First Financial Northwest, Inc. Reports Second Quarter Net Income of $2.1 Million or $0.22 per Diluted Share


RENTON, Wash., July 28, 2020 (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, 2020, of $2.1 million, or $0.22 per diluted share, compared to net income of $1.7 million, or $0.17 per diluted share, for the quarter ended March 31, 2020, and $3.3 million, or $0.33 per diluted share, for the quarter ended June 30, 2019. For the six months ended June 30, 2020, net income was $3.8 million, or $0.39 per diluted share, compared to net income of $5.2 million, or $0.52 per diluted share, for the comparable six‑month period in 2019.

“As we all know, the first six months of 2020 have been quite different than we initially anticipated,” said Joseph W. Kiley III, President and Chief Executive Officer. “I am extremely proud that through it all the First Financial Northwest team has maintained its strength, integrity and passion. While we took necessary precautions to support our team with flexible work accommodations and to manage COVID‑19 health risks, we also demonstrated our high touch philosophy to meet the needs and expectations of our customers, communities, and shareholders. We delivered quality solutions by working with existing customers in a variety of ways and invited new customers to experience our superior service via the Paycheck Protection Program. In the three months ending on June 30, 2020, we had facilitated 455 PPP loans totaling $51.7 million, with the potential to support upwards of 5,000 jobs,” continued Kiley.

“I am also very pleased with the progress being made to reduce our cost of funds and improve our deposit mix. During the quarter, our cost of funds declined to 1.34% compared to 1.69% in the previous quarter, with demand deposits increasing $72.0 million,” continued Kiley. “We also saw our net interest margin increase slightly even though we added over $50 million of lower-yielding PPP loans in the quarter.”

Kiley stated, “As a result of economic concerns because of the COVID-19 pandemic, we again increased our allowance for loan loss risk factors for certain loan categories, which resulted in a provision for loan losses of $300,000 for the second quarter. Without the adjustment for COVID‑19 related economic factors, we would not have recorded a provision for loan losses in the quarter.”

“While I am very positive about our geographical expansion strategy and our success to date, as well as the market opportunities offered with the two new offices planned for Gig Harbor in Pierce County and Issaquah in King County, we expect to slow the pace of expansion in the current environment,” concluded Kiley.

Highlights for the quarter ended June 30, 2020:

  • Paycheck Protection Program (“PPP”) loans totaled $51.7 million.
  • Net loans receivable increased $46.1 million to $1.14 billion at June 30, 2020, from $1.09 billion at March 31, 2020, and $85.6 million from $1.05 billion at June 30, 2019.
  • Total deposits increased 12.6% to $1.13 billion as of June 30, 2020, from $1.00 billion at March 31, 2020, and 9.8% from $1.03 billion at June 30, 2019.
  • The Bank received regulatory approval to open offices in Gig Harbor, Pierce County, Washington, and Issaquah, King County, Washington.
  • The Company’s book value per share was $15.32 at June 30, 2020, compared to $15.03 at March 31, 2020, and $14.83 at June 30, 2019.
  • The Company repurchased 135,450 shares during the quarter at an average price of $9.42 per share under a stock repurchase plan that expired on July 27, 2020.
  • The Company’s Board of Directors authorized a new stock repurchase plan to repurchase up to 5% of its outstanding shares of common stock effective July 30, 2020, for a period of up to six months.
  • The Company paid a regular quarterly cash dividend of $0.10 per share to shareholders.
  • The Bank’s Tier 1 leverage and total capital ratios at June 30, 2020, were 10.0% and 15.0%, respectively, compared to 10.3% and 14.7%, respectively, at both March 31, 2020, and June 30, 2019.
  • Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”) and taking into account the estimated future impact of the COVID-19 pandemic, the Bank recorded a $300,000 provision for loan losses during the quarter ended June 30, 2020.

Total deposits at June 30, 2020, increased $126.2 million to $1.13 billion, from $1.00 billion at March 31, 2020, and was up $100.5 million from $1.03 billion at June 30, 2019. Demand deposits increased $72.0 million during the quarter, due in large part to deposits related to PPP loans funded during the quarter. The continued success of our deposit gathering efforts through our expanded branch network has allowed the Company to reduce its dependence on brokered deposits and FHLB advances as sources of funds.

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

 Jun 30,
2020
 Mar 31,
2020
 Jun 30,
2019
 Three
Month
Change
 One
Year
Change
Deposits:(Dollars in thousands) 
Noninterest-bearing demand$  91,593 $  53,519 $  49,219 $  38,074 $  42,374 
Interest-bearing demand   102,707    68,803    50,414    33,904    52,293 
Statement savings   18,946    17,040    22,593    1,906    (3,647)
Money market   429,987    397,489    310,587    32,498    119,400 
Certificates of deposit, retail (1)   450,487    437,676    412,134    12,811    38,353 
Certificates of deposit, brokered   32,448    25,457    180,763    6,991    (148,315)
Total deposits$  1,126,168 $  999,984 $   1,025,710 $  126,184 $  100,458 

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $17,000 at June 30, 2020, $22,000 at March 31, 2020, and $41,000 at June 30, 2019.

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

June 30, 2020
 Noninterest-bearing demand Interest-bearing demandStatement savings Money market Certificates of deposit, retailCertificates of deposit, brokered Total
  (Dollars in thousands)
King County       
Renton$ 40,619$  48,670$  14,525$  242,453$ 367,483$  -$ 713,750
Landing   3,338   1,892   31   15,306   8,587   -   29,154
Woodinville (1)   2,544   5,505   938   16,364   7,320   -   32,671
Bothell   2,927   2,793   33   5,650   3,268   -   14,671
Crossroads   7,435   6,516   158   51,674   11,756   -   77,539
Kent (2)   7,144   5,883   1   12,424   1,065   -   26,517
Kirkland (2)   5,748   6   -   1,068   -   -   6,822
Total King County   69,755   71,265   15,686   344,939   399,479   -   901,124
        
Snohomish County       
Mill Creek   3,969   2,120   799   15,029   10,729   -   32,646
Edmonds   6,884   12,615   229   24,414   19,379   -   63,521
Clearview (1)   4,999   5,953   868   15,278   4,859   -   31,957
Lake Stevens (1)   2,985   6,788   618   13,794   4,213   -   28,398
Smokey Point (1)   2,168   3,894   745   15,291   11,828   -   33,926
Total Snohomish County   21,005   31,370   3,259   83,806   51,008   -   190,448
        
Pierce County       
University Place (2)   833   72   1   1,242   -   - 2,148
Total Pierce County   833   72   1   1,242   -   - 2,148
        
Total retail deposits 91,593 102,707 18,946 429,987 450,487   - 1,093,720
Brokered deposits   -    -    -    -    -     32,448 32,448
Total deposits$ 91,593$   102,707$  18,946$  429,987$  450,487$   32,448$  1,126,168 

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $17,000.
(2) Kent office opened January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.

March 31, 2020
 Noninterest-bearing demand Interest-bearing demandStatement savings Money market Certificates of deposit, retailCertificates of deposit, brokered Total
  (Dollars in thousands)
King County       
Renton$  28,624$  22,619$  13,811$  230,235$  355,710$  -$  650,999
Landing 4,476 2,173 36 13,286 9,821   - 29,792
Woodinville (1) 1,705 5,623 733 15,790 6,908   - 30,759
Bothell 556 886 20 6,221 3,297   - 10,980
Crossroads 4,894 10,197 5 47,714 11,689   - 74,499
Kent (2) 472 2,961   -  10,736 1,061   - 15,230
Kirkland (2) 253 11   -    -    -    - 264
Total King County 40,980 44,470 14,605 323,982 388,486   - 812,523
        
Snohomish County       
Mill Creek 2,292 3,610 467 18,619 10,552   - 35,540
Edmonds 3,352 10,952 210 22,591 18,920   - 56,025
Clearview (1) 3,627 4,596 753 13,288 4,775   - 27,039
Lake Stevens (1) 2,024 2,446 468 7,142 4,240   - 16,320
Smokey Point (1) 1,244 2,715 537 11,656 10,703   - 26,855
Total Snohomish County 12,539 24,319 2,435 73,296 49,190   - 161,779
        
Pierce County       
University Place (2)   -  14   -  211   -    - 225
Total Pierce County   -  14   -  211   -    - 225
Total retail deposits 53,519 68,803 17,040 397,489 437,676   - 974,527
        
Brokered deposits   -    -    -    -    -    25,457 25,457
Total deposits$  53,519$  68,803$  17,040$  397,489$  437,676$  25,457$  999,984

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $22,000.
(2) Kent office opened January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.

Net loans receivable increased to $1.14 billion at June 30, 2020, from $1.09 billion at March 31, 2020, and $1.05 billion at June 30, 2019. PPP loan originations of $51.7 million contributed to this quarterly increase. The average balance of net loans receivable totaled $1.12 billion for the quarter ended June 30, 2020, compared to $1.10 billion for the quarter ended March 31, 2020, and $1.05 billion for the quarter ended June 30, 2019.

The Company recorded a $300,000 provision for loan losses in both the quarters ended June 30, 2020, and March 31, 2020, and a recapture of provision for loan losses of $800,000 in the quarter ended June 30, 2019. The provision in the quarter ended June 30, 2020, was primarily attributed to adjustments to economic factors due to COVID-19 primarily in our Commercial Real Estate and Construction/Land portfolios. The provision in the quarter ended March 31, 2020, was due primarily to forecasted credit deterioration for all loans categories in response to disruption caused by the COVID-19 pandemic. The $800,000 recapture of provision for loan losses in the quarter ended June 30, 2019, was primarily due to the recapture of provision associated with a single construction loan with a balance of $11.6 million after an impairment analysis concluded that the Bank did not anticipate incurring losses on the loan.

The ALLL represented 1.20% of total loans receivable at June 30, 2020, compared to 1.22% at both March 31, 2020, and June 30, 2019. Excluding the PPP loan balances, which are 100% guaranteed by the Small Business Administration, the ALLL represented 1.25% of total loans receivable at June 30, 2020. Nonperforming loans totaled $2.2 million at both June 30, 2020, and March 31, 2020, compared to $146,000 at June 30, 2019. The increase from the prior year is due to a $2.1 million multifamily loan currently in foreclosure. Based on an impairment analysis conducted in the first quarter of 2020, the Company does not expect to incur a loss on this credit. As of June 30, 2020, there were no loans 30 days or more past due that had not requested a deferral other than the $2.1 million multifamily loan in foreclosure and one consumer loan of less than $10,000. OREO remained unchanged at $454,000 at June 30, 2020, March 31, 2020, and June 30, 2019.

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

 Jun 30, Mar 31, Jun 30, Three
Month
 One
Year
  2020   2020   2019  Change Change
 (Dollars in thousands)
Nonperforming loans:         
One-to-four family residential$87  $91  $103  $(4) $(16)
Multifamily 2,104   2,104  
  
   2,104 
Consumer
  
   43  
   (43)
Total nonperforming loans 2,191   2,195   146   (4)  2,045 
          
Other real estate owned (“OREO”) 454   454   454  
  
 
          
Total nonperforming assets (1)$2,645  $2,649  $600  $(4) $2,045 
          
Nonperforming assets as a         
percent of total assets 0.19%  0.20%  0.05%    

(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 our TDRs were performing in accordance with their restructured terms at June 30, 2020.

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, 2020, TDRs totaled $4.3 million, compared to $5.0 million at March 31, 2020, and $6.7 million at June 30, 2019. As discussed further below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 (“CARES Act”) provides guidance around the modification of loans as a result of the COVID‑19 pandemic, which 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.

Net interest income for the quarter ended June 30, 2020, totaled $10.1 million, compared to $9.7 million for each of the quarters ended March 31, 2020, and June 30, 2019.

Interest income totaled $14.1 million for the quarter ended June 30, 2020, compared to $14.5 million for the quarter ended March 31, 2020, and $14.9 million for the quarter ended June 30, 2019. The decline in the current quarter compared to the quarter ended March 31, 2020, was primarily due to the recent decline in interest rates as the Federal Reserve’s Open Market Committee dramatically reduced its short-term interest rate targets by 150 basis points in March 2020 in response to the COVID-19 pandemic. This partially impacted the results for the quarter ended March 31, 2020, however it had a larger impact with the low rates in place for the entire quarter ended June 30, 2020. In addition, the yields on the PPP loans originated during the quarter ended June 30, 2020 were well below the yields in the remainder of our loan portfolio. As a result, average loan yields declined to 4.72% at June 30, 2020, compared to 4.94% at March 31, 2020, and 5.19% at June 30, 2019.

Total interest expense was $4.0 million for the quarter ended June 30, 2020, compared to $4.8 million for the quarter ended March 31, 2020, and $5.2 million for the quarter ended June 30, 2019. In addition to improving our deposit mix by increasing lower cost demand deposits, we were able to successfully reduce the rates paid on our interest-bearing deposits during the quarter ended June 30, 2020.  As a result, the average cost of  deposits declined to 1.49% for the quarter ended June 30, 2020, compared to 1.81% for the quarter ended March 31, 2020, and 1.89% for the quarter ended June 30, 2019. The decline from the quarter ended June 30, 2019, was due primarily to a reduced level of brokered deposits and a declining interest rate environment. Specifically, we replaced higher cost brokered deposits with retail deposits through our branch network and FHLB advances obtained in conjunction with interest rate swaps to secure lower long-term interest rates. Advances from the FHLB totaled $120.0 million at June 30, 2020, compared to $160.0 million at March 31, 2020, and $105.0 million at June 30, 2019. The average cost of borrowings was 1.08% for the quarter ended June 30, 2020, compared to 1.48% for the quarter ended March 31, 2020, and 2.28% for the quarter ended June 30, 2019. At June 30, 2020, the entire balance of our $120.0 million in borrowings were short-term FHLB advances tied to long-term interest rate swaps. During the quarter ended March 31, 2020, we entered into interest rate swap transactions totaling $45.0 million. In addition, we entered into $25.0 million in forward starting interest rate swaps beginning October 25, 2021, to partially replace a $50.0 million swap maturing on that date.

Total stockholders’ equity increased slightly to $154.0 million at June 30, 2020, from $153.1 million at March 31, 2020, primarily due to net income partially offset by share repurchases. The Company’s book value per common share increased to $15.32 at June 30, 2020, from $15.03 at March 31, 2020, due in part to the Company’s success in repurchasing shares well below book value per share during the quarter.

The net interest margin was 3.12% for the quarter ended June 30, 2020, compared to 3.11% for the quarter ended March 31, 2020, and 3.23% for the quarter ended June 30, 2019. The modest improvement in the quarter ended June 30, 2020, from the quarter ended March 31, 2020, relates primarily to the reduction in our cost of interest-bearing liabilities outpacing the reduction in yield on interest-earning assets. The decline in net interest margin for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019, was due primarily to a significant decline in interest-earning asset yields, partially offset by a decline in cost of interest-bearing liabilities.

Noninterest income for the quarter ended June 30, 2020, totaled $789,000, compared to $990,000 for the quarter ended March 31, 2020, and $879,000 for the quarter ended June 30, 2019. The decrease in noninterest income for the quarter ended June 30, 2020, compared to the quarter ended March 31, 2020, was primarily due to a reduction in loan prepayment penalties. The decrease from the year-ago quarter was primarily due to lower loan prepayment penalties in the quarter ended June 30, 2020, and fees received on new loan interest rate swap agreements in the quarter ended June 30, 2019.

Noninterest expense totaled $7.9 million for the quarter ended June 30, 2020, compared to $8.3 million for the quarter ended March 31, 2020, and $7.3 million in the quarter ended June 30, 2019. Salaries and employee benefits for the quarter ended June 30, 2020, decreased from the quarter ended March 31, 2020, primarily due to a reduction in stock-based compensation elements reflecting the recent decline in the Company’s stock price, along with the reclassification of the compensation expense related to PPP loan originations to loan direct costs. Other general and administrative expenses increased in the current quarter due to an increase in the Company’s unfunded commitment reserve. Unfunded commitments totaled $114.0 million as of June 30, 2020, compared to $102.9 million as of March 31, 2020. The change in unfunded commitments resulted in a $29,000 expense for the quarter ended June 30, 2020, compared to a recapture of expense of $72,000 for the quarter ended March 31, 2020. Noninterest expense increased from the same quarter last year as the Bank continued to pursue its branch expansion strategy, which resulted in higher salaries and benefits, occupancy and equipment and data processing expense among increases in other noninterest expenses due to the growth in our operations.

COVID-19 Related Information

As noted above, in response to the current global situation surrounding the COVID-19 pandemic, we are providing assistance to our customers in a variety of ways and participating in the PPP offered under the CARES Act as a Small Business Administration (“SBA”) lender, and taking the steps necessary while working with our loan customers to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis. The following is presented to outline certain activities in this regard:

Paycheck Protection Program
As of June 30, 2020, we had originated 455 requests for PPP loans totaling approximately $51.7 million. A total of 375 of these loans, or more than 82%, are for loan amounts of $150,000 or less and represent $17.8 million of the total. According to data received from customers in this process, these funds will assist small businesses who provided approximately 5,000 jobs in the community to retain employees. We are very proud of the countless hours our employees spent processing these applications and helping so many small businesses.

Modifications
The primary method of relief is to allow the borrower to defer their loan payments for three to nine months, while others have been provided the opportunity to pay interest only 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. The following table provides detail on the modifications approved and processed through June 30, 2020:

 As of June 30, 2020
 Balance of loans with modifications of 1-3 months Balance of loans with modifications of greater than 3 months Total balance of loans with modifications granted Total loans
as of
June 30, 2020
 Modifications as % of total loans as of June 30, 2020
 (Dollars in thousands)  
One-to-four family residential$20,605 $7,367 $27,972 $382,213 7.3%
Multifamily 4,657  2,877  7,534  159,371 4.7 
          
Commercial real estate:         
Office 2,408  -  2,408  83,439 2.9 
Retail 16,094  7,636  23,730  121,936 19.5 
Mobile home park -  -  -  25,961 - 
Hotel/motel 996  39,027  40,023  68,165 58.7 
Nursing home 5,400  6,368  11,768  11,768 100.0 
Warehouse -  8,796  8,796  17,422 50.5 
Storage -  -  -  36,266 - 
Other non-residential 2,114  -  2,114  25,793 8.2 
Total commercial real estate 27,012  61,827  88,839  390,750 22.7 
          
Construction/land 1,100  -  1,100  96,497 1.1 
          
Business:         
Aircraft 1,364  -  1,364  15,460 8.8 
SBA -  -  -  737 - 
PPP -  -  -  51,661 - 
Other business 2,065  657  2,722  18,212 14.9 
Total business 3,429  657  4,086  86,070 4.7 
          
Consumer:         
Classic/collectible auto 1,831  -  1,831  24,767 7.4 
Other consumer 760  -  760  14,464 5.3 
Total consumer 2,591  -  2,591  39,231 6.6 
          
Total loans with COVID‑19 pandemic modifications$59,394 $72,728 $132,122 $1,154,132 11.4%

As of July 16, 2020, $16.6 million in loans included in the table above for which the deferral period had expired had resumed their scheduled payments. Extension requests were approved on eight loans with a total balance of $17.6 million which were previously modified.

Additional Loan Portfolio Details
Total balances drawn on outstanding lines of credit as of December 31, 2019, were $47.1 million and the unused portion of lines of credit totaled $38.1 million. As of March 31, 2020, total balances drawn increased slightly to $48.4 million with $30.3 million in available lines of credit remaining. At June 30, 2020, total balances drawn declined to $46.6 million and the unused portion of lines of credit totaled $35.1 million.

The Bank is monitoring its loan portfolio for delinquencies of loans that have not requested modification qualifying under the CARES Act or regulatory guidance. The following table presents the loan to value (“LTV”) ratios of select segments of our loan portfolio that we believe may be more likely to be impacted by COVID-19 pandemic considerations at June 30, 2020. 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:

 June 30, 2020
 LTV 0-60% LTV 61-75% LTV 76%+ Total Average LTV
Category: (1)(Dollars in thousands)
One-to-four family$ 236,995 $   151,660 $  37,206 $  425,861 48.13%
Church 1,392  -  -  1,392 47.81 
Classic auto 3,501  9,948  11,318  24,767 69.02 
Gas station 3,547  -  517  4,064 54.92 
Hotel / motel 58,534  9,347  -  67,881 47.61 
Marina 7,808  -  -  7,808 38.05 
Mobile home park 19,701  6,260  -  25,961 34.03 
Nursing home 12,868  -  -  12,868 20.87 
Office 53,861  26,234  2,922  83,017 48.17 
Other non-residential 6,478  4,762  -  11,240 50.69 
Retail 75,482  40,706  -  116,188 50.46 
Storage 26,438  11,254  -  37,692 53.67 
Warehouse 15,341  1,930  -  17,271 49.51 

(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 type of collateral 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 13 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 2020 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.

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


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

Assets Jun 30,
2020
  Mar 31,
2020
  Jun 30,
2019
 Three
Month Change
 One
Year Change
          
Cash on hand and in banks$   7,688  $ 6,453  $   8,119  19.1% (5.3)%
Interest-earning deposits with banks 66,250     22,063     22,579  200.3  193.4 
Investments available-for-sale, at fair value 128,874     132,159     141,581  (2.5) (9.0)
Annuity held-to-maturity 2,395     2,371     -  1.0  n/a 
Loans receivable, net of allowance of $13,836, $13,530, and $13,057, respectively 1,138,243     1,092,128     1,052,676  4.2  8.1 
Federal Home Loan Bank ("FHLB") stock, at cost 6,410     8,010     5,701  (20.0) 12.4 
Accrued interest receivable 4,981     4,302     4,650  15.8  7.1 
Deferred tax assets, net 2,007     2,227     1,379  (9.9) 45.5 
Other real estate owned ("OREO") 454     454     454  0.0  0.0 
Premises and equipment, net 22,222     22,591     21,944  (1.6) 1.3 
Bank owned life insurance ("BOLI") 32,561     32,290     31,446  0.8  3.5 
Prepaid expenses and other assets 1,513     1,898     3,492  (20.3) (56.7)
Right of use asset ("ROU") 2,972     2,446     1,609  21.5  84.7 
Goodwill 889     889     889  0.0  0.0 
Core deposit intangible 896     932     1,042  (3.9) (14.0)
Total assets$  1,418,355  $ 1,331,213  $   1,297,561  6.5% 9.3%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$  91,593  $ 53,519  $   49,219  71.1% 86.1%
Interest-bearing deposits 1,034,575     946,465     976,491  9.3  5.9 
Total deposits 1,126,168     999,984     1,025,710  12.6  9.8 
Advances from the FHLB 120,000     160,000     105,000  (25.0) 14.3 
Advance payments from borrowers for taxes and insurance 2,475     4,960     2,844  (50.1) (13.0)
Lease liability 3,070     2,538     1,633  21.0  88.0 
Accrued interest payable 218     236     461  (7.6) (52.7)
Other liabilities 12,448     10,403     8,085  19.7  54.0 
Total liabilities 1,264,379     1,178,121     1,143,733  7.3  10.5 
          
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         
10,048,961shares at June 30, 2020,
10,184,411 shares at March 31, 2020,
         
and 10,375,325 shares at June 30, 2019 100     102     104  (2.0) (3.8)
Additional paid-in capital 85,119     86,357     88,725  (1.4) (4.1)
Retained earnings 75,181     74,017     69,976  1.6  7.4 
Accumulated other comprehensive loss, net of tax (3,885)    (4,563)    (1,309) (14.9) 196.8 
Unearned Employee Stock Ownership Plan ("ESOP") shares (2,539)    (2,821)    (3,668) (10.0) (30.8)
Total stockholders' equity 153,976     153,092     153,828  0.6  0.1 
Total liabilities and stockholders' equity$  1,418,355  $   1,331,213  $   1,297,561  6.5% 9.3%


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

 Quarter Ended    
  Jun 30,
2020
 Mar 31,
2020
  Jun 30,
2019
 Three Month Change One Year Change
Interest income          
Loans, including fees$  13,183 $  13,474 $  13,606  (2.2)% (3.1)%
Investments available-for-sale   796    919    1,109  (13.4) (28.2)
Investments held-to-maturity   9    -    -  n/a  n/a 
Interest-earning deposits with banks   8    31     48  (74.2) (83.3)
Dividends on FHLB Stock   81    76    102  6.6  (20.6)
Total interest income   14,077    14,500    14,865  (2.9) (5.3)
Interest expense         
Deposits   3,666    4,366    4,330  (16.0) (15.3)
Borrowings   344    470    829  (26.8) (58.5)
Total interest expense   4,010    4,836    5,159  (17.1) (22.3)
Net interest income   10,067    9,664    9,706  4.2  3.7 
Provision (recapture of provision) for loan losses   300    300    (800) 0.0  (137.5)
Net interest income after provision (recapture of provision) for loan losses   9,767    9,364    10,506  4.3  (7.0)
          
Noninterest income         
Net gain on sale of investments   69    -    -  n/a  n/a 
BOLI income   254    254    189  0.0  34.4 
Wealth management revenue   183    165    261  10.9  (29.9)
Deposit related fees   184    176    205  4.5  (10.2)
Loan related fees   97    392    209  (75.3) (53.6)
Other   2    3    15  (33.3) (86.7)
Total noninterest income   789    990    879  (20.3) (10.2)
          
Noninterest expense         
Salaries and employee benefits   4,801    5,212    4,734  (7.9) 1.4 
Occupancy and equipment   1,031    1,071    898  (3.7) 14.8 
Professional fees   455    430    326  5.8  39.6 
Data processing   687    694    397  (1.0) 73.0 
OREO related expenses, net   5    1    1  400.0  400.0 
Regulatory assessments   127    144    136  (11.8) (6.6)
Insurance and bond premiums   103    120     88  (14.2) 17.0 
Marketing   29    64    76  (54.7) (61.8)
Other general and administrative   706    532    627  32.7  12.6 
Total noninterest expense   7,944    8,268    7,283  (3.9) 9.1 
Income before federal income tax provision   2,612    2,086    4,102  25.2  (36.3)
Federal income tax provision   469    402    798  16.7  (41.2)
Net income$  2,143 $  1,684 $  3,304  27.3% (35.1)%
          
Basic earnings per share$ 0.22 $ 0.17 $ 0.33     
Diluted earnings per share$ 0.22 $ 0.17 $ 0.33     
Weighted average number of common shares outstanding   9,808,854    9,896,234    9,952,419     
Weighted average number of diluted shares outstanding   9,819,664    9,978,060  10,046,355     


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

 Six Months Ended
June 30,
  
  2020  2019  One Year Change
Interest income      
Loans, including fees$  26,657 $  26,887  (0.9)%
Investments available-for-sale   1,715    2,268  (24.4)
Investments held-to-maturity   11    -  n/a 
Interest-earning deposits with banks   37    88  (58.0)
Dividends on FHLB Stock   157    193  (18.7)
Total interest income   28,577    29,436  (2.9)
Interest expense     
Deposits   8,032    8,152  (1.5)
Borrowings   814    1,726  (52.8)
Total interest expense   8,846    9,878  (10.4)
Net interest income   19,731    19,558  0.9 
Provision (recapture of provision) for loan losses   600    (400) (250.0)
Net interest income after provision (recapture of provision) for loan losses   19,131    19,958  (4.1)
      
Noninterest income     
Net gain (loss) on sale of investments   69    (8) (962.5)
BOLI income   509    458  11.1 
Wealth management revenue   348    457  (23.9)
Deposit related fees   359    376  (4.5)
Loan related fees   489    272  79.8 
Other    4    24  (83.3)
Total noninterest income   1,778    1,579  12.6 
      
Noninterest expense     
Salaries and employee benefits   10,013    9,734  2.9 
Occupancy and equipment   2,103    1,764  19.2 
Professional fees   885    822  7.7 
Data processing   1,381    915  50.9 
OREO related expenses, net   6    32  (81.3)
Regulatory assessments   271    273  (0.7)
Insurance and bond premiums   223    193  15.5 
Marketing   93    162  (42.6)
Other general and administrative   1,236    1,097  12.7 
Total noninterest expense   16,211    14,992  8.1 
Income before federal income tax provision   4,698    6,545  (28.2)
Federal income tax provision   871    1,296  (32.8)
Net income$  3,827 $  5,249  (27.1)%
      
Basic earnings per share$  0.39 $  0.52   
Diluted earnings per share$  0.39 $  0.52   
Weighted average number of common shares outstanding   9,852,544    10,034,895   
Weighted average number of diluted shares outstanding   9,890,239    10,132,107   


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

 June 30, 2020
 March 31, 2020
 June 30, 2019
 Amount Percent Amount Percent Amount Percent
            
 (Dollars in thousands)
Commercial real estate:
Residential:           
Micro-unit apartments$  11,177  1.0% $  11,230  1.0% $  13,943  1.3%
Other multifamily   148,194  12.8     158,238  14.3     147,517  13.8 
Total multifamily residential   159,371  13.8     169,468  15.3     161,460  15.1 
            
Non-residential:           
Office   83,439  7.3     95,911  8.7     100,620  9.5 
Retail   121,936  10.6     122,460  11.1     144,050  13.5 
Mobile home park   25,961  2.2     25,370  2.3     21,533  2.0 
Hotel / motel   68,165  5.9     52,515  4.7     27,725  2.6 
Nursing Home   11,768  1.0     11,783  1.1     16,172  1.5 
Warehouse   17,422  1.5     17,489  1.6     18,303  1.7 
Storage   36,266  3.1     34,551  3.1     36,096  3.4 
Other non-residential   25,793  2.2     25,831  2.3     19,703  1.8 
Total non-residential   390,750  33.8     385,910  34.9     384,202  36.0 
            
Construction/land:           
One-to-four family residential   45,128  3.9     43,279  3.9     45,953  4.3 
Multifamily   40,120  3.5     35,201  3.2     37,032  3.5 
Commercial   6,134  0.5     22,946  2.1     13,793  1.3 
Land development   5,115  0.4     5,975  0.5     8,356  0.8 
Total construction/land   96,497  8.3     107,401  9.7     105,134  9.9 
            
One-to-four family residential:           
Permanent owner occupied   208,484  18.1     203,045  18.4     201,989  18.9 
Permanent non-owner occupied   173,729  15.1     168,208  15.2     159,267  14.9 
Total one-to-four family residential   382,213  33.2     371,253  33.6     361,256  33.8 
            
Business           
Aircraft   15,460  1.3     13,741  1.2     14,459  1.4 
Small Business Administration ("SBA")   737  0.1     753  0.1     -  0.0 
Payroll Protection Plan ("PPP")   51,661  4.5     -  0.0     -  0.0 
Other business   18,212  1.6     20,208  1.8     21,899  2.1 
Total business   86,070  7.5     34,702  3.1     36,358  3.5 
            
Consumer           
Classic Auto   24,767  2.1     22,029  2.0     -  0.0 
Other consumer   14,464  1.3     15,196  1.4     17,891  1.7 
Total consumer   39,231  3.4     37,225  3.4     17,891  1.7 
            
Total loans   1,154,132  100.0%    1,105,959  100.0%    1,066,301  100.0%
Less:           
Deferred loan fees, net   2,053       301       568   
ALLL   13,836       13,530       13,057   
Loans receivable, net$  1,138,243    $  1,092,128    $  1,052,676   
            
Concentrations of credit: (1)           
Construction loans as % of total capital  67.3%    77.6%    80.1%  
Total non-owner occupied commercial
real estate as % of total capital
  420.7%    437.7%    441.0%  

(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)

 At or For the Quarter Ended
 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
  2020   2020   2019   2019   2019 
 (Dollars in thousands, except per share data)
Performance Ratios: (1)         
Return on assets 0.63%  0.51%  0.79%  0.75%  1.04%
Return on equity 5.59   4.30   6.64   6.41   8.70 
Dividend payout ratio  45.45   58.82   34.62   36.00   27.27 
Equity-to-assets ratio 10.86   11.50   11.65   11.85   11.86 
Tangible equity ratio (2) 10.74   11.38   11.53   11.73   11.72 
Net interest margin 3.12   3.11   3.09   3.07   3.23 
Average interest-earning assets to average interest-bearing liabilities 115.96   113.78   113.50   113.17   113.23 
Efficiency ratio 73.18   77.60   71.04   69.73   68.80 
Noninterest expense as a percent of average total assets 2.33   2.51   2.40   2.24   2.28 
Book value per common share$  15.32  $  15.03  $ 15.25  $  15.06  $ 14.83 
Tangible book value per share (2) 15.14   14.85   15.07   14.88   14.64 
          
Capital Ratios: (3)         
Tier 1 leverage ratio 10.02%  10.25%  10.27%  10.13%  10.34%
Common equity tier 1 capital ratio 13.70   13.42   13.13   13.14   13.46 
Tier 1 capital ratio 13.70   13.42   13.13   13.14   13.46 
Total capital ratio 14.95   14.67   14.38   14.39   14.71 
          
Asset Quality Ratios:         
Nonperforming loans as a percent of total loans 0.19%  0.20%  0.01%  0.01%  0.01%
Nonperforming assets as a percent of total assets 0.19   0.20   0.04   0.05   0.05 
ALLL as a percent of total loans 1.20   1.22   1.18   1.20   1.22 
Net (recoveries) charge-offs to average loans receivable, net (0.00)  (0.00)  (0.01)  (0.00)  (0.00)
          
Allowance for Loan Losses:         
ALLL, beginning of the quarter$  13,530  $  13,218  $  13,161  $ 13,057  $  13,808 
Provision (Recapture of provision)   300     300     -     100     (800)
Charge-offs   -     -     -     -     - 
Recoveries   6     12     57     4     49 
ALLL, end of the quarter$  13,836  $  13,530  $  13,218  $  13,161  $  13,057 

(1) Performance ratios are calculated on an annualized basis.
(2) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 15 for reconciliation between the GAAP and non‑GAAP financial measures.
(3) Capital ratios are for First Financial Northwest Bank only.

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

 At or For the Quarter Ended
 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
  2020   2020   2019   2019   2019 
 (Dollars in thousands)
Yields and Costs: (1)         
Yield on loans 4.72%  4.94%  5.05%  5.14%  5.19%
Yield on investments available-for-sale 2.41   2.72   2.85   3.02   3.21 
Yield on investments held-to-maturity 1.52     -     -     -     - 
Yield on interest-earning deposits 0.10   1.18   1.61   2.24   2.33 
Yield on FHLB stock 4.84   4.62   4.84   6.81   5.58 
Yield on interest-earning assets 4.37%  4.67%  4.78%  4.84%  4.94%
          
Cost of interest-bearing deposits 1.49%  1.81%  1.94%  2.00%  1.89%
Cost of borrowings 1.08   1.48   1.66   2.02   2.28 
Cost of interest-bearing liabilities 1.44%  1.77%  1.91%  2.00%  1.94%
          
Cost of total deposits 1.38%  1.72%  1.84%  1.91%  1.80%
Cost of funds 1.34   1.69   1.82   1.92   1.86 
          
Average Balances:         
Loans$  1,122,913  $1,096,091  $1,087,558  $1,073,283  $1,051,894 
Investments available-for-sale   133,038     135,765     138,331     140,031     138,634 
Investments held-to-maturity   2,378     2,061      -     -      - 
Interest-earning deposits   30,989     10,555      11,572      27,992      8,275 
FHLB stock   6,736     6,615      5,897      5,649      7,337 
Total interest-earning assets$  1,296,054  $1,251,087  $1,243,358  $1,246,955  $1,206,140 
          
Interest-bearing deposits$  989,549  $ 970,062  $   985,532  $ 998,123  $ 919,306 
Borrowings   128,154     127,707     109,895      103,707    145,895 
Total interest-bearing liabilities    1,117,703      1,097,769      1,095,427      1,101,830     1,065,201 
Noninterest-bearing deposits    82,750      53,199      50,951      47,613      48,137 
Total deposits and borrowings$  1,200,453  $1,150,968  $1,146,378  $1,149,443  $1,113,338 
          
Average assets$  1,371,269  $1,324,845  $1,317,586  $1,319,777  $1,279,880 
Average stockholders' equity   154,115      157,492     156,147     155,057     152,267 

(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 of the tangible equity ratio and tangible book value per share. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholders’ equity. Tangible assets are calculated by subtracting intangible assets from total assets. The tangible equity ratio is tangible equity divided by tangible assets. Tangible book value per share is calculated by dividing tangible equity by the number of common shares outstanding. The Company believes that these non-GAAP measures provide a more consistent presentation of its capital and facilitate peer comparison that is desired by investors.

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 table provides a reconciliation between the GAAP and non-GAAP measures:

 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019
 (Dollars in thousands, except per share data)
Total stockholders' equity (GAAP)$ 153,976  $ 153,092  $   156,319  $ 155,102  $ 153,828 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible 896   932   968   1,005   1,042 
Tangible equity (Non-GAAP)$ 152,191  $ 151,271  $   154,462  $   153,208  $  151,897 
          
Total assets (GAAP) 1,418,355   1,331,213   1,341,885    1,308,359    1,297,561 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible 896   932   968   1,005   1,042 
Tangible assets (Non-GAAP)$  1,416,570  $  1,329,392  $  1,340,028  $  1,306,465  $  1,295,630 
          
Common shares outstanding at period end 10,048,961   10,184,411   10,252,953   10,296,053   10,375,325 
          
Equity to assets ratio 10.86%  11.50%  11.65%  11.85%  11.86%
Tangible equity ratio 10.74   11.38   11.53   11.73   11.72 
Book value per share$  15.32  $  15.03  $   15.25  $   15.06  $   14.83 
Tangible book value per share 15.14   14.85   15.07   14.88   14.64 
          
Allowance for loan losses$  13,836  $  13,530  $  13,218  $  13,161   13,057 
          
Total loans (GAAP) 1,154,132   1,105,959   1,122,238   1,097,301   1,066,301 
Less:         
PPP loans 51,661   -   -   -   - 
Total loans excluding PPP loans (Non-GAAP)$  1,102,471   1,105,959   1,122,238   1,097,301   1,066,301 
          
ALLL as a percent of total loans 1.20%  1.22%  1.18%  1.20%  1.22%
ALLL as a percent of total loans excluding
PPP loans
 1.25   1.22   1.18   1.20   1.22