First Financial Northwest, Inc. Reports First Quarter Net Income of $1.9 Million or $0.19 per Diluted Share

RENTON, Wash., April 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 March 31, 2019, of $1.9 million, or $0.19 per diluted share, compared to net income of $2.2 million, or $0.21 per diluted share, for the quarter ended December 31, 2018, and $6.8 million, or $0.66 per diluted share, for the quarter ended March 31, 2018.

"The flattening of the yield curve continues to present challenges, as evidenced by our interest expense increasing more rapidly than our interest income," stated Joseph W. Kiley III, President and Chief Executive Officer. "A significant part of our strategy to improve our deposit mix and ultimately reduce our cost of funds is our expansion into new markets to further support deposit growth and diversification of our customer base. To this end, we opened an office at Kent Station during the quarter and I am pleased to announce that we recently signed a lease to open an office in Kirkland, continuing our expansion along the I-405 corridor east of Seattle," continued Kiley. "Finally, as previously announced, we are pleased to add Patricia Remch to our Board of Directors. Her extensive experience will be an asset to our Board of Directors and we look forward to her contributions," concluded Kiley.

Net loans receivable increased to $1.05 billion at March 31, 2019, compared to $1.02 billion at December 31, 2018, and $991.1 million at March 31, 2018. The average balance of net loans receivable totaled $1.03 billion for the quarter ended March 31, 2019, compared to $1.01 billion for the quarter ended December 31, 2018, and $985.8 million for the quarter ended March 31, 2018.

The Company recorded a $400,000 provision for loan losses in the quarter ended March 31, 2019, compared to a provision for loan losses of $200,000 in the quarter ended December 31, 2018, and a recapture of provision for loan losses of $4.0 million in the quarter ended March 31, 2018. The provision in the quarter ended March 31, 2019, was due primarily to growth in net loans receivable, while the provision for loan losses in the quarter ended December 31, 2018, was due primarily to growth in net loans receivable and a change in loan mix. The recapture of provision for loan losses in the quarter ended March 31, 2018, was due primarily to $4.3 million in recoveries received during the quarter of loans previously charged off.

Additional highlights for the quarter ended March 31, 2019:

• Net loans receivable increased to $1.05 billion at March 31, 2019, compared to $1.02 billion at December 31, 2018, and $991.1 million at March 31, 2018.
• Total deposits increased to $955.3 million at March 31, 2019, compared to $939.0 million at December 31, 2018, and $863.2 million at March 31, 2018.
• The Company's book value per share was $14.50 at March 31, 2019, compared to $14.35 at December 31, 2018, and $13.80 at March 31, 2018.
• The Company repurchased 263,800 shares during the quarter at an average price of $15.76 per share pursuant to its stock repurchase plan. Since the plan commenced on November 5, 2018, a total of 467,700 shares have been repurchased through March 31, 2019, at an average price of $15.62. The current stock repurchase plan expires on May 3, 2019, and there are 82,300 shares that still may be repurchased under this plan.
• The Bank's Tier 1 leverage and total capital ratios at March 31, 2019, were 10.3% and 14.4%, respectively, compared to 10.4% and 14.7% at December 31, 2018, and 10.4% and 14.4% at March 31, 2018.
• Based on management's evaluation of the adequacy of the Allowance for Loan and Lease Losses ("ALLL"), there was a $400,000 provision for loan losses during the quarter ended March 31, 2019.

The ALLL represented 1.30% of total loans receivable, net of undisbursed funds, at March 31, 2019, compared to 1.29% at December 31, 2018, and 1.31% at March 31, 2018. Nonperforming assets totaled $605,000 at March 31, 2019, compared to $1.2 million at December 31, 2018, and $658,000 at March 31, 2018. A total of $597,000 of nonperforming loans were paid off during the quarter ended March 31, 2019.

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

OREO totaled $454,000 at March 31, 2019, compared to $483,000 at both December 31, 2018 and March 31, 2018. The change during the quarter ended March 31, 2019, represents a write down in value of the remaining OREO properties, which consisted of two undeveloped lots located in Pierce County.

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 March 31, 2019, TDRs totaled $7.8 million, compared to $9.4 million at December 31, 2018, and $16.2 million at March 31, 2018.

Net interest income for the quarter ended March 31, 2019, totaled $9.9 million, compared to $10.0 million for the quarter ended December 31, 2018, and $11.0 million for the quarter ended March 31, 2018. The decline from the December 31, 2018, quarter was a result of interest expense increasing more rapidly than interest income in the current flat yield curve environment. The quarter ended March 31, 2018, included an additional $1.0 million in interest income relating to payments received on loans previously charged off.

Total interest income increased to $14.6 million during the quarter ended March 31, 2019, compared to $14.3 million in the quarter ended December 31, 2018, and $14.1 million in the quarter ended March 31, 2018.

Total interest expense increased to $4.7 million for the quarter ended March 31, 2019, compared to $4.3 million for the quarter ended December 31, 2018, and $3.1 million for the quarter ended March 31, 2018. The higher level of interest expense in the quarter ended March 31, 2019, was due primarily to increases in short-term interest rates and a competitive market for attracting deposits. Advances from the Federal Home Loan Bank ("FHLB") totaled $163.5 million at March 31, 2019, compared to $146.5 million at December 31, 2018, and $200.0 million at March 31, 2018. The Bank borrows from the FHLB to supplement its deposit gathering efforts when needed to support the Company's growth. The average cost of FHLB advances was 2.26% for the quarter ended March 31, 2019, compared to 2.12% for the quarter ended December 31, 2018, and 1.66% for the quarter ended March 31, 2018. The balance of brokered certificates of deposits was $123.4 million at March 31, 2019, compared to $97.8 million at December 31, 2018, and $75.5 million at March 31, 2018. The primary reason for the increase in brokered deposits in the quarter ended March 31, 2019, was an opportunity to raise funds in the brokered deposit market at an interest rate of 2.34% for three months commencing in early March 2019. The Bank raised $35.0 million on those terms and used the funds to pay down approximately the same amount in overnight FHLB advances that cost approximately 2.60%.

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

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

The net interest margin was 3.37% for the quarter ended March 31, 2019, compared to 3.41% for the quarter ended December 31, 2018, and 3.88% for the quarter ended March 31, 2018. The Company recorded $1.0 million in additional interest related to payments received on amounts previously charged off in the quarter ended March 31, 2018, which increased net interest margin for this period.

Noninterest income for the quarter ended March 31, 2019, totaled $700,000, compared to $728,000 in the quarter ended December 31, 2018, and $646,000 in the quarter ended March 31, 2018. An increase in BOLI income recognition and a decrease in other loan related fees essentially offset each other between the quarters ended March 31, 2019, and December 31, 2018. In addition, wealth management revenues were slightly lower in the quarter ended March 31, 2018.

Noninterest expense remained unchanged at $7.7 million, for both the quarters ended March 31, 2019, and December 31, 2018, and increased from $7.0 million in the quarter ended March 31, 2018. Noninterest expense for the quarter ended March 31, 2019, benefited from the receipt of a $125,000 insurance claim relating to the $225,000 fraud loss reported in the prior quarter. Noninterest expense increased from the prior year period due primarily to growth in the Bank's number of locations in the last twelve months, including the opening of a new branch at The Junction in Bothell in April 2018 and at Kent Station in January 2019.

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.

The following table presents a breakdown of our loan portfolio (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 stockholder's 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 our 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.

The following table provides a reconciliation between the GAAP and non-GAAP measures:

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