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

Renton, Washington, UNITED STATES


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

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

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

Highlights for the quarter ended June 30, 2021:

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

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

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

 Jun 30,
2021
 Mar 31,
2021
 Jun 30,
2020
 Three
Month
Change
 One
Year
Change
Deposits:(Dollars in thousands) 
Noninterest-bearing demand$111,240 $114,437 $91,593 $(3,197) $19,647 
Interest-bearing demand 110,338  114,098  102,707  (3,760)  7,631 
Statement savings 21,281  20,470  18,946  811   2,335 
Money market 552,964  500,619  429,987  52,345   122,977 
Certificates of deposit, retail 338,479  384,031  450,487  (45,552)  (112,008)
Certificates of deposit, brokered     32,448     (32,448)
Total deposits$1,134,302 $1,133,655 $1,126,168 $647  $8,134 

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

June 30, 2021
 Noninterest-bearing demand Interest-bearing demandStatement savings Money market Certificates of deposit, retailTotal
(Dollars in thousands)
King County      
Renton$41,247$46,092$14,611$296,292$285,563$683,805
Landing 6,324 3,827 177 22,677 5,905 38,910
Woodinville 4,546 7,115 729 18,631 5,230 36,251
Bothell 2,565 2,314 110 7,450 1,481 13,920
Crossroads 10,952 9,504 85 53,510 4,911 78,962
Kent 6,311 8,131 1 23,699 296 38,438
Kirkland 6,577 354 2 5,199 25 12,157
Issaquah (1) 480 18 3 1,299 100 1,900
Total King County 79,002 77,355 15,718 428,757 303,511 904,343
       
Snohomish County      
Mill Creek 5,275 3,343 1,288 16,616 7,954 34,476
Edmonds 12,962 9,983 688 38,773 13,439 75,845
Clearview 5,662 5,676 1,456 21,899 1,796 36,489
Lake Stevens 3,106 9,613 937 19,874 4,561 38,091
Smokey Point 3,834 3,874 1,135 24,999 7,216 41,058
Total Snohomish County 30,839 32,489 5,504 122,161 34,966 225,959
       
Pierce County      
University Place 1,007 164 28 484 2 1,685
Gig Harbor 392 330 31 1,562  2,315
Total Pierce County 1,399 494 59 2,046 2 4,000
       
Total retail deposits 111,240 110,338 21,281 552,964 338,479 1,134,302
Total deposits$111,240$110,338$21,281$552,964$338,479$1,134,302

(1) Issaquah opened March 1, 2021.

March 31, 2021
 Noninterest-bearing demand Interest-bearing demandStatement savings Money market Certificates of deposit, retailTotal
(Dollars in thousands)
King County      
Renton$41,934$48,476$14,070$255,917$318,113$678,510
Landing 8,425 2,904 133 16,165 6,912 34,539
Woodinville 4,351
 7,350 757 18,530 6,076 37,064
Bothell 3,056 1,160 55 6,286 2,646 13,203
Crossroads 10,515 13,881 72 59,995 6,023 90,486
Kent 6,752 7,508 1 22,924 346 37,531
Kirkland 8,144 157 18 4,400  12,719
Issaquah (1) 361  1 325  687
Total King County 83,538 81,436 15,107 384,542 340,116 904,739
       
Snohomish County      
Mill Creek 4,811 4,258 1,414 14,553 8,286 33,322
Edmonds 13,210 8,672 615 37,765 17,910 78,172
Clearview 4,814 5,615 1,217 20,309 3,257 35,212
Lake Stevens 3,352 9,974 922 18,005 4,726 36,979
Smokey Point 3,418 3,690 1,098 22,330 9,736 40,272
Total Snohomish County 29,605 32,209 5,266 112,962 43,915 223,957
       
Pierce County      
University Place 940 174 24 670  1,808
Gig Harbor 354 279 73 2,445  3,151
Total Pierce County 1,294 453 97 3,115  4,959
       
Total retail deposits 114,437 114,098 20,470 500,619 384,031 1,133,655
Total deposits$114,437$114,098$20,470$500,619$384,031$1,133,655

(1) Issaquah opened March 1, 2021.

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

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

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

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

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

 Jun 30, Mar 31, Jun 30, Three
Month
 One
Year
  2021   2021   2020  Change Change
 (Dollars in thousands)
Nonperforming loans:         
One-to-four family residential$  $  $87  $  $(87)
Multifamily   2,036   2,104   (2,036)  (2,104)
Total nonperforming loans   2,036   2,191   (2,036)  (2,191)
          
Other real estate owned (“OREO”) 454   454   454      
          
Total nonperforming assets (1)$454  $2,490  $2,645  $(2,036) $(2,191)
          
Nonperforming assets as a percent         
of total assets 0.03%  0.17%  0.19%    

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

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

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

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

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

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

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

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

COVID-19 Related Information

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

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

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

 As of June 30, 2021
 Balance of loans with modifications of 4-6 months Balance of loans with modifications of greater than 6 months Total balance of loans with modifications granted Total loans
 Modifications as % of total loans in each category
 (Dollars in thousands)  
One-to-four family residential$- $1,063 $1,063 $370,935 0.3%
Multifamily -  -  -  142,881 - 
          
Commercial real estate:         
Office -  7,153  7,153  83,120 8.6 
Retail -  3,972  3,972  103,175 3.8 
Mobile home park -  -  -  26,894 - 
Hotel/motel -  16,613  16,613  65,446 25.4 
Nursing home -  6,368  6,368  12,818 49.7 
Warehouse -  -  -  17,217 - 
Storage -  -  -  33,332 - 
Other non-residential -  -  -  28,704 - 
Total commercial real estate -  34,106  34,106  370,706 9.2 
          
Construction/land -  -  -  104,922 - 
          
Business:         
Aircraft -  -  -  9,315 - 
SBA -  -  -  884 - 
PPP -  -  -  30,823 - 
Other business -  -  -  26,409 - 
Total business -  -  -  67,431 - 
          
Consumer:         
Classic/collectible auto -  -  -  30,593 - 
Other consumer -  -  -  10,752 - 
Total consumer -  -  -  41,345 - 
          
Total loans with COVID-19 pandemic modifications$- $35,169 $35,169 $1,098,220 3.2%

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

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

 As of June 30, 2021
 LTV 0-60% LTV 61-75% LTV 76%+ Total Average LTV
Category: (1)(Dollars in thousands)
One-to-four family$241,997 $144,389 $20,672 $407,058 46.89%
Church 1,351  -  -  1,351 45.61 
Classic/collectible auto 5,781  12,454  12,358  30,593 77.24 
Gas station 3,463  -  499  3,962 50.31 
Hotel/motel 54,160  11,286  -  65,446 59.70 
Marina 7,754  -  -  7,754 37.72 
Mobile home park 18,854  7,665  375  26,894 45.64 
Nursing home 12,818  -  -  12,818 24.58 
Office 44,651  38,190  4,245  87,086 40.19 
Other non-residential 13,396  2,241  -  15,637 44.90 
Retail 72,122  31,053  -  103,175 48.23 
Storage 24,342  11,079  -  35,421 43.74 
Warehouse 15,084  2,133  -  17,217 47.91 

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

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

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

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


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)

Assets Jun 30,
2021
  Mar 31,
2021
  Jun 30,
2020
 Three
Month
Change
 One
Year
Change
Cash on hand and in banks$7,518  $7,211  $7,688  4.3% (2.2)%
Interest-earning deposits with banks 72,045   75,023   66,250  (4.0) 8.7 
Investments available-for-sale, at fair value 187,873   168,042   128,874  11.8  45.8 
Annuity held-to-maturity, at amortized cost 2,419   2,413   2,395  0.2  1.0 
Loans receivable, net of allowance of $14,878, $15,502, and $13,836 respectively 1,081,640   1,098,832   1,138,243  (1.6) (5.0)
Federal Home Loan Bank ("FHLB") stock, at cost 6,465   6,465   6,410  0.0  0.9 
Accrued interest receivable 5,498   5,702   4,981  (3.6) 10.4 
Deferred tax assets, net 688   1,163   2,007  (40.8) (65.7)
Other real estate owned ("OREO") 454   454   454  0.0  0.0 
Premises and equipment, net 22,567   22,512   22,222  0.2  1.6 
Bank owned life insurance ("BOLI"), net 35,536   33,357   32,561  6.5  9.1 
Prepaid expenses and other assets 2,332   3,398   1,513  (31.4) 54.1 
Right of use asset ("ROU"), net 4,025   3,976   2,972  1.2  35.4 
Goodwill 889   889   889  0.0  0.0 
Core deposit intangible, net 754   789   896  (4.4) (15.8)
Total assets$1,430,703  $1,430,226  $1,418,355  0.0% 0.9%
          
Liabilities and Stockholders' Equity         
          
Deposits         
Noninterest-bearing deposits$111,240  $114,437  $91,593  (2.8)% 21.5%
Interest-bearing deposits 1,023,062   1,019,218   1,034,575  0.4  (1.1)
Total deposits 1,134,302   1,133,655   1,126,168  0.1  0.7 
Advances from the FHLB 120,000   120,000   120,000  0.0  0.0 
Advance payments from borrowers for taxes and insurance 2,616   4,813   2,475  (45.6) 5.7 
Lease liability, net 4,176   4,123   3,070  1.3  36.0 
Accrued interest payable 193   197   218  (2.0) (11.5)
Other liabilities 7,795   8,995   12,448  (13.3) (37.4)
Total liabilities 1,269,082   1,271,783   1,264,379  (0.2) 0.4 
          
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 9,651,180 shares at June 30, 2021, 9,692,610 shares at March 31, 2021, and 10,048,961 shares at June 30, 2020 97   97   100  0.0  (3.0)
Additional paid-in capital 80,770   81,099   85,119  (0.4) (5.1)
Retained earnings 82,224   79,455   75,181  3.5  9.4 
Accumulated other comprehensive loss, net of tax (59)  (515)  (3,885) (88.5) (98.5)
Unearned Employee Stock Ownership Plan ("ESOP") shares (1,411)  (1,693)  (2,539) (16.7) (44.4)
Total stockholders' equity 161,621   158,443   153,976  2.0  5.0 
Total liabilities and stockholders' equity$1,430,703  $1,430,226  $1,418,355  0.0% 0.9%


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)

 Quarter Ended    
  Jun 30,
2021
 Mar 31,
2021
  Jun 30,
2020
  Three
Month
Change
  One
Year
Change
Interest income         
Loans, including fees$12,641  $12,624 $13,183 0.1% (4.1)%
Investments available-for-sale 850   735  796 15.6  6.8 
Investments held-to-maturity 4   13  9 (69.2) (55.6)
Interest-earning deposits with banks 17   12  8 41.7  112.5 
Dividends on FHLB Stock 83   79  81 5.1  2.5 
Total interest income 13,595   13,463  14,077 1.0  (3.4)
Interest expense         
Deposits 1,915   2,299  3,666 (16.7) (47.8)
Other borrowings 413   418  344 (1.2) 20.1 
Total interest expense 2,328   2,717  4,010 (14.3) (41.9)
Net interest income 11,267   10,746  10,067 4.8  11.9 
(Recapture of provision) provision for loan losses (700)  300  300 (333.3) (333.3)
Net interest income after (recapture of provision) provision for loan losses 11,967   10,446  9,767 14.6  22.5 
          
Noninterest income         
Net gain on sale of investments -   -  69 n/a  (100.0)
BOLI income 246   269  254 (8.6) (3.1)
Wealth management revenue 167   160  183 4.4  (8.7)
Deposit related fees 227   200  184 13.5  23.4 
Loan related fees 281   132  97 112.9  189.7 
Other 51   3  2 1600.0  2450.0 
Total noninterest income 972   764  789 27.2  23.2 
          
Noninterest expense         
Salaries and employee benefits 5,062   4,945  4,801 2.4  5.4 
Occupancy and equipment 1,187   1,100  1,031 7.9  15.1 
Professional fees 389   532  455 (26.9) (14.5)
Data processing 680   697  687 (2.4) (1.0)
OREO related expenses, net -   1  5 (100.0) (100.0)
Regulatory assessments 113   121  127 (6.6) (11.0)
Insurance and bond premiums 111   124  103 (10.5) 7.8 
Marketing 23   29  29 (20.7) (20.7)
Other general and administrative 625   580  706 7.8  (11.5)
Total noninterest expense 8,190   8,129  7,944 0.8  3.1 
Income before federal income tax provision 4,749   3,081  2,612 54.1  81.8 
Federal income tax provision 939   584  469 60.8  100.2 
Net income$3,810  $2,497 $2,143 52.6% 77.8%
          
Basic earnings per share$0.40  $0.26 $0.22    
Diluted earnings per share$0.40  $0.26 $0.22    
Weighted average number of common shares outstanding 9,434,004   9,490,058  9,808,854    
Weighted average number of diluted shares outstanding 9,528,623   9,566,671  9,819,664    



FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements
(Dollars in thousands, except share data)
(Unaudited)

 Six Months Ended
June 30,
  
  2021   2020 One Year
Change
Interest income     
Loans, including fees$25,265  $26,657 (5.2)%
Investments available-for-sale 1,586   1,715 (7.5)
Investments held-to-maturity 16   11 45.5 
Interest-earning deposits with banks 29   37 (21.6)
Dividends on FHLB Stock 162   157 3.2 
Total interest income 27,058   28,577 (5.3)
Interest expense     
Deposits 4,213   8,032 (47.5)
Other borrowings 832   814 2.2 
Total interest expense 5,045   8,846 (43.0)
Net interest income 22,013   19,731 11.6 
(Recapture of provision) provision for loan losses (400)  600 (166.7)
Net interest income after (recapture of provision) provision for loan losses 22,413   19,131 17.2 
      
Noninterest income     
Net gain on sale of investments -   69 (100.0)
BOLI income 515   509 1.2 
Wealth management revenue 327   348 (6.0)
Deposit related fees 426   359 18.7 
Loan related fees 413   489 (15.5)
Other 55   4 1275.0 
Total noninterest income 1,736   1,778 (2.4)
      
Noninterest expense     
Salaries and employee benefits 10,007   10,013 (0.1)
Occupancy and equipment 2,286   2,103 8.7 
Professional fees 921   885 4.1 
Data processing 1,377   1,381 (0.3)
OREO related expenses, net 1   6 (83.3)
Regulatory assessments 235   271 (13.3)
Insurance and bond premiums 235   223 5.4 
Marketing 53   93 (43.0)
Other general and administrative 1,204   1,236 (2.6)
Total noninterest expense 16,319   16,211 0.7 
Income before federal income tax provision 7,830   4,698 66.7 
Federal income tax provision 1,523   871 74.9 
Net income$6,307  $3,827 64.8%
      
Basic earnings per share$0.66  $0.39  
Diluted earnings per share$0.66  $0.39  
Weighted average number of common shares outstanding 9,461,876   9,852,544  
Weighted average number of diluted shares outstanding 9,546,784   9,890,239  

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

 June 30, 2021March 31, 2021June 30, 2020
 Amount Percent Amount Percent Amount Percent
 (Dollars in thousands)
Commercial real estate:           
Residential:           
Micro-unit apartments$11,652  1.1% $11,708  1.0% $11,177  1.0%
Other multifamily 131,229  11.9   128,360  11.5   148,194  12.8 
Total multifamily residential 142,881  13.0   140,068  12.5   159,371  13.8 
            
Non-residential:           
Office 83,120  7.6   83,176  7.5   83,439  7.3 
Retail 103,175  9.4   110,843  9.9   121,936  10.6 
Mobile home park 26,894  2.4   29,708  2.7   25,961  2.2 
Hotel / motel 65,446  6.0   65,475  5.9   68,165  5.9 
Nursing Home 12,818  1.2   12,852  1.1   11,768  1.0 
Warehouse 17,217  1.6   17,435  1.6   17,422  1.5 
Storage 33,332  3.0   33,498  3.0   36,266  3.1 
Other non-residential 28,704  2.5   32,483  2.8   25,793  2.2 
Total non-residential 370,706  33.7   385,470  34.5   390,750  33.8 
            
Construction/land:           
One-to-four family residential 36,123  3.3   27,817  2.5   45,128  3.9 
Multifamily 56,090  5.1   58,718  5.3   40,120  3.5 
Commercial 6,056  0.6   5,837  0.5   6,134  0.5 
Land development 6,653  0.6   2,173  0.2   5,115  0.4 
Total construction/land 104,922  9.6   94,545  8.5   96,497  8.3 
            
One-to-four family residential:           
Permanent owner occupied 191,906  17.5   199,845  17.9   208,484  18.1 
Permanent non-owner occupied 179,029  16.3   179,401  16.1   173,729  15.1 
Total one-to-four family residential 370,935  33.8   379,246  34.0   382,213  33.2 
            
Business           
Aircraft 9,315  0.8   9,512  0.8   15,460  1.3 
Small Business Administration ("SBA") 884  0.1   906  0.1   737  0.1 
Paycheck Protection Plan ("PPP") 30,823  2.8   45,220  4.1   51,661  4.5 
Other business 26,409  2.4   22,656  2.0   18,212  1.6 
Total business 67,431  6.1   78,294  7.0   86,070  7.5 
            
Consumer           
Classic auto 30,593  2.8   26,488  2.4   24,767  2.1 
Other consumer 10,752  1.0   12,280  1.1   14,464  1.3 
Total consumer 41,345  3.8   38,768  3.5   39,231  3.4 
            
Total loans 1,098,220  100.0%  1,116,391  100.0%  1,154,132  100.0%
Less:           
Deferred loan fees, net 1,702     2,057     2,053   
ALLL 14,878     15,502     13,836   
Loans receivable, net$1,081,640    $1,098,832    $1,138,243   
            
Concentrations of credit: (1)           
Construction loans as % of total capital 69.3%    64.0%    67.3%  
Total non-owner occupied commercial real estate as % of total capital 384.4%    391.8%    420.7%  

(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,
 2021
 2021
 2020
 2020
 2020
 (Dollars in thousands, except per share data)
Performance Ratios: (1)         
Return on assets 1.07%  0.73%  0.77%  0.60%  0.63%
Return on equity 9.54   6.42   6.76   5.34   5.59 
Dividend payout ratio 27.50   42.31   35.71   45.45   45.45 
Equity-to-total assets 11.30   11.08   11.26   11.34   10.86 
Tangible equity-to-tangible assets (2) 11.19   10.97   11.15   11.22   10.74 
Net interest margin 3.36   3.31   3.29   3.07   3.12 
Average interest-earning assets to average interest-bearing liabilities 117.99   117.92   116.42   116.08   115.96 
Efficiency ratio 66.92   70.63   68.55   70.88   73.18 
Noninterest expense as a percent of average total assets 2.31   2.36   2.46   2.26   2.33 
Book value per common share$16.75  $16.35  $16.05  $15.62  $15.32 
Tangible book value per share (2) 16.58   16.17   15.88   15.44   15.14 
          
Capital Ratios: (3)         
Tier 1 leverage ratio 10.15%  10.15%  10.29%  10.03%  10.02%
Common equity tier 1 capital ratio 14.45   14.36   14.32   14.01   13.70 
Tier 1 capital ratio 14.45   14.36   14.32   14.01   13.70 
Total capital ratio 15.70   15.62   15.57   15.26   14.95 
          
Asset Quality Ratios:         
Nonperforming loans as a percent of total loans 0.00   0.18   0.19   0.18   0.19 
Nonperforming assets as a percent of total assets 0.03   0.17   0.18   0.19   0.19 
ALLL as a percent of total loans 1.35   1.39   1.36   1.27   1.20 
Net (recoveries) charge-offs to average loans receivable, net (0.01)  (0.00)  (0.00)  (0.00)  (0.00)
          
Allowance for Loan Losses:         
ALLL, beginning of the quarter$15,502  $15,174  $14,568  $13,836  $13,530 
Provision (700)  300   600   700   300 
Charge-offs -   -   (2)  -   - 
Recoveries 76   28   8   32   6 
ALLL, end of the quarter$14,878  $15,502  $15,174  $14,568  $13,836 

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


FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Key Financial Measures (continued)
(Unaudited)

 At or For the Quarter Ended
 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
  2021   2021   2020   2020   2020 
 (Dollars in thousands, except per share data)
Yields and Costs: (1)         
Yield on loans 4.64%  4.66%  4.61%  4.49%  4.72%
Yield on investments available-for-sale 1.92   1.91   2.21   2.32   2.41 
Yield on investments held-to-maturity 0.66   2.18   0.99   0.99   1.52 
Yield on interest-earning deposits 0.11   0.09   0.11   0.10   0.10 
Yield on FHLB stock 5.13   5.00   4.99   4.95   4.84 
Yield on interest-earning assets 4.06%  4.15%  4.26%  4.16%  4.37%
          
Cost of interest-bearing deposits 0.75%  0.94%  1.12%  1.27%  1.49%
Cost of borrowings 1.37   1.41   1.40   1.28   1.08 
Cost of interest-bearing liabilities 0.82%  0.99%  1.15%  1.27%  1.44%
          
Cost of total deposits 0.68%  0.85%  1.03%  1.18%  1.38%
Cost of funds 0.75   0.91   1.07   1.19   1.34 
          
Average Balances:         
Loans$1,092,710  $1,099,364  $1,126,554  $1,137,742  $1,122,913 
Investments available-for-sale 177,713   155,795   127,456   128,885   133,038 
Investments held-to-maturity 2,415   2,413   2,410   2,399   2,378 
Interest-earning deposits 64,035   52,336   26,092   32,701   30,989 
FHLB stock 6,485   6,412   6,459   6,592   6,736 
Total interest-earning assets$1,343,358  $1,316,320  $1,288,971  $1,308,319  $1,296,054 
          
Interest-bearing deposits$1,018,083  $996,295  $985,945  $1,002,518  $989,549 
Borrowings 120,494   120,000   121,218   124,543   128,154 
Total interest-bearing liabilities 1,138,577   1,116,295   1,107,163      1,127,061      1,117,703 
Noninterest-bearing deposits 110,207   99,013   83,719      81,694      82,750 
Total deposits and borrowings$1,248,784  $1,215,308  $1,190,882  $1,208,755  $1,200,453 
          
Average assets$1,424,126  $1,394,213  $1,366,061  $1,383,736  $1,371,269 
Average stockholders' equity 160,189   157,856   155,765   154,988   154,115 

(1) Yields and costs are annualized.

Non-GAAP Financial Measures

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

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

  Quarter Ended 
  Jun 30, 2021   Mar 31, 2021   Dec 31, 2020   Sep 30, 2020   Jun 30, 2020 
  (Dollars in thousands, except per share data)
 
Tangible equity to tangible assets and tangible book value per share:                   
Total stockholders' equity (GAAP)$161,621  $158,443  $156,302  $154,778  $   153,976 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible, net 754   789   824   860   896 
Tangible equity (Non-GAAP)$159,978  $156,765  $154,589  $153,029  $   152,191 
          
Total assets (GAAP)$1,430,703  $1,430,226  $1,387,669  $1,365,469  $1,418,355 
Less:         
Goodwill 889   889   889   889   889 
Core deposit intangible, net 754   789   824   860   896 
Tangible assets (Non-GAAP)$1,429,060  $1,428,548  $1,385,956  $1,363,720  $   1,416,570 
          
Common shares outstanding at period end 9,651,180   9,692,610   9,736,875   9,911,607   10,048,961 
          
Equity-to-total assets (GAAP) 11.30%  11.08%  11.26%  11.34%  10.86%
Tangible equity-to-tangible assets (Non-GAAP) 11.19   10.97   11.15   11.22   10.74 
Book value per share (GAAP)$16.75  $16.35  $16.05  $15.62  $15.32 
Tangible book value per share (Non-GAAP) 16.58   16.17   15.88   15.44   15.14 

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

Allowance for loan losses$14,878  $15,502  $15,174  $14,568  $13,836 
          
Total loans (GAAP)$1,098,220  $1,116,391  $1,117,410  $1,150,481  $1,154,132 
Less:         
PPP loans 30,823   45,220   41,251   52,045   51,661 
Total loans excluding PPP loans (Non-GAAP)$1,067,397  $1,071,171  $1,076,159  $1,098,436  $1,102,471 
          
ALLL as a percent of total loans (GAAP) 1.35%  1.39%  1.36%  1.27%  1.20%
ALLL as a percent of total loans excluding PPP loans (Non-GAAP) 1.39   1.45   1.41   1.33   1.25 

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