FFNW First Financial Northwest Inc

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, 2023, of $1.5 million, or $0.16 per diluted share, compared to $2.1 million, or $0.23 per diluted share, for the quarter ended March 31, 2023, and $2.8 million, or $0.31 per diluted share, for the quarter ended June 30, 2022. For the six months ended June 30, 2023, net income was $3.6 million, or $0.39 per diluted share, compared to net income of $6.1 million, or $0.66 per diluted share, for the comparable six-month period in 2022.

“The Bank first opened for business in July 1923, and we are honoring our 100 years of service to the community in several ways. We hosted events with customers, prospects and business associates and held community events at designated branches during the quarter. We expanded our social media outreach to highlight our exceptional history of delivering personalized financial services that provide unique, innovative solutions to our customers, including a video interview spotlighting H. A. “Harry” Blencoe, who served as Chairman of the Board and CEO from 1961 to 2005 and who celebrated his 99th birthday earlier this year. We also distributed tokens of our appreciation to our largest loan and deposit customers, as well as to each of our employees, as a special thank you for their continued support during the Bank’s 100-year anniversary,” stated Joseph W. Kiley III, President and CEO.

“Our financial results were affected during the quarter as a result of recognizing $419,200 in legal, accounting and other fees related to the unsuccessful negotiation of a potential business combination with another financial institution. Despite our best efforts, the parties were unable to come to a mutual agreement on the terms of merger,” stated Kiley.

“Credit quality at June 30, 2023, remained strong, with nonperforming assets totaling just $201,000 and additional loan delinquencies of only $175,000 on total loans receivable of $1.2 billion. A reduction in loans receivable during the quarter and a credit upgrade to a $2.1 million commercial real estate loan allowed the Company to recognize a $400,000 recapture of its provision for credit losses during the quarter,” continued Kiley.

“Competition for deposits continues to adversely impact our cost of funds. We continue to work to grow deposits throughout our branch network and are thankful for our loyal customer base. Our level of uninsured deposits was reduced to 21.5% at quarter end, down from 23.6% of deposits at March 31, 2023 and 27.4% at the end of 2022. I am truly appreciative of the efforts of our employees in assisting customers to maximize the coverage on their deposits,” concluded Kiley.

Highlights for the quarter ended June 30, 2023:

• The Company paid a regular quarterly cash dividend to shareholders of $0.13 per share.
• The Bank’s Tier 1 leverage and total capital ratios were 10.0% and 15.8% at June 30, 2023, compared to 10.2% and 15.6% at March 31, 2023, and 10.5% and 15.5% at June 30, 2022, respectively.
• Credit quality remained strong with nonperforming assets of $201,000, or 0.01% of total assets.
• Based on management’s evaluation of the adequacy of the Allowance for Credit Losses (“ACL”) at June 30, 2023, the Company recognized a $400,000 recapture of provision for credit losses during the quarter.

Deposits totaled $1.22 billion at June 30, 2023, compared to $1.23 billion at March 31, 2023, and $1.18 billion at June 30, 2022. Total deposits decreased $2.2 million in the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023. We continued to see customers shift funds from money market accounts into retail certificates of deposit, with the $16.5 million decrease in money market balances more than offset by the $27.0 million increase in retail certificates of deposit. The primary reason for the slight reduction in deposits during the quarter was our decision to reduce our balances of brokered deposits by $15.0 million. At June 30, 2023, the Company held $43.0 million in interest-earning deposits that can be used to fund loan growth or further reduce brokered deposits and/or other wholesale liabilities in future periods, compared to $71.0 million at March 31, 2023, and $26.2 million at June 30, 2022.

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

	Jun 30,2023			Mar 31,2023			Jun 30,2022			ThreeMonthChange				One Year Change
	(Dollars in thousands)
Deposits:
Noninterest-bearing demand	$	111,768		$	110,780		$	127,808		$	988			$	(16,040	)
Interest-bearing demand		89,080			86,183			107,478			2,897				(18,398	)
Savings		20,364			21,871			23,525			(1,507	)			(3,161	)
Money market		467,411			483,945			596,515			(16,534	)			(129,104	)
Certificates of deposit, retail		359,919			332,935			270,866			26,984				89,053
Brokered deposits		176,422			191,414			53,277			(14,992	)			123,145
Total deposits	$	1,224,964		$	1,227,128		$	1,179,469		$	(2,164	)		$	45,495

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

June 30, 2023
	Noninterest-bearing demand		Interest-bearing demand		Savings		Money market		Certificates of deposit, retail		Brokered deposits		Total
	(Dollars in thousands)
King County
Renton	$	31,802	$	41,857	$	12,952	$	237,814	$	254,016	$	-	$	578,441
Landing		2,773		1,831		137		15,120		8,657		-		28,518
Woodinville		2,440		2,653		1,032		10,077		14,647		-		30,849
Bothell		4,047		765		39		4,917		2,187		-		11,955
Crossroads		17,108		4,619		87		27,370		13,599		-		62,783
Kent		11,237		9,841		4		15,500		7,097		-		43,679
Kirkland		7,656		1,356		149		11,137		1,160		-		21,458
Issaquah		2,116		1,681		102		3,070		5,594		-		12,563
Total King County		79,179		64,603		14,502		325,005		306,957		-		790,246
Snohomish County
Mill Creek		5,797		2,638		591		15,209		7,140		-		31,375
Edmonds		12,384		7,659		895		28,177		12,871		-		61,986
Clearview		4,888		4,490		1,576		19,928		7,872		-		38,754
Lake Stevens		3,465		4,038		1,071		30,899		10,802		-		50,275
Smokey Point		2,953		4,619		1,715		42,192		11,846		-		63,325
Total Snohomish County		29,487		23,444		5,848		136,405		50,531		-		245,715
Pierce County
University Place		2,428		83		3		3,817		926		-		7,257
Gig Harbor		674		950		11		2,184		1,505		-		5,324
Total Pierce County		3,102		1,033		14		6,001		2,431		-		12,581
Brokered deposits		-		-		-		-		-		176,422		176,422
Total deposits	$	111,768	$	89,080	$	20,364	$	467,411	$	359,919	$	176,422	$	1,224,964

March 31, 2023
	Noninterest-bearing demand		Interest-bearing demand		Savings		Money market		Certificates of deposit, retail		Brokered deposits		Total
	(Dollars in thousands)
King County
Renton	$	33,227	$	44,884	$	14,033	$	238,966	$	244,560	$	-	$	575,670
Landing		2,721		1,407		184		15,056		6,411		-		25,779
Woodinville		3,084		2,438		1,116		10,971		14,101		-		31,710
Bothell		4,066		659		60		5,263		2,067		-		12,115
Crossroads		11,766		2,956		95		35,242		11,956		-		62,015
Kent		9,505		9,305		4		18,415		3,449		-		40,678
Kirkland		7,318		1,282		99		10,643		627		-		19,969
Issaquah		2,128		1,189		27		3,825		4,627		-		11,796
Total King County		73,815		64,120		15,618		338,381		287,798		-		779,732
Snohomish County
Mill Creek		7,001		3,089		617		12,487		6,190		-		29,384
Edmonds		15,282		6,247		884		26,726		13,183		-		62,322
Clearview		4,933		4,485		1,640		19,490		6,999		-		37,547
Lake Stevens		4,177		3,577		1,355		33,824		9,197		-		52,130
Smokey Point		2,836		4,287		1,745		46,825		7,782		-		63,475
Total Snohomish County		34,229		21,685		6,241		139,352		43,351		-		244,858
Pierce County
University Place		2,189		82		3		3,999		946		-		7,219
Gig Harbor		547		296		9		2,213		840		-		3,905
Total Pierce County		2,736		378		12		6,212		1,786		-		11,124
Brokered deposits		-		-		-		-		-		191,414		191,414
Total deposits	$	110,780	$	86,183	$	21,871	$	483,945	$	332,935	$	191,414	$	1,227,128

Net loans receivable totaled $1.17 billion at June 30, 2023, compared to $1.18 billion at March 31, 2023, and $1.12 billion at June 30, 2022. At June 30, 2023, loan totals were down across all categories except consumer loans which increased by $2.3 million. The average balance of net loans receivable totaled $1.18 billion for the quarter ended June 30, 2023, compared to $1.17 billion for the quarter ended March 31, 2023, and $1.12 billion for the quarter ended June 30, 2022.

The ACL to total loans was 1.31% and 1.33% at June 30, 2023 and March 31, 2023, respectively, compared to allowance for loan and lease losses (“ALLL”) to total loans receivable of 1.33% at June 30, 2022.

There was $201,000 in nonperforming loans at June 30, 2023, compared to $193,000 at March 31, 2023, and none at June 30, 2022. There was no other real estate owned (“OREO”) at June 30, 2023, March 31, 2023, and June 30, 2022.

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

	Jun 30,2023				Mar 31,2023				Jun 30,2022				Three MonthChange			One YearChange
	(Dollars in thousands)
Nonperforming loans:
Consumer	$	201			$	193			$	–			$	8		$	201
Total nonperforming loans		201				193				–
OREO		–				–				–				–			–
Total nonperforming assets	$	201			$	193			$	–			$	8		$	201
Nonperforming assets as a percent of total assets		0.01	%			0.01	%			0.00	%

Net interest income totaled $10.3 million for the quarter ended June 30, 2023, compared to $11.3 million for the quarter ended March 31, 2023, and $11.8 million for the quarter ended June 30, 2022. The decrease in the current quarter compared to the quarter ended March 31, 2023, was primarily due to higher interest expense on deposits and other borrowings, primarily reflecting the continued increase in market interest rates due to the ongoing increases to the targeted federal funds rate, and continued intense competition for deposits, partially offset by higher interest income on loans and investment securities. Since March 2022, the Federal Open Market Committee of the Federal Reserve System has increased the target range for the federal funds rate by 500 basis points, including 25 basis points during the second quarter of 2023, to a range of 5.00% to 5.25%.

Total interest income was $19.7 million for the quarter ended June 30, 2023, compared to $18.5 million for the quarter ended March 31, 2023, and $13.5 million for the quarter ended June 30, 2022. The increase in the current quarter compared to the prior quarters was primarily due to an improvement in the average yield on loans and investments due in large part to recent increases in the targeted federal funds rate. Loan yield increased to 5.71% during the recent quarter, compared to 5.56% and 4.41% for the quarters ended March 31, 2023 and June 30, 2022, respectively. Yield on investment securities increased to 3.93% during the current quarter, compared to 3.88% and 2.33% for the quarters ended March 31, 2023 and June 30, 2022, respectively.

Total interest expense was $9.4 million for the quarter ended June 30, 2023, compared to $7.2 million for the quarter ended March 31, 2023, and $1.7 million for the quarter ended June 30, 2022. The average cost of interest-bearing deposits was 3.06% for the quarter ended June 30, 2023, compared to 2.41% for the quarter ended March 31, 2023, and 0.55% for the quarter ended June 30, 2022. The increase from the quarter ended March 31, 2023, was due primarily to increased interest expense on money market and certificate of deposit balances in a highly competitive marketplace for deposits and the costs from brokered deposits and other wholesale sources used to meet our funding needs. Advances from the FHLB totaled $120.0 million at June 30, 2023, compared to $160.0 million at March 31, 2023, and $95.0 million at June 30, 2022. At June 30, 2023, $95.0 million of our FHLB advances were 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 had a weighted average remaining term of 41 months and a weighted average fixed interest rate of 1.05% as of June 30, 2023. Subsequent to quarter end, the Bank entered into two additional pay fixed cash flow hedges where the Bank pays a fixed rate and in return receives an amount based on the Secured Overnight Financing Rate (“SOFR”). The first is a $15.0 million notional, two-year swap where the Bank pays a fixed rate of 4.57% and the second is a $15.0 million notional, three-year swap where the Bank pays a fixed rate of 4.15%. These hedges are intended to provide protection to the Bank in the event that market rates rise further or stay at these elevated levels for longer than current market expectations. The average cost of borrowings was 2.55% for the quarter ended June 30, 2023, compared to 2.69% for the quarter ended March 31, 2023, and 1.21% for the quarter ended June 30, 2022.

Net interest margin was 2.84% for the quarter ended June 30, 2023, compared to 3.22% for the quarter ended March 31, 2023, and 3.53% for the quarter ended June 30, 2022. The decrease in net interest margin for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, was due primarily to the cost of interest-bearing liabilities increasing more than the yields on interest-earnings assets, with a 57-basis point increase in the Company’s average cost of interest-bearing liabilities to 3.01% from 2.44%, partially offset by a 14-basis point increase in the average yield on interest-earning assets to 5.43% from 5.29%.

Noninterest income for the quarter ended June 30, 2023, totaled $798,000, compared to $665,000 for the quarter ended March 31, 2023, and $961,000 for the quarter ended June 30, 2022. The increase for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, was primarily due to a $135,000 increase in other noninterest income and, to a lesser extent, an increase in wealth management revenue and deposit related fees, partially offset by decreases in loan related fees and income on bank-owned life insurance (“BOLI”). The decrease for the quarter ended June 30, 2023, compared to the prior year quarter, primarily reflects lower loan related fees.

Noninterest expense totaled $9.7 million for the quarter ended June 30, 2023, compared to $9.0 million for the quarter ended March 31, 2023, and $9.3 million for the quarter ended June 30, 2022. The increase in noninterest expense for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, was primarily due to increases in professional fees, other general and administrative expenses and regulatory assessments. Professional fees increased $470,000, primarily due to $419,200 in expenses related to the exploration, negotiation and due diligence associated with a potential business combination which was abandoned during the second quarter of 2023. Other general and administrative fees increased $399,000 during the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, primarily due to the recognition of approximately $190,000 in one-time expenses relating to business relations and customer appreciation in conjunction with our 100-year celebration, and a $115,000 increase to our ACL on unfunded loan commitments. Regulatory assessments increased $166,000 during the second quarter of 2023 compared to the first quarter of 2023 due to a year-to-date true up of expenses relating to an increase in deposit insurance assessments instituted earlier in the year. These increases were partially offset by a $397,000 reduction in salaries and employee benefits as we refined and reduced our 2023 estimates for incentive compensation and profit-sharing accruals. The increase in noninterest expense for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022, primarily reflects $475,000 in higher other general and administrative expenses, $177,000 in regulatory assessments and $156,000 in professional fees, partially offset by a $414,000 decrease in salaries and employee benefits and a $45,000 decrease in occupancy and equipment expense, primarily for the reasons set forth above.

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: potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as supply chain disruptions; higher inflation and the impact of current and future monetary policies of the Federal Reserve in response thereto; increased competitive pressures; changes in the interest rate environment; legislative and regulatory changes; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other reports filed with or furnished to 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 2023 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.

For more information, contact:Joseph W. Kiley III, President and Chief Executive OfficerRich Jacobson, Executive Vice President and Chief Financial Officer(425) 255-4400

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated Balance Sheets(Dollars in thousands)(Unaudited)

Assets	Jun 30,2023				Mar 31,2023				Jun 30,2022				ThreeMonthChange			OneYearChange
Cash on hand and in banks	$	10,621			$	9,618			$	9,458			10.4	%		12.3	%
Interest-earning deposits with banks		42,956				70,998				26,194			(39.5	)		64.0
Investments available-for-sale, at fair value		208,927				214,948				210,826			(2.8	)		(0.9	)
Investments held-to-maturity, at amortized cost		2,444				2,439				2,432			0.2			0.5
Loans receivable, net of allowance of $15,606, $16,028, and $15,125 respectively		1,171,916				1,184,750				1,119,795			(1.1	)		4.7
Federal Home Loan Bank ("FHLB") stock, at cost		6,603				8,203				5,512			(19.5	)		19.8
Accrued interest receivable		6,690				7,011				5,738			(4.6	)		16.6
Deferred tax assets, net		3,275				2,990				1,840			9.5			78.0
Premises and equipment, net		20,283				20,732				21,855			(2.2	)		(7.2	)
Bank owned life insurance ("BOLI"), net		36,922				36,647				35,819			0.8			3.1
Prepaid expenses and other assets		13,051				11,336				10,493			15.1			24.4
Right of use asset ("ROU"), net		3,018				3,194				3,301			(5.5	)		(8.6	)
Goodwill		889				889				889			0.0			0.0
Core deposit intangible, net		484				516				616			(6.2	)		(21.4	)
Total assets	$	1,528,079			$	1,574,271			$	1,454,768			(2.9	)%		5.0	%
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits	$	111,768			$	110,780			$	127,808			0.9	%		(12.6	)%
Interest-bearing deposits		1,113,196				1,116,348				1,051,661			(0.3	)		5.9
Total deposits		1,224,964				1,227,128				1,179,469			(0.2	)		3.9
Advances from the FHLB		120,000				160,000				95,000			(25.0	)		26.3
Advance payments from borrowers for taxes and insurance		2,524				5,447				2,670			(53.7	)		(5.5	)
Lease liability, net		3,213				3,374				3,482			(4.8	)		(7.7	)
Accrued interest payable		2,045				749				115			173.0			1678.3
Other liabilities		16,618				17,928				17,136			(7.3	)		(3.0	)
Total liabilities		1,369,364				1,414,626				1,297,872			(3.2	)%		5.5	%
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 9,148,086 shares at June 30, 2023, 9,148,086 shares at March 31, 2023, and 9,091,533 shares at June 30, 2022		92				92				91			0.0	%		1.1	%
Additional paid-in capital		72,544				72,445				71,835			0.1			1.0
Retained earnings		95,896				95,597				90,066			0.3			6.5
Accumulated other comprehensive loss,net of tax		(9,817	)			(8,489	)			(4,814	)		15.6			103.9
Unearned Employee Stock Ownership Plan ("ESOP") shares		-				-				(282	)		n/a			(100.0	)
Total stockholders' equity		158,715				159,645				156,896			(0.6	)		1.2
Total liabilities and stockholders' equity	$	1,528,079			$	1,574,271			$	1,454,768			(2.9	)%		5.0	%

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

	Quarter Ended
	Jun 30,2023				Mar 31,2023				Jun 30,2022			ThreeMonthChange			OneYearChange
Interest income
Loans, including fees	$	16,849			$	16,029			$	12,273		5.1	%			37.3		%
Investments		2,108				2,105				1,156		0.1				82.4
Interest-earning deposits with banks		620				236				37		162.7				1575.7
Dividends on FHLB Stock		120				130				71		(7.7	)			69.0
Total interest income		19,697				18,500				13,537		6.5				45.5
Interest expense
Deposits		8,590				6,332				1,398		35.7				514.4
Other borrowings		798				912				315		(12.5	)			153.3
Total interest expense		9,388				7,244				1,713		29.6				448.0
Net interest income		10,309				11,256				11,824		(8.4	)			(12.8		)
(Recapture of provision) provision for credit losses		(400	)			300				-		(233.3	)			n/a
Net interest income after (recapture of provision) provision for credit losses		10,709				10,956				11,824		(2.3	)			(9.4		)
Noninterest income
BOLI income		274				308				251		(11.0	)			9.2
Wealth management revenue		95				45				104		111.1				(8.7		)
Deposit related fees		252				223				246		13.0				2.4
Loan related fees		44				91				354		(51.6	)			(87.6		)
Other		133				(2	)			6		(6750.0	)			2116.7
Total noninterest income		798				665				961		20.0				(17.0		)
Noninterest expense
Salaries and employee benefits		5,064				5,461				5,478		(7.3	)			(7.6		)
Occupancy and equipment		1,160				1,165				1,205		(0.4	)			(3.7		)
Professional fees		887				417				731		112.7				21.3
Data processing		711				686				692		3.6				2.7
Regulatory assessments		267				101				90		164.4				196.7
Insurance and bond premiums		115				130				113		(11.5	)			1.8
Marketing		98				77				96		27.3				2.1
Other general and administrative		1,355				956				880		41.7				54.0
Total noninterest expense		9,657				8,993				9,285		7.4				4.0
Income before federal income tax provision		1,850				2,628				3,500		(29.6	)			(47.1		)
Federal income tax provision		362				506				692		(28.5	)			(47.7		)
Net income	$	1,488			$	2,122			$	2,808		(29.9	)%			(47.0		)%
Basic earnings per share	$	0.16			$	0.23			$	0.31
Diluted earnings per share	$	0.16			$	0.23			$	0.31
Weighted average number of common shares outstanding		9,120,468				9,104,371				8,982,969
Weighted average number of diluted shares outstanding		9,124,227				9,173,276				9,085,913

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

	June 30, 2023							March 31, 2023							June 30, 2022
	Amount				Percent			Amount				Percent			Amount				Percent
Commercial real estate:
Residential:
Other multifamily	$	141,413			11.9	%		$	143,332			11.9	%		$	135,879			12.0	%
Total multifamily residential		141,413			11.9				143,332			11.9				135,879			12.0
Non-residential:
Office		79,338			6.7				79,793			6.6				84,884			7.5
Retail		131,877			11.1				130,788			11.0				139,425			12.2
Mobile home park		22,798			1.9				21,992			1.8				22,264			2.0
Hotel / motel		64,297			5.4				67,165			5.6				57,224			5.0
Nursing home		11,739			1.0				12,260			1.0				12,527			1.1
Warehouse		19,557			1.6				19,780			1.6				19,056			1.7
Storage		33,418			2.8				33,604			2.8				34,167			3.0
Other non-residential		43,332			3.7				43,523			3.7				43,350			3.8
Total non-residential		406,356			34.2				408,905			34.1				412,897			36.3
Construction/land:
One-to-four family residential		47,168			4.0				53,948			4.5				34,578			3.1
Multifamily		547			0.0				(131	)		0.0				4,805			1.4
Land development		10,113			0.9				9,786			0.8				24,483			1.2
Total construction/land		57,828			4.9				63,603			5.3				63,866			5.7
One-to-four family residential:
Permanent owner occupied		246,585			20.8				242,477			20.2				211,491			18.7
Permanent non-owner occupied		235,008			19.8				240,183			20.0				223,670			19.8
Total one-to-four family residential		481,593			40.6				482,660			40.2				435,161			38.5
Business:
Aircraft		2,017			0.2				2,052			0.1				3,130			0.3
Small Business Administration ("SBA")		1,824			0.2				499			0.1				538			0.1
Paycheck Protection Plan ("PPP")		629			0.1				707			0.1				1,511			0.1
Other business		22,957			1.8				28,401			2.3				28,489			2.5
Total business		27,427			2.3				31,659			2.6				33,668			3.0
Consumer:
Classic, collectible and other auto		61,611			5.1				59,962			5.0				43,695			3.7
Other consumer		11,294			1.0				10,657			0.9				9,754			0.8
Total consumer		72,905			6.1				70,619			5.9				53,449			4.5
Total loans		1,187,522			100.0	%			1,200,778			100.0	%			1,134,920			100.0	%
Less:
ACL		15,606							16,028							15,125
Loans receivable, net	$	1,171,916						$	1,184,750						$	1,119,795
Concentrations of credit: (1)
Construction loans as % of total capital		40.0	%						44.9	%						45.2	%
Total non-owner occupied commercial real estate as % of total capital		336.8	%						347.7	%						360.0	%

(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 SUBSIDIARIESKey Financial Measures(Unaudited)

	At or For the Quarter Ended
	Jun 30,2023				Mar 31,2023				Dec 31,2022				Sep 30,2022				Jun 30,2022
	(Dollars in thousands, except per share data)
Performance Ratios: (1)
Return on assets		0.39	%			0.57	%			0.86	%			1.06	%			0.79	%
Return on equity		3.74				5.31				8.04				9.88				7.11
Dividend payout ratio		79.90				56.52				34.29				27.40				38.51
Equity-to-assets ratio		10.39				10.14				10.67				10.64				10.78
Tangible equity-to-assets ratio (2)		10.31				10.06				10.58				10.55				10.69
Net interest margin		2.84				3.22				3.52				3.65				3.53
Average interest-earning assets to average interest-bearing liabilities		116.27				117.78				117.93				119.08				120.21
Efficiency ratio		86.95				75.44				65.84				66.80				72.62
Noninterest expense as a percent of average total assets		2.50				2.42				2.30				2.43				2.60
Book value per common share	$	17.35			$	17.45			$	17.57			$	17.30			$	17.26
Tangible book value per common share (2)		17.20				17.30				17.41				17.14				17.09
Capital Ratios: (3)
Tier 1 leverage ratio		10.02	%			10.24	%			10.31	%			10.43	%			10.53	%
Common equity tier 1 capital ratio		14.49				14.33				14.37				14.24				14.22
Tier 1 capital ratio		14.49				14.33				14.37				14.24				14.22
Total capital ratio		15.75				15.59				15.62				15.49				15.47
Asset Quality Ratios: (4)
Nonperforming loans as a percent of total loans		0.02	%			0.02	%			0.02	%			0.02	%			0.00	%
Nonperforming assets as a percent of total assets		0.01				0.01				0.01				0.02				0.00
ACL as a percent of total loans		1.31				1.33				1.29				1.27				1.33
Net (recoveries) charge-offs to average loans receivable, net		0.00				(0.00	)			(0.00	)			(0.00	)			0.00
Allowance for Credit Losses:
ACL, beginning of the quarter	$	16,028			$	15,227			$	14,726			$	15,125			$	15,159
Beginning balance adjustment from adoption of Topic 326		-				500				-				-				-
(Recapture of provision) provision for credit losses		(400	)			300				500				(400	)			-
Charge-offs		(22	)			-				-				-				(37	)
Recoveries		-				1				1				1				3
ACL, end of the quarter	$	15,606			$	16,028			$	15,227			$	14,726			$	15,125

(1) Performance ratios are calculated on an annualized basis.(2) Represent non-GAAP financial measures. Tangible equity-to-tangible assets ratio is calculated by dividing tangible equity by tangible assets. Tangible book value per common share is calculated by dividing tangible equity by common shares outstanding at period end. Tangible equity and tangible assets exclude goodwill and core deposit intangible assets. Refer to Non-GAAP Financial Measures at the end of this press release for a reconciliation to the nearest GAAP equivalents.(3) Capital ratios are for First Financial Northwest Bank only.(4) Loans are reported net of undisbursed funds.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESKey Financial Measures(Unaudited)

	For the Quarter Ended
	Jun 30,2023				Mar 31,2023				Dec 31,2022				Sep 30,2022				Jun 30,2022
	(Dollars in thousands)
Yields and Costs: (1)
Yield on loans		5.71	%			5.56	%			5.19	%			4.77	%			4.41	%
Yield on investments		3.93				3.88				3.60				2.90				2.33
Yield on interest-earning deposits		4.91				4.40				3.31				2.02				0.67
Yield on FHLB stock		7.06				7.30				4.58				5.56				4.82
Yield on interest-earning assets		5.43	%			5.29	%			4.90	%			4.43	%			4.04	%
Cost of interest-bearing deposits		3.06	%			2.41	%			1.51	%			0.87	%			0.55	%
Cost of borrowings		2.55				2.69				2.46				1.48				1.21
Cost of interest-bearing liabilities		3.01	%			2.44	%			1.63	%			0.93	%			0.61	%
Cost of total deposits		2.78	%			2.17	%			1.36	%			0.78	%			0.49	%
Cost of funds		2.76				2.23				1.48				0.84				0.55
Average Balances:
Loans	$	1,182,939			$	1,168,539			$	1,150,181			$	1,132,233			$	1,117,079
Investments		215,113				219,969				221,113				220,244				198,819
Interest-earning deposits		50,691				21,729				24,608				24,565				22,010
FHLB stock		6,814				7,219				7,710				5,923				5,905
Total interest-earning assets	$	1,455,557			$	1,417,456			$	1,403,612			$	1,382,965			$	1,343,813
Interest-bearing deposits	$	1,126,598			$	1,065,827			$	1,040,357			$	1,056,079			$	1,013,080
Borrowings		125,275				137,600				149,946				105,272				104,835
Total interest-bearing liabilities	$	1,251,873			$	1,203,427			$	1,190,303			$	1,161,351			$	1,117,915
Noninterest-bearing deposits	$	111,365			$	115,708			$	121,518			$	125,561			$	131,415
Total deposits and borrowings	$	1,363,238			$	1,319,135			$	1,311,821			$	1,286,912			$	1,249,330
Average assets	$	1,547,321			$	1,509,297			$	1,496,125			$	1,470,816			$	1,431,003
Average stockholders' equity		159,764				162,016				159,120				158,515				158,349

(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 that include tangible equity, tangible assets, tangible book value per share, and the tangible equity-to-assets ratio. 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 goodwill and core deposit intangible, net 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:

	Quarter Ended
	Jun 30,2023		Mar 31,2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022
	(Dollars in thousands, except per share data)

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

Total stockholders' equity (GAAP)	$	158,715			$	159,645			$	160,360			$	157,890			$	156,896
Less:
Goodwill		889				889				889				889				889
Core deposit intangible, net		484				516				548				582				616
Tangible equity (Non-GAAP)	$	157,342			$	158,240			$	158,923			$	156,419			$	155,391
Total assets (GAAP)	$	1,528,079			$	1,574,271			$	1,502,916			$	1,484,311			$	1,454,768
Less:
Goodwill		889				889				889				889				889
Core deposit intangible, net		484				516				548				582				616
Tangible assets (Non-GAAP)	$	1,526,706			$	1,572,866			$	1,501,479			$	1,482,840			$	1,453,263
Common shares outstanding at period end		9,148,086				9,148,086				9,127,595				9,127,595				9,091,533
Equity-to-assets ratio (GAAP)		10.39	%			10.14	%			10.67	%			10.64	%			10.78	%
Tangible equity-to-tangible assets ratio (Non-GAAP)		10.31	%			10.06				10.58				10.55				10.69
Book value per common share (GAAP)	$	17.35			$	17.45			$	17.57			$	17.30			$	17.26
Tangible book value per share (Non-GAAP)		17.20				17.30				17.41				17.14				17.09