3,499

 
2,770

 
15,807

 
8,691

Federal income tax provision
707

 
909

 
3,071

 
2,618

Net income
$
2,792

 
$
1,861

 
$
12,736

 
$
6,073

Basic earnings per common share
$
0.27

 
$
0.18

 
$
1.24

 
$
0.59

Diluted earnings per common share
$
0.27

 
$
0.18

 
$
1.22

 
$
0.58

Basic weighted average number of common shares outstanding
10,356,994

 
10,287,663

 
10,280,287

 
10,323,459

Diluted weighted average number of common shares outstanding
10,468,802

 
10,427,038

 
10,405,315

 
10,480,061

See accompanying selected notes to consolidated financial statements.

4


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
2,792

 
$
1,861

 
$
12,736

 
$
6,073

Other comprehensive income, before tax:
 
 
 
 
 
 
 
Unrealized holding (losses) gains on investments available-for-sale
(600
)
 
214

 
(3,002
)
 
1,043

Tax benefit (provision)
126

 
(75
)
 
630

 
(365
)
Reclassification adjustment for net (gains) losses realized in income
(1
)
 
(47
)
 
20

 
(103
)
Tax benefit (provision)

 
17

 
(4
)
 
36

Gain (loss) on cash flow hedge
88

 
28

 
928

 
(215
)
Tax (provision) benefit
(18
)
 
(10
)
 
(194
)
 
75

Other comprehensive (loss) income, net of tax
$
(405
)
 
$
127

 
$
(1,622
)
 
$
471

Total comprehensive income
$
2,387

 
$
1,988

 
$
11,114

 
$
6,544


See accompanying selected notes to consolidated financial statements.



5


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

 
Shares
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss,
 net of tax
 
Unearned
ESOP
Shares
 
Total Stockholders’ Equity
Balances at December 31, 2016
10,938,251

 
$
109

 
$
96,852

 
$
48,981

 
$
(1,328
)
 
$
(6,489
)
 
$
138,125

Net income

 

 

 
6,073

 

 

 
6,073

Other comprehensive income

 

 

 

 
471

 

 
471

Exercise of stock options
134,880

 
2

 
1,307

 

 

 

 
1,309

Issuance of common stock - restricted stock awards, net
3,984

 

 
(105
)
 

 

 

 
(105
)
Compensation related to stock options and restricted stock awards

 

 
505

 

 

 

 
505

Allocation of 84,642 ESOP shares

 

 
625

 

 

 
846

 
1,471

Repurchase and retirement of common stock
(313,200
)
 
(3
)
 
(5,016
)
 

 

 

 
(5,019
)
Cash dividend declared and paid ($0.20 per share)

 

 

 
(2,070
)
 

 

 
(2,070
)
Balances at September 30, 2017
10,763,915

 
$
108

 
$
94,168

 
$
52,984

 
$
(857
)
 
$
(5,643
)
 
$
140,760

 
Shares
 
Common 
Stock
 
Additional 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss,  net of tax
 
Unearned
ESOP
Shares
 
Total
Stockholders' Equity
Balances at December 31, 2017
10,748,437

 
$
107

 
$
94,173

 
$
54,642

 
$
(928
)
 
$
(5,360
)
 
$
142,634

Net income

 

 

 
12,736

 

 

 
12,736

Other comprehensive loss

 

 

 

 
(1,622
)
 

 
(1,622
)
Exercise of stock options
137,940

 
1

 
1,364

 

 

 

 
1,365

Issuance of common stock - restricted stock awards, net
30,179

 
1

 
(41
)
 

 

 

 
(40
)
Compensation related to stock options and restricted stock awards

 

 
539

 

 

 

 
539

Allocation of 84,640 ESOP shares

 

 
629

 

 

 
846

 
1,475

Canceled common stock - restricted stock awards
(2,000
)
 

 

 

 

 

 

Cash dividend declared and paid ($0.23 per share)

 

 

 
(2,374
)
 

 

 
(2,374
)
Balances at September 30, 2018
10,914,556

 
$
109

 
$
96,664

 
$
65,004

 
$
(2,550
)
 
$
(4,514
)
 
$
154,713


See accompanying selected notes to consolidated financial statements.

6


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
12,736

 
$
6,073

Adjustments to reconcile net income to net cash provided by
operating activities:
 

 
 
(Recapture of provision) provision for loan losses
(4,200
)
 
800

OREO market value adjustments

 
50

Gain on sale of OREO property, net

 
(5
)
Net amortization of premiums and discounts on investments
812

 
500

Loss (gain) on sale of investments available-for-sale
20

 
(103
)
Depreciation of premises and equipment
1,228

 
883

Loss on sale of premises and equipment

 
65

Deferred federal income taxes
(449
)
 
507

Allocation of ESOP shares
1,475

 
1,471

Stock compensation expense
539

 
505

Increase in cash surrender value of BOLI
(718
)
 
(490
)
Changes in operating assets and liabilities:
 
 
 

Decrease (increase) in prepaid expenses and other assets
2,319

 
(840
)
Net increase in advance payments from borrowers for taxes and insurance
2,222

 
2,008

Increase in accrued interest receivable
(580
)
 
(562
)
Increase in accrued interest payable
215

 
49

Increase in other liabilities
337

 
3,038

Net cash provided by operating activities
15,956

 
13,949

Cash flows from investing activities:
 

 
 

Proceeds from sales of OREO properties

 
461

Proceeds from sales, calls and maturities of investments available-for-sale
15,186

 
7,494

Principal repayments on investments available-for-sale
5,385

 
7,980

Purchases of investments available-for-sale
(33,011
)
 
(23,518
)
Net increase in loans receivable
(2,695
)
 
(117,619
)
Redemption (purchase) of FHLB stock
2,472

 
(871
)
Purchase of premises and equipment
(1,891
)
 
(2,399
)
Proceeds from sale or disposal of premises and equipment, net

 
7

Purchase of BOLI

 
(4,251
)
Net cash received from acquisition of branches

 
71,568

Net cash used by investing activities
(14,554
)
 
(61,148
)
 
 
 
 
Continued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

7


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from financing activities:
 

 
 

Net increase in deposits
$
76,777

 
$
23,735

Advances from the FHLB
320,500

 
40,000

Repayments of advances from the FHLB
(387,500
)
 
(20,000
)
Proceeds from stock options exercises
1,365

 
1,309

Net share settlement of stock awards
(40
)
 
(105
)
Repurchase and retirement of common stock

 
(5,019
)
Dividends paid
(2,374
)
 
(2,070
)
Net cash provided by financing activities
8,728

 
37,850

Net increase (decrease) in cash and cash equivalents
10,130

 
(9,349
)
Cash and cash equivalents at beginning of period
16,131

 
31,352

Cash and cash equivalents at end of period
$
26,261

 
$
22,003

 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest paid
$
10,202

 
$
7,061

Federal income taxes paid
3,175

 
2,810

Assets acquired in acquisition of branches

 
72,239

Liabilities assumed in acquisition of branches

 
74,657

 
 
 
 
Noncash items:
 
 
 

Change in unrealized loss on investments available-for-sale
$
(2,982
)
 
$
940

Change in gain on cash flow hedge
928

 
(215
)

See accompanying selected notes to consolidated financial statements.


8



FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Description of Business

First Financial Northwest, Inc. (“First Financial Northwest”), a Washington corporation, was formed on June 1, 2007 for the purpose of becoming the holding company for First Financial Northwest Bank (the “Bank”) in connection with the conversion from a mutual holding company structure to a stock holding company structure completed on October 9, 2007. First Financial Northwest’s business activities generally are limited to passive investment activities and oversight of its investment in First Financial Northwest Bank. Accordingly, the information presented in the consolidated financial statements and accompanying data, relates primarily to First Financial Northwest Bank. First Financial Northwest is a bank holding company, having converted from a savings and loan holding company on March 31, 2015, and as a bank holding company is subject to regulation by the Federal Reserve Bank of San Francisco. First Financial Northwest Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of Financial Institutions (“DFI”).

As of September 30, 2018, First Financial Northwest Bank operated in ten locations in Washington with the headquarters and four additional branch locations in King County and five branch locations in Snohomish County. The Bank acquired four bank branches (one in King and three in Snohomish counties) and $74.7 million in retail deposits from Opus Bank on August 25, 2017. No loans were acquired in this transaction. The Bank’s primary market area consists of King, Snohomish, Pierce and Kitsap counties, Washington. The Bank has received FDIC approval to open an additional branch in Kent, Washington, which is expected to open in the first quarter of 2019.

The Bank is a portfolio lender, originating and purchasing one-to-four family residential, multifamily, commercial real estate, construction/land development, business, and consumer loans. Loans are primarily funded by deposits from the general public, supplemented by borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”) and deposits raised in the national brokered deposit market.

As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to First Financial Northwest, Inc. and its consolidated subsidiary First Financial Northwest Bank, unless the context otherwise requires.

Note 2 - Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC (“2017 Form 10-K”). In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the unaudited interim consolidated financial statements in accordance with GAAP have been included. All significant intercompany balances and transactions between the Company and its subsidiaries have been eliminated in consolidation. Operating results for the nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. In preparing the unaudited consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the allowance for loan and lease losses (“ALLL”), the valuation of other real estate owned (“OREO”) and the underlying collateral of impaired loans, deferred tax assets, and the fair value of financial instruments.

The Company’s activities are considered to be a single industry segment for financial reporting purposes. The Company is engaged in the business of attracting deposits from the general public and originating and purchasing loans for its portfolio. Substantially all income is derived from a diverse base of commercial, multifamily, and residential real estate loans, consumer lending activities, and investments.

Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on consolidated net income or stockholders’ equity.



9


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 3 - Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted in 2018

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) which postponed the effective date of 2014-09. Subsequently, in March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. This amendment clarifies that an entity should determine if it is the principal or the agent for each specified good or service promised in a contract with a customer. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The core principle of Topic 606 is that an entity must recognize revenue when it has satisfied a performance obligation of transferring promised goods or services to a customer. These standards were effective for interim and annual periods beginning after December 15, 2017. The Company has analyzed its sources of noninterest income to determine when the satisfaction of the performance obligation occurs and the appropriate recognition of revenue. The adoption of these ASUs did not have a material impact on the Company’s consolidated financial statements. For more discussion on this topic, see Note 12 - Revenue Recognition in this report.

In January 2016, FASB issued ASU No. 2016-01, Financial Instruments - Overall, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. In addition, the amendments in this ASU require an entity to disclose the fair value of its financial instruments using the exit price notion. Exit price is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company has updated the fair value disclosure on Note 7 in this report to reflect adoption of this standard, to include using the exit price notion in the fair value disclosure of financial instruments. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the appropriate classification of eight specific cash flow issues on the cash flow statement. Debt prepayment costs should be classified as an outflow for financing activities. Settlement of zero-coupon debt instruments divides the interest portion as an outflow for operating activities and the principal portion as an outflow for financing activities. Contingent consideration payments made after a business combination should be classified as outflows for financing and operating activities. Proceeds from the settlement of bank-owned life insurance policies should be classified as inflows from investing activities. Other specific areas are identified in the ASU as to the appropriate classification of the cash inflows or outflows. The amendments in this ASU were effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not currently have items on its cash flow statement that were impacted by adoption of this ASU and therefore adoption of ASU 2016-15 did not have a material impact on the Company’s consolidated financial statements.

In January 2017, FASB issued ASU 2017-01, Business Combinations (Topic 805). This ASU clarifies the definition of a business to assist in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a screen to determine when a set of assets and activities is not a business, thereby reducing the number of transactions requiring further evaluation. If the screen is not met, the amendments in this ASU further provide a framework to evaluate if the criteria is present to qualify for a business. This ASU was effective for annual periods beginning after December 15, 2017. Adoption of ASU 2017-01 did not have a material impact on the Company’s consolidated financial statements.

In May 2017, FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU was issued to provide clarity as to when to apply modification accounting when there is a change in the terms or conditions of a share-based payment award. According to this ASU, an entity should account for the effects of a modification unless the fair value, vesting conditions, and balance sheet classification of the award is the same after the modification as compared to the original award prior to the modification. This ASU was effective for reporting periods beginning after December 15, 2017. The Company has not had any modifications on share-based payment awards and therefore the adoption of ASU No. 2017-09 did not have a material impact on the Company’s consolidated financial statements.

In February 2018, FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU was issued to allow a reclassification from accumulated other comprehensive income to retained earnings from stranded tax effects resulting from the revaluation of the net deferred tax asset (“DTA”) to the new corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act (“Tax Act”). This ASU is effective for reporting periods beginning after December 15, 2018, with early

10


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


adoption permitted. The Company adopted this ASU as of December 31, 2017, which resulted in reclassifying a net unrealized gain from the change in tax rate with an increase to accumulated other comprehensive income and a decrease to retained earnings by $41,000, respectively.
        
In March 2018, FASB issued ASU No. 2018-05, Income Taxes (Topic 740). This ASU was issued to provide guidance on the income tax accounting implications of the Tax Act and allows for entities to report provisional amounts for specific income tax effects of the Act for which the accounting under Topic 740 was not yet complete but a reasonable estimate could be determined. A measurement period of one-year is allowed to complete the accounting effects under Topic 740 and revise any previous estimates reported. Any provisional amounts or subsequent adjustments included in an entity’s financial statements during the measurement period should be included in income from continuing operations as an adjustment to tax expense in the reporting period the amounts are determined. The Company adopted this ASU with the provisional adjustments as reported in the Consolidated Financial Statements included in the 2017 Form 10-K. As of September 30, 2018, the Company did not incur any adjustments to the provisional recognition.

In June 2018, FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718). This ASU was issued to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as the earlier of the commitment date or date performance was completed. The amendments in this ASU require the awards to be measured at the grant-date fair value of the equity instrument. This ASU is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted once the entity has adopted Topic 606. The Company has adopted this ASU with the nonemployee share-based payment awards granted in June 2018, with no material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize on the balance sheet the assets and liabilities arising from operating leases. In July 2018, FASB issued ASU No. 2018-11, Leases (Topic 842) to address the comparative reporting requirements when this ASU is adopted. Under this ASU, a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. A lessee should include payments to be made in an optional period only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. For a finance lease, interest payments should be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income. For operating leases, the lease cost should be allocated over the lease term on a generally straight-line basis. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. According to ASU 2018-11, the Company may recognize the cumulative-effect adjustment to the opening balance of retained earnings at the time ASU 2016-02 is adopted. Early application of the amendments in the ASU is permitted. The effect of the adoption will depend on leases at the time of adoption. Once adopted, we expect to report higher assets and liabilities as a result of including right-of-use assets and lease liabilities related to certain banking offices under noncancelable operating lease agreements, however, based on current leases, the adoption is expected to increase our consolidated balance sheets by less than 5% and not to have a material impact on our regulatory capital ratios.
        
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period. The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. Available-for-sale securities will bifurcate the fair value mark and establish an allowance for credit losses through the income statement for the credit portion of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is evaluating our current expected loss methodology of our loan and investment portfolios to identify the necessary modifications in accordance with this standard and expects a change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment

11


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


to our ALLL or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings. We are in the process of compiling historical data that will be used to calculate expected credit losses on our loan portfolio to ensure we are fully compliant with the ASU at the adoption date and are evaluating the potential impact adoption of this ASU will have on our consolidated financial statements. The Company intends to adopt ASU 2016-13 in the first quarter of 2020, and as a result, we expect our allowance for loan losses to increase. Until our evaluation is complete, however, the magnitude of the increase will not be known.
    
In January 2017, FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU simplifies the impairment calculation for subsequent measurement of goodwill by eliminating the step of comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this ASU, an entity will evaluate the carrying amount of a reporting unit to its fair value, as if the reporting unit had been acquired in a business combination. An impairment charge should be recognized for the amount that the carrying amount exceeds the fair value, not to exceed the amount of goodwill. The income tax effect should be considered for any tax deductible goodwill when measuring the impairment loss. The amendments in this ASU are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for reporting periods after January 1, 2017. The Company recognized goodwill from its recent acquisition on August 25, 2017 of four branches from Opus Bank, a California state-chartered commercial bank (the “Branch Acquisition”) and expects to early adopt this ASU for the annual goodwill impairment test in 2018. Adoption of ASU 2017-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. The standard will take effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating its available-for-sale securities that fit the criteria of this ASU but has not yet quantified the impact. The adoption of ASU No. 2017-08 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2017, FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815). This ASU was issued to provide investors better insight to an entity’s risk management hedging strategies by permitting companies to recognize the economic results of its hedging strategies in its financial statements. The amendments in this ASU permit hedge accounting for hedging relationships involving non-financial risk and interest rate risk by removing certain limitations in cash flow and fair value hedging relationships. In addition, the ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. This ASU is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. The Company intends to adopt this ASU during 2018, however its current cash flow hedge will not likely be impacted by the adoption of ASU 2017-12, and consequently, is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU remove certain disclosure requirements regarding transfers between Level 1 and Level 2 of the fair value hierarchy and changes in unrealized gains and losses for recurring Level 3 fair value measurements. In addition, the amendments modified and added certain disclosure requirements for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures and adopt the additional disclosures at the effective date. Adoption of ASU 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 4 - Investments

Investments available-for-sale are summarized as follows at the dates indicated:

12


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
September 30, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value

(In thousands)
Mortgage-backed investments:
 
 
 
 
 
 
 
   Fannie Mae
$
26,488

 
$
11

 
$
(1,165
)
 
$
25,334

   Freddie Mac
5,372

 
1

 
(161
)
 
5,212

   Ginnie Mae
23,500

 

 
(1,521
)
 
21,979

   Other
6,028

 

 
(13
)
 
6,015

Municipal bonds
10,640

 
5

 
(179
)
 
10,466

U.S. Government agencies
49,564

 
79

 
(925
)
 
48,718

Corporate bonds
23,490

 
245

 
(591
)
 
23,144

Total
$
145,082

 
$
341

 
$
(4,555
)
 
$
140,868

 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
 
(In thousands)
Mortgage-backed investments:
 
 
 
 
 
 
 
   Fannie Mae
$
26,961

 
$
69

 
$
(466
)
 
$
26,564

   Freddie Mac
5,510

 
18

 
(56
)
 
5,472

   Ginnie Mae
22,288

 
14

 
(726
)
 
21,576

Municipal bonds
13,126

 
290

 
(21
)
 
13,395

U.S. Government agencies
43,088

 
81

 
(536
)
 
42,633

Corporate bonds
22,502

 
527

 
(427
)
 
22,602

Total
$
133,475

 
$
999

 
$
(2,232
)
 
$
132,242

     
The tables below summarize the aggregate fair value and gross unrealized loss by length of time those investment securities have been continuously in an unrealized loss position at the dates indicated:
 
September 30, 2018
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Gross Unrealized
Loss
 
Fair Value
 
Gross Unrealized
Loss
 
Fair Value
 
Gross Unrealized
Loss
 
(In thousands)
Mortgage-backed investments:
 
 
 
 
 
 
 
 
 
 
 
   Fannie Mae
$
11,129

 
$
(238
)
 
$
13,736

 
$
(927
)
 
$
24,865

 
$
(1,165
)
   Freddie Mac
5,102

 
(161
)
 

 

 
5,102

 
(161
)
   Ginnie Mae
6,951

 
(207
)
 
15,028

 
(1,314
)
 
21,979

 
(1,521
)
   Other
6,015

 
(13
)
 

 

 
6,015

 
(13
)
Municipal bonds
6,378

 
(134
)
 
963

 
(45
)
 
7,341

 
(179
)
U.S. Government agencies
32,551

 
(708
)
 
6,451

 
(217
)
 
39,002

 
(925
)
Corporate bonds
993

 
(7
)
 
6,916

 
(584
)
 
7,909

 
(591
)
Total
$
69,119

 
$
(1,468
)
 
$
43,094

 
$
(3,087
)
 
$
112,213

 
$
(4,555
)

13


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
December 31, 2017
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Gross Unrealized
Loss
 
Fair Value
 
Gross Unrealized
Loss
 
Fair Value
 
Gross Unrealized
Loss
 
(In thousands)
Mortgage-backed investments:
 
 
 
 
 
 
 
 
 
 
 
   Fannie Mae
$
15,202

 
$
(91
)
 
$
6,759

 
$
(375
)
 
$
21,961

 
$
(466
)
   Freddie Mac
3,189

 
(56
)
 

 

 
3,189

 
(56
)
   Ginnie Mae
6,454

 
(61
)
 
14,234

 
(665
)
 
20,688

 
(726
)
Municipal bonds
1,403

 
(21
)
 

 

 
1,403

 
(21
)
U.S. Government agencies
33,268

 
(435
)
 
1,800

 
(101
)
 
35,068

 
(536
)
Corporate bonds
1,499

 
(1
)
 
7,074

 
(426
)
 
8,573

 
(427
)
Total
$
61,015

 
$
(665
)
 
$
29,867

 
$
(1,567
)
 
$
90,882

 
$
(2,232
)

On a quarterly basis, management makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be an other-than-temporary impairment (“OTTI”) are written down to fair value. If the Company intends to sell a debt security, or it is likely that the Company will be required to sell the debt security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the debt security and it is not likely that it will be required to sell the debt security but does not expect to recover the entire amortized cost basis of the debt security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a debt security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the debt security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. At September 30, 2018, and December 31, 2017, the Company had 57 securities and 36 securities in an unrealized loss position, respectively, with 18 and 13 of these securities in an unrealized loss position for 12 months or more, respectively. Management does not believe that any individual unrealized loss as of September 30, 2018, or December 31, 2017, represented OTTI. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase. Management also reviewed the financial condition of the entities issuing municipal or corporate bonds at September 30, 2018, and December 31, 2017, and determined that an OTTI charge was not warranted.

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.
 
September 30, 2018
 
Amortized Cost
 
Fair Value
 
(In thousands)
Due within one year
$
253

 
$
251

Due after one year through five years
7,655

 
7,725

Due after five years through ten years
19,673

 
19,196

Due after ten years
56,113

 
55,156

 
83,694

 
82,328

Mortgage-backed investments
61,388

 
58,540

Total
$
145,082

 
$
140,868



14


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Under Washington state law, in order to participate in the public funds program the Company is required to pledge eligible securities as collateral in an amount equal to 50% of the public deposits held less the FDIC insured amount. Investment securities with market values of $14.5 million and $14.2 million were pledged as collateral for public deposits at September 30, 2018, and December 31, 2017, respectively, both of which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

For the three and nine months ended September 30, 2018, we had calls, sales, and maturities on investment securities of $5.4 million, and $15.2 million, respectively, generating a net gain of $1,000 and a net loss of $20,000, respectively. For the three and nine months ended September 30, 2017, we had calls, sales and a maturity on investment securities of $2.8 million, and $7.5 million, respectively, generating a net gain of $47,000 and $103,000, respectively.

    


15


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 5 - Loans Receivable

Loans receivable are summarized as follows at the dates indicated: 
 
September 30, 2018
 
December 31, 2017
 
(In thousands)
One-to-four family residential:
 
 
 
Permanent owner occupied
$
184,698

 
$
148,304

Permanent non-owner occupied
143,226

 
130,351

 
327,924

 
278,655

 
 
 
 
Multifamily
176,521

 
184,902

 
 
 
 
Commercial real estate
360,485

 
361,842

 
 
 
 
Construction/land:
 
 
 

One-to-four family residential
84,912

 
87,404

Multifamily
80,607

 
108,439

Commercial
21,385

 
5,325

Land
7,113

 
36,405

 
194,017

 
237,573

 
 
 
 
Business
29,655

 
23,087

Consumer
12,419

 
9,133

Total loans
1,101,021

 
1,095,192

 
 
 
 
Less:
 
 
 

Loans in process ("LIP")
91,232

 
92,498

Deferred loan fees, net
1,116

 
1,150

Allowance for loan and lease losses ("ALLL")
13,116

 
12,882

Loans receivable, net
$
995,557

 
$
988,662


At September 30, 2018, loans totaling $475.9 million were pledged to secure borrowings from the FHLB of Des Moines compared to $422.6 million at December 31, 2017.
    
ALLL. The Company maintains an ALLL as a reserve against probable and inherent risk of losses in its loan portfolios. The ALLL is comprised of a general reserve component for loans evaluated collectively for loss and a specific reserve component for loans evaluated individually. When an issue is identified, and it is determined that the loan needs to be classified as nonperforming and/or impaired, an evaluation of the discounted expected cash flows is done, and an appraisal may be obtained on the collateral. Based on this evaluation, additional provision for loan loss or charge-offs is recorded prior to the end of the financial reporting period.


16


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown: 
 
At or For the Three Months Ended September 30, 2018
 
One-to-Four
Family
Residential
 
Multifamily
 
Commercial 
Real Estate
 
Construction/
Land
 
Business
 
Consumer
 
Total
 
(In thousands)
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,265

 
$
1,928

 
$
4,494

 
$
2,121

 
$
674

 
$
272

 
$
12,754

   Recoveries
2

 

 

 
160

 

 

 
162

Provision (recapture)
265

 
(189
)
 
(16
)
 
(84
)
 
236

 
(12
)
 
200

Ending balance
$
3,532

 
$
1,739

 
$
4,478

 
$
2,197

 
$
910

 
$
260

 
$
13,116

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Nine Months Ended September 30, 2018
 
One-to-Four
Family
Residential
 
Multifamily
 
Commercial 
Real Estate
 
Construction/
Land
 
Business
 
Consumer
 
Total
 
(In thousands)
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,837

 
$
1,820

 
$
4,418

 
$
2,816

 
$
694

 
$
297

 
$
12,882

   Recoveries
4,248

 

 
14

 
172

 

 

 
4,434

(Recapture) provision
(3,553
)
 
(81
)
 
46

 
(791
)
 
216

 
(37
)
 
(4,200
)
Ending balance
$
3,532

 
$
1,739

 
$
4,478

 
$
2,197

 
$
910

 
$
260

 
$
13,116

 

 

 

 

 

 

 

ALLL by category:


 


 


 


 


 


 


General reserve
$
3,446

 
$
1,739

 
$
4,471

 
$
2,197

 
$
910

 
$
260

 
$
13,023

Specific reserve
86

 

 
7

 

 

 

 
93

 

 

 

 

 

 

 

Loans: (1)

 

 

 

 

 

 
 
Total loans
$
327,924

 
$
176,521

 
$
360,261

 
$
103,009

 
$
29,655

 
$
12,419

 
$
1,009,789

Loans collectively evaluated for impairment (2)
318,353

 
175,405

 
357,335

 
103,009

 
29,655

 
12,330

 
996,087

Loans individually evaluated for impairment (3)
9,571

 
1,116

 
2,926

 

 

 
89

 
13,702

____________ 

(1) Net of LIP.
(2) Loans collectively evaluated for general reserves.
(3) Loans individually evaluated for specific reserves.




17


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
At or For the Three Months Ended September 30, 2017
 
One-to-Four
Family
Residential
 
Multifamily
 
Commercial 
Real Estate
 
Construction/
Land
 
Business
 
Consumer
 
Total
 
(In thousands)
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,627

 
$
1,231

 
$
3,733

 
$
2,942

 
$
457

 
$
295

 
$
11,285

   Recoveries
247

 

 
78

 

 

 

 
325

   (Recapture) provision
(157
)
 
472

 
(68
)
 
40

 
211

 
2

 
500

Ending balance
$
2,717

 
$
1,703

 
$
3,743

 
$
2,982

 
$
668

 
$
297

 
$
12,110

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At or For the Nine Months Ended September 30, 2017
 
One-to-Four
Family
Residential
 
Multifamily
 
Commercial 
Real Estate
 
Construction/
Land
 
Business
 
Consumer
 
Total
 
(In thousands)
ALLL:
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,551

 
$
1,199

 
$
3,893

 
$
2,792

 
$
237

 
$
279

 
$
10,951

   Recoveries
280

 

 
78

 

 

 
1

 
359

   (Recapture) provision
(114
)
 
504

 
(228
)
 
190

 
431

 
17

 
800

Ending balance
$
2,717

 
$
1,703

 
$
3,743

 
$
2,982

 
$
668

 
$
297

 
$
12,110

 

 

 

 

 

 

 

ALLL by category:


 


 


 


 


 


 


General reserve
$
2,582

 
$
1,703

 
$
3,723

 
$
2,982

 
$
668

 
$
297

 
$
11,955

Specific reserve
135

 

 
20

 

 

 

 
155

 

 

 

 

 

 

 

Loans: (1)

 

 

 

 

 

 
 
Total loans
$
266,447

 
$
173,681

 
$
319,872

 
$
153,914

 
$
22,243

 
$
9,301

 
$
945,458

Loans collectively evaluated for impairment (2)
251,141

 
172,541

 
316,656

 
153,914

 
22,243

 
9,205

 
925,700

Loans individually evaluated for impairment (3)
15,306

 
1,140

 
3,216

 

 

 
96

 
19,758

_____________ 

(1) Net of LIP.
(2) Loans collectively evaluated for general reserves.
(3) Loans individually evaluated for specific reserves.


18


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At September 30, 2018, past due loans were 0.08% of total loans receivable, net of LIP. In comparison, past due loans were 0.01% of total loans receivable, net of LIP at December 31, 2017. The following tables represent a summary of the aging of loans by type at the dates indicated:

 
Loans Past Due as of September 30, 2018
 
 
 
 
 
30-59 Days
 
60-89 Days
 
90 Days and
Greater
 
Total Past
Due
 
Current
 
Total (1) (2)
 
(In thousands)
Real estate:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
$
496

 
$

 
$

 
$
496

 
$
184,202

 
$
184,698

Non-owner occupied

 

 

 

 
143,226

 
143,226

Multifamily

 

 

 

 
176,521

 
176,521

Commercial real estate
325

 

 

 
325

 
359,936

 
360,261

Construction/land

 

 

 

 
103,009

 
103,009

Total real estate
821

 

 

 
821

 
966,894

 
967,715

Business

 

 

 

 
29,655

 
29,655

Consumer

 

 

 

 
12,419

 
12,419

Total loans
$
821

 
$

 
$

 
$
821

 
$
1,008,968

 
$
1,009,789

 ________________ 

(1) There were no loans 90 days and greater past due and still accruing interest at September 30, 2018.
(2) Net of LIP.

 
Loans Past Due as of December 31, 2017
 
 
 
 
 
30-59 Days
 
60-89 Days
 
90 Days and
Greater
 
Total Past
Due
 
Current
 
Total (1) (2)
 
(In thousands)
Real estate:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential:
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
$
101

 
$

 
$

 
$
101

 
$
148,203

 
$
148,304

Non-owner occupied

 

 

 

 
130,351

 
130,351

Multifamily

 

 

 

 
184,902

 
184,902

Commercial real estate

 

 

 

 
361,299

 
361,299

Construction/land

 

 

 

 
145,618

 
145,618

Total real estate
101

 

 

 
101

 
970,373

 
970,474

Business

 

 

 

 
23,087

 
23,087

Consumer

 

 

 

 
9,133

 
9,133

Total loans
$
101

 
$

 
$

 
$
101

 
$
1,002,593

 
$
1,002,694

_________________ 

(1) There were no loans 90 days and greater past due and still accruing interest at December 31, 2017.
(2) Net of LIP.





19


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Nonaccrual Loans. The following table is a summary of nonaccrual loans by loan type at the dates indicated:

 
September 30, 2018
 
December 31, 2017
 
(In thousands)
One-to-four family residential
$
113

 
$
128

Commercial real estate
325

 

Consumer
46

 
51

Total nonaccrual loans
$
484

 
$
179


During the three and nine months ended September 30, 2018, interest income that would have been recognized had these nonaccrual loans been performing in accordance with their original terms was $4,000 and $10,000, respectively. For the three and nine months ended September 30, 2017, foregone interest on nonaccrual loans was $3,000 and $21,000, respectively.

The following tables summarize the loan portfolio by type and payment status at the dates indicated: