First Financial Northwest, Inc. Reports Second Quarter Net Income of $2.1 Million or $0.22 per Diluted Share

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 $2.1 million, or $0.22 per diluted share, compared to net income of $1.7 million, or $0.17 per diluted share, for the quarter ended March 31, 2020, and $3.3 million, or $0.33 per diluted share, for the quarter ended June 30, 2019. For the six months ended June 30, 2020, net income was $3.8 million, or $0.39 per diluted share, compared to net income of $5.2 million, or $0.52 per diluted share, for the comparable six‑month 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 COVID‑19 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 $51.7 million, 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 $50 million 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 COVID‑19 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 $46.1 million to $1.14 billion at June 30, 2020, from $1.09 billion at March 31, 2020, and $85.6 million from $1.05 billion at June 30, 2019.
• Total deposits increased 12.6% to $1.13 billion as of June 30, 2020, from $1.00 billion at March 31, 2020, and 9.8% from $1.03 billion at June 30, 2019.
• The Bank received regulatory approval to open offices in Gig Harbor, Pierce County, Washington, and Issaquah, King County, Washington.
• The Company’s book value per share was $15.32 at June 30, 2020, compared to $15.03 at March 31, 2020, and $14.83 at June 30, 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 July 27, 2020.
• The Company’s Board of Directors authorized a new stock repurchase plan to repurchase up to 5% of its outstanding shares of common stock effective July 30, 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 Bank’s Tier 1 leverage and total capital ratios at June 30, 2020, were 10.0% and 15.0%, respectively, compared to 10.3% and 14.7%, respectively, at both March 31, 2020, and June 30, 2019.
• Based on management’s 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 June 30, 2020.

Total deposits at June 30, 2020, increased $126.2 million to $1.13 billion, from $1.00 billion at March 31, 2020, and was up $100.5 million from $1.03 billion at June 30, 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, 2020			Mar 31, 2020			Jun 30, 2019			Three Month Change			One Year Change
Deposits:	(Dollars in thousands)
Noninterest-bearing demand	$	91,593		$	53,519		$	49,219		$	38,074		$	42,374
Interest-bearing demand		102,707			68,803			50,414			33,904			52,293
Statement savings		18,946			17,040			22,593			1,906			(3,647	)
Money market		429,987			397,489			310,587			32,498			119,400
Certificates of deposit, retail (1)		450,487			437,676			412,134			12,811			38,353
Certificates of deposit, brokered		32,448			25,457			180,763			6,991			(148,315	)
Total 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 June 30, 2020, $22,000 at March 31, 2020, and $41,000 at June 30, 2019.

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

June 30, 2020
	Noninterest-bearing demand		Interest-bearing demand		Statement savings		Money market		Certificates of deposit, retail		Certificates of deposit, brokered		Total
	(Dollars in thousands)
King County
Renton	$	40,619	$	48,670	$	14,525	$	242,453	$	367,483	$	-	$	713,750
Landing		3,338		1,892		31		15,306		8,587		-		29,154
Woodinville (1)		2,544		5,505		938		16,364		7,320		-		32,671
Bothell		2,927		2,793		33		5,650		3,268		-		14,671
Crossroads		7,435		6,516		158		51,674		11,756		-		77,539
Kent (2)		7,144		5,883		1		12,424		1,065		-		26,517
Kirkland (2)		5,748		6		-		1,068		-		-		6,822
Total King County		69,755		71,265		15,686		344,939		399,479		-		901,124
Snohomish County
Mill Creek		3,969		2,120		799		15,029		10,729		-		32,646
Edmonds		6,884		12,615		229		24,414		19,379		-		63,521
Clearview (1)		4,999		5,953		868		15,278		4,859		-		31,957
Lake Stevens (1)		2,985		6,788		618		13,794		4,213		-		28,398
Smokey Point (1)		2,168		3,894		745		15,291		11,828		-		33,926
Total Snohomish County		21,005		31,370		3,259		83,806		51,008		-		190,448
Pierce County
University Place (2)		833		72		1		1,242		-		-		2,148
Total Pierce County		833		72		1		1,242		-		-		2,148
Total retail deposits		91,593		102,707		18,946		429,987		450,487		-		1,093,720
Brokered deposits		-		-		-		-		-		32,448		32,448
Total deposits	$	91,593	$	102,707	$	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 January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.

March 31, 2020
	Noninterest-bearing demand		Interest-bearing demand		Statement savings		Money market		Certificates of deposit, retail		Certificates of deposit, brokered		Total
	(Dollars in thousands)
King County
Renton	$	28,624	$	22,619	$	13,811	$	230,235	$	355,710	$	-	$	650,999
Landing		4,476		2,173		36		13,286		9,821		-		29,792
Woodinville (1)		1,705		5,623		733		15,790		6,908		-		30,759
Bothell		556		886		20		6,221		3,297		-		10,980
Crossroads		4,894		10,197		5		47,714		11,689		-		74,499
Kent (2)		472		2,961		-		10,736		1,061		-		15,230
Kirkland (2)		253		11		-		-		-		-		264
Total King County		40,980		44,470		14,605		323,982		388,486		-		812,523
Snohomish County
Mill Creek		2,292		3,610		467		18,619		10,552		-		35,540
Edmonds		3,352		10,952		210		22,591		18,920		-		56,025
Clearview (1)		3,627		4,596		753		13,288		4,775		-		27,039
Lake Stevens (1)		2,024		2,446		468		7,142		4,240		-		16,320
Smokey Point (1)		1,244		2,715		537		11,656		10,703		-		26,855
Total Snohomish County		12,539		24,319		2,435		73,296		49,190		-		161,779
Pierce County
University Place (2)		-		14		-		211		-		-		225
Total Pierce County		-		14		-		211		-		-		225
Total retail deposits		53,519		68,803		17,040		397,489		437,676		-		974,527
Brokered deposits		-		-		-		-		-		25,457		25,457
Total deposits	$	53,519	$	68,803	$	17,040	$	397,489	$	437,676	$	25,457	$	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 January 31, 2019; Kirkland, November 12, 2019; and University Place, March 2, 2020.

Net loans receivable increased to $1.14 billion at June 30, 2020, from $1.09 billion at March 31, 2020, and $1.05 billion at June 30, 2019. PPP loan originations of $51.7 million contributed to this quarterly increase. The average balance of net loans receivable totaled $1.12 billion for the quarter ended June 30, 2020, compared to $1.10 billion for the quarter ended March 31, 2020, and $1.05 billion for the quarter ended June 30, 2019.

The Company recorded a $300,000 provision for loan losses in both the quarters ended June 30, 2020, and March 31, 2020, and a recapture of provision for loan losses of $800,000 in the quarter ended June 30, 2019. The provision in the quarter ended June 30, 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 March 31, 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 June 30, 2019, was primarily due to the recapture of provision associated with a single construction loan with a balance of $11.6 million 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 June 30, 2020, compared to 1.22% at both March 31, 2020, and June 30, 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 June 30, 2020. Nonperforming loans totaled $2.2 million at both June 30, 2020, and March 31, 2020, compared to $146,000 at June 30, 2019. The increase from the prior year is due to a $2.1 million 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 June 30, 2020, there were no loans 30 days or more past due that had not requested a deferral other than the $2.1 million multifamily loan in foreclosure and one consumer loan of less than $10,000. OREO remained unchanged at $454,000 at June 30, 2020, March 31, 2020, and June 30, 2019.

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

	Jun 30,				Mar 31,				Jun 30,				Three Month				One Year
		2020				2020				2019			Change				Change
	(Dollars in thousands)
Nonperforming loans:
One-to-four family residential	$	87			$	91			$	103			$	(4	)		$	(16	)
Multifamily		2,104				2,104			─				─					2,104
Consumer	─				─					43			─					(43	)
Total nonperforming loans		2,191				2,195				146				(4	)			2,045
Other real estate owned (“OREO”)		454				454				454			─				─
Total nonperforming assets (1)	$	2,645			$	2,649			$	600			$	(4	)		$	2,045
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 June 30, 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 borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. At June 30, 2020, TDRs totaled $4.3 million, compared to $5.0 million at March 31, 2020, and $6.7 million at June 30, 2019. As discussed further below, The Coronavirus Aid, Relief, and Economic Security Act of 2020 signed into law on March 27, 2020 (“CARES Act”) provides guidance around the modification of loans as a result of the COVID‑19 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 June 30, 2020, totaled $10.1 million, compared to $9.7 million for each of the quarters ended March 31, 2020, and June 30, 2019.

Interest income totaled $14.1 million for the quarter ended June 30, 2020, compared to $14.5 million for the quarter ended March 31, 2020, and $14.9 million for the quarter ended June 30, 2019. The decline in the current quarter compared to the quarter ended March 31, 2020, was primarily due to the recent decline in interest rates as the Federal Reserve’s 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 June 30, 2020, compared to 4.94% at March 31, 2020, and 5.19% at June 30, 2019.

Total interest expense was $4.0 million for the quarter ended June 30, 2020, compared to $4.8 million for the quarter ended March 31, 2020, and $5.2 million for the quarter ended June 30, 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 June 30, 2020, compared to 1.81% for the quarter ended March 31, 2020, and 1.89% for the quarter ended June 30, 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 $120.0 million at June 30, 2020, compared to $160.0 million at March 31, 2020, and $105.0 million at June 30, 2019. The average cost of borrowings was 1.08% for the quarter ended June 30, 2020, compared to 1.48% for the quarter ended March 31, 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 March 31, 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 $154.0 million at June 30, 2020, from $153.1 million at March 31, 2020, primarily due to net income partially offset by share repurchases. The Company’s book value per common share increased to $15.32 at June 30, 2020, from $15.03 at March 31, 2020, due in part to the Company’s success in repurchasing shares well below book value per share during the quarter.

The net interest margin was 3.12% for the quarter ended June 30, 2020, compared to 3.11% for the quarter ended March 31, 2020, and 3.23% for the quarter ended June 30, 2019. The modest improvement in the quarter ended June 30, 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 June 30, 2020, compared to the quarter ended June 30, 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 June 30, 2020, totaled $789,000, compared to $990,000 for the quarter ended March 31, 2020, and $879,000 for the quarter ended June 30, 2019. The decrease in noninterest income for the quarter ended June 30, 2020, compared to the quarter ended March 31, 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 June 30, 2020, and fees received on new loan interest rate swap agreements in the quarter ended June 30, 2019.

Noninterest expense totaled $7.9 million for the quarter ended June 30, 2020, compared to $8.3 million for the quarter ended March 31, 2020, and $7.3 million in the quarter ended June 30, 2019. Salaries and employee benefits for the quarter ended June 30, 2020, decreased from the quarter ended March 31, 2020, primarily due to a reduction in stock-based compensation elements reflecting the recent decline in the Company’s 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 Company’s unfunded commitment reserve. Unfunded commitments totaled $114.0 million as of June 30, 2020, compared to $102.9 million as of March 31, 2020. The change in unfunded commitments resulted in a $29,000 expense for the quarter ended June 30, 2020, compared to a recapture of expense of $72,000 for the quarter ended March 31, 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 Program
As of June 30, 2020, we had originated 455 requests for PPP loans totaling approximately $51.7 million. A total of 375 of these loans, or more than 82%, are for loan amounts of $150,000 or less and represent $17.8 million 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.

Modifications
The 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 COVID‑19 pandemic from being treated as TDRs. The following table provides detail on the modifications approved and processed through June 30, 2020:

	As of June 30, 2020
	Balance of loans with modifications of 1-3 months			Balance of loans with modifications of greater than 3 months			Total balance of loans with modifications granted			Total loans as of June 30, 2020			Modifications as % of total loans as of June 30, 2020
	(Dollars in thousands)
One-to-four family residential	$	20,605		$	7,367		$	27,972		$	382,213		7.3	%
Multifamily		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 park		-			-			-			25,961		-
Hotel/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 non-residential		2,114			-			2,114			25,793		8.2
Total commercial real estate		27,012			61,827			88,839			390,750		22.7
Construction/land		1,100			-			1,100			96,497		1.1
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 auto		1,831			-			1,831			24,767		7.4
Other consumer		760			-			760			14,464		5.3
Total consumer		2,591			-			2,591			39,231		6.6
Total loans with COVID‑19 pandemic modifications	$	59,394		$	72,728		$	132,122		$	1,154,132		11.4	%

As of July 16, 2020, $16.6 million 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 $17.6 million which were previously modified.

Additional Loan Portfolio Details
Total balances drawn on outstanding lines of credit as of December 31, 2019, were $47.1 million and the unused portion of lines of credit totaled $38.1 million. As of March 31, 2020, total balances drawn increased slightly to $48.4 million with $30.3 million 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 $35.1 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 June 30, 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 LTV
Category: (1)	(Dollars in thousands)
One-to-four family	$	236,995		$	151,660		$	37,206		$	425,861		48.13	%
Church		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 park		19,701			6,260			-			25,961		34.03
Nursing home		12,868			-			-			12,868		20.87
Office		53,861			26,234			2,922			83,017		48.17
Other non-residential		6,478			4,762			-			11,240		50.69
Retail		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 COVID‑19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; increased competitive pressures; changes in the interest rate environment; legislative and regulatory changes; and other factors described in the Company’s latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission – that are available on our website at www.ffnwb.com and on the SEC's website at www.sec.gov.

Any of the forward-looking statements that we make in this Press Release and in the other public statements are based upon management's beliefs and assumptions at the time they are made and may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 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 Officer
Rich Jacobson, Executive Vice President and Chief Financial Officer
[phone]

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)

Assets	Jun 30, 2020				Mar 31, 2020				Jun 30, 2019				Three Month Change			One Year Change
Cash on hand and in banks	$	7,688			$	6,453			$	8,119			19.1	%		(5.3	)%
Interest-earning deposits with banks		66,250				22,063				22,579			200.3			193.4
Investments available-for-sale, at fair value		128,874				132,159				141,581			(2.5	)		(9.0	)
Annuity held-to-maturity		2,395				2,371				-			1.0			n/a
Loans receivable, net of allowance of $13,836, $13,530, and $13,057, respectively		1,138,243				1,092,128				1,052,676			4.2			8.1
Federal Home Loan Bank ("FHLB") stock, at cost		6,410				8,010				5,701			(20.0	)		12.4
Accrued interest receivable		4,981				4,302				4,650			15.8			7.1
Deferred tax assets, net		2,007				2,227				1,379			(9.9	)		45.5
Other real estate owned ("OREO")		454				454				454			0.0			0.0
Premises and equipment, net		22,222				22,591				21,944			(1.6	)		1.3
Bank owned life insurance ("BOLI")		32,561				32,290				31,446			0.8			3.5
Prepaid expenses and other assets		1,513				1,898				3,492			(20.3	)		(56.7	)
Right of use asset ("ROU")		2,972				2,446				1,609			21.5			84.7
Goodwill		889				889				889			0.0			0.0
Core deposit intangible		896				932				1,042			(3.9	)		(14.0	)
Total assets	$	1,418,355			$	1,331,213			$	1,297,561			6.5	%		9.3	%
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits	$	91,593			$	53,519			$	49,219			71.1	%		86.1	%
Interest-bearing deposits		1,034,575				946,465				976,491			9.3			5.9
Total deposits		1,126,168				999,984				1,025,710			12.6			9.8
Advances from the FHLB		120,000				160,000				105,000			(25.0	)		14.3
Advance payments from borrowers for taxes and insurance		2,475				4,960				2,844			(50.1	)		(13.0	)
Lease liability		3,070				2,538				1,633			21.0			88.0
Accrued interest payable		218				236				461			(7.6	)		(52.7	)
Other liabilities		12,448				10,403				8,085			19.7			54.0
Total liabilities		1,264,379				1,178,121				1,143,733			7.3			10.5
Commitments and contingencies
Stockholders' Equity
Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding	$	-			$	-			$	-			n/a			n/a
Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding
10,048,961shares at June 30, 2020, 10,184,411 shares at March 31, 2020,
and 10,375,325 shares at June 30, 2019		100				102				104			(2.0	)		(3.8	)
Additional paid-in capital		85,119				86,357				88,725			(1.4	)		(4.1	)
Retained earnings		75,181				74,017				69,976			1.6			7.4
Accumulated other comprehensive loss, net of tax		(3,885	)			(4,563	)			(1,309	)		(14.9	)		196.8
Unearned Employee Stock Ownership Plan ("ESOP") shares		(2,539	)			(2,821	)			(3,668	)		(10.0	)		(30.8	)
Total stockholders' equity		153,976				153,092				153,828			0.6			0.1
Total liabilities and stockholders' equity	$	1,418,355			$	1,331,213			$	1,297,561			6.5	%		9.3	%

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

	Quarter Ended
	Jun 30, 2020			Mar 31, 2020			Jun 30, 2019				Three Month Change			One Year Change
Interest income
Loans, including fees	$	13,183		$	13,474		$	13,606			(2.2	)%		(3.1	)%
Investments available-for-sale		796			919			1,109			(13.4	)		(28.2	)
Investments held-to-maturity		9			-			-			n/a			n/a
Interest-earning deposits with banks		8			31			48			(74.2	)		(83.3	)
Dividends on FHLB Stock		81			76			102			6.6			(20.6	)
Total interest income		14,077			14,500			14,865			(2.9	)		(5.3	)
Interest expense
Deposits		3,666			4,366			4,330			(16.0	)		(15.3	)
Borrowings		344			470			829			(26.8	)		(58.5	)
Total interest expense		4,010			4,836			5,159			(17.1	)		(22.3	)
Net interest income		10,067			9,664			9,706			4.2			3.7
Provision (recapture of provision) for loan losses		300			300			(800	)		0.0			(137.5	)
Net interest income after provision (recapture of provision) for loan losses		9,767			9,364			10,506			4.3			(7.0	)
Noninterest income
Net gain on sale of investments		69			-			-			n/a			n/a
BOLI income		254			254			189			0.0			34.4
Wealth management revenue		183			165			261			10.9			(29.9	)
Deposit related fees		184			176			205			4.5			(10.2	)
Loan related fees		97			392			209			(75.3	)		(53.6	)
Other		2			3			15			(33.3	)		(86.7	)
Total noninterest income		789			990			879			(20.3	)		(10.2	)
Noninterest expense
Salaries and employee benefits		4,801			5,212			4,734			(7.9	)		1.4
Occupancy and equipment		1,031			1,071			898			(3.7	)		14.8
Professional fees		455			430			326			5.8			39.6
Data processing		687			694			397			(1.0	)		73.0
OREO related expenses, net		5			1			1			400.0			400.0
Regulatory assessments		127			144			136			(11.8	)		(6.6	)
Insurance and bond premiums		103			120			88			(14.2	)		17.0
Marketing		29			64			76			(54.7	)		(61.8	)
Other general and administrative		706			532			627			32.7			12.6
Total noninterest expense		7,944			8,268			7,283			(3.9	)		9.1
Income before federal income tax provision		2,612			2,086			4,102			25.2			(36.3	)
Federal income tax provision		469			402			798			16.7			(41.2	)
Net income	$	2,143		$	1,684		$	3,304			27.3	%		(35.1	)%
Basic earnings per share	$	0.22		$	0.17		$	0.33
Diluted earnings per share	$	0.22		$	0.17		$	0.33
Weighted average number of common shares outstanding		9,808,854			9,896,234			9,952,419
Weighted average number of diluted shares outstanding		9,819,664			9,978,060			10,046,355

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

	Six Months Ended June 30,
		2020			2019			One Year Change
Interest 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 banks		37			88			(58.0	)
Dividends 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 provision) for loan losses		600			(400	)		(250.0	)
Net interest income after provision (recapture of provision) for loan losses		19,131			19,958			(4.1	)
Noninterest income
Net gain (loss) on sale of investments		69			(8	)		(962.5	)
BOLI 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 provision		4,698			6,545			(28.2	)
Federal 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			10,034,895
Weighted 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
	(Dollars in thousands)
Commercial real estate:
Residential:
Micro-unit apartments	$	11,177			1.0	%		$	11,230				1.0	%		$	13,943			1.3	%
Other multifamily		148,194			12.8				158,238				14.3				147,517			13.8
Total multifamily residential		159,371			13.8				169,468				15.3				161,460			15.1
Non-residential:
Office		83,439			7.3				95,911				8.7				100,620			9.5
Retail		121,936			10.6				122,460				11.1				144,050			13.5
Mobile 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 non-residential		25,793			2.2				25,831				2.3				19,703			1.8
Total non-residential		390,750			33.8				385,910				34.9				384,202			36.0
Construction/land:
One-to-four family residential		45,128			3.9				43,279				3.9				45,953			4.3
Multifamily		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/land		96,497			8.3				107,401				9.7				105,134			9.9
One-to-four family residential:
Permanent owner occupied		208,484			18.1				203,045				18.4				201,989			18.9
Permanent non-owner occupied		173,729			15.1				168,208				15.2				159,267			14.9
Total one-to-four family residential		382,213			33.2				371,253				33.6				361,256			33.8
Business
Aircraft		15,460			1.3				13,741				1.2				14,459			1.4
Small Business Administration ("SBA")		737			0.1				753				0.1				-			0.0
Payroll Protection Plan ("PPP")		51,661			4.5				-				0.0				-			0.0
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		1,154,132			100.0	%			1,105,959				100.0	%			1,066,301			100.0	%
Less:
Deferred loan fees, net		2,053							301								568
ALLL		13,836							13,530								13,057
Loans receivable, net	$	1,138,243						$	1,092,128							$	1,052,676
Concentrations of credit: (1)
Construction loans as % of total capital		67.3	%						77.6		%						80.1	%
Total non-owner occupied commercial real estate as % of total capital		420.7	%						437.7		%						441.0	%

⁽¹⁾ Concentrations of credit percentages are for First Financial Northwest Bank only using classifications in accordance with FDIC regulatory guidelines.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key 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 ratio		45.45				58.82				34.62				36.00				27.27
Equity-to-assets ratio		10.86				11.50				11.65				11.85				11.86
Tangible equity ratio (2)		10.74				11.38				11.53				11.73				11.72
Net interest margin		3.12				3.11				3.09				3.07				3.23
Average interest-earning assets to average interest-bearing liabilities		115.96				113.78				113.50				113.17				113.23
Efficiency ratio		73.18				77.60				71.04				69.73				68.80
Noninterest expense as a percent of average total assets		2.33				2.51				2.40				2.24				2.28
Book value per common share	$	15.32			$	15.03			$	15.25			$	15.06			$	14.83
Tangible book value per share (2)		15.14				14.85				15.07				14.88				14.64
Capital Ratios: (3)
Tier 1 leverage ratio		10.02	%			10.25	%			10.27	%			10.13	%			10.34	%
Common equity tier 1 capital ratio		13.70				13.42				13.13				13.14				13.46
Tier 1 capital ratio		13.70				13.42				13.13				13.14				13.46
Total capital ratio		14.95				14.67				14.38				14.39				14.71
Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.19	%			0.20	%			0.01	%			0.01	%			0.01	%
Nonperforming assets as a percent of total assets		0.19				0.20				0.04				0.05				0.05
ALLL as a percent of total loans		1.20				1.22				1.18				1.20				1.22
Net (recoveries) charge-offs to average loans receivable, net		(0.00	)			(0.00	)			(0.01	)			(0.00	)			(0.00	)
Allowance for Loan Losses:
ALLL, beginning of the quarter	$	13,530			$	13,218			$	13,161			$	13,057			$	13,808
Provision (Recapture of provision)		300				300				-				100				(800	)
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 non‑GAAP financial measures.
⁽³⁾ Capital ratios are for First Financial Northwest Bank only.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES
Key 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 available-for-sale		2.41				2.72				2.85				3.02				3.21
Yield on investments held-to-maturity		1.52				-				-				-				-
Yield on interest-earning deposits		0.10				1.18				1.61				2.24				2.33
Yield on FHLB stock		4.84				4.62				4.84				6.81				5.58
Yield on interest-earning assets		4.37	%			4.67	%			4.78	%			4.84	%			4.94	%
Cost of interest-bearing deposits		1.49	%			1.81	%			1.94	%			2.00	%			1.89	%
Cost of borrowings		1.08				1.48				1.66				2.02				2.28
Cost of interest-bearing liabilities		1.44	%			1.77	%			1.91	%			2.00	%			1.94	%
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	$	1,122,913			$	1,096,091			$	1,087,558			$	1,073,283			$	1,051,894
Investments available-for-sale		133,038				135,765				138,331				140,031				138,634
Investments held-to-maturity		2,378				2,061				-				-				-
Interest-earning deposits		30,989				10,555				11,572				27,992				8,275
FHLB stock		6,736				6,615				5,897				5,649				7,337
Total interest-earning assets	$	1,296,054			$	1,251,087			$	1,243,358			$	1,246,955			$	1,206,140
Interest-bearing deposits	$	989,549			$	970,062			$	985,532			$	998,123			$	919,306
Borrowings		128,154				127,707				109,895				103,707				145,895
Total interest-bearing liabilities		1,117,703				1,097,769				1,095,427				1,101,830				1,065,201
Noninterest-bearing deposits		82,750				53,199				50,951				47,613				48,137
Total deposits and borrowings	$	1,200,453			$	1,150,968			$	1,146,378			$	1,149,443			$	1,113,338
Average assets	$	1,371,269			$	1,324,845			$	1,317,586			$	1,319,777			$	1,279,880
Average stockholders' equity		154,115				157,492				156,147				155,057				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' equity (GAAP)	$	153,976			$	153,092			$	156,319			$	155,102			$	153,828
Less:
Goodwill		889				889				889				889				889
Core deposit intangible		896				932				968				1,005				1,042
Tangible equity (Non-GAAP)	$	152,191			$	151,271			$	154,462			$	153,208			$	151,897
Total assets (GAAP)		1,418,355				1,331,213				1,341,885				1,308,359				1,297,561
Less:
Goodwill		889				889				889				889				889
Core deposit intangible		896				932				968				1,005				1,042
Tangible assets (Non-GAAP)	$	1,416,570			$	1,329,392			$	1,340,028			$	1,306,465			$	1,295,630
Common shares outstanding at period end		10,048,961				10,184,411				10,252,953				10,296,053				10,375,325
Equity to assets ratio		10.86	%			11.50	%			11.65	%			11.85	%			11.86	%
Tangible equity ratio		10.74				11.38				11.53				11.73				11.72
Book value per share	$	15.32			$	15.03			$	15.25			$	15.06			$	14.83
Tangible book value per share		15.14				14.85				15.07				14.88				14.64
Allowance for loan losses	$	13,836			$	13,530			$	13,218			$	13,161				13,057
Total loans (GAAP)		1,154,132				1,105,959				1,122,238				1,097,301				1,066,301
Less:
PPP loans		51,661				-				-				-				-
Total loans excluding PPP loans (Non-GAAP)	$	1,102,471				1,105,959				1,122,238				1,097,301				1,066,301
ALLL as a percent of total loans		1.20	%			1.22	%			1.18	%			1.20	%			1.22	%
ALLL as a percent of total loans excluding PPP loans		1.25				1.22				1.18				1.20				1.22