First Financial Northwest, Inc. Reports Third Quarter Net Income of $2.1 Million or $0.21 per Diluted Share

Rhea-AI Summary

First Financial Northwest reported Q3 2020 net income of $2.1 million, down from $2.5 million a year prior. For the first nine months, net income was $5.9 million, compared to $7.8 million in 2019. The company expanded its deposit base, lowering the cost of funds to 1.19%. Total loans under payment deferral decreased to $65.5 million, while the provision for loan losses rose to $700,000 due to downgrades in commercial real estate loans. The bank opened a new office in Gig Harbor and plans another in Issaquah.

Positive

• Net income of $2.1 million for Q3 2020; $5.9 million for the first nine months.
• Cost of funds declined to 1.19% from 1.34% in the previous quarter.
• Total loans under payment deferral decreased from $132.1 million to $65.5 million.
• Book value per share increased to $15.62 from $15.32 in the previous quarter.
• Expansion with a new office in Gig Harbor and another planned in Issaquah.

Negative

• Q3 net income decreased compared to $2.5 million in Q3 2019.
• Provision for loan losses rose to $700,000, highlighting potential risks.
• Total deposits decreased by $56.5 million to $1.07 billion compared to the previous quarter.

RENTON, Wash., Oct. 27, 2020 (GLOBE NEWSWIRE) -- First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income for the quarter ended September 30, 2020, of $2.1 million, or $0.21 per diluted share, compared to net income of $2.1 million, or $0.22 per diluted share, for the quarter ended June 30, 2020, and $2.5 million, or $0.25 per diluted share, for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, net income was $5.9 million, or $0.60 per diluted share, compared to net income of $7.8 million, or $0.77 per diluted share, for the comparable nine-month period in 2019.

“While 2020 has presented plenty of challenges to the banking industry, I am pleased with our response and many aspects of our Bank’s business,” said Joseph W. Kiley III, President and Chief Executive Officer. “First, I welcome all the new customers we are fortunate to have banking with us after, adhering to our mission, they experienced our relationship focused community bank service via the Paycheck Protection Program. Thanks to those new and existing customers, our employees, and our expanded office network we continued broadening our deposit base, which contributed to the decline in our cost of funds to 1.19% during the quarter, compared to 1.34% in the previous quarter and 1.82% for the fourth quarter of 2019. If interest rates remain low, we expect this trend to continue as we have approximately $260 million in certificates of deposit maturing in the next 12 months at a weighted average rate of 1.88%,” continued Kiley.

“I am also very pleased with the efforts of our credit team that continues working very closely with borrowers to help them navigate through their individual challenges. By providing borrowers with loan payment deferrals where appropriate, we are able to assist customers with their cash flow needs. I am happy to report that as of September 30, 2020, total loan balances under a payment deferral program declined to $65.5 million or 5.7% of total loans outstanding, compared to $132.1 million or 11.4% of total loans outstanding at June 30, 2020. In addition, working closely with our borrowers helps us identify borrowers that may need additional support or require closer monitoring. In the third quarter, we identified approximately $26.8 million in commercial real estate loans that required a reduction in loan grade classification. These loan grade reductions were the primary reason for the increase in our provision for loan losses to $700,000 in the quarter ended September 30, 2020, compared to $300,000 in each of the two preceding quarters,” added Kiley.

“Finally, it is my pleasure to report that our 14th office opened October 5th in Gig Harbor, Washington, and a 15th office is scheduled to open in Issaquah, Washington, early next year. As noted previously, we expect to slow the pace of expansion following the opening of these two offices,” concluded Kiley.

Highlights for the quarter ended September 30, 2020:

• Net loans receivable declined slightly to $1.13 billion at September 30, 2020, compared to $1.14 billion at June 30, 2020, but were up from $1.08 billion at September 30, 2019.
• The Bank reduced its brokered certificates of deposits by $22.4 million ending the quarter with a balance of $10.0 million.
• The Company’s book value per share was $15.62 at September 30, 2020, compared to $15.32 at June 30, 2020, and $15.06 at September 30, 2019.
• The Company repurchased 155,049 shares during the quarter at an average price of $9.54 per share under a plan that went into effect on July 30, 2020, authorizing the Company to repurchase up to 5% of its outstanding shares of common stock over a period of up to six months.
• The Company paid a regular quarterly cash dividend of $0.10 per share to shareholders.
• The Bank’s Tier 1 leverage and total capital ratios at September 30, 2020, were 10.0% and 15.3%, respectively, compared to 10.0% and 15.0% at June 30, 2020, and 10.1% and 14.4% at September 30, 2019.
• Based on management’s evaluation of the adequacy of the Allowance for Loan and Lease Losses (“ALLL”) and taking into account the estimated future impact of the COVID-19 pandemic, the Bank recorded a $700,000 provision for loan losses during the quarter.
  

Total deposits decreased $56.5 million to $1.07 billion at September 30, 2020, from $1.13 billion at June 30, 2020, primarily as a result of Paycheck Protection Program (“PPP”) loan-related deposits withdrawn during the quarter, and increased $52.9 million from $1.02 billion at September 30, 2019. Demand deposits decreased $1.1 million and retail certificates of deposit decreased $31.8 million during the quarter. The Bank further reduced its brokered deposits by $22.4 million in the quarter for a total reduction of $128.6 million over the past 12 months, while growing total deposits by $52.9 million during that period, reflecting, in part, deposits from its expanded office network.

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

	Sep 30, 2020			Jun 30, 2020			Sep 30, 2019			Three Month Change				One Year Change
Deposits:	(Dollars in thousands)
Noninterest-bearing demand	$	82,376		$	91,593		$	49,398		$	(9,217	)		$	32,978
Interest-bearing demand		110,856			102,707			53,197			8,149				57,659
Statement savings		19,292			18,946			21,647			346				(2,355	)
Money market		428,512			429,987			332,722			(1,475	)			95,790
Certificates of deposit, retail (1)		418,646			450,487			421,274			(31,841	)			(2,628	)
Certificates of deposit, brokered		10,000			32,448			138,590			(22,448	)			(128,590	)
Total deposits	$	1,069,682		$	1,126,168		$	1,016,828		$	(56,486	)		$	52,854

⁽¹⁾ Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $14,000 at September 30, 2020, $17,000 at June 30, 2020, and $34,000 at September 30, 2019.

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

September 30, 2020
	Noninterest-bearing demand		Interest-bearing demand		Statement savings		Money market		Certificates of deposit, retail		Certificates of deposit, brokered		Total
	(Dollars in thousands)
King County
Renton	$	35,066	$	47,957	$	14,677	$	235,680	$	335,675	$	-	$	669,055
Landing		3,209		3,193		37		16,398		8,251		-		31,088
Woodinville (1)		3,086		6,608		703		12,589		8,514		-		31,500
Bothell		2,270		2,104		54		4,675		3,290		-		12,393
Crossroads		6,755		8,085		48		50,304		11,076		-		76,268
Kent (2)		5,452		8,277		-		13,802		1,070		-		28,601
Kirkland (2)		4,534		56		1		2,627		-		-		7,218
Total King County		60,372		76,280		15,520		336,075		367,876		-		856,123
Snohomish County
Mill Creek		3,713		3,236		856		14,695		10,675		-		33,175
Edmonds		5,853		13,865		485		28,229		19,300		-		67,732
Clearview (1)		6,102		6,478		853		18,014		4,881		-		36,328
Lake Stevens (1)		3,264		7,346		703		13,520		4,356		-		29,189
Smokey Point (1)		2,733		3,137		875		16,173		11,558		-		34,476
Total Snohomish County		21,665		34,062		3,772		90,631		50,770		-		200,900
Pierce County
University Place (2)		339		514		-		1,806		-		-		2,659
Total Pierce County		339		514		-		1,806		-		-		2,659
Total retail deposits		82,376		110,856		19,292		428,512		418,646		-		1,059,682
Brokered deposits		-		-				-		-		10,000		10,000
Total deposits	$	82,376	$	110,856	$	19,292	$	428,512	$	418,646	$	10,000	$	1,069,682

⁽¹⁾ Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $14,000.
⁽²⁾ Kent office opened January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.

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

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

Net loans receivable totaled $1.13 billion at September 30, 2020, compared to $1.14 billion at June 30, 2020, and $1.08 billion at September 30, 2019. New commercial loan activity remains muted as borrowers appear to be focused on their existing loans in lieu of seeking out new opportunities. The average balance of net loans receivable totaled $1.14 billion for the quarter ended September 30, 2020, compared to $1.12 billion for the quarter ended June 30, 2020, and $1.07 billion for the quarter ended September 30, 2019.

The Company recorded a $700,000 provision for loan losses in the quarter ended September 30, 2020, compared to a $300,000 provision for loan losses in the quarter ended June 30, 2020, and a $100,000 provision for loan losses in the quarter ended September 30, 2019. The provision in the quarter ended September 30, 2020, was primarily attributed to reductions in loan grades during the quarter, including $26.8 million in Commercial Real Estate Loans that were downgraded, while the provision in the quarter ended June 30, 2020, was primarily attributed to adjustments to economic factors due to COVID-19 in our Commercial Real Estate and Construction/Land portfolios. The provision in the quarter ended September 30, 2019, was due primarily to growth in loans receivable. In the quarter ended September 30, 2020, any relationship that requested a second loan payment deferral, and demonstrated other weaknesses, received additional scrutiny which resulted in many of these loans being downgraded.

The ALLL represented 1.27% of total loans receivable at September 30, 2020, compared to 1.20% at both June 30, 2020, and September 30, 2019. Excluding the PPP loan balances, which are 100% guaranteed by the Small Business Administration (“SBA”), the ALLL represented 1.33% of total loans receivable at September 30, 2020, compared to 1.25% of total loans receivable at June 30, 2020, and 1.20% at September 30, 2019. 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. Nonperforming loans totaled $2.1 million at September 30, 2020, compared to $2.2 million at June 30, 2020, and $137,000 at September 30, 2019. The increase from the prior year is due to a $2.1 million multifamily loan currently in foreclosure. Based on an impairment analysis and ongoing monitoring, the Company does not expect to incur a loss on this credit. Other than the $2.1 million multifamily loan in foreclosure, there was only one consumer loan of $32,000 that was 30 days or more past due and not on loan payment deferral at September 30, 2020. OREO remained unchanged at $454,000 at September 30, 2020, June 30, 2020, and September 30, 2019.

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

	Sep 30,				Jun 30,				Sep 30,				Three Month				One Year
	2020				2020				2019				Change				Change
	(Dollars in thousands)
Nonperforming loans:
One-to-four family residential	$	─			$	87			$	98			$	(87	)		$	(98	)
Multifamily		2,104				2,104				─				─				2,104
Consumer		─				─				39				─				(39	)
Total nonperforming loans		2,104				2,191				137								1,967
Other real estate owned (“OREO”)		454				454				454				─				─
Total nonperforming assets (1)	$	2,558			$	2,645			$	591			$	(87	)		$	1,967
Nonperforming assets as a
percent of total assets		0.19	%			0.19	%			0.05	%

⁽¹⁾ The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of our TDRs were performing in accordance with their restructured terms at September 30, 2020.

The Company accounts for certain loan modifications or restructurings as TDRs. In general, the modification or restructuring of a debt is considered a TDR if, for economic or legal reasons related to the borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At September 30, 2020, TDRs totaled $4.1 million, down from $4.3 million at June 30, 2020, and $6.6 million at September 30, 2019. As discussed further below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 (“CARES Act”) provides guidance around the modification of loans as a result of the COVID19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not categorized as TDRs.

Net interest income for both the quarters ended September 30, 2020, and June 30, 2020 totaled $10.1 million, compared to $9.7 million for the quarter ended September 30, 2019.

Interest income totaled $13.7 million for the quarter ended September 30, 2020, compared to $14.1 million for the quarter ended June 30, 2020, and $15.2 million for the quarter ended September 30, 2019. The decline in the current quarter compared to the quarter ended June 30, 2020, was primarily due to the continued decline in asset yields. In addition, the lower yielding PPP loans impacted the entire quarter ended September 30, 2020, compared to only a portion of the previous quarter. Further, the Bank received a payoff on a $7.7 million loan it had purchased at a premium, resulting in a reduction of $177,000 in interest income relating to the unamortized premium at the time of payoff. As a result, average loan yields declined to 4.49% at September 30, 2020, compared to 4.72% at June 30, 2020, and 5.14% at September 30, 2019. On a related note, the $7.7 million payoff also resulted in the receipt of a $233,000 prepayment penalty, which was included in noninterest income.

Total interest expense was $3.6 million for the quarter ended September 30, 2020, compared to $4.0 million for the quarter ended June 30, 2020, and $5.6 million for the quarter ended September 30, 2019. The average cost of interest-bearing deposits declined to 1.27% for the quarter ended September 30, 2020, compared to 1.49% for the quarter ended June 30, 2020, and 2.00% for the quarter ended September 30, 2019. The decline from the quarter ended September 30, 2019, was due primarily to a reduced level of brokered deposits and retail certificates of deposits, along with a declining interest rate environment. Specifically, the Bank replaced higher cost retail certificates of deposit and brokered deposits with lower cost deposits through its branch network. During the quarter ended September 30, 2020, the Bank redeemed $5.0 million in callable brokered certificates of deposit that carried a coupon of 1.35%. That redemption resulted in the recognition of $20,000 in unamortized fees during the quarter ended September 30, 2020, compared to $1,500 in such fees in the quarter ended June 30, 2020. Advances from the FHLB remained unchanged at $120.0 million at September 30, 2020, and June 30, 2020, and were down slightly from $121.0 million at September 30, 2019. The average cost of borrowings was 1.28% for the quarter ended September 30, 2020, compared to 1.08% for the quarter ended June 30, 2020, and 2.02% for the quarter ended September 30, 2019. At September 30, 2020, the entire balance of our $120.0 million in borrowings were comprised of short-term FHLB advances tied to cash flow hedge agreements, utilized to assist in the Bank’s interest rate risk management efforts.

The net interest margin was 3.07% for the quarter ended September 30, 2020, compared to 3.12% for the quarter ended June 30, 2020, and 3.07% for the quarter ended September 30, 2019. The modest reduction in the quarter ended September 30, 2020, from the quarter ended June 30, 2020, relates primarily to the reduction in the Bank’s average yield on interest earning assets outpacing the average cost of interest-bearing liabilities, due in part to the $177,000 accelerated amortization of the premium related to the $7.7 million loan payoff noted above, and the recognition of $20,000 of unamortized fees relating to the early redemption of $5.0 million in callable brokered deposits.

Noninterest income for the quarter ended September 30, 2020, totaled $1.0 million, compared to $789,000 for the quarter ended June 30, 2020, and $1.0 million for the quarter ended September 30, 2019. The increase in noninterest income for the quarter ended September 30, 2020, compared to the quarter ended June 30, 2020, was primarily due to an increase in loan related fees due to prepayment penalties.

Noninterest expense totaled $7.9 million for both the quarters ended September 30, 2020, and June 30, 2020, compared to $7.5 million in the quarter ended September 30, 2019. Salaries and employee benefits for the quarter ended September 30, 2020, were higher than the quarter ended June 30, 2020, due primarily to the reclassification of the compensation expense related to PPP loan originations to loan direct costs in the quarter ended June 30, 2020. Noninterest expense increased from the same quarter last year as the Bank continued to pursue its branch expansion strategy, which resulted in higher salaries and benefits, occupancy and equipment and data processing expense among increases in other noninterest expenses.

COVID-19 Related Information

The Bank is committed to assisting its customers and communities in response to the COVID-19 pandemic. Under the CARES Act, it is providing certain short-term loan modifications. In addition, the Bank is participating in the PPP as an SBA lender. The Bank continues to take the steps necessary while working with its loan customers to effectively manage the portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis.

Paycheck Protection Program
As of September 30, 2020, the Bank had funded $52.0 million in PPP loans, which represents 462 loans, a slight increase from the 455 loans totaling $51.7 million as of June 30, 2020. Based on information provided with the borrower’s applications, these funds are estimated to have provided support for approximately 5,000 jobs in the communities we serve. A total of 381 of these loans, or more than 82%, are for loan amounts of $150,000 or less and represent $18.0 million of the total, of which 253 loans, representing $6.4 million, are for loan amounts of $50,000 or less. As of October 21, 2020, a total of 17 loan customers representing PPP loans totaling $3.8 million had submitted loan forgiveness applications.

Modifications
The primary method of relief is to allow the borrower to defer their loan payments for three to six months, while certain borrowers are allowed to pay interest only or have 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 COVID19 pandemic from being treated as TDRs. The following table provides detail on the balance of loans remaining on deferral status as of September 30, 2020:

	As of September 30, 2020
	Balance of loans with modifications of 1-3 months			Balance of loans with modifications of greater than 3 months			Total balance of loans with modifications granted			Total loans			Modifications as % of total loans in each category
	(Dollars in thousands)
One-to-four family residential	$	283		$	1,765		$	2,048		$	391,871		0.5	%
Multifamily		-			2,349			2,349			142,619		1.6
Commercial real estate:
Office		-			-			-			81,556		-
Retail		-			8,667			8,667			121,338		7.1
Mobile home park		-			-			-			25,510		-
Hotel/motel		-			35,117			35,117			69,157		50.8
Nursing home		-			6,368			6,368			12,868		49.5
Warehouse		-			8,844			8,844			17,512		50.5
Storage		-			-			-			36,093		-
Other non-residential		-			-			-			25,724		-
Total commercial real estate		-			58,996			58,996			389,768		15.1
Construction/land		-			-			-			99,598		-
Business:
Aircraft		-			-			-			11,735		-
SBA		-			-			-			819		-
PPP		-			-			-			52,045		-
Other business		-			1,899			1,899			21,181		9.0
Total business		-			1,899			1,899			85,780		2.2
Consumer:
Classic/collectible auto		86			105			191			27,784		0.7
Other consumer		-			-			-			13,061		-
Total consumer		86			105			191			40,845		0.5
Total loans with COVID19 pandemic modifications	$	369		$	65,114		$	65,483		$	1,150,481		5.7	%

As of September 30, 2020, $36.1 million in loans had been granted modifications of greater than six months, of which $30.1 million were for loans in the hotel/motel category. Total loans with modifications granted declined from $132.1 million, or 11.4% of total loans outstanding, at June 30, 2020.

Additional Loan Portfolio Details
Total balances drawn on outstanding lines of credit were $46.4 million and the unused portion of lines of credit totaled $35.0 million as of September 30, 2020. At December 31, 2019, total balances drawn on outstanding lines of credit were $47.1 million and the unused portion of lines of credit totaled $38.1 million.

The Bank is monitoring its loan portfolio for delinquencies of loans that have not requested modification qualifying under the CARES Act or regulatory guidance. The following table presents the loan to value (“LTV”) ratios of select segments of our loan portfolio that we believe may be more likely to be impacted by COVID-19 pandemic considerations at September 30, 2020. The LTV ratio is derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:

	September 30, 2020
	LTV 0-60%			LTV 61-75%			LTV 76%+			Total			Average LTV
Category: (1)	(Dollars in thousands)
One-to-four family	$	247,005		$	156,273		$	33,824		$	437,102		52.89	%
Church		1,382			-			-			1,382		46.77
Classic auto		4,359			10,349			13,076			27,784		68.22
Gas station		3,529			-			513			4,042		51.37
Hotel / motel		58,750			10,407			-			69,157		56.07
Marina		7,795			-			-			7,795		37.97
Mobile home park		19,870			5,465			175			25,510		39.85
Nursing home		12,868			-			-			12,868		20.87
Office		56,882			24,239			4,259			85,380		45.54
Other non-residential		7,761			4,745			-			12,506		49.01
Retail		80,793			40,545			-			121,338		49.76
Storage		26,540			11,213			-			37,753		44.23
Warehouse		15,593			1,919			-			17,512		42.65

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

First Financial Northwest, Inc. is the parent company of First Financial Northwest Bank; an FDIC insured Washington State-chartered commercial bank headquartered in Renton, Washington, serving the Puget Sound Region through 14 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 COVID19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – that are available on our website at www.ffnwb.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance.

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

Assets	Sep 30, 2020				Jun 30, 2020				Sep 30, 2019				Three Month Change			One Year Change
Cash on hand and in banks	$	7,440			$	7,688			$	7,615			(3.2	)%		(2.3	)%
Interest-earning deposits with banks		18,674				66,250				6,103			(71.8	)		206.0
Investments available-for-sale, at fair value		126,020				128,874				138,224			(2.2	)		(8.8	)
Annuity held-to-maturity		2,406				2,395				-			0.5			n/a
Loans receivable, net of allowance of $14,568, $13,836 and $13,161, respectively		1,133,984				1,138,243				1,083,850			(0.4	)		4.6
Federal Home Loan Bank ("FHLB") stock, at cost		6,410				6,410				6,341			0.0			1.1
Accrued interest receivable		5,676				4,981				4,407			14.0			28.8
Deferred tax assets, net		1,879				2,007				1,202			(6.4	)		56.3
Other real estate owned ("OREO")		454				454				454			0.0			0.0
Premises and equipment, net		22,409				22,222				22,346			0.8			0.3
Bank owned life insurance ("BOLI")		32,830				32,561				31,681			0.8			3.6
Prepaid expenses and other assets		1,704				1,513				2,756			12.6			(38.2	)
Right of use asset		3,834				2,972				1,486			29.0			158.0
Goodwill		889				889				889			0.0			0.0
Core deposit intangible		860				896				1,005			(4.0	)		(14.4	)
Total assets	$	1,365,469			$	1,418,355			$	1,308,359			(3.7	)		4.4
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits	$	82,376			$	91,593			$	49,398			(10.1	)		66.8
Interest-bearing deposits		987,306				1,034,575				967,430			(4.6	)		2.1
Total deposits		1,069,682				1,126,168				1,016,828			(5.0	)		5.2
Advances from the FHLB		120,000				120,000				121,000			0.0			(0.8	)
Advance payments from borrowers for taxes and insurance		4,742				2,475				5,043			91.6			(6.0	)
Lease liability		3,942				3,070				1,513			28.4			160.5
Accrued interest payable		197				218				382			(9.6	)		(48.4	)
Other liabilities		12,128				12,448				8,491			(2.6	)		42.8
Total liabilities		1,210,691				1,264,379				1,153,257			(4.2	)		5.0
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 9,911,607 shares at September 30, 2020, 10,048,961 shares at June 30, 2020,and 10,296,053 shares at September 30, 2019		99				100				103			(1.0	)		(3.9	)
Additional paid-in capital		83,839				85,119				87,835			(1.5	)		(4.5	)
Retained earnings		76,300				75,181				71,592			1.5			6.6
Accumulated other comprehensive loss, net of tax		(3,203	)			(3,885	)			(1,042	)		(17.6	)		207.4
Unearned Employee Stock Ownership Plan ("ESOP") shares		(2,257	)			(2,539	)			(3,386	)		(11.1	)		(33.3	)
Total stockholders' equity		154,778				153,976				155,102			0.5			(0.2	)
Total liabilities and stockholders' equity	$	1,365,469			$	1,418,355			$	1,308,359			(3.7	)%		4.4	%

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

	Quarter Ended
	Sep 30, 2020			Jun 30, 2020			Sep 30, 2019			Three Month Change			One Year Change
Interest income
Loans, including fees	$	12,847		$	13,183		$	13,897		(2.5	)%		(7.6	)%
Investments available-for-sale		751			796			1,066		(5.7	)		(29.5	)
Investments held-to-maturity		6			9			-		(33.3	)		n/a
Interest-earning deposits with banks		8			8			158		0.0			(94.9	)
Dividends on FHLB Stock		82			81			97		1.2			(15.5	)
Total interest income		13,694			14,077			15,218		(2.7	)		(10.0	)
Interest expense
Deposits		3,206			3,666			5,037		(12.5	)		(36.4	)
Other borrowings		400			344			529		16.3			(24.4	)
Total interest expense		3,606			4,010			5,566		(10.1	)		(35.2	)
Net interest income		10,088			10,067			9,652		0.2			4.5
Provision for loan losses		700			300			100		133.3			600.0
Net interest income after provision for loan losses		9,388			9,767			9,552		(3.9	)		(1.7	)
Noninterest income
Net gain on sale of investments		18			69			88		(73.9	)		(79.5	)
BOLI income		269			254			235		5.9			14.5
Wealth management revenue		145			183			245		(20.8	)		(40.8	)
Deposit related fees		201			184			179		9.2			12.3
Loan related fees		376			97			290		287.6			29.7
Other		2			2			2		0.0			0.0
Total noninterest income		1,011			789			1,039		28.1			(2.7	)
Noninterest expense
Salaries and employee benefits		4,880			4,801			4,813		1.6			1.4
Occupancy and equipment		987			1,031			924		(4.3	)		6.8
Professional fees		371			455			440		(18.5	)		(15.7	)
Data processing		731			687			478		6.4			52.9
OREO related expenses, net		1			5			1		(80.0	)		0.0
Regulatory assessments		134			127			13		5.5			930.8
Insurance and bond premiums		116			103			95		12.6			22.1
Marketing		41			29			118		41.4			(65.3	)
Other general and administrative		606			706			573		(14.2	)		5.8
Total noninterest expense		7,867			7,944			7,455		(1.0	)		5.5
Income before federal income tax provision		2,532			2,612			3,136		(3.1	)		(19.3	)
Federal income tax provision		450			469			631		(4.1	)		(28.7	)
Net income	$	2,082		$	2,143		$	2,505		(2.8	)%		(16.9	)%
Basic earnings per share	$	0.22		$	0.22		$	0.25
Diluted earnings per share	$	0.21		$	0.22		$	0.25
Weighted average number of common shares outstanding		9,661,498			9,808,854			9,901,586
Weighted average number of diluted shares outstanding		9,675,567			9,819,664			9,991,011

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

	Nine Months Ended
	September 30,
		2020				2019			One Year Change
Interest income
Loans, including fees	$	39,504			$	40,784			(3.1	)%
Investments available-for-sale		2,466				3,334			(26.0	)
Investments held-to-maturity		17				-			n/a
Interest-earning deposits with banks		45				246			(81.7	)
Dividends on FHLB Stock		240				290			(17.2	)
Total interest income		42,272				44,654			(5.3	)
Interest expense
Deposits		11,238				13,189			(14.8	)
Other borrowings		1,214				2,255			(46.2	)
Total interest expense		12,452				15,444			(19.4	)
Net interest income		29,820				29,210			2.1
Provision (recapture of provision) for loan losses		1,300				(300	)		(533.3	)
Net interest income after provision (recapture of provision) for loan losses		28,520				29,510			(3.4	)
Noninterest income
Net gain on sale of investments		86				80			7.5
BOLI income		778				693			12.3
Wealth management revenue		493				702			(29.8	)
Deposit related fees		560				555			0.9
Loan related fees		865				562			53.9
Other		7				26			(73.1	)
Total noninterest income		2,789				2,618			6.5
Noninterest expense
Salaries and employee benefits		14,893				14,547			2.4
Occupancy and equipment		3,090				2,688			15.0
Professional fees		1,257				1,262			(0.4	)
Data processing		2,112				1,393			51.6
OREO related expenses, net		7				33			(78.8	)
Regulatory assessments		405				286			41.6
Insurance and bond premiums		339				288			17.7
Marketing		133				280			(52.5	)
Other general and administrative		1,843				1,670			10.4
Total noninterest expense		24,079				22,447			7.3
Income before federal income tax provision		7,230				9,681			(25.3	)
Federal income tax provision		1,320				1,927			(31.5	)
Net income	$	5,910			$	7,754			(23.8	)%
Basic earnings per share	$	0.60			$	0.77
Diluted earnings per share	$	0.60			$	0.77
Weighted average number of common shares outstanding		9,788,397				9,989,970
Weighted average number of diluted shares outstanding		9,811,602				10,091,631

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

	September 30, 2020							June 30, 2020							September 30, 2019
	Amount				Percent			Amount				Percent			Amount				Percent
	(Dollars in thousands)
Commercial real estate:
Residential:
Micro-unit apartments	$	11,422			1.0	%		$	11,177			1.0	%		$	13,877			1.3	%
Other multifamily		131,197			11.4				148,194			12.8				157,275			14.3
Total multifamily residential		142,619			12.4				159,371			13.8				171,152			15.6
Non-residential:
Office		81,566			7.1				83,439			7.3				98,738			9.0
Retail		121,338			10.6				121,936			10.6				142,639			12.9
Mobile home park		25,510			2.2				25,961			2.2				23,070			2.1
Hotel / motel		69,157			6.0				68,165			5.9				27,572			2.5
Nursing Home		12,868			1.1				11,768			1.0				16,104			1.5
Warehouse		17,512			1.5				17,422			1.5				18,200			1.7
Storage		36,093			3.1				36,266			3.1				35,908			3.3
Other non-residential		25,724			2.3				25,793			2.2				19,659			1.8
Total non-residential		389,768			33.9				390,750			33.8				381,890			34.8
Construction/land:
One-to-four family residential		45,231			4.0				45,128			3.9				47,524			4.3
Multifamily		47,547			4.1				40,120			3.5				40,078			3.7
Commercial		5,475			0.5				6,134			0.5				15,913			1.5
Land development		1,345			0.1				5,115			0.4				6,400			0.6
Total construction/land		99,598			8.7				96,497			8.3				109,915			10.1
One-to-four family residential:
Permanent owner occupied		214,250			18.6				208,484			18.1				205,679			18.7
Permanent non-owner occupied		177,621			15.4				173,729			15.1				164,707			15.0
Total one-to-four family residential		391,871			34.0				382,213			33.2				370,386			33.7
Business:
Aircraft		11,735			1.0				15,460			1.3				14,186			1.3
Small Business Administration ("SBA")		819			0.1				737			0.1				-			0.0
Paycheck Protection Plan ("PPP")		52,045			4.5				51,661			4.5				-			0.0
Other business		21,181			1.8				18,212			1.6				23,321			2.1
Total business		85,780			7.4				86,070			7.5				37,507			3.4
Consumer:
Classic Auto		27,784			2.4				24,767			2.1				14,636			1.3
Other consumer		13,061			1.2				14,464			1.3				11,815			1.1
Total consumer		40,845			3.6				39,231			3.4				26,451			2.4
Total loans		1,150,481			100.0	%			1,154,132			100.0	%			1,097,301			100.0	%
Less:
Deferred loan fees, net		1,929							2,053							290
ALLL		14,568							13,836							13,161
Loans receivable, net	$	1,133,984						$	1,138,243						$	1,083,850
Concentrations of credit: (1)
Construction loans as % of total capital		68.4	%						67.3	%						82.6	%
Total non-owner occupied commercial real estate as % of total capital		407.1	%						420.7	%						444.9	%

⁽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
	Sep 30,				Jun 30,				Mar 31,				Dec 31,				Sep 30,
		2020				2020				2020				2019				2019
	(Dollars in thousands, except per share data)
Performance Ratios: (1)
Return on assets		0.60	%			0.63	%			0.51	%			0.79	%			0.75	%
Return on equity		5.34				5.59				4.30				6.64				6.41
Dividend payout ratio		45.45				45.45				58.82				34.62				36.00
Equity-to-assets ratio		11.34				10.86				11.50				11.65				11.85
Tangible equity ratio (2)		11.22				10.74				11.38				11.53				11.73
Net interest margin		3.07				3.12				3.11				3.09				3.07
Average interest-earning assets to average interest-bearing liabilities		116.08				115.96				113.78				113.50				113.17
Efficiency ratio		70.88				73.18				77.60				71.04				69.73
Noninterest expense as a percent of average total assets		2.26				2.33				2.51				2.40				2.24
Book value per common share	$	15.62			$	15.32			$	15.03			$	15.25			$	15.06
Tangible book value per share (2)		15.44				15.14				14.85				15.07				14.88
Capital Ratios: (3)
Tier 1 leverage ratio		10.03	%			10.02	%			10.25	%			10.27	%			10.13	%
Common equity tier 1 capital ratio		14.01				13.70				13.42				13.13				13.14
Tier 1 capital ratio		14.01				13.70				13.42				13.13				13.14
Total capital ratio		15.26				14.95				14.67				14.38				14.39
Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.18	%			0.19	%			0.20	%			0.01	%			0.01	%
Nonperforming assets as a percent of total assets		0.19				0.19				0.20				0.04				0.05
ALLL as a percent of total loans		1.27				1.20				1.22				1.18				1.20
Net (recoveries) charge-offs to average loans receivable, net		(0.00	)			(0.00	)			(0.00	)			(0.01	)			(0.00	)
Allowance for Loan Losses:
ALLL, beginning of the quarter	$	13,836			$	13,530			$	13,218			$	13,161			$	13,057
Provision		700				300				300				-				100
Charge-offs		-				-				-				-				-
Recoveries		32				6				12				57				4
ALLL, end of the quarter	$	14,568			$	13,836			$	13,530			$	13,218			$	13,161

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

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

	At or For the Quarter Ended
	Sep 30,				Jun 30,				Mar 31,				Dec 31,				Sep 30,
		2020				2020				2020				2019				2019
	(Dollars in thousands)
Yields and Costs: (1)
Yield on loans		4.49	%			4.72	%			4.94	%			5.05	%			5.14	%
Yield on investments available-for-sale		2.32				2.41				2.72				2.85				3.02
Yield on investments held-to-maturity		0.99				1.52				-				-				-
Yield on interest-earning deposits		0.10				0.10				1.18				1.61				2.24
Yield on FHLB stock		4.95				4.84				4.62				4.84				6.81
Yield on interest-earning assets		4.16	%			4.37	%			4.67	%			4.78	%			4.84	%
Cost of interest-bearing deposits		1.27	%			1.49	%			1.81	%			1.94	%			2.00	%
Cost of borrowings		1.28				1.08				1.48				1.66				2.02
Cost of interest-bearing liabilities		1.27	%			1.44	%			1.77	%			1.91	%			2.00	%
Cost of total deposits		1.18	%			1.38	%			1.72	%			1.84	%			1.91	%
Cost of funds		1.19				1.34				1.69				1.82				1.92
Average Balances:
Loans	$	1,137,742			$	1,122,913			$	1,096,091			$	1,087,558			$	1,073,283
Investments available-for-sale		128,885				133,038				135,765				138,331				140,031
Investments held-to-maturity		2,399				2,378				2,061				-				-
Interest-earning deposits		32,701				30,989				10,555				11,572				27,992
FHLB stock		6,592				6,736				6,615				5,897				5,649
Total interest-earning assets	$	1,308,319			$	1,296,054			$	1,251,087			$	1,243,358			$	1,246,955
Interest-bearing deposits	$	1,002,518			$	989,549			$	970,062			$	985,532			$	998,123
Borrowings		124,543				128,154				127,707				109,895				103,707
Total interest-bearing liabilities		1,127,061				1,117,703				1,097,769				1,095,427				1,101,830
Noninterest-bearing deposits		81,694				82,750				53,199				50,951				47,613
Total deposits and borrowings	$	1,208,755			$	1,200,453			$	1,150,968			$	1,146,378			$	1,149,443
Average assets	$	1,383,736			$	1,371,269			$	1,324,845			$	1,317,586			$	1,319,777
Average stockholders' equity		154,988				154,115				157,492				156,147				155,057

⁽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 which include: tangible assets; tangible book value per share; tangible equity to tangible assets ratio; and the ratio of the ALLL 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 table provides a reconciliation between the GAAP and non-GAAP measures:

	Sep 30, 2020		Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Sep 30, 2019
	(Dollars in thousands, except per share data)

Tangible equity to tangible assets and tangible book value per share:

Total stockholders' equity (GAAP)	$	154,778			$	153,976			$	153,092			$	156,319			$	155,102
Less:
Goodwill		889				889				889				889				889
Core deposit intangible		860				896				932				968				1,005
Tangible equity (Non-GAAP)	$	153,029			$	152,191			$	151,271			$	154,462			$	153,208
Total assets (GAAP)		1,365,469				1,418,355				1,331,213				1,341,885				1,308,359
Less:
Goodwill		889				889				889				889				889
Core deposit intangible		860				896				932				968				1,005
Tangible assets (Non-GAAP)	$	1,363,720			$	1,416,570			$	1,329,392			$	1,340,028			$	1,306,465
Common shares outstanding at period end		9,911,607				10,048,961				10,184,411				10,252,953				10,296,053
Equity to assets ratio		11.34	%			10.86	%			11.50	%			11.65	%			11.85	%
Tangible equity ratio		11.22				10.74				11.38				11.53				11.73
Book value per share	$	15.62			$	15.32			$	15.03			$	15.25			$	15.06
Tangible book value per share		15.44				15.14				14.85				15.07				14.88

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

Allowance for loan losses	$	14,568			$	13,836			$	13,530			$	13,218			$	13,161
Total loans (GAAP)	$	1,150,481			$	1,154,132			$	1,105,959			$	1,122,238			$	1,097,301
Less:
PPP loans		52,045				51,661				-				-				-
Total loans excluding PPP loans (Non-GAAP)	$	1,098,436			$	1,102,471				1,105,959				1,122,238				1,097,301
ALLL as a percent of total loans		1.27	%			1.20	%			1.22	%			1.18	%			1.20	%
ALLL as a percent of total loans excluding PPP loans		1.33	%			1.25				1.22				1.18				1.20

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 2020?

First Financial Northwest reported a net income of $2.1 million for Q3 2020.

How much did First Financial Northwest earn in the first nine months of 2020?

The company earned $5.9 million in net income for the first nine months of 2020.

What is the current cost of funds for First Financial Northwest?

The cost of funds for Q3 2020 is 1.19%, down from 1.34% in the previous quarter.

How much did total loans under payment deferral decrease?

Total loans under payment deferral decreased to $65.5 million from $132.1 million.

What is the book value per share for First Financial Northwest as of September 30, 2020?

The book value per share is $15.62 as of September 30, 2020.