First Financial Northwest, Inc. Reports Second Quarter Net Income of $3.3 Million or $0.33 per Diluted Share

RENTON, Wash., July 25, 2019 (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, 2019, of $3.3 million, or $0.33 per diluted share, compared to net income of $1.9 million, or $0.19 per diluted share, for the quarter ended March 31, 2019, and $3.1 million, or $0.30 per diluted share, for the quarter ended June 30, 2018. For the six months ended June 30, 2019, net income was $5.2 million, or $0.52 per diluted share, compared to net income of $9.9 million, or $0.96 per diluted share, for the comparable six-month period in 2018.

"I am very pleased with the improvement to net income in the quarter, despite the challenges that a flat yield curve presents," stated Joseph W. Kiley III, President and Chief Executive Officer. "In recent quarters, interest expense increased more rapidly than interest income as competition for deposits in the Puget Sound Region remains intense," continued Kiley. "However, it was great to see deposit growth during the quarter, including an increase of $3.2 million in noninterest‑bearing checking accounts. Two of our offices in particular produced strong results during the quarter. Our Edmonds office, increased deposits by $10.8 million, and our Crossroads office in Bellevue, increased their deposit base by $6.4 million," concluded Kiley.

Net loans receivable remained stable at $1.05 billion at both June 30, 2019, and March 31, 2019, but were up from $989.3 million at June 30, 2018. The average balance of net loans receivable totaled $1.05 billion for the quarter ended June 30, 2019, compared to $1.03 billion for the quarter ended March 31, 2019, and $997.1 million for the quarter ended June 30, 2018.

The Company recorded an $800,000 recapture of provision for loan losses in the quarter ended June 30, 2019, compared to a $400,000 provision for loan losses in the quarter ended March 31, 2019, and a recapture of provision for loan losses of $400,000 in the quarter ended June 30, 2018. The recapture of provision for loan losses in the quarter ended June 30, 2019, was due primarily to the recapture of provision associated with a single construction loan with a balance of $11.6 million. The loan was technically in default and classified as impaired. Impaired loans are reviewed individually to determine any loan loss allowance requirement. All payments on the loan were current as of June 30, 2019, and the loan is well collateralized. The impairment analysis concluded that the Bank does not anticipate incurring losses on this loan and funds previously allocated to this loan in the allowance for loan and lease losses calculation were recaptured during the quarter. The provision in the quarter ended March 31, 2019, was due primarily to growth in net loans receivable. The recapture of provision for loan losses in the quarter ended June 30, 2018, was due primarily to a reduction in total construction loan balances outstanding.

Additional highlights for the quarter ended June 30, 2019:

• Total deposits increased to $1.03 billion at June 30, 2019, compared to $955.3 million at March 31, 2019, and $832.8 million at June 30, 2018. Brokered deposits increased $57.4 million to $180.8 million and noninterest-bearing deposits increased $3.2 million to $49.2 million at June 30, 2019.
• The Company's book value per share was $14.83 at June 30, 2019, compared to $14.50 at March 31, 2019, and $13.97 at June 30, 2018.
• The Company repurchased 82,300 shares during the quarter at an average price of $16.28 per share pursuant to its stock repurchase plan. The entire 550,000 shares authorized under the plan were repurchased at an average price of $15.72 per share over the term of the plan, which commenced on November 5, 2018, and expired on May 3, 2019.
• The Bank's Tier 1 leverage and total capital ratios at June 30, 2019, were 10.3% and 14.7%, respectively, compared to 10.3% and 14.4% at March 31, 2019, and 10.2% and 14.5% at June 30, 2018.
• Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL"), there was an $800,000 recapture of provision for loan losses during the quarter ended June 30, 2019.

The ALLL represented 1.22% of total loans receivable, net of undisbursed funds, at June 30, 2019, compared to 1.30% at March 31, 2019, and 1.27% at June 30, 2018. Nonperforming assets totaled $600,000 at June 30, 2019, compared to $605,000 at March 31, 2019, and $647,000 at June 30, 2018.

OREO remained unchanged at $454,000 at both June 30, 2019, and March 31, 2019, but declined from $483,000 at June 30, 2018, as a result of a write down in value of the two remaining OREO properties during the quarter ended March 31, 2019.

In circumstances where a customer is experiencing significant financial difficulties, the Company may elect to restructure the loan so the customer can continue to make payments while minimizing the potential loss to the Company. Such restructures must be classified as TDRs. At June 30, 2019, TDRs totaled $6.7 million, compared to $7.8 million at March 31, 2019, and $13.8 million at June 30, 2018.

Net interest income for the quarter ended June 30, 2019, totaled $9.7 million, compared to $9.9 million for the quarter ended March 31, 2019, and $10.1 million for the quarter ended June 30, 2018. Net interest income decreased from all prior periods due to rising market rates and competitive pressures increasing the cost of liabilities.

Total interest income increased to $14.9 million during the quarter ended June 30, 2019, compared to $14.6 million in the quarter ended March 31, 2019, and $13.6 million in the quarter ended June 30, 2018. The increase in total interest income from the prior periods was due primarily to the higher average net loan balances in the quarter ended June 30, 2019.

Total interest expense increased to $5.2 million for the quarter ended June 30, 2019, compared to $4.7 million for the quarter ended March 31, 2019, and $3.5 million for the quarter ended June 30, 2018. The higher level of interest expense in the quarter ended June 30, 2019, was due primarily to the higher level of short-term market interest rates for liabilities and a competitive market for attracting deposits, in addition to an increase of $57.4 million in brokered certificates of deposit accounts. The balance of brokered certificates of deposits increased to $180.8 million at June 30, 2019, compared to $123.4 million at March 31, 2019, and $75.5 million at June 30, 2018, as the Bank continued to opportunistically acquire brokered deposits late in the quarter ended June 30, 2019. The Bank borrows from the FHLB or raises money in the national brokered deposit market to supplement its deposit gathering efforts when needed to support the Company's growth. During the quarter ended June 30, 2019, interest rates in the brokered deposit market were lower than short term FHLB advances, therefore FHLB advances were replaced with lower cost brokered deposits. Advances from the Federal Home Loan Bank ("FHLB") totaled $105.0 million at June 30, 2019, compared to $163.5 million at March 31, 2019, and $224.0 million at June 30, 2018. The average cost of FHLB advances was 2.28% for the quarter ended June 30, 2019, compared to 2.26% for the quarter ended March 31, 2019, and 1.92% for the quarter ended June 30, 2018.

The net interest margin was 3.23% for the quarter ended June 30, 2019, compared to 3.37% for the quarter ended March 31, 2019, and 3.50% for the quarter ended June 30, 2018. This decline was primarily due to the increasing cost of liabilities between the periods. This continues to be a very challenging environment to acquire low-cost deposits. In addition, for the quarter ended June 30, 2019, loan yields declined, primarily related to the declining balance of higher yielding construction loans during the quarter.

Noninterest income for the quarter ended June 30, 2019, totaled $879,000, compared to $700,000 in the quarter ended March 31, 2019, and $663,000 in the quarter ended June 30, 2018. The increase in noninterest income for the quarter ended June 30, 2019, was due primarily to increases in wealth management revenue and higher deposit and loan related fees, partially offset by lower BOLI income recognition, compared to the quarters ended March 31, 2019, and June 30, 2018. BOLI income benefited from annual dividends received on certain BOLI policies during the quarter ended March 31, 2019. Loan related fees for the quarter ended June 30, 2019, benefited from higher prepayment penalty fees, as well as fees received on new loan interest rate swap agreements.

Noninterest expense decreased to $7.3 million for the quarter ended June 30, 2019, compared to $7.7 million in March 31, 2019, and $7.5 million in the quarter ended June 30, 2018. Noninterest expense for the quarter ended June 30, 2019, was lower in nearly all categories, including salaries and employee benefits, professional fees and data processing, but was partially offset by increases in other general and administrative and occupancy and equipment expenses consistent with the Bank's branch expansion. Noninterest expense for the quarter ended March 31, 2019, benefited from the receipt of a $125,000 insurance claim that offset the $225,000 fraud loss reported in the prior quarter. Noninterest expense declined from the prior year period due primarily to lower salaries and employee benefits expense, professional fees and bond premium expense.

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 11 full-service banking offices. We are a part of the ABA NASDAQ Community Bank Index and the Russell 2000 Index. 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: increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; 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 2019 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 Income Statements
(Dollars in thousands, except share data)
(Unaudited)

Non-GAAP Financial Measures

In addition to financial results presented in accordance with generally accepted accounting principles utilized in the United States ("GAAP"), this earnings release contains non-GAAP financial measures of the tangible equity ratio and tangible book value. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholders' equity. Tangible assets are calculated by subtracting intangible assets from total assets. The tangible equity ratio is tangible equity divided by tangible assets. Tangible book value per share is calculated by dividing tangible equity by the number of common shares outstanding. The Company believes that these non-GAAP measures provide a more consistent presentation of its capital and facilitate peer comparison that is desired by investors.

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.

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