FFNW First Financial Northwest Inc

Washington		001-33652		26-0610707
State or other jurisdiction of Incorporation		Commission File Number		(I.R.S. Employer Identification No.)
201 Wells Avenue South, Renton, Washington				98057
(Address of principal executive offices)				(Zip Code)

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		FFNW		The NASDAQ Stock Market LLC

99.1

First Financial Northwest, Inc.’s press release on second quarter 2024 operating results dated July 25, 2024

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 $1.6 Million or $0.17 Per Diluted Share for the Second Quarter Ended June 30, 2024

Renton, Washington – July 25, 2024 - First Financial Northwest, Inc. (the “Company”) (NASDAQ GS: FFNW), the holding company for First Financial Northwest Bank (the “Bank”), today reported net income of $1.6 million, or $0.17 per diluted share, for the quarter ended June 30, 2024, compared to a net loss of $1.1 million, or $(0.12) per diluted share, for the quarter ended March 31, 2024, and net income of $1.5 million, or $0.16 per diluted share, for the quarter ended June 30, 2023. For the six months ended June 30, 2024, net income was $480,000, or $0.05 per diluted share, compared to net income of $3.6 million, or $0.39 per diluted share, for the comparable period in 2023.

“During the second quarter, our financial results were positively impacted by the successful completion of a project to modify a large number of loans relating to our previously announced sale of the Bank to Global Federal Credit Union. Specifically, our balance sheet contained over $250 million of loans that are ineligible for a federally chartered credit union like Global to hold due to various aspects, primarily an original term greater than 15 years for non-owner occupied residential and commercial loans. As part of our Purchase and Assumption Agreement with Global, the Bank agreed to use its good faith efforts to modify or refinance these loans. I am very pleased that the outstanding efforts of our employees resulted in the modification or refinance of over $130 million of this portfolio,” stated Joseph W. Kiley III, President and CEO.

“As previously reported, our first quarter earnings were adversely impacted by the purchase of a single premium group annuity to satisfy the Company’s obligations to current and former employees covered by a legacy defined benefit plan. Extinguishing this liability at a pretax cost of $1.2 million was a strategic move considered to be an appropriate use of capital in light of the elevated rate environment. We also recognized $767,000 in pretax transaction related expenses in the first quarter of 2024, further adversely impacting our first quarter earnings. During the quarter ended June 30, 2024, we recognized $284,000 in pretax transaction expenses,” continued Kiley.

“While nonaccrual loans increased $4.5 million during the quarter ended June 30, 2024, overall credit quality remained strong, with only $4.7 million of nonaccrual loans relative to our $1.15 billion total loan portfolio. The increase in nonaccrual loans was due primarily to a $4.1 million commercial real estate loan moving to nonaccrual in the quarter. The loan is secured by a well-collateralized mixed-use property, and as such, we do not expect to incur a loss related to this credit. The property is currently under contract to sell, and we are in the early stages of working with the purchaser to potentially allow an assumption of the existing loan. Finally, we performed an analysis of the allowance for credit losses, which considered various factors including declines in loan balances, shifts in the composition of the loan portfolio, and credit grade changes. After careful consideration, our analysis concluded that a $200,000 recapture of provision for credit losses was appropriate,” concluded Kiley.

Highlights for the quarter ended June 30, 2024:

•	Net loans receivable totaled $1.14 billion at June 30, 2024, down $7.8 million from the prior quarter end.

•	Book value per share was $17.51 at June 30, 2024, compared to $17.46 at March 31, 2024, and $17.35 at June 30, 2023.

•	Paid a quarterly cash dividend to shareholders of $0.13 per share.

•	The Bank’s Tier 1 leverage and total capital ratios were 10.9% and 16.6% at June 30, 2024, compared to 10.4% and 16.2% at March 31, 2024, and 10.0% and 15.8% at June 30, 2023, respectively.

•	Credit quality remained strong with nonaccrual loans totaling $4.7 million, or 0.41% of total loans.

•	Recorded a $200,000 net recapture of provision for credit losses in the current quarter, compared to a $175,000 net recapture of provision for credit losses in the prior quarter and a $247,000 net recapture of provision for credit losses in the comparable quarter in 2023.

Deposits totaled $1.09 billion at June 30, 2024, compared to $1.17 billion at March 31, 2024, and $1.22 billion at June 30, 2023. The $78.7 million decline in deposits at June 30, 2024, compared to March 31, 2024, was due predominantly to a $38.2 million decrease in money market balances, $10.2 million reduction in brokered certificates of deposit and a $25.1 million decline in brokered deposits through the IntraFi Network, which was consistent with management’s strategy to reduce these higher cost deposits.

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 $1.14 billion at both June 30, 2024, and March 31, 2024, down from $1.17 billion at June 30, 2023. During the quarter ended June 30, 2024, loan repayments outpaced new originations across all loan categories except one-to-four family residential. The average balance of net loans receivable totaled $1.14 billion for the quarter ended June 30, 2024, compared to $1.16 billion for the quarter ended March 31, 2024, and $1.18 billion for the quarter ended June 30, 2023.

The allowance for credit losses (“ACL”) represented 1.29% of total loans receivable at June 30, 2024, compared to 1.30% at March 31, 2024, and 1.31% at June 30, 2023.

Nonaccrual loans totaled $4.7 million at June 30, 2024, compared to $201,000 at both March 31, 2024, and June 30, 2023. The increase in nonaccrual loans during the quarter was due primarily to the previously mentioned $4.1 million commercial real estate loan and an additional $400,000 in consumer loans moving to nonaccrual. The commercial real estate loan is well collateralized, and no losses are anticipated on this credit. There was no other real estate owned (“OREO”) at June 30, 2024, March 31, 2024, or June 30, 2023.

Net interest income totaled $9.0 million for the quarter ended June 30, 2024, compared to $8.9 million for the quarter ended March 31, 2024, and $10.3 million for the quarter ended June 30, 2023.

Total interest income was $19.3 million for the quarter ended June 30, 2024, compared to $19.6 million for the quarter ended March 31, 2024, and $19.7 million for the quarter ended June 30, 2023. The decline in total interest income during the current quarter was due to average interest-earning asset balances declining by $50.1 million and $99.8 million, respectively, compared to the prior periods. Yield on loans increased to 5.93% during the recent quarter, compared to 5.88% and 5.71% for the quarters ended March 31, 2024, and June 30, 2023, respectively. During the quarter ended June 30, 2024, the Bank modified over $130 million in loans in accordance with terms in its Purchase and Assumption Agreement (the “Agreement”) with Global Federal Credit Union (“Global”). Net deferred loan fees and costs recognition increased $214,000 compared to the quarter ended March 31, 2024, due in large part to this activity, which positively impacted the yield on loans in the current quarter. Yield on investment securities was 4.38% for the current quarter, up from 4.11% and 3.93% for the quarters ended March 31, 2024, and June 30, 2023, respectively, while the average balances of investment securities declined $29.0 million from the prior quarter, primarily due to the maturity of low yielding securities in recent months.

Total interest expense was $10.3 million for the quarter ended June 30, 2024, compared to $10.7 million for the quarter ended March 31, 2024, and $9.4 million for the quarter ended June 30, 2023. The decline from the quarter ended March 31, 2024, was due primarily to lower levels of deposits, particularly the managed decrease in brokered deposits, offset slightly by an increase in the cost of interest-bearing liabilities. The average cost of interest-bearing deposits was 3.71% for the quarter ended June 30, 2024, up from 3.69% and 3.06% for the quarters ended March 31, 2024 and June 30, 2023, respectively. Advances from the FHLB totaled $176.0 million at June 30, 2024, compared to $115.0 million at March 31, 2024, and $120.0 million at June 30, 2023. The increase in FHLB advances during the current quarter was to replace the decrease in money market deposits and management’s intentional reduction in brokered deposits. At June 30, 2024, $115.0 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 29.6 months and a weighted average fixed interest rate of 1.87% as of June 30, 2024. The average cost of borrowings was 2.64% for the quarter ended June 30, 2024, compared to 2.65% for the quarter ended March 31, 2024, and 2.55% for the quarter ended June 30, 2023.

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Net interest margin was 2.66% for the quarter ended June 30, 2024, compared to 2.55% for the quarter ended March 31, 2024, and 2.84% for the quarter ended June 30, 2023. The increase in the quarter ended June 30, 2024, was due primarily to the increase in net deferred loan fee recognition compared to the quarter ended March 31, 2024. This activity contributed to an increase in the average yield on interest-earning assets of 11 basis points to 5.73% during the second quarter of 2024, from 5.62% during the first quarter of 2024, and increased 30 basis points from 5.43% during the quarter ended June 30, 2023. The average cost of interest-bearing liabilities increased one basis point to 3.59% during the quarter, from 3.58% during the quarter ended March 31, 2024, and increased 58 basis points from 3.01% during the quarter ended June 30, 2023. The net interest margin for the month of June 2024 was 2.66%.

Noninterest income for the quarter ended June 30, 2024, totaled $673,000, down from $787,000 and $798,000 for the quarters ended March 31, 2024, and June 30, 2023, respectively. The decrease compared to the quarter ended March 31, 2024, was primarily due to fluctuations related to our fintech focused venture capital investment, a $41,000 decrease in wealth management revenue, and a $41,000 decrease in BOLI income due to timing differences, partially offset by a combined $58,000 increase in loan and deposit related fees.

Noninterest expense totaled $7.9 million for the quarter ended June 30, 2024, compared to $11.3 million for the quarter ended March 31, 2024, and $9.5 million for the quarter ended June 30, 2023. The decrease compared to the quarter ended March 31, 2024, was primarily due to a $2.9 million decrease in salaries and employee benefits, of which $1.4 million was related to the purchase of a single premium group annuity and accelerated amortization of related prepaid expense to satisfy the defined benefit liability, with no such expense in the current quarter. In addition, the aforementioned loan modification activity in the current quarter resulted in a $939,000 increase in deferred loan costs, which further decreased salaries and employee benefits expenses in the current period, along with reductions in estimates for profitability relative to targets causing in a $151,000 reduction in profit sharing contributions between quarters. Payroll taxes declined by $94,000 in the current quarter compared to the quarter ended March 31, 2024, as seasonal annual limits were reached during the second quarter. Professional fees declined by $551,000 during the current quarter compared to the March 31, 2024 quarter, due mostly to a $489,000 decrease in professional services related to our pending transaction with Global, since the signing of the Agreement with Global and related filings occurred during the first quarter of 2024. Also contributing to the decline in professional fees was an $83,000 reduction in external audit and accounting fees in the current quarter compared to the quarter ended March 31, 2024. The decrease compared to the quarter ended June 30, 2023, was primarily due to a $1.2 million decrease in salaries and employee benefits, a $243,000 decrease in other general and administrative expense, a $138,000 decrease in professional fees, a $97,000 decline in regulatory assessments and a $51,000 decrease in marketing expense, partially offset by higher data processing and occupancy and equipment 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 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.

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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. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, our pending transaction with Global Federal Credit Union (“Global”) whereby Global, pursuant to the definitive purchase and assumption agreement (the “P&A Agreement”), will acquire substantially all of the assets and assume substantially all of the liabilities of the Bank, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based on current management expectations and may, therefore, involve risks and uncertainties. Actual results may differ, possibly materially from those currently expected or projected in these forward-looking statements made by, or on behalf of, us and could negatively affect our operating and stock performance. 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 occurrence of any event, change or other circumstances that could give rise to the right of one or all of the parties to terminate the P&A Agreement; delays in completing the P&A Agreement; the failure to obtain necessary regulatory approvals or to satisfy any of the other conditions to the Global transaction, including the P&A Agreement, on a timely basis or at all; delays or other circumstances arising from the dissolution of the Bank and the Company following completion of the P&A Agreement; diversion of management’s attention from ongoing business operations and opportunities during the pending Global transaction; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement of the Global transaction; 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; changes in the interest rate environment, including the recent increases in the Federal Reserve benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; the effects of any federal government shutdown; increased competitive pressures; 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; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; effects of critical accounting policies and judgments, including the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; 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.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except per share data)

(Unaudited)

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

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Key Financial Measures
(Unaudited)