Add
FFNW to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FFNW > SEC Filings for FFNW > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Forward-looking statements:
Certain matters discussed in this Quarterly Report on Form 10-Q 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; 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, 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; the use of estimates in determining fair value of certain of our assets; 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, 2008 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009. Any of the forward-looking statements that we make in this Form 10-Q and in the other public reports and 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.
Overview
First Savings Bank is a community-based savings bank primarily serving King and, to a lesser extent, Pierce, Snohomish and Kitsap counties, Washington through our full-service banking office located in Renton, Washington. Our current business strategy includes an emphasis on one-to-four family residential mortgage and commercial real estate lending. Until recently, we had also included construction/land development lending in our business strategy. We have deemphasized this type of lending over the past 15 to 21 months as a result of market conditions although these types of loans represented approximately 17% of our loan portfolio at September 30, 2009. First Savings Bank's business consists of attracting deposits from the public and utilizing these funds to originate one-to-four family, multifamily, construction/land development, commercial real estate, business and consumer loans.
Our primary source of revenue is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income.
An offset to net interest income is the provision for loan losses which represents the quarterly charge to operations which is required to adequately provide for probable losses inherent in the loan portfolio.
Our operating expenses consist primarily of salaries and employee benefits, occupancy and equipment, data processing, marketing, postage and supplies, professional services and deposit insurance premiums. Salaries and employee benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement benefits, the equity incentive plan and other employee benefits. Occupancy and equipment expenses, consist primarily of real estate taxes, depreciation charges, maintenance and costs of utilities.
We incurred a net loss for the third quarter ended September 30, 2009 of $1.7 million, or $0.09 per diluted share, as compared to net income of $955,000 or $0.04 per diluted share for the quarter ended September 30, 2008. Our net loss for the third quarter of 2009 compared to our net income for the third quarter of 2008 was primarily the result of a $4.3 million increase to the provision for loan losses, and a $1.1 million increase in noninterest expense offset by a $3.7 million decrease in federal income tax expense. These items also contributed to a net loss for the nine months ended September 30, 2009 of $28.5 million, or $1.50 per diluted share, as compared to net income of $7.6 million, or $0.36 per diluted share for the same period in 2008. For the nine months ended September 30, 2009, compared to the same period in 2008 our results were primarily reduced by an increase of $23.7 million in the provision for loan losses, an increase in noninterest expense of $20.3 million which included a goodwill impairment charge of $14.2 million recorded in the second quarter of 2009, partially offset by a $10.7 million decrease in federal income tax expense.
During the quarter ended September 30, 2009, our total gross loan portfolio increased $29.4 million or 2.6% from June 30, 2009. For the quarter ended September 30, 2009, our one-to-four family residential loans increased $8.3 million or 1.7%, multifamily loans increased $22.4 million or 20.4% and commercial real estate loans increased $11.6 million or 4.2%. In addition, consumer loans increased $1.3 million or 7.9% and construction/land development loans decreased $14.3 million or 6.5%. We also originated $100,000 in business lines of credit during the quarter.
For the nine months ended September 30, 2009, our total gross loan portfolio increased $15.7 million or 1.4% from December 31, 2008. For the first nine months of 2009, our one-to-four family residential loans decreased $1.2 million or 0.2%, multifamily loans increased $31.1 million or 30.9% and commercial real estate loans increased $24.4 million or 9.4%. In addition, consumer loans increased $4.9 million or 38.3% and construction/land development loans decreased $44.0 million or 17.6% while business loans increased $351,000.
Our loan policy limits the maximum amount of loans we can make to one borrower to 20% of First Savings Bank's risk-based capital. As of September 30, 2009, the maximum amount which we could lend to any one borrower was $37.3 million based on our policy. Exceptions may be made to this policy with the prior approval of the Board of Directors if the borrower exhibits financial strength or compensating factors to sufficiently offset any
September 30, 2009
Aggregate Amount Number
Borrower (1) of Loans (2) of Loans
Real estate builder $ 48.7 million 148
Real estate builder 39.2 million 153
Real estate builder 28.0 million 116
Real estate builder 19.2 million (3) 78
Real estate builder 19.0 million (4) 40
Total $ 154.1 million
______________
|
(1) The composition of borrowers represented in the table may change from one period to the next.
(2) Net of undisbursed funds.
(3) Of this amount, $14.8 million is considered impaired loans.
(4) Of this amount, $12.3 million is considered impaired loans.
The following table details the breakdown of the types of loans to our top five largest borrowing relationships at September 30, 2009:
Permanent Permanent Permanent
One-to-Four Family Multifamily Commercial
Residential Loans Loans Loans Construction/ Aggregate Amount
Borrower (Rental Properties) (Rental Properties) (Rental Properties) Land Development (1) of Loans (1)
Real estate $ 18.4 million $ - $ 0.3 million $ 30.0 million $ 48.7 million
builder
Real estate 26.2 million - 0.8 million 12.2 million 39.2 million
builder
Real estate 18.8 million 1.1 million 0.1 million 8.0 million 28.0 million
builder
Real estate 11.6 million - - 7.6 million 19.2 million
builder
Real estate 4.9 million - - 14.1 million 19.0 million
builder
Total $ 79.9 million $ 1.1 million $ 1.2 million $ 71.9 million $ 154.1 million
______________
|
Top Five Builder Relationships
December 31, 2008
Permanent Permanent Permanent
One-to-Four Family Multifamily Commercial
Residential Loans Loans Loans Construction/ Aggregate Amount
Borrower (Rental Properties) (Rental Properties) (Rental Properties) Land Development (1) of Loans (1)
Real estate $ 15.6 million $ - $ 0.3 million $ 31.4 million $ 47.3 million
builder
Real estate 20.2 million - 0.9 million 16.1 million 37.2 million
builder
Real estate 17.4 million 1.1 million 0.1 million 10.4 million 29.0 million
builder
Real estate 13.5 million - - 11.7 million 25.2 million
builder
Real estate 6.8 million - - 12.3 million 19.1 million
builder
Total $ 73.5 million $ 1.1 million $ 1.3 million $ 81.9 million $ 157.8 million
______________
|
These builders listed in the above tables, as part of their business strategy, retain a certain percentage of their finished homes in their own inventory of permanent investment properties, (i.e. one-to-four family rental properties). These properties are used to enhance the builders' liquidity through rental income and improve their equity through the appreciation in market value of the property. As part of our underwriting process we review the borrowers' business strategy to determine the feasibility of the project. Although this strategy has been included in these builders' business plans prior to the current economic crisis, these builders have taken more rental properties
into their portfolio in the last 24 months than originally planned as a result of the sluggish housing market. While we do not allow all of our builder loan customers to expand their rental pools, we have offered this program to a limited number of builders based upon such factors as financial strength, collateral value and their proven historical ability to work through difficult financial times. For the five builders included in the table above, the total one-to-four family rental properties increased $2.7 million, or 3.5% from $77.2 million at June 30, 2009 to $79.9 million at September 30, 2009.
The following table includes construction/land development loans, net of undisbursed funds, by the five counties that contain our largest loan concentrations at September 30, 2009.
Nonperforming
Loans as a
Percent of Nonperforming Percent of Loan
Loan Balance
County Loan Balance (1) (1) Loans Balance (2)
(Dollars in thousands)
King $ 68,842 42.3 % $ 41,269 59.9%
Pierce 36,420 22.4 17,379 47.7
Kitsap 17,040 10.5 1,121 6.6
Snohomish 12,409 7.6 8,944 72.1
Whatcom 11,648 7.1 11,648 (3) 100.0
All other counties 16,510 10.1 8,396 50.9
Total $ 162,869 100.0 % $ 88,757
|
(1) Net of undisbursed funds.
(2) Represents the percent of the loan balance by county that is
nonperforming.
(3) Represents one loan.
Critical Accounting Policies
Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. The following are our critical accounting policies.
Allowance for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. Our methodology for analyzing the allowance for loan losses consists of two components: formula and specific allowances. The formula allowance is determined by applying factors to our various groups of loans. Management considers factors such as charge-off history, the prevailing economy, borrower's ability to repay, the regulatory environment, competition, geographic and loan type concentrations, policy and underwriting standards, nature and volume of the loan portfolio, management's experience level, our loan review and grading system, the value of underlying collateral, the level of problem loans, business conditions and credit concentrations in assessing the allowance for loan losses. The specific allowance component is created when management believes that the collectability of a specific loan, such as a construction/land development, multifamily, business or commercial real estate loan, has been impaired and a loss is probable. The specific reserves are computed using current appraisals, listed sales prices and other available information less costs to complete (if any) and costs to sell the property. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events differ from predictions.
Our Board of Directors approves the provision for loan losses on a quarterly basis. The allowance is increased by the provision for loan losses, which is charged against current period earnings and decreased by the amount of actual loan charge-offs, net of recoveries.
Goodwill. Goodwill represents the cost in excess of net assets acquired arising from the purchase of Executive House, Inc. in December 2005. Goodwill is not amortized, but is reviewed for impairment and written down and charged to expense during the periods in which the recorded value is more than its fair value. We evaluate any potential impairment of goodwill on an annual basis, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Generally Accepted Accounting Principles, with respect to goodwill, requires that we compare the implied fair value of goodwill to the carrying amount of goodwill on our balance sheet. If the carrying amount of the goodwill is greater than the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess. The estimated fair value of the Company is allocated to all of the Company's individual assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination and the estimated fair value of the Company is the price paid to acquire it. The allocation process is performed only for purposes of determining the amount of goodwill impairment, as no assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets recorded as a part of this process. As a result of the Company's market capitalization being less than our total stockholders' equity at June 30, 2009 and the significant increase in the second quarter ended June 30, 2009 of our provision for loan losses, we engaged an independent valuation consulting firm to assist us in determining whether and to what extent our goodwill asset was impaired. Based on that valuation analysis, we recorded a $14.2 million impairment charge, which eliminated all of the goodwill previously carried in our Consolidated Balance Sheet, in the second quarter of 2009. An impairment charge has no effect on our cash balances or liquidity. In addition, goodwill is not included in regulatory capital for the purpose of calculating the Bank's regulatory capital ratios.
Deferred Taxes. Deferred tax assets arise from a variety of sources, the most significant being: a) expenses, such as our charitable contribution to the First Financial Northwest Foundation, that can be carried forward to be utilized against profits in future years; b) expenses recognized in our books but disallowed in our tax return until the associated cash flow occurs; and c) write-downs in the value of assets for book purposes that are not deductible for tax purposes until the asset is sold or deemed worthless.
We record a valuation allowance to reduce our deferred tax assets to the amount which can be recognized in line with the relevant accounting standards. The level of deferred tax asset recognition is influenced by management's assessment of our historic and future profitability profile. At each balance sheet date, existing assessments are reviewed and, if necessary, revised to reflect changed circumstances. In a situation where income is less than projected or recent losses have been incurred, the relevant accounting standards require convincing evidence that there will be sufficient future tax capacity.
Other-Than-Temporary Impairments In the Market Value of Investments. Declines in the fair value of any available for sale or held to maturity investment below their cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the investment to that of fair value. A charge to earnings and an establishment of a new cost basis for the investment is made. Unrealized investment losses are evaluated at least quarterly to determine whether such declines should be considered other-than-temporary and therefore be subject to immediate loss recognition. Although these evaluations involve significant judgment, an unrealized loss in the fair value of a debt security is generally deemed to be temporary when the fair value of the investment security is below the carrying value primarily due to changes in interest rates and there has not been significant deterioration in the financial condition of the issuer. An unrealized loss in the value of an equity security is generally considered temporary when the fair value of the security is below the carrying value primarily due to current market conditions and not deterioration in the financial condition of the issuer. Other factors that may be considered in determining whether a decline in the value of either a debt or an equity security is other-than-temporary include ratings by
Comparison of Financial Condition at September 30, 2009 and December 31, 2008
General. Our total assets increased $75.0 million, or 6.0%, to $1.3 billion at September 30, 2009 from December 31, 2008. The asset growth resulted primarily from an increase of $36.1 million in interest-bearing deposits, a $22.9 million increase in investment securities, an increase of $20.7 million in loans receivable, net partially offset by a decrease of $14.2 million as a result of a non-cash impairment charge for goodwill. Total liabilities increased $114.2 million to $1.1 billion at September 30, 2009 from $954.3 million at December 31, 2008 primarily as a result of increases in deposits of $116.7 million. Stockholders' equity decreased $39.2 million, primarily due to the net loss for the nine months ended September 30, 2009 of $28.5 million, the cost for the repurchase of our stock of $9.9 million and cash dividends paid during the nine months ended September 30, 2009 of $4.8 million.
Assets. Total assets increased $75.0 million or 6.0% at September 30, 2009, as compared to December 31, 2008. The following table details the changes in the composition of our assets.
Increase/(Decrease)
Balance at from Percentage
September 30, 2009 December 31, 2008 Increase/(Decrease)
(Dollars in thousands)
Cash on hand and in banks $ 4,238 $ 872 25.91 %
Interest-bearing deposits 36,681 36,081 6,013.50
Federal funds sold 2,295 505 28.21
Investments available for sale 172,207 22,884 15.33
Loans receivable, net 1,055,906 20,725 2.00
Premises and equipment, net 16,609 3,583 27.51
Federal Home Loan Bank
stock, at cost 7,413 - -
Accrued interest receivable 5,265 (267 ) (4.83 )
Federal income tax receivable 1,266 1,266 100.00
Deferred tax assets, net 14,128 4,862 52.47
Goodwill - (14,206 ) (100.00 )
Prepaid expenses and other assets 3,414 (1,323 ) (27.93 )
Total assets $ 1,319,422 $ 74,982 6.03 %
|
Cash, interest-bearing deposits and federal funds sold increased $37.4 million to $43.2 million at September 30, 2009 from $5.8 million at December 31, 2008. Investments available for sale increased $22.9 million, or 15.3%, to $172.2 million at September 30, 2009 from $149.3 million at December 31, 2008. During the nine months ended September 30, 2009, we purchased $60.1 million of . . .
|
|