AP NEWS

First Financial Northwest, Inc. Reports Fourth Quarter Net Income of $2.2 Million or $0.21 per Diluted Share and $14.9 Million or $1.43 per Diluted Share for the Year Ended December 31, 2018

January 24, 2019

RENTON, Wash., Jan. 24, 2019 (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 December 31, 2018, of $2.2 million, or $0.21 per diluted share, compared to net income of $2.8 million, or $0.27 per diluted share, for the quarter ended September 30, 2018, and $2.4 million, or $0.23 per diluted share, for the quarter ended December 31, 2017. For the year ended December 31, 2018, net income was $14.9 million, or $1.43 per diluted share, compared to $8.5 million, or $0.81 per diluted share, for the year ended December 31, 2017.

“I am very pleased with how we finished the year with significant lending momentum, particularly the strong growth in one-to-four family residential lending, and continued growth in our deposits across our network,” stated Joseph W. Kiley III, President and Chief Executive Officer. “Our one-to-four residential team led our loan portfolio growth as net loans receivable increased $34.2 million during the year to exceed $1.0 billion at year end.” Kiley continued, “We grew deposits across our network, increasing deposits by $22.8 million in the fourth quarter and $99.5 million during the year, as we ended the year with $939.0 million in total deposits, compared to $839.5 million at December 31, 2017.” Kiley concluded, “I am also pleased to welcome Randy Riffle, Executive Vice President and Chief Credit Officer to lead our efforts to further modernize our credit culture by enhancing our overall customer experience thereby creating a competitive advantage for our sales teams, organically expand our business loan portfolio, including establishing an SBA lending platform in further support of our growth and loan and deposit portfolio diversification goals. Our focus on expanding our customer base and building deposits continues and our eleventh branch location is set to open at Kent Station in the first quarter of 2019.”

Net loans receivable increased $34.2 million to $1.02 billion for the year ended December 31, 2018, from $988.7 million at December 31, 2017, and $27.3 million from $995.6 million at September 30, 2018. One-to-four family residential lending increased $63.3 million during the year to $342.0 million at December 31, 2018, more than offsetting the $57.8 million combined reduction in our multifamily real estate and construction/land development loan portfolios. The average balance of net loans receivable totaled $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million, compared to $878.4 million for the year ended December 31, 2017.

The Company recorded a $200,000 provision for loan losses for both the quarters ended December 31, 2018, and September 30, 2018, compared to a $1.2 million recapture of provision in the quarter ended December 31, 2017. The provision during the quarter ended December 31, 2018, was due to growth in net loans receivable and a change in loan mix, while the provision in the third quarter of 2018, was due primarily to growth in net loans receivable. The recapture of provision in the quarter ended December 31, 2017, was due primarily to $2.0 million in recoveries during the quarter, reduced by the provision for loan losses required to increase the Allowance for Loan and Lease Losses (“ALLL”), as a result of the growth in net loans receivable. For the year ended December 31, 2018, the recapture of provision for loan losses totaled $4.0 million, which included $4.5 million in recoveries, compared to a recapture of provision for loan losses of $400,000 recorded for the year ended December 31, 2017, which included $2.3 million in recoveries.

As previously reported, the Bank expanded its geographic footprint during the year with the opening of a new branch at The Junction in Bothell, King County, in the second quarter of 2018. The Bank plans to open its eleventh branch location at Kent Station, located about eight miles south of its Renton headquarters, in the first quarter of 2019.

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

December 31, 2018 ----------------------------------------------------------------- CertificatCertifica NonintereInterest-Statement es tes st- bearing Money of of Total bearing demand savings market deposit, deposit, demand retail brokered -------- -------- -------- --------- --------- -------- --------- (Dollars in thousands) King County Renton $ 29,355 $ 18,896 $ 20,694 $ 228,475 $ 318,705 $ - $ 616,125 Landing 2,453 495 256 17,853 10,480 - 31,537 Woodinville (1) 1,362 3,771 549 19,024 7,217 - 31,923 Bothell 198 97 100 2,636 3,066 - 6,097 Crossroads 2,530 3,199 83 24,383 11,474 - 41,669 Total King County 35,898 26,458 21,682 292,371 350,942 - 727,351 - ------ - ------ - ------ - ------- - ------- - ------ - ------- Snohomish County Mill Creek 1,485 3,226 658 12,272 10,524 - 28,165 Edmonds 2,698 2,532 157 15,175 16,123 - 36,685 Clearview (1) 3,496 3,968 1,283 6,743 2,489 - 17,979 Lake Stevens (1) 1,415 1,702 428 3,926 3,644 - 11,115 Smokey Point (1) 1,116 2,193 591 8,560 7,452 - 19,912 Total Snohomish County 10,210 13,621 3,117 46,676 40,232 - 113,856 - ------ - ------ - ------ - ------- - ------- - ------ - ------- Total retail deposits 46,108 40,079 24,799 339,047 391,174 - 841,207 Brokered deposits - - - - - 97,825 97,825 Total deposits $ 46,108 $ 40,079 $ 24,799 $ 339,047 $ 391,174 $ 97,825 $ 939,032 - ------ - ------ - ------ - ------- - ------- - ------ - -------

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000.

September 30, 2018 ------------------------------------------------------------------------- Nonintere Certificat Certificat st- Interest- Statement Money es es bearing bearing market of of Total demand demand savings deposit, deposit, retail brokered -------- -------- -------- --------- --------- --------- --------- (Dollars in thousands) King County: Renton $ 31,796 $ 19,998 $ 20,508 $ 213,882 $ 317,126 $ - $ 603,310 The Landing 2,458 772 58 17,796 8,944 - 30,028 Woodinville (1) 1,535 3,874 538 20,335 6,813 - 33,095 Bothell 48 103 8 2,435 1,684 - 4,278 Crossroads 1,249 4,797 84 21,846 9,339 - 37,315 Total King County 37,086 29,544 21,196 276,294 343,906 - 708,026 - ------ - ------ - ------ - ------- - ------- - ------- - ------- Snohomish County: Mill Creek 1,437 2,952 571 11,287 8,779 - 25,026 Edmonds 4,416 2,033 45 16,452 11,007 - 33,953 Clearview (1) 4,187 3,058 1,037 7,101 2,272 - 17,655 Lake Stevens (1) 2,434 2,452 483 3,901 2,576 - 11,846 Smokey Point (1) 1,620 1,915 774 7,990 5,391 - 17,690 Total Snohomish County 14,094 12,410 2,910 46,731 30,025 - 106,170 - ------ - ------ - ------ - ------- - ------- - ------- - ------- Total retail deposits 51,180 41,954 24,106 323,025 373,931 - 814,196 Brokered deposits - - - - - 102,083 102,083 Total deposits $ 51,180 $ 41,954 $ 24,106 $ 323,025 $ 373,931 $ 102,083 $ 916,279 - ------ - ------ - ------ - ------- - ------- - ------- - -------

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $69,000.

Highlights for the quarter and the year ended December 31, 2018:

-- Net loans receivable increased to $1.02 billion at December 31, 2018, from $995.6 million at September 30, 2018, and $988.7 million at December 31, 2017. The Company’s one-to-four residential loan portfolio increased to $342.0 million at December 31, 2018, compared to $327.9 million at September 30, 2018, and $278.7 million at December 31, 2017, representing a year over year growth of $63.3 million in one-to-four residential loans. -- Total deposits increased to $939.0 million at December 31, 2018, from $916.3 million at September 30, 2018, and $839.5 million at December 31, 2017. -- The Company increased the regular quarterly cash dividend to shareholders to $0.08 per share in the quarter ended June 30, 2018, from $0.07 per share previously. -- During the year ended December 31, 2018, the Company repurchased 203,900 shares of its common stock at an average price of $15.43 per share under a stock repurchase plan authorized by the Board of Directors on October 24, 2018. The plan, which commenced on November 5, 2018, and will expire no later than May 3, 2019, authorizes the repurchase of up to 550,000 shares of the Company’s common stock, or approximately 5.0% of its outstanding shares. -- The Company’s book value per share was $14.35 at December 31, 2018, compared to $14.17 at September 30, 2018, and $13.27 at December 31, 2017. -- The Bank’s Tier 1 leverage and total capital ratios at December 31, 2018, were 10.4% and 14.7%, respectively, compared to 10.4% and 14.8% at September 30, 2018, and 10.2% and 13.8% at December 31, 2017. -- Based on management’s evaluation of the adequacy of the ALLL, there was a $200,000 provision for loan losses during the quarter ended December 31, 2018.

The ALLL represented 1.29% of total loans receivable, net of undisbursed funds, at December 31, 2018, compared to 1.30% at September 30, 2018, and 1.28% at December 31, 2017. Nonperforming assets totaled $1.2 million at December 31, 2018, compared to $967,000 at September 30, 2018, and $662,000 at December 31, 2017. The increase in the Company’s nonperforming assets since December 31, 2017, was primarily due to one $325,000 nonperforming commercial real estate loan in the quarter ended September 30, 2018, and one $272,000 nonperforming one-to-four family residential loan in the quarter ended December 31, 2018. The $325,000 nonperforming commercial real estate loan was paid in full in the first quarter of 2019.

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

Dec 31, Sep 30, Dec 31, Three One Month Year 2018 2018 2017 Change Change - ----- - - ---- - - ---- - ------- ------- (Dollars in thousands) Nonperforming loans: One-to-four family residential $ 382 $ 113 $ 128 $ 269 $ 254 Commercial real estate 326 325 - 1 326 Consumer 44 46 51 (2 ) (7 ) - --- - Total nonperforming loans 752 484 179 268 573 Other real estate owned (“OREO”) 483 483 483 - - - ----- - - ---- - - ---- - - --- - - --- - Total nonperforming assets (1) $ 1,235 $ 967 $ 662 $ 268 $ 573 - ----- - - ---- - - ---- - - --- - - --- - Nonperforming assets as a percent of total assets 0.10 % 0.08 % 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 December 31, 2018.

OREO totaled $483,000 at December 31, 2018, September 30, 2018, and December 31, 2017. The Company continues to actively market its two remaining OREO properties in an effort to minimize holding costs.

In circumstances where a customer is experiencing significant financial difficulties, the Company may elect to restructure the loan so the customer can continue to make payments while minimizing the potential loss to the Company. Such restructures must be classified as TDRs.

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

Dec 31, Sep 30, Dec 31, Three One 2018 2018 2017 Month Year Change Change ------- -------- -------- ---------- ---------- (Dollars in thousands) Performing TDRs: One-to-four family residential $ 6,941 $ 9,458 $ 13,434 $ (2,517 ) $ (6,493 ) Multifamily – 1,116 1,134 (1,116 ) (1,134 ) Commercial real estate 2,415 2,601 3,194 (186 ) (779 ) Consumer 43 43 43 – – - ----- - ------ - ------ - ------ - - ------ - Total TDRs $ 9,399 $ 13,218 $ 17,805 $ (3,819 ) $ (8,406 ) - ----- - ------ - ------ - ------ - - ------ -

Net interest income for the quarter ended December 31, 2018, totaled $10.0 million, compared to $10.1 million for the quarter ended September 30, 2018, and $10.4 million for the quarter ended December 31, 2017. The decline in net interest income was due primarily to increases in the cost of interest bearing liabilities that outpaced the increases in income from interest earning assets. For the year ended December 31, 2018, net interest income totaled $41.2 million, compared to $37.6 million for the year ended December 31, 2017. The primary contributor to the increase in the year ended December 31, 2018, was higher average loan balances. In addition, the Company received $1.0 million in additional interest income in the quarter ended March 31, 2018, relating to interest payments on loans previously charged off.

Total interest income increased to $14.3 million during the quarter ended December 31, 2018, compared to $13.9 million in the quarter ended September 30, 2018, and $13.3 million in the quarter ended December 31, 2017. For the year ended December 31, 2018, total interest income increased to $55.9 million compared to $47.6 million in 2017. These increases were due primarily to the growth in the average balances of net loans receivable to $1.01 billion for the quarter ended December 31, 2018, compared to $993.3 million for the quarter ended September 30, 2018, and $963.1 million for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average balance of net loans receivable was $995.8 million compared to $878.4 million for the prior year.

Total interest expense increased to $4.3 million for the quarter ended December 31, 2018, compared to $3.8 million for the quarter ended September 30, 2018, and $2.9 million for the quarter ended December 31, 2017. The higher level of interest expense in the quarter ended December 31, 2018, was due primarily to growth in total deposits along with increases in interest rates on deposits in a competitive, rising short term interest rate environment. Total deposits increased to $939.0 million at December 31, 2018, from $839.5 million at December 31, 2017. For the year ended December 31, 2018, interest expense totaled $14.7 million, compared to $10.0 million for the year ended December 31, 2017. This increase was primarily due to growth in deposit balances along with increasing short term interest rates. The Federal Reserve’s Open Market Committee continued increasing their Fed Funds target rates throughout the year, impacting the rates paid on the Company’s interest bearing liabilities. Total cost of deposits increased to 1.53% for the quarter ended December 31, 2018, from 1.31% for the quarter ended September 30, 2018, and 1.02% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the total cost of deposits was 1.28% compared to 0.99% for the year ended December 31, 2017. Advances from the FHLB totaled $146.5 million at December 31, 2018, compared to $149.0 million at September 30, 2018, and $216.0 million at December 31, 2017, as the Company’s deposit gathering success allowed for a reduction in FHLB advances. The average cost of FHLB advances was 2.12% for the quarter ended December 31, 2018, compared to 2.05% for the quarter ended September 30, 2018, and 1.46% for the quarter ended December 31, 2017. For the year ended December 31, 2018, the average cost of FHLB advances was 1.92%, compared to 1.30% for the prior year. The balance of brokered certificates of deposits was $97.8 million at December 31, 2018, compared to $102.1 million at September 30, 2018, and $75.5 million at December 31, 2017.

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

Dec 31, Sep 30, Dec 31, Three One 2018 2018 2017 Month Year Change Change --------- --------- --------- ---------- ---------- Deposits: (Dollars in thousands) Noninterest-bearing $ 46,108 $ 51,180 $ 45,434 $ (5,072 ) $ 674 Interest-bearing demand 40,079 41,954 38,224 (1,875 ) 1,855 Statement savings 24,799 24,106 28,456 693 (3,657 ) Money market 339,047 323,025 318,636 16,022 20,411 Certificates of deposit, retail (1) 391,174 373,931 333,264 17,243 57,910 Certificates of deposit, brokered 97,825 102,083 75,488 (4,258 ) 22,337 Total deposits $ 939,032 $ 916,279 $ 839,502 $ 22,753 $ 99,530 - ------- - ------- - ------- - ------ - - ------ -

(1) Balance of retail certificates of deposit for acquired branches are net of an aggregate fair value adjustment of $58,000 at December 31, 2018, $69,000 at September 30, 2018, and $107,000 at December 31, 2017.

The Company’s net interest margin was 3.41% for the quarter ended December 31, 2018, compared to 3.46% for the quarter ended September 30, 2018, and 3.65% for the quarter ended December 31, 2017. The compression in net interest margin during these periods was due to interest rates paid on interest bearing liabilities increasing more rapidly than yields earned on interest earning assets. Net interest margin for the year ended December 31, 2018, was 3.56%, compared to 3.60% for the year ended December 31, 2017.

Noninterest income for the quarter ended December 31, 2018, totaled $728,000, compared to $841,000 in the quarter ended September 30, 2018, and $211,000 in the quarter ended December 31, 2017. The decline from the prior quarter was due primarily to a reduction in the amount of Bank Owned Life Insurance (“BOLI”) income recorded. For the year ended December 31, 2018, noninterest income increased to $2.9 million, from $2.2 million in 2017, due primarily to a net loss of $567,000 on the sale of investments recorded in 2017. After the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law in December 2017, the Company elected to restructure a portion of its investment portfolio and sold approximately $37 million in fixed rate securities and reinvested the proceeds, primarily into adjustable rate securities.

Noninterest expense for the quarter ended December 31, 2018, increased to $7.7 million from $7.2 million in the quarter ended September 30, 2018, and $7.1 million in the quarter ended December 31, 2017. Salaries and employee benefits increased $245,000 from the prior quarter due primarily to an increase in the number of work days in the fourth quarter. Other general and administrative expenses increased $206,000, as the Company incurred a $225,000 wire related fraud loss in the fourth quarter. The Company has filed an insurance claim for the loss and expects to receive payment on the claim in the first quarter of 2019, subject to a $100,000 deductible. Noninterest expense increased to $29.5 million for the year ended December 31, 2018, compared to $26.8 million in 2017. This increase in noninterest expense was due primarily to our branch expansion over the past year. Salaries and employee benefits expense increased due to increased staffing in support of the new branches and development of new products, as well as standard salary increases. Higher occupancy and equipment expenses reflect our recently opened branch locations, while the increase in other general and administrative expenses also reflects the growth in the Company’s operations.

The Company’s federal income tax provision was $622,000 for the quarter ended December 31, 2018, compared to $707,000 for the quarter ended September 30, 2018, and $2.3 million for the quarter ended December 31, 2017. The primary reason for the change in the 2018 periods compared to the quarter ended December 31, 2017, was the reduction in the federal corporate income tax rate from 35% to 21% in 2018 due to the Tax Act. In addition, during the quarter ended December 31, 2017, the Company recorded a charge of $807,000 through its federal income tax provision relating to changes to the Company’s net deferred tax asset valuation as a result of the Tax Act’s reduction in the federal corporate income tax rate.

For the year ended December 31, 2018, the Company’s federal income tax provision totaled $3.7 million on income before federal income tax provision of $18.6 million, compared to $4.9 million on pretax income of $13.4 million for the year ended December 31, 2017. The Company’s federal income tax provision in 2018 benefited from the reduction in the federal corporate income tax rate, as well as from stock option exercises that occurred at prices higher than originally estimated, resulting in higher allowable expense recognition for tax purposes.

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 10 full-service banking offices. The Bank expects to open its eleventh branch location at Kent Station in the first quarter of 2019. We are a part of the ABA NASDAQ Community Bank Index and the Russell 3000 Index. 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: increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; 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 2019 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 SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share data) (Unaudited) Dec 31, Sep 30, Dec 31, Three One Assets 2018 2018 2017 Month Year Change Change ------------- ------------- ------------- -------- -------- Cash on hand and in banks $ 8,122 $ 7,167 $ 9,189 13.3 % (11.6 )% Interest-earning deposits 8,888 19,094 6,942 (53.5 ) 28.0 Investments available-for-sale, at fair value 142,170 140,868 132,242 0.9 7.5 Loans receivable, net of allowance of $13,347, 1,022,904 995,557 988,662 2.7 3.5 $13,116, and $12,882, respectively Federal Home Loan Bank (“FHLB”) stock, at cost 7,310 7,410 9,882 (1.3 ) (26.0 ) Accrued interest receivable 4,068 4,664 4,084 (12.8 ) (0.4 ) Deferred tax assets, net 1,844 2,092 1,211 (11.9 ) 52.3 Other real estate owned (“OREO”) 483 483 483 0.0 0.0 Premises and equipment, net 21,331 21,277 20,614 0.3 3.5 Bank owned life insurance (“BOLI”) 29,841 29,745 29,027 0.3 2.8 Prepaid expenses and other assets 3,458 4,460 5,738 (22.5 ) (39.7 ) Goodwill 889 889 889 0.0 0.0 Core deposit intangible 1,116 1,153 1,266 (3.2 ) (11.8 ) Total assets $ 1,252,424 $ 1,234,859 $ 1,210,229 1.4 % 3.5 % - --------- - - --------- - - --------- - Liabilities and Stockholders’ Equity Deposits Noninterest-bearing deposits $ 46,108 $ 51,180 $ 45,434 (9.9 )% 1.5 % Interest-bearing deposits 892,924 865,099 794,068 3.2 12.4 - --------- - - --------- - - --------- - Total deposits 939,032 916,279 839,502 2.5 11.9 Advances from the FHLB 146,500 149,000 216,000 (1.7 ) (32.2 ) Advance payments from borrowers for taxes and 2,933 4,737 2,515 (38.1 ) 16.6 insurance Accrued interest payable 478 541 326 (11.6 ) 46.6 Other liabilities 9,743 9,589 9,252 1.6 5.3 - --------- - - --------- - - --------- - Total liabilities 1,098,686 1,080,146 1,067,595 1.7 % 2.9 % Commitments and contingencies Stockholders’ Equity Preferred stock, $0.01 par value; authorized 10,000,000 shares; no shares issued or outstanding $ - $ - $ - Common stock, $0.01 par value; authorized 90,000,000 shares; issued and outstanding 10,710,656 shares at December 31, 2018, 10,914,556 shares at September 30, 2018, and 10,748,437 shares at December 31, 2017 107 109 107 (1.8 )% 0.0 % Additional paid-in capital 93,773 96,664 94,173 (3.0 ) (0.4 ) Retained earnings, substantially restricted 66,343 65,004 54,642 2.1 21.4 Accumulated other comprehensive loss, net of (2,253 ) (2,550 ) (928 ) (11.6 ) 142.8 tax Unearned Employee Stock Ownership Plan (4,232 ) (4,514 ) (5,360 ) (6.2 ) (21.0 ) (“ESOP”) shares - --------- - - --------- - - --------- - Total stockholders’ equity 153,738 154,713 142,634 (0.6 ) 7.8 Total liabilities and stockholders’ equity $ 1,252,424 $ 1,234,859 $ 1,210,229 1.4 % 3.5 % - --------- - - --------- - - --------- -

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES Consolidated Income Statements (Dollars in thousands, except share data) (Unaudited) Quarter Ended ------------------------------------------ Dec 31, Sep 30, Dec 31, Three One 2018 2018 2017 Month Year Change Change ------------ ------------ -------------- --------- --------- Interest income Loans, including fees $ 13,024 $ 12,631 $ 12,269 3.1 % 6.2 % Investments available-for-sale 1,124 1,063 903 5.7 24.5 Interest-earning deposits with banks 61 59 43 3.4 41.9 Dividends on FHLB Stock 115 135 85 (14.8 ) 35.3 Total interest income 14,324 13,888 13,300 3.1 7.7 - ---------- - ---------- - ---------- - Interest expense Deposits 3,595 2,912 2,117 23.5 69.8 FHLB advances 726 917 795 (20.8 ) (8.7 ) Total interest expense 4,321 3,829 2,912 12.8 48.4 - ---------- - ---------- - ---------- - Net interest income 10,003 10,059 10,388 (0.6 ) (3.7 ) Provision (recapture of provision) for loan 200 200 (1,200 ) 0.0 (116.7 ) losses Net interest income after provision 9,803 9,859 11,588 (0.6 ) (15.4 ) (recapture of provision) for loan losses - ---------- - ---------- - ---------- - Noninterest income Net gain (loss) on sale of investments - 1 (670 ) (100.0 ) (100.0 ) BOLI income 96 245 133 (60.8 ) (27.8 ) Wealth management revenue 211 145 220 45.5 (4.1 ) Deposit related fees 178 167 169 6.6 5.3 Loan related fees 235 273 356 (13.9 ) (34.0 ) Other 8 10 3 (20.0 ) 166.7 Total noninterest income 728 841 211 (13.4 ) 245.0 - ---------- - ---------- - ---------- - Noninterest expense Salaries and employee benefits 4,977 4,732 4,673 5.2 6.5 Occupancy and equipment 871 814 721 7.0 20.8 Professional fees 415 353 430 17.6 (3.5 ) Data processing 361 356 326 1.4 10.7 OREO related expenses (reimbursements), net 3 1 (81 ) 200.0 (103.7 ) Regulatory assessments 111 126 161 (11.9 ) (31.1 ) Insurance and bond premiums 88 95 97 (7.4 ) (9.3 ) Marketing 75 85 68 (11.8 ) 10.3 Other general and administrative 845 639 674 32.2 25.4 Total noninterest expense 7,746 7,201 7,069 7.6 9.6 - ---------- - ---------- - ---------- - Income before federal income tax provision 2,785 3,499 4,730 (20.4 ) (41.1 ) Federal income tax provision 622 707 2,324 (12.0 ) (73.2 ) - ---------- - ---------- - Net income $ 2,163 $ 2,792 $ 2,406 (22.5 )% (10.1 )% - ---------- - ---------- - ---------- - Basic earnings per share $ 0.21 $ 0.27 $ 0.24 Diluted earnings per share $ 0.21 $ 0.27 $ 0.23 Weighted average number of common shares outstanding 10,184,804 10,385,612 10,356,994 Weighted average number of diluted shares outstanding 10,313,114 10,484,350 10,468,802

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES Consolidated Income Statements (Dollars in thousands, except share data) (Unaudited) Year Ended December 31, -------------------------------------------- One Two 2018 2017 2016 Year Year Change Change - ---------- - - ---------- - - ---------- -------- -------- Interest income Loans, including fees $ 51,127 $ 43,607 $ 38,218 17.2 % 33.8 % Investments available-for-sale 4,126 3,504 3,054 17.8 35.1 Interest-earning deposits with banks 202 237 235 (14.8 ) (14.0 ) Dividends on FHLB Stock 458 296 202 54.7 126.7 Total interest income 55,913 47,644 41,709 17.4 34.1 - ---------- - - ---------- - - ---------- Interest expense Deposits 11,218 7,517 6,101 49.2 83.9 FHLB advances 3,520 2,505 1,406 40.5 150.4 Total interest expense 14,738 10,022 7,507 47.1 96.3 - ---------- - - ---------- - - ---------- Net interest income 41,175 37,622 34,202 9.4 20.4 (Recapture of provision) provision for loan (4,000 ) (400 ) 1,300 900.0 (407.7 ) losses Net interest income after (recapture of 45,175 38,022 32,902 18.8 37.3 provision) provision for loan losses - ---------- - - ---------- - - ---------- Noninterest income Net (loss) gain on sale of investments (20 ) (567 ) 50 (96.5 ) (140.0 ) BOLI 814 623 844 30.7 (3.6 ) Wealth management revenue 611 919 813 (33.5 ) (24.8 ) Deposit related fees 681 446 261 52.7 160.9 Loan related fees 768 776 671 (1.0 ) 14.5 Other 24 11 12 118.2 100.0 Total noninterest income 2,878 2,208 2,651 30.3 8.6 - ---------- - - ---------- - - ---------- Noninterest expense Salaries and employee benefits 19,302 17,773 15,377 8.6 25.5 Occupancy and equipment 3,283 2,506 1,984 31.0 65.5 Professional fees 1,538 1,809 1,979 (15.0 ) (22.3 ) Data processing 1,392 1,457 911 (4.5 ) 52.8 OREO related expenses (reimbursements), net 7 (67 ) 294 (110.4 ) (97.6 ) Regulatory assessments 502 491 420 2.2 19.5 Insurance and bond premiums 443 399 349 11.0 26.9 Marketing 344 270 194 27.4 77.3 Other general and administrative 2,650 2,171 1,441 22.1 83.9 Total noninterest expense 29,461 26,809 22,949 9.9 28.4 - ---------- - - ---------- - - ---------- Income before federal income tax provision 18,592 13,421 12,604 38.5 47.5 Federal income tax provision 3,693 4,942 3,712 (25.3 ) (0.5 ) - ---------- - - ---------- Net income $ 14,899 $ 8,479 $ 8,892 75.7 % 67.6 % - ---------- - - ---------- - - ---------- Basic earnings per share $ 1.44 $ 0.82 $ 0.75 Diluted earnings per share $ 1.43 $ 0.81 $ 0.74 Weighted average number of common shares 10,306,835 10,289,049 11,868,278 outstanding Weighted average number of diluted shares 10,424,187 10,437,449 12,028,428 outstanding

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

December 31, 2018 September 30, 2018 December 31, 2017 ---------------------- ---------------------- ---------------------- - Amount Percent Amount Percent Amount Percent ------------- ------- ------------- ------- ------------- ------- - (Dollars in thousands) Commercial real estate: Residential: Micro-unit apartments $ 14,076 1.3 % $ 14,141 1.3 % $ 7,020 0.6 % Other multifamily 155,279 13.8 162,380 14.7 177,882 16.3 - --------- - ------- - --------- - ------- - --------- - ------- - Total multifamily 169,355 15.1 176,521 16.0 184,902 16.9 Non-residential: Office 100,495 8.9 96,542 8.8 112,327 10.2 Retail 131,222 11.7 139,085 12.6 129,875 11.9 Mobile home park 16,003 1.4 15,649 1.4 19,970 1.8 Warehouse 25,398 2.3 22,252 2.0 22,701 2.1 Storage 32,462 2.9 32,625 3.0 32,201 2.9 Other non-residential 68,239 6.1 54,332 4.9 44,768 4.1 - --------- - ------- - --------- - ------- - --------- - ------- - Total non-residential 373,819 33.3 360,485 32.7 361,842 33.0 Construction/land development: One-to-four family residential 86,604 7.7 84,912 7.7 87,404 8.0 Multifamily 83,642 7.4 80,607 7.3 108,439 9.9 Commercial 18,300 1.6 21,385 2.0 5,325 0.5 Land 6,740 0.7 7,113 0.7 36,405 3.3 - --------- - ------- - --------- - ------- - --------- - ------- - Total construction/land development 195,286 17.4 194,017 17.7 237,573 21.7 One-to-four family residential: Permanent owner occupied 194,141 17.3 184,698 16.8 148,304 13.6 Permanent non-owner occupied 147,825 13.2 143,226 13.0 130,351 11.9 - --------- - ------- - --------- - ------- - --------- - ------- - Total one-to-four family 341,966 30.5 327,924 29.8 278,655 25.5 residential Business Aircraft 11,058 1.0 10,172 0.9 12,491 1.1 Other business 19,428 1.7 19,483 1.8 10,596 1.0 - --------- - ------- Total business 30,486 2.7 29,655 2.7 23,087 2.1 Consumer 12,970 1.0 12,419 1.1 9,133 0.8 - --------- - ------- - --------- - ------- - --------- - ------- - Total loans 1,123,882 100.0 % 1,101,021 100.0 % 1,095,192 100.0 % Less: Loans in Process (“LIP”) 86,453 91,232 92,498 Deferred loan fees, net 1,178 1,116 1,150 ALLL 13,347 13,116 12,882 - --------- - - --------- - Loans receivable, net $ 1,022,904 $ 995,557 $ 988,662 - --------- - - --------- - - --------- - Concentrations of credit: (1) Construction loans as % of total 81.9 % 77.1 % 108.6 % capital Total non-owner occupied commercial 451.8 % 454.5 % 514.0 % real estate as % of total capital

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

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES Key Financial Measures (Dollars in thousands, except per share data) (Unaudited) At or For the Quarter Ended ---------------------------------------------------------- Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2018 2018 2018 2018 2017 - ------ - - ------ - - ------ - - ------ - - ------ - Performance Ratios: Return on assets 0.69 % 0.90 % 1.01 % 2.28 % 0.80 % Return on equity 5.54 7.17 8.28 19.16 6.70 Dividend payout ratio 38.10 29.63 26.67 10.47 29.17 Equity-to-assets ratio 12.28 12.53 12.46 12.13 11.79 Tangible equity ratio 12.13 12.38 12.31 11.98 11.63 Net interest margin 3.41 3.46 3.50 3.88 3.65 Average interest-earning assets to average 114.27 115.20 114.21 113.46 113.32 interest-bearing liabilities Efficiency ratio 72.18 66.06 69.38 60.42 66.69 Noninterest expense as a percent of average total 2.49 2.33 2.44 2.34 2.34 assets Book value per share $ 14.35 $ 14.17 $ 13.97 $ 13.80 $ 13.27 Tangible book value per share 14.17 13.99 13.78 13.60 13.07 Capital Ratios:(1) Tier 1 leverage ratio 10.37 % 10.37 % 10.22 % 10.44 % 10.20 % Common equity tier 1 capital ratio 13.43 13.58 13.21 13.13 12.52 Tier 1 capital ratio 13.43 13.58 13.21 13.13 12.52 Total capital ratio 14.68 14.83 14.47 14.38 13.77 Asset Quality Ratios:(2) Nonperforming loans as a percent of total loans 0.07 % 0.05 % 0.02 % 0.02 % 0.02 % Nonperforming assets as a percent of total assets 0.10 0.08 0.05 0.05 0.05 ALLL as a percent of total loans 1.29 1.30 1.27 1.31 1.28 Net (recoveries) charge-offs to average loans (0.00 ) (0.02 ) (0.00 ) (0.43 ) (0.20 ) receivable, net Allowance for Loan Losses: ALLL, beginning of the quarter $ 13,116 $ 12,754 $ 13,136 $ 12,882 $ 12,110 Provision (Recapture of provision) 200 200 (400 ) (4,000 ) (1,200 ) Charge-offs - - - - - Recoveries 31 162 18 4,254 1,972 - ------ - - ------ - - ------ - - ------ - - ------ - ALLL, end of the quarter $ 13,347 $ 13,116 $ 12,754 $ 13,136 $ 12,882 - ------ - - ------ - - ------ - - ------ - - ------ -

(1) Capital ratios are for First Financial Northwest Bank only.(2) Loans are reported net of undisbursed funds.

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

At or For the Quarter Ended --------------------------------------------------------------------- Dec 31, Sep Jun 30, Mar Dec 31, 30, 31, 2018 2018 2018 2018 2017 - --------- - ---- - - --------- - - ---- - --------- - Yields and Costs: Yield on loans 5.13 % 5.05 % 5.00 % 5.37 % 5.05 % Yield on investments available-for-sale 3.17 3.00 2.87 2.65 2.52 Yield on interest-earning deposits 2.27 1.92 1.48 1.32 1.23 Yield on FHLB stock 6.63 6.27 4.21 4.40 3.42 - --------- - - ----- - - --------- - - -------- - - --------- - Yield on interest-earning assets 4.88 % 4.77 % 4.70 % 4.98 % 4.67 % Cost of interest-bearing deposits 1.61 % 1.40 % 1.22 % 1.15 % 1.08 % Cost of FHLB advances 2.12 2.05 1.92 1.66 1.46 - --------- - - ----- - - --------- - - -------- - - --------- - Cost of interest-bearing liabilities 1.68 % 1.52 % 1.37 % 1.25 % 1.16 % Cost of total deposits 1.53 % 1.31 % 1.15 % 1.09 % 1.02 % Cost of funds 1.61 1.44 1.30 1.20 1.11 Average Balances: Loans $ 1,006,905 $ 993,27 $ 997,059 $ 985,799 $ 963,097 2 Investments available-for-sale 140,568 140,58 141,035 142,236 141,962 4 Interest-earning deposits 10,653 12,223 11,927 11,717 13,843 FHLB stock 6,886 8,540 10,004 9,593 9,859 - --------- - - ----- - - --------- - - -------- - - --------- - $ 1,165,012 $ 1,154, $ 1,160,025 $ 1,149,345 $ 1,128,761 Total interest-earning assets 619 Interest-bearing deposits $ 883,672 $ 825,05 $ 801,852 $ 804,451 $ 780,671 5 FHLB advances 135,886 177,25 213,857 208,544 215,418 0 - --------- - - ----- - - --------- - - -------- - - --------- - $ 1,019,558 $ 1,002, $ 1,015,709 $ 1,012,995 $ 996,089 Total interest-bearing liabilities 305 Noninterest-bearing deposits 47,580 53,982 50,145 46,071 46,029 - --------- - - ----- - - --------- - - -------- - - --------- - Total deposits and borrowings $ 1,067,138 $ 1,056, $ 1,065,854 $ 1,059,066 $ 1,042,118 287 Average assets $ 1,236,460 $ 1,225, $ 1,229,341 $ 1,218,418 $ 1,199,774 189 Average stockholders’ equity 154,958 154,44 150,243 144,786 142,390 4

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESKey Financial Measures (continued)(Dollars in thousands, except per share data)(Unaudited)

At or For the Year Ended December 31, ---------------------------------------------------------- 2018 2017 2016 2015 2014 - ------ - - ------ - - ------ - - ------ - - ------ - Performance Ratios: Return on assets 1.21 % 0.76 % 0.88 % 0.96 % 1.17 % Return on equity 9.86 5.94 5.55 5.15 5.85 Dividend payout ratio 21.53 32.93 32.02 35.57 27.73 Equity-to-assets 12.28 11.79 13.31 17.42 19.36 Tangible equity ratio 12.13 11.63 13.31 17.42 19.36 Net interest margin 3.56 3.60 3.60 3.38 3.77 Average interest-earning assets to average 114.28 114.07 117.11 120.45 121.15 interest-bearing liabilities Efficiency ratio 66.88 67.31 62.27 62.66 56.37 Noninterest expense as a percent of average total 2.40 2.42 2.27 2.07 2.03 assets Book value per share $ 14.35 $ 13.27 $ 12.63 $ 12.40 $ 11.96 Tangible book value per share 14.17 13.07 12.63 12.40 11.96 Capital Ratios:(1) Tier 1 leverage ratio 10.37 % 10.20 % 11.17 % 11.61 % 11.79 % Common equity tier 1 capital ratio 13.43 12.52 14.38 16.36 n/a Tier 1 capital ratio 13.43 12.52 14.38 16.36 18.30 Total capital ratio 14.68 13.77 15.63 17.62 19.56 Asset Quality Ratios:(2) Nonperforming loans as a percent of total loans 0.07 % 0.02 % 0.10 % 0.16 % 0.20 % Nonperforming assets as a percent of total assets 0.10 0.05 0.31 0.48 1.13 ALLL as a percent of total loans 1.29 1.28 1.32 1.36 1.55 Net charge-offs (recoveries) to average loans (0.45 ) (0.27 ) (0.02 ) (0.18 ) 0.06 receivable, net Allowance for Loan Losses: ALLL, beginning of the year $ 12,882 $ 10,951 $ 9,463 $ 10,491 $ 12,994 Provision (recapture of provision) (4,000 ) (400 ) 1,300 (2,200 ) (2,100 ) Charge-offs - - (83 ) (362 ) (642 ) Recoveries 4,465 2,331 271 1,534 239 ALLL, end of the year $ 13,347 $ 12,882 $ 10,951 $ 9,463 $ 10,491 - ------ - - ------ - - ------ - - ------ - - ------ -

(1) Capital ratios are for First Financial Northwest Bank only.(2) Loans are reported net of undisbursed funds.

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

At or For the Year Ended December 31, --------------------------------------------------------------------- 2018 2017 2016 2015 2014 - --------- - - --------- - - --------- - - ------- - - ------- - Yields and Costs: Yield on loans 5.13 % 4.96 % 4.99 % 5.18 % 5.37 % Yield on investments available-for-sale 2.92 2.61 2.31 1.84 1.74 Yield on interest-earning deposits 1.74 1.07 0.52 0.26 0.25 Yield on FHLB stock 5.24 3.32 2.62 1.06 0.10 - --------- - - --------- - - --------- - - ------- - - ------- - Yield on interest-earning assets 4.83 4.57 4.39 4.13 4.50 Cost of deposits 1.35 % 1.04 % 0.94 % 0.89 % 0.87 % Cost of FHLB advances 1.92 1.30 0.86 0.95 0.91 - --------- - - --------- - - --------- - - ------- - - ------- - Cost of interest-bearing liabilities 1.46 % 1.10 % 0.92 % 0.90 % 0.88 % Cost of total deposits 1.28 % 0.99 % 0.90 % 0.86 % 0.85 % Cost of funds 1.39 1.05 0.89 0.88 0.87 Average Balances: Loans $ 995,810 $ 878,449 $ 765,948 $ 667,739 $ 675,353 Investments available-for-sale 141,100 134,105 132,372 121,893 131,474 Interest-earning deposits 11,628 22,194 45,125 104,476 46,776 FHLB stock 8,748 8,914 7,714 6,527 6,899 - --------- - - --------- - - --------- - - ------- - - ------- - Total interest-earning assets $ 1,157,286 $ 1,043,662 $ 951,159 $ 900,635 $ 860,502 Deposits $ 828,965 $ 722,666 $ 648,324 $ 614,185 $ 581,435 FHLB advances 183,667 192,227 163,893 133,527 128,839 - --------- - - --------- - - --------- - - ------- - - ------- - Total interest-bearing liabilities $ 1,012,632 $ 914,893 $ 812,217 $ 747,712 $ 710,274 Noninterest-bearing deposits 49,461 39,127 27,596 23,509 11,022 - --------- - - --------- - - --------- - - ------- - - ------- - Total deposits and borrowings $ 1,062,093 $ 954,020 $ 839,813 $ 771,221 $ 721,296 Average assets $ 1,227,396 $ 1,108,656 $ 1,010,243 $ 958,154 $ 910,448 Average stockholders’ equity 151,145 142,647 160,192 177,904 182,598

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. The Company’s intangible assets consist of goodwill and core deposit intangible. Tangible equity is calculated by subtracting intangible assets from total stockholder’s equity. Tangible assets is 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 our 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. All financial measures reported for periods prior to December 31, 2017, are considered GAAP financial measures:

Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, 2018 2018 2018 2018 2017 -------------- -------------- -------------- -------------- -------------- Total stockholders’ equity $ 153,738 $ 154,713 $ 152,554 $ 148,755 $ 142,634 Less: Goodwill 889 889 889 889 889 Core deposit intangible 1,116 1,153 1,191 1,228 1,266 - ---------- - - ---------- - - ---------- - - ---------- - Tangible equity $ 151,733 $ 152,671 $ 150,474 $ 146,638 $ 140,479 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total assets 1,252,424 1,234,859 1,224,065 1,226,358 1,210,229 Less: Goodwill 889 889 889 889 889 Core deposit intangible 1,116 1,153 1,191 1,228 1,266 - ---------- - - ---------- - - ---------- - - ---------- - Tangible assets $ 1,250,419 $ 1,232,817 $ 1,221,985 $ 1,224,241 $ 1,208,074 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Common shares outstanding at 10,710,656 10,914,556 10,916,556 10,779,424 10,748,437 period end Equity to assets ratio 12.28 % 12.53 % 12.46 % 12.13 % 11.79 % Tangible equity ratio 12.13 12.38 12.31 11.98 11.63 Book value per share $ 14.35 $ 14.17 $ 13.97 $ 13.80 $ 13.27 Tangible book value per share 14.17 13.99 13.78 13.60 13.07

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

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