First Financial NW Bank Reports Strong Year-End Results for 2022
Mar 13th 2023, 9:12 pm
Analysis: Part 1: Performance Analysis First Financial Northwest Bank is a community-based commercial bank primarily serving King, Snohomish, Pierce, and Kitsap counties through its full-service banking office and headquarters in Renton, Washington, and several retail branches. The bank's loan portfolio includes one-to-four family residential, multifamily, commercial real estate, construction/land, business and consumer loans. The bank strategically seeks to diversify its loan portfolio and broaden growth opportunities with its current risk tolerance levels and asset/liability objectives. During 2022, loan originations, refinances, and purchases outpaced repayments of loans, resulting in an increase of $63.6 million in net loans receivable with a balance of $1.17 billion at December 31, 2022. Originations of one-to-four family residential loans were $160.3 million in 2022, as compared to $124.2 million in 2021. The bank has also geographically expanded its loan portfolio through loan purchases or loan participations of commercial and multifamily real estate loans, as well as consumer classic and collectible car loans, that are outside of its primary market area. In addition to these strategic initiatives, the bank seeks to increase the originations of the business loan portfolio, which may include business lines of credit, business term loans or equipment financing. The bank aims to service these customers with their business deposits as well. The primary source of the bank's revenue is interest income, which is the income earned on loans and investments. The bank's net interest income increased by $3.4 million in 2022 as interest income increased more than the increase in interest expense. Interest-bearing liabilities reprice at a faster rate than interest-earning assets, classifying the bank as liability sensitive. The bank had a modest improvement in the net interest margin over the last year. As our loan portfolio increases, or due to an increase for probable losses inherent in our loan portfolio, our allowance for loan and lease losses (ALLL) may increase, resulting in a decrease to net interest income after the provision. For the year ended December 31, 2022, the company recorded a recapture of provision in the amount of $400,000. Part 2: Forward-Looking Analysis According to CEO Joseph Kiley III, "2022 was another year of strong financial results for First Financial Northwest. Our team produced excellent loan growth, core deposit growth, and solid loan quality." The CEO also stated, "We continue to focus our efforts on diversifying loan growth, expanding our payment infrastructure, and increasing operational efficiencies." The bank intends to become an SBA preferred lender and apply for that status, providing the bank with delegated loan approval, as well as closing, servicing, and liquidation authority, enabling the bank to make loan decisions more rapidly. The bank plans to expand into areas outside of its primary market area by purchasing loan participations or direct loan originations of commercial and multifamily real estate loans, classic and collectible car loans, or other loans with which the bank has expertise. The bank intends to increase originations of business loans, which may include business lines of credit, business term loans, or equipment financing, and provides the loan servicing to businesses with their business deposits. The bank remains vigilant of rising interest rates as changes in levels of interest rates affect interest income and interest expense differently and, thus, impact the bank's net interest income. The bank is currently liability sensitive, and it has experienced a modest improvement in net interest margin over the last year. In conclusion, First Financial Northwest Bank continues to develop strategies to expand its customer base and diversify its portfolio to achieve a sustainable long-term growth rate. The bank also remains committed to providing its customers with exceptional banking services and developing operational efficiencies to enhance its capabilities. While the bank faces various challenges expected in its industry, the management believes it is well-positioned to meet these challenges head-on and deliver consistent returns to its shareholders.