GlobeNewswire Inc | Oct 27, 2020 09:15AM EDT

October 27, 2020

RENTON, Wash., Oct. 27, 2020 (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 September 30, 2020, of $2.1million, or $0.21 per diluted share, compared to net income of $2.1million, or $0.22 per diluted share, for the quarter ended June30, 2020, and $2.5million, or $0.25 per diluted share, for the quarter ended September 30, 2019. For the nine months ended September30, 2020, net income was $5.9million, or $0.60 per diluted share, compared to net income of $7.8million, or $0.77 per diluted share, for the comparable nine-month period in 2019.

While 2020 has presented plenty of challenges to the banking industry, I am pleased with our response and many aspects of our Banks business, said Joseph W. Kiley III, President and Chief Executive Officer. First, I welcome all the new customers we are fortunate to have banking with us after, adhering to our mission, they experienced our relationship focused community bank service via the Paycheck Protection Program. Thanks to those new and existing customers, our employees, and our expanded office network we continued broadening our deposit base, which contributed to the decline in our cost of funds to 1.19% during the quarter, compared to 1.34% in the previous quarter and 1.82% for the fourth quarter of 2019. If interest rates remain low, we expect this trend to continue as we have approximately $260million in certificates of deposit maturing in the next 12months at a weighted average rate of 1.88%, continued Kiley.

I am also very pleased with the efforts of our credit team that continues working very closely with borrowers to help them navigate through their individual challenges. By providing borrowers with loan payment deferrals where appropriate, we are able to assist customers with their cash flow needs. I am happy to report that as of September 30, 2020, total loan balances under a payment deferral program declined to $65.5 million or 5.7% of total loans outstanding, compared to $132.1 million or 11.4% of total loans outstanding at June 30, 2020. In addition, working closely with our borrowers helps us identify borrowers that may need additional support or require closer monitoring. In the third quarter, we identified approximately $26.8 million in commercial real estate loans that required a reduction in loan grade classification. These loan grade reductions were the primary reason for the increase in our provision for loan losses to $700,000 in the quarter ended September30, 2020, compared to $300,000 in each of the two preceding quarters, added Kiley.

Finally, it is my pleasure to report that our 14th office opened October 5th in Gig Harbor, Washington, and a 15th office is scheduled to open in Issaquah, Washington, early next year. As noted previously, we expect to slow the pace of expansion following the opening of these two offices, concluded Kiley.

Highlights for the quarter ended September 30, 2020:

-- Net loans receivable declined slightly to $1.13billion at September30, 2020, compared to $1.14 billion at June30, 2020, but were up from $1.08billion at September30, 2019. -- The Bank reduced its brokered certificates of deposits by $22.4million ending the quarter with a balance of $10.0 million. -- The Companys book value per share was $15.62 at September30, 2020, compared to $15.32 at June30, 2020, and $15.06 at September30, 2019. -- The Company repurchased 155,049 shares during the quarter at an average price of $9.54 per share under a plan that went into effect on July30, 2020, authorizing the Company to repurchase up to 5% of its outstanding shares of common stock over a period of up to six months. -- The Company paid a regular quarterly cash dividend of $0.10 per share to shareholders. -- The Banks Tier 1 leverage and total capital ratios at September30, 2020, were 10.0% and 15.3%, respectively, compared to 10.0% and 15.0% at June30, 2020, and 10.1% and 14.4% at September30, 2019. -- Based on managements evaluation of the adequacy of the Allowance for Loan and Lease Losses (ALLL) and taking into account the estimated future impact of the COVID-19 pandemic, the Bank recorded a $700,000 provision for loan losses during the quarter.

Total deposits decreased $56.5million to $1.07billion at September30, 2020, from $1.13billion at June 30, 2020, primarily as a result of Paycheck Protection Program (PPP) loan-related deposits withdrawn during the quarter, and increased $52.9million from $1.02billion at September30, 2019. Demand deposits decreased $1.1 million and retail certificates of deposit decreased $31.8million during the quarter. The Bank further reduced its brokered deposits by $22.4 million in the quarter for a total reduction of $128.6 million over the past 12 months, while growing total deposits by $52.9 million during that period, reflecting, in part, deposits from its expanded office network.

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

Sep 30, Jun 30, Sep 30, Three One 2020 2020 2019 Month Year Change Change Deposits: (Dollars in thousands) Noninterest-bearing $ 82,376 $ 91,593 $ 49,398 $ (9,217 ) $ 32,978 demandInterest-bearing 110,856 102,707 8,149 57,659 demand 53,197Statement savings 19,292 18,946 346 (2,355 ) 21,647Money market 428,512 429,987 (1,475 ) 95,790 332,722Certificates ofdeposit, retail ^ 418,646 450,487 421,274 (31,841 ) (2,628 )(1)Certificates of 10,000 32,448 (22,448 ) (128,590 )deposit, brokered 138,590Total deposits $ 1,069,682 $ 1,126,168 $ 1,016,828 $ (56,486 ) $ 52,854

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $14,000 at September30, 2020, $17,000 at June30, 2020, and $34,000 at September30, 2019.

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

September 30, 2020 Noninterest-bearing Interest-bearing Statement Money Certificates Certificates demand demand savings market of deposit, of deposit, Total retail brokered (Dollars in thousands)King County Renton $ 35,066 $ 47,957 $ 14,677 $ 235,680 $ 335,675 $ - $ 669,055Landing 3,209 3,193 37 16,398 8,251 - 31,088Woodinville 3,086 6,608 703 12,589 8,514 - 31,500^(1)Bothell 2,270 2,104 54 4,675 3,290 - 12,393Crossroads 6,755 8,085 48 50,304 11,076 - 76,268Kent ^(^2) 5,452 8,277 - 13,802 1,070 - 28,601Kirkland ^ 4,534 56 1 2,627 - - 7,218(^2^)Total King 60,372 76,280 15,520 336,075 367,876 - 856,123County Snohomish CountyMill Creek 3,713 3,236 856 14,695 10,675 - 33,175Edmonds 5,853 13,865 485 28,229 19,300 - 67,732Clearview ^ 6,102 6,478 853 18,014 4,881 - 36,328(1)LakeStevens ^ 3,264 7,346 703 13,520 4,356 - 29,189(1)Smokey 2,733 3,137 875 16,173 11,558 - 34,476Point ^(1)TotalSnohomish 21,665 34,062 3,772 90,631 50,770 - 200,900County Pierce CountyUniversityPlace ^(^2 339 514 - 1,806 - - 2,659^)TotalPierce 339 514 - 1,806 - - 2,659County Totalretail 82,376 110,856 19,292 428,512 418,646 - 1,059,682depositsBrokered - - - - 10,000 10,000depositsTotal $ 82,376 $ 110,856 $ 19,292 $ $ 418,646 $ 10,000 $ 1,069,682deposits 428,512

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $14,000.(2) Kent office opened January31, 2019; Kirkland, November12, 2019; and University Place, March2, 2020.

June 30, 2020 Noninterest-bearing Interest-bearing Statement Money Certificates Certificates demand demand savings market of deposit, of deposit, Total retail brokered (Dollars in thousands)King County Renton $ 40,619 $ 48,670 $ 14,525 $ 242,453 $ 367,483 $ - $ 713,750Landing 3,338 1,892 31 15,306 8,587 - 29,154Woodinville 2,544 5,505 938 16,364 7,320 - 32,671^(1)Bothell 2,927 2,793 33 5,650 3,268 - 14,671Crossroads 7,435 6,516 158 51,674 11,756 - 77,539Kent ^(^2) 7,144 5,883 1 12,424 1,065 - 26,517Kirkland ^ 5,748 6 - 1,068 - - 6,822(^2^)Total King 69,755 71,265 15,686 344,939 399,479 - 901,124County Snohomish CountyMill Creek 3,969 2,120 799 15,029 10,729 - 32,646Edmonds 6,884 12,615 229 24,414 19,379 - 63,521Clearview ^ 4,999 5,953 868 15,278 4,859 - 31,957(1)LakeStevens ^ 2,985 6,788 618 13,794 4,213 - 28,398(1)Smokey 2,168 3,894 745 15,291 11,828 - 33,926Point ^(1)TotalSnohomish 21,005 31,370 3,259 83,806 51,008 - 190,448County Pierce CountyUniversityPlace ^(^2 833 72 1 1,242 - - 2,148^)TotalPierce 833 72 1 1,242 - - 2,148County Totalretail 91,593 102,707 18,946 429,987 450,487 - 1,093,720deposits Brokered - - - - - 32,448deposits 32,448Total deposits $ 91,593 $ 102,707 $ 18,946 $ 429,987 $ 450,487 $ $ 1,126,168 32,448

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $17,000.(2) Kent office opened January31, 2019; Kirkland, November12, 2019; and University Place, March2, 2020.

Net loans receivable totaled $1.13billion at September30, 2020, compared to $1.14billion at June30, 2020, and $1.08billion at September30, 2019. New commercial loan activity remains muted as borrowers appear to be focused on their existing loans in lieu of seeking out new opportunities. The average balance of net loans receivable totaled $1.14billion for the quarter ended September30, 2020, compared to $1.12billion for the quarter ended June30, 2020, and $1.07billion for the quarter ended September30, 2019.

The Company recorded a $700,000 provision for loan losses in the quarter ended September30, 2020, compared to a $300,000 provision for loan losses in the quarter ended June30, 2020, and a $100,000 provision for loan losses in the quarter ended September30, 2019. The provision in the quarter ended September30, 2020, was primarily attributed to reductions in loan grades during the quarter, including $26.8 million in Commercial Real Estate Loans that were downgraded, while the provision in the quarter ended June30, 2020, was primarily attributed to adjustments to economic factors due to COVID-19 in our Commercial Real Estate and Construction/Land portfolios. The provision in the quarter ended September30, 2019, was due primarily to growth in loans receivable. In the quarter ended September 30, 2020, any relationship that requested a second loan payment deferral, and demonstrated other weaknesses, received additional scrutiny which resulted in many of these loans being downgraded.

The ALLL represented 1.27% of total loans receivable at September30, 2020, compared to 1.20% at both June30, 2020, and September30, 2019. Excluding the PPP loan balances, which are 100% guaranteed by the Small Business Administration (SBA), the ALLL represented 1.33% of total loans receivable at September30, 2020, compared to 1.25% of total loans receivable at June30, 2020, and 1.20% at September30, 2019. The ALLL as a percent of total loans excluding PPP loans is a non-GAAP financial measure. See Non-GAAP Financial Measures at the end of this press release for a reconciliation to its nearest GAAP equivalent. Nonperforming loans totaled $2.1million at September30, 2020, compared to $2.2million at June30, 2020, and $137,000 at September30, 2019. The increase from the prior year is due to a $2.1million multifamily loan currently in foreclosure. Based on an impairment analysis and ongoing monitoring, the Company does not expect to incur a loss on this credit. Other than the $2.1million multifamily loan in foreclosure, there was only one consumer loan of $32,000 that was 30 days or more past due and not on loan payment deferral at September30, 2020. OREO remained unchanged at $454,000 at September30, 2020, June30, 2020, and September30, 2019.

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

Sep 30, Jun 30, Sep 30, Three One Month Year 2020 2020 2019 Change Change (Dollars in thousands)Nonperforming loans: One-to-four family $ $ 87 $ 98 $ (87 ) $ (98 )residentialMultifamily 2,104 2,104 2,104 Consumer 39 (39 )Total nonperforming loans 2,104 2,191 137 1,967 Other real estate owned 454 454 454 (?OREO?) Total nonperforming assets $ 2,558 $ 2,645 $ 591 $ (87 ) $ 1,967 ^(1) Nonperforming assets as a percent of total assets 0.19 % 0.19 % 0.05 %

(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 our TDRs were performing in accordance with their restructured terms at September30, 2020.

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 borrowers financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At September30, 2020, TDRs totaled $4.1million, down from $4.3million at June30, 2020, and $6.6million at September30, 2019. As discussed further below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March27, 2020 (CARES Act) provides guidance around the modification of loans as a result of the COVID19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not categorized as TDRs.

Net interest income for both the quarters ended September30, 2020, and June 30, 2020 totaled $10.1million, compared to $9.7 million for the quarter ended September30, 2019.

Interest income totaled $13.7million for the quarter ended September30, 2020, compared to $14.1million for the quarter ended June30, 2020, and $15.2million for the quarter ended September30, 2019. The decline in the current quarter compared to the quarter ended June 30, 2020, was primarily due to the continued decline in asset yields. In addition, the lower yielding PPP loans impacted the entire quarter ended September 30, 2020, compared to only a portion of the previous quarter. Further, the Bank received a payoff on a $7.7 million loan it had purchased at a premium, resulting in a reduction of $177,000 in interest income relating to the unamortized premium at the time of payoff. As a result, average loan yields declined to 4.49% at September30, 2020, compared to 4.72% at June 30, 2020, and 5.14% at September30, 2019. On a related note, the $7.7 million payoff also resulted in the receipt of a $233,000 prepayment penalty, which was included in noninterest income.

Total interest expense was $3.6million for the quarter ended September30, 2020, compared to $4.0million for the quarter ended June30, 2020, and $5.6million for the quarter ended September30, 2019. The average cost of interest-bearing deposits declined to 1.27% for the quarter ended September30, 2020, compared to 1.49% for the quarter ended June30, 2020, and 2.00% for the quarter ended September30, 2019. The decline from the quarter ended September 30, 2019, was due primarily to a reduced level of brokered deposits and retail certificates of deposits, along with a declining interest rate environment. Specifically, the Bank replaced higher cost retail certificates of deposit and brokered deposits with lower cost deposits through its branch network. During the quarter ended September 30, 2020, the Bank redeemed $5.0 million in callable brokered certificates of deposit that carried a coupon of 1.35%. That redemption resulted in the recognition of $20,000 in unamortized fees during the quarter ended September 30, 2020, compared to $1,500 in such fees in the quarter ended June30, 2020. Advances from the FHLB remained unchanged at $120.0million at September30, 2020, and June30, 2020, and were down slightly from $121.0million at September30, 2019. The average cost of borrowings was 1.28% for the quarter ended September30, 2020, compared to 1.08% for the quarter ended June 30, 2020, and 2.02% for the quarter ended September30, 2019. At September 30, 2020, the entire balance of our $120.0 million in borrowings were comprised of short-term FHLB advances tied to cash flow hedge agreements, utilized to assist in the Banks interest rate risk management efforts.

The net interest margin was 3.07% for the quarter ended September30, 2020, compared to 3.12% for the quarter ended June30, 2020, and 3.07% for the quarter ended September30, 2019. The modest reduction in the quarter ended September30, 2020, from the quarter ended June 30, 2020, relates primarily to the reduction in the Banks average yield on interest earning assets outpacing the average cost of interest-bearing liabilities, due in part to the $177,000 accelerated amortization of the premium related to the $7.7 million loan payoff noted above, and the recognition of $20,000 of unamortized fees relating to the early redemption of $5.0 million in callable brokered deposits.

Noninterest income for the quarter ended September30, 2020, totaled $1.0million, compared to $789,000 for the quarter ended June30, 2020, and $1.0million for the quarter ended September30, 2019. The increase in noninterest income for the quarter ended September30, 2020, compared to the quarter ended June 30, 2020, was primarily due to an increase in loan related fees due to prepayment penalties.

Noninterest expense totaled $7.9million for both the quarters ended September30, 2020, and June30, 2020, compared to $7.5million in the quarter ended September30, 2019. Salaries and employee benefits for the quarter ended September30, 2020, were higher than the quarter ended June 30, 2020, due primarily to the reclassification of the compensation expense related to PPP loan originations to loan direct costs in the quarter ended June 30, 2020. Noninterest expense increased from the same quarter last year as the Bank continued to pursue its branch expansion strategy, which resulted in higher salaries and benefits, occupancy and equipment and data processing expense among increases in other noninterest expenses.

COVID-19 Related Information

The Bank is committed to assisting its customers and communities in response to the COVID-19 pandemic. Under the CARES Act, it is providing certain short-term loan modifications. In addition, the Bank is participating in the PPP as an SBA lender. The Bank continues to take the steps necessary while working with its loan customers to effectively manage the portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis.

Paycheck Protection ProgramAs of September 30, 2020, the Bank had funded $52.0million in PPP loans, which represents 462 loans, a slight increase from the 455 loans totaling $51.7million as of June 30, 2020. Based on information provided with the borrowers applications, these funds are estimated to have provided support for approximately 5,000 jobs in the communities we serve. A total of 381 of these loans, or more than 82%, are for loan amounts of $150,000 or less and represent $18.0million of the total, of which 253 loans, representing $6.4million, are for loan amounts of $50,000 or less. As of October21, 2020, a total of 17 loan customers representing PPP loans totaling $3.8million had submitted loan forgiveness applications.

ModificationsThe primary method of relief is to allow the borrower to defer their loan payments for three to six months, while certain borrowers are allowed to pay interest only or have payment deferrals for periods longer than six months depending upon their specific circumstances. The CARES Act and regulatory guidelines suspend the determination of certain loan modifications related to the COVID19 pandemic from being treated as TDRs. The following table provides detail on the balance of loans remaining on deferral status as of September 30, 2020:

As of September30, 2020 Balance of loans with modifications of Balance of loans with modifications of Total balance of loans with Modifications as % 1-3 months greater than 3 months modifications granted Total loans of total loans in each category (Dollars in thousands) One-to-fourfamily $ 283 $ 1,765 $ 2,048 $ 391,871 0.5 %residentialMultifamily 2,349 142,619 1.6 - 2,349 Commercial real estate:Office - - - - 81,556Retail 8,667 121,338 7.1 - 8,667Mobile home - 25,510 - park - -Hotel/motel 35,117 50.8 - 35,117 69,157Nursing home - 6,368 12,868 49.5 6,368Warehouse 8,844 17,512 50.5 - 8,844Storage - - - 36,093 - Other 25,724 - non-residential - - -Totalcommercial real - 58,996 58,996 389,768 15.1 estate Construction/ - - land - - 99,598 Business: Aircraft - - - - 11,735SBA - 819 - - -PPP - 52,045 - - -Other business 1,899 1,899 9.0 - 21,181Total business - 1,899 1,899 85,780 2.2 Consumer: Classic/ collectible 86 105 191 27,784 0.7 autoOther consumer - 13,061 - - -Total consumer 86 191 0.5 105 40,845 Total loanswith COVID19 $ 369 $ 65,114 $ 65,483 $ 1,150,481 5.7 %pandemicmodifications

As of September30, 2020, $36.1million in loans had been granted modifications of greater than six months, of which $30.1million were for loans in the hotel/motel category. Total loans with modifications granted declined from $132.1million, or 11.4% of total loans outstanding, at June30, 2020.

Additional Loan Portfolio DetailsTotal balances drawn on outstanding lines of credit were $46.4million and the unused portion of lines of credit totaled $35.0million as of September30, 2020. At December31, 2019, total balances drawn on outstanding lines of credit were $47.1million and the unused portion of lines of credit totaled $38.1 million.

The Bank is monitoring its loan portfolio for delinquencies of loans that have not requested modification qualifying under the CARES Act or regulatory guidance. The following table presents the loan to value (LTV) ratios of select segments of our loan portfolio that we believe may be more likely to be impacted by COVID-19 pandemic considerations at September30, 2020. The LTV ratio is derived by dividing the current loan balance by the lower of the original appraised value or purchase price of the real estate or other collateral:

September 30, 2020 LTV 0-60% LTV 61-75% LTV 76%+ Total Average LTV Category: ^(1) (Dollars in thousands)One-to-four $ $ $ $ 52.89 %family 247,005 156,273 33,824 437,102Church 1,382 - - 1,382 46.77 Classic auto 4,359 10,349 13,076 27,784 68.22 Gas station 3,529 - 513 4,042 51.37 Hotel / motel 58,750 10,407 - 69,157 56.07 Marina 7,795 - - 7,795 37.97 Mobile home 19,870 5,465 175 25,510 39.85 parkNursing home 12,868 - - 12,868 20.87 Office 56,882 24,239 4,259 85,380 45.54 Other 7,761 4,745 - 12,506 49.01 non-residentialRetail 80,793 40,545 - 121,338 49.76 Storage 26,540 11,213 - 37,753 44.23 Warehouse 15,593 1,919 - 17,512 42.65

(1) Represents select segments of loans that may include construction loans; classifications may differ from those used elsewhere in this release because they are based on type of collateral rather than loan category.

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 14 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: 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 COVID19 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 Companys 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 2020 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 SUBSIDIARIESConsolidated Balance Sheets(Dollars in thousands, except share data)(Unaudited)

Sep 30, Jun 30, Sep 30, Three OneAssets 2020 2020 2019 Month Year Change Change Cash on hand and in $ 7,440 $ 7,688 $ 7,615 (3.2 )% (2.3 )%banksInterest-earning 18,674 66,250 6,103 (71.8 ) 206.0 deposits with banksInvestmentsavailable-for-sale, 126,020 128,874 138,224 (2.2 ) (8.8 )at fair valueAnnuity 2,406 2,395 0.5 n/a held-to-maturity -Loansreceivable, net ofallowance of 1,133,984 1,138,243 1,083,850 (0.4 ) 4.6 $14,568, $13,836and $13,161,respectivelyFederal Home LoanBank ("FHLB") 6,410 6,410 6,341 0.0 1.1 stock, at costAccrued interest 5,676 4,981 4,407 14.0 28.8 receivableDeferred tax 1,879 2,007 1,202 (6.4 ) 56.3 assets, netOther real estate 454 454 454 0.0 0.0 owned ("OREO")Premises and 22,409 22,222 22,346 0.8 0.3 equipment, netBank owned life 32,830 32,561 31,681 0.8 3.6 insurance ("BOLI")Prepaid expenses 1,704 1,513 2,756 12.6 (38.2 )and other assetsRight of use asset 3,834 2,972 1,486 29.0 158.0 Goodwill 889 889 889 0.0 0.0 Core deposit 860 896 1,005 (4.0 ) (14.4 )intangibleTotal assets $ 1,365,469 $ 1,418,355 $ 1,308,359 (3.7 ) 4.4 Liabilities andStockholders' Equity Deposits Noninterest-bearing $ 82,376 $ 91,593 $ 49,398 (10.1 ) 66.8 depositsInterest-bearing 987,306 1,034,575 967,430 (4.6 ) 2.1 depositsTotal deposits 1,069,682 1,126,168 1,016,828 (5.0 ) 5.2 Advances from the 120,000 120,000 121,000 0.0 (0.8 )FHLBAdvance paymentsfrom borrowers for 4,742 2,475 5,043 91.6 (6.0 )taxes and insuranceLease liability 3,942 3,070 1,513 28.4 160.5 Accrued interest 197 218 382 (9.6 ) (48.4 )payableOther liabilities 12,128 12,448 8,491 (2.6 ) 42.8 Total liabilities 1,210,691 1,264,379 1,153,257 (4.2 ) 5.0 Commitments and contingencies Stockholders' EquityPreferred stock,$0.01 par value;authorized $ $ $ - n/a n/a 10,000,000 shares; - -no shares issued oroutstandingCommon stock, $0.01par value;authorized90,000,000 shares;issued andoutstanding9,911,607 shares at 99 100 103 (1.0 ) (3.9 )September 30, 2020,10,048,961 sharesat June 30,2020,and 10,296,053shares at September30, 2019Additional paid-in 83,839 85,119 87,835 (1.5 ) (4.5 )capitalRetained earnings 76,300 75,181 71,592 1.5 6.6 Accumulated othercomprehensive loss, (3,203 ) (3,885 ) (1,042 ) (17.6 ) 207.4 net of taxUnearned EmployeeStock Ownership (2,257 ) (2,539 ) (3,386 ) (11.1 ) (33.3 )Plan ("ESOP")sharesTotal stockholders' 154,778 153,976 155,102 0.5 (0.2 )equityTotal liabilitiesand stockholders' $ 1,365,469 $ 1,418,355 $ 1,308,359 (3.7 )% 4.4 %equity

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

Quarter Ended Sep 30, Jun 30, Sep 30, Three One 2020 2020 2019 Month Year Change ChangeInterest income Loans, including $ 12,847 $ 13,183 $ 13,897 (2.5 )% (7.6 )%feesInvestments 751 796 1,066 (5.7 ) (29.5 )available-for-saleInvestments 6 9 - (33.3 ) n/aheld-to-maturityInterest-earningdeposits with 8 8 158 0.0 (94.9 )banksDividends on FHLB 82 81 97 1.2 (15.5 )StockTotal interest 13,694 14,077 15,218 (2.7 ) (10.0 )incomeInterest expense Deposits 3,206 3,666 5,037 (12.5 ) (36.4 )Other borrowings 400 344 529 16.3 (24.4 )Total interest 3,606 4,010 5,566 (10.1 ) (35.2 )expenseNet interest 10,088 10,067 9,652 0.2 4.5 incomeProvision for loan 700 300 100 133.3 600.0 lossesNet interestincome after 9,388 9,767 9,552 (3.9 ) (1.7 )provision for loanlosses Noninterest income Net gain on sale 18 69 88 (73.9 ) (79.5 )of investmentsBOLI income 269 254 235 5.9 14.5 Wealth management 145 183 245 (20.8 ) (40.8 )revenueDeposit related 201 184 179 9.2 12.3 feesLoan related fees 376 97 290 287.6 29.7 Other 2 2 2 0.0 0.0 Total noninterest 1,011 789 1,039 28.1 (2.7 )income Noninterest expenseSalaries and 4,880 4,801 4,813 1.6 1.4 employee benefitsOccupancy and 987 1,031 924 (4.3 ) 6.8 equipmentProfessional fees 371 455 440 (18.5 ) (15.7 )Data processing 731 687 478 6.4 52.9 OREO related 1 5 1 (80.0 ) 0.0 expenses, netRegulatory 134 127 13 5.5 930.8 assessmentsInsurance and bond 116 103 95 12.6 22.1 premiumsMarketing 41 29 118 41.4 (65.3 )Other general and 606 706 573 (14.2 ) 5.8 administrativeTotal noninterest 7,867 7,944 7,455 (1.0 ) 5.5 expenseIncome beforefederal income tax 2,532 2,612 3,136 (3.1 ) (19.3 )provisionFederal income tax 450 469 631 (4.1 ) (28.7 )provisionNet income $ 2,082 $ 2,143 $ 2,505 (2.8 )% (16.9 )% Basic earnings per $ 0.22 $ 0.22 $ 0.25 shareDiluted earnings $ 0.21 $ 0.22 $ 0.25 per shareWeighted averagenumber of common 9,661,498 9,808,854 9,901,586 shares outstandingWeighted averagenumber of diluted 9,675,567 9,819,664 9,991,011 shares outstanding

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

Nine Months Ended September 30, 2020 2019 One Year ChangeInterest income Loans, including $ 39,504 $ 40,784 (3.1 )%feesInvestments 2,466 3,334 (26.0 )available-for-saleInvestments 17 n/aheld-to-maturity -Interest-earningdeposits with 45 246 (81.7 )banksDividends on FHLB 240 290 (17.2 )StockTotal interest 42,272 44,654 (5.3 )incomeInterest expense Deposits 11,238 13,189 (14.8 )Other borrowings 1,214 2,255 (46.2 )Total interest 12,452 15,444 (19.4 )expenseNet interest 29,820 29,210 2.1 incomeProvision(recapture of 1,300 (300 ) (533.3 )provision) forloan lossesNet interestincome afterprovision 28,520 29,510 (3.4 )(recapture ofprovision) forloan losses Noninterest income Net gain on sale 86 80 7.5 of investmentsBOLI income 778 693 12.3 Wealth management 493 702 (29.8 )revenueDeposit related 560 555 0.9 feesLoan related fees 865 562 53.9 Other 7 26 (73.1 )Total noninterest 2,789 2,618 6.5 income Noninterest expenseSalaries and 14,893 14,547 2.4 employee benefitsOccupancy and 3,090 2,688 15.0 equipmentProfessional fees 1,257 1,262 (0.4 )Data processing 2,112 1,393 51.6 OREO related 7 33 (78.8 )expenses, netRegulatory 405 286 41.6 assessmentsInsurance and bond 339 288 17.7 premiumsMarketing 133 280 (52.5 )Other general and 1,843 1,670 10.4 administrativeTotal noninterest 24,079 22,447 7.3 expenseIncome beforefederal income tax 7,230 9,681 (25.3 )provisionFederal income tax 1,320 1,927 (31.5 )provisionNet income $ 5,910 $ 7,754 (23.8 )% Basic earnings per $ 0.60 $ 0.77 shareDiluted earnings $ 0.60 $ 0.77 per shareWeighted averagenumber of common 9,788,397 9,989,970 shares outstandingWeighted averagenumber of diluted 9,811,602 10,091,631 shares outstanding

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

September 30, 2020 June 30, 2020 September 30, 2019 Amount Percent Amount Percent Amount Percent (Dollars in thousands)Commercial real estate:Residential: Micro-unit $ 1.0 % $ 1.0 % $ 1.3 %apartments 11,422 11,177 13,877Other 131,197 11.4 148,194 12.8 157,275 14.3 multifamilyTotalmultifamily 142,619 12.4 159,371 13.8 171,152 15.6 residential Non-residential: Office 81,566 7.1 83,439 7.3 98,738 9.0 Retail 121,338 10.6 121,936 10.6 142,639 12.9 Mobile home park 25,510 2.2 25,961 2.2 23,070 2.1 Hotel / motel 69,157 6.0 68,165 5.9 27,572 2.5 Nursing Home 12,868 1.1 11,768 1.0 16,104 1.5 Warehouse 17,512 1.5 17,422 1.5 18,200 1.7 Storage 36,093 3.1 36,266 3.1 35,908 3.3 Other 25,724 2.3 25,793 2.2 19,659 1.8 non-residentialTotal 389,768 33.9 390,750 33.8 381,890 34.8 non-residential Construction/ land:One-to-fourfamily 45,231 4.0 45,128 3.9 47,524 4.3 residentialMultifamily 47,547 4.1 40,120 3.5 40,078 3.7 Commercial 5,475 0.5 6,134 0.5 15,913 1.5 Land development 1,345 0.1 5,115 0.4 6,400 0.6 Totalconstruction/ 99,598 8.7 96,497 8.3 109,915 10.1 land One-to-fourfamily residential:Permanent owner 214,250 18.6 208,484 18.1 205,679 18.7 occupiedPermanentnon-owner 177,621 15.4 173,729 15.1 164,707 15.0 occupiedTotalone-to-four 391,871 34.0 382,213 33.2 370,386 33.7 familyresidential Business: Aircraft 11,735 1.0 15,460 1.3 14,186 1.3 Small BusinessAdministration 819 0.1 737 0.1 - 0.0 ("SBA")PaycheckProtection Plan 52,045 4.5 51,661 4.5 - 0.0 ("PPP")Other business 21,181 1.8 18,212 1.6 23,321 2.1 Total business 85,780 7.4 86,070 7.5 37,507 3.4 Consumer: Classic Auto 27,784 2.4 24,767 2.1 14,636 1.3 Other consumer 13,061 1.2 14,464 1.3 11,815 1.1 Total consumer 40,845 3.6 39,231 3.4 26,451 2.4 Total loans 1,150,481 100.0 % 1,154,132 100.0 % 1,097,301 100.0 %Less: Deferred loan 1,929 2,053 290 fees, netALLL 14,568 13,836 13,161 Loans $ 1,133,984 $ 1,138,243 $ 1,083,850 receivable, net Concentrations of credit: ^(1)Constructionloans as % of 68.4 % 67.3 % 82.6 % total capitalTotal non-owneroccupiedcommercial real 407.1 % 420.7 % 444.9 % estate as % oftotal capital

(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 Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, 2020 2020 2020 2019 2019 (Dollars in thousands, except per share data)Performance Ratios: ^ (1)Return on assets 0.60 % 0.63 % 0.51 % 0.79 % 0.75 %Return on equity 5.34 5.59 4.30 6.64 6.41 Dividend payout 45.45 45.45 58.82 34.62 36.00 ratioEquity-to-assets 11.34 10.86 11.50 11.65 11.85 ratioTangible equity 11.22 10.74 11.38 11.53 11.73 ratio ^(2)Net interest margin 3.07 3.12 3.11 3.09 3.07 Averageinterest-earningassets to average 116.08 115.96 113.78 113.50 113.17 interest-bearingliabilitiesEfficiency ratio 70.88 73.18 77.60 71.04 69.73 Noninterest expenseas a percent of 2.26 2.33 2.51 2.40 2.24 average totalassetsBook value per $ 15.62 $ 15.32 $ 15.03 $ 15.25 $ 15.06 common shareTangible book value 15.44 15.14 14.85 15.07 14.88 per share ^(2) Capital Ratios: ^(^ 3^)Tier 1 leverage 10.03 % 10.02 % 10.25 % 10.27 % 10.13 %ratioCommon equity tier 14.01 13.70 13.42 13.13 13.14 1 capital ratioTier 1 capital 14.01 13.70 13.42 13.13 13.14 ratioTotal capital ratio 15.26 14.95 14.67 14.38 14.39 Asset Quality Ratios:Nonperforming loansas a percent of 0.18 % 0.19 % 0.20 % 0.01 % 0.01 %total loansNonperformingassets as a percent 0.19 0.19 0.20 0.04 0.05 of total assetsALLL as a percent 1.27 1.20 1.22 1.18 1.20 of total loansNet (recoveries)charge-offs to (0.00 ) (0.00 ) (0.00 ) (0.01 ) (0.00 )average loansreceivable, net Allowance for Loan Losses:ALLL, beginning of $ 13,836 $ 13,530 $ 13,218 $ 13,161 $ 13,057 the quarterProvision 700 300 300 - 100 Charge-offs - - - - - Recoveries 32 6 12 57 4 ALLL, end of the $ 14,568 $ 13,836 $ 13,530 $ 13,218 $ 13,161 quarter

(1) Performance ratios are calculated on an annualized basis.(2) Tangible equity ratio and tangible book value per share are non-GAAP financial measures. Refer to page 15 for reconciliation between the GAAP and nonGAAP financial measures.(3) Capital ratios are for First Financial Northwest Bank only.

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

At or For the Quarter Ended Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, 2020 2020 2020 2019 2019 (Dollars in thousands)Yields and Costs: ^ (1)Yield on loans 4.49 % 4.72 % 4.94 % 5.05 % 5.14 %Yield on investments 2.32 2.41 2.72 2.85 3.02 available-for-saleYield on investments 0.99 1.52 - - - held-to-maturityYield oninterest-earning 0.10 0.10 1.18 1.61 2.24 depositsYield on FHLB stock 4.95 4.84 4.62 4.84 6.81 Yield oninterest-earning 4.16 % 4.37 % 4.67 % 4.78 % 4.84 %assets Cost ofinterest-bearing 1.27 % 1.49 % 1.81 % 1.94 % 2.00 %depositsCost of borrowings 1.28 1.08 1.48 1.66 2.02 Cost ofinterest-bearing 1.27 % 1.44 % 1.77 % 1.91 % 2.00 %liabilities Cost of total 1.18 % 1.38 % 1.72 % 1.84 % 1.91 %depositsCost of funds 1.19 1.34 1.69 1.82 1.92 Average Balances: Loans $ 1,137,742 $ 1,122,913 $ 1,096,091 $ 1,087,558 $ 1,073,283 Investments 128,885 133,038 135,765 138,331 140,031 available-for-saleInvestments 2,399 2,378 2,061 - - held-to-maturityInterest-earning 32,701 30,989 10,555 11,572 27,992 depositsFHLB stock 6,592 6,736 6,615 5,897 5,649 Totalinterest-earning $ 1,308,319 $ 1,296,054 $ 1,251,087 $ 1,243,358 $ 1,246,955 assets Interest-bearing $ 1,002,518 $ 989,549 $ 970,062 $ 985,532 $ 998,123 depositsBorrowings 124,543 128,154 127,707 109,895 103,707 Totalinterest-bearing 1,127,061 1,117,703 1,097,769 1,095,427 1,101,830 liabilitiesNoninterest-bearing 81,694 82,750 53,199 50,951 47,613 depositsTotal deposits and $ 1,208,755 $ 1,200,453 $ 1,150,968 $ 1,146,378 $ 1,149,443 borrowings Average assets $ 1,383,736 $ 1,371,269 $ 1,324,845 $ 1,317,586 $ 1,319,777 Average stockholders' 154,988 154,115 157,492 156,147 155,057 equity

(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 which include: tangible assets; tangible book value per share; tangible equity to tangible assets ratio; and the ratio of the ALLL excluding PPP loans. 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 certain items and provides an alternative view of the Companys performance over time and in comparison to the Companys 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:

Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 (Dollars in thousands, except per share data)

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

Total stockholders' $ 154,778 $ 153,976 $ 153,092 $ 156,319 $ 155,102 equity (GAAP)Less: Goodwill 889 889 889 889 889 Core deposit 860 896 932 968 1,005 intangibleTangible equity $ 153,029 $ 152,191 $ 151,271 $ 154,462 $ 153,208 (Non-GAAP) Total assets 1,365,469 1,418,355 1,331,213 1,341,885 1,308,359 (GAAP)Less: Goodwill 889 889 889 889 889 Core deposit 860 896 932 968 1,005 intangibleTangible assets $ 1,363,720 $ 1,416,570 $ 1,329,392 $ 1,340,028 $ 1,306,465 (Non-GAAP) Common sharesoutstanding 9,911,607 10,048,961 10,184,411 10,252,953 10,296,053 at period end Equity to 11.34 % 10.86 % 11.50 % 11.65 % 11.85 %assets ratioTangible 11.22 10.74 11.38 11.53 11.73 equity ratioBook value $ 15.62 $ 15.32 $ 15.03 $ 15.25 $ 15.06 per shareTangible bookvalue per 15.44 15.14 14.85 15.07 14.88 share

ALLL on loans to total loans receivable, excluding PPP loans:

Allowancefor loan $ 14,568 $ 13,836 $ 13,530 $ 13,218 $ 13,161 losses Totalloans $ 1,150,481 $ 1,154,132 $ 1,105,959 $ 1,122,238 $ 1,097,301 (GAAP)Less: PPP loans 52,045 51,661 - - - Totalloansexcluding $ 1,098,436 $ 1,102,471 1,105,959 1,122,238 1,097,301 PPP loans(Non-GAAP) ALLL as apercent of 1.27 % 1.20 % 1.22 % 1.18 % 1.20 %totalloansALLL as apercent oftotal 1.33 % 1.25 1.22 1.18 1.20 loansexcludingPPP loans

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