First Financial Northwest, Inc. Reports Second Quarter Net Income of $3.8 Million or $0.40 per Diluted Share

RENTON, Wash., July 27, 2021 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended June 30, 2021, of $3.8 million, or $0.40 per diluted share, compared to net income of $2.5 million, or $0.26 per diluted share, for the quarter ended March 31, 2021, and $2.1 million, or $0.22 per diluted share, for the quarter ended June 30, 2020. For the six months ended June 30, 2021, net income was $6.3 million, or $0.66 per diluted share, compared to net income of $3.8 million, or $0.39 per diluted share, for the comparable six-month period in 2020.

“I am pleased to report that we have no nonperforming loans and no loans over 30 days delinquent at June 30, 2021. During the quarter, a $2.0 million nonperforming loan paid off and our credit team continues to work diligently to maintain our excellent credit quality,” stated Joseph W. Kiley III, President and CEO. “In addition, we saw a further reduction in our cost of funds, with the average cost of deposits decreasing to 0.68% in the quarter ended June 30, 2021, compared to 0.85% in the quarter ended March 31, 2021, and 1.38% in the quarter ended June 30, 2020,” continued Kiley. “If market interest rates remain low, we expect this decline to continue as we have approximately $172.1 million in certificates of deposit maturing in the next 12 months and an additional $84.5 million of certificates of deposit maturing in the subsequent 12 months, all at a weighted average rate of 1.46%,” continued Kiley.

“As a result of our quarterly analysis of our loan portfolio, we downgraded to special mention $6.5 million of loans where we are a participating lender. These loans are secured by medical rehabilitation facilities and we expect improvement as elective medical procedures are currently being undertaken that were not available during the pandemic. In addition, we further downgraded $10.5 million in loans made to a single lending relationship to substandard. These substandard loans were analyzed for impairment and the analysis showed that no losses are anticipated from these loans. We also upgraded loans totaling $2.9 million in the quarter. As a result, we recorded a recapture of provision for loan losses of $700,000 during the quarter, compared to a provision for loan losses of $300,000 in the quarter ended March 31, 2021,” concluded Kiley.

Highlights for the quarter ended June 30, 2021:

• Nonperforming loans reduced to none following resolution of a $2.0 million previously nonperforming multifamily loan.
• The Company’s book value per share was $16.75, compared to $16.35 at March 31, 2021, and $15.32 at June 30, 2020.
• The Company repurchased 43,430 shares at an average price of $14.21 per share during the quarter ended June 30, 2021, bringing the total to 132,449 shares repurchased at an average price of $13.42 per share under its most recent stock repurchase plan which went into effect February 1, 2021, and will expire no later than August 13, 2021.
• The Company paid a regular quarterly cash dividend of $0.11 to shareholders.
• The Bank’s Tier 1 leverage and total capital ratios were 10.2% and 15.7%, respectively, at June 30, 2021, compared to 10.2% and 15.6%, respectively, at March 31, 2021, and 10.0% and 15.0% at June 30, 2020.
• The Bank recorded a $700,000 recapture of provision for loan losses based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”) including the estimated impact of the COVID-19 pandemic.

Deposits totaled $1.13 billion at June 30, 2021, March 31, 2021, and June 30, 2020. The $52.3 million increase in money market deposits in the quarter ended June 30, 2021, more than offset the reduction in retail certificates of deposit based on strategic deposit pricing from the quarter ended March 31, 2021.

The following table presents a breakdown of our total deposits (unaudited):

The following tables present an analysis of total deposits by branch office (unaudited):

(1) Issaquah opened March 1, 2021.

(1) Issaquah opened March 1, 2021.

Net loans receivable declined to $1.08 billion at June 30, 2021, from $1.10 billion at March 31, 2021, and $1.14 billion at June 30, 2020. Loan repayments and loan forgiveness of Paycheck Protection Program (“PPP”) loans totaling $16.4 million contributed to this reduction. The average balance of net loans receivable totaled $1.09 billion for the quarter ended June 30, 2021, compared to $1.10 billion for the quarter ended March 31, 2021, and $1.12 billion for the quarter ended June 30, 2020.

The Company recorded a $700,000 recapture of provision for loan losses in the quarter ended June 30, 2021, compared to a $300,000 provision for loan losses in both the quarters ended March 31, 2021, and June 30, 2020. During the quarter ended June 30, 2021, management evaluated the adequacy of the ALLL and concluded that a $700,000 recapture of provision for loan losses was appropriate. This recapture of provision was primarily attributed to the downgrade to substandard of $10.5 million of loans made to a single lending relationship secured by a facility housing bowling, roller skating and restaurant operations, and a separate hostel business, as these properties continue to be adversely impacted by government-imposed restrictions due to the pandemic. The impairment analysis on these properties showed no anticipated loss on these loans, resulting in a recapture of provision. In addition, upgrades to $2.9 million of loans and a reduction in loan balances contributed to the recapture of provision for the quarter ended June 30, 2021. Partially offsetting this recapture of provision, $6.5 million of loans secured by medical rehabilitation facilities were downgraded to special mention during the quarter.

The ALLL represented 1.35% of total loans receivable at June 30, 2021, compared to 1.39% of total loans receivable at March 31, 2021, and 1.20% of total loans receivable at June 30, 2020. Excluding Paycheck Protection Program (“PPP”) loan balances, which are 100% guaranteed by the Small Business Administration (“SBA”), the ALLL represented 1.39% of total loans receivable at June 30, 2021, compared to 1.45% of total loans receivable at March 31, 2021, and 1.25% of total loans receivable at June 30, 2020. The ALLL as a percent of total loans excluding PPP loans is a non-GAAP financial measure. See Non-GAAP Financial Measures at the end of this press release for a reconciliation to its nearest GAAP equivalent.

There were no nonperforming loans at June 30, 2021, compared to $2.0 million at March 31, 2021, and $2.2 million at June 30, 2020. The prior quarter’s nonperforming loan balance consisted of a single multifamily loan in foreclosure that was sold and repaid in full in the second quarter. OREO remained unchanged at $454,000 at June 30, 2021, March 31, 2021, and June 30, 2020.

The following table presents a breakdown of our nonperforming assets (unaudited):

(1) The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of the Bank’s TDRs were performing in accordance with their restructured terms at June 30, 2021.

The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At June 30, 2021, TDRs totaled $3.6 million, compared to $3.8 million at March 31, 2021, and $4.3 million at June 30, 2020. All TDRs were performing according to their modified repayment terms for the periods presented. As discussed below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), signed into law on March 27, 2020, provided guidance on the modification of loans due to the COVID-19 pandemic, and outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. The Consolidated Appropriations Act, 2021 (“CAA”), signed into law on December 27, 2020, provided additional COVID relief and extended TDR relief to the earlier of 60 days after the national emergency termination date or January 1, 2022.

Net interest income totaled $11.3 million for the quarter ended June 30, 2021, compared to $10.7 million for the quarter ended March 31, 2021, and $10.1 million for the quarter ended June 30, 2020. The improvement was due to lower deposit-related interest expense and additional interest income from the payoff of the $2.0 million nonperforming loan in the quarter, as discussed below.

Total interest income was $13.6 million for the quarter ended June 30, 2021, compared to $13.5 million for the quarter ended March 31, 2021, and $14.1 million for the quarter ended June 30, 2020. The decrease in the current quarter compared to the quarter ended June 30, 2020, was primarily due to lower interest income on loans, including fees, as yields on loans continue to decline as loans either adjust downward or are refinanced in this low interest rate environment. In addition, rates on new loans and investments are lower than the average yield on existing interest-earning assets, which further adversely impacts interest income. The average balance of loans receivable declined by $6.7 million in the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021, negatively impacting interest income. However, the quarter ended June 30, 2021, was positively impacted by the receipt of $394,000 in interest and late charges from the payoff of the $2.0 million nonperforming loan, resulting in a modest increase in total interest income from the quarter ended March 31, 2021.

Total interest expense was $2.3 million for the quarter ended June 30, 2021, compared to $2.7 million for the quarter ended March 31, 2021, and $4.0 million for the quarter ended June 30, 2020. The average cost of interest-bearing deposits declined to 0.75% for the quarter ended June 30, 2021, compared to 0.94% for the quarter ended March 31, 2021, and 1.49% for the quarter ended June 30, 2020. The decline from the quarter ended March 31, 2021, was due primarily to the repricing of maturing certificates of deposits to a lower interest rate and a reduction in the average balance of higher cost certificates of deposit. Advances from the FHLB remained unchanged at $120.0 million for the quarters ended June 30, 2021, March 31, 2021, and June 30, 2020. The FHLB advances are tied to cash flow hedge agreements where the Bank pays a fixed rate and receives a variable rate in return to assist in the Bank’s interest rate risk management efforts. The average cost of borrowings was 1.37% for the quarter ended June 30, 2021, compared to 1.41% for the quarter ended March 31, 2021, and 1.08% for the quarter ended June 30, 2020.

The net interest margin was 3.36% for the quarter ended June 30, 2021, compared to 3.31% for the quarter ended March 31, 2021, and 3.12% for the quarter ended June 30, 2020. The expansion in the net interest margin is due to a number of factors, including the 17 basis point reduction in the Company’s average cost of interest-bearing liabilities during the quarter to 0.82% from 0.99% for the quarter ended March 31, 2021, and a 62 basis point reduction from 1.44% for the quarter ended June 30, 2020. Offsetting this improvement was a nine basis point reduction in the average yield on interest-earning assets to 4.06% for the quarter ended June 30, 2021, from 4.15% for the quarter ended March 31, 2021, and a 31 basis point reduction from 4.37% for the quarter ended June 30, 2020. These asset yields were impacted by net deferred fee recognition on PPP loans, with the recognition of previously unamortized deferred fees and costs on forgiven PPP loans totaling $512,000 in the quarter ended June 30, 2021, compared to $718,000 in the quarter ended March 31, 2021. At June 30, 2021, the balance of net deferred fees relating to PPP loans totaled $1.1 million, which will be recognized in future periods. In addition, the payoff of the $2.0 million nonperforming loan resulted in recognition of $394,000 in interest and late charge income during the quarter, further contributing to the improvement in the net interest margin for the quarter ended June 30, 2021.

Noninterest income for the quarter ended June 30, 2021, totaled $972,000, compared to $764,000 for the quarter ended March 31, 2021, and $789,000 for the quarter ended June 30, 2020. The increase in noninterest income for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021, was primarily due to higher loan related fees in the current quarter, including an increase of $162,000 in prepayment penalty income.

Noninterest expense totaled $8.2 million for the quarter ended June 30, 2021, compared to $8.1 million for the quarter ended March 31, 2021, and $7.9 million for the quarter ended June 30, 2020. Salaries and employee benefits for the quarter ended June 30, 2021, increased $117,000 compared to the quarter ended March 31, 2021, while occupancy and equipment increased $87,000 between the same periods, due to various maintenance items. In addition, the aforementioned payoff of a nonperforming loan resulted in an $84,000 reimbursement of legal fees, contributing to the reduction in professional fees during the quarter ended June 30, 2021.

COVID-19 Related Information

The Bank is committed to assisting its customers and communities in response to the COVID-19 pandemic, including providing certain short-term loan modifications and participating in the PPP as an SBA lender. The Bank continues to work with its loan customers and manage its portfolio through the ongoing uncertainty surrounding the impact, duration and government response to the crisis.

Paycheck Protection Program
The SBA provided assistance to small businesses impacted by COVID-19 through the PPP, which was designed to provide near-term relief to help small businesses sustain operations. The SBA deadline for the final round of PPP loan applications was May 31, 2021. As of June 30, 2021, there were 275 PPP loans outstanding totaling $30.8 million, compared to 324 PPP loans outstanding totaling $45.2 million as of March 31, 2021, and 372 PPP loans totaling $41.3 million as of December 31, 2020. As of June 30, 2021, 211 PPP loans have an outstanding balance of $150,000 or less, totaling $10.0 million, or 32.4% of total PPP loans outstanding, including 135 loans representing $3.1 million with an outstanding balance of $50,000 or less. As of June 30, 2021, 457 PPP loans totaling $46.7 million were approved for forgiveness under the PPP loan program.

Modifications
The primary method of relief is to allow borrowers to defer their loan payments for three to six months, while certain borrowers are allowed to pay interest only or were granted payment deferrals for periods longer than six months depending upon their specific circumstances. The CARES Act and regulatory guidelines suspend the determination of certain loan modifications related to the COVID-19 pandemic from being treated as TDRs. Recent legislation extended this accounting treatment through the earlier of 60 days after the national emergency termination date or January 1, 2022. The following table provides detail on the balance of loans remaining on deferral status as of June 30, 2021:

Total loans with modifications granted were $35.2 million, or 3.2% of total loans outstanding at June 30, 2021, a decrease from $56.7 million, or 5.1% of total loans outstanding at March 31, 2021, and $132.1 million, or 11.4% of total loans outstanding at June 30, 2020. The decline in the current quarter is due to the improvement in economic conditions in our market areas, and the return to regular payments for many of our loan customers. As of June 30, 2021, all of these loans had been granted modifications of greater than six months.

Additional Loan Portfolio Details
The Bank is monitoring its loan portfolio for potentially delinquent loans that have not requested a loan modification qualifying under the CARES Act or regulatory guidance. The following table presents the loan to value (“LTV”) ratios of select segments of its loan portfolio at June 30, 2021, that may be more likely to be impacted by COVID-19 pandemic considerations. The LTV ratio is derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:

(1) Represents select segments of loans that may include construction loans; classifications may differ from those used elsewhere in this release because they are based on collateral type rather than loan category.

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 15 full-service banking offices. For additional information about us, please visit our website at ffnwb.com and click on the “Investor Relations” link at the bottom of the page.

Forward-looking statements:
When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include, but are not limited to, the following: the effect of the COVID-19 pandemic, including on our credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – that are available on our website at www.ffnwb.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and 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. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2021 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

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

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

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

The following table presents a breakdown of the loan portfolio (unaudited):

(1) Concentrations of credit percentages are for First Financial Northwest Bank only using classifications in accordance with FDIC regulatory guidelines.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures
(Unaudited)

(1) Performance ratios are calculated on an annualized basis.
(2) Tangible equity excludes goodwill and core deposit intangible assets. Tangible assets exclude goodwill and other intangible assets. The tangible equity-to-tangible assets ratio and tangible book value per share are non-GAAP financial measures. Refer to Non-GAAP Financial Measures at the end of this press release for a reconciliation to the nearest GAAP equivalents.
(3) Capital ratios are for First Financial Northwest Bank only.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key Financial Measures (continued)
(Unaudited)

(1) Yields and costs are annualized.

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains non-GAAP financial measures that include tangible equity; tangible assets; tangible book value per share; tangible equity-to-tangible assets; and ALLL as a percent of total loans excluding PPP loans. The Company believes that these non-GAAP financial measures and ratios as presented are useful for both investors and management to understand the effects of certain items and provides an alternative view of the Company’s performance over time and in comparison to the Company’s competitors. Non-GAAP financial measures have limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation and are not a substitute for other measures in this earnings release that are presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

The following tables provide a reconciliation between the GAAP and non-GAAP measures:

ALLL on loans to total loans receivable, excluding PPP loans:

For more information, contact:
Joseph W. Kiley III, President and Chief Executive Officer
Rich Jacobson, Executive Vice President and Chief Financial Officer
(425) 255-4400