GlobeNewswire Inc | Jul 28, 2020 09:10AM EDT

July 28, 2020

RENTON, Wash., July 28, 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 June 30, 2020, of $2.1million, or $0.22 per diluted share, compared to net income of $1.7million, or $0.17 per diluted share, for the quarter ended March31, 2020, and $3.3million, or $0.33 per diluted share, for the quarter ended June 30, 2019. For the six months ended June30, 2020, net income was $3.8million, or $0.39 per diluted share, compared to net income of $5.2million, or $0.52 per diluted share, for the comparable sixmonth period in 2019.

As we all know, the first six months of 2020 have been quite different than we initially anticipated, said Joseph W. Kiley III, President and Chief Executive Officer. I am extremely proud that through it all the First Financial Northwest team has maintained its strength, integrity and passion. While we took necessary precautions to support our team with flexible work accommodations and to manage COVID19 health risks, we also demonstrated our high touch philosophy to meet the needs and expectations of our customers, communities, and shareholders. We delivered quality solutions by working with existing customers in a variety of ways and invited new customers to experience our superior service via the Paycheck Protection Program. In the three months ending on June 30, 2020, we had facilitated 455 PPP loans totaling $51.7million, with the potential to support upwards of 5,000 jobs, continued Kiley.

I am also very pleased with the progress being made to reduce our cost of funds and improve our deposit mix. During the quarter, our cost of funds declined to 1.34% compared to 1.69% in the previous quarter, with demand deposits increasing $72.0 million, continued Kiley. We also saw our net interest margin increase slightly even though we added over $50million of lower-yielding PPP loans in the quarter.

Kiley stated, As a result of economic concerns because of the COVID-19 pandemic, we again increased our allowance for loan loss risk factors for certain loan categories, which resulted in a provision for loan losses of $300,000 for the second quarter. Without the adjustment for COVID19 related economic factors, we would not have recorded a provision for loan losses in the quarter.

While I am very positive about our geographical expansion strategy and our success to date, as well as the market opportunities offered with the two new offices planned for Gig Harbor in Pierce County and Issaquah in King County, we expect to slow the pace of expansion in the current environment, concluded Kiley.

Highlights for the quarter ended June 30, 2020:

-- Paycheck Protection Program (PPP) loans totaled $51.7 million. -- Net loans receivable increased $46.1million to $1.14 billion at June30, 2020, from $1.09billion at March31, 2020, and $85.6million from $1.05billion at June30, 2019. -- Total deposits increased 12.6% to $1.13billion as of June30, 2020, from $1.00billion at March31, 2020, and 9.8% from $1.03billion at June30, 2019. -- The Bank received regulatory approval to open offices in Gig Harbor, Pierce County, Washington, and Issaquah, King County, Washington. -- The Companys book value per share was $15.32 at June30, 2020, compared to $15.03 at March31, 2020, and $14.83 at June30, 2019. -- The Company repurchased 135,450 shares during the quarter at an average price of $9.42 per share under a stock repurchase plan that expired on July27, 2020. -- The Companys Board of Directors authorized a new stock repurchase plan to repurchase up to 5% of its outstanding shares of common stock effective July30, 2020, for 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 June30, 2020, were 10.0% and 15.0%, respectively, compared to 10.3% and 14.7%, respectively, at both March31, 2020, and June30, 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 $300,000 provision for loan losses during the quarter ended June30, 2020.

Total deposits at June30, 2020, increased $126.2million to $1.13billion, from $1.00billion at March 31, 2020, and was up $100.5million from $1.03billion at June30, 2019. Demand deposits increased $72.0 million during the quarter, due in large part to deposits related to PPP loans funded during the quarter. The continued success of our deposit gathering efforts through our expanded branch network has allowed the Company to reduce its dependence on brokered deposits and FHLB advances as sources of funds.

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

Jun 30, Mar 31, Jun 30, Three One 2020 2020 2019 Month Year Change ChangeDeposits: (Dollars in thousands) Noninterest-bearing $ 91,593 $ $ 49,219 $ $ demand 53,519 38,074 42,374Interest-bearing 50,414 demand 102,707 68,803 33,904 52,293Statement savings 18,946 22,593 ) 17,040 1,906 (3,647Money market 310,587 429,987 397,489 32,498 119,400Certificates of deposit, retail ^ 450,487 437,676 412,134 12,811 38,353 (1)Certificates of 32,448 180,763 )deposit, brokered 25,457 6,991 (148,315Total deposits $ $ $ $ $ 1,126,168 999,984 1,025,710 126,184 100,458

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $17,000 at June30, 2020, $22,000 at March31, 2020, and $41,000 at June30, 2019.

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

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

(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.

March 31, 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 $ 28,624 $ 22,619 $ $ $ $ - $ 13,811 230,235 355,710 650,999Landing 4,476 2,173 36 13,286 9,821 - 29,792Woodinville 1,705 5,623 733 15,790 6,908 - 30,759^(1)Bothell 556 886 20 6,221 3,297 - 10,980Crossroads 4,894 10,197 5 47,714 11,689 - 74,499Kent ^(2) 472 2,961 - 10,736 1,061 - 15,230Kirkland ^ 253 11 - - - - 264(2)Total King 40,980 44,470 14,605 323,982 388,486 - 812,523County Snohomish CountyMill Creek 2,292 3,610 467 18,619 10,552 - 35,540Edmonds 3,352 10,952 210 22,591 18,920 - 56,025Clearview ^ 3,627 4,596 753 13,288 4,775 - 27,039(1)LakeStevens ^ 2,024 2,446 468 7,142 4,240 - 16,320(1)Smokey 1,244 2,715 537 11,656 10,703 - 26,855Point ^(1)TotalSnohomish 12,539 24,319 2,435 73,296 49,190 - 161,779County Pierce CountyUniversity - 14 - 211 - - 225Place ^(2)TotalPierce - 14 - 211 - - 225CountyTotalretail 53,519 68,803 17,040 397,489 437,676 - 974,527deposits Brokered - - - - - 25,457 25,457depositsTotal $ 53,519 $ 68,803 $ $ $ $ 25,457 $ deposits 17,040 397,489 437,676 999,984

(1) Balance of retail certificates of deposit for acquired branches are net of an unamortized aggregate fair value adjustment of $22,000.(2) Kent office opened January31, 2019; Kirkland, November12, 2019; and University Place, March2, 2020.

Net loans receivable increased to $1.14billion at June30, 2020, from $1.09billion at March31, 2020, and $1.05billion at June30, 2019. PPP loan originations of $51.7 million contributed to this quarterly increase. The average balance of net loans receivable totaled $1.12billion for the quarter ended June30, 2020, compared to $1.10billion for the quarter ended March31, 2020, and $1.05billion for the quarter ended June30, 2019.

The Company recorded a $300,000 provision for loan losses in both the quarters ended June30, 2020, and March31, 2020, and a recapture of provision for loan losses of $800,000 in the quarter ended June30, 2019. The provision in the quarter ended June30, 2020, was primarily attributed to adjustments to economic factors due to COVID-19 primarily in our Commercial Real Estate and Construction/Land portfolios. The provision in the quarter ended March31, 2020, was due primarily to forecasted credit deterioration for all loans categories in response to disruption caused by the COVID-19 pandemic. The $800,000 recapture of provision for loan losses in the quarter ended June30, 2019, was primarily due to the recapture of provision associated with a single construction loan with a balance of $11.6million after an impairment analysis concluded that the Bank did not anticipate incurring losses on the loan.

The ALLL represented 1.20% of total loans receivable at June30, 2020, compared to 1.22% at both March31, 2020, and June30, 2019. Excluding the PPP loan balances, which are 100% guaranteed by the Small Business Administration, the ALLL represented 1.25% of total loans receivable at June30, 2020. Nonperforming loans totaled $2.2million at both June30, 2020, and March31, 2020, compared to $146,000 at June30, 2019. The increase from the prior year is due to a $2.1million multifamily loan currently in foreclosure. Based on an impairment analysis conducted in the first quarter of 2020, the Company does not expect to incur a loss on this credit. As of June30, 2020, there were no loans 30 days or more past due that had not requested a deferral other than the $2.1million multifamily loan in foreclosure and one consumer loan of less than $10,000. OREO remained unchanged at $454,000 at June30, 2020, March31, 2020, and June30, 2019.

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

Jun 30, Mar 31, Jun 30, Three One Month Year 2020 2020 2019 Change Change (Dollars in thousands)Nonperforming loans: One-to-four family $ 87 $ 91 $ 103 $ (4 ) $ (16 )residentialMultifamily 2,104 2,104 2,104 Consumer 43 (43 )Total nonperforming loans 2,191 2,195 146 (4 ) 2,045 Other real estate owned 454 454 454 (?OREO?) Total nonperforming assets ^ $ 2,645 $ 2,649 $ 600 $ (4 ) $ 2,045 (1) Nonperforming assets as a percent of total assets 0.19 % 0.20 % 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 June30, 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 June30, 2020, TDRs totaled $4.3million, compared to $5.0million at March31, 2020, and $6.7million at June30, 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 TDRs.

Net interest income for the quarter ended June30, 2020, totaled $10.1million, compared to $9.7million for each of the quarters ended March31, 2020, and June30, 2019.

Interest income totaled $14.1million for the quarter ended June30, 2020, compared to $14.5million for the quarter ended March31, 2020, and $14.9million for the quarter ended June30, 2019. The decline in the current quarter compared to the quarter ended March31, 2020, was primarily due to the recent decline in interest rates as the Federal Reserves Open Market Committee dramatically reduced its short-term interest rate targets by 150 basis points in March 2020 in response to the COVID-19 pandemic. This partially impacted the results for the quarter ended March 31, 2020, however it had a larger impact with the low rates in place for the entire quarter ended June 30, 2020. In addition, the yields on the PPP loans originated during the quarter ended June 30, 2020 were well below the yields in the remainder of our loan portfolio. As a result, average loan yields declined to 4.72% at June30, 2020, compared to 4.94% at March31, 2020, and 5.19% at June30, 2019.

Total interest expense was $4.0million for the quarter ended June30, 2020, compared to $4.8million for the quarter ended March31, 2020, and $5.2million for the quarter ended June30, 2019. In addition to improving our deposit mix by increasing lower cost demand deposits, we were able to successfully reduce the rates paid on our interest-bearing deposits during the quarter ended June 30, 2020. As a result, the average cost of deposits declined to 1.49% for the quarter ended June30, 2020, compared to 1.81% for the quarter ended March31, 2020, and 1.89% for the quarter ended June30, 2019. The decline from the quarter ended June 30, 2019, was due primarily to a reduced level of brokered deposits and a declining interest rate environment. Specifically, we replaced higher cost brokered deposits with retail deposits through our branch network and FHLB advances obtained in conjunction with interest rate swaps to secure lower long-term interest rates. Advances from the FHLB totaled $120.0million at June30, 2020, compared to $160.0million at March31, 2020, and $105.0million at June30, 2019. The average cost of borrowings was 1.08% for the quarter ended June 30, 2020, compared to 1.48% for the quarter ended March31, 2020, and 2.28% for the quarter ended June 30, 2019. At June 30, 2020, the entire balance of our $120.0 million in borrowings were short-term FHLB advances tied to long-term interest rate swaps. During the quarter ended March31, 2020, we entered into interest rate swap transactions totaling $45.0 million. In addition, we entered into $25.0 million in forward starting interest rate swaps beginning October 25, 2021, to partially replace a $50.0 million swap maturing on that date.

Total stockholders equity increased slightly to $154.0million at June30, 2020, from $153.1million at March 31, 2020, primarily due to net income partially offset by share repurchases. The Companys book value per common share increased to $15.32 at June30, 2020, from $15.03 at March31, 2020, due in part to the Companys success in repurchasing shares well below book value per share during the quarter.

The net interest margin was 3.12% for the quarter ended June30, 2020, compared to 3.11% for the quarter ended March31, 2020, and 3.23% for the quarter ended June30, 2019. The modest improvement in the quarter ended June30, 2020, from the quarter ended March 31, 2020, relates primarily to the reduction in our cost of interest-bearing liabilities outpacing the reduction in yield on interest-earning assets. The decline in net interest margin for the quarter ended June30, 2020, compared to the quarter ended June30, 2019, was due primarily to a significant decline in interest-earning asset yields, partially offset by a decline in cost of interest-bearing liabilities.

Noninterest income for the quarter ended June30, 2020, totaled $789,000, compared to $990,000 for the quarter ended March31, 2020, and $879,000 for the quarter ended June30, 2019. The decrease in noninterest income for the quarter ended June30, 2020, compared to the quarter ended March31, 2020, was primarily due to a reduction in loan prepayment penalties. The decrease from the year-ago quarter was primarily due to lower loan prepayment penalties in the quarter ended June30, 2020, and fees received on new loan interest rate swap agreements in the quarter ended June30, 2019.

Noninterest expense totaled $7.9million for the quarter ended June30, 2020, compared to $8.3million for the quarter ended March31, 2020, and $7.3million in the quarter ended June30, 2019. Salaries and employee benefits for the quarter ended June30, 2020, decreased from the quarter ended March31, 2020, primarily due to a reduction in stock-based compensation elements reflecting the recent decline in the Companys stock price, along with the reclassification of the compensation expense related to PPP loan originations to loan direct costs. Other general and administrative expenses increased in the current quarter due to an increase in the Companys unfunded commitment reserve. Unfunded commitments totaled $114.0million as of June30, 2020, compared to $102.9million as of March31, 2020. The change in unfunded commitments resulted in a $29,000 expense for the quarter ended June30, 2020, compared to a recapture of expense of $72,000 for the quarter ended March31, 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 due to the growth in our operations.

COVID-19 Related Information

As noted above, in response to the current global situation surrounding the COVID-19 pandemic, we are providing assistance to our customers in a variety of ways and participating in the PPP offered under the CARES Act as a Small Business Administration (SBA) lender, and taking the steps necessary while working with our loan customers to effectively manage our portfolio through the ongoing uncertainty surrounding the duration, impact and government response to the crisis. The following is presented to outline certain activities in this regard:

Paycheck Protection ProgramAs of June 30, 2020, we had originated 455 requests for PPP loans totaling approximately $51.7million. A total of 375 of these loans, or more than 82%, are for loan amounts of $150,000 or less and represent $17.8million of the total. According to data received from customers in this process, these funds will assist small businesses who provided approximately 5,000 jobs in the community to retain employees. We are very proud of the countless hours our employees spent processing these applications and helping so many small businesses.

ModificationsThe primary method of relief is to allow the borrower to defer their loan payments for three to nine months, while others have been provided the opportunity to pay interest only 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 modifications approved and processed through June 30, 2020:

As of June30, 2020 Balance of Balance of Total balance Total loans Modifications loans with loans with of loans with as of as % of total modifications modifications modifications June 30, loans as of of 1-3 months of greater granted 2020 June 30, 2020 than 3 months (Dollars in thousands) One-to-fourfamily $ 20,605 $ 7,367 $ 27,972 $ 382,213 7.3 %residentialMultifamily 4,657 2,877 7,534 159,371 4.7 Commercial real estate:Office 2,408 - 2,408 83,439 2.9 Retail 16,094 7,636 23,730 121,936 19.5 Mobile home - - - 25,961 - parkHotel/motel 996 39,027 40,023 68,165 58.7 Nursing home 5,400 6,368 11,768 11,768 100.0 Warehouse - 8,796 8,796 17,422 50.5 Storage - - - 36,266 - Other 2,114 - 2,114 25,793 8.2 non-residentialTotalcommercial real 27,012 61,827 88,839 390,750 22.7 estate Construction/ 1,100 - 1,100 96,497 1.1 land Business: Aircraft 1,364 - 1,364 15,460 8.8 SBA - - - 737 - PPP - - - 51,661 - Other business 2,065 657 2,722 18,212 14.9 Total business 3,429 657 4,086 86,070 4.7 Consumer: Classic/collectible 1,831 - 1,831 24,767 7.4 autoOther consumer 760 - 760 14,464 5.3 Total consumer 2,591 - 2,591 39,231 6.6 Total loanswith COVID?19 $ 59,394 $ 72,728 $ 132,122 $ 1,154,132 11.4 %pandemicmodifications

As of July16, 2020, $16.6million in loans included in the table above for which the deferral period had expired had resumed their scheduled payments. Extension requests were approved on eight loans with a total balance of $17.6million which were previously modified.

Additional Loan Portfolio DetailsTotal balances drawn on outstanding lines of credit as of December31, 2019, were $47.1million and the unused portion of lines of credit totaled $38.1 million. As of March 31, 2020, total balances drawn increased slightly to $48.4million with $30.3million in available lines of credit remaining. At June 30, 2020, total balances drawn declined to $46.6 million and the unused portion of lines of credit totaled $35.1million.

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 June30, 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:

June 30, 2020 LTV 0-60% LTV 61-75% LTV 76%+ Total Average LTVCategory: ^(1) (Dollars in thousands)One-to-four $ 236,995 $ $ $ 48.13 %family 151,660 37,206 425,861Church 1,392 - - 1,392 47.81 Classic auto 3,501 9,948 11,318 24,767 69.02 Gas station 3,547 - 517 4,064 54.92 Hotel / motel 58,534 9,347 - 67,881 47.61 Marina 7,808 - - 7,808 38.05 Mobile home 19,701 6,260 - 25,961 34.03 parkNursing home 12,868 - - 12,868 20.87 Office 53,861 26,234 2,922 83,017 48.17 Other 6,478 4,762 - 11,240 50.69 non-residentialRetail 75,482 40,706 - 116,188 50.46 Storage 26,438 11,254 - 37,692 53.67 Warehouse 15,341 1,930 - 17,271 49.51

(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 13 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.

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, except share data)(Unaudited)

Jun 30, Mar 31, Jun 30, Three OneAssets 2020 2020 2019 Month Year Change Change Cash on hand and in $ $ 6,453 $ 8,119 19.1 % (5.3 )%banks 7,688Interest-earning 66,250 22,063 22,579 200.3 193.4 deposits with banksInvestmentsavailable-for-sale, 128,874 132,159 141,581 (2.5 ) (9.0 )at fair valueAnnuity 2,395 2,371 - 1.0 n/a held-to-maturityLoans receivable,net of allowance of $13,836, $13,530, 1,138,243 1,092,128 1,052,676 4.2 8.1 and $13,057,respectivelyFederal Home LoanBank ("FHLB") 6,410 8,010 5,701 (20.0 ) 12.4 stock, at costAccrued interest 4,981 4,302 4,650 15.8 7.1 receivableDeferred tax 2,007 2,227 1,379 (9.9 ) 45.5 assets, netOther real estate 454 454 454 0.0 0.0 owned ("OREO")Premises and 22,222 22,591 21,944 (1.6 ) 1.3 equipment, netBank owned life 32,561 32,290 31,446 0.8 3.5 insurance ("BOLI")Prepaid expenses 1,513 1,898 3,492 (20.3 ) (56.7 )and other assetsRight of use asset 2,972 2,446 1,609 21.5 84.7 ("ROU")Goodwill 889 889 889 0.0 0.0 Core deposit 896 932 1,042 (3.9 ) (14.0 )intangibleTotal assets $ $ 1,331,213 $ 6.5 % 9.3 % 1,418,355 1,297,561 Liabilities andStockholders' Equity Deposits Noninterest-bearing $ 91,593 $ 53,519 $ 49,219 71.1 % 86.1 %depositsInterest-bearing 1,034,575 946,465 976,491 9.3 5.9 depositsTotal deposits 1,126,168 999,984 12.6 9.8 1,025,710Advances from the 120,000 160,000 105,000 (25.0 ) 14.3 FHLBAdvance paymentsfrom borrowers for 2,475 4,960 2,844 (50.1 ) (13.0 )taxes and insuranceLease liability 3,070 2,538 1,633 21.0 88.0 Accrued interest 218 236 461 (7.6 ) (52.7 )payableOther liabilities 12,448 10,403 8,085 19.7 54.0 Total liabilities 1,264,379 7.3 10.5 1,178,121 1,143,733 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;authorized 90,000,000 shares;issued andoutstanding10,048,961shares atJune 30, 2020, 10,184,411 sharesat March 31, 2020,and 10,375,325shares at June 30, 100 102 104 (2.0 ) (3.8 )2019Additional paid-in 85,119 86,357 88,725 (1.4 ) (4.1 )capitalRetained earnings 75,181 74,017 69,976 1.6 7.4 Accumulated othercomprehensive loss, (3,885 ) (4,563 ) (1,309 ) (14.9 ) 196.8 net of taxUnearned EmployeeStock Ownership (2,539 ) (2,821 ) (3,668 ) (10.0 ) (30.8 )Plan ("ESOP")sharesTotal stockholders' 153,976 153,092 153,828 0.6 0.1 equityTotal liabilities and stockholders' $ 1,418,355 $ 1,331,213 $ 1,297,561 6.5 % 9.3 %equity

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

Quarter Ended Jun 30, Mar 31, Jun 30, Three One Year 2020 2020 2019 Month Change ChangeInterest income Loans, including $ 13,183 $ 13,474 $ 13,606 (2.2 )% (3.1 )%feesInvestments 796 919 1,109 (13.4 ) (28.2 )available-for-saleInvestments 9 - - n/a n/a held-to-maturityInterest-earningdeposits with 8 31 48 (74.2 ) (83.3 )banksDividends on FHLB 81 76 102 6.6 (20.6 )StockTotal interest 14,077 14,500 14,865 (2.9 ) (5.3 )incomeInterest expense Deposits 3,666 4,366 4,330 (16.0 ) (15.3 )Borrowings 344 470 829 (26.8 ) (58.5 )Total interest 4,010 4,836 5,159 (17.1 ) (22.3 )expenseNet interest 10,067 9,664 9,706 4.2 3.7 incomeProvision(recapture of 300 300 (800 ) 0.0 (137.5 )provision) forloan lossesNet interestincome afterprovision 9,767 9,364 10,506 4.3 (7.0 )(recapture ofprovision) forloan losses Noninterest income Net gain on sale 69 - - n/a n/a of investmentsBOLI income 254 254 189 0.0 34.4 Wealth management 183 165 261 10.9 (29.9 )revenueDeposit related 184 176 205 4.5 (10.2 )feesLoan related fees 97 392 209 (75.3 ) (53.6 )Other 2 3 15 (33.3 ) (86.7 )Total noninterest 789 990 879 (20.3 ) (10.2 )income Noninterest expenseSalaries and 4,801 5,212 4,734 (7.9 ) 1.4 employee benefitsOccupancy and 1,031 1,071 898 (3.7 ) 14.8 equipmentProfessional fees 455 430 326 5.8 39.6 Data processing 687 694 397 (1.0 ) 73.0 OREO related 5 1 1 400.0 400.0 expenses, netRegulatory 127 144 136 (11.8 ) (6.6 )assessmentsInsurance and bond 103 120 88 (14.2 ) 17.0 premiumsMarketing 29 64 76 (54.7 ) (61.8 )Other general and 706 532 627 32.7 12.6 administrativeTotal noninterest 7,944 8,268 7,283 (3.9 ) 9.1 expenseIncome beforefederal income tax 2,612 2,086 4,102 25.2 (36.3 )provisionFederal income tax 469 402 798 16.7 (41.2 )provisionNet income $ 2,143 $ 1,684 $ 3,304 27.3 % (35.1 )% Basic earnings per $ 0.22 $ 0.17 $ 0.33 shareDiluted earnings $ 0.22 $ 0.17 $ 0.33 per shareWeighted average number of common 9,808,854 9,896,234 9,952,419 shares outstandingWeighted average number of diluted 9,819,664 9,978,060 10,046,355 shares outstanding

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

Six Months Ended June 30, 2020 2019 One Year ChangeInterest income Loans, including fees $ 26,657 $ 26,887 (0.9 )%Investments available-for-sale 1,715 2,268 (24.4 )Investments held-to-maturity 11 - n/a Interest-earning deposits with 37 88 (58.0 )banksDividends on FHLB Stock 157 193 (18.7 )Total interest income 28,577 29,436 (2.9 )Interest expense Deposits 8,032 8,152 (1.5 )Borrowings 814 1,726 (52.8 )Total interest expense 8,846 9,878 (10.4 )Net interest income 19,731 19,558 0.9 Provision (recapture of 600 (400 ) (250.0 )provision) for loan lossesNet interest income afterprovision (recapture of 19,131 19,958 (4.1 )provision) for loan losses Noninterest income Net gain (loss) on sale of 69 (8 ) (962.5 )investmentsBOLI income 509 458 11.1 Wealth management revenue 348 457 (23.9 )Deposit related fees 359 376 (4.5 )Loan related fees 489 272 79.8 Other 4 24 (83.3 )Total noninterest income 1,778 1,579 12.6 Noninterest expense Salaries and employee benefits 10,013 9,734 2.9 Occupancy and equipment 2,103 1,764 19.2 Professional fees 885 822 7.7 Data processing 1,381 915 50.9 OREO related expenses, net 6 32 (81.3 )Regulatory assessments 271 273 (0.7 )Insurance and bond premiums 223 193 15.5 Marketing 93 162 (42.6 )Other general and administrative 1,236 1,097 12.7 Total noninterest expense 16,211 14,992 8.1 Income before federal income tax 4,698 6,545 (28.2 )provisionFederal income tax provision 871 1,296 (32.8 )Net income $ 3,827 $ 5,249 (27.1 )% Basic earnings per share $ 0.39 $ 0.52 Diluted earnings per share $ 0.39 $ 0.52 Weighted average number of common shares outstanding 9,852,544 10,034,895Weighted average number of diluted shares outstanding 9,890,239 10,132,107

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

June 30, 2020 March 31, 2020 June 30, 2019 Amount Percent Amount Percent Amount Percent

Commercial real (Dollars in thousands)estate:Residential: Micro-unit $ 11,177 1.0 % $ 11,230 1.0 % $ 13,943 1.3 %apartmentsOther 12.8 14.3 13.8 multifamily 148,194 158,238 147,517Total multifamily 159,371 13.8 169,468 15.3 161,460 15.1 residential Non-residential: Office 83,439 7.3 95,911 8.7 9.5 100,620Retail 10.6 11.1 13.5 121,936 122,460 144,050Mobile home park 25,961 2.2 25,370 2.3 21,533 2.0 Hotel / motel 68,165 5.9 52,515 4.7 27,725 2.6 Nursing Home 11,768 1.0 11,783 1.1 16,172 1.5 Warehouse 17,422 1.5 17,489 1.6 18,303 1.7 Storage 36,266 3.1 34,551 3.1 36,096 3.4 Other 25,793 2.2 25,831 2.3 19,703 1.8 non-residentialTotal 33.8 34.9 36.0 non-residential 390,750 385,910 384,202 Construction/ land:One-to-fourfamily 45,128 3.9 43,279 3.9 45,953 4.3 residentialMultifamily 40,120 3.5 35,201 3.2 37,032 3.5 Commercial 6,134 0.5 22,946 2.1 13,793 1.3 Land development 5,115 0.4 5,975 0.5 8,356 0.8 Total construction/ 96,497 8.3 107,401 9.7 105,134 9.9 land One-to-fourfamily residential:Permanent owner 18.1 18.4 18.9 occupied 208,484 203,045 201,989Permanent non-owner 173,729 15.1 168,208 15.2 159,267 14.9 occupiedTotalone-to-four 33.2 33.6 33.8 family 382,213 371,253 361,256residential Business Aircraft 15,460 1.3 13,741 1.2 14,459 1.4 Small BusinessAdministration 737 0.1 753 0.1 - 0.0 ("SBA")PayrollProtection Plan 51,661 4.5 - 0.0 - 0.0 ("PPP")Other business 18,212 1.6 20,208 1.8 21,899 2.1 Total business 86,070 7.5 34,702 3.1 36,358 3.5 Consumer Classic Auto 24,767 2.1 22,029 2.0 - 0.0 Other consumer 14,464 1.3 15,196 1.4 17,891 1.7 Total consumer 39,231 3.4 37,225 3.4 17,891 1.7 Total loans 100.0 % 100.0 % 100.0 % 1,154,132 1,105,959 1,066,301Less: Deferred loan 2,053 301 568 fees, netALLL 13,836 13,530 13,057 Loans $ $ $ receivable, net 1,138,243 1,092,128 1,052,676 Concentrations of credit: ^(1)Constructionloans as % of 67.3 % 77.6 % 80.1 % total capitalTotal non-owneroccupiedcommercial 420.7 % 437.7 % 441.0 % real estate as %of total 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 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2020 2020 2019 2019 2019 (Dollars in thousands, except per share data)Performance Ratios: ^ (1)Return on assets 0.63 % 0.51 % 0.79 % 0.75 % 1.04 %Return on equity 5.59 4.30 6.64 6.41 8.70 Dividend payout 45.45 58.82 34.62 36.00 27.27 ratioEquity-to-assets 10.86 11.50 11.65 11.85 11.86 ratioTangible equity 10.74 11.38 11.53 11.73 11.72 ratio ^(2)Net interest margin 3.12 3.11 3.09 3.07 3.23 Averageinterest-earningassets to average 115.96 113.78 113.50 113.17 113.23 interest-bearingliabilitiesEfficiency ratio 73.18 77.60 71.04 69.73 68.80 Noninterest expenseas a percent of 2.33 2.51 2.40 2.24 2.28 average totalassetsBook value per $ $ $ 15.25 $ 15.06 $ 14.83 common share 15.32 15.03Tangible book value 15.14 14.85 15.07 14.88 14.64 per share ^(2) Capital Ratios: ^ (3)Tier 1 leverage 10.02 % 10.25 % 10.27 % 10.13 % 10.34 %ratioCommon equity tier 13.70 13.42 13.13 13.14 13.46 1 capital ratioTier 1 capital 13.70 13.42 13.13 13.14 13.46 ratioTotal capital ratio 14.95 14.67 14.38 14.39 14.71 Asset Quality Ratios:Nonperforming loansas a percent of 0.19 % 0.20 % 0.01 % 0.01 % 0.01 %total loansNonperformingassets as a percent 0.19 0.20 0.04 0.05 0.05 of total assetsALLL as a percent 1.20 1.22 1.18 1.20 1.22 of total loansNet (recoveries)charge-offs to (0.00 ) (0.00 ) (0.01 ) (0.00 ) (0.00 )average loansreceivable, net Allowance for Loan Losses:ALLL, beginning of $ $ $ $ 13,057 $ the quarter 13,530 13,218 13,161 13,808Provision(Recapture of 300 300 - 100 (800 )provision)Charge-offs - - - - - Recoveries 6 12 57 4 49 ALLL, end of the $ $ $ $ $ quarter 13,836 13,530 13,218 13,161 13,057

(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 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, 2020 2020 2019 2019 2019 (Dollars in thousands)Yields and Costs: ^(1) Yield on loans 4.72 % 4.94 % 5.05 % 5.14 % 5.19 %Yield on investments 2.41 2.72 2.85 3.02 3.21 available-for-saleYield on investments 1.52 - - - - held-to-maturityYield on interest-earning 0.10 1.18 1.61 2.24 2.33 depositsYield on FHLB stock 4.84 4.62 4.84 6.81 5.58 Yield on interest-earning 4.37 % 4.67 % 4.78 % 4.84 % 4.94 %assets Cost of interest-bearing 1.49 % 1.81 % 1.94 % 2.00 % 1.89 %depositsCost of borrowings 1.08 1.48 1.66 2.02 2.28 Cost of interest-bearing 1.44 % 1.77 % 1.91 % 2.00 % 1.94 %liabilities Cost of total deposits 1.38 % 1.72 % 1.84 % 1.91 % 1.80 %Cost of funds 1.34 1.69 1.82 1.92 1.86 Average Balances: Loans $ $ 1,096,091 $ 1,087,558 $ 1,073,283 $ 1,051,894 1,122,913Investments 133,038 135,765 138,331 140,031 available-for-sale 138,634Investments 2,378 2,061 - - - held-to-maturityInterest-earning deposits 30,989 10,555 11,572 27,992 8,275FHLB stock 6,736 6,615 5,897 5,649 7,337Total interest-earning $ $ 1,251,087 $ 1,243,358 $ 1,246,955 $ 1,206,140 assets 1,296,054 Interest-bearing deposits $ 989,549 $ 970,062 $ $ 998,123 $ 919,306 985,532Borrowings 128,154 127,707 109,895 145,895 103,707Total interest-bearing liabilities 1,117,703 1,097,769 1,095,427 1,101,830 1,065,201Noninterest-bearing 82,750 53,199 50,951 47,613 deposits 48,137Total deposits and $ $ 1,150,968 $ 1,146,378 $ 1,149,443 $ 1,113,338 borrowings 1,200,453 Average assets $ $ 1,324,845 $ 1,317,586 $ 1,319,777 $ 1,279,880 1,371,269Average stockholders' 154,115 156,147 155,057 equity 157,492 152,267

(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 of the tangible equity ratio and tangible book value per share. The Company's intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholders equity. Tangible assets are calculated by subtracting intangible assets from total assets. The tangible equity ratio is tangible equity divided by tangible assets. Tangible book value per share is calculated by dividing tangible equity by the number of common shares outstanding. The Company believes that these non-GAAP measures provide a more consistent presentation of its capital and facilitate peer comparison that is desired by investors.

Non-GAAP financial measures have limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation and are not a substitute for other measures in this earnings release that are presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies.

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

Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 (Dollars in thousands, except per share data)Total stockholders' $ 153,976 $ 153,092 $ 156,319 $ 155,102 $ 153,828 equity (GAAP)Less: Goodwill 889 889 889 889 889 Core deposit 896 932 968 1,005 1,042 intangibleTangible equity $ 152,191 $ 151,271 $ $ $ 151,897 (Non-GAAP) 154,462 153,208 Total assets 1,418,355 1,331,213 1,341,885 1,308,359 1,297,561 (GAAP)Less: Goodwill 889 889 889 889 889 Core deposit 896 932 968 1,005 1,042 intangibleTangible assets $ $ $ $ $ (Non-GAAP) 1,416,570 1,329,392 1,340,028 1,306,465 1,295,630 Common sharesoutstanding at 10,048,961 10,184,411 10,252,953 10,296,053 10,375,325 period end Equity to 10.86 % 11.50 % 11.65 % 11.85 % 11.86 %assets ratioTangible equity 10.74 11.38 11.53 11.73 11.72 ratioBook value per $ 15.32 $ 15.03 $ 15.25 $ 15.06 $ 14.83 shareTangible book 15.14 14.85 15.07 14.88 14.64 value per share Allowance for $ 13,836 $ 13,530 $ 13,218 $ 13,161 13,057 loan losses Total loans 1,154,132 1,105,959 1,122,238 1,097,301 1,066,301 (GAAP)Less: PPP loans 51,661 - - - - Total loansexcluding PPP $ 1,105,959 1,122,238 1,097,301 1,066,301 loans 1,102,471(Non-GAAP) ALLL as apercent of 1.20 % 1.22 % 1.18 % 1.20 % 1.22 %total loansALLL as apercent oftotal loans 1.25 1.22 1.18 1.20 1.22 excludingPPP loans