An unlikely recovery is under way at First Financial Northwest in Renton, Wash.

First Northwest, which has spent the last two years putting distance between itself and its thrift heritage, is getting ready to kick the process into high gear. The $944 million-asset company recently changed the name of its primary subsidiary to First Financial Northwest Bank from First Savings Bank Northwest.

The company also switched over to a new core processing system and is planning to open a branch 30 miles south of Renton in Mill Creek, Wash. The branch will be just the second in First Financial's 92-year history; the processing system will support mobile banking and more sophisticated ATMs.

"The goal is to be a full-service community bank," said Joseph Kiley 3rd, First Financial's president and chief executive. "We want to be in a better position to serve businesses. We also want to own a larger share of wallet with our retail customers. We can't rely on booking CDs and mortgages any longer."

The effort would have been inconceivable in 2012, when an activist investor launched a successful effort to oust Kiley's predecessor, Victor Karpiak. The fight was nasty; Karpiak lost a board election but refused to step down, citing a technicality. It took a lawsuit and subsequent legal settlement to resolve the matter.

First Financial's comeback is even more impressive compared to other banks that removed their leaders after a shareholder uprising. At least two other community banks — Cardinal Bankshares in Floyd, Va., and Solera National Bancorp in Lakewood, Colo. — are still trying to regain their footing.

Often, the shakeup from a proxy battle exacerbates pre-existing issues at the institution that led to the investor revolt, industry experts said.

"When things get to the point where there's a public election and the CEO gets voted off the board, if you think in terms of winning and losing, the activists win," said Sven Mickisch, a lawyer in the financial institutions group at Skadden Arps in New York.

In the case of First Financial, the dispute with Joseph Stilwell wreaked havoc on the company's bottom line. First Financial paid hundreds of thousands of dollars in legal fees; its 2012 net earnings nosedived nearly 60% from the previous year.

Stilwell, whose funds still hold 1.2 million First Financial Northwest shares, declined to comment. He has expressed support for the course Kiley is charting, noting in a June 24 regulatory filing that, since Karpiak's resignation, the company "has cleaned up its nonperforming assets and reached a good level of profitability."

At Cardinal, things did not improve after shareholders overhauled the board and ousted Leon Moore, the $270 million-asset company's long-time chairman and chief executive. Moore's successor, Michael Larrowe, lasted just two years before being removed from office late last year.

Bank of Floyd, the company's bank, has averaged a narrow $114,000 in quarterly profit going back to early 2014, including a $907,000 loss in the fourth quarter that featured a large loan-loss provision and losses on the sale of foreclosed properties.

Douglas Schaller, the investor who led the effort to bounce Moore, declined to comment for this article, though he told American Banker last year that the transition didn't live up to his expectations. Promoting Larrowe "was a complete disaster," he said in November. "It will take a lot of work to undo what he did, particularly with expenses."

Solera is also trying to right the ship after shareholder Michael Quagliano took over the $140 million-asset company's board early last year. Chief Executive John Carmichael resigned shortly afterward. Solera's bank, which lost $433,000 in 2014, managed to earn $810,000 in the first half of this year.

Efforts to reach Robert Fenton, who replaced Carmichael as chief executive, were unsuccessful.

Each instance emphasizes the need for banks to be vigilant when it comes to shareholder activism.

"We definitely advise our clients that they should plan and be prepared" for an activist investor, Mickisch said. "Being prepared can have a significant effect on the outcome. … If you're regularly engaging with shareholders, andyou can say you've conducted a strategic review and here are five steps we're going to take, or here are the reasons we don't want to do what you suggest, it can be a very powerful rebuttal."

At First Financial, Kiley is hopeful that the company's days of worrying about activists are behind it. Management is focused on expansion and growth. In addition to the Mill Creek branch, the company plans to add a branch in Edmonds, Wash. It has also expressed a willingness to consider acquisitions.

The company earned $4.6 million through June 30; it reported a $10.7 million profit last year.

First Financial's key goal involves adjusting its deposit mix, which remains heavily dependent on CDs, which still comprised 60% of deposits as of June 30. The total is down from 73% in 2012, but it remains significantly above the industry average. New branches and improved technology should make First Federal Northwest a more-efficient deposit gatherer.

"Prior to conversion, we were pretty antiquated," said Kiley, who ran the company's bank prior to Karpiak's resignation.

"We were challenged to retain younger customers as accounts passed from parents and grandparents. This moves us into the modern era," Kiley said. "Once we get the new branches up and running and our new lenders hit their strides, we think we're going to see a meaningful improvement in organic growth."

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