First Financial Northwest, Inc. Reports Net Income For The Fourth Quarter Of $1.5 Million Or $0.09 Per Share And $2.7 Million Or $0.15 Per Share For The Year Ended December 31, 2012

"Having joined the Company at the end of the third quarter of 2012, I'm currently focused on revising the strategic plan for the Bank, with a focal point of reducing our cost of funds and improving our operating efficiency. My first priority is to have the Memorandum of Understanding the Bank entered into in March 2012 with the Federal Deposit Insurance Corporation ("FDIC") and the Washington State Department of Financial Institutions ("Washington DFI"), rescinded as soon as possible, as the Bank has worked diligently toward complying with all regulatory directives. My next goal is to achieve more efficiency within each department of the Bank, to create both income opportunities and operating expense reductions. Some of the cost saving measures have already occurred. During January 2013, the Bank's Board of Directors voted to freeze the defined benefit pension plan, which will translate into cost savings for years to come. Finally, we will strive to develop more diversification within our deposit products, with an emphasis on transaction accounts to reduce our current concentration in certificates of deposit. We believe this diversification will positively affect our future cost of funds.

The Company's fourth quarter results are a good start. We anticipate limited asset growth over the next year while we work to revise and implement our strategic plan. Additional plans to improve our efficiency ratio will include outsourcing processes when it is cost beneficial for the Bank and/or when a broader level of experience is needed.

The next year will be a challenge, but a challenge I believe our staff is capable of addressing. We will endeavor to seek changes that will have a positive impact on our Company's operations in order to enhance shareholder value and customer service," Mr. Kiley stated.

Highlights for the fourth quarter ended December 31, 2012 included:

• Loan originations for the quarter increased 77.1% to $54.2 million compared to $30.6 million for the third quarter of 2012 and $9.4 million for the fourth quarter of 2011;
• Nonperforming assets at December 31, 2012 decreased $2.7 million, or 6.3% to $40.1 million from September 30, 2012 and $9.6 million, or 19.4% from December 31, 2011;
• OREO related expenses decreased $1.1 million to $507,000 for the quarter, compared to $1.6 million for the third quarter of 2012 and $955,000 for the comparable quarter in 2011;
• Sales of OREO were $4.1 million during the quarter and generated net gains on sales of $180,000;
• Additional expenses associated with the proxy contest litigation were $186,000, net of a refund receivable from our Directors and Officers' insurance policy for the quarter, as compared to $264,000 for the third quarter of 2012. For the year ended December 31, 2012, net proxy contest and litigation expenses were $1.1 million with no comparable expenses during 2011;
• The Company's book value per share increased to $9.95 at December 31, 2012, from $9.84 at September 30, 2012 and $9.64 at December 31, 2011;
• The Bank's Tier 1 and total risk-based capital ratios at December 31, 2012 were 15.79% and 27.37%, respectively;

Based on management's evaluation of the adequacy of the allowance for loan and lease losses ("ALLL"), no provision was required for the fourth quarter of 2012. This compares to a third quarter 2012 provision of $700,000 and a $600,000 provision for the comparable quarter one year ago. The following contributed to the lack of need for a loan loss provision during the quarter ended December 31, 2012:

• Classified assets decreased $9.5 million, or 15.5%, to $51.6 million at December 31, 2012 from $61.1 million at September 30, 2012 and $72.1 million at December 31, 2011. Classified assets include loans of lower quality where there is a distinct possibility that we will record a loss if the deficiencies are not corrected.
• Delinquent loans, loans over 30 days past due, decreased $3.7 million to $20.9 million at December 31, 2012, from $24.6 million at September 30, 2012 and $26.7 million at December 31, 2011;
• Our loan concentration levels in our five largest lending relationships continued to decline. The aggregate balance for these loans decreased $5.3 million to $85.6 million at December 31, 2012, from $90.9 million at September 30, 2012 and $96.9 million at December 31, 2011. All of these loans are performing;
• Nonperforming loans decreased $824,000 to $22.8 million at December 31, 2012, from $23.6 million at September 30, 2012 and $23.7 million at December 31, 2011, continuing the trend of improvement within the loan portfolio;
• Nonperforming loans as a percentage of total loans remained relatively unchanged at 3.4% at December 31, 2012, compared to September 30, 2012 and December 31, 2011, even as total loans decreased $6.7 million from the prior quarter and $49.1 million for the year, indicating an improvement in the performance of the loan portfolio;

Nonperforming assets decreased $2.7 million to $40.1 million at December 31, 2012, compared to $42.8 million at September 30, 2012, and totaled $49.7 million at December 31, 2011, as we continue to restructure loans and sell our OREO properties.

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