First Financial Northwest, Inc. Reports Net Income of $3.9 million or $0.43 per Diluted Share for the Third Quarter Ended September 30, 2022

Rhea-AI Summary

First Financial Northwest reported a net income of $3.9 million, or $0.43 per diluted share, for Q3 2022, up from $2.8 million in Q2 2022. Year-to-date net income reached $10.0 million, reflecting growth over the previous year. The net interest margin expanded to 3.65%, influenced by rising interest rates. Total deposits decreased by $30 million to $1.15 billion, while net loans rose by $23.6 million to $1.14 billion. The company repurchased 27,270 shares and declared a quarterly cash dividend of $0.12. Credit quality remained strong with low nonperforming assets.

Positive

• Net income increased to $3.9 million in Q3 2022, compared to $2.8 million in Q2 2022.
• Net interest margin improved to 3.65%, up from 3.53% in the previous quarter.
• Net loans receivable rose by $23.6 million to $1.14 billion.
• Book value per share remained stable at $17.30 since December 31, 2021.
• A recapture of provision for loan losses of $400,000 was recognized.
• The company approved a new stock repurchase plan for 5% of outstanding shares.

Negative

• Total deposits fell by $30 million to $1.15 billion, reflecting declines across multiple categories.
• Nonperforming loans increased to $232,000 from none in previous quarters.

RENTON, Wash., Oct. 27, 2022 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended September 30, 2022, of $3.9 million, or $0.43 per diluted share, compared to $2.8 million, or $0.31 per diluted share for the quarter ended June 30, 2022, and $3.2 million, or $0.34 per diluted share, for the quarter ended September 30, 2021. For the nine months ended September 30, 2022, net income was $10.0 million, or $1.10 per diluted share, compared to net income of $9.5 million, or $0.99 per diluted share, for the comparable nine-month period in 2021.

“I am pleased with continued expansion of our net interest margin to 3.65% in the quarter, compared to 3.53% in the quarter ended June 30, 2022, and 3.33% in the quarter ended September 30, 2021,” noted Joseph W. Kiley III, President and CEO. “While our cost of funds is coming under pressure like many of our peers, our efforts in recent years to increase the balance of variable rate assets and to lock in a portion of our funding costs with $95 million of pay-fixed/receive floating interest rate swaps helped to enhance our net interest margin and partially offset the adverse impact of rising interest rates on our comprehensive income from decreases in the market value of our available-for-sale investment portfolio. While many institutions have seen material, double-digit percentage declines in their book value per share in 2022, I am pleased to report that our book value per share is unchanged at September 30, 2022, from its value of $17.30 at December 31, 2021,” continued Kiley.

“As a result of our quarterly analysis of our loan portfolio, we downgraded to substandard a $6.2 million loan where we are a participant lender. This loan is secured by a senior housing/assisted living facility that was previously downgraded to special mention in the quarter ended March 31, 2022. We analyzed this loan for impairment and concluded that no losses are anticipated, resulting in a recapture of provision for loan losses previously allocated to this loan. Changes in the mix of our loan portfolio also impacted the allowance for loan and lease losses, with growth in consumer, construction and land development, and one-to-four family residential loans impacting the analysis. This loan growth partially offset the recapture from the substandard loan downgrade, resulting in a $400,000 recapture of provision for loan losses for the quarter, compared to no provision for loan losses in the quarter ended June 30, 2022,” concluded Kiley.

Highlights for the quarter ended September 30, 2022:

• Net loans receivable increased by $23.6 million to $1.14 billion at September 30, 2022, as continued strength in one-to-four family lending and an increase in construction/land lending helped outpace loan repayments in the quarter.
• The Company’s book value per share increased to $17.30 at September 30, 2022, compared to $17.26 at June 30, 2022, and $17.03 at September 30, 2021.
• The Company repurchased 27,270 shares in the quarter at an average price of $15.46 per share under its board-authorized stock repurchase plan that expired on September 16, 2022.
• The Board of Directors approved a new stock repurchase plan authorizing the repurchase of up to 5% of the Company’s outstanding common stock, or approximately 456,000 shares, which will commence on or about October 31, 2022, and expire no later than March 17, 2023.
• The Company paid a regular quarterly cash dividend of $0.12 per share to shareholders.
• The Bank’s Tier 1 leverage and total capital ratios at September 30, 2022, were 10.4% and 15.5%, respectively, compared to 10.5% and 15.5%, respectively, at June 30, 2022, and 10.2% and 15.5%, respectively at September 30, 2021.
• Credit quality remains strong as nonperforming assets remained low at $232,000, or 0.02% of total assets, and $406,000 in past due loans represented just 0.04% of total loans receivable.
• Based on management’s evaluation of the adequacy of the allowance for loan and lease losses (“ALLL”), the Bank recognized a recapture of provision for loan losses of $400,000 for the quarter.

Deposits totaled $1.15 billion at September 30, 2022, compared to $1.18 billion at June 30, 2022, and $1.14 billion at September 30, 2021. The $30.0 million decline in total deposits for the quarter ended September 30, 2022, compared to the quarter ended June 30, 2022, reflects decreases across nearly all deposit categories, particularly money market and interest-bearing demand deposits, partially offset by an increase in brokered deposits. Management continues to consider multiple alternatives to increase deposits to fund its anticipated asset growth in addition to its efforts through its branch network, including wholesale markets, brokered deposits, and the national deposit market.

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

	Sep 30, 2022			Jun 30, 2022			Sep 30, 2021			Three Month Change				One Year Change
Deposits:	(Dollars in thousands)
Noninterest-bearing demand	$	118,842		$	127,808		$	115,311		$	(8,966	)		$	3,531
Interest-bearing demand		95,767			107,478			104,761			(11,711	)			(8,994	)
Savings		24,625			23,525			23,024			1,100				1,601
Money market		572,137			596,515			596,911			(24,378	)			(24,774	)
Certificates of deposit, retail		268,528			270,866			301,729			(2,338	)			(33,201	)
Brokered deposits		69,537			53,277			–			16,260				69,537
Total deposits	$	1,149,436		$	1,179,469		$	1,141,736		$	(30,033	)		$	7,700

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

September 30, 2022
	Noninterest-bearing demand		Interest-bearing demand		Savings		Money market		Certificates of deposit, retail		Brokered deposits		Total
	(Dollars in thousands)
King County
Renton	$	36,797	$	43,129	$	16,483	$	301,912	$	209,504	$	-	$	607,825
Landing		4,345		2,586		155		20,301		4,089		-		31,476
Woodinville		3,033		3,714		1,208		19,514		9,799		-		37,268
Bothell		3,287		1,045		54		7,307		1,694		-		13,387
Crossroads		13,047		4,225		49		38,668		9,228		-		65,217
Kent		6,323		13,945		4		19,843		1,499		-		41,614
Kirkland		9,101		365		42		7,297		25		-		16,830
Issaquah		3,396		1,480		60		3,037		2,295		-		10,268
Total King County		79,329		70,489		18,055		417,879		238,133		-		823,885
Snohomish County
Mill Creek		7,153		2,727		904		23,527		5,626		-		39,937
Edmonds		16,209		6,284		901		34,719		8,935		-		67,048
Clearview		5,143		5,957		1,662		26,923		2,873		-		42,558
Lake Stevens		4,977		5,233		1,471		40,297		4,975		-		56,953
Smokey Point		3,430		4,452		1,422		23,527		7,066		-		39,897
Total Snohomish County		36,912		24,653		6,360		148,993		29,475		-		246,393
Pierce County
University Place		1,879		108		2		3,883		670		-		6,542
Gig Harbor		722		517		208		1,382		250		-		3,079
Total Pierce County		2,601		625		210		5,265		920		-		9,621
Brokered deposits		-		-		-		-		-		69,537		69,537
Total deposits	$	118,842	$	95,767	$	24,625	$	572,137	$	268,528	$	69,537	$	1,149,436

June 30, 2022
	Noninterest-bearing demand		Interest-bearing demand		Savings		Money market		Certificates of deposit, retail		Brokered deposits		Total
	(Dollars in thousands)
King County
Renton	$	37,688	$	43,985	$	15,160	$	311,528	$	225,799	$	-	$	634,160
Landing		4,925		2,504		178		21,802		2,988		-		32,397
Woodinville		3,235		7,776		1,141		19,202		5,167		-		36,521
Bothell		3,734		1,258		63		7,286		1,488		-		13,829
Crossroads		16,004		4,930		356		52,277		5,896		-		79,463
Kent		5,834		11,353		18		17,459		716		-		35,380
Kirkland		9,332		319		22		7,299		25		-		16,997
Issaquah		4,541		1,265		62		7,033		406		-		13,307
Total King County		85,293		73,390		17,000		443,886		242,485		-		862,054
Snohomish County
Mill Creek		6,290		3,445		837		21,716		6,082		-		38,370
Edmonds		19,892		13,627		1,060		39,220		8,714		-		82,513
Clearview		6,307		4,650		1,364		26,613		1,526		-		40,460
Lake Stevens		4,631		7,241		1,554		34,406		5,018		-		52,850
Smokey Point		3,252		4,501		1,581		24,917		6,735		-		40,986
Total Snohomish County		40,372		33,464		6,396		146,872		28,075		-		255,179
Pierce County
University Place		1,032		95		2		4,052		306		-		5,487
Gig Harbor		1,111		529		127		1,705		-		-		3,472
Total Pierce County		2,143		624		129		5,757		306		-		8,959
Brokered deposits		-		-		-		-		-		53,277		53,277
Total deposits	$	127,808	$	107,478	$	23,525	$	596,515	$	270,866	$	53,277	$	1,179,469

Net loans receivable totaled $1.14 billion at September 30, 2022, compared to $1.12 billion at June 30, 2022, and $1.10 billion at September 30, 2021. During the quarter ended September 30, 2022, new originations of one-to-four family residential loans, construction/land and classic, collectible and other auto loans outpaced loan repayments in the quarter. The average balance of net loans receivable totaled $1.13 billion for the quarter ended September 30, 2022, compared to $1.12 billion for the quarter ended June 30, 2022, and $1.09 billion for the quarter ended September 30, 2021.

The ALLL represented 1.27% of total loans receivable at September 30, 2022, compared to 1.33% at June 30, 2022, and 1.35% of total loans receivable at September 30, 2021.

There was $232,000 in nonperforming loans at September 30, 2022, compared to none at June 30, 2022, and September 30, 2021. There was no other real estate owned (“OREO”) at September 30, 2022, June 30, 2022, or September 30, 2021.

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

	Sep 30,				Jun 30,			Sep 30,			Three Month			One Year
	2022				2022			2021			Change			Change
	(Dollars in thousands)
Nonperforming loans:
One-to-four family residential	$	39			$                      ─			$                     ─			$	39		$	39
Consumer		193			─			─				193			193
Total nonperforming loans		232			─			─				232			232
OREO	─				─			─			─			─
Total nonperforming assets(1)	$	232			$                      ─			$                     ─			$	232		$	232
Nonperforming assets as a percent of total assets		0.02	%		0.00	%		0.00	%

⁽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 September 30, 2022.

The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. TDRs totaled $1.8 million at September 30, 2022, compared to $2.1 million at June 30, 2022, and $2.4 million at September 30, 2021. All TDRs were performing according to their modified repayment terms for the periods presented.

Net interest income totaled $12.7 million for the quarter ended September 30, 2022, compared to $11.8 million for the quarter ended June 30, 2022, and $11.4 million for the quarter ended September 30, 2021. The increase in the current quarter compared to the quarter ended June 30, 2022, was primarily due to higher interest income on loans, including fees, and investment securities, partially offset by higher interest expense on deposits and other borrowings, primarily reflecting the increase in market interest rates due to the recent increases to the targeted federal funds rate and increased competition for deposits.

Total interest income was $15.4 million for the quarter ended September 30, 2022, compared to $13.5 million for the quarter ended June 30, 2022, and $13.4 million for the quarter ended September 30, 2021. The increase in the current quarter compared to the prior quarters was primarily due to an improvement in the average loan yield to 4.77% from 4.41% and 4.54% for the quarters ended June 30, 2022, and September 30, 2021, respectively, due in large part to recent increases in short term interest rates that increased our returns from LIBOR and Prime based variable rate loans and variable rate investment securities.

Total interest expense was $2.7 million for the quarter ended September 30, 2022, compared to $1.7 million for the quarter ended June 30, 2022, and $2.0 million for the quarter ended September 30, 2021. The average cost of interest-bearing deposits was 0.87% for the quarter ended September 30, 2022, compared to 0.55% for the quarter ended June 30, 2022, and 0.63% for the quarter ended September 30, 2021. The increase from the quarter ended June 30, 2022, was due primarily to increased interest expense on money market balances and the continued use of higher cost brokered deposits and wholesale sources to meet our funding needs. As of September 30, 2022, there were approximately $130.1 million in retail certificates of deposit at a weighted average interest rate of 1.52% maturing in the next 12 months, and an additional $104.6 million maturing in the subsequent 12 to 24 months, at a weighted average interest rate of 1.59%. Advances from the FHLB increased to $150.0 million at September 30, 2022, compared to $95.0 million at June 30, 2022, and $120.0 million at September 30, 2021, as these borrowings helped to partially fund our loan growth and the decline in total deposits. Currently, $95.0 million of our FHLB advances are tied to cash flow hedge agreements where the Bank pays a fixed rate and receives a variable rate in return to assist in the Bank’s interest rate risk management efforts. These cash flow hedge agreements have a weighted average remaining term of 50 months and a weighted average fixed interest rate of 1.05%. The average cost of borrowings was 1.48% for the quarter ended September 30, 2022, compared to 1.21% for the quarter ended June 30, 2022, and 1.42% for the quarter ended September 30, 2021.

The net interest margin was 3.65% for the quarter ended September 30, 2022, compared to 3.53% for the quarter ended June 30, 2022, and 3.33% for the quarter ended September 30, 2021. The increase in the net interest margin for the quarter ended September 30, 2022, compared to the quarter ended June 30, 2022, is due primarily to a 39-basis point improvement in the Company’s average yield on interest-earning assets during the quarter to 4.43% from 4.04%, partially offset by a 32-basis point increase in the average cost of interest-bearing liabilities to 0.93% from 0.61%. The increase in net interest margin for the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021, was similarly due primarily to a 50-basis point increase in the average yield on interest-earning assets from 3.93%, partially offset by a 22-basis point increase in the average cost of interest-bearing liabilities from 0.71%.

Noninterest income for the quarter ended September 30, 2022, totaled $778,000, compared to $961,000 for the quarter ended June 30, 2022, and $999,000 for the quarter ended September 30, 2021. The decrease in noninterest income for the quarter ended September 30, 2022, compared to the quarter ended June 30, 2022, was primarily due to lower loan related fees, including a $215,000 decline in loan prepayment penalties. As compared to the quarter ended September 30, 2021, the decrease in the current quarter likewise primarily reflects reduced loan fees, in addition to a decrease in BOLI income.

Noninterest expense totaled $9.0 million for the quarter ended September 30, 2022, compared to $9.3 million for the quarter ended June 30, 2022, and $8.3 million for the quarter ended September 30, 2021. The decrease in noninterest expense for the quarter ended September 30, 2022, compared to the quarter ended June 30, 2022, was primarily due to a $182,000 decline in professional fees due in part to $151,000 in regulatory examination fees and fees paid to human resources recruiters to fill open positions in the quarter ended June 30, 2022. The increase in noninterest expense for the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021, primarily reflects a $561,000 increase in salaries and employee benefits, due primarily to 25 open positions filled last quarter.

Forward-looking statements:

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include, but are not limited to, the following: 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 oil prices and supply chain disruptions, and any governmental or societal responses to the COVID-19 pandemic, including the possibility of new COVID-19 variants; increased competitive pressures; changes in the interest rate environment; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – that are available on our website at www.ffnwb.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2022 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

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

Assets	Sep 30, 2022				Jun 30, 2022				Sep 30, 2021				Three Month Change			One Year Change
Cash on hand and in banks	$	9,684			$	9,458			$	7,243			2.4	%		33.7	%
Interest-earning deposits with banks		15,227				26,194				71,869			(41.9	)		(78.8	)
Investments available-for-sale, at fair value		221,278				210,826				178,061			5.0			24.3
Investments held-to-maturity, at amortized cost		2,438				2,432				2,425			0.2			0.5
Loans receivable, net of allowance of $14,726, $15,125, and $15,057 respectively		1,143,348				1,119,795				1,101,669			2.1			3.8
Federal Home Loan Bank ("FHLB") stock, at cost		7,712				5,512				6,465			39.9			19.3
Accrued interest receivable		6,261				5,738				5,681			9.1			10.2
Deferred tax assets, net		2,355				1,840				746			28.0			215.7
Premises and equipment, net		21,608				21,855				22,628			(1.1	)		(4.5	)
Bank owned life insurance ("BOLI"), net		36,064				35,819				34,994			0.7			3.1
Prepaid expenses and other assets		13,605				10,493				2,975			29.7			357.3
Right of use asset ("ROU"), net		3,260				3,301				3,838			(1.2	)		(15.1	)
Goodwill		889				889				889			0.0			0.0
Core deposit intangible, net		582				616				719			(5.5	)		(19.1	)
Total assets	$	1,484,311			$	1,454,768			$	1,440,202			2.0			3.1
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits	$	118,842			$	127,808			$	115,311			(7.0	)		3.1
Interest-bearing deposits		1,030,594				1,051,661				1,026,425			(2.0	)		0.4
Total deposits		1,149,436				1,179,469				1,141,736			(2.5	)		0.7
Advances from the FHLB		150,000				95,000				120,000			57.9			25.0
Advance payments from borrowers for taxes and insurance		5,033				2,670				5,075			88.5			(0.8	)
Lease liability, net		3,441				3,482				3,994			(1.2	)		(13.8	)
Accrued interest payable		185				115				206			60.9			(10.2	)
Other liabilities		18,326				17,136				7,735			6.9			136.9
Total liabilities		1,326,421				1,297,872				1,278,746			2.2			3.7
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 9,127,595 shares at September 30, 2022, 9,091,533 shares at June 30, 2022, and 9,483,081 shares at September 30, 2021		91				91				95			0.0			(4.2	)
Additional paid-in capital		72,295				71,835				78,311			0.6			(7.7	)
Retained earnings		92,928				90,066				84,402			3.2			10.1
Accumulated other comprehensive loss, net of tax		(7,424	)			(4,814	)			(223	)		54.2			3229.1
Unearned Employee Stock Ownership Plan ("ESOP") shares		-				(282	)			(1,129	)		(100.0	)		(100.0	)
Total stockholders' equity		157,890				156,896				161,456			0.6			(2.2	)
Total liabilities and stockholders' equity	$	1,484,311			$	1,454,768			$	1,440,202			2.0			3.1

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

	Quarter Ended
	Sep 30, 2022				Jun 30, 2022			Sep 30, 2021			Three Month Change			One Year Change
Interest income
Loans, including fees	$	13,618			$	12,273		$	12,508		11.0	%		8.9	%
Investment securities		1,609				1,156			818		39.2			96.7
Interest-earning deposits with banks		125				37			24		237.8			420.8
Dividends on FHLB Stock		83				71			84		16.9			(1.2	)
Total interest income		15,435				13,537			13,434		14.0			14.9
Interest expense
Deposits		2,326				1,398			1,612		66.4			44.3
Other borrowings		392				315			431		24.4			(9.0	)
Total interest expense		2,718				1,713			2,043		58.7			33.0
Net interest income		12,717				11,824			11,391		7.6			11.6
(Recapture of provision) provision for loan losses		(400	)			-			100		n/a			(500.0	)
Net interest income after (recapture of provision) provision for loan losses		13,117				11,824			11,291		10.9			16.2
Noninterest income
BOLI income		243				251			377		(3.2	)		(35.5	)
Wealth management revenue		89				104			64		(14.4	)		39.1
Deposit related fees		245				246			228		(0.4	)		7.5
Loan related fees		195				354			300		(44.9	)		(35.0	)
Other		6				6			30		0.0			(80.0	)
Total noninterest income		778				961			999		(19.0	)		(22.1	)
Noninterest expense
Salaries and employee benefits		5,417				5,478			4,856		(1.1	)		11.6
Occupancy and equipment		1,188				1,205			1,116		(1.4	)		6.5
Professional fees		549				731			502		(24.9	)		9.4
Data processing		675				692			626		(2.5	)		7.8
Regulatory assessments		105				90			121		16.7			(13.2	)
Insurance and bond premiums		112				113			106		(0.9	)		5.7
Marketing		92				96			64		(4.2	)		43.8
Other general and administrative		876				880			942		(0.5	)		(7.0	)
Total noninterest expense		9,014				9,285			8,333		(2.9	)		8.2
Income before federal income tax provision		4,881				3,500			3,957		39.5			23.4
Federal income tax provision		935				692			758		35.1			23.4
Net income	$	3,946			$	2,808		$	3,199		40.5	%		23.4	%
Basic earnings per share	$	0.44			$	0.31		$	0.34
Diluted earnings per share	$	0.43			$	0.31		$	0.34
Weighted average number of common shares outstanding		8,981,037				8,982,969			9,314,456
Weighted average number of diluted shares outstanding		9,068,541				9,085,913			9,446,702

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

	Nine Months Ended
	September 30,
		2022				2021			One Year Change
Interest income
Loans, including fees	$	37,893			$	37,772			0.3	%
Investment securities		3,595				2,420			48.6
Interest-earning deposits with banks		181				53			241.5
Dividends on FHLB Stock		228				247			(7.7	)
Total interest income		41,897				40,492			3.5
Interest expense
Deposits		4,982				5,826			(14.5	)
Other borrowings		1,006				1,263			(20.3	)
Total interest expense		5,988				7,089			(15.5	)
Net interest income		35,909				33,403			7.5
Recapture of provision for loan losses		(900	)			(300	)		200.0
Net interest income after recapture of provision for loan losses		36,809				33,703			9.2
Noninterest income
BOLI income		782				891			(12.2	)
Wealth management revenue		276				391			(29.4	)
Deposit related fees		705				654			7.8
Loan related fees		748				714			4.8
Other		17				86			(80.2	)
Total noninterest income		2,528				2,736			(7.6	)
Noninterest expense
Salaries and employee benefits		16,156				14,863			8.7
Occupancy and equipment		3,621				3,403			6.4
Professional fees		1,732				1,423			21.7
Data processing		2,044				2,003			2.0
Regulatory assessments		295				356			(17.1	)
Insurance and bond premiums		354				341			3.8
Marketing		226				116			94.8
Other general and administrative		2,497				2,146			16.4
Total noninterest expense		26,925				24,651			9.2
Income before federal income tax provision		12,412				11,788			5.3
Federal income tax provision		2,398				2,281			5.1
Net income	$	10,014			$	9,507			5.3	%
Basic earnings per share	$	1.11			$	1.01
Diluted earnings per share	$	1.10			$	0.99
Weighted average number of common shares outstanding		8,983,806				9,412,196
Weighted average number of diluted shares outstanding		9,088,206				9,514,165

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

	September 30, 2022							June 30, 2022							September 30, 2021
	Amount				Percent			Amount				Percent			Amount				Percent
	(Dollars in thousands)
Commercial real estate:
Residential:
Micro-unit apartments	$	-			0.0	%		$	-			0.0	%		$	8,220			0.7	%
Other multifamily		132,755			11.4				135,961			12.0				135,586			12.2
Total multifamily residential		132,755			11.4				135,961			12.0				143,806			12.9
Non-residential:
Office		84,768			7.3				84,905			7.5				89,622			8.0
Retail		137,417			11.9				138,892			12.2				124,439			11.1
Mobile home park		23,531			2.0				22,387			2.0				20,838			1.9
Hotel / motel		56,715			4.9				57,285			5.0				65,210			5.8
Nursing Home		12,452			1.2				12,535			1.1				12,784			1.1
Warehouse		19,934			1.7				18,943			1.7				16,999			1.5
Storage		34,069			2.9				34,261			3.0				33,163			3.0
Other non-residential		44,600			3.9				43,485			3.8				29,301			2.6
Total non-residential		413,486			35.8				412,693			36.3				392,356			35.0
Construction/land:
One-to-four family residential		41,606			3.6				34,932			3.1				36,213			3.2
Multifamily		15,500			1.3				15,500			1.4				47,549			4.3
Commercial		-			0.0				-			0.0				6,189			0.6
Land development		15,518			1.3				13,915			1.2				11,337			1.0
Total construction/land		72,624			6.2				64,347			5.7				101,288			9.1
One-to-four family residential:
Permanent owner occupied		221,212			19.1				212,364			18.7				184,990			16.6
Permanent non-owner occupied		228,223			19.7				224,390			19.8				197,686			17.7
Total one-to-four family residential		449,435			38.8				436,754			38.5				382,676			34.3
Business:
Aircraft		2,335			0.2				3,130			0.3				6,322			0.6
Small Business Administration ("SBA")		520			0.1				532			0.1				862			0.1
Paycheck Protection Plan ("PPP")		1,209			0.1				1,528			0.1				22,379			2.0
Other business		27,990			2.4				28,502			2.5				25,185			2.2
Total business		32,054			2.8				33,692			3.0				54,748			4.9
Consumer:
Classic, collectible and other auto		47,141			4.1				42,009			3.7				32,819			2.9
Other consumer		10,478			0.9				9,594			0.8				9,665			0.9
Total consumer		57,619			5.0				51,603			4.5				42,484			3.8
Total loans		1,157,973			100.0	%			1,135,050			100.0	%			1,117,358			100.0	%
Less:
Deferred loan fees, net		(101	)						130							632
ALLL		14,726							15,125							15,057
Loans receivable, net	$	1,143,348						$	1,119,795						$	1,101,669
Concentrations of credit:(1)
Construction loans as % of total capital		49.1	%						45.2	%						67.1	%
Total non-owner occupied commercial real estate as % of total capital		354.6	%						360.0	%						389.6	%

⁽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 End
	Sep 30,				Jun 30,				Mar 31,				Dec 31,				Sep 30,
		2022				2022				2022				2021				2021
	(Dollars in thousands, except per share data)
Performance Ratios:(1)
Return on assets		1.06	%			0.79	%			0.93	%			0.76	%			0.88	%
Return on equity		9.88				7.11				8.33				6.79				7.84
Dividend payout ratio		27.40				38.51				33.20				36.67				32.35
Equity-to-assets ratio		10.64				10.78				11.15				11.07				11.21
Tangible equity ratio(2)		10.55				10.69				11.05				10.97				11.11
Net interest margin		3.65				3.53				3.43				3.40				3.33
Average interest-earning assets to average interest-bearing liabilities		119.08				120.21				119.59				119.08				119.35
Efficiency ratio		66.80				72.62				70.96				68.62				67.26
Noninterest expense as a percent of average total assets		2.43				2.60				2.46				2.42				2.30
Book value per common share	$	17.30			$	17.26			$	17.32			$	17.30			$	17.03
Tangible book value per share(2)		17.14				17.09				17.15				17.13				16.86
Capital Ratios:(3)
Tier 1 leverage ratio		10.43	%			10.53	%			10.51	%			10.34	%			10.19	%
Common equity tier 1 capital ratio		14.24				14.22				14.08				14.23				14.25
Tier 1 capital ratio		14.24				14.22				14.08				14.23				14.25
Total capital ratio		15.49				15.47				15.33				15.48				15.50
Asset Quality Ratios:(4)
Nonperforming loans as a percent of total loans		0.02				0.00				0.02				0.00				0.00
Nonperforming assets as a percent of total assets		0.02				0.00				0.01				0.00				0.00
ALLL as a percent of total loans		1.27				1.33				1.33				1.40				1.35
Net (recoveries) charge-offs to average loans receivable, net		(0.00	)			0.00				(0.00	)			0.00				(0.01	)
Allowance for Loan Losses:
ALLL, beginning of the quarter	$	15,125			$	15,159			$	15,657			$	15,057			$	14,878
(Recapture of provision) provision		(400	)			-				(500	)			600				100
Charge-offs		-				(37	)			-				-				-
Recoveries		1				3				2				-				79
ALLL, end of the quarter	$	14,726			$	15,125			$	15,159			$	15,657			$	15,057

⁽¹⁾ Performance ratios are calculated on an annualized basis.
⁽²⁾ Tangible equity excludes goodwill and core deposit intangible assets. Tangible assets exclude goodwill and other intangible assets. The tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to Non-GAAP Financial Measures at the end of this press release for a reconciliation to the nearest GAAP equivalents.
⁽³⁾ Capital ratios are for First Financial Northwest Bank only.
⁽⁴⁾ Loans are reported net of undisbursed funds.

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

	At or For the Quarter Ended
	Sep 30,				Jun 30,				Mar 31,				Dec 31,				Sep 30,
		2022				2022				2022				2021				2021
	(Dollars in thousands, except per share data)
Average Yields and Costs:(1)
Yield on loans		4.77	%			4.41	%			4.36	%			4.44	%			4.54	%
Yield on investment securities		2.90				2.33				1.96				1.79				1.73
Yield on interest-earning deposits		2.02				0.67				0.15				0.13				0.14
Yield on FHLB stock		5.56				4.82				5.49				5.89				5.15
Yield on interest-earning assets		4.43	%			4.04	%			3.90	%			3.91	%			3.93	%
Cost of interest-bearing deposits		0.87	%			0.55	%			0.50	%			0.53	%			0.63	%
Cost of borrowings		1.48				1.21				1.28				1.33				1.42
Cost of interest-bearing liabilities		0.93	%			0.61	%			0.56	%			0.61	%			0.71	%
Cost of total deposits		0.78	%			0.49	%			0.44	%			0.48	%			0.56	%
Cost of funds		0.84				0.55				0.51				0.55				0.64
Average Balances:
Loans	$	1,132,233			$	1,117,079			$	1,115,428			$	1,108,836			$	1,094,124
Investment securities		220,244				198,819				171,685				178,500				187,261
Interest-earning deposits		24,565				22,010				49,857				56,800				68,618
FHLB stock		5,923				5,905				5,467				5,726				6,465
Total interest-earning assets	$	1,382,965			$	1,343,813			$	1,342,437			$	1,349,862			$	1,356,468
Interest-bearing deposits	$	1,056,079			$	1,013,080			$	1,027,507			$	1,032,090			$	1,016,540
Borrowings		105,272				104,835				95,000				101,522				120,000
Total interest-bearing liabilities		1,161,351				1,117,915				1,122,507				1,133,612				1,136,540
Noninterest-bearing deposits		125,561				131,415				122,175				119,142				121,256
Total deposits and borrowings	$	1,286,912			$	1,249,330			$	1,244,682			$	1,252,754			$	1,257,796
Average assets	$	1,470,816			$	1,431,003			$	1,424,054			$	1,430,199			$	1,436,801
Average stockholders' equity		158,515				158,349				158,756				160,183				161,892

⁽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, 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 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
		Sep 30, 2022				Jun 30, 2022				Mar 31, 2022				Dec 31, 2021				Sep 30, 2021
	(Dollars in thousands, except per share data)
Tangible equity to tangible assets and tangible book value per share:
Total stockholders' equity (GAAP)	$	157,890			$	156,896			$	157,757			$	157,879			$	161,456
Less:
Goodwill		889				889				889				889				889
Core deposit intangible, net		582				616				650				684				719
Tangible equity (Non-GAAP)	$	156,419			$	155,391			$	156,218			$	156,306			$	159,848
Total assets (GAAP)	$	1,484,311			$	1,454,768			$	1,415,054			$	1,426,329			$	1,440,202
Less:
Goodwill		889				889				889				889				889
Core deposit intangible, net		582				616				650				684				719
Tangible assets (Non-GAAP)	$	1,482,840			$	1,453,263			$	1,413,515			$	1,424,756			$	1,438,594
Common shares outstanding at period end		9,127,595				9,091,533				9,107,977				9,125,759				9,483,081
Equity-to-assets ratio (GAAP)		10.64	%			10.78	%			11.15	%			11.07	%			11.21	%
Tangible equity ratio (Non-GAAP)		10.55				10.69				11.05				10.97				11.11
Book value per common share (GAAP)	$	17.30			$	17.26			$	17.32			$	17.30			$	17.03
Tangible book value per share (Non-GAAP)		17.14				17.09				17.15				17.13				16.86

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

FAQ

What was First Financial Northwest's net income for Q3 2022?

The net income for Q3 2022 was $3.9 million, or $0.43 per diluted share.

How did the net interest margin change for First Financial Northwest?

The net interest margin increased to 3.65% in Q3 2022, compared to 3.53% in Q2 2022.

What was the status of total deposits for First Financial Northwest as of September 30, 2022?

Total deposits decreased by $30 million to $1.15 billion as of September 30, 2022.

Did First Financial Northwest repurchase any shares recently?

Yes, the company repurchased 27,270 shares at an average price of $15.46 during the quarter.

What is the current book value per share for First Financial Northwest?

The book value per share is unchanged at $17.30 as of September 30, 2022.