First Financial Northwest, Inc. (FFNW) SEC Filing 8-K Material Event for the period ending Thursday, July 28, 2022

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

First Financial Northwest, Inc. Reports
Net Income of $2.8 million or $0.31 per Diluted Share for the Second Quarter Ended June 30, 2022

Renton, Washington – July 28, 2022 - 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, 2022, of $2.8 million, or $0.31 per diluted share, compared to $3.3 million, or $0.36 per diluted share, for the quarter ended March 31, 2022, and $3.8 million, or $0.40 per diluted share, for the quarter ended June 30, 2021. For the six months ended June 30, 2022, net income was $6.1 million, or $0.66 per diluted share, compared to net income of $6.3 million, or $0.66 per diluted share, for the comparable six-month period in 2021.

The difference in the provision for loan losses was the primary contributor to the change in net income for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022. As a result of the quarterly analysis of our loan portfolio, the Company did not record a provision or recognize a recapture of provision for loan losses for the quarter ended June 30, 2022, compared to a $500,000 recapture of provision for loan losses for the quarter ended March 31, 2022. The recapture in the prior quarter was primarily attributable to the net impact of changes in the loan portfolio mix, loan downgrades and changes in impairment status.

“Our one-to-four family residential lending team carried their momentum from the first quarter well into the second quarter of the year,” stated Joseph W. Kiley, III, President and CEO. “The purchase housing market remained robust in our markets during the quarter, and I am very pleased one-to-four family residential balances grew by $24.5 million in the quarter, bringing year-to-date growth to $51.6 million in that portfolio,” continued Kiley.

“During the quarter, we also increased our portfolio of investment securities, predominantly consisting of short-term U.S. Treasuries and mortgage-backed securities,” continued Kiley. “To accommodate our balance sheet growth, we acquired brokered deposits, as we’ve done in the past when those rates and terms were deemed most appropriate to satisfy our funding needs,” continued Kiley. “Finally, I am also pleased to see continued growth in our balances of demand deposits which increased by $4.9 million during the quarter,” concluded Kiley.

Highlights for the quarter ended June 30, 2022:

•	Net loans receivable remained stable at $1.12 billion at June 30, 2022, as new loan originations kept pace with loan repayments, including reductions in Paycheck Protection Program (“PPP”) loan balances.

•	Total deposits increased $39.4 million to $1.18 billion at June 30, 2022, as the Bank utilized brokered deposits to offset the reduction in money market and retail certificates of deposits and fund growth in the quarter.

•	The Company’s book value per share decreased to $17.26 at June 30, 2022, compared to $17.32 at March 31, 2022, and $16.75 at June 30, 2021.

•	The Company repurchased 16,927 shares at an average price of $16.65 per share under its current board-authorized share repurchase plan.

•	The Company paid a regular quarterly cash dividend of $0.12 per share to shareholders.

•	The Bank’s Tier 1 leverage and total capital ratios at June 30, 2022, were 10.5% and 15.5%, respectively, compared to 10.5% and 15.3%, respectively, at March 31, 2022, and 10.2% and 15.7%, respectively at June 30, 2021.

•	Based on management’s evaluation of the adequacy of the allowance for loan and lease losses (“ALLL”), the Bank did not record a provision or recognize a recapture of provision for loan losses for the quarter.

Deposits totaled $1.18 billion at June 30, 2022, compared to $1.14 billion at March 31, 2022, and $1.13 billion at June 30, 2021. The $53.3 million increase in brokered deposits more than offset the $13.9 million decrease in retail deposits, led by reductions in money market balances and retail certificates of deposits in the quarter ended June 30, 2022. Management continues to consider multiple alternatives to increase deposits to fund its anticipated asset growth in addition to its efforts through its branch network, including wholesale markets, brokered deposits, and the national deposit market. In the quarter ended June 30, 2022, brokered deposits were deemed to be the most appropriate source of supplemental funds based on the rates and terms available compared to other sources.

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 $1.12 billion at both June 30, 2022, and March 31, 2022, compared to $1.08 billion at June 30, 2021. During the quarter ended June 30, 2022, new originations of one-to-four family residential loans, business, and classic, collectible and other auto loans largely kept pace with loan repayments in the quarter, including PPP loan repayments and forgiveness. The average balance of net loans receivable totaled $1.12 billion for both the quarters ended June 30, 2022, and March 31, 2022, compared to $1.09 billion for the quarter ended June 30, 2021.

The ALLL represented 1.33% of total loans receivable at both June 30, 2022, and March 31, 2022, compared to 1.35% of total loans receivable at June 30, 2021.

There were no nonperforming loans at both June 30, 2022, and June 30, 2021. The collateral for the single nonperforming consumer loan of $179,000 at March 31, 2022, was repossessed and sold in the quarter ended June 30, 2022, contributing to net loan charge-offs totaling $34,000. There was no other real estate owned (“OREO”) at both June 30, 2022, and March 31, 2022, compared to $454,000 at June 30, 2021.

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 June 30, 2022.

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. TDRs totaled $2.1 million at both June 30, 2022, and March 31, 2022, compared to $3.6 million at June 30, 2021. All TDRs were performing according to their modified repayment terms for the periods presented.

Net interest income totaled $11.8 million for the quarter ended June 30, 2022, compared to $11.4 million for the quarter ended March 31, 2022, and $11.3 million for the quarter ended June 30, 2021. The increase in the current quarter compared to the quarter ended March 31, 2022, was primarily due to higher interest income on investment securities and loans, including fees, partially offset by higher interest expense on deposits and other borrowings, primarily reflecting the increase in market interest rates as a result of the recent increases to the targeted federal funds rate.

Total interest income was $13.5 million for the quarter ended June 30, 2022, compared to $12.9 million for the quarter ended March 31, 2022, and $13.6 million for the quarter ended June 30, 2021. The increase in the current quarter compared to the quarter ended March 31,

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2022, was primarily due to an improvement in average loan yields to 4.41% from 4.36% in the prior quarter. The decrease from the quarter ended June 30, 2021, is primarily due to a decline in average loan yields to 4.41% from 4.64%, partially offset by an $18.7 million increase in the average balance of investment securities and an increase in yields on investment securities to 2.33% in the quarter ended June 30, 2022, compared to 1.90% in the quarter ended June 30, 2021. The decrease in average loan yields as compared to the same quarter last year was primarily due to the decline in the acceleration of the recognition of deferred loan fee income due to reduced loan repayments from PPP loan forgiveness.

Total interest expense was $1.7 million for the quarter ended June 30, 2022, compared to $1.6 million for the quarter ended March 31, 2022, and $2.3 million for the quarter ended June 30, 2021. The average cost of interest-bearing deposits was 0.55% for the quarter ended June 30, 2022, compared to 0.50% for the quarter ended March 31, 2022, and 0.75% for the quarter ended June 30, 2021. The increase from the quarter ended March 31, 2022, was due primarily to increased interest expense on money market balances and the renewed use of brokered deposits in the quarter to fund asset growth. This was partially offset by the continued repricing in particular, during the beginning of the quarter prior to the recent increases in the targeted federal funds rate of maturing certificates of deposit to lower interest rates combined with a reduction in the average balance of higher cost certificates of deposit. As of June 30, 2022, there were approximately $130.0 million in retail certificates of deposit at a weighted average rate of 1.05% maturing in the next 12 months, and an additional $107.0 million maturing in the subsequent 12 to 24 months, at a weighted average rate of 1.70%. Advances from the FHLB were $95.0 million at both June 30, 2022, and March 31, 2022, compared to $120.0 million at June 30, 2021. 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. These cash flow hedge agreements have a weighted average remaining term of 53 months and a weighted average fixed rate of 1.05%. The average cost of borrowings was 1.21% for the quarter ended June 30, 2022, compared to 1.28% for the quarter ended March 31, 2022, and 1.37% for the quarter ended June 30, 2021.

The net interest margin was 3.53% for the quarter ended June 30, 2022, compared to 3.43% for the quarter ended March 31, 2022, and 3.36% for the quarter ended June 30, 2021. The increase in the net interest margin for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022, is due to several factors, primarily a 14-basis point improvement in the Company’s average yield on interest-earning assets during the quarter to 4.04% from 3.90%, partially offset by a five-basis point increase in the average cost of interest-bearing liabilities to 0.61% from 0.56%. The increase in net interest margin for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021, was due primarily to the 21-basis point reduction in the average cost of interest-bearing liabilities to 0.61% from 0.82%, partially offset by a two-basis point reduction in the average yield on interest-earning assets to 4.04% from 4.06%.

Noninterest income for the quarter ended June 30, 2022, totaled $961,000, compared to $789,000 for the quarter ended March 31, 2022, and $973,000 for the quarter ended June 30, 2021. The increase in noninterest income for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022, was primarily due to higher loan related fees, including a $127,000 increase in prepayment penalties, and to a lesser extent higher deposit related fees and wealth management revenue, partially offset by lower bank owned life insurance (“BOLI”) income.

Noninterest expense totaled $9.3 million for the quarter ended June 30, 2022, compared to $8.6 million for the quarter ended March 31, 2022, and $8.2 million for the quarter ended June 30, 2021. The increase in noninterest expense for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022, was primarily due to $279,000 in higher professional fees primarily relating to regulatory examination fees and fees paid to recruit employees, and a $217,000 increase in salaries and employee benefits as 25 open positions were filled during the quarter and incentive commissions were higher, primarily due to the increase in one-to-four family loan

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originations. Other general and administrative expense was also higher due to expenses relating to our annual meeting of shareholders, with postage and shareholder related expenses increasing by $71,000 compared to the previous quarter, and an increase of $23,000 in the reserve for unfunded commitments.

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 2022 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):