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

Rhea-AI Summary

First Financial Northwest reported a net income of $3.8 million for Q2 2021, equating to $0.40 per diluted share, showing growth from $2.5 million in Q1 2021 and $2.1 million in Q2 2020. For the first half of 2021, net income reached $6.3 million, up from $3.8 million in the same period last year. The company noted no nonperforming loans and a reduction in the average cost of deposits to 0.68%. Additionally, the book value per share increased to $16.75. Share repurchases totaled 132,449 shares at an average price of $13.42, with a regular dividend of $0.11 per share.

Positive

• Net income increased to $3.8 million for Q2 2021, up from $2.5 million in Q1 2021.
• No nonperforming loans reported, enhancing credit quality.
• Average cost of deposits decreased to 0.68%, improving margins.
• Book value per share rose to $16.75 from $16.35 in the previous quarter.
• Share repurchases totaled 132,449 shares at an average price of $13.42.

Negative

• Net loans receivable declined to $1.08 billion from $1.10 billion in the prior quarter.
• Loan repayments and PPP loan forgiveness totaled $16.4 million, contributing to reduced loan balances.
• Substandard loans increased by $10.5 million despite no anticipated losses.

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 demand		Statement savings		Money market		Certificates of deposit, retail		Total
(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 demand		Statement savings		Money market		Certificates of deposit, retail		Total
(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, 2021							March 31, 2021							June 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

 

FAQ

What was First Financial Northwest's net income for Q2 2021?

First Financial Northwest reported a net income of $3.8 million for Q2 2021.

How much did First Financial Northwest's book value per share increase?

The book value per share increased to $16.75 from $16.35 in the previous quarter.

What is the average cost of deposits reported by First Financial Northwest?

The average cost of deposits decreased to 0.68% for the period.

Did First Financial Northwest report any nonperforming loans?

No nonperforming loans were reported, indicating strong credit quality.

How many shares did First Financial Northwest repurchase in Q2 2021?

The company repurchased 132,449 shares at an average price of $13.42 during Q2 2021.