Reports Third Quarter Net Income of $3.2 Million or $0.34 per Diluted Share - Form 8-K

Reports Third Quarter Net Income of $3.2 Million or $0.34 per Diluted Share

Renton, Washington - October 28, 2021 - 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, 2021, of $3.2 million, or $0.34 per diluted share, compared to net income of $3.8 million, or $0.40 per diluted share, for the quarter ended June 30, 2021, and $2.1 million, or $0.21 per diluted share, for the quarter ended September 30, 2020. For the nine months ended September 30, 2021, net income was $9.5 million, or $0.99 per diluted share, compared to net income of $5.9 million, or $0.60 per diluted share, for the comparable nine‑month period in 2020.

"I am pleased to report that net loans increased $20.0 million to $1.10 billion in the quarter, primarily as a result of a $24.4 million commercial real estate loan purchase from a third‑party bank, as organic loan growth remains challenging in the current environment because of loan repayments and Paycheck Protection Program loan forgiveness," stated Joseph W. Kiley III, President and CEO. "These purchased loans, with balances ranging between $747,000 and $5.5 million meet all of our underwriting standards and are secured by commercial properties located outside of Washington, predominantly in Texas, California and Alabama, and which are under long-term leases by national tenants," continued Kiley.

"In addition, we achieved a further reduction in our cost of funds, with the average cost of deposits decreasing to 0.56% in the quarter ended September 30, 2021, compared to 0.68% in the quarter ended June 30, 2021, and 1.18% in the quarter ended September 30, 2020. If market interest rates remain low, we expect this decline to continue as we have approximately $159.9 million in retail certificates of deposit at a weighted average rate of 1.15% maturing in the next 12 months, and an additional $78.7 million maturing in the subsequent 12 to 24 months, at a weighted average rate of 1.88%," continued Kiley.

"Finally, I am happy to report that we had no nonperforming assets at quarter end as we sold our other real estate owned properties during the quarter. While this sale resulted in the recognition of a net loss of $207,000, we are pleased that we no longer have this distraction," concluded Kiley.

Highlights for the quarter ended September 30, 2021:

•	Net loans receivable increased by $20.0 million to $1.10 billion at the end of the quarter.

•	Total deposits increased by $7.4 million in the quarter, including a $4.1 million increase in noninterest-bearing demand deposits.

•	The Company's book value per share increased to $17.03, compared to $16.75 at June 30, 2021, and $15.62 at September 30, 2020.

•	The Company repurchased 180,179 shares at an average price of $16.44 per share during the quarter.

•	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 15.5%, respectively, compared to 10.2% and 15.7%, respectively, at June 30, 2021, and 10.0% and 15.3%, respectively, at September 30, 2020.

•	The Bank recorded a $100,000 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 $1.14 billion at September 30, 2021, compared to $1.13 billion at June 30, 2021, and $1.07 billion at September 30, 2020. The $43.9 million increase in money market deposits in the quarter ended September 30, 2021, more than offset the reduction in retail certificates of deposit as the Bank continues its strategy to shift the deposit composition to lower cost transaction accounts. Noninterest-bearing demand deposits also increased $4.1 million in the quarter ended September 30, 2021, from last quarter, and increased $32.9 million as compared to the quarter ended September 30, 2020.

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

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

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Net loans receivable totaled $1.10 billion at September 30, 2021, compared to $1.08 billion at June 30, 2021, and $1.13 billion at September 30, 2020. During the quarter ended September 30, 2021, the Bank purchased 12 commercial real estate loans totaling $24.4 million from another commercial bank, including $7.0 million, $5.5 million, and $4.8 million secured by properties located in Texas, California, and Alabama, respectively. Each of these loans, with balances ranging between $747,000 and $5.5 million, is secured by a commercial property under a long-term lease by a national tenant. This loan purchase, along with new loan originations, more than offset the amount of loan repayments in the quarter and loan forgiveness of Paycheck Protection Program ("PPP") loans totaling $8.4 million. The average balance of net loans receivable totaled $1.09 billion for both the quarters ended September 30, 2021, and June 30, 2021, compared to $1.14 billion for the quarter ended September 30, 2020.

The Company recorded a $100,000 provision for loan losses in the quarter ended September 30, 2021, compared to a $700,000 recapture of provision for loan losses in the quarter ended June 30, 2021, and a $700,000 provision for loan losses in the quarter ended September 30, 2020. During the quarter ended September 30, 2021, management evaluated the adequacy of the ALLL and concluded that a $100,000 provision for loan losses was appropriate. This provision was primarily attributed to the growth in net loans receivable, partially offset by recoveries received during the quarter, and reflects modest changes in the composition of the loan portfolio during the quarter including a slight decline in construction and development loans. There were no significant loan grade changes during the quarter ended September 30, 2021, that materially impacted the ALLL analysis.

The ALLL represented 1.35% of total loans receivable at both September 30, 2021, and June 30, 2021, compared to 1.27% of total loans receivable at September 30, 2020. Excluding PPP loan balances, which are 100% guaranteed by the Small Business Administration ("SBA"), the ALLL represented 1.38% of total loans receivable at September 30, 2021, compared to 1.39% of total loans receivable at June 30, 2021, and 1.33% of total loans receivable at September 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 both September 30, 2021, and June 30, 2021, compared to $2.1 million at September 30, 2020. The $2.1 million in nonperforming loans consisted of a single multifamily loan in foreclosure that was repaid in full in the quarter ended June 30, 2021. During the quarter ended September 30, 2021, two undeveloped commercial lots located in Pierce County that comprised the $454,000 balance of other real estate owned ("OREO") at both June 30, 2021, and September 30, 2020, were sold, resulting in a net loss on sale of OREO of $207,000 recorded in OREO related expenses.

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

⁽¹⁾ The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all Troubled Debt Restructured Loans ("TDRs") as nonperforming loans, although 100% of the Bank's TDRs were performing in accordance with their restructured terms at September 30, 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 September 30, 2021, TDRs totaled $2.4 million, compared to $3.6 million at June 30, 2021, and $4.1 million at September 30, 2020. During the quarter ended September 30, 2021, a $1.2 million TDR secured by commercial real estate in King County was refinanced at market rate and terms and, therefore, is no longer classified as a TDR. 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 $11.4 million for the quarter ended September 30, 2021, compared to $11.3 million for the quarter ended June 30, 2021, and $10.1 million for the quarter ended September 30, 2020. The improvement was primarily due to lower deposit-related interest expense and relatively stable interest income with the growth in the combined average balance of loans receivable and investment securities in the quarter offsetting lower average yields.

Total interest income was $13.4 million for the quarter ended September 30, 2021, compared to $13.6 million for the quarter ended June 30, 2021, and $13.7 million for the quarter ended September 30, 2020. The decrease in the current quarter compared to the quarter ended June 30, 2021, was primarily attributable to the receipt of $394,000 in interest and late charges from the payoff of a $2.0 million nonperforming loan in the prior quarter, with no similar transaction in the current quarter. The decrease from the quarter ended September 30, 2020, is primarily due to the decline in average balance of loans receivable between periods.

Total interest expense was $2.0 million for the quarter ended September 30, 2021, compared to $2.3 million for the quarter ended June 30, 2021, and $3.6 million for the quarter ended September 30, 2020. The average cost of interest-bearing deposits declined to 0.63% for the quarter ended September 30, 2021, from 0.75% for the quarter ended June 30, 2021, and 1.27% for the quarter ended

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September 30, 2020. The decline from the quarter ended June 30, 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 at September 30, 2021, June 30, 2021, and September 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 1.42% for the quarter ended September 30, 2021, compared to 1.37% for the quarter ended June 30, 2021, and 1.28% for the quarter ended September 30, 2020. The Bank has entered into two forward starting interest rate swaps beginning October 25, 2021, totaling $25.0 million with a weighted average rate of 0.80% and weighted term of 7.4 years to partially replace a $50.0 million interest rate swap carrying an interest rate of 1.34% maturing on that date.

Noninterest income for the quarter ended September 30, 2021, totaled $999,000, compared to $973,000 for the quarter ended June 30, 2021, and $1.0 million for the quarter ended September 30, 2020. The increase in noninterest income for the quarter ended September 30, 2021, compared to the quarter ended June 30, 2021, was primarily due to higher BOLI income that included $161,000 in death benefit proceeds, partially offset by lower wealth management revenue.

Noninterest expense totaled $8.3 million for the quarter ended September 30, 2021, compared to $8.2 million for the quarter ended June 30, 2021, and $7.9 million for the quarter ended September 30, 2020. The increase in the quarter ended September 30, 2021, compared to the quarter ended June 30, 2021, was primarily due to the $207,000 loss on sale of OREO discussed above which, along with higher professional fees and other general administrative, more than offset the lower salaries and employee benefits and occupancy and equipment expense in the quarter.

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.

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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 September 30, 2021, there were 198 PPP loans outstanding totaling $22.4 million, compared to 275 PPP loans totaling $30.8 million outstanding as of June 30, 2021, 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 September 30, 2021, 149 PPP loans have an outstanding balance of $150,000 or less, totaling $7.3 million, or 32.7% of total PPP loans outstanding, including 93 loans representing $2.0 million with an outstanding balance of $50,000 or less. As of September 30, 2021, 531 PPP loans totaling $55.1 million were approved for forgiveness and repaid 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 September 30, 2021:

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Total loans with modifications granted declined to $20.1 million, or 1.8% of total outstanding at September 30, 2021, from $35.2 million, or 3.2% of total loans outstanding at June 30, 2021, and $65.5 million, or 5.7% of total loans outstanding at September 30, 2020. The decline in the current quarter is due to additional customers returning to regular scheduled payments and continued improvement in economic conditions in our market areas. As of September 30, 2021, all of the remaining modified 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 in accordance with the CARES Act or regulatory guidance. The following table presents the loan to value ("LTV") ratios of select segments of its loan portfolio at September 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:

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⁽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.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands, except share data)

(Unaudited)

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except share data)

(Unaudited)

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except share data)

(Unaudited)

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

⁽¹⁾ Concentrations of credit percentages are for First Financial Northwest Bank only using classifications in accordance with FDIC regulatory guidelines.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Key Financial Measures
(Unaudited)