Name: First Financial Northwest, Inc. Q2 2024 Earnings Call
Start: 2024-07-25T00:00:00.000Z

Executive Summary

EPS of $0.17 and net income of $1.6M marked a sharp rebound vs Q1’s $(0.12) loss; net interest margin expanded to 2.66% as deferred loan fees from ~$130M in loan modifications boosted loan yields .
Total net revenue (net interest income + noninterest income) was ~$9.64M, roughly flat vs Q1 and down vs prior-year Q2; cost actions drove noninterest expense down to $7.94M from $11.33M in Q1 .
Management advanced the pending asset sale to Global Federal Credit Union: shareholder approval (Jul 19) and later FDIC approval; NCUA approval remained outstanding at the time, a key deal catalyst .
Watchpoints: nonaccrual loans rose to $4.7M (0.41% of total loans) due to a $4.1M CRE loan, though collateral appears sufficient and no loss is expected per management .

What Went Well and What Went Wrong

Net interest margin expanded 11 bps QoQ to 2.66% on higher loan yields and increased recognition of net deferred loan fees from loan modifications tied to the Global transaction .
Material cost reduction: salaries/benefits fell $2.9M QoQ, with $939K of loan costs deferred from modification activity and lower professional fees; efficiency ratio improved to 82.35% from 116.97% in Q1 .
Management executed on strategic loan modifications/refinancings (> $130M) to align with the purchase agreement: “I am very pleased that the outstanding efforts of our employees resulted in the modification or refinance of over $130 million of this portfolio.” — Joseph W. Kiley III .

Total deposits declined $78.7M QoQ to $1.09B, driven by intentional reductions in higher-cost brokered balances and money market outflows, necessitating higher FHLB advances ($176.0M vs $115.0M in Q1) .
Nonaccrual loans increased $4.5M QoQ to $4.7M, primarily from a single $4.1M CRE credit; while collateralized, the uptick bears monitoring for credit trajectory .
Total net revenue was roughly flat QoQ and down YoY, as average interest-earning assets fell and noninterest income declined vs Q1 on wealth management/BOLI timing and venture investment marks .

Metric	Q2 2023	Q1 2024	Q2 2024
Net Interest Income ($USD Millions)	$10.309	$8.900	$8.970
Noninterest Income ($USD Millions)	$0.798	$0.787	$0.673
Total Net Revenue ($USD Millions)	$11.107 (10.309+0.798)	$9.687 (8.900+0.787)	$9.643 (8.970+0.673)
Net Income ($USD Millions)	$1.488	$(1.076)	$1.555
Diluted EPS ($USD)	$0.16	$(0.12)	$0.17
Net Interest Margin (%)	2.84%	2.55%	2.66%
Efficiency Ratio (%)	85.57%	116.97%	82.35%

Segment and balance composition

Loans ($USD Millions, % of total)	Q2 2023	Q1 2024	Q2 2024
One-to-four family residential (total)	$481.593, 40.6%	$506.700, 43.8%	$508.939, 44.3%
CRE – Non-residential (total)	$406.356, 34.2%	$367.374, 31.7%	$365.480, 31.8%
Construction/Land (total)	$57.828, 4.9%	$57.007, 4.9%	$55.786, 4.8%
Consumer (total)	$72.905, 6.1%	$72.014, 6.2%	$70.293, 6.1%
Business (total)	$27.427, 2.3%	$20.424, 1.8%	$15.063, 1.3%
Total Loans	$1,187.522	$1,157.905	$1,149.863

Key KPIs

KPI	Q2 2023	Q1 2024	Q2 2024
Total Deposits ($USD Millions)	$1,224.964	$1,166.896	$1,088.174
Brokered Deposits ($USD Millions)	$176.422	$86.146	$51.004
Money Market Deposits ($USD Millions)	$467.411	$535.594	$497.345
FHLB Advances ($USD Millions)	$120.0	$115.0	$176.0
Nonaccrual Loans ($USD Millions)	$0.201	$0.201	$4.7
ACL % of Total Loans	1.31%	1.30%	1.29%
Tier 1 Leverage Ratio (%)	10.02%	10.41%	10.91%
Total Capital Ratio (%)	15.75%	16.24%	16.64%
Book Value per Share ($)	$17.35	$17.46	$17.51

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share	Quarterly	$0.13 (Q1 2024)	$0.13 (Q2 2024)	Maintained
Asset sale status	Transaction milestones	Shareholder vote pending (Q1 commentary)	Shareholder approval (Jul 19) and FDIC approval received; NCUA approval pending	Advanced milestones

Note: No formal quantitative guidance (revenue, margins, OpEx, tax rate) was issued in the Q2 materials .

Topic	Previous Mentions (Q4 2023, Q1 2024)	Current Period (Q2 2024)	Trend
Asset sale to Global FCU	Introduced in Jan 10 P&A; transaction expenses in Q1 ($767K)	Loan modifications/refis >$130M completed; continued transaction expenses ($284K)	Execution progress improving
Deposit costs/mix	Elevated deposit costs; brokered balances managed down	Further intentional reduction in brokered deposits; MM outflows offset by FHLB funding	Mix optimization continues
Net interest margin	Decline amid higher funding costs (2.54% in Q4)	Expansion to 2.66% on deferred fee recognition and higher loan yields	Stabilizing/expanding
Credit quality	NPLs minimal ($0.201M)	Nonaccruals rose to $4.7M on a $4.1M CRE loan; collateral strong, loss not expected	Deteriorated, but contained per mgmt

“Our balance sheet contained over $250 million of loans that are ineligible for a federally chartered credit union… I am very pleased that the outstanding efforts of our employees resulted in the modification or refinance of over $130 million of this portfolio.” — Joseph W. Kiley III .
“Extinguishing [the defined benefit plan] liability at a pretax cost of $1.2 million was a strategic move… We also recognized $767,000 in pretax transaction related expenses in the first quarter… During [Q2], we recognized $284,000 in pretax transaction expenses.” — Joseph W. Kiley III .
“The loan [moving to nonaccrual] is secured by a well-collateralized mixed-use property, and as such, we do not expect to incur a loss related to this credit.” — Joseph W. Kiley III .

The company’s Q2 materials did not include a published earnings call transcript; key clarifications were provided via the press release, including transaction expense timing, loan modification impacts on yields/fees, and credit commentary on the nonaccrual CRE loan .

S&P Global consensus estimates were unavailable for FFNW due to missing mapping; therefore, comparisons use third-party published estimates. Values retrieved from S&P Global were unavailable.
Reported vs third-party estimates:
- EPS: Actual $0.17 vs Zacks $0.04 (beat), Public.com $0.03 (beat), GuruFocus $0.14 (beat) .
- “Revenue” (net revenue): Actual ~$9.64M vs Zacks $9.64M (in line) .

Net interest margin firmed to 2.66% on loan modifications and deferred fee recognition, offering a near-term earnings support despite deposit compression .
Active reduction in higher-cost brokered deposits tightened liquidity mix, offset with FHLB advances; funding strategy remains a key lever into closing of the asset sale .
Credit watch: nonaccruals rose to 0.41% of loans from 0.02%, driven by one CRE credit; management expects no loss given collateral strength, but investors should monitor resolution and any spillover .
Cost discipline is evident: noninterest expense dropped sharply QoQ; maintaining this trajectory would sustain efficiency gains into deal completion .
Transaction milestones are the primary stock catalyst: shareholder and FDIC approvals achieved; NCUA approval remains the gating item for timing of distributions ($23.06–$23.59 per share per disclosed deal terms cited in third-party legal notices) .
Dividend maintained at $0.13; expect capital deployment to be driven by transaction timeline and regulatory approvals rather than ongoing payout adjustments .
Near-term positioning: constructive on carry from NIM stabilization and expense control; cautious on loan growth and deposit trends as the balance sheet is actively managed ahead of the asset sale .