First Financial Northwest, Inc. Reports Net Income of $2.7 million or $0.29 per Diluted Share for the Fourth Quarter and $12.2 Million or $1.29 per Diluted Share for the Year Ended December 31, 2021

RENTON, Wash., Jan. 27, 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 December 31, 2021, of $2.7 million, or $0.29 per diluted share, compared to $3.2 million, or $0.34 per diluted share, for the quarter ended September 30, 2021, and $2.6 million, or $0.28 per diluted share, for the quarter ended December 31, 2020. For the year ended December 31, 2021, net income was $12.2 million, or $1.29 per diluted share, compared to net income of $8.6 million, or $0.88 per diluted share, for the year ended December 31, 2020.

“The final quarter of 2021 showed continued improvement in our funding base, with our average cost of funds declining to 0.55% from 0.64% in the quarter ended September 30, 2021, and 1.07% in the quarter ended December 31, 2020,” stated Joseph W. Kiley, III, President and CEO. “If market interest rates remain low, we expect this decline to continue as we have approximately $145.3 million in retail certificates of deposit at a weighted average rate of 0.99% maturing in the next 12 months, and an additional $96.0 million maturing in the subsequent 12 to 24 months, at a weighted average rate of 1.72%. In the event that the Federal Reserve raises interest rates, the impact of repricing maturing CDs may be less significant than in the current low rate environment, but still favorable to our interest expense on CDs, although, as previously disclosed, the Bank’s interest rate profile is slightly asset sensitive and currently not anticipated to change,” continued Kiley.

“I was pleased to see continued loan growth despite $11.5 million in Paycheck Protection Program loan repayments and forgiveness. In addition, for the second consecutive quarter we had no nonperforming assets,” concluded Kiley.

Changes in the provision for loan losses were the primary contributors to the change in net income for the quarter ended December 31, 2021, compared to the quarter ended September 30, 2021. The Company recorded a $600,000 provision for loan losses in the quarter ended December 31, 2021, compared to a $100,000 provision for loan losses in the quarter ended September 30, 2021, and a provision for loan losses of $600,000 in the quarter ended December 31, 2020. The provision for loan losses in the quarter ended December 31, 2021, was due primarily to the growth in loans receivable, excluding the reduction in Paycheck Protection Program (“PPP”) loan balances that do not require an allowance for loan and lease losses (“ALLL”) due to their government guarantees. Credit downgrades on two relationships, both relating to commercial real estate loans secured by office buildings in King County that are either experiencing or are expected to have increased vacancies, also contributed to the fluctuation in the provision. Uncertainties about the timing to fill the current and expected vacancies resulted in the downgrades for both relationships. One loan in the amount of $4.7 million was downgraded to special mention, while the second relationship with loans totaling $8.4 million was downgraded to substandard and classified as impaired. Impaired loans are reviewed individually to determine the loan loss allowance requirement. The impairment analysis indicated that the Bank does not anticipate incurring losses on this loan and funds previously allocated to this loan in the ALLL calculation were recaptured during the quarter, partially offsetting the impact from loan growth and the other loan downgrade to special mention discussed above. All payments on these downgraded loans were current as of December 31, 2021, and the loans appear to be well collateralized based on recent valuations. For the year ended December 31, 2021, the provision for loan losses totaled $300,000, compared to a provision for loan losses of $1.9 million for the year ended December 31, 2020.

Highlights for the quarter and year ended December 31, 2021:

• Net loans receivable increased by $1.8 million to $1.10 billion at December 31, 2021, despite a reduction in PPP loan balances totaling $11.5 million.
• Total deposits increased by $15.7 million in the quarter, including a $2.4 million increase in noninterest-bearing demand deposits.
• The Company’s book value per share increased to $17.30 at December 31, 2021, compared to $17.03 at September 30, 2021, and $16.05 at December 31, 2020.
• The Company repurchased 392,322 shares at an average price of $16.88 per share during the quarter for a total of 704,950 shares repurchased at an average price of $16.11 per share during the year, an amount equal to approximately 7.2% of shares outstanding at the beginning of 2021.
• The Company paid regular quarterly cash dividends to shareholders totaling $0.44 per share for the year, a 10% increase over the prior year.
• The Bank’s Tier 1 leverage and total capital ratios at December 31, 2021, were 10.3% and 15.5%, respectively, compared to 10.2% and 15.5%, respectively, at September 30, 2021, and 10.3% and 15.6%, respectively at December 31, 2020.
• Based on management’s evaluation of the adequacy of the ALLL including the estimated impact of the COVID-19 pandemic, the Bank recorded a $600,000 provision for loan losses during the quarter, bringing the total provision for loan losses to $300,000 for the year.

Deposits totaled $1.16 billion at December 31, 2021, compared to $1.14 billion at September 30, 2021, and $1.09 billion at December 31, 2020. The $27.6 million increase in money market deposits and $2.4 million increase in noninterest-bearing demand deposits in the quarter ended December 31, 2021, more than offset the reductions in retail certificates of deposit and interest-bearing demand deposits as the Bank continues its strategy to shift the deposit composition to lower cost transaction accounts.

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

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

Net loans receivable totaled $1.10 billion at December 31, 2021, September 30, 2021, and December 31, 2020. During the quarter ended December 31, 2021, new originations of non-residential commercial real estate loans, land development, classic, collectible and other auto, and one-to-four family residential loans, more than offset the amount of loan repayments in the quarter, including PPP loan repayments and forgiveness. The average balance of net loans receivable totaled $1.11 billion for the quarter ended December 31, 2021, compared to 1.09 billion for the quarter ended September 30, 2021, and $1.13 billion for the quarter ended December 31, 2020. For the year ended December 31, 2021, the average balance of net loans receivable was $1.10 billion, compared to $1.12 billion for the year ended December 31, 2020, with balances of PPP loans declining by $30.4 million in the year ended December 31, 2021.

The ALLL represented 1.40% of total loans receivable at December 31, 2021, compared to 1.35% of total loans receivable at September 30, 2021, and 1.36% of total loans receivable at December 31, 2020.

There were no nonperforming loans or other real estate owned (“OREO”) at both December 31, 2021, and September 30, 2021, compared to $2.1 million and $454,000, respectively, at December 31, 2020. The $2.1 million multifamily loan in foreclosure at December 31, 2020, was repaid in full in the quarter ended June 30, 2021, while two undeveloped commercial lots that comprised the $454,000 OREO balance were sold during the quarter ended September 30, 2021.

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 December 31, 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 December 31, 2021, TDRs totaled $2.1 million, compared to $2.4 million at September 30, 2021, and $3.9 million at December 31, 2020. All TDRs were performing according to their modified repayment terms for the periods presented.

Net interest income totaled $11.6 million for the quarter ended December 31, 2021, compared to $11.4 million for the quarter ended September 30, 2021, and $10.7 million for the quarter ended December 31, 2020. The improvement was primarily due to lower interest expense on deposits, FHLB advances and other borrowings. For the year ended December 31, 2021, net interest income totaled $45.0 million, compared to $40.5 million for the year ended December 31, 2020, as the reductions in total interest expense outpaced the decline in total interest income in this historically low interest rate environment.

Total interest income was $13.3 million for the quarter ended December 31, 2021, compared to $13.4 million for the quarter ended September 30, 2021, and $13.8 million for the quarter ended December 31, 2020. The decrease in the current quarter compared to the quarter ended September 30, 2021, was primarily due to a reduction in average loan yields to 4.44% from 4.54% in the prior quarter. The decrease from the quarter ended December 31, 2020, is primarily due to a decline in average loan yields to 4.44% from 4.61% combined with a $17.7 million decline in average balance of loans receivable between periods. The reduction in average loan yields primarily reflects loans originated or refinanced at lower rates in this continued low interest rate environment.

Total interest expense was $1.7 million for the quarter ended December 31, 2021, compared to $2.0 million for the quarter ended September 30, 2021, and $3.2 million for the quarter ended December 31, 2020. The average cost of interest-bearing deposits declined to 0.53% for the quarter ended December 31, 2021, compared to 0.63% for the quarter ended September 30, 2021, and 1.12% for the quarter ended December 31, 2020. The decline from the quarter ended September 30, 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 December 31, 2021, compared to $120.0 million at both September 30, 2021, and December 31, 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 1.33% for the quarter ended December 31, 2021, compared to 1.42% for the quarter ended September 30, 2021, and 1.40% for the quarter ended December 31, 2020. The Bank previously entered into two forward starting interest rate swaps beginning October 25, 2021, totaling $25.0 million with a weighted average rate of 0.80% and weighted term of 7.4 years to partially replace a $50.0 million interest rate swap carrying an interest rate of 1.34% that matured on that date. The resulting decline in balances and reduction in rates combined for the improvement in both the average and total cost of borrowings for the quarter ended December 31, 2021.

The net interest margin was 3.40% for the quarter ended December 31, 2021, compared to 3.33% for the quarter ended September 30, 2021, and 3.29% for the quarter ended December 31, 2020. The increase in the net interest margin for the quarter ended December 31, 2021, compared to the quarter ended September 30, 2021, is due to several factors, including a 10 basis point reduction in the average cost of interest-bearing liabilities to 0.61% from 0.71%, partially offset by a two basis point reduction in the Company’s average yield on interest-earning assets during the quarter to 3.91% from 3.93%. The increase in net interest margin for the quarter ended December 31, 2021, compared to the quarter ended December 31, 2020, was due primarily to the 54 basis point reduction in the average cost of interest-bearing liabilities to 0.61% from 1.15%, partially offset by a 35 basis point reduction in the average yield on interest-earning assets to 3.91% from 4.26%. Asset yields continue 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 $461,000 in the quarter ended December 31, 2021, compared to $354,000 in the quarter ended September 30, 2021, and $420,000 in the quarter ended December 31, 2020. During the year ended December 31, 2021, a total of $2.0 million was recognized in previously unamortized net deferred loan fees related to PPP loans. At December 31, 2021, the balance of net deferred loan fees relating to PPP loans to be recognized in future periods totaled $258,000.

Noninterest income for the quarter ended December 31, 2021, totaled $1.1 million, compared to $999,000 for the quarter ended September 30, 2021, and $1.7 million for the quarter ended December 31, 2020. The increase in noninterest income for the quarter ended December 31, 2021, compared to the quarter ended September 30, 2021, was primarily due to an increase in loan related fees, predominantly from a $322,000 increase in prepayment penalties in the quarter. These increases in noninterest income were partially offset by lower BOLI income due to $161,000 in death benefit proceeds received last quarter. For the year ended December 31, 2021, noninterest income declined $580,000 to $3.9 million, from $4.4 million for the year ended December 31, 2020, due primarily to lower loan related fees and wealth management revenue.

Noninterest expense totaled $8.7 million for the quarter ended December 31, 2021, compared to $8.3 million for the quarter ended September 30, 2021, and $8.4 million for the quarter ended December 31, 2020. Salaries and benefits for the quarter ended December 31, 2021, increased $518,000 to $5.4 million, compared to $4.9 million for the quarter ended September 30, 2021, due primarily to success in filling vacant positions during the quarter ended December 31, 2021, and final year-end accruals for employee incentives and commissions earned in 2021. Noninterest expense totaled $33.4 million for the year ended December 31, 2021, an increase of 2.6% from $32.5 million for the year ended December 31, 2020. The increase year over year was due primarily to increases in occupancy and equipment, other general and administrative, and OREO related expenses, partially offset by lower data processing expenses, regulatory assessments, and marketing expenses.

COVID-19 Related Information
The Bank is committed to assisting its customers and communities in response to the COVID-19 pandemic, including having provided certain short-term loan modifications and participating in the PPP as a Small Business Administration (“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 helped 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 December 31, 2021, there were 67 PPP loans outstanding totaling $10.8 million, compared to 198 PPP loans totaling $22.4 million outstanding as of September 30, 2021, and 372 PPP loans totaling $41.3 million as of December 31, 2020. As of December 31, 2021, 39 PPP loans have an outstanding balance of $150,000 or less, totaling $2.0 million, or 18.3% of total PPP loans outstanding, including 24 loans representing $484,000 with an outstanding balance of $50,000 or less. As of December 31, 2021, 661 PPP loans totaling $66.6 million had been approved for forgiveness and repaid under the PPP loan program.

Modifications
The primary method of relief was to allow borrowers to defer their loan payments for three to six month periods, while certain borrowers were 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 suspended the determination of certain loan modifications related to the COVID‑19 pandemic from being treated as TDRs. Subsequent legislation extended this accounting treatment through the earlier of 60 days after the national emergency termination date or January 1, 2022. As of December 31, 2021, there were no loans on active deferral, compared to $20.1 million, or 1.8% of total loans outstanding at September 30, 2021, and $45.2 million, or 4.0% of total loans outstanding at December 31, 2020. All loans that had previously been granted modifications have returned to regular scheduled payments.

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 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)

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 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.

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

⁽¹⁾ Tangible equity excludes goodwill and core deposit intangible assets. Tangible assets exclude goodwill and other intangible assets. The tangible equity 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)

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, and tangible equity ratio. 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:

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