First Financial Northwest, Inc. Reports Net Income of $2.1 Million or $0.23 per Diluted Share for the First Quarter Ended March 31, 2023  

RENTON, Wash., April 27, 2023 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended March 31, 2023, of $2.1 million, or $0.23 per diluted share, compared to $3.2 million, or $0.35 per diluted share, for the quarter ended December 31, 2022, and $3.3 million, or $0.36 per diluted share, for the quarter ended March 31, 2022.

President and CEO Joseph W. Kiley III stated, “While there was significant turmoil in the banking industry in the quarter, I am pleased to report that our liquidity, capital and credit quality metrics remain very strong. I sincerely appreciate our loyal customers who recognize how differently our community bank operates compared to the large banks that failed during the quarter. Our liquidity continues to be a strength, with total available liquidity from cash, investment securities and our line of credit at the Federal Home Loan Bank totaling over $600 million at quarter end.”

“Credit quality remained strong, with nonperforming assets under $200,000 and additional loan delinquencies under $30,000 on total loans receivable of $1.2 billion,” noted Kiley. “During the quarter, we adopted the current expected credit loss accounting standard, which resulted in a one-time $500,000 increase to our allowance for credit losses and a corresponding net of tax adjustment of $395,000 to retained earnings. At quarter end, with an increase in loans receivable and an increase in the forecast for Washington State unemployment rates in future quarters, we also recognized a $300,000 provision for credit losses, increasing our allowance for credit losses on loans to $16.0 million compared to $15.2 million at year end,” continued Kiley.

“With the volatility in the banking industry following the failures of two large regional banks, deposit customers looked for options to insure more of their deposits across the industry. Accordingly, we saw the level of uninsured deposits improve to 23.6% of deposits as of quarter-end from 27.4% at the end of 2022. I am proud of the efforts of our employees to help customers maximize their insured deposits and communicate to them how we are different from the larger banks in the news,” concluded Kiley.

Highlights for the quarter ended March 31, 2023:

• Net loans receivable increased by $17.7 million in the quarter to $1.18 billion at March 31, 2023.
• The Company increased its regular quarterly cash dividend to shareholders by 8.3% to $0.13 per share from $0.12 per share.
• The Bank’s Tier 1 leverage and total capital ratios were 10.2% and 15.6% at March 31, 2023, compared to 10.3% and 15.6% at December 31, 2022, and 10.5% and 15.3% at March 31, 2022, respectively.
• Credit quality remained strong with nonperforming assets of $193,000, or 0.01% of total assets, and only $28,000 in additional loans over 30 days past due at March 31, 2023.
• Based on management’s evaluation of the adequacy of the Allowance for Credit Losses (“ACL”) at March 31, 2023, the Bank recorded a $300,000 provision for credit losses during the quarter. This is in addition to the $500,000 that was added to the ACL upon the adoption of the Current Expected Credit Loss (“CECL”) accounting standard.
  

Deposits totaled $1.23 billion at March 31, 2023, compared to $1.17 billion at December 31, 2022, and $1.14 billion at March 31, 2022. Total deposits increased $57.1 million for the quarter ended March 31, 2023, compared to the quarter ended December 31, 2022, primarily due to a $66.5 million increase in brokered deposits. Due in large part to certificate of deposit promotions during the quarter, money market balances declined by $58.4 million, while retail certificate of deposit balances increased by $70.4 million. During the quarter, management elected to obtain additional funding in the wholesale markets due to the considerable volatility in the banking industry. At March 31, 2023, the Company held $71.0 million in interest-earning deposits that can be used to reduce brokered deposits and/or other wholesale liabilities in future periods, compared to $16.6 million at December 31, 2022, and $19.6 million at March 31, 2022.

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 $1.18 billion at March 31, 2023, compared to $1.17 billion at December 31, 2022, and $1.12 billion at March 31, 2022. During the quarter ended March 31, 2023, multifamily loans increased $16.5 million, one-to-four family residential loans increased $8.4 million, and consumer loans increased $6.1 million, which included an increase of $4.0 million in classic, collectible and other auto loans, partially offset by a $14.1 million decline in construction and land development loans. The average balance of net loans receivable totaled $1.17 billion for the quarter ended March 31, 2023, compared to $1.15 billion for the quarter ended December 31, 2022, and $1.12 billion for the quarter ended March 31, 2022.

The ACL represented 1.34% of total loans receivable at March 31, 2023, compared to the allowance for loan and lease losses (“ALLL”) to total loans receivable of 1.29% and 1.33% at December 31, 2022, and March 31, 2022, respectively.

There were $193,000 in nonperforming loans at both March 31, 2023, and December 31, 2022, compared to $179,000 at March 31, 2022. There was no other real estate owned (“OREO”) at March 31, 2023, December 31, 2022, or March 31, 2022.

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

Net interest income totaled $11.3 million for the quarter ended March 31, 2023, compared to $12.4 million for the quarter ended December 31, 2022, and $11.4 million for the quarter ended March 31, 2022. The decrease in the current quarter compared to the quarter ended December 31, 2022, was primarily due to higher interest expense on deposits and other borrowings, primarily reflecting the continued increase in market interest rates due to the ongoing increases to the targeted federal funds rate, and continued intense competition for deposits, partially offset by higher interest income on loans, including fees, and investments. Since March 2022, the Federal Open Market Committee of the Federal Reserve System has increased the target range for the federal funds rate by 475 basis points, including 50 basis points during the first quarter of 2023, to a range of 4.75% to 5.00%.

Total interest income was $18.5 million for the quarter ended March 31, 2023, compared to $17.3 million for the quarter ended December 31, 2022, and $12.9 million for the quarter ended March 31, 2022. The increase in the current quarter compared to the prior quarters was primarily due to an improvement in the average loan yield to 5.56% from 5.19% and 4.36% for the quarters ended December 31, 2022, and March 31, 2022, respectively, due in large part to recent increases in the targeted federal funds rate that increased our returns from LIBOR and Prime based variable rate loans and variable rate investment securities.

Total interest expense was $7.2 million for the quarter ended March 31, 2023, compared to $4.9 million for the quarter ended December 31, 2022, and $1.6 million for the quarter ended March 31, 2022. The average cost of interest-bearing deposits was 2.41% for the quarter ended March 31, 2023, compared to 1.51% for the quarter ended December 31, 2022, and 0.50% for the quarter ended March 31, 2022. The increase from the quarter ended December 31, 2022, was due primarily to increased interest expense on money market and certificate of deposit balances and the continued use of higher cost brokered deposits and wholesale sources to meet our funding needs. Advances from the FHLB increased to $160.0 million at March 31, 2023, compared to $145.0 million at December 31, 2022, and $95.0 million at March 31, 2022. At March 31, 2023, $95.0 million of our FHLB advances were tied to cash flow hedge agreements where the Bank pays a fixed rate and receives a variable rate in return to assist in the Bank’s interest rate risk management efforts. These cash flow hedge agreements had a weighted average remaining term of 44 months and a weighted average fixed interest rate of 1.05% as of March 31, 2023. The average cost of borrowings was 2.69% for the quarter ended March 31, 2023, compared to 2.46% for the quarter ended December 31, 2022, and 1.28% for the quarter ended March 31, 2022.

The net interest margin was 3.22% for the quarter ended March 31, 2023, compared to 3.52% for the quarter ended December 31, 2022, and 3.43% for the quarter ended March 31, 2022. The decrease in the net interest margin for the quarter ended March 31, 2023, compared to the quarter ended December 31, 2022, was due primarily to the cost of interest-bearing liabilities increasing more than the yields on interest-earnings assets, with an 81-basis point increase in the Company’s average cost of interest-bearing liabilities to 2.44% from 1.63%, partially offset by a 39-basis point increase in the average yield on interest-earning assets to 5.29% from 4.90%.

Noninterest income for the quarter ended March 31, 2023, totaled $665,000, compared to $720,000 for the quarter ended December 31, 2022, and $789,000 for the quarter ended March 31, 2022. The decrease in noninterest income for the quarter ended March 31, 2023, compared to the quarter ended December 31, 2022, was primarily due to lower loan related fees and other noninterest income, partially offset by higher income on bank-owned life insurance. In addition, the prior quarter benefited from a net gain on sale of investments not duplicated in the current period. The decrease for the quarter ended March 31, 2023, compared to the prior year quarter, primarily reflects lower loan related fees and wealth management revenue.

Noninterest expense totaled $9.0 million for the quarter ended March 31, 2023, compared to $8.7 million for the quarter ended December 31, 2022, and $8.6 million for the quarter ended March 31, 2022. The increase in noninterest expense for the quarter ended March 31, 2023, compared to the quarter ended December 31, 2022, was primarily due to a $484,000 increase in salaries and employee benefits due to annual merit-based salary increases and expenses associated with enhancements to the Bank’s 401(k) plan for all eligible employees, whereas the prior quarter benefited from the absence of compensation expense related to the Bank’s Employee Stock Ownership Plan (“ESOP”) which matured and was fully allocated during the third quarter of 2022 and averaged approximately $458,000 in expense per quarter in the first three quarters of 2022. The increase was partially offset by a $190,000 reduction in professional fees in the quarter. The increase in noninterest expense for the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022, primarily reflects a $215,000 increase in other general and administrative expenses, including a $60,000 increase in reserve for unfunded commitments and a $54,000 increase in state and local taxes, a $200,000 increase in salaries and employee benefits and higher marketing expense, partially offset by lower occupancy and equipment expenses and professional fees.

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: potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing prices and supply chain disruptions, and any governmental or societal responses to new COVID-19 variants; the uncertain impacts of quantitative tightening and current and future monetary policies of the Federal Reserve; 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 reports filed with or furnished to 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 2023 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.

The following table presents a breakdown of the loan portfolio (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 the 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 goodwill and core deposit intangible, net 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