First Financial Northwest, Inc. Reports Net Income of $3.3 million or $0.36 per Diluted Share for the First Quarter Ended March 31, 2022

First Financial Northwest, Inc.

RENTON, Wash., April 28, 2022 (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 March 31, 2022, of $3.3 million, or $0.36 per diluted share, compared to $2.7 million, or $0.29 per diluted share, for the quarter ended December 31, 2021, and $2.5 million, or $0.26 per diluted share, for the quarter ended March 31, 2021.

“The first quarter of 2022 showed continued improvement in our funding base, with our average cost of funds declining to 0.51% from 0.55% in the quarter ended December 31, 2021, and 0.91% in the quarter ended March 31, 2021,” stated Joseph W. Kiley, III, President and CEO. “We anticipate that this improvement will continue since we have approximately $142.0 million in retail certificates of deposit at a weighted average rate of 1.0% maturing in the next 12 months, and an additional $91.4 million maturing in the subsequent 12 to 24 months, at a weighted average rate of 1.61%. The favorable impact of repricing maturing certificates of deposit on our average cost of funds may be less significant than we currently anticipate depending on the extent our competition for rate sensitive deposits responds to the Federal Reserve increasing the target federal funds rate,” continued Kiley.

“In addition to the ongoing improvement in our cost of funds, I was pleased to see checking account deposit balances increase $14.7 million during the quarter. We also saw continued loan growth despite $5.7 million in Paycheck Protection Program loan repayments and forgiveness, with net loans receivable increasing $17.9 million to $1.12 billion during the quarter, led by growth in one-to-four family residential and multifamily loans,” continued Kiley.

“As a result of our quarterly analysis of our loan portfolio, we downgraded to substandard $6.4 million of participation loans secured by medical rehabilitation facilities that were previously downgraded to special mention in the quarter ended June 30, 2021, due to the unavailability of elective medical procedures during the pandemic. In addition, we further downgraded a $1.7 million multifamily property loan to substandard subsequent to an overall financial analysis of a single borrowing relationship with multiple loans. These substandard loans were analyzed for impairment and the analysis concluded that no losses are anticipated from these loans, resulting in a recapture of provision for loan losses of the amount previously allocated to these loans. We also downgraded a $6.3 million loan where we are a participating lender on a nursing home facility to special mention as its recovery is occurring slower than anticipated as additional occupants are moving into such facilities at a slower pace compared to activity prior to the pandemic. Changes in the mix of our loan portfolio also impacted the allowance for loan and lease losses, with growth in the lower risk one-to-four family residential and reduced balances in other business loans that carry higher loan loss reserves impacting the analysis. In addition, $20.7 million in loans converted from construction loans to permanent multifamily loans, further contributing to the $500,000 recapture of provision for loan losses during the quarter, compared to a provision for loan losses of $600,000 in the quarter ended December 31, 2021,” concluded Kiley.

Highlights for the quarter ended March 31, 2022:

• Net loans receivable increased by $17.9 million to $1.12 billion at March 31, 2022, despite a reduction in Paycheck Protection Program (“PPP”) loan balances totaling $5.7 million.

• Total deposits decreased by $17.4 million in the quarter; however, noninterest-bearing demand deposits increased by $12.8 million.

• The Company’s book value per share increased to $17.32 at March 31, 2022, compared to $17.30 at December 31, 2021, and $16.35 at March 31, 2021.

• The Company repurchased a total of 40,784 shares at an average price of $17.00 per share in the quarter, including 17,716 shares at an average price of $17.00 per share under its most recent board-authorized share repurchase plan authorizing the repurchase of up to 455,000 shares, or approximately 5% of the Company’s outstanding shares effective February 18, 2022.

• The Company increased its regular quarterly cash dividend to shareholders to $0.12 per share from $0.11 per share.

• The Bank’s Tier 1 leverage and total capital ratios at March 31, 2022, were 10.5% and 15.3%, respectively, compared to 10.3% and 15.5%, respectively, at December 31, 2021, and 10.2% and 15.6%, respectively at March 31, 2021.

• Based on management’s evaluation of the adequacy of the allowance for loan and lease losses (“ALLL”), the Bank recorded a $500,000 recapture of provision for loan losses for the quarter.
  

Deposits totaled $1.14 billion at March 31, 2022, compared to $1.16 billion at December 31, 2021, and $1.13 billion at March 31, 2021. The $12.8 million increase in noninterest-bearing demand deposits in the quarter ended March 31, 2022, was more than offset by the $30.2 million decrease in interest-bearing deposits as the Bank continues its strategy to shift its deposit composition to lower cost transaction accounts.

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

	Mar 31, 2022			Dec 31, 2021			Mar 31, 2021			Three Month Change				One Year Change
Deposits:	(Dollars in thousands)
Noninterest-bearing demand	$	130,596		$	117,751		$	114,437		$	12,845			$	16,159
Interest-bearing demand		99,794			97,907			114,098			1,887				(14,304	)
Savings		23,441			23,146			20,470			295				2,971
Money market		609,080			624,543			500,619			(15,463	)			108,461
Certificates of deposit, retail		277,190			294,127			384,031			(16,937	)			(106,841	)
Total deposits	$	1,140,101		$	1,157,474		$	1,133,655		$	(17,373	)		$	6,446

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

March 31, 2022
	Noninterest- bearing demand		Interest- bearing demand		Savings		Money market		Certificates of deposit, retail		Total
(Dollars in thousands)
King County
Renton	$	41,009	$	46,467	$	15,242	$	327,054	$	236,637	$	666,409
Landing		5,105		2,328		182		23,720		3,297		34,632
Woodinville		3,379		6,863		1,004		18,426		4,706		34,378
Bothell		3,301		1,359		65		8,274		1,164		14,163
Crossroads		19,127		6,449		58		53,827		4,638		84,099
Kent		6,706		8,077		27		15,927		273		31,010
Kirkland		7,587		358		19		8,114		25		16,103
Issaquah		2,865		371		25		3,759		200		7,220
Total King County		89,079		72,272		16,622		459,101		250,940		888,014
Snohomish County
Mill Creek		6,479		2,515		1,144		20,807		6,769		37,714
Edmonds		20,054		7,814		913		41,399		8,332		78,512
Clearview		5,781		4,598		1,348		25,563		1,242		38,532
Lake Stevens		4,176		7,163		1,684		30,239		4,504		47,766
Smokey Point		3,199		4,827		1,676		27,809		5,393		42,904
Total Snohomish County		39,689		26,917		6,765		145,817		26,240		245,428
Pierce County
University Place		1,345		59		22		2,541		10		3,977
Gig Harbor		483		546		32		1,621		-		2,682
Total Pierce County		1,828		605		54		4,162		10		6,659
Total deposits	$	130,596	$	99,794	$	23,441	$	609,080	$	277,190	$	1,140,101

December 31, 2021
	Noninterest- bearing demand		Interest- bearing demand		Savings		Money market		Certificates of deposit, retail		Total
(Dollars in thousands)
King County
Renton	$	44,550	$	46,485	$	14,948	$	316,781	$	251,860	$	674,624
Landing		6,060		3,218		180		24,056		3,620		37,134
Woodinville		3,625		6,814		1,017		19,585		4,974		36,015
Bothell		2,590		1,726		86		8,453		1,158		14,013
Crossroads		14,094		4,129		45		69,687		4,622		92,577
Kent		6,022		8,148		2		20,268		282		34,722
Kirkland		5,449		333		12		6,834		25		12,653
Issaquah		1,326		367		17		4,532		100		6,342
Total King County		83,716		71,220		16,307		470,196		266,641		908,080
Snohomish County
Mill Creek		5,854		3,559		694		18,781		7,101		35,989
Edmonds		13,839		6,809		1,103		41,513		8,954		72,218
Clearview		5,799		4,610		1,380		24,925		1,290		38,004
Lake Stevens		3,552		6,878		1,904		33,122		4,500		49,956
Smokey Point		3,476		4,205		1,727		33,550		5,639		48,597
Total Snohomish County		32,520		26,061		6,808		151,891		27,484		244,764
Pierce County
University Place		1,058		51		8		481		2		1,600
Gig Harbor		457		575		23		1,975		-		3,030
Total Pierce County		1,515		626		31		2,456		2		4,630
Total deposits	$	117,751	$	97,907	$	23,146	$	624,543	$	294,127	$	1,157,474

Net loans receivable totaled $1.12 billion at March 31, 2022, compared to $1.10 billion at both December 31, 2021, and March 31, 2021. During the quarter ended March 31, 2022, new originations of one-to-four family and multifamily residential loans and consumer loans more than offset loan repayments in the quarter, including PPP loan repayments and forgiveness. The average balance of net loans receivable increased to $1.12 billion for the quarter ended March 31, 2022, compared to $1.11 billion for the quarter ended December 31, 2021, and $1.10 billion for the quarter ended March 31, 2021.

The ALLL represented 1.33% of total loans receivable at March 31, 2022, compared to 1.40% of total loans receivable at December 31, 2021, and 1.39% of total loans receivable at March 31, 2021.

There was a single nonperforming consumer loan of $179,000 at March 31, 2022, compared to none at December 31, 2021, and $2.0 million at March 31, 2021. There was no other real estate owned (“OREO”) at both March 31, 2022, and December 31, 2021, compared to $454,000 at March 31, 2021.

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

	Mar 31,					Dec 31,		Mar 31,				Three Month			One Year
		2022				2021			2021			Change			Change
	(Dollars in thousands)
Nonperforming loans:
Multifamily	$	─			$	─		$	2,036			$	─		$	(2,036	)
Consumer		179				─			─				179			179
Total nonperforming loans		179				─			2,036				179			(1,857	)
OREO		─				─			454			─				(454	)
Total nonperforming assets (1)	$	179			$	─		$	2,490			$	179		$	(2,311	)
Nonperforming assets as a percent
of total assets		0.01	%			0.00%			0.17	%

⁽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 March 31, 2022.

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. TDRs totaled $2.1 million at both March 31, 2022, and December 31, 2021, compared to $3.8 million at March 31, 2021. All TDRs were performing according to their modified repayment terms for the periods presented.

Net interest income totaled $11.4 million for the quarter ended March 31, 2022, compared to $11.6 million for the quarter ended December 31, 2021, and $10.7 million for the quarter ended March 31, 2021. The decrease in the current quarter compared to the quarter ended December 31, 2021, was primarily due to lower interest income on loans, including reduced fee income recognition from PPP loan forgiveness, partially offset by lower interest expense on deposits, FHLB advances and other borrowings.

Total interest income was $12.9 million for the quarter ended March 31, 2022, compared to $13.3 million for the quarter ended December 31, 2021, and $13.5 million for the quarter ended March 31, 2021. The decrease in the current quarter compared to the quarter ended December 31, 2021, was primarily due to a reduction in average loan yields to 4.36% from 4.44% in the prior quarter. The decrease from the quarter ended March 31, 2021, is primarily due to a decline in average loan yields to 4.36% from 4.66%, partially offset by a $26.1 million increase in the average balance of interest-earning assets. The reduction in average loan yields primarily reflects loans originated or refinanced at lower rates in this continued low interest rate environment, along with reduced net deferred loan fee income recognition from PPP loan forgiveness compared to each of the prior periods. Asset yields and interest income from loans continued to be impacted by the net deferred loan fee recognition on PPP loans, primarily the recognition of previously unamortized net deferred loan fees and costs related to forgiven PPP loans, which totaled $172,000 in the quarter ended March 31, 2022, compared to $461,000 in the quarter ended December 31, 2021, and $718,000 in the quarter ended March 31, 2021. At March 31, 2022, the balance of net deferred loan fees relating to PPP loans to be recognized in future periods totaled $86,000.

Total interest expense was $1.6 million for the quarter ended March 31, 2022, compared to $1.7 million for the quarter ended December 31, 2021, and $2.7 million for the quarter ended March 31, 2021. The average cost of interest-bearing deposits declined to 0.50% for the quarter ended March 31, 2022, compared to 0.53% for the quarter ended December 31, 2021, and 0.94% for the quarter ended March 31, 2021. The decline from the quarter ended December 31, 2021, was due primarily to the continued repricing of maturing certificates of deposit to lower interest rates combined with a reduction in the average balance of higher cost certificates of deposit. Advances from the FHLB were $95.0 million at both March 31, 2022, and December 31, 2021, compared to $120.0 million at March 31, 2021. 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. These cash flow hedge agreements have a weighted average remaining term of 56 months and a weighted average fixed rate of 1.05%. The average cost of borrowings was 1.28% for the quarter ended March 31, 2022, compared to 1.33% for the quarter ended December 31, 2021, and 1.41% for the quarter ended March 31, 2021.

The net interest margin was 3.43% for the quarter ended March 31, 2022, compared to 3.40% for the quarter ended December 31, 2021, and 3.31% for the quarter ended March 31, 2021. The increase in the net interest margin for the quarter ended March 31, 2022, compared to the quarter ended December 31, 2021, is due to several factors, including a five basis point reduction in the average cost of interest-bearing liabilities to 0.56% from 0.61%, partially offset by a one basis point reduction in the Company’s average yield on interest-earning assets during the quarter to 3.90% from 3.91%. The increase in net interest margin for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021, was due primarily to the 43 basis point reduction in the average cost of interest-bearing liabilities to 0.56% from 0.99%, partially offset by a 25 basis point reduction in the average yield on interest-earning assets to 3.90% from 4.15%.

Noninterest income for the quarter ended March 31, 2022, totaled $789,000, compared to $1.1 million for the quarter ended December 31, 2021, and $764,000 for the quarter ended March 31, 2021. The decrease in noninterest income for the quarter ended March 31, 2022, compared to the quarter ended December 31, 2021, was primarily due to lower loan related fees, predominantly from a $365,000 decrease in prepayment penalties, and to a lesser extent lower wealth management revenue, partially offset by higher BOLI income, while the quarter ended December 31, 2021, included a slight net gain on sale of investments as compared to none in the current quarter.

Noninterest expense totaled $8.6 million for the quarter ended March 31, 2022, compared to $8.7 million for the quarter ended December 31, 2021, and $8.1 million for the quarter ended March 31, 2021. Salaries and benefits for the quarter ended March 31, 2022, decreased $113,000 from the quarter ended December 31, 2021, which included final year-end accruals for employee incentives and commissions earned in 2021, while occupancy and equipment increased modestly in the current quarter.

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 2022 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)

Assets	Mar 31, 2022				Dec 31, 2021				Mar 31, 2021				Three Month Change			One Year Change
Cash on hand and in banks	$	7,979			$	7,246			$	7,211			10.1	%		10.7	%
Interest-earning deposits with banks		19,633				66,145				75,023			(70.3	)		(73.8	)
Investments available-for-sale, at fair value		180,212				168,948				168,042			6.7			7.2
Investments held-to-maturity, at amortized cost		2,426				2,432				2,413			(0.2	)		0.5
Loans receivable, net of allowance of $15,159, $15,657, and $15,502 respectively		1,121,382				1,103,461				1,098,832			1.6			2.1
Federal Home Loan Bank ("FHLB") stock, at cost		5,512				5,465				6,465			0.9			(14.7	)
Accrued interest receivable		5,590				5,285				5,702			5.8			(2.0	)
Deferred tax assets, net		1,069				850				1,163			25.8			(8.1	)
Other real estate owned ("OREO")		-				-				454			n/a			(100.0	)
Premises and equipment, net		22,254				22,440				22,512			(0.8	)		(1.1	)
Bank owned life insurance ("BOLI"), net		35,552				35,210				33,357			1.0			6.6
Prepaid expenses and other assets		8,451				3,628				3,398			132.9			148.7
Right of use asset ("ROU"), net		3,455				3,646				3,976			(5.2	)		(13.1	)
Goodwill		889				889				889			0.0			0.0
Core deposit intangible, net		650				684				789			(5.0	)		(17.6	)
Total assets	$	1,415,054			$	1,426,329			$	1,430,226			(0.8	)		(1.1	)
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits	$	130,596			$	117,751			$	114,437			10.9	%		14.1	%
Interest-bearing deposits		1,009,505				1,039,723				1,019,218			(2.9	)		(1.0	)
Total deposits		1,140,101				1,157,474				1,133,655			(1.5	)		0.6
Advances from the FHLB		95,000				95,000				120,000			0.0			(20.8	)
Advance payments from borrowers for taxes and insurance		5,299				2,909				4,813			82.2			10.1
Lease liability, net		3,617				3,805				4,123			(4.9	)		(12.3	)
Accrued interest payable		112				112				197			0.0			(43.1	)
Other liabilities		13,168				9,150				8,995			43.9			46.4
Total liabilities		1,257,297				1,268,450				1,271,783			(0.9	)		(1.1	)
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding		-				-				-			n/a			n/a
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding 9,107,977 shares at March 31, 2022, 9,125,759 shares at December 31, 2021, and 9,692,610 shares at March 31, 2021		91				91				97			0.0			(6.2	)
Additional paid-in capital		71,780				72,298				81,099			(0.7	)		(11.5	)
Retained earnings		88,339				86,162				79,455			2.5			11.2
Accumulated other comprehensive (loss) income, net of tax		(1,889	)			174				(515	)		(1,185.6	)		266.8
Unearned Employee Stock Ownership Plan ("ESOP") shares		(564	)			(846	)			(1,693	)		(33.3	)		(66.7	)
Total stockholders' equity		157,757				157,879				158,443			(0.1	)		(0.4	)
Total liabilities and stockholders' equity	$	1,415,054			$	1,426,329			$	1,430,226			(0.8	)%		(1.1	)%

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

	Quarter Ended
	Mar 31, 2022				Dec 31, 2021			Mar 31, 2021			Three Month Change			One Year Change
Interest income
Loans, including fees	$	12,001			$	12,398		$	12,624		(3.2	)%		(4.9	)%
Investment securities		831				804			748		3.4			11.1
Interest-earning deposits with banks		19				19			12		0.0			58.3
Dividends on FHLB Stock		74				85			79		(12.9	)		(6.3	)
Total interest income		12,925				13,306			13,463		(2.9	)		(4.0	)
Interest expense
Deposits		1,257				1,390			2,299		(9.6	)		(45.3	)
FHLB advances and other borrowings		300				340			418		(11.8	)		(28.2	)
Total interest expense		1,557				1,730			2,717		(10.0	)		(42.7	)
Net interest income		11,368				11,576			10,746		(1.8	)		5.8
(Recapture of provision) provision for loan losses		(500	)			600			300		(183.3	)		(266.7	)
Net interest income after (recapture of provision) provision for loan losses		11,868				10,976			10,446		8.1			13.6
Noninterest income
Net gain on sale of investments		-				32			-		(100.0	)		n/a
BOLI income		288				216			269		33.3			7.1
Wealth management revenue		82				104			160		(21.2	)		(48.8	)
Deposit related fees		215				218			200		(1.4	)		7.5
Loan related fees		199				551			132		(63.9	)		50.8
Other		5				5			3		0.0			66.7
Total noninterest income		789				1,126			764		(29.9	)		3.3
Noninterest expense
Salaries and employee benefits		5,261				5,374			4,945		(2.1	)		6.4
Occupancy and equipment		1,228				1,154			1,100		6.4			11.6
Professional fees		452				477			532		(5.2	)		(15.0	)
Data processing		677				689			697		(1.7	)		(2.9	)
Regulatory assessments		101				100			121		1.0			(16.5	)
Insurance and bond premiums		129				110			124		17.3			4.0
Marketing		37				37			29		0.0			27.6
Other general and administrative		741				775			581		(4.4	)		27.5
Total noninterest expense		8,626				8,716			8,129		(1.0	)		6.1
Income before federal income tax provision		4,031				3,386			3,081		19.0			30.8
Federal income tax provision		771				643			584		19.9			32.0
Net income	$	3,260			$	2,743		$	2,497		18.8	%		30.6	%
Basic earnings per share	$	0.36			$	0.30		$	0.26
Diluted earnings per share	$	0.36			$	0.29		$	0.26
Weighted average number of common shares outstanding		8,987,482				9,129,724			9,490,058
Weighted average number of diluted shares outstanding		9,117,432				9,273,502			9,566,671

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

March 31, 2022

December 31, 2021

March 31, 2021

Amount

Percent

Amount

Percent

Amount

Percent

(Dollars in thousands)

Commercial real estate: