Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2020

or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 001-33652


FIRST FINANCIAL NORTHWEST, INC.
(Exact name of registrant as specified in its charter)

Washington		26-0610707
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

201 Wells Avenue South, Renton, Washington		98057
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:		(425) 255-4400

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	FFNW	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES X NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer _____	Accelerated filer X	Non-accelerated filer _____
Smaller reporting company __X__	Emerging growth company _____

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. _____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES NO X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: as of May 6, 2020, 10,177,511 shares of the issuer’s common stock, $0.01 par value per share, were outstanding.

FIRST FINANCIAL NORTHWEST, INC.

FORM 10-Q

TABLE OF CONTENTS



			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	55
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	55
	Item 1A.	Risk Factors	55
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 3.	Defaults upon Senior Securities	57
	Item 4.	Mine Safety Disclosures	57
	Item 5.	Other Information	57
	Item 6.	Exhibits	58
SIGNATURES			59

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands, except share data)

Part 1. Financial Information

Item 1. Financial Statements



	March 31, 2020			December 31, 2019
Assets
	(Unaudited)
Cash on hand and in banks	$	6,453		$	10,094
Interest-earning deposits	22,063			12,896
Investments available-for-sale, at fair value	132,159			136,601
Investment held-to-maturity	2,371			—
Loans receivable, net of allowance of $13,530 and $13,218	1,092,128			1,108,462
Federal Home Loan Bank ("FHLB") stock, at cost	8,010			7,009
Accrued interest receivable	4,302			4,138
Deferred tax assets, net	2,227			1,501
Other real estate owned ("OREO")	454			454
Premises and equipment, net	22,591			22,466
Bank owned life insurance ("BOLI"), net	32,290			31,982
Prepaid expenses and other assets	1,898			2,216
Right of use asset (“ROU”)	2,446			2,209
Goodwill	889			889
Core deposit intangible	932			968
Total assets	$	1,331,213		$	1,341,885

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits	$	53,519		$	52,849
Interest-bearing deposits	946,465			980,685
Total deposits	999,984			1,033,534
FHLB advances	160,000			137,700
Advance payments from borrowers for taxes and insurance	4,960			2,921
Lease liability	2,538			2,279
Accrued interest payable	236			285
Other liabilities	10,403			8,847
Total liabilities	1,178,121			1,185,566

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 10,184,411 shares at March 31, 2020, and 10,252,953 shares at December 31, 2019	102			103
Additional paid-in capital	86,357			87,370
Retained earnings	74,017			73,321
Accumulated other comprehensive loss, net of tax	(4,563		)	(1,371		)
Unearned Employee Stock Ownership Plan ("ESOP") shares	(2,821		)	(3,104		)
Total stockholders' equity	153,092			156,319
Total liabilities and stockholders' equity	$	1,331,213		$	1,341,885

See accompanying selected notes to consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Income Statements

(Dollars in thousands, except per share data)

Unaudited)



	Three Months Ended March 31,
	2020		2019
Interest income
Loans, including fees	$	13,474	$	13,281
Investments available-for-sale	919		1,159
Interest-earning deposits	31		40
Dividends on FHLB stock	76		91
Total interest income	14,500		14,571
Interest expense
Deposits	4,366		3,822
Other borrowings	470		897
Total interest expense	4,836		4,719
Net interest income	9,664		9,852
Provision for loan losses	300		400
Net interest income after provision for loan losses	9,364		9,452
Noninterest income
Net loss on sale of investments	—		(8		)
BOLI income	254		269
Wealth management revenue	165		196
Deposit related fees	176		171
Loan related fees	392		63
Other	3		9
Total noninterest income	990		700
Noninterest expense
Salaries and employee benefits	5,212		5,000
Occupancy and equipment	1,071		866
Professional fees	430		496
Data processing	694		518
OREO related expenses, net	1		31
Regulatory assessments	144		137
Insurance and bond premiums	120		105
Marketing	64		86
Other general and administrative	532		470
Total noninterest expense	8,268		7,709
Income before federal income tax provision	2,086		2,443
Federal income tax provision	402		498
Net income	$	1,684	$	1,945
Basic earnings per common share	$	0.17	$	0.19
Diluted earnings per common share	$	0.17	$	0.19
Basic weighted average number of common shares outstanding	9,896,234		10,118,286
Diluted weighted average number of common shares outstanding	9,978,060		10,220,900

See accompanying selected notes to consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Net income	$	1,684		$	1,945
Other comprehensive (loss) income, before tax:
Unrealized holding (losses) gains on investments available-for-sale	(327		)	976
Tax benefit (provision)	68			(205		)
Reclassification adjustment for net losses realized in income	—			8
Tax provision	—			(1		)
Losses on cash flow hedges	(3,713		)	(460		)
Tax benefit	780			97
Other comprehensive (loss) income, net of tax	(3,192		)	415
Total comprehensive (loss) income	$	(1,508	)	$	2,360

See accompanying selected notes to consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands except share data)

(Unaudited)



	Three Months Ended March 31, 2019
	Shares		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss, net of tax			Unearned ESOP Shares			Total Stockholders’ Equity
Balances at December 31, 2018	10,710,656		$	107		$	93,773		$	66,343		$	(2,253	)	$	(4,232	)	$	153,738
Net income	—		—			—			1,945			—			—			1,945
Other comprehensive income, net of tax	—		—			—			—			415			—			415
Issuance of common stock - restricted stock awards, net	16,698		—			(93		)	—			—			—			(93		)
Compensation related to stock options and restricted stock awards	—		—			124			—			—			—			124
Allocation of 28,213 ESOP shares	—		—			163			—			—			282			445
Repurchase and retirement of common stock	(263,800	)	(3		)	(4,167		)	—			—			—			(4,170		)
Canceled common stock - restricted stock awards	(5,929	)	—			—			—			—			—			—
Cash dividend declared and paid ($0.08 per share)	—		—			—			(807		)	—			—			(807		)
Beginning balance adjustment from adoption of Topic 842	—		—			—			87			—			—			87
Balances at March 31, 2019	10,457,625		$	104		$	89,800		$	67,568		$	(1,838	)	$	(3,950	)	$	151,684



	Three Months Ended March 31, 2020
	Shares		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss, net of tax			Unearned ESOP Shares			Total Stockholders’ Equity
Balances at December 31, 2019	10,252,953		$	103		$	87,370		$	73,321		$	(1,371	)	$	(3,104	)	$	156,319
Net income	—		—			—			1,684			—			—			1,684
Other comprehensive loss, net of tax	—		—			—			—			(3,192		)	—			(3,192		)
Issuance of common stock - restricted stock awards, net	16,228		—			(73		)	—			—			—			(73		)
Compensation related to stock options and restricted stock awards	—		—			80			—			—			—			80
Allocation of 28,214 ESOP shares	—		—			99			—			—			283			382
Repurchase and retirement of common stock	(79,395	)	(1		)	(1,119		)	—			—			—			(1,120		)
Canceled common stock - restricted stock awards	(5,375	)	—			—			—			—			—			—
Cash dividend declared and paid ($0.10 per share)	—		—			—			(988		)	—			—			(988		)
Balances at March 31, 2020	10,184,411		$	102		$	86,357		$	74,017		$	(4,563	)	$	(2,821	)	$	153,092

See accompanying selected notes to consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net income	$	1,684		$	1,945
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	300			400
OREO market value adjustments	—			29
Net amortization of premiums and discounts on investments	235			193
Loss on sale of investments available-for-sale	—			8
Depreciation of premises and equipment	538			427
Deferred federal income taxes	122			7
Allocation of ESOP shares	382			445
Stock compensation expense	80			124
BOLI income	(254		)	(269		)
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets	(72		)	(182		)
Increase in ROU	(237		)	(1,730		)
Increase in advance payments from borrowers for taxes and insurance	2,039			2,441
Increase in accrued interest receivable	(164		)	(793		)
Increase in lease liability	259			1,745
Decrease in accrued interest payable	(49		)	—
(Decrease) increase in other liabilities	(1,731		)	153
Net cash provided by operating activities	3,132			4,943
Cash flows from investing activities:
Proceeds from sales, calls and maturities of investments available-for-sale	—			2,995
Principal repayments on investments available-for-sale	3,880			1,300
Purchase of investments held-to-maturity	(2,371		)	—
Net decrease (increase) in loans receivable	16,034			(29,207		)
Purchase of FHLB stock	(1,001		)	(731		)
Purchase of premises and equipment	(663		)	(466		)
Purchase of BOLI	(54		)	(52		)
Net cash provided (used) by investing activities	15,825			(26,161		)

Cash flows from financing activities:
Net (decrease) increase in deposits	$	(33,550	)	$	16,240
Advances from the FHLB	199,000			71,500
Repayments of advances from the FHLB	(176,700		)	(54,500		)
Net share settlement of stock awards	(73		)	(93		)
Repurchase and retirement of common stock	(1,120		)	(4,170		)
Dividends paid	(988		)	(807		)
Net cash (used) provided by financing activities	(13,431		)	28,170

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)




	Three Months Ended March 31,
	2020			2019
Net increase in cash and cash equivalents	5,526			6,952
Cash and cash equivalents at beginning of period	22,990			17,010
Cash and cash equivalents at end of period	$	28,516		$	23,962

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid	$	4,884		$	4,719

Noncash items:
Change in unrealized loss on investments available-for-sale	$	(327	)	$	984
Change in unrealized loss on cash flow hedge	(3,713		)	(460		)
Initial recognition of ROU	1,312			1,853
Initial recognition of lease liability	1,312			1,853

See accompanying selected notes to consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Description of Business

First Financial Northwest, Inc. (“First Financial Northwest”), a Washington corporation, was formed on June 1, 2007 for the purpose of becoming the holding company for First Financial Northwest Bank (the “Bank”) in connection with the conversion from a mutual holding company structure to a stock holding company structure completed on October 9, 2007. First Financial Northwest’s business activities generally are limited to passive investment activities and oversight of its investment in First Financial Northwest Bank. Accordingly, the information presented in the consolidated financial statements and accompanying data, relates primarily to First Financial Northwest Bank. First Financial Northwest is a bank holding company, having converted from a savings and loan holding company on March 31, 2015, and as a bank holding company is subject to regulation by the Federal Reserve Bank of San Francisco. First Financial Northwest Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of Financial Institutions (“DFI”).

At March 31, 2020, First Financial Northwest Bank operated in thirteen locations in Washington with the headquarters and six retail branch locations in King County, five retail branch locations in Snohomish County and one retail branch in Pierce County. The Bank has received regulatory approval to open a retail branch in Gig Harbor, in Pierce County, Washington. The Bank’s primary market area consists of King, Snohomish, Pierce and Kitsap counties, Washington.

The Bank is a portfolio lender, originating and purchasing one-to-four family residential, multifamily, commercial real estate, construction/land development, business, and consumer loans. Loans are primarily funded by deposits from the general public, supplemented by borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”) and deposits raised in the national brokered deposit market.

As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to First Financial Northwest, Inc. and its consolidated subsidiary First Financial Northwest Bank, unless the context otherwise requires.

Note 2 - Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC (“2019 Form 10-K”). In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the unaudited interim consolidated financial statements in accordance with GAAP have been included. All significant intercompany balances and transactions between the Company and its subsidiaries have been eliminated in consolidation. Operating results for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. In preparing the unaudited consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the allowance for loan and lease losses (“ALLL”), the valuation of other real estate owned (“OREO”) and the underlying collateral of impaired loans, deferred tax assets, the right-of-use asset and lease liability on our operating leases, and the fair value of financial instruments.

The Company’s activities are considered to be a single industry segment for financial reporting purposes. The Company is engaged in the business of attracting deposits from the general public and originating and purchasing loans for its portfolio. Substantially all income is derived from a diverse base of commercial, multifamily, and residential real estate loans, consumer lending activities, and investments.

Certain amounts in the unaudited interim consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation with no effect on consolidated net income or stockholders’ equity.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 - Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted in 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU remove certain disclosure requirements regarding transfers between Level 1 and Level 2 of the fair value hierarchy and changes in unrealized gains and losses for recurring Level 3 fair value measurements. In addition, the amendments modified and added certain disclosure requirements for Level 3 fair value measurements. The Company adopted this ASU as of January 1, 2020, with no material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) as amended by ASU 2018-19, ASU 2019-04 and ASU 2019-05, was originally issued in June 2016. This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period. The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. Available-for-sale securities will bifurcate the fair value mark and establish an allowance for credit losses through the income statement for the credit portion of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted. This ASU is effective for smaller reporting companies, such as the Company, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating its current expected loss methodology on the loan and investment portfolios to identify the necessary modifications in accordance with this standard and expects a change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment to the ALLL or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings. ASU 2019-05 issued in April 2019 further provides that entities that have certain financial instruments measured at amortized cost that has credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of Topic 326. The fair value option applies to available-for-sale debt securities. This ASU is effective upon adoption of ASU 2016-13, and should be applied on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition as of the adoption date. The Company is in the process of compiling historical and industry data that will be used to calculate expected credit losses on the loan portfolio to ensure that it is fully compliant with the ASU at the adoption date and is evaluating the potential impact adoption of this ASU will have on its consolidated financial statements. The Company intends to adopt ASU 2016-13 in the first quarter of 2023, and as a result, the ALLL may increase. Until the evaluation is complete, however, the magnitude of the increase will not be known.

In April 2019, FASB issued ASU 2019-05, Financial Instruments--Credit Losses (Topic 326), Targeted Transition Relief. The amendments in this ASU provide entities that have certain financial instruments measured at amortized cost that have credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of Topic 326. The fair value option applies to available-for-sale debt securities. This ASU is effective when ASU 2016-13 is adopted, and will be applied on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition as of the adoption date. Adoption of ASU 2019-05 is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). This ASU simplifies the accounting for income taxes by removing (i) the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (ii) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, and (iii) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial statements.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. For a cash flow hedge, a change in the method used to assess hedge effectiveness will not result in de-designation of the hedging relationship if certain criteria are met. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is party to cash flow hedge arrangements where the hedge effectiveness is based on LIBOR. The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

Note 4 - Investments

Investments available-for-sale are summarized as follows at the dates indicated:



	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,416	$	620	$	(28	)	$	16,008
Freddie Mac	4,169		178		—			4,347
Ginnie Mae	21,559		259		(149		)	21,669
Other	11,130		—		(246		)	10,884
Municipal bonds	10,653		307		(4		)	10,956
U.S. Government agencies	44,753		29		(1,594		)	43,188
Corporate bonds	25,500		720		(1,113		)	25,107
Total	$	133,180	$	2,113	$	(3,134	)	$	132,159



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,605	$	128	$	(104	)	$	15,629
Freddie Mac	4,196		96		—			4,292
Ginnie Mae	23,239		140		(329		)	23,050
Other	11,407		66		(25		)	11,448
Municipal bonds	10,675		272		(36		)	10,911
U.S. Government agencies	46,672		13		(935		)	45,750
Corporate bonds	25,500		372		(351		)	25,521
Total	$	137,294	$	1,087	$	(1,780	)	$	136,601

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The tables below summarize the aggregate fair value and gross unrealized loss by length of time those investment securities have been continuously in an unrealized loss position at the dates indicated:



	March 31, 2020
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	1,406	$	(28	)	$	—	$	—		$	1,406	$	(28	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	13,779		(149		)	—		—			13,779		(149		)
Other	4,989		(130		)	5,895		(116		)	10,884		(246		)
Municipal bonds	517		(4		)	—		—			517		(4		)
U.S. Government agencies	8,354		(428		)	32,876		(1,166		)	41,230		(1,594		)
Corporate bonds	1,897		(110		)	6,497		(1,003		)	8,394		(1,113		)
Total	$	30,942	$	(849	)	$	45,268	$	(2,285	)	$	76,210	$	(3,134	)



	December 31, 2019
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	8,340	$	(104	)	$	—	$	—		$	8,340	$	(104	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	156		—			12,921		(329		)	13,077		(329		)
Other	2,843		(7		)	6,000		(18		)	8,843		(25		)
Municipal bonds	3,257		(36		)	—		—			3,257		(36		)
U.S. Government agencies	12,266		(201		)	31,490		(734		)	43,756		(935		)
Corporate bonds	1,996		(12		)	7,161		(339		)	9,157		(351		)
Total	$	28,858	$	(360	)	$	57,572	$	(1,420	)	$	86,430	$	(1,780	)

On a quarterly basis, management makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be an other-than-temporary impairment (“OTTI”) are written down to fair value. If the Company intends to sell a debt security, or it is likely that the Company will be required to sell the debt security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the debt security and it is not likely that it will be required to sell the debt security but does not expect to recover the entire amortized cost basis of the debt security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a debt security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the debt security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. The Company had 34 securities and 37 securities in an unrealized loss position, respectively, with 16 and 18 of these securities in an unrealized loss position for 12 months or more, at March 31, 2020, and December 31, 2019, respectively. Management does not believe that any individual unrealized loss as of March 31, 2020, or December 31, 2019, represented OTTI. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.

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(Unaudited)

Management also reviewed the financial condition of the entities issuing municipal or corporate bonds at March 31, 2020, and December 31, 2019, and determined that an OTTI charge was not warranted.

The amortized cost and estimated fair value of investments available-for-sale at March 31, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.



	March 31, 2020
	Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	497	$	501
Due after one year through five years	6,554		6,976
Due after five years through ten years	22,097		21,389
Due after ten years	51,758		50,385
	80,906		79,251
Mortgage-backed investments	52,274		52,908
Total	$	133,180	$	132,159

Under Washington state law, in order to participate in the public funds program the Company is required to pledge eligible securities as collateral in an amount equal to 50% of the public deposits held less the FDIC insured amount. Investment securities with market values of $18.8 million and $19.0 million were pledged as collateral for public deposits at March 31, 2020, and December 31, 2019, respectively, both of which exceeded the collateral requirements established by the Washington Public Deposit Protection Commission.

For the three months ended March 31, 2020, there were no calls, sales, or maturities on investment securities. For the three months ended March 31, 2019, the Bank had calls and sales on investment securities of $3.0 million generating a net loss of $8,000.

In January 2020, the Bank purchased three annuity contracts, totaling $2.4 million, to be held long-term to satisfy the benefit obligation associated with certain SERP agreements. The annuities are reported at amortized cost as investments held-to-maturity on the Company’s Consolidated Balance Sheet. The amortized cost is considered the fair value of the investment.

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(Unaudited)

Note 5 - Loans Receivable

Loans receivable are disclosed net of loans in process (“LIP”) and are summarized as follows at the dates indicated:



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	203,045	$	210,898
Permanent non-owner occupied	168,208		161,630
	371,253		372,528

Multifamily	169,468		172,915

Commercial real estate	385,910		395,152

Construction/land:
One-to-four family residential	43,279		44,491
Multifamily	35,201		40,954
Commercial	22,946		19,550
Land	5,975		8,670
	107,401		113,665

Business	34,702		37,779
Consumer	37,225		30,199
Total loans	1,105,959		1,122,238

Less:
Deferred loan fees, net	301		558
Allowance for loan and lease losses ("ALLL")	13,530		13,218
Loans receivable, net	$	1,092,128	$	1,108,462

At March 31, 2020, loans totaling $501.7 million were pledged to secure borrowings from the FHLB of Des Moines compared to $506.7 million at December 31, 2019. In addition, loans totaling $122.8 million and $130.3 million were pledged to the Federal Reserve Bank of San Francisco to secure a line of credit at March 31, 2020 and December 31, 2019, respectively.

Credit Quality Indicators. The Company assigns a risk rating to all credit exposures based on a risk rating system designed to define the basic characteristics and identified risk elements of each credit extension. The Company utilizes a nine‑point risk rating system. A description of the general characteristics of the risk grades is as follows:

•

Grades 1 through 5: These grades are considered to be “pass” credits. These include assets where there is limited credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on the Company’s watch list, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future.

•

Grade 6: These credits, classified as “special mention”, possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Company to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. If left uncorrected, these potential weaknesses may result in deterioration in the Company’s credit position at a future date.


•	Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well defined weaknesses which jeopardize the orderly liquidation

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(Unaudited)

of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.


•	Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.


•	Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.

As of March 31, 2020, and December 31, 2019, the Company had no loans rated as doubtful or loss. The following tables represent a summary of loans at March 31, 2020, and December 31, 2019 by type and risk category:



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	370,100	$	167,364	$	385,389	$	91,751	$	34,702	$	37,225	$	1,086,531
Special mention	531		—		521		15,650		—		—		16,702
Substandard	622		2,104		—		—		—		—		2,726
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	371,363	$	170,810	$	394,627	$	101,141	$	37,779	$	30,199	$	1,105,919
Special mention	536		2,105		525		12,524		—		—		15,690
Substandard	629		—		—		—		—		—		629
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

ALLL. When the Company classifies problem assets as either substandard or doubtful, pursuant to Federal regulations, or identifies a loan where it is uncertain if the Bank will be able to collect all amounts due according to the contractual terms of the loan, it may establish a specific reserve in an amount deemed prudent to address the risk specifically. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to the particular problem assets. When an insured institution classifies problem assets as a loss, pursuant to Federal regulations, it is required to charge-off such assets in the period in which they are deemed uncollectible. The determination as to the classification of the Company’s assets and the amount of valuation allowances is subject to review by bank regulators, who can require the establishment of additional allowances for loan losses.

Loan grades are used by the Company to identify and track potential problem loans which do not rise to the levels described for substandard, doubtful, or loss. The grades for watch and special mention are assigned to loans which have been criticized based upon known characteristics such as periodic payment delinquency, failure to comply with contractual terms of the loan or stale financial information from the borrower and/or guarantors. Loans identified as criticized (watch and special mention) or classified (substandard, doubtful or loss) are subject to problem loan reporting every three months.

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(Unaudited)

The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown:



	At or For the Three Months Ended March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land			Business			Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	3,034	$	1,607	$	4,559	$	2,222		$	1,140		$	656	$	13,218
Recoveries	12		—		—		—			—			—		12
Provision (recapture)	9		51		134		(79		)	(66		)	251		300
Ending balance	$	3,055	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,530

ALLL by category:
General reserve	$	3,026	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,501
Specific reserve	29		—		—		—			—			—		29

Loans:
Total loans	$	371,253	$	169,468	$	385,910	$	107,401		$	34,702		$	37,225	$	1,105,959
Loans collectively evaluated for impairment ⁽¹⁾	367,395		167,364		384,653		91,751			34,702			37,225		1,083,090
Loans individually evaluated for impairment ⁽²⁾	3,858		2,104		1,257		15,650			—			—		22,869

____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.

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(Unaudited)



	At or For the Three Months Ended March 31, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate		Construction/ Land		Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,387		$	1,680		$	4,777	$	2,331	$	936	$	236		$	13,347
Recoveries	24			—			—		—		—		37			61
(Recapture) provision	(379		)	(101		)	32		801		94		(47		)	400
Ending balance	$	3,032		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,808

ALLL by category:
General reserve	$	2,982		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,758
Specific reserve	50			—			—		—		—		—			50

Loans:
Total loans	$	351,332		$	167,843		$	384,686	$	114,510	$	33,513	$	14,336		$	1,066,220
Loans collectively evaluated for impairment ⁽¹⁾	345,569			167,843			382,530		114,510		33,513		14,292			1,058,257
Loans individually evaluated for impairment ⁽²⁾	5,763			—			2,156		—		—		44			7,963

_____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.

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(Unaudited)

Past Due Loans. Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At March 31, 2020, past due loans were 0.20% of total loans receivable. In comparison, past due loans were 0.19% of total loans receivable at December 31, 2019. The following tables represent a summary of the aging of loans by type at the dates indicated:



	Loans Past Due as of March 31, 2020
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	202,966	$	203,045
Non-owner occupied	—		—		—		—		168,208		168,208
Multifamily	—		—		2,104		2,104		167,364		169,468
Commercial real estate	—		—		—		—		385,910		385,910
Construction/land	—		—		—		—		107,401		107,401
Total real estate	79		—		2,104		2,183		1,031,849		1,034,032
Business	—		—		—		—		34,702		34,702
Consumer	—		—		—		—		37,225		37,225
Total loans	$	79	$	—	$	2,104	$	2,183	$	1,103,776	$	1,105,959

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at March 31, 2020.



	Loans Past Due as of December 31, 2019
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	210,819	$	210,898
Non-owner occupied	—		—		—		—		161,630		161,630
Multifamily	2,105		—		—		2,105		170,810		172,915
Commercial real estate	—		—		—		—		395,152		395,152
Construction/land	—		—		—		—		113,665		113,665
Total real estate	2,184		—		—		2,184		1,052,076		1,054,260
Business	—		—		—		—		37,779		37,779
Consumer	—		—		—		—		30,199		30,199
Total loans	$	2,184	$	—	$	—	$	2,184	$	1,120,054	$	1,122,238

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2019.

Nonperforming Loans. When a loan becomes 90 days past due, the Bank generally places the loan on nonaccrual status. Loans may be placed on nonaccrual status prior to being 90 days past due if there is an identified problem that indicates the borrower is unable to meet their scheduled payment obligations. The following table is a summary of nonaccrual loans by loan type at the dates indicated:

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(Unaudited)



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential	$	91	$	95
Multifamily	2,104		—
Total nonaccrual loans	$	2,195	$	95

During the three months ended March 31, 2020, interest income that would have been recognized had these nonaccrual loans been performing in accordance with their original terms was $14,000. For the three months ended March 31, 2019, foregone interest on nonaccrual loans was $6,000.

The following tables summarize the loan portfolio by type and payment status at the dates indicated:



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	371,162	$	167,364	$	385,910	$	107,401	$	34,702	$	37,225	$	1,103,764
Nonperforming ⁽²⁾	91		2,104		—		—		—		—		2,195
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959

_____________

⁽¹⁾ There were $203.0 million of owner-occupied one-to-four family residential loans and $168.2 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $91,000 one-to-four family residential loan classified as nonperforming is owner-occupied.



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	372,433	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,143
Nonperforming ⁽²⁾	95		—		—		—		—		—		95
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

_____________

⁽¹⁾There were $210.8 million of owner-occupied one-to-four family residential loans and $161.6 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $95,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.

Impaired Loans. A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the original loan document or the borrower failing to comply with contractual terms of the loan. At March 31, 2020, there were no commitments to advance funds related to impaired loans. At December 31, 2019, there was $3.1 million committed to be advanced on an impaired $12.5 million construction loan. During the three months ended March 31, 2020, the $15.7 million impaired construction/land loan became fully funded. The Bank authorized completion of the loan funding because it determined that it was in the Bank’s best interest to finalize the construction project. At March 31, 2020, the loan is well collateralized and the Bank currently does not expect to incur a loss.

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(Unaudited)

The following tables present a summary of loans individually evaluated for impairment by loan type at the dates indicated:



	March 31, 2020
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	429	$	575	$	—
Non-owner occupied	1,289		1,289		—
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	20,729		20,875		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	503		549		12
Non-owner occupied	1,637		1,637		17
Total	2,140		2,186		29

Total impaired loans:
One-to-four family residential:
Owner occupied	932		1,124		12
Non-owner occupied	2,926		2,926		17
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	$	22,869	$	23,061	$	29

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

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(Unaudited)



	December 31, 2019
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	437	$	582	$	—
Non-owner occupied	1,486		1,486		—
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	17,818		21,089		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	505		552		13
Non-owner occupied	1,647		1,647		18
Total	2,152		2,199		31

Total impaired loans:
One-to-four family residential:
Owner occupied	942		1,134		13
Non-owner occupied	3,133		3,133		18
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	$	19,970	$	23,288	$	31

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

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(Unaudited)

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	433	$	9	$	1,078	$	15
Non-owner occupied	1,388		21		2,208		31
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,328		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	19,275		248		5,680		85

Loans with an allowance:
One-to-four family residential:
Owner occupied	504		9		512		9
Non-owner occupied	1,642		23		2,746		30
Commercial real estate	—		—		121		—
Total	2,146		32		3,379		39

Total impaired loans:
One-to-four family residential:
Owner occupied	937		18		1,590		24
Non-owner occupied	3,030		44		4,954		61
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,449		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	$	21,421	$	280	$	9,059	$	124

Troubled Debt Restructurings. Certain loan modifications are accounted for as troubled debt restructured loans (“TDRs”). At March 31, 2020, the TDR portfolio totaled $5.0 million. At December 31, 2019, the TDR portfolio totaled $5.2 million. At both dates, all TDRs were performing according to their modified repayment terms.

At March 31, 2020, the Company had no commitments to extend additional credit to borrowers whose loan terms have been modified in TDRs. All TDRs are also classified as impaired loans and are included in the loans individually evaluated for impairment as part of the calculation of the ALLL. No loans accounted for as TDRs were charged-off to the ALLL for the three months ended March 31, 2020 and 2019.

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(Unaudited)

There were no TDR modifications during the three months ended March 31, 2020. The following table presents TDR modifications for the three months ended March 31, 2019, and their recorded investment prior to and after the modification:



	Three Months Ended March 31, 2019
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
One-to-four family residential
Principal and interest with interest rate concession and advancement of maturity date	6	$	824	$	824
Advancement of maturity date	3	694		694
Total	9	$	1,518	$	1,518

TDRs that default after they have been modified are typically evaluated individually on a collateral basis. Any additional impairment is charged to the ALLL. For the three months ended March 31, 2020, and March 31, 2019, no loans that had been modified in the previous 12 months defaulted.

Note 6 - Other Real Estate Owned

OREO includes properties acquired by the Company through foreclosure and deed in lieu of foreclosure. The following table is a summary of OREO activity during the periods shown:



	Three Months Ended March 31,
	2020		2019
	(In thousands)
Balance at beginning of period	$	454	$	483
Market value adjustments	—		(29		)
Balance at end of period	$	454	$	454

For the three months ended March 31, 2020, there were no OREO properties sold and no market value adjustments taken on the properties in OREO. For the three months ended March 31, 2019, there were no OREO properties sold and $29,000 in market value adjustments on OREO properties. OREO at March 31, 2020, consisted of $454,000 in commercial real estate properties. At March 31, 2020, there was a $2.1 million multifamily loan and no one-to-four family residential loans for which formal foreclosure proceedings were in process.

Note 7 - Fair Value

The Company determines the fair values of its financial instruments based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair values. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect its estimate for market assumptions.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques. Inputs can be observable or unobservable. Observable inputs are those assumptions that market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from an independent source. Unobservable inputs are assumptions based on the Company’s own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date.

All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy:


•	Level 1 - Quoted prices for identical instruments in active markets.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

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(Unaudited)


•	Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.


•	Level 3 - Instruments whose significant value drivers are unobservable.

The Company used the following methods to measure fair value on a recurring or nonrecurring basis:


•	Investments available-for-sale: The fair value of all investments, excluding FHLB stock, was based upon quoted market prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.


•	OREO: The fair value of OREO properties is measured at the lower of the carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. in cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.


•	Derivatives: The fair value of derivatives is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis (there were no transfers between Level 1, Level 2 and Level 3 recurring measurements) at March 31, 2020 and December 31, 2019:



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	16,008	$	—	$	16,008	$	—
Freddie Mac	4,347		—		4,347		—
Ginnie Mae	21,669		—		21,669		—
Other	10,884		—		10,884		—
Municipal bonds	10,956		—		10,956		—
U.S. Government agencies	43,188		—		43,188		—
Corporate bonds	25,107		—		25,107		—
Total available-for-sale investments	132,159		—		132,159		—

Liabilities:
Derivative fair value liability	3,287		—		3,287		—

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SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	15,629	$	—	$	15,629	$	—
Freddie Mac	4,292		—		4,292		—
Ginnie Mae	23,050		—		23,050		—
Other	11,448		—		11,448		—
Municipal bonds	10,911		—		10,911		—
U.S. Government agencies	45,750		—		45,750		—
Corporate bonds	25,521		—		25,521		—
Total available-for-sale investments	136,601		—		136,601		—
Derivative fair value asset	426		—		426		—
Total	$	137,027	$	—	$	137,027	$	—

The estimated fair value of Level 2 investments is based on quoted prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.

The tables below present the balances of assets measured at fair value on a nonrecurring basis at March 31, 2020, and December 31, 2019:



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	22,840	$	—	$	—	$	22,840
OREO	454		—		—		454
Total	$	23,294	$	—	$	—	$	23,294

_____________

⁽¹⁾Total fair value of impaired loans is net of $29,000 of specific reserves on performing TDRs.



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	19,939	$	—	$	—	$	19,939
OREO	454		—		—		454
Total	$	20,393	$	—	$	—	$	20,393

_____________

⁽¹⁾Total fair value of impaired loans is net of $31,000 of specific reserves on performing TDRs.

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(Unaudited)

The fair value of impaired loans reflects the exit price and is calculated using the collateral value method or on a discounted cash flow basis. Inputs used in the collateral value method include appraised values, less estimated costs to sell. Some of these inputs may not be observable in the marketplace. Appraised values may be discounted based on management’s knowledge of the marketplace, subsequent changes in market conditions, or management’s knowledge of the borrower.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019:



	March 31, 2020
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	22,840	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)



	December 31, 2019
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	19,939	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)

The carrying amounts and estimated fair values of financial instruments were as follows at the dates indicated:



	March 31, 2020
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	6,453	$	6,453	$	6,453	$	—	$	—
Interest-earning deposits with banks	22,063		22,063		22,063		—		—
Investments available-for-sale	132,159		132,159		—		132,159		—
Investments held-to-maturity	2,371		2,371		—		2,371		—
Loans receivable, net	1,092,128		1,088,184		—		—		1,088,184
FHLB stock	8,010		8,010		—		8,010		—
Accrued interest receivable	4,302		4,302		—		4,302		—

Financial Liabilities:
Deposits	536,850		536,850		536,850		—		—
Certificates of deposit, retail	437,676		448,700		—		448,700		—
Certificates of deposit, brokered	25,457		25,546		—		25,546		—
Advances from the FHLB	160,000		163,306		—		163,306		—
Accrued interest payable	236		236		—		236		—
Derivative fair value liability	3,287		3,287		—		3,287		—

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SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	December 31, 2019
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	10,094	$	10,094	$	10,094	$	—	$	—
Interest-earning deposits with banks	12,896		12,896		12,896		—		—
Investments available-for-sale	136,601		136,601		—		136,601		—
Loans receivable, net	1,108,462		1,096,499		—		—		1,096,499
FHLB stock	7,009		7,009		—		7,009		—
Accrued interest receivable	4,138		4,138		—		4,138		—
Derivative fair value asset	426		426		—		426		—

Financial Liabilities:
Deposits	513,959		513,959		513,959		—		—
Certificates of deposit, retail	425,103		430,418		—		430,418		—
Certificates of deposit, brokered	94,472		94,556		—		94,556		—
Advances from the FHLB	137,700		137,706		—		137,706		—
Accrued interest payable	285		285		—		285		—

Note 8 - Leases

The Company adopted ASU 2016-02 and ASU 2018-11 using the modified retrospective approach with an effective date of January 1, 2019, and recognized on the consolidated balance sheets a ROU included in prepaid expenses and other assets and lease liabilities included in other liabilities. At March 31, 2020, the Company had eleven operating leases for retail branch locations. The remaining lease terms range from 5 months to 5.3 years, with most leases carrying optional extensions of 3-5 years. The Company will include optional lease term extensions in the ROU and lease liabilities when management believes it is reasonably certain that the term extension will be exercised, and will be determined based on indicators that the Company would have an economic incentive to extend the lease. The Company has elected to not apply ASU 2016-02 to short term leases, which are those that have a term of one year or less. To calculate the present value of lease payments not yet paid, the Company uses the incremental borrowing rate, which is equal to the FHLB advance rate for the remaining term of the lease that was in place at January 1, 2019, or for leases added after that date, at the time of lease inception.

The minimum monthly lease payments are generally based on square footage of the leased premises, with escalating minimum rent over the lease term. At March 31, 2020, the Company was committed to paying $57,000 per month in minimum monthly lease payments. The minimum monthly lease payment over the initial lease term, including any free rent period, was used to calculate the ROU and lease liability. The Company’s current leases do not include any non-lease components.

Total lease expense included in the Company’s Consolidated Income Statements for the three months ended March 31, 2020 and 2019, was $225,000 and $175,000, respectively. Lease expense includes the amortized lease expense under ASU 2016-02 combined with variable lease expenses for maintenance or other expenses as defined in the individual lease agreements. At March 31, 2020, the ROU had a balance of $2.4 million and the lease liability had a balance of $2.5 million on the Company’s consolidated balance sheet and is amortizing over a weighted-average remaining term of 6.6 years. The weighted-average discount rate used to calculate the present value of future minimum lease payments was 2.84% at March 31, 2020.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides a reconciliation between the undiscounted minimum lease payments at March 31, 2020 and the discounted lease liability at that date:



	March 31, 2020
	(in thousands)
Due through one year	$	617
Due after one year through two years	446
Due after two years through three years	428
Due after three years through four years	324
Due after four years through five years	249
Due after five years	728
Total minimum lease payments	2,792
Less: present value discount	(254		)
Lease liability	$	2,538

The Company is finalizing a lease for a new retail branch in Gig Harbor, Washington, which is expected to commence later in 2020.

Note 9 - Derivatives

The Company uses derivative financial instruments, in particular, interest rate swaps, which qualify as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. At March 31, 2020, the Company held six interest rate swap agreements with initial terms of four to eight years, and total notional amount of $120.0 million. In addition, at that date, the Company held two forward-starting interest rate swap agreements with terms of seven and eight years and a total notional amount of $25.0 million. Under the current agreements, the Company pays a weighted-average fixed interest rate of 1.22% monthly and in exchange receives variable rate amounts from the interest rate swap counter party based on 1-month or 3-month LIBOR, based on the swap agreement’s stated rate reset date. On the forward-starting agreements, the Company will pay a weighted average fixed rate of 0.80% and in exchange receives variable rate amounts from the interest rate swap counter party based on 3-month LIBOR. Concurrent with each interest rate swap start dates, the Company secured fixed rate FHLB advances, for the notional amount of the swap, that reset at 1-month or 3-month cycles based on the rate reset dates of the interest rate swap agreement. The Company pays or receives the net interest to the counter party amount monthly or quarterly, based on the respective hedge agreement, and includes this amount as part of its interest expense on the Consolidated Income Statement.

Quarterly, the effectiveness evaluation is based upon the fluctuation of the interest the Company pays to the FHLB for the hedge instruments as compared to the one-month or three-month LIBOR interest received from the counterparty. At March 31, 2020, the net fair value loss of the cash flow hedges of $3.3 million was reported with other liabilities. The tax effected amount of $2.6 million was included in Accumulated Other Comprehensive Income. There were no amounts recorded in the Consolidated Income Statements for the quarters ended March 31, 2020 or 2019, related to ineffectiveness.

Fair value for these derivative instruments, which generally changes as a result of changes in the level of market interest rates, is estimated based on dealer quotes and secondary market sources.

The following table presents the fair value of these derivative instruments as of March 31, 2020 and December 31, 2019:



	Balance Sheet Location	Fair Value at March 31, 2020			Fair Value at December 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	(Other liabilities) Other assets	$	(3,287	)	$	426

Total derivatives		$	(3,287	)	$	426

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the net unrealized gains and losses from these derivative instruments included on the Consolidated Statements of Comprehensive Income at the dates indicated:



	Amount Recognized in OCI for the three months ended March 31, 2020			Amount Recognized in OCI for the three months ended March 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	$	(2,933	)	$	(363	)

Note 10 - Stock-Based Compensation

In June 2016, First Financial Northwest’s shareholders approved the First Financial Northwest, Inc. 2016 Equity Incentive Plan (“2016 Plan”). This plan provides for the granting of incentive stock options (“ISO”), non-qualified stock options (“NQSO”), restricted stock and restricted stock units until June 2026. The 2016 Plan established 1,400,000 shares available to grant with a maximum of 400,000 of these shares available to grant as restricted stock awards. Each share issued as a restricted stock award counts as two shares towards the total shares available to award.

Under the 2016 Plan, the vesting date for each option award or restricted stock award is determined by an award committee and specified in the award agreement. In the case of restricted stock awards granted in lieu of cash payments of directors’ fees, the grant date is used as the vesting date unless the award agreement provides otherwise.

As a result of the approval of the 2016 Plan, the First Financial Northwest, Inc. 2008 Equity Incentive Plan (“2008 Plan”) was frozen and no additional awards will be made. At March 31, 2020, there were no unvested shares of restricted stock awards under the 2008 Plan. At this date, there were 8,000 stock options granted under the 2008 Plan that are expected to vest and be available for exercise, and an additional 305,000 stock options from the 2008 Plan were available for exercise at March 31, 2020, subject to the 2008 Plan provisions. At March 31, 2020, there were 1,207,658 total shares available for grant under the 2016 Plan, including 303,829 shares available to be granted as restricted stock.

For the three months ended March 31, 2020 and 2019, total compensation expense for both the 2008 and 2016 Plans was $80,000 and $124,000, respectively, and the related income tax benefit was $17,000 and $26,000, respectively.

Stock Options

Under the 2008 Plan, stock option awards were granted with an exercise price equal to the market price of First Financial Northwest’s common stock at the grant date. These option awards have a vesting period of five years, with 20% vesting on the anniversary date of each grant date, and a contractual life of ten years. Any unexercised stock options expire ten years after the grant date, or sooner in the event of the award recipient’s death, disability or termination of service with the Company and the Bank.

Under the 2016 Plan, the exercise price and vesting period for stock options are determined by the award committee and specified in the award agreement, however, the exercise price shall not be less than the fair market value of a share as of the grant date. Any unexercised stock option will expire 10 years after the award date or sooner in the event of the award recipient’s death, disability, retirement, or termination of service.

The fair value of each option award is estimated on the grant date using a Black-Scholes model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The historical volatility of the Company’s stock price over a specified period of time is used for the expected volatility assumption. First Financial Northwest bases the risk-free interest rate on the U.S. Treasury Constant Maturity Indices in effect on the date of the grant. First Financial Northwest elected to use the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at the midpoint.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Under certain conditions, a cashless exercise of vested stock options may occur by the option holder surrendering the number of options valued at the current stock price at the time of exercise to cover the total cost to exercise. The surrendered options are canceled and are unavailable for reissue.

A summary of the Company’s stock option plan awards and activity for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value	Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2019	313,000	$	10.34		1,440,310	$	3.69
Outstanding at March 31, 2020	313,000	10.34		3.73	166,050	3.69
Vested and expected to vest assuming a 3% forfeiture rate over the vesting term	312,760	10.34		3.73	166,050	3.69
Exercisable at March 31, 2020	305,000	10.27		3.68	166,050	3.66

As of March 31, 2020, there was $23,000 of total unrecognized compensation cost related to nonvested stock options granted under the 2008 Plan. The cost is expected to be recognized over the remaining eight month weighted-average vesting period. There were no stock options granted during the three months ended March 31, 2020.

Restricted Stock Awards

The 2016 Plan authorizes the grant of restricted stock awards subject to vesting periods or terms as defined by the award committee and specified in the award agreement. Restricted stock awards granted in lieu of cash payments for directors’ fees are subject to immediate vesting on the grant date unless the award agreement provides otherwise.

A summary of changes in nonvested restricted stock awards for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2019	16,698		$	16.53
Granted	16,228		13.61
Vested	(16,698	)	16.53
Nonvested at March 31, 2020	16,228		13.61
Expected to vest assuming a 3% forfeiture rate over the vesting term	15,741		13.61

As of March 31, 2020, there was $198,000 of total unrecognized compensation costs related to nonvested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining eleven month weighted-average vesting period.

Note 11 - Earnings Per Share

Per the provisions of FASB ASC 260, Earnings Per Share, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested restricted stock awards qualify as participating securities.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Net income is allocated between the common stock and participating securities pursuant to the two-class method, based on their rights to receive dividends, participate in earnings, or absorb losses. Basic earnings per common shares is computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period, excluding participating nonvested restricted shares.

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the periods indicated:



	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands, except share data)
Net income	$	1,684		$	1,945
Less: Earnings allocated to participating securities	(3		)	(3		)
Earnings allocated to common shareholders	$	1,681		$	1,942

Basic weighted average common shares outstanding	9,896,234			10,118,286
Dilutive stock options	72,120			89,718
Dilutive restricted stock grants	9,706			12,896
Diluted weighted average common shares outstanding	9,978,060			10,220,900

Basic earnings per share	$	0.17		$	0.19
Diluted earnings per share	$	0.17		$	0.19

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three months ended March 31, 2020 and 2019, there were 40,000 and 50,000 options to purchase shares of common stock, respectively, that were omitted from the computation of diluted earnings per share because their effect would be anti-dilutive.

Note 12 - Revenue Recognition

In accordance with Topic 606, revenues are recognized when goods or services are transferred to the customer in exchange for the consideration the Company expects to be entitled to receive. To determine the appropriate recognition of revenue for transactions within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with the customer; (ii) identify the separate performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the separate performance obligations in the contract; and (v) recognize revenue when the entity satisfies a performance obligation. A contract may not exist if there are doubts as to collectability of the amounts the Company is entitled to in exchange for the goods or services transferred. If a contract is determined to be within the scope of Topic 606, the Company recognizes revenue as it satisfies a performance obligation. The largest portion of the Company’s revenue is from net interest income which is not within the scope of Topic 606.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES

SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Disaggregation of Revenue

The following table includes the Company’s noninterest income disaggregated by type of service for the three months ended March 31, 2020 and 2019:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(In thousands)
Loss on sale of investments ⁽¹⁾	$	—	$	(8	)
BOLI change in cash surrender value ⁽¹⁾	254		269
Wealth management revenue	165		196
Deposit related fees	68		69
Debit card and ATM fees	108		102
Loan related fees	392		47
Loan interest swap fees	—		16
Other	3		9
Total noninterest income	$	990	$	700

_______________

⁽¹⁾ Not within scope of Topic 606

For the three months ended March 31, 2020 and 2019, substantially all of the Company’s revenues under the scope of Topic 606 are for performance obligations satisfied at a specified date.

Revenues recognized within scope of Topic 606

Wealth management revenue: Our wealth management revenue consists of commissions received on the investment portfolio managed by Bank personnel but held by a third party. Commissions are earned on brokerage services and advisory services based on contract terms at the onset of a new customer’s investment agreement or quarterly for ongoing services. Commissions are paid by the third party to the Bank when the performance obligation has been completed by both entities.

Deposit related fees: Fees are earned on our deposit accounts for various products or services performed for our customers. Fees include business account fees, non-sufficient fund fees, stop payment fees, wire services, safe deposit box, and others. These fees are recognized on a daily or monthly basis, depending on the type of service.

Debit card and ATM fees: Fees are earned when a debit card issued by the Bank is used or when other bank’s customers use our ATM services. Revenue is recognized at the time the fees are collected from the customer’s account or remitted by the VISA interchange network.

Loan related fees: Noninterest fee income is earned on our loans for servicing or annual fees on certain loan types.

Loan interest swap fees: For loans participating in an interest rate swap agreement, fees are earned at the onset of the agreement and are not contingent on any future performance or term length of the loan itself. The performance obligation is satisfied by entering into the contract and receipt of the fees from the counterparty.

Other: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle.

Contract Balances

At March 31, 2020 and December 31, 2019, the Company had no contract liabilities where the Company had an obligation to transfer goods or services for which the Company had already received consideration. In addition, the Company had no material performance obligations as of this date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about, among other things, expectations of the business environment in which we operate, projections of future performance or financial items, perceived opportunities in the market, potential future credit experience, and statements regarding our mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. Our actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: 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; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs, that may be affected by deterioration in the housing and commercial real estate markets, and may lead to increased losses and nonperforming assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Federal Reserve Bank of San Francisco (“FRB”) and our bank subsidiary by the Federal Deposit Insurance Corporation (“FDIC”), the Washington State Department of Financial Institutions, Division of Banks (“DFI”) or other regulatory authorities, including the possibility that any such regulatory authority may initiate an enforcement action against the Company or the Bank which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position, affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; our ability to pay dividends on our common stock; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement a branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules, including as a result of Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the implementing regulations; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services, including the potential effects of the COVID-19 pandemic, and other risks detailed in our filings with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”). Any of the forward-looking statements that we make in this Form 10-Q and in the other public reports and statements we make 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. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made

by or on our behalf. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. We undertake no responsibility to update or revise any forward-looking statements.

As used throughout this report, the terms “Company”, “we”, “our”, or “us” refer to First Financial Northwest, Inc. and its consolidated subsidiaries, including First Financial Northwest Bank and First Financial Diversified Corporation.

Overview

First Financial Northwest Bank (“the Bank”) is a wholly-owned subsidiary of First Financial Northwest, Inc. (“the Company”) and, as such, comprises substantially all of the activity for the Company. First Financial Northwest Bank was a community-based savings bank until February 4, 2016, when the Bank converted to a Washington chartered commercial bank reflecting the commercial banking services it now provides to its customers. The Bank primarily serves King, Pierce, Snohomish, and Kitsap counties, Washington, through its full-service banking office and headquarters in Renton, Washington, as well as six retail branches in King County, Washington, five retail branches in Snohomish County, Washington, and one retail branch in Pierce County, Washington. The Bank has received FDIC approval to open a new branch in Gig Harbor, Washington. This additional Pierce County location is expected to open in the second half of 2020.

The Bank’s business consists predominantly of attracting deposits from the general public, combined with borrowing from the Federal Home Loan Bank of Des Moines (“FHLB”) and raising funds in the wholesale market (including brokered deposits), then utilizing these funds to originate one-to-four family residential, multifamily, commercial real estate, construction/land, business, and consumer loans. We anticipate that construction/land lending will continue to be a strong element of our total loan portfolio in future periods. We will continue to take a disciplined approach in our construction/land lending by concentrating our efforts on residential loans to builders known to us, including multifamily loans to developers with proven success in this type of construction. These loans typically mature in six to eighteen months and funding is usually not fully disbursed at origination, therefore the impact to net loans receivable is generally minimal in the short term. We have also geographically expanded our loan portfolio through loan purchases or loan participations of commercial and multifamily real estate loans and consumer loans that are outside of our primary market area. Through our efforts to geographically diversify our loan portfolio with direct loan originations, loan participations, or loan purchases, our portfolio includes loans in 41 other states, including concentrations in California, Utah, Oregon and Georgia of $44.1 million, $16.2 million, $11.7 million and $8.2 million, respectively.

The Bank’s strategic initiatives seek to diversify our loan portfolio and broaden growth opportunities with our current risk tolerance levels and asset/liability objectives. The Bank has created a small business loan (“SBA”) department, with the goal of achieving SBA preferred lender status in 2020, which would provide the Bank with delegated loan approval as well as closing and most servicing and liquidation authority, enabling the Bank to make loan decisions more rapidly. In addition, the Bank plans to increase originations of the business loan portfolio, which may include business lines of credit, business term loans, equipment financing, and a focus on industry specific loans, such as green energy financing. In conjunction with the growth of business loans, the Bank seeks to service these customers with their business deposits as well.

Our primary source of revenue is interest income, which is the income that we earn on our loans and investments. Interest expense is the interest that we pay on our deposits and borrowings. Net interest income is the difference between interest income and interest expense. Changes in levels of interest rates affect interest income and interest expense differently and, thus, impacts our net interest income. First Financial Northwest Bank is generally liability-sensitive, meaning our interest-bearing liabilities reprice at a faster rate than our interest-earning assets.

An offset to net interest income is the provision for loan losses which is required to establish the allowance for loan and lease losses (“ALLL”) at a level that adequately provides for probable losses inherent in our loan portfolio. As our loan portfolio increases, or due to an increase for probable losses inherent in our loan portfolio, our ALLL may increase, resulting in a decrease to net interest income. Improvements in loan risk ratings, increases in property values, or receipt of recoveries of amounts previously charged off may partially or fully offset any increase to ALLL due to loan growth or an increase in probable loan losses.

Noninterest income is generated from various loan or deposit fees, increases in the cash surrender value of bank owned life insurance (“BOLI”), and revenue earned on our wealth management brokerage services. This income is increased or partially offset by any net gain or loss on sales of investment securities.

Our noninterest expenses consist primarily of salaries and employee benefits, professional fees, regulatory assessments, occupancy and equipment, and other general and administrative expenses. Salaries and employee benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement, and other employee benefits. Professional fees include legal services, auditing and accounting services, computer support services, and other professional services in support of strategic plans. Occupancy and equipment expenses, which are the fixed and variable costs of buildings and equipment, consist

primarily of real estate taxes, depreciation expenses, maintenance, and costs of utilities. Also included in noninterest expense is the change to the Company’s unfunded commitment reserve which is reflected in general and administrative expenses. This unfunded commitment reserve expense can vary significantly each quarter, based on the amount believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities, and reflects changes in the amounts that the Company has committed to fund but has not yet disbursed.

COVID-19 Related Information

In response to the COVID-19 pandemic, the Bank is committed to providing assistance to its customers. Under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) and regulatory guidance, the Bank is providing certain short-term loan modifications. In addition, the Bank is participating in the Paycheck Protection Program (“PPP”) as a lender. As of April 30, 2020, the Bank had obtained SBA Loan Authorizations for $48.9 million PPP loans.

The CARES Act and regulatory guidance provided that the short-term modification of loans as a result of the COVID-19 pandemic, made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. up to 6 months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. The primary method of relief granted by the Company at this time is to allow the borrower to defer their loan payments for three to six months. Certain borrowers will be allowed to pay interest only or have payment deferrals for periods longer than six months after a review of their specific circumstances. Deferred principal and interest amounts are added as a balloon payment due at the original maturity date of the loan. As of April 30, 2020, the Bank had received 168 requests for loan modifications by borrowers adversely impacted by the COVID-19 pandemic. The following table shows the term of COVID-19 pandemic relief modifications granted to our borrowers, and the loan balance as of the modification date, in accordance with the CARES Act and regulatory guidance:



	As of April 30, 2020
	Balance of loans with modifications up to 3 months		Balance of loans with modifications more than 3 months		Total balance of loans with modifications granted		Total loans as of March 31, 2020		Modifications as % of total loans as of March 31, 2020
	(Dollars in thousands)
One-to-four family residential	$	17,141	$	6,772	$	23,913	$	371,253	6.4	%
Multifamily	1,726		2,877		4,603		169,468		2.7
Commercial real estate:
Office	2,408		—		2,408		95,911		2.5
Retail	14,405		4,128		18,533		122,460		15.1
Mobile home park	—		—		—		25,370		—
Hotel/motel	996		5,566		6,562		52,515		12.5
Nursing home	5,400		6,368		11,768		11,783		99.9
Warehouse	—		5,635		5,635		17,489		32.2
Storage	—		—		—		34,551		—
Other non-residential	828		—		828		25,831		3.2
Total Commercial real estate	24,037		21,697		45,734		385,910		12.1
Construction/land	1,100		—		1,100		107,401		1.0
Business
Aircraft	1,074		—		1,074		13,741		7.8
SBA	—		—		—		753		—
Other business	2,065		657		2,722		20,208		13.5
Total other business	3,139		657		3,796		34,702		10.9
Consumer:
Classic/collectible auto	1,202		—		1,202		22,029		5.5
Other consumer	760		—		760		15,196		5.0
Total consumer	1,962		—		1,962		37,225		5.3
Total loans with pandemic modifications	49,105		32,003		81,108		1,105,959		7.3

At March 31, 2020, the loans included in the above table were current on their loan payments. The Bank is monitoring its loan portfolio for delinquencies of loans that have not requested modifications under the CARES Act. As of April 30, 2020, there were 18 loans totaling $9.4 million that had not requested a deferral and were 10 or more days past due, including the $2.1 million multifamily loan currently in foreclosure.

Critical Accounting Policies

Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates and assumptions that may affect the value of our assets or liabilities and our financial results. These policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or by using different assumptions. These policies govern the ALLL, the valuation of OREO, and the calculation of deferred taxes, the right-of-use asset and lease liability on our operating leases, fair values, and other-than-temporary impairments on the market value of investments and derivatives. These policies and estimates are described in further detail in Part II, Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1, Summary of Significant Accounting Policies in the 2019 Form 10-K. There have not been any material changes in the Company’s critical accounting policies and estimates as compared to the disclosure contained in the 2019 Form 10-K.

Comparison of Financial Condition at March 31, 2020 and December 31, 2019

Total assets were $1.33 billion at March 31, 2020, a decrease of 0.8%, from $1.34 billion at December 31, 2019. The following table details the $10.7 million net change in the composition of our assets at March 31, 2020 from December 31, 2019.



	Balance at March 31, 2020		Change from December 31, 2019			Percent Change
	(Dollars in thousands)
Cash on hand and in banks	$	6,453	$	(3,641	)	(36.1	)%
Interest-earning deposits with banks	22,063		9,167			71.1
Investments available-for-sale, at fair value	132,159		(4,442		)	(3.3	)
Investment held-to-maturity	2,371		2,371			n/a
Loans receivable, net	1,092,128		(16,334		)	(1.5	)
FHLB stock, at cost	8,010		1,001			14.3
Accrued interest receivable	4,302		164			4.0
Deferred tax assets, net	2,227		726			48.4
OREO	454		—			—
Premises and equipment, net	22,591		125			0.6
BOLI	32,290		308			1.0
Prepaid expenses and other assets	1,898		(318		)	(14.4	)
ROU	2,446		237			10.7
Goodwill	889		—			—
Core deposit intangible	932		(36		)	(3.7	)
Total assets	$	1,331,213	$	(10,672	)	(0.8	)%

Interest-earning deposits with banks. Our interest-earning deposits with banks, consisting primarily of funds held at the Federal Reserve Bank of San Francisco (“FRB”), increased by $9.2 million during the three months ended March 31, 2020. These funds fluctuate based on our funding needs.

Investments available-for-sale. Our investments available-for-sale portfolio decreased by $4.4 million during the three months ended March 31, 2020. During this period, we had no sales or maturities of securities. At March 31, 2020, corporate bonds issued by financial institutions represented $25.1 million, or 19.0% of our investments available-for-sale and municipal bonds represented $11.0 million, or 8.3% of our investments available-for-sale.

The effective duration of the investments available-for-sale at March 31, 2020, was 2.64% as compared to 2.54% at December 31, 2019. Effective duration measures the anticipated percentage change in the value of an investment security (or portfolio) in the event of a 100 basis point change in market yields. Since the Bank’s portfolio includes securities with embedded options (including call options on bonds and prepayment options on mortgage-backed securities), management believes that effective duration is an appropriate metric to use as a tool when analyzing the Bank’s investment securities portfolio, as effective duration incorporates assumptions relating to such embedded options, including changes in cash flow assumptions as interest rates change.

Loans receivable. Total loans receivable remained virtually unchanged, decreasing by $16.3 million during the three months ended March 31, 2020, to $1.1 billion at March 31, 2020. Loan originations of $38.7 million were supplemented with $5.3 million of loan purchases to help offset loan repayments. During the three months ended March 31, 2020, one‑to‑four family residential loans decreased by $1.3 million, commercial real estate loans decreased by $9.2 million, multifamily loans decreased by $3.4 million, construction/land loans decreased by $6.3 million and business loans decreased by $3.1 million. Partially offsetting these decreases, consumer loans increased by $7.0 million as purchases of classic and collectible auto loans continued to be strong.

Our loan concentrations remained stable at March 31, 2020 as compared to December 31, 2019. At these dates, the Bank’s construction loans totaled 77.6% and 81.9% of total capital, respectively, and total non-owner occupied commercial real estate was 437.7% and 449.7% of total capital, respectively. The Bank has set aggregate concentration guidelines that total commercial real estate, including residential, non‑residential, and construction loans, should not exceed 550% of total risk-based capital. Our concentration guideline for construction/land loans is to limit these loans to 100% of total risk-based capital. The concentration of construction/land loans is calculated using the funded balance of these loans and consequently can fluctuate based on the timing of construction draws and loan payoffs. Management reviews estimated construction draws and loan payoffs and adjusts loan originations based on these estimates to achieve compliance with our construction guidelines. Our commercial and multifamily real estate and construction/land loan portfolios are subject to ongoing credit reviews performed by both independent loan review staff, as well as an external third-party review firm to assist with identifying potential adverse trends and risks in the portfolio allowing management to initiate timely corrective action, as necessary. Such reviews also assist with ensuring loan risk grades are accurately assigned and thereby properly accounted for in the ALLL. The review places emphasis on large borrowing relationships, stress testing, compliance with loan covenants, as well as other risk factors warranting enhanced review.

The following table presents a breakdown of our multifamily, commercial and construction loans by collateral type at March 31, 2020 and December 31, 2019. Total construction/land loans are net of $72.0 million and $89.6 million of LIP at March 31, 2020 and December 31, 2019, respectively.



	March 31, 2020		December 31, 2019
	(In thousands)
Multifamily residential:
Micro-unit apartments	$	11,230	$	13,809
Other multifamily	158,238		159,106
Total multifamily residential	169,468		172,915

Non-residential
Office	95,911		100,744
Retail	122,460		133,094
Mobile home park	25,370		26,099
Hotel / motel	52,515		42,971
Nursing home	11,783		11,831
Warehouse	17,489		17,595
Storage	34,551		37,190
Other non-residential	25,831		25,628
Total non-residential	385,910		395,152

Construction/land:
One-to-four family residential	43,279		44,491
Multifamily	35,201		40,954
Commercial	22,946		19,550
Land	5,975		8,670
Total construction/land	107,401		113,665
Total multifamily residential, non-residential and construction/land loans	$	662,779	$	681,732

Included in total construction/land loans at March 31, 2020, are $32.6 million of multifamily loans, $22.9 million of commercial real estate loans and $3.6 million of one-to-four family loans that will roll over to permanent loans at the completion of their construction period in accordance with the terms of the construction/land loan. At December 31, 2019, construction/land loans included $38.6 million of multifamily loans, $18.3 million of commercial real estate loans and $3.5 million of one-to-four family loans that roll over to permanent loans in accordance with the terms of the construction/land loan.

To assist in our strategic initiatives for loan growth and to achieve geographic diversification, the Bank will originate and purchase loans and utilize loan participations with the underlying collateral located within areas of Washington State outside our primary market area or in other states. The Bank’s goal with respect to loan participations is to locate a selling bank that is unable to make an entire loan due to legal or lending concentration limitations. Sellers of these loans are reviewed for management/lending experience, financial condition, asset quality metrics, and regulatory matters. Loans acquired through participation or purchase must meet the Bank’s underwriting standards. During the three months ended March 31, 2020, the Bank purchased $5.3 million of consumer loans secured by classic/collectible automobiles to borrowers located in Washington and other states.

The majority of our loan portfolio continues to be secured by properties located in our primary market area, however a significant amount is secured by properties in other areas of Washington, in California, and in other states. At March 31, 2020, total loans secured by collateral located in California represented 4.0% of our total loans and total loans secured by collateral located outside the states of California and Washington represented 9.8% of our total loans. The following table details geographic concentrations in our loan portfolio:



	At March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/Land		Business		Consumer		Total
	(In thousands)
King County	$	291,219	$	99,832	$	199,050	$	97,224	$	17,142	$	13,172	$	717,639
Pierce County	33,897		5,052		26,702		6,069		362		606		72,688
Snohomish County	26,004		3,539		34,280		33		3,708		1,436		69,000
Kitsap County	7,571		5		299		2,249		—		—		10,124
Other Washington Counties	9,310		24,330		47,183		1,826		1,236		437		84,322
California	2,664		20,335		15,482		—		972		4,634		44,087
Outside Washington and California ⁽¹⁾	588		16,375		62,914		—		11,282		16,940		108,099
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959

_______________

⁽¹⁾Includes loans in Utah, Oregon and Georgia of $16.2 million, $11.7 million and $8.2 million, respectively, and loans in 37 other states.

Our five largest borrowing relationships, which represent 8.0% of our net loans, increased by $1.9 million to $88.8 million at March 31, 2020, from $86.9 million at December 31, 2019. The total number of loans represented by this group of borrowers decreased slightly to 14 loans at March 31, 2020, from 16 loans at December 31, 2019. At March 31, 2020, all five borrowers were current on their loan payments. We monitor the performance of these borrowing relationships very closely due to their concentration risk in relation to the entire loan portfolio.

The following table details our five largest lending relationships at March 31, 2020:



Borrower ⁽¹⁾	Number of Loans	One-to-Four Family Residential ⁽²⁾		Multifamily		Commercial Real Estate		Construction/Land		Aggregate Balance of Loans
	(Dollars in thousands)
Real estate investor	5	$	—	$	8,399	$	12,957	$	—	$	21,356
Real estate investor	5	430		—		18,827		—		19,257
Real estate investor	2	—		—		18,622		—		18,622
Real estate investor	1	—		—		—		15,650		15,650
Real estate investor	1	—		—		13,888		—		13,888
Total	14	$	430	$	8,399	$	64,294	$	15,650	$	88,773

________


⁽¹⁾	The composition of borrowers represented in the table may change between periods.


⁽²⁾	The one-to-four family residential loan is an owner occupied property. The commercial real estate loans are for non-owner occupied properties.

The ALLL increased to $13.5 million at March 31, 2020, from $13.2 million at December 31, 2019, and represented 1.22% and 1.18% of total loans receivable at March 31, 2020, and December 31, 2019, respectively. The ALLL consists of two components, the general allowance and the specific reserves. The increase in the ALLL general allowance was primarily the result of increases in forecasted credit deterioration for all loan categories in response to the economic disruption caused by the COVID-19 pandemic. The increase was partially offset by the $16.3 million decline in total loans receivable. Impaired loans increased $2.9 million during the three months ended March 31, 2020, however, the loans are generally well collateralized and did not require additional reserves to be set aside. The specific reserves decreased by $2,000 as a result of amortization of the

additional allowance set aside on loans with modifications. For additional information, see “Comparison of Operating Results for the Three Months Ended March 31, 2020 and 2019 - Provision for Loan Losses” discussed below.

We believe that the ALLL at March 31, 2020, was adequate to absorb the probable and inherent risks of loss in the loan portfolio at that date. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will be proven correct in the future, that the actual amount of future losses will not exceed the amount of past provisions, or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. Future additions to the allowance may become necessary based upon changing economic conditions, the level of problem loans, business conditions, credit concentrations, increased loan balances, or changes in the underlying collateral of the loan portfolio. In addition, the determination of the amount of our ALLL is subject to review by bank regulators as part of the routine examination process, which may result in the establishment of additional loss reserves or the charge-off of specific loans against established loss reserves based upon their judgment of information available to them at the time of their examination. Uncertainties relating to our ALLL are heightened as a result of the risks surrounding the COVID-19 pandemic as described in further detail in Part II, Item 1A.

As we work with our borrowers that face difficult financial circumstances, we explore various options available to minimize our risk of loss. At times, the best option for our customers and the Bank is to modify the loan for a period of time, usually one year or less. Certain loan modifications are accounted for as troubled debt restructured loans (“TDRs”). These modifications have included a reduction in interest rate on the loan for a period of time, advancing the maturity date of the loan, or allowing interest-only payments for a specific time frame. These modifications are granted only when there is a reasonable and attainable restructured loan plan that has been agreed to by the borrower and is considered to be in the Bank’s best interest.

The following table presents a breakdown of our TDRs at the dates indicated, all of which were performing:



	March 31, 2020			December 31, 2019			Three Month Change
	(Dollars in thousands)
Performing TDRs:
One-to-four family residential	$	3,768		$	3,979		$	(211	)
Commercial real estate	1,257			1,267			(10		)
Total TDRs	$	5,025		$	5,246		$	(221	)
% TDRs classified as performing	100.0		%	100.0		%

Our TDRs decreased $221,000 at March 31, 2020, compared to December 31, 2019, as a result of principal repayments and loan payoffs. At March 31, 2020, all TDRs were performing and on accrual status. In addition, there were no committed but undisbursed funds in connection with our TDRs. The largest TDR relationship at March 31, 2020, totaled $1.3 million and was secured by a commercial property located in King County.

Loans are considered past due if a scheduled principal or interest payment is due and unpaid for 30 days or more. At both March 31, 2020, and December 31, 2019, total past due loans were $2.2 million, representing 0.20% and 0.19% of total loans receivable, respectively.

Nonperforming assets increased by $2.1 million during the first three months of 2020, primarily as a result of a $2.1 million multifamily loan that was moved to nonaccrual status during this period. The following table presents detailed information on our nonperforming assets at the dates indicated:



	March 31, 2020			December 31, 2019			Three Month Change
	(Dollars in thousands)
Nonaccrual loans:
One-to-four family residential	$	91		$	95		$	(4	)
Multifamily	2,104			—			2,104
Total nonaccrual loans	2,195			95			2,100

OREO	454			454			—
Total nonperforming assets ⁽¹⁾	$	2,649		$	549		$	2,100

Nonperforming assets as a percent of total assets	0.20		%	0.04		%

^____________

⁽¹⁾ The difference between nonperforming assets reported above, and the totals reported by other industry sources, is due to their inclusion of all TDRs as nonperforming loans, although 100.0% of our TDRs were performing in accordance with their restructured terms at March 31, 2020.

Nonaccrual loans are loans that are 90 days or more delinquent or other loans which, in management's opinion, the borrower is unable to meet scheduled payment obligations. The largest nonaccrual loan at March 31, 2020 was a $2.1 million multifamily loan secured by a non-owner occupied multifamily residence located in King County. Foreclosure proceedings are underway on this loan as it was more than 90 days past due at March 31, 2020. Also included in nonaccrual loans at March 31, 2020, was a $91,000 owner occupied, single-family residence located in Snohomish County. This loan was current on its loan payments at that date.

We continue to focus our efforts on working with borrowers to bring their loans current or converting nonaccrual loans to OREO and subsequently selling the properties. By taking ownership of these properties, we can generally convert nonearning assets into earning assets on a more timely basis than which may otherwise be the case. Our success in this area is reflected by the low ratio of our nonperforming assets as a percent of total assets of 0.20% at March 31, 2020, and 0.04% at December 31, 2019, as well as the minimal amount of OREO held at March 31, 2020.

OREO. OREO includes properties acquired by the Bank through foreclosure or acceptance of a deed in lieu of foreclosure. At both March 31, 2020, and December 31, 2019, OREO was $454,000, and consisted of two undeveloped commercial lots located in Pierce County.

Intangible assets. The balance of goodwill was $889,000 at both March 31, 2020 and December 31, 2019. Goodwill was calculated as the excess purchase price of the branches acquired in August 2017 (the “Branch Acquisition”) over the fair value of the assets acquired and liabilities assumed.

The core deposit intangible (“CDI”) recorded as part of the Branch Acquisition represents the fair value of the customer relationships on the acquired noninterest-bearing checking, interest-bearing checking, savings, and money market accounts. The CDI balance was $932,000 at March 31, 2020 and $968,000 at December 31, 2019. The initial ratio of CDI to the acquired balances of core deposits was 2.23%. This amount amortizes into noninterest expense on an accelerated basis over ten years.

As a result of the economic disruption caused by the COVID-19 pandemic, the Company will perform interim impairment testing on goodwill and the CDI during the second quarter of 2020.

Deposits. During the first three months of 2020, deposits decreased $33.6 million to $1.00 billion at March 31, 2020, compared to $1.03 billion at December 31, 2019. Deposit accounts consisted of the following:



	March 31, 2020		Change from December 31, 2019			Percent Change
	(Dollars in thousands)
Noninterest-bearing	$	53,519	$	670		1.3	%
Interest-bearing checking	68,803		2,906			4.4
Statement savings	17,040		(407		)	(2.3	)
Money market	397,489		19,723			5.2
Certificates of deposit, retail	437,676		12,573			3.0
Certificates of deposit, brokered	25,457		(69,015		)	(73.1	)
	$	999,984	$	(33,550	)	(3.2	)

Our retail deposits increased by $35.5 million during the three months ended March 31, 2020. Money market accounts increased by $19.7 million and retail certificates of deposit increased by $12.6 million as the Bank competitively priced these products to increase these funding sources. In addition, continued emphasis on deposit growth at our branches resulted in a $2.9 million increase in interest-bearing checking accounts. The COVID-19 pandemic has not adversely impacted the Bank’s deposits with balances remaining stable subsequent to March 31, 2020.

The Bank’s portfolio of brokered certificates of deposits decreased by $69.0 million to $25.5 million at March 31, 2020, from $94.5 million at December 31, 2019. To assist in management of our interest rate risk, $62.5 million of maturing brokered certificates of deposit were partially replaced with FHLB borrowings hedged by interest rate swap agreements. In addition, $6.5 million of callable brokered certificates of deposit, with a weighted average interest rate of 2.86%, were redeemed early. The Bank’s current portfolio of brokered certificates of deposit will mature in two to seven months.

At March 31, 2020 and December 31, 2019, we held $37.2 million and $34.0 million in public funds, respectively, primarily in retail certificates of deposit and money market accounts.

Advances. We use advances from the FHLB as an alternative funding source to manage interest rate risk and to leverage our balance sheet and to supplement our deposits. Total FHLB advances were $160.0 million at March 31, 2020, a $22.3 million increase from $137.7 million at December 31, 2019. At March 31, 2020, the Bank’s advances included $60.0 million of fixed-rate three-month advances that renew quarterly, and $60.0 million of fixed-rate one-month advances that renew monthly, that are utilized in cash flow hedge agreements, as described below. In addition, at March 31, 2020, we held $40.0 million of purchased FHLB Fed Funds that. The short-term nature of our advances and overnight FHLB advances provides us flexibility to adjust the level of our borrowings as our customer deposit balances change consistent with our asset/liability objectives. At March 31, 2020, all of our FHLB advances were due to reprice in less than two months.

Cash Flow Hedge. To assist in our interest rate risk management efforts, the Bank has entered into multiple interest rate swap agreements with qualified institutions. Each interest rate swap agreement qualifies as a cash flow hedge of the variability of future interest payments attributable to the changes in 1- month or 3-month LIBOR rates. The objective of the cash flow hedge is to offset the variability of cash flows due to the rollover of the Bank’s FHLB, or other fixed rate advance, for 1-month or 3-months, respectively, for the term of the agreement. The agreements allow for a substitute index to be used if LIBOR is unavailable.

The following table presents details of the Bank’s interest rate swap agreements as of March 31, 2020. For each interest rate swap agreement listed, the Bank has secured a fixed-rate FHLB advance for the notional amount that reprices at the same frequency as the corresponding interest-rate swap. The Bank pays a fixed interest rate to the counterparty and in return, receives a floating interest rate based on the index noted in the below table. The original term of these interest rate swap agreements range from four to eight years.

Notional amount

Start Date

Maturity Date

Fixed rate paid to counterparty

Index rate received from counterparty

Repricing Frequency

(Dollars in thousands)

50,000

10/25/2016

10/25/2021

1.340

3-month LIBOR

quarterly

15,000

9/27/2019

9/27/2024

1.440

1-month LIBOR

monthly

10,000

11/19/2019

11/20/2023

1.585

3-month LIBOR

quarterly

15,000

3/2/2020

3/2/2026

0.911

1-month LIBOR

monthly

15,000

3/2/2020

3/2/2027

0.937

1-month LIBOR

monthly

15,000

3/2/2020

3/2/2028

0.984

1-month LIBOR

monthly

15,000

10/25/2021

10/25/2028

0.793

3-month LIBOR

quarterly

10,000

10/25/2021

10/25/2029

0.800

3-month LIBOR

quarterly

Interest rate swap agreements in the above table with start dates in 2021 are forward-starting contracts. The Bank intends to secure two fixed-rate FHLB advances on October 25, 2021 for $15.0 million and $10.0 million, for seven years and eight years, respectively, which will reprice quarterly. These agreements were contracted as a partial replacement of the $50.0 million notional interest rate swap that will mature on October 25, 2021.

A change in the net fair value of these cash flow hedges is recognized as an other asset or other liability on the balance sheet with the tax-effected portion of the change included in other comprehensive income. At March 31, 2020, we recognized a $3.3 million net fair value liability as a result of the decrease in the market value of these interest rate swap agreements.

Stockholders’ Equity. Total stockholders’ equity decreased $3.2 million during the first three months of 2020 to $153.1 million at March 31, 2020, from $156.3 million at December 31, 2019. Increases to stockholders’ equity included $1.7 million of net income and $462,000 of stock based compensation. These increases were more than offset by a $3.2 million, net of tax, decrease in other comprehensive income as a result of the decline in the fair market value of our available-for-sale securities and cash flow hedge. In addition, stockholders’ equity decreased by $1.1 million from the repurchase of 79,395 shares of common stock and $988,000 in cash dividends paid. As part of the strategy to increase shareholder value, the Company’s Board of Directors authorized a stock repurchase plan that began on January 27, 2020 and expires on July 27, 2020. The plan authorizes the repurchase of up to 513,000 shares of the Company’s stock. At March 31, 2020, the Company had repurchased 79,395 shares under this repurchase plan at an average price of $14.06 per share.

The following table shows cash dividends paid per share and the related dividend payout ratio for the periods indicated:



	Three Months Ended March 31,
	2020			2019

Dividend declared per common share	$	0.10		$	0.08
Dividend payout ratio ⁽¹⁾	58.8		%	42.1		%

______________

⁽¹⁾Dividends paid per common share divided by basic earnings per common share.

Comparison of Operating Results for the Three Months Ended March 31, 2020 and 2019

General. Net income for the three months ended March 31, 2020, was $1.7 million, or $0.17 per diluted share as compared to net income of $1.9 million, or $0.19 per diluted share for the three months ended March 31, 2019. The $261,000 decrease in net income during the three months ended March 31, 2020, was a combined result of a $188,000 decrease in net interest income and a $559,000 increase in noninterest expense, partially offset by a $100,000 decrease in the provision for loan losses, a $290,000 increase in noninterest income and a $96,000 decrease in federal income tax expense.

Net Interest Income. Net interest income for the three months ended March 31, 2020, decreased $188,000 to $9.7 million from $9.9 million for the three months ended March 31, 2019 as a combined result of a decrease in interest income and an increase in interest expense.

Interest income decreased by $71,000 for the three months ended March 31, 2020, as compared to the same period in 2019, primarily as a result of a $240,000 decrease in interest income on investments available-for-sale. During the three months ended March 31, 2020 as compared to the same period in 2019, our average balance of these investments decreased by $4.7 million and their average yield declined to 2.72% from 3.35%. Partially offsetting these declines, interest income from net loans receivable increased by $193,000 for the comparative periods as a result of a $64.1 million increase in their average balance, partially offset by a reduction in yield to 4.94% for the three months ended March 31, 2020, from 5.22% for the comparative period in 2019 primarily due to decreases in short-term market rates.

Also contributing to the decrease in interest income, the yield on interest-earning deposits decreased to 1.18% for the three months ended March 31, 2020, from 2.50% for the three months ended March 31, 2019, outweighing a $4.1 million increase in the average balance of these funds, resulting in a $9,000 decrease in interest income. The average balance of FHLB advances decreased by $1.3 million, resulting in a $15,000 decrease in FHLB stock dividends received for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.

Interest expense increased $117,000 to $4.8 million for the three months ended March 31, 2020, as compared to the same period in 2019. The increase was primarily the result of a $55.6 million increase in the average balance of these funds with growth of $119.6 million in the average balance of retail deposits, partially offset by decreases of $30.8 million in brokered deposits and $33.2 million other borrowings. The total cost of interest-bearing deposits increased by five basis points for the three months ended March 31, 2020, as compared to the same period in 2019, with money market and retail certificates of deposit rate increases of 12 and 16 basis points, respectively, as we competed to grow these core deposits. Partially offsetting these increases, the cost of brokered certificates of deposit decreased by 26 basis points as certain higher cost maturing certificates were allowed to run off, and $6.5 million of brokered certificates of deposits with a weighted-average rate of 2.86% were called.

Partially offsetting the increase in deposit interest expense, our cost of other borrowings decreased by $427,000 for the three months ended March 31, 2020, as compared to the same period in 2019. Through a combination of FHLB Fed Funds and FHLB advances tied to interest rate swap agreements, the Bank’s cost of these funds decreased to 1.48% for the three months ended March 31, 2020, from 2.26% for the three months ended March 31, 2019.

The Company’s net interest margin decreased by 26 basis points, primarily due to decreases in our yield on interest earning assets outpacing the decline on our cost of interest‑bearing liabilities as a result of the lag in the market’s response to lowering deposit pricing when the targeted federal funds rate decreased in the second half of 2019 and the first quarter of 2020. For more information on this, see “How We Measure the Risk of Interest Rate Changes” in Item 3 of this report.

The following table details the change in net interest income due to changes in yield or cost, or changes in the average balance of the related asset or liability:



	Three Months Ended March 31, 2020 Compared to March 31, 2019 Net Change in Interest
	Rate			Volume			Total
	(In thousands)
Interest-earning assets:
Loans receivable, net	$	(632	)	$	825		$	193
Investments available-for-sale	(201		)	(39		)	(240		)
Interest-earning deposits with banks	(34		)	25			(9		)
FHLB stock	—			(15		)	(15		)
Total net change in income on interest-earning assets	(867		)	796			(71		)

Interest-bearing liabilities:
Interest-bearing demand	29			9			38
Statement savings	(1		)	(2		)	(3		)
Money market	119			234			353
Certificates of deposit, retail	184			196			380
Certificates of deposit, brokered	(43		)	(181		)	(224		)
Other borrowings	(242		)	(185		)	(427		)
Total net change in expense on interest-bearing liabilities	46			71			117
Total net change in net interest income	$	(913	)	$	725		$	(188	)

The following table compares detailed average balances, related interest income or interest expense, associated yields and rates, and the resulting net interest margin for the three months ended March 31, 2020 and 2019. Nonaccrual loans are included in the average balance of net loans receivable and are considered to carry a zero yield.



	Three Months Ended March 31,
	2020						2019
	Average Balance		Interest Earned / Paid		Yield / Cost		Average Balance		Interest Earned / Paid		Yield / Cost
	(Dollars in thousands)
Assets
Loans receivable, net	$	1,096,091	$	13,474	4.94	%	$	1,031,994	$	13,281	5.22	%
Investments available-for-sale	135,765		919		2.72		140,433		1,159		3.35
Interest-earning deposits with banks	10,555		31		1.18		6,484		40		2.50
FHLB stock	6,615		76		4.62		7,888		91		4.68
Total interest-earning assets	1,249,026		14,500		4.67		1,186,799		14,571		4.98
Noninterest earning assets	75,819						72,103
Total average assets	$	1,324,845					$	1,258,902

Liabilities and Stockholders' Equity
Interest-bearing demand	$	63,413	$	56	0.36	%	$	42,579	$	18	0.17	%
Statement savings	17,089		5		0.12		24,146		8		0.13
Money market	389,886		1,431		1.48		320,411		1,078		1.36
Certificates of deposit, retail	428,695		2,500		2.35		392,337		2,120		2.19
Certificates of deposit, brokered	70,979		374		2.12		101,787		598		2.38
Total interest-bearing deposits	970,062		4,366		1.81		881,260		3,822		1.76
Other borrowings	127,707		470		1.48		160,950		897		2.26
Total interest-bearing liabilities	1,097,769		4,836		1.77		1,042,210		4,719		1.84
Noninterest bearing liabilities	69,584						63,842
Average equity	157,492						152,850
Total average liabilities and equity	$	1,324,845					$	1,258,902
Net interest income			$	9,664					$	9,852
Net interest margin					3.11	%					3.37	%

Provision for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the ALLL must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. Our methodology for analyzing the ALLL consists of two components: general and specific reserves. The general reserve is determined by applying factors to our various groups of loans. Management considers factors such as charge-off history, the prevailing economy, the regulatory environment, competition, geographic and loan type concentrations, policy and underwriting standards, nature and volume of the loan portfolio, managements’ experience level, our loan review and grading systems, the value of underlying collateral and the level of problem loans in assessing the ALLL. The specific reserve component is created when management believes that the collectability of a specific loan has been impaired and a loss is probable or a concession is granted that reduces the value of the loan. The specific reserves are computed using discounted cash flows, current appraisals, listed sales prices, and other available information, less costs to complete, if any, and costs to sell the property. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or if future events differ from current estimates.

During the three months ended March 31, 2020, management evaluated the adequacy of the ALLL and concluded that a $300,000 provision for loan losses was appropriate due primarily to forecasted credit losses due to the economic disruption and uncertainty from the COVID-19 pandemic. The increase in the ALLL required due to the COVID-19 pandemic was partially offset by a reduction in the ALLL for a $16.3 million decline in the balance of total loans receivable. In comparison, during the three months ended March 31, 2019, a $400,000 provision for loan losses was recognized primarily as a result of growth in net loans receivable.

The following table summarizes selected financial data related to our ALLL and loan portfolio.



	At or For the Three Months Ended March 31,
	2020			2019
	(Dollars in thousands)
Total loans receivable, end of period	$	1,105,959		$	1,066,220
Average loans receivable during period	1,096,091			1,031,994
ALLL balance at beginning of period	13,218			13,347
Provision for loan losses	300			400
Charge-offs:
Total charge-offs	—			—
Recoveries:
One-to-four family	12			24
Consumer	—			37
Total recoveries	12			61
Net recovery	12			61
ALLL balance at end of period	$	13,530		$	13,808
ALLL as a percent of total loans	1.22		%	1.30		%
Ratio of net recoveries to average net loans receivable	—			0.01

Noninterest Income. Noninterest income increased $290,000 to $1.0 million for the quarter ended March 31, 2020, from $700,000 for the quarter ended March 31, 2019. The following table provides a detailed analysis of the changes in the components of noninterest income:



	Three Months Ended March 31, 2020		Change from Three Months Ended March 31, 2019			Percent Change
	(Dollars in thousands)
Net gain on sale of investments	$	—	$	8		(100.0	)%
BOLI change in cash surrender value	254		(15		)	(5.6	)
Wealth management revenue	165		(31		)	(15.8	)
Deposit related fees	176		5			2.9
Loan related fees	392		329			522.2
Other	3		(6		)	(66.7	)
Total noninterest income	$	990	$	290		41.4	%

During the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, loan related fees increased by $329,000, primarily as a result of prepayment fees collected on certain loans paid prior to maturity. Partially offsetting this increase, wealth management revenue decreased by $31,000, primarily as a result of regular fluctuations in the timing and mix of commissions received on serviced accounts. Also reducing noninterest income, the change in cash surrender value of our BOLI policies decreased by $15,000, primarily as a result of timing differences in recognition of earnings on certain policies.

Noninterest Expense. Noninterest expense increased $559,000 to $8.3 million for the three months ended March 31, 2020, from $7.7 million for the comparable period in 2019.

The following table provides a detailed analysis of the changes in the components of noninterest expense:



	Three Months Ended March 31, 2020		Change from Three Months Ended March 31, 2019			Percent Change
	(Dollars in thousands)
Salaries and employee benefits	$	5,212	$	212		4.2	%
Occupancy and equipment	1,071		205			23.7
Professional fees	430		(66		)	(13.3	)
Data processing	694		176			34.0
OREO related expenses, net	1		(30		)	(96.8	)
Regulatory assessments	144		7			5.1
Insurance and bond premiums	120		15			14.3
Marketing	64		(22		)	(25.6	)
Other general and administrative	532		62			13.2
Total noninterest expense	$	8,268	$	559		7.3	%

Continued growth and branch expansion, as well as normal annual salary increases, for the Company contributed to an increase in salary and employee benefits of $212,000, occupancy and equipment of $205,000 and data processing services of $176,000, for the three months ended March 31, 2020, as compared to the same period in 2019. As the Company continues to expand its branches and market presence, we expect these expenses to increase accordingly. Partially offsetting the increases during the three months ended March 31, 2020, professional fees and marketing expenses decreased by $66,000 and $22,000, respectively, as these services fluctuate due to the frequency and nature of special projects or events. OREO related expenses declined by $30,000 for the three months ended March 31, 2020, as the comparative period in 2019 included a $29,000 valuation expense to recognize an adjustment to the market value of our remaining two OREO properties. Regulatory assessments increased to normal levels as the Bank utilized all of its remaining regulatory assessment credit in 2019.

Federal Income Tax Expense. The federal income tax provision decreased by $96,000 to $402,000 for the three months ended March 31, 2020, as compared to $498,000 for the same period in 2019, primarily due to a $357,000 decrease in pretax net income.

Liquidity

We are required to have enough cash flow in order to maintain sufficient liquidity to ensure a safe and sound operation. We maintain cash flows above the minimum level believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. On a daily basis, we review and update cash flow projections to ensure that adequate liquidity is maintained.

Our primary sources of funds are customer deposits, cash flow from the loan and investment portfolios, advances from the FHLB, and brokered certificates of deposit. These funds, together with equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. At March 31, 2020, retail certificates of deposit of $193.9 million and brokered certificates of deposit of $25.5 million were scheduled to mature in one year or less. Management’s practice is to maintain deposit rates at levels that are competitive with other local financial institutions. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by the level of interest rates, economic conditions and competition. We measure our liquidity based on our ability to fund our assets and to meet liability obligations when they come due. Liquidity (and funding) risk occurs when funds cannot be raised at reasonable prices or in a reasonable time frame to meet our normal or unanticipated obligations. We regularly monitor the mix between our assets and our liabilities to manage effectively our liquidity and funding requirements.

The COVID-19 pandemic may impact cash flow due to payment deferrals granted to borrowers who have been negatively impacted by the pandemic. In addition, an increase in loan originations may occur to fund PPP loans under the CARES act. To assist in the additional funding needs, the FRB authorized the Paycheck Protection Program Lending Facility (“PPPLF”) to provide funding to eligible lenders on a non-recourse basis at a rate of 35 basis points, taking PPP loans as collateral at face value. The maturity date of this extension of credit will equal the maturity date of the pledged PPP loan. While we currently do not intend to use the PPPLF, we do have this and additional lending facilities available to us from the FRB.

When deposits are not readily available and/or cost effective to provide the funds for our assets, we use alternative funding sources. These sources include but are not limited to: advances from the FHLB or the FRB, which are collateral dependent, wholesale funding, national certificates of deposit listing services, brokered deposits, federal funds purchased and dealer repurchase agreements, as well as other short-term alternatives. We may also liquidate assets to meet our funding needs. The balance of our investments available-for-sale decreased $4.4 million to $132.2 million at March 31, 2020, from December 31, 2019, and represents a ready source of cash if needed. The balance of our interest-earning deposits with banks increased by $9.2 million to $22.1 million at March 31, 2020, from December 31, 2019, as a result of fluctuations in our funding needs for loans receivable and retail deposits. At March 31, 2020, the Bank maintained credit facilities with the FHLB totaling $603.9 million, subject to qualifying collateral limits that reduced our pledged collateral capacity to $501.7 million, with an outstanding balance of $160.0 million. As further funding sources, we also had the ability to borrow $85.2 million from the FRB and $35.0 million from lines of credit with other financial institutions, with no balance outstanding at March 31, 2020. For additional information, see the Consolidated Statements of Cash Flows in Item 1 of this Form 10-Q.

To assist in our funds acquisition and interest rate risk management efforts, management utilizes the national brokered deposit market and maintained a balance at March 31, 2020, of $25.5 million of brokered certificates of deposit. In contrast to most retail certificate of deposit offerings which provide the depositor with an option to withdraw their funds prior to maturity, subject to an early withdrawal penalty, certificates of deposit acquired in the brokered market limits the depositor ability to withdraw the funds before the end of the term (except in the case of death or adjudication of incompetence of a depositor) which greatly reduces early redemption risk compared to retail deposits. At March 31, 2020, brokered certificates of deposit had a remaining maturity of up to seven months. Some of these certificates also provide the Bank the option to redeem the deposit after six months, a favorable distinction compared to retail certificate of deposit terms that are offered in our local market. During the three months ended March 31, 2020, the Bank redeemed $6.5 million of callable brokered certificates of deposit with a weighted average remaining maturity of one year. With these redemption limitations and call features, the cost of these brokered deposits is generally higher than our retail certificate of deposit offerings. Consequently, if we increase our brokered deposits, our cost of funds may increase.

First Financial Northwest is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity and pay its own operating expenses and cash dividends. First Financial Northwest's primary sources of funds consist of dividends from the Bank, although there are regulatory requirements related to the ability of the Bank to pay dividends. At March 31, 2020, the Company (on an unconsolidated basis) had liquid assets of $17.6 million and short-term liabilities of $211,000.

On a monthly basis, we estimate our future liquidity sources and needs. Also, we determine funding concentrations and our need for sources of funds other than deposits. This information is used by our Asset/Liability Management Committee (“ALCO”) in forecasting funding needs and investing opportunities. We believe that our current liquidity position and our expected operating results are sufficient to fund all of our existing commitments.

Commitments and Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and the unused portions of lines of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Commitments to extend credit and lines of credit are not recorded as an asset or liability by us until the instrument is exercised. At March 31, 2020 and December 31, 2019, we had no commitments to originate loans for sale.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of the collateral obtained, if deemed necessary by us upon the extension of credit, is based on our credit evaluation of the customer. The amount and type of collateral required varies but may include real estate and income-producing commercial properties.

The following table summarizes our outstanding commitments to originate loans, advance additional amounts pursuant to outstanding lines of credit and to disburse funds related to our construction loans at March 31, 2020:



			Amount of Commitment Expiration
	Total Amounts Committed		Through One Year		After One Through Three Years		After Three Through Five Years		After Five Years
	(In thousands)
Commitments to originate loans	$	4,037	$	4,037	$	—	$	—	$	—
Unused portion of lines of credit	30,262		7,351		8,206		1,992		12,713
Undisbursed portion of construction loans	71,953		28,481		42,048		1,424		—
Total commitments	$	106,252	$	39,869	$	50,254	$	3,416	$	12,713

We anticipate that we will continue to have sufficient funds and alternative funding sources to meet our current commitments.

As of March 31, 2020, the Bank had eleven operating leases with remaining terms of 5 months to 10 years which carry minimum lease payments of $57,000 per month. All of the lease agreements offer extension periods.

First Financial Northwest and its subsidiaries from time to time are involved in various claims and legal actions arising in the ordinary course of business. There are currently no matters that in the opinion of management would have a material adverse effect on First Financial Northwest’s consolidated financial position, results of operation, or liquidity.

Capital

At March 31, 2020, stockholders’ equity totaled $153.1 million, or 11.5% of total assets. Our book value per share of common stock was $15.03 at March 31, 2020, compared to $15.25 at December 31, 2019. Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a “well-capitalized” status in accordance with regulatory standards.

As of March 31, 2020, the Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory capital guidelines of the FDIC. The following table provides the Bank’s capital requirements and actual results.



	At March 31, 2020
	Actual				For Minimum Capital Adequacy Purposes				To be Categorized as “Well Capitalized”
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Tier I leverage capital (to average assets)	$	135,626	10.25	%	$	52,919	4.00	%	$	66,149	5.00	%
Common equity tier I ("CET1") (to risk- weighted assets)	135,626		13.42		45,492		4.50		65,711		6.50
Tier I risk-based capital (to risk-weighted assets)	135,626		13.42		60,656		6.00		80,875		8.00
Total risk-based capital (to risk-weighted assets)	148,278		14.67		80,875		8.00		101,094		10.00

In addition to the minimum CET1, Tier I total capital and leverage ratios, the Bank is required to maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. At March 31, 2020, the Bank’s capital conservation buffer was 6.67%.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

General. Our Board of Directors has approved an asset/liability management policy to guide management in maximizing interest rate spread by managing the differences in terms between interest-earning assets and interest-bearing liabilities while maintaining acceptable levels of liquidity, capital adequacy, interest rate risk, credit risk, and profitability. The policy established an Investment, Asset/Liability Committee (“ALCO,”) comprised of certain members of senior management and the Board of Directors. The Committee’s purpose is to communicate, coordinate and manage our asset/liability position consistent with our business plan and Board-approved policies. The ALCO meets quarterly to review various areas including:


•	economic conditions;


•	interest rate outlook;


•	asset/liability mix;


•	interest rate risk sensitivity;


•	current market opportunities to promote specific products;


•	historical financial results;


•	projected financial results; and


•	capital position.

The Committee also reviews current and projected liquidity needs. As part of its procedures, the Committee regularly reviews interest rate risk by forecasting the impact that changes in interest rates may have on net interest income and the market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments and evaluating such impacts against the maximum potential change in the market value of portfolio equity that is authorized by the Board of Directors.

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

We have utilized the following strategies in our efforts to manage interest rate risk:

•we are originating shorter term higher yielding loans, whenever possible;


•	we have attempted, where possible, to extend the maturities of our deposits which typically fund our long-term assets;

•we have invested in securities with relatively short average lives, generally less than eight years;

•we have added adjustable-rate loans to our loan portfolio;

•we utilize brokered certificates of deposit with a call option as a funding source; and

•we have utilized interest rate swaps to effectively fix the rate on certain FHLB advances.

We have evaluated the use of derivative instruments to limit the impact of interest rate changes on earnings and cash flows and to lower our cost of borrowing while taking into account various elements of interest rate risk. We are using interest rate swaps which qualify as a cash flow hedge as a tool to lower the cost of certain FHLB advances as compared to the fixed rates offered by the FHLB for its longer term advances. At March 31, 2020, the Bank held six interest rate swap agreements with a total notional amount of $120.0 million and a weighted-average fixed interest rate of 1.22%. Under the interest rate agreements, the Bank pays a fixed interest rate, and receives a floating rate based on 1-month or 3-month LIBOR rates to coincide with each agreement’s reset frequency for an original term of four to eight years. Concurrently at the onset of each interest rate agreement, the Bank secured a fixed rate FHLB advance that resets to market rate on the same cycle as the corresponding interest rate swap agreement. In addition, the Bank has entered into two, forward starting interest rate swap agreements with a start date of October 25, 2021, a total notional amount of $25.0 million, and a weighted-average interest rate of 0.80%. These interest rate agreements are intended to partially replace the $50.0 million notional amount interest rate swap that matures on that date. Entering into these agreements has allowed the Bank to secure fixed rate funding at a lower cost than a traditional five-year fixed rate FHLB advance. We will continue to review similar instruments and may continue to utilize them for interest rate risk management in the future.

Interest rate contracts, however, may expose us to the risk of loss associated with variations in the spread between the interest rate contract and the hedged item. In addition, these contracts carry volatility risk that the expected uncertainty relating to the price of the underlying asset differs from what is anticipated. If any interest rate swap we enter into proves ineffective, it could result in volatility in our operating results, including potential losses, which could have a material adverse effect on our results of operations and cash flows.

Brokered Deposits. Management utilizes the national brokered deposit market as an additional source of funds and to assist efforts in managing interest rate risk. Utilizing brokered deposits might result in increased regulatory scrutiny, as such deposits are not viewed as favorably as core retail deposits and there can be no assurance that the Bank will be allowed to include brokered deposits in its deposit mix in the future. While management will attempt to weigh the benefits of brokered deposits against the costs and risks, there can be no assurance that its conclusions will necessarily be aligned with those of the Bank’s regulators.

How We Measure the Risk of Interest Rate Changes. We monitor our interest rate sensitivity on a quarterly basis by measuring the impact of changes to net interest income in multiple rate environments. Management retains the services of a third party consultant with nearly 40 years of experience in asset-liability management to assist in its interest rate risk and asset-liability management. Management uses various assumptions to evaluate the sensitivity of the market value of our assets and liabilities to changes in interest rates. Although management believes these assumptions are reasonable, the interest rate sensitivity of our assets and liabilities on net interest income and the market value of portfolio equity could vary substantially if different assumptions were used or actual results differ from these assumptions. Although certain assets and liabilities may have similar maturities or periods of repricing, they may react differently to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities lag behind changes in market interest rates. Non-uniform changes and fluctuations in market interest rates across various maturities will also affect the results presented. In addition, certain assets, such as adjustable-rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, a portion of our adjustable-rate loans have interest rate floors below which the loan’s contractual interest rate may not adjust in conjunction with market rates. Approximately 56.5% of our total loans were adjustable-rate loans at March 31, 2020. At that date, $413.4 million, or 66.1% of these loans were at their floor, with a weighted-average interest rate of 4.84%. A portion of our adjustable rate loans are based on prime rate plus a specified margin, or the fully indexed rate. For these prime based loans where the floor rate is currently above the loan’s fully indexed rate, the Bank will not receive the benefit of an increasing market rates until prime rate increases enough where the fully indexed rate exceeds the loans floor rate. At March 31, 2020, the Bank’s net loans receivable included $159.9 million of prime based loans, of which $146.6 million were at a floor rate that exceeded their fully indexed rate. The following table shows the rate increase that would need to occur on these loans before the Bank receives the benefit of a floating rate:



	March 31, 2020
Increase in prime rate:	(Dollars in thousands)
0 - 25 bps	$	6,885
26 - 50 bps	2,466
51 - 75 bps	6,409
76 - 100 bps	27,414
101 - 150 bps	29,221
151 - 200 bps	37,795
> 200 bps	36,453
	146,643

The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates. However, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of funds during periods of increasing interest rates. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. We consider all these factors in monitoring our interest rate exposure.

The assumptions we use are based upon a combination of proprietary and market data that reflect historical results and current market conditions. These assumptions relate to interest rates, loan prepayments, deposit decay rates and the market value of certain assets under the various interest rate scenarios. We use market data to determine prepayments and maturities of loans, investments and borrowings and use our own assumptions on deposit decay rates except for time deposits. Time deposits are modeled to reprice to market rates upon their stated maturities. We also assume that non-maturity deposit rates can be maintained

with rate adjustments proportionate to the change in market interest rates, based upon our historical deposit decay rates, which are substantially lower than market decay rates. We have observed in the past that our deposit accounts during changing rate environments have relatively lower volatility and less than market rate changes. When interest rates rise, we do not have to raise interest rates proportionately on less rate sensitive accounts to retain these deposits. These assumptions are based upon our analysis of our customer base, competitive factors and historical experience.

Our income simulation model examines changes in net interest income in which interest rates were assumed to remain at their base level, instantaneously increase by 100, 200 and 300 basis points or decline immediately by 100 basis points. A decline by 200 or 300 basis points were not reported as the current targeted federal funds rate is between 0.00% and 0.25%.

The following table illustrates the estimated change in our net interest income over the next 12 months from March 31, 2020, that would occur in the event of an immediate change in interest rates equally across all maturities, with no effect given to any steps that the Bank might take to counter the effect of that interest rate movement.



Net Interest Income Change at March 31, 2020
Basis Point Change in Rates	Net Interest Income		% Change
(Dollars in thousands)
+300	$	38,891	2.78	%
+200	38,214		0.99
+100	37,934		0.25
Base	37,839		—
(100)	38,381		1.43

The following table illustrates the change in our net portfolio value (“NPV”) at March 31, 2020, that would occur in the event of an immediate change in interest rates equally across all maturities, with no effect given to any steps that we might take to counter the effect of that interest rate movement.



Basis Point								Net Portfolio as % of				Market
Change in	Net Portfolio Value⁽¹⁾							Portfolio Value of Assets				Value of
Rates	Amount		$ Change ⁽²⁾			% Change		NPV Ratio ⁽³⁾		% Change ⁽⁴⁾		Assets ⁽⁵⁾
	(Dollars in thousands)
+300	$	117,876	$	(12,870	)	(9.84	)%	9.44	%	(0.96	)%	$	1,249,261
+200	122,711		(8,035		)	(6.15	)	9.61		(0.60	)	1,277,043
+100	128,994		(1,752		)	(1.34	)	9.86		(0.13	)	1,307,711
Base	130,746		—			—		9.79		—		1,335,424
(100)	113,800		(16,946		)	(12.96	)	8.48		(1.27	)	1,341,254

_____________

⁽¹⁾ The net portfolio value is the difference between the present value of the discounted cash flows of assets and liabilities and represents the market value of the Company’s equity for any given interest rate scenario. Net portfolio value is useful for determining, on a market value basis, how the market value of equity changes in response to various interest rate scenarios. Large changes in net portfolio value reflect increased interest rate sensitivity and generally more volatile earnings streams.

⁽²⁾ The increase or decrease in net portfolio value at the indicated interest rates compared to the net portfolio value assuming no change in interest rates.

⁽³⁾ Net portfolio value divided by the market value of assets.

⁽⁴⁾ The increase or decrease in the net portfolio value divided by the market value of assets.

⁽⁵⁾ The market value of assets represents the value of assets under the various interest rate scenarios and reflects the sensitivity of those assets to interest rate changes.

The net interest income and net portfolio value tables presented above are predicated upon a stable balance sheet with no growth or change in asset or liability mix. In addition, the net portfolio value is based upon the present value of discounted cash flows using our estimates of current replacement rates to discount the cash flows. The effects of changes in interest rates in

the net interest income table are based upon a cash flow simulation of our existing assets and liabilities and assuming that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. Delinquency rates may change when interest rates change as a result of changes in the loan portfolio mix, underwriting conditions, loan terms or changes in economic conditions that have a delayed effect on the portfolio. Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as set forth above. Also, a change in U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the Treasury yield curve would cause changes to the net portfolio value and net interest income other than those indicated above.

At March 31, 2020, other than the interest rate swap agreements we have entered into, we did not have any derivative financial instruments or trading accounts for any class of financial instruments, nor have we engaged in any other hedging activities or purchased off-balance sheet derivative instruments. However, we continue to review such instruments and may utilize them for interest rate risk management in the future. Interest rate risk continues to be one of our primary risks, as other types of risks, such as foreign currency exchange risk and commodity pricing risk do not arise in the normal course of our business activities and operations.

Item 4. Controls and Procedures

The management of First Financial Northwest, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (“Exchange Act”). A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

(a)

Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer (Principal Financial Officer) and several other members of our senior management as of the end of the period covered by this report. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2020, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


(b)	Changes in Internal Controls: In the quarter ended March 31, 2020, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

From time to time, we are engaged in various legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on our financial position or results of operations.

Item 1A. Risk Factors

In light of recent developments relating to Coronavirus Disease 2019 (“COVID-19”), the Company is supplementing its risk factors contained in Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 12, 2020. The following risk factor should be read in conjunction with the risk factors described in the Annual Report on Form 10-K.

The COVID-19 pandemic has adversely impacted our ability to conduct business and is expected to adversely impact our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic has significantly adversely affected our operations and the way we provide banking services to businesses and individuals, most of whom are currently under government issued stay-at-home orders. As an essential business, we continue to provide banking and financial services to our customers at all of our branch locations. In addition, we continue to provide access to banking and financial services through online banking, ATMs and by telephone. If the COVID-19 pandemic worsens it could limit or disrupt our ability to provide banking and financial services to our customers.

In response to the stay-at-home orders, the majority our employees currently are working remotely to enable us to continue to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations, other than through government sponsored programs such as the Payroll Protection Program, deposit availability, market interest rates and negatively impacted many of our business and consumer borrower’s ability to make their loan payments. Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including recent reductions in the targeted federal funds rate, until the pandemic subsides, we expect our net interest income and net interest margin will be adversely affected. Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as their revenues decline precipitously, especially in businesses related to travel, hospitality, leisure and physical personal services. Businesses may ultimately not reopen as there is a significant level of uncertainty regarding the level of economic activity that will return to our markets over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.

The impact of the pandemic is expected to continue to adversely affect us during 2020 and possibly longer as the ability of many of our customers to make loan payments has been significantly affected. Although the Company makes estimates of loan losses related to the pandemic as part of its evaluation of the allowance for loan losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact the pandemic will have on the credit quality of our loan portfolio. It is likely that loan delinquencies, adversely classified loans and loan charge-offs will increase in the future as a result of the pandemic. Consistent with guidance provided by banking regulators, we have modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic. Notwithstanding these modifications, these borrowers may not be able to resume making full payments on their loans once the COVID-19 pandemic is resolved. Any increases in the allowance for credit losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.

In accordance with GAAP, we record assets acquired and liabilities assumed at their fair value with the excess of the purchase consideration over the net assets acquired resulting in the recognition of goodwill. If adverse economic conditions or the recent decrease in our stock price and market capitalization as a result of the pandemic were to be deemed sustained rather than temporary, it may significantly affect the fair value of our goodwill and may trigger impairment charges. Any impairment charge could have a material adverse effect on our results of operations and financial condition.

Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown. and during which we may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery. To the extent the effects of the COVID-19 pandemic adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

(c) The following table summarizes First Financial Northwest’s common stock repurchases during the three months ended March 31, 2020:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plan	Maximum Number of Shares that May Yet Be Repurchased Under the Plan
January 27 - January 31, 2020	6,900	$	15.19	6,900	506,100
February 1 - February 29, 2020	38,995	15.01		38,995	467,105
March 1 - March 31, 2020	33,500	12.71		33,500	433,605
	79,395	14.06		79,395	433,605

On January 6, 2020, the Board of Directors authorized the repurchase of up to 513,000 shares of the Company’s common stock, or approximately 5% of the Company’s outstanding shares. The plan allowed for the repurchase from January 27, 2020 through July 27, 2020, on the open market or in privately negotiated transactions, in accordance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. At March 31, 2020, the Company had repurchased 79,395 shares authorized for repurchase at an average price of $14.06 per share.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Financial Statement Schedules

(a) Exhibits



3.1			Articles of Incorporation of First Financial Northwest ⁽¹⁾
3.2			Amended and Restated Bylaws of First Financial Northwest ⁽²⁾
4.1			Form of stock certificate of First Financial Northwest⁽¹⁾
10.1			Amended Employment Agreement between First Financial Northwest Bank and Joseph W. Kiley III ⁽³⁾
10.2			Form of Change in Control Severance Agreement for Executive Officers ⁽⁴⁾
10.3			Amended Executive Supplemental Retirement Plan Participation Agreement with Joseph W. Kiley III⁽⁵⁾
10.4			2008 Equity Incentive Plan ⁽⁶⁾
10.5			2016 Equity Incentive Plan ⁽⁷⁾
10.6			Forms of incentive and non-qualified stock option award agreements under the 2008 Equity Incentive Plan ⁽⁸⁾
10.7			Form of restricted stock award agreement under the 2008 Equity Incentive Plan ⁽⁸⁾
10.8			Employment Agreement between First Financial Northwest Bank and Richard P. Jacobson ⁽²⁾
10.9			Form of restricted stock award agreement under the 2016 Equity Incentive Plan⁽⁹⁾
10.10			Form of incentive stock option award agreement under the 2016 Equity Incentive Plan ⁽¹⁰⁾
10.11			Form of non-qualified stock option award agreement under the 2016 Equity Incentive Plan ⁽¹⁰⁾
10.12			Form of restricted stock award agreement under the 2016 Equity Incentive Plan ⁽¹¹⁾
10.13			Offer letter for Randy T. Riffle ⁽¹²⁾
10.14			Form of Involuntary Termination Agreement with Randy T. Riffle ⁽¹³⁾
10.15			Form of Change in Control Severance Agreement with Randy T. Riffle ⁽¹³⁾
10.16			Supplemental Executive Retirement Plan Agreement for Joseph W. Kiley III ⁽¹⁴⁾
10.17			Supplemental Executive Retirement Plan Agreement for Richard P. Jacobson ⁽¹⁵⁾
14			Code of Business Conduct and Ethics (Registrant elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on the Company’s website at www.ffnwb.com pursuant to Regulation S-K section 229.406(c))
31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32			Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101			The following materials from First Financial Northwest’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Income Statements; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Selected Notes to Consolidated Financial Statements.

_____________


⁽¹⁾	Filed as an exhibit to First Financial Northwest’s Registration Statement on Form S-1 on June 6, 2007 (333-143539)


⁽²⁾	Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated March 25, 2020.

⁽³⁾Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated December 5, 2013.

⁽⁴⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated September 9, 2014.

⁽⁵⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 15, 2020.

⁽⁶⁾ Filed as Appendix A to First Financial Northwest’s definitive proxy statement dated April 15, 2008.

⁽⁷⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated June 15, 2016.

⁽⁸⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated July 1, 2008.

⁽⁹⁾ Filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for March 31, 2018 filed on May 8, 2018.

⁽¹⁰⁾ Filed as an exhibit to First Financial Northwest’s Registration Statement on Form S-8 on June 15, 2016 (333-212029)

⁽¹¹⁾ Filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for September 30, 2018 filed November 7, 2018.

⁽¹²⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated December 20, 2018.

⁽¹³⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 3, 2019.

⁽¹⁴⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 15, 2020.

⁽¹⁵⁾ Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated January 15, 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	FIRST FINANCIAL NORTHWEST, INC.

Date: May 8, 2020	By:	/s/ Joseph W. Kiley III
		Joseph W. Kiley III
		President and Chief Executive Officer (Principal Executive Officer)



Date: May 8, 2020	By:	/s/ Richard P. Jacobson
		Richard P. Jacobson
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: May 8, 2020	By:	/s/ Christine A. Huestis
		Christine A. Huestis
		First Vice President and Controller (Principal Accounting Officer)

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph W. Kiley III, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of First Financial Northwest, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2020

/s/Joseph W. Kiley III

Joseph W. Kiley III

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard P. Jacobson, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of First Financial Northwest, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2020

/s/Richard P. Jacobson

Richard P. Jacobson

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer of First Financial Northwest, Inc.

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned hereby certifies in his/her capacity as an officer of First Financial Northwest, Inc. (the "Company") and in connection with this quarterly report on Form 10-Q for the period ending March 31, 2020, that:


1.	the report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and


2.	the information contained in the report fairly presents, in all material respects, First Financial Northwest's financial condition and results of operations as of the dates and for the periods presented in the financial statements included in this report.



/s/Joseph W. Kiley III
Joseph W. Kiley III President and Chief Executive Officer (Principal Executive Officer)

Date: May 8, 2020



/s/Richard P. Jacobson
Richard P. Jacobson Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: May 8, 2020

Derivatives (Tables)

The following table presents the fair value of these derivative instruments as of March 31, 2020 and December 31, 2019:



	Balance Sheet Location	Fair Value at March 31, 2020			Fair Value at December 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	(Other liabilities) Other assets	$	(3,287	)	$	426

Total derivatives		$	(3,287	)	$	426

The following table presents the net unrealized gains and losses from these derivative instruments included on the Consolidated Statements of Comprehensive Income at the dates indicated:



	Amount Recognized in OCI for the three months ended March 31, 2020			Amount Recognized in OCI for the three months ended March 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	$	(2,933	)	$	(363	)

- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 7: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 8: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 9: http://fasb.org/us-gaap/role/ref/legacyRef
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-Subparagraph (SX 210.4-08.(n)(2))
-URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690

Reference 10: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
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-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=109980867&loc=SL5579240-113959

+ Details

Loans Receivable (Tables)

Loans receivable are disclosed net of loans in process (“LIP”) and are summarized as follows at the dates indicated:



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	203,045	$	210,898
Permanent non-owner occupied	168,208		161,630
	371,253		372,528

Multifamily	169,468		172,915

Commercial real estate	385,910		395,152

Construction/land:
One-to-four family residential	43,279		44,491
Multifamily	35,201		40,954
Commercial	22,946		19,550
Land	5,975		8,670
	107,401		113,665

Business	34,702		37,779
Consumer	37,225		30,199
Total loans	1,105,959		1,122,238

Less:
Deferred loan fees, net	301		558
Allowance for loan and lease losses ("ALLL")	13,530		13,218
Loans receivable, net	$	1,092,128	$	1,108,462

•


•	Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.


•	Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.


•	Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	370,100	$	167,364	$	385,389	$	91,751	$	34,702	$	37,225	$	1,086,531
Special mention	531		—		521		15,650		—		—		16,702
Substandard	622		2,104		—		—		—		—		2,726
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	371,363	$	170,810	$	394,627	$	101,141	$	37,779	$	30,199	$	1,105,919
Special mention	536		2,105		525		12,524		—		—		15,690
Substandard	629		—		—		—		—		—		629
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown:



	At or For the Three Months Ended March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land			Business			Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	3,034	$	1,607	$	4,559	$	2,222		$	1,140		$	656	$	13,218
Recoveries	12		—		—		—			—			—		12
Provision (recapture)	9		51		134		(79		)	(66		)	251		300
Ending balance	$	3,055	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,530

ALLL by category:
General reserve	$	3,026	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,501
Specific reserve	29		—		—		—			—			—		29

Loans:
Total loans	$	371,253	$	169,468	$	385,910	$	107,401		$	34,702		$	37,225	$	1,105,959
Loans collectively evaluated for impairment ⁽¹⁾	367,395		167,364		384,653		91,751			34,702			37,225		1,083,090
Loans individually evaluated for impairment ⁽²⁾	3,858		2,104		1,257		15,650			—			—		22,869

____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.



	At or For the Three Months Ended March 31, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate		Construction/ Land		Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,387		$	1,680		$	4,777	$	2,331	$	936	$	236		$	13,347
Recoveries	24			—			—		—		—		37			61
(Recapture) provision	(379		)	(101		)	32		801		94		(47		)	400
Ending balance	$	3,032		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,808

ALLL by category:
General reserve	$	2,982		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,758
Specific reserve	50			—			—		—		—		—			50

Loans:
Total loans	$	351,332		$	167,843		$	384,686	$	114,510	$	33,513	$	14,336		$	1,066,220
Loans collectively evaluated for impairment ⁽¹⁾	345,569			167,843			382,530		114,510		33,513		14,292			1,058,257
Loans individually evaluated for impairment ⁽²⁾	5,763			—			2,156		—		—		44			7,963

_____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.

The following tables represent a summary of the aging of loans by type at the dates indicated:



	Loans Past Due as of March 31, 2020
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	202,966	$	203,045
Non-owner occupied	—		—		—		—		168,208		168,208
Multifamily	—		—		2,104		2,104		167,364		169,468
Commercial real estate	—		—		—		—		385,910		385,910
Construction/land	—		—		—		—		107,401		107,401
Total real estate	79		—		2,104		2,183		1,031,849		1,034,032
Business	—		—		—		—		34,702		34,702
Consumer	—		—		—		—		37,225		37,225
Total loans	$	79	$	—	$	2,104	$	2,183	$	1,103,776	$	1,105,959

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at March 31, 2020.



	Loans Past Due as of December 31, 2019
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	210,819	$	210,898
Non-owner occupied	—		—		—		—		161,630		161,630
Multifamily	2,105		—		—		2,105		170,810		172,915
Commercial real estate	—		—		—		—		395,152		395,152
Construction/land	—		—		—		—		113,665		113,665
Total real estate	2,184		—		—		2,184		1,052,076		1,054,260
Business	—		—		—		—		37,779		37,779
Consumer	—		—		—		—		30,199		30,199
Total loans	$	2,184	$	—	$	—	$	2,184	$	1,120,054	$	1,122,238

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2019.

The following table is a summary of nonaccrual loans by loan type at the dates indicated:



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential	$	91	$	95
Multifamily	2,104		—
Total nonaccrual loans	$	2,195	$	95

The following tables summarize the loan portfolio by type and payment status at the dates indicated:



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	371,162	$	167,364	$	385,910	$	107,401	$	34,702	$	37,225	$	1,103,764
Nonperforming ⁽²⁾	91		2,104		—		—		—		—		2,195
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959

_____________

⁽¹⁾ There were $203.0 million of owner-occupied one-to-four family residential loans and $168.2 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $91,000 one-to-four family residential loan classified as nonperforming is owner-occupied.



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	372,433	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,143
Nonperforming ⁽²⁾	95		—		—		—		—		—		95
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

_____________

⁽¹⁾There were $210.8 million of owner-occupied one-to-four family residential loans and $161.6 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $95,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.

The following tables present a summary of loans individually evaluated for impairment by loan type at the dates indicated:



	March 31, 2020
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	429	$	575	$	—
Non-owner occupied	1,289		1,289		—
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	20,729		20,875		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	503		549		12
Non-owner occupied	1,637		1,637		17
Total	2,140		2,186		29

Total impaired loans:
One-to-four family residential:
Owner occupied	932		1,124		12
Non-owner occupied	2,926		2,926		17
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	$	22,869	$	23,061	$	29

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.



	December 31, 2019
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	437	$	582	$	—
Non-owner occupied	1,486		1,486		—
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	17,818		21,089		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	505		552		13
Non-owner occupied	1,647		1,647		18
Total	2,152		2,199		31

Total impaired loans:
One-to-four family residential:
Owner occupied	942		1,134		13
Non-owner occupied	3,133		3,133		18
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	$	19,970	$	23,288	$	31

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	433	$	9	$	1,078	$	15
Non-owner occupied	1,388		21		2,208		31
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,328		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	19,275		248		5,680		85

Loans with an allowance:
One-to-four family residential:
Owner occupied	504		9		512		9
Non-owner occupied	1,642		23		2,746		30
Commercial real estate	—		—		121		—
Total	2,146		32		3,379		39

Total impaired loans:
One-to-four family residential:
Owner occupied	937		18		1,590		24
Non-owner occupied	3,030		44		4,954		61
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,449		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	$	21,421	$	280	$	9,059	$	124

The following table presents TDR modifications for the three months ended March 31, 2019, and their recorded investment prior to and after the modification:



	Three Months Ended March 31, 2019
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
One-to-four family residential
Principal and interest with interest rate concession and advancement of maturity date	6	$	824	$	824
Advancement of maturity date	3	694		694
Total	9	$	1,518	$	1,518



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	370,100	$	167,364	$	385,389	$	91,751	$	34,702	$	37,225	$	1,086,531
Special mention	531		—		521		15,650		—		—		16,702
Substandard	622		2,104		—		—		—		—		2,726
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	371,363	$	170,810	$	394,627	$	101,141	$	37,779	$	30,199	$	1,105,919
Special mention	536		2,105		525		12,524		—		—		15,690
Substandard	629		—		—		—		—		—		629
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

Branch Acquisition

Branch Acquisition

On August 25, 2017, First Financial Northwest Bank completed the acquisition of four branches from Opus Bank, a California state-chartered commercial bank (the “Branch Acquisition”). The Branch Acquisition included four retail branches located in Woodinville, Clearview, Lake Stevens, and Smokey Point, Washington. The Bank acquired $74.7 million of retail deposits, prior to the fair value adjustment, one owned bank branch, three leased branches, and certain fixed assets at these branches. The purchase price of the Branch Acquisition paid by the Bank included a deposit premium of 3.125% of the average daily balance of acquired deposits for 20 days prior to the closing date, or $2.5 million; 80% of the fair market value of the owned branch, or $488,000; the net book value of fixed assets, or $56,000; and $14,000 for other pro rations and adjustments as of the closing date. Opus Bank paid the Bank $71.6 million in cash for the difference between these amounts and the total deposits assumed.

The Branch Acquisition was accounted for under the acquisition method of accounting, and accordingly, the assets received and liabilities assumed were recorded at their fair market value as of August 25, 2017. The application of the acquisition method of accounting resulted in recognition of a core deposit intangible asset (“CDI”) of $1.3 million and goodwill of $889,000. The acquired CDI has been determined to have a useful life of approximately ten years and is amortized on an accelerated basis. Goodwill is not amortized but will be evaluated for impairment on an annual basis, or more often if circumstances dictate, to determine if the carrying value remains appropriate. The balance of the CDI and goodwill at March 31, 2020 was $1.0 million and $889,000, respectively.

Loans Receivable: Financing Receivables, Summary of loans by type and risk category (Details) - USD ($)

Other Real Estate Owned - Other Real Estate, Roll Forward (Details) - USD ($)

Fair Value: Schedule of quantitative information about Level 3 Fair Value Measurements on a nonrecurring basis (Details) - Level 3 - Market Approach Valuation Technique - USD ($)
$ in Thousands

Branch Acquisition (Narrative) (Details) - USD ($)

Stock-Based Compensation - Narrative (Details) - USD ($)

Fair Value: Balance Sheet Grouping (Details) - USD ($)
$ in Thousands

Leases

The following table provides a reconciliation between the undiscounted minimum lease payments at March 31, 2020 and the discounted lease liability at that date:



	March 31, 2020
	(in thousands)
Due through one year	$	617
Due after one year through two years	446
Due after two years through three years	428
Due after three years through four years	324
Due after four years through five years	249
Due after five years	728
Total minimum lease payments	2,792
Less: present value discount	(254		)
Lease liability	$	2,538

The Company is finalizing a lease for a new retail branch in Gig Harbor, Washington, which is expected to commence later in 2020.

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)

Investments

Investments available-for-sale are summarized as follows at the dates indicated:



	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,416	$	620	$	(28	)	$	16,008
Freddie Mac	4,169		178		—			4,347
Ginnie Mae	21,559		259		(149		)	21,669
Other	11,130		—		(246		)	10,884
Municipal bonds	10,653		307		(4		)	10,956
U.S. Government agencies	44,753		29		(1,594		)	43,188
Corporate bonds	25,500		720		(1,113		)	25,107
Total	$	133,180	$	2,113	$	(3,134	)	$	132,159



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,605	$	128	$	(104	)	$	15,629
Freddie Mac	4,196		96		—			4,292
Ginnie Mae	23,239		140		(329		)	23,050
Other	11,407		66		(25		)	11,448
Municipal bonds	10,675		272		(36		)	10,911
U.S. Government agencies	46,672		13		(935		)	45,750
Corporate bonds	25,500		372		(351		)	25,521
Total	$	137,294	$	1,087	$	(1,780	)	$	136,601



	March 31, 2020
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	1,406	$	(28	)	$	—	$	—		$	1,406	$	(28	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	13,779		(149		)	—		—			13,779		(149		)
Other	4,989		(130		)	5,895		(116		)	10,884		(246		)
Municipal bonds	517		(4		)	—		—			517		(4		)
U.S. Government agencies	8,354		(428		)	32,876		(1,166		)	41,230		(1,594		)
Corporate bonds	1,897		(110		)	6,497		(1,003		)	8,394		(1,113		)
Total	$	30,942	$	(849	)	$	45,268	$	(2,285	)	$	76,210	$	(3,134	)



	December 31, 2019
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	8,340	$	(104	)	$	—	$	—		$	8,340	$	(104	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	156		—			12,921		(329		)	13,077		(329		)
Other	2,843		(7		)	6,000		(18		)	8,843		(25		)
Municipal bonds	3,257		(36		)	—		—			3,257		(36		)
U.S. Government agencies	12,266		(201		)	31,490		(734		)	43,756		(935		)
Corporate bonds	1,996		(12		)	7,161		(339		)	9,157		(351		)
Total	$	28,858	$	(360	)	$	57,572	$	(1,420	)	$	86,430	$	(1,780	)



	March 31, 2020
	Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	497	$	501
Due after one year through five years	6,554		6,976
Due after five years through ten years	22,097		21,389
Due after ten years	51,758		50,385
	80,906		79,251
Mortgage-backed investments	52,274		52,908
Total	$	133,180	$	132,159

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS - USD ($)

Revenue Recognition (Tables)

The following table includes the Company’s noninterest income disaggregated by type of service for the three months ended March 31, 2020 and 2019:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(In thousands)
Loss on sale of investments ⁽¹⁾	$	—	$	(8	)
BOLI change in cash surrender value ⁽¹⁾	254		269
Wealth management revenue	165		196
Deposit related fees	68		69
Debit card and ATM fees	108		102
Loan related fees	392		47
Loan interest swap fees	—		16
Other	3		9
Total noninterest income	$	990	$	700

_______________

⁽¹

Investments: Schedule of Available for sale Securities, Debt Maturities (Details) - USD ($)
$ in Thousands

Loans Receivable: Financing Receivables, Aging of loans (Details) - USD ($)

Stock-Based Compensation Disclosure of Share-based Compensation Arrangements by Share-based Payment Award (Details)

Leases (Details) - USD ($)

Branch Acquisition (Noninterest Expense) (Details) - USD ($)
$ in Thousands

Document and Entity Information - shares

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands

Derivatives

Fair value for these derivative instruments, which generally changes as a result of changes in the level of market interest rates, is estimated based on dealer quotes and secondary market sources.

The following table presents the fair value of these derivative instruments as of March 31, 2020 and December 31, 2019:



	Balance Sheet Location	Fair Value at March 31, 2020			Fair Value at December 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	(Other liabilities) Other assets	$	(3,287	)	$	426

Total derivatives		$	(3,287	)	$	426

The following table presents the net unrealized gains and losses from these derivative instruments included on the Consolidated Statements of Comprehensive Income at the dates indicated:



	Amount Recognized in OCI for the three months ended March 31, 2020			Amount Recognized in OCI for the three months ended March 31, 2019
	(In thousands)
Interest rate swaps on FHLB debt designated as a cash flow hedge	$	(2,933	)	$	(363	)

Loans Receivable

Loans Receivable

Loans receivable are disclosed net of loans in process (“LIP”) and are summarized as follows at the dates indicated:



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential:
Permanent owner occupied	$	203,045	$	210,898
Permanent non-owner occupied	168,208		161,630
	371,253		372,528

Multifamily	169,468		172,915

Commercial real estate	385,910		395,152

Construction/land:
One-to-four family residential	43,279		44,491
Multifamily	35,201		40,954
Commercial	22,946		19,550
Land	5,975		8,670
	107,401		113,665

Business	34,702		37,779
Consumer	37,225		30,199
Total loans	1,105,959		1,122,238

Less:
Deferred loan fees, net	301		558
Allowance for loan and lease losses ("ALLL")	13,530		13,218
Loans receivable, net	$	1,092,128	$	1,108,462

•


•	Grade 7: These credits, classified as “substandard”, present a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These credits have well defined weaknesses which jeopardize the orderly liquidation of the debt and are inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.


•	Grade 8: These credits are classified as “doubtful” and possess well defined weaknesses which make the full collection or liquidation of the loan highly questionable and improbable. This classification is used where significant risk exposures are perceived but the exact amount of the loss cannot yet be determined due to pending events.


•	Grade 9: Assets classified as “loss” are considered uncollectible and cannot be justified as a viable asset for the Company. There is little or no prospect of near term recovery and no realistic strengthening action of significance is pending.



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	370,100	$	167,364	$	385,389	$	91,751	$	34,702	$	37,225	$	1,086,531
Special mention	531		—		521		15,650		—		—		16,702
Substandard	622		2,104		—		—		—		—		2,726
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Risk Rating:
Pass	$	371,363	$	170,810	$	394,627	$	101,141	$	37,779	$	30,199	$	1,105,919
Special mention	536		2,105		525		12,524		—		—		15,690
Substandard	629		—		—		—		—		—		629
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

The following tables summarize changes in the ALLL and loan portfolio by loan type and impairment method at the dates and for the periods shown:



	At or For the Three Months Ended March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land			Business			Consumer		Total
	(In thousands)
ALLL:
Beginning balance	$	3,034	$	1,607	$	4,559	$	2,222		$	1,140		$	656	$	13,218
Recoveries	12		—		—		—			—			—		12
Provision (recapture)	9		51		134		(79		)	(66		)	251		300
Ending balance	$	3,055	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,530

ALLL by category:
General reserve	$	3,026	$	1,658	$	4,693	$	2,143		$	1,074		$	907	$	13,501
Specific reserve	29		—		—		—			—			—		29

Loans:
Total loans	$	371,253	$	169,468	$	385,910	$	107,401		$	34,702		$	37,225	$	1,105,959
Loans collectively evaluated for impairment ⁽¹⁾	367,395		167,364		384,653		91,751			34,702			37,225		1,083,090
Loans individually evaluated for impairment ⁽²⁾	3,858		2,104		1,257		15,650			—			—		22,869

____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.



	At or For the Three Months Ended March 31, 2019
	One-to-Four Family Residential			Multifamily			Commercial Real Estate		Construction/ Land		Business		Consumer			Total
	(In thousands)
ALLL:
Beginning balance	$	3,387		$	1,680		$	4,777	$	2,331	$	936	$	236		$	13,347
Recoveries	24			—			—		—		—		37			61
(Recapture) provision	(379		)	(101		)	32		801		94		(47		)	400
Ending balance	$	3,032		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,808

ALLL by category:
General reserve	$	2,982		$	1,579		$	4,809	$	3,132	$	1,030	$	226		$	13,758
Specific reserve	50			—			—		—		—		—			50

Loans:
Total loans	$	351,332		$	167,843		$	384,686	$	114,510	$	33,513	$	14,336		$	1,066,220
Loans collectively evaluated for impairment ⁽¹⁾	345,569			167,843			382,530		114,510		33,513		14,292			1,058,257
Loans individually evaluated for impairment ⁽²⁾	5,763			—			2,156		—		—		44			7,963

_____________

⁽¹⁾ Loans collectively evaluated for general reserves.

⁽²⁾ Loans individually evaluated for specific reserves.



	Loans Past Due as of March 31, 2020
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	202,966	$	203,045
Non-owner occupied	—		—		—		—		168,208		168,208
Multifamily	—		—		2,104		2,104		167,364		169,468
Commercial real estate	—		—		—		—		385,910		385,910
Construction/land	—		—		—		—		107,401		107,401
Total real estate	79		—		2,104		2,183		1,031,849		1,034,032
Business	—		—		—		—		34,702		34,702
Consumer	—		—		—		—		37,225		37,225
Total loans	$	79	$	—	$	2,104	$	2,183	$	1,103,776	$	1,105,959

________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at March 31, 2020.



	Loans Past Due as of December 31, 2019
	30-59 Days		60-89 Days		90 Days and Greater		Total Past Due		Current		Total ⁽¹⁾
	(In thousands)
Real estate:
One-to-four family residential:
Owner occupied	$	79	$	—	$	—	$	79	$	210,819	$	210,898
Non-owner occupied	—		—		—		—		161,630		161,630
Multifamily	2,105		—		—		2,105		170,810		172,915
Commercial real estate	—		—		—		—		395,152		395,152
Construction/land	—		—		—		—		113,665		113,665
Total real estate	2,184		—		—		2,184		1,052,076		1,054,260
Business	—		—		—		—		37,779		37,779
Consumer	—		—		—		—		30,199		30,199
Total loans	$	2,184	$	—	$	—	$	2,184	$	1,120,054	$	1,122,238

_________________

⁽¹⁾ There were no loans 90 days and greater past due and still accruing interest at December 31, 2019.



	March 31, 2020		December 31, 2019
	(In thousands)
One-to-four family residential	$	91	$	95
Multifamily	2,104		—
Total nonaccrual loans	$	2,195	$	95

The following tables summarize the loan portfolio by type and payment status at the dates indicated:



	March 31, 2020
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	371,162	$	167,364	$	385,910	$	107,401	$	34,702	$	37,225	$	1,103,764
Nonperforming ⁽²⁾	91		2,104		—		—		—		—		2,195
Total loans	$	371,253	$	169,468	$	385,910	$	107,401	$	34,702	$	37,225	$	1,105,959

_____________

⁽¹⁾ There were $203.0 million of owner-occupied one-to-four family residential loans and $168.2 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $91,000 one-to-four family residential loan classified as nonperforming is owner-occupied.



	December 31, 2019
	One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land		Business		Consumer		Total
	(In thousands)
Performing ⁽¹⁾	$	372,433	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,143
Nonperforming ⁽²⁾	95		—		—		—		—		—		95
Total loans	$	372,528	$	172,915	$	395,152	$	113,665	$	37,779	$	30,199	$	1,122,238

_____________

⁽¹⁾There were $210.8 million of owner-occupied one-to-four family residential loans and $161.6 million of non-owner occupied one-to-four family residential loans classified as performing.

⁽²⁾The $95,000 of one-to-four family residential loans classified as nonperforming are all owner-occupied.

The following tables present a summary of loans individually evaluated for impairment by loan type at the dates indicated:



	March 31, 2020
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	429	$	575	$	—
Non-owner occupied	1,289		1,289		—
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	20,729		20,875		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	503		549		12
Non-owner occupied	1,637		1,637		17
Total	2,140		2,186		29

Total impaired loans:
One-to-four family residential:
Owner occupied	932		1,124		12
Non-owner occupied	2,926		2,926		17
Multifamily	2,104		2,104		—
Commercial real estate	1,257		1,257		—
Construction/land	15,650		15,650		—
Total	$	22,869	$	23,061	$	29

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.



	December 31, 2019
	Recorded Investment ⁽¹⁾		Unpaid Principal Balance⁽²⁾		Related Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	437	$	582	$	—
Non-owner occupied	1,486		1,486		—
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	17,818		21,089		—

Loans with an allowance:
One-to-four family residential:
Owner occupied	505		552		13
Non-owner occupied	1,647		1,647		18
Total	2,152		2,199		31

Total impaired loans:
One-to-four family residential:
Owner occupied	942		1,134		13
Non-owner occupied	3,133		3,133		18
Multifamily	2,105		2,105		—
Commercial real estate	1,266		1,266		—
Construction/land	12,524		15,650		—
Total	$	19,970	$	23,288	$	31

_________________

⁽¹⁾ Represents the loan balance less charge-offs.

⁽²⁾ Contractual loan principal balance.

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	433	$	9	$	1,078	$	15
Non-owner occupied	1,388		21		2,208		31
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,328		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	19,275		248		5,680		85

Loans with an allowance:
One-to-four family residential:
Owner occupied	504		9		512		9
Non-owner occupied	1,642		23		2,746		30
Commercial real estate	—		—		121		—
Total	2,146		32		3,379		39

Total impaired loans:
One-to-four family residential:
Owner occupied	937		18		1,590		24
Non-owner occupied	3,030		44		4,954		61
Multifamily	2,105		46		—		—
Commercial real estate	1,262		22		2,449		38
Construction/land	14,087		150		—		—
Consumer	—		—		66		1
Total	$	21,421	$	280	$	9,059	$	124



	Three Months Ended March 31, 2019
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(In thousands)
One-to-four family residential
Principal and interest with interest rate concession and advancement of maturity date	6	$	824	$	824
Advancement of maturity date	3	694		694
Total	9	$	1,518	$	1,518

Description of Business

Description of Business

Loans Receivable: Narratives (Details) - USD ($)

Earnings Per Share (Tables)

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the periods indicated:



	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands, except share data)
Net income	$	1,684		$	1,945
Less: Earnings allocated to participating securities	(3		)	(3		)
Earnings allocated to common shareholders	$	1,681		$	1,942

Basic weighted average common shares outstanding	9,896,234			10,118,286
Dilutive stock options	72,120			89,718
Dilutive restricted stock grants	9,706			12,896
Diluted weighted average common shares outstanding	9,978,060			10,220,900

Basic earnings per share	$	0.17		$	0.19
Diluted earnings per share	$	0.17		$	0.19

Investments: Narrative (Details)

Other Real Estate Owned (Tables)

The following table is a summary of OREO activity during the periods shown:



	Three Months Ended March 31,
	2020		2019
	(In thousands)
Balance at beginning of period	$	454	$	483
Market value adjustments	—		(29		)
Balance at end of period	$	454	$	454

Revenue Recognition

Revenue Recognition

Disaggregation of Revenue

The following table includes the Company’s noninterest income disaggregated by type of service for the three months ended March 31, 2020 and 2019:



	Three Months Ended
	March 31, 2020		March 31, 2019
	(In thousands)
Loss on sale of investments ⁽¹⁾	$	—	$	(8	)
BOLI change in cash surrender value ⁽¹⁾	254		269
Wealth management revenue	165		196
Deposit related fees	68		69
Debit card and ATM fees	108		102
Loan related fees	392		47
Loan interest swap fees	—		16
Other	3		9
Total noninterest income	$	990	$	700

_______________

⁽¹⁾ Not within scope of Topic 606

For the three months ended March 31, 2020 and 2019, substantially all of the Company’s revenues under the scope of Topic 606 are for performance obligations satisfied at a specified date.

Revenues recognized within scope of Topic 606

Loan related fees: Noninterest fee income is earned on our loans for servicing or annual fees on certain loan types.

Other: Fees earned on other services, such as merchant services or occasional non-recurring type services, are recognized at the time of the event or the applicable billing cycle.

Contract Balances

Stock-Based Compensation (Tables)

A summary of changes in nonvested restricted stock awards for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2019	16,698		$	16.53
Granted	16,228		13.61
Vested	(16,698	)	16.53
Nonvested at March 31, 2020	16,228		13.61
Expected to vest assuming a 3% forfeiture rate over the vesting term	15,741		13.61

A summary of the Company’s stock option plan awards and activity for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value	Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2019	313,000	$	10.34		1,440,310	$	3.69
Outstanding at March 31, 2020	313,000	10.34		3.73	166,050	3.69
Vested and expected to vest assuming a 3% forfeiture rate over the vesting term	312,760	10.34		3.73	166,050	3.69
Exercisable at March 31, 2020	305,000	10.27		3.68	166,050	3.66

Fair Value: Schedule of balances of assets and liabilities, measured at fair value on a non-recurring basis (Details) - USD ($)

Loans Receivable Loans Receivable: Schedule of non accrual loans by type (Details) - USD ($)
$ in Thousands

Loans Receivable: Troubled Debt Restructurings on Financing Receivables (Details)

Earnings Per Share (Details) - shares

Derivatives (Details) - USD ($)

Investments: Available-for-sale Securities (Details) - USD ($)
$ in Thousands

Loans Receivable: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) - USD ($)
$ in Thousands

Earnings Per Share

Earnings Per Share

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the periods indicated:



	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands, except share data)
Net income	$	1,684		$	1,945
Less: Earnings allocated to participating securities	(3		)	(3		)
Earnings allocated to common shareholders	$	1,681		$	1,942

Basic weighted average common shares outstanding	9,896,234			10,118,286
Dilutive stock options	72,120			89,718
Dilutive restricted stock grants	9,706			12,896
Diluted weighted average common shares outstanding	9,978,060			10,220,900

Basic earnings per share	$	0.17		$	0.19
Diluted earnings per share	$	0.17		$	0.19

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMETNS OF STOCKHOLDERS' EQUITY (PARENTHETICALS) - $ / shares

Fair Value

All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy:


•	Level 1 - Quoted prices for identical instruments in active markets.


•	Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable.


•	Level 3 - Instruments whose significant value drivers are unobservable.

The Company used the following methods to measure fair value on a recurring or nonrecurring basis:


•	Investments available-for-sale: The fair value of all investments, excluding FHLB stock, was based upon quoted market prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.


•	OREO: The fair value of OREO properties is measured at the lower of the carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. in cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.


•	Derivatives: The fair value of derivatives is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	16,008	$	—	$	16,008	$	—
Freddie Mac	4,347		—		4,347		—
Ginnie Mae	21,669		—		21,669		—
Other	10,884		—		10,884		—
Municipal bonds	10,956		—		10,956		—
U.S. Government agencies	43,188		—		43,188		—
Corporate bonds	25,107		—		25,107		—
Total available-for-sale investments	132,159		—		132,159		—

Liabilities:
Derivative fair value liability	3,287		—		3,287		—



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	15,629	$	—	$	15,629	$	—
Freddie Mac	4,292		—		4,292		—
Ginnie Mae	23,050		—		23,050		—
Other	11,448		—		11,448		—
Municipal bonds	10,911		—		10,911		—
U.S. Government agencies	45,750		—		45,750		—
Corporate bonds	25,521		—		25,521		—
Total available-for-sale investments	136,601		—		136,601		—
Derivative fair value asset	426		—		426		—
Total	$	137,027	$	—	$	137,027	$	—

The tables below present the balances of assets measured at fair value on a nonrecurring basis at March 31, 2020, and December 31, 2019:



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	22,840	$	—	$	—	$	22,840
OREO	454		—		—		454
Total	$	23,294	$	—	$	—	$	23,294

_____________

⁽¹⁾Total fair value of impaired loans is net of $29,000 of specific reserves on performing TDRs.



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	19,939	$	—	$	—	$	19,939
OREO	454		—		—		454
Total	$	20,393	$	—	$	—	$	20,393

_____________

⁽¹⁾Total fair value of impaired loans is net of $31,000 of specific reserves on performing TDRs.



	March 31, 2020
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	22,840	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)



	December 31, 2019
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	19,939	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)

The carrying amounts and estimated fair values of financial instruments were as follows at the dates indicated:



	March 31, 2020
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	6,453	$	6,453	$	6,453	$	—	$	—
Interest-earning deposits with banks	22,063		22,063		22,063		—		—
Investments available-for-sale	132,159		132,159		—		132,159		—
Investments held-to-maturity	2,371		2,371		—		2,371		—
Loans receivable, net	1,092,128		1,088,184		—		—		1,088,184
FHLB stock	8,010		8,010		—		8,010		—
Accrued interest receivable	4,302		4,302		—		4,302		—

Financial Liabilities:
Deposits	536,850		536,850		536,850		—		—
Certificates of deposit, retail	437,676		448,700		—		448,700		—
Certificates of deposit, brokered	25,457		25,546		—		25,546		—
Advances from the FHLB	160,000		163,306		—		163,306		—
Accrued interest payable	236		236		—		236		—
Derivative fair value liability	3,287		3,287		—		3,287		—



	December 31, 2019
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	10,094	$	10,094	$	10,094	$	—	$	—
Interest-earning deposits with banks	12,896		12,896		12,896		—		—
Investments available-for-sale	136,601		136,601		—		136,601		—
Loans receivable, net	1,108,462		1,096,499		—		—		1,096,499
FHLB stock	7,009		7,009		—		7,009		—
Accrued interest receivable	4,138		4,138		—		4,138		—
Derivative fair value asset	426		426		—		426		—

Financial Liabilities:
Deposits	513,959		513,959		513,959		—		—
Certificates of deposit, retail	425,103		430,418		—		430,418		—
Certificates of deposit, brokered	94,472		94,556		—		94,556		—
Advances from the FHLB	137,700		137,706		—		137,706		—
Accrued interest payable	285		285		—		285		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted in 2020

Recent Accounting Pronouncements

The following table provides a reconciliation between the undiscounted minimum lease payments at March 31, 2020 and the discounted lease liability at that date:



	March 31, 2020
	(in thousands)
Due through one year	$	617
Due after one year through two years	446
Due after two years through three years	428
Due after three years through four years	324
Due after four years through five years	249
Due after five years	728
Total minimum lease payments	2,792
Less: present value discount	(254		)
Lease liability	$	2,538

Investments (Tables)

Investments available-for-sale are summarized as follows at the dates indicated:



	March 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,416	$	620	$	(28	)	$	16,008
Freddie Mac	4,169		178		—			4,347
Ginnie Mae	21,559		259		(149		)	21,669
Other	11,130		—		(246		)	10,884
Municipal bonds	10,653		307		(4		)	10,956
U.S. Government agencies	44,753		29		(1,594		)	43,188
Corporate bonds	25,500		720		(1,113		)	25,107
Total	$	133,180	$	2,113	$	(3,134	)	$	132,159



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	15,605	$	128	$	(104	)	$	15,629
Freddie Mac	4,196		96		—			4,292
Ginnie Mae	23,239		140		(329		)	23,050
Other	11,407		66		(25		)	11,448
Municipal bonds	10,675		272		(36		)	10,911
U.S. Government agencies	46,672		13		(935		)	45,750
Corporate bonds	25,500		372		(351		)	25,521
Total	$	137,294	$	1,087	$	(1,780	)	$	136,601



	March 31, 2020
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	1,406	$	(28	)	$	—	$	—		$	1,406	$	(28	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	13,779		(149		)	—		—			13,779		(149		)
Other	4,989		(130		)	5,895		(116		)	10,884		(246		)
Municipal bonds	517		(4		)	—		—			517		(4		)
U.S. Government agencies	8,354		(428		)	32,876		(1,166		)	41,230		(1,594		)
Corporate bonds	1,897		(110		)	6,497		(1,003		)	8,394		(1,113		)
Total	$	30,942	$	(849	)	$	45,268	$	(2,285	)	$	76,210	$	(3,134	)



	December 31, 2019
	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae	$	8,340	$	(104	)	$	—	$	—		$	8,340	$	(104	)
Freddie Mac	—		—			—		—			—		—
Ginnie Mae	156		—			12,921		(329		)	13,077		(329		)
Other	2,843		(7		)	6,000		(18		)	8,843		(25		)
Municipal bonds	3,257		(36		)	—		—			3,257		(36		)
U.S. Government agencies	12,266		(201		)	31,490		(734		)	43,756		(935		)
Corporate bonds	1,996		(12		)	7,161		(339		)	9,157		(351		)
Total	$	28,858	$	(360	)	$	57,572	$	(1,420	)	$	86,430	$	(1,780	)



	March 31, 2020
	Amortized Cost		Fair Value
	(In thousands)
Due within one year	$	497	$	501
Due after one year through five years	6,554		6,976
Due after five years through ten years	22,097		21,389
Due after ten years	51,758		50,385
	80,906		79,251
Mortgage-backed investments	52,274		52,908
Total	$	133,180	$	132,159

Revenue Recognition (Details)

Loans Receivable: Schedule of Impaired Financing Receivables (Details) - USD ($)
$ in Thousands

Other Real Estate Owned (Details)

Fair Value (Tables)



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	16,008	$	—	$	16,008	$	—
Freddie Mac	4,347		—		4,347		—
Ginnie Mae	21,669		—		21,669		—
Other	10,884		—		10,884		—
Municipal bonds	10,956		—		10,956		—
U.S. Government agencies	43,188		—		43,188		—
Corporate bonds	25,107		—		25,107		—
Total available-for-sale investments	132,159		—		132,159		—

Liabilities:
Derivative fair value liability	3,287		—		3,287		—



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Investments available-for-sale:
Mortgage-backed investments:
Fannie Mae	$	15,629	$	—	$	15,629	$	—
Freddie Mac	4,292		—		4,292		—
Ginnie Mae	23,050		—		23,050		—
Other	11,448		—		11,448		—
Municipal bonds	10,911		—		10,911		—
U.S. Government agencies	45,750		—		45,750		—
Corporate bonds	25,521		—		25,521		—
Total available-for-sale investments	136,601		—		136,601		—
Derivative fair value asset	426		—		426		—
Total	$	137,027	$	—	$	137,027	$	—

The tables below present the balances of assets measured at fair value on a nonrecurring basis at March 31, 2020, and December 31, 2019:



	Fair Value Measurements at March 31, 2020
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	22,840	$	—	$	—	$	22,840
OREO	454		—		—		454
Total	$	23,294	$	—	$	—	$	23,294

_____________

⁽¹⁾Total fair value of impaired loans is net of $29,000 of specific reserves on performing TDRs.



	Fair Value Measurements at December 31, 2019
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Impaired loans (included in loans receivable, net) ⁽¹⁾	$	19,939	$	—	$	—	$	19,939
OREO	454		—		—		454
Total	$	20,393	$	—	$	—	$	20,393

_____________

⁽¹⁾Total fair value of impaired loans is net of $31,000 of specific reserves on performing TDRs.



	March 31, 2020
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	22,840	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)



	December 31, 2019
	Fair Value		Valuation Technique	Unobservable Input(s)	Range (Weighted Average)
	(Dollars in thousands)
Impaired Loans	$	19,939	Market approach	Appraised value discounted by market or borrower conditions	0.0% (0.0%)

OREO	$	454	Market approach	Appraised value less selling costs	0.0% (0.0%)

The carrying amounts and estimated fair values of financial instruments were as follows at the dates indicated:



	March 31, 2020
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	6,453	$	6,453	$	6,453	$	—	$	—
Interest-earning deposits with banks	22,063		22,063		22,063		—		—
Investments available-for-sale	132,159		132,159		—		132,159		—
Investments held-to-maturity	2,371		2,371		—		2,371		—
Loans receivable, net	1,092,128		1,088,184		—		—		1,088,184
FHLB stock	8,010		8,010		—		8,010		—
Accrued interest receivable	4,302		4,302		—		4,302		—

Financial Liabilities:
Deposits	536,850		536,850		536,850		—		—
Certificates of deposit, retail	437,676		448,700		—		448,700		—
Certificates of deposit, brokered	25,457		25,546		—		25,546		—
Advances from the FHLB	160,000		163,306		—		163,306		—
Accrued interest payable	236		236		—		236		—
Derivative fair value liability	3,287		3,287		—		3,287		—



	December 31, 2019
			Estimated		Fair Value Measurements Using:
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	10,094	$	10,094	$	10,094	$	—	$	—
Interest-earning deposits with banks	12,896		12,896		12,896		—		—
Investments available-for-sale	136,601		136,601		—		136,601		—
Loans receivable, net	1,108,462		1,096,499		—		—		1,096,499
FHLB stock	7,009		7,009		—		7,009		—
Accrued interest receivable	4,138		4,138		—		4,138		—
Derivative fair value asset	426		426		—		426		—

Financial Liabilities:
Deposits	513,959		513,959		513,959		—		—
Certificates of deposit, retail	425,103		430,418		—		430,418		—
Certificates of deposit, brokered	94,472		94,556		—		94,556		—
Advances from the FHLB	137,700		137,706		—		137,706		—
Accrued interest payable	285		285		—		285		—

Recently Issued Accounting Pronouncements (Policies)

Recent Accounting Pronouncements Adopted in 2020

Recent Accounting Pronouncements

Revenue Recognition Disaggregation of Revenue (Details) - USD ($)

Loans Receivable: Average Recorded Investment and Interest Income Recognized (Details) - USD ($)
$ in Thousands

Fair Value: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Details) - USD ($)
$ in Thousands

Earnings Per Share: Schedule of Earnings Per Share Reconciliation (Details) - USD ($)
$ / shares in Units, $ in Thousands

Leases (Maturity of Leases) (Details) - USD ($)
$ in Thousands

Investments: Schedule of Available for sale Securities in Continuous Unrealized Loss positions (Details) - USD ($)
$ in Thousands

Loans Receivable: Schedule of Allowance for Loan and Lease Losses, Roll Forward (Details) - USD ($)
$ in Thousands

Other Real Estate Owned

Other Real Estate Owned

OREO includes properties acquired by the Company through foreclosure and deed in lieu of foreclosure. The following table is a summary of OREO activity during the periods shown:



	Three Months Ended March 31,
	2020		2019
	(In thousands)
Balance at beginning of period	$	454	$	483
Market value adjustments	—		(29		)
Balance at end of period	$	454	$	454

Basis of Presentation

Basis of Presentation

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - USD ($)

Stock-Based Compensation

Stock-Based Compensation

Stock Options

A summary of the Company’s stock option plan awards and activity for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value	Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2019	313,000	$	10.34		1,440,310	$	3.69
Outstanding at March 31, 2020	313,000	10.34		3.73	166,050	3.69
Vested and expected to vest assuming a 3% forfeiture rate over the vesting term	312,760	10.34		3.73	166,050	3.69
Exercisable at March 31, 2020	305,000	10.27		3.68	166,050	3.66

Restricted Stock Awards

A summary of changes in nonvested restricted stock awards for the three months ended March 31, 2020, follows:



	For the Three Months Ended March 31, 2020
	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2019	16,698		$	16.53
Granted	16,228		13.61
Vested	(16,698	)	16.53
Nonvested at March 31, 2020	16,228		13.61
Expected to vest assuming a 3% forfeiture rate over the vesting term	15,741		13.61

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands

Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss), net of tax

Unearned ESOP Shares

Branch Acquisition	3 Months Ended
Branch Acquisition	Mar. 31, 2020
Business Combinations [Abstract]
Branch Acquisition	Branch Acquisition On August 25, 2017, First Financial Northwest Bank completed the acquisition of four branches from Opus Bank, a California state-chartered commercial bank (the “Branch Acquisition”). The Branch Acquisition included four retail branches located in Woodinville, Clearview, Lake Stevens, and Smokey Point, Washington. The Bank acquired $74.7 million of retail deposits, prior to the fair value adjustment, one owned bank branch, three leased branches, and certain fixed assets at these branches. The purchase price of the Branch Acquisition paid by the Bank included a deposit premium of 3.125% of the average daily balance of acquired deposits for 20 days prior to the closing date, or $2.5 million; 80% of the fair market value of the owned branch, or $488,000; the net book value of fixed assets, or $56,000; and $14,000 for other pro rations and adjustments as of the closing date. Opus Bank paid the Bank $71.6 million in cash for the difference between these amounts and the total deposits assumed. The Branch Acquisition was accounted for under the acquisition method of accounting, and accordingly, the assets received and liabilities assumed were recorded at their fair market value as of August 25, 2017. The application of the acquisition method of accounting resulted in recognition of a core deposit intangible asset (“CDI”) of $1.3 million and goodwill of $889,000. The acquired CDI has been determined to have a useful life of approximately ten years and is amortized on an accelerated basis. Goodwill is not amortized but will be evaluated for impairment on an annual basis, or more often if circumstances dictate, to determine if the carrying value remains appropriate. The balance of the CDI and goodwill at March 31, 2020 was $1.0 million and $889,000, respectively.

Loans Receivable: Financing Receivables, Summary of loans by type and risk category (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Financing Receivable, after Allowance for Credit Loss	$ 1,105,959,000	$ 1,122,238,000
One to four family residential
Financing Receivable, after Allowance for Credit Loss	371,253,000	372,528,000
Multifamily
Financing Receivable, after Allowance for Credit Loss	169,468,000	172,915,000
Commercial Real Estate
Financing Receivable, after Allowance for Credit Loss	385,910,000	395,152,000
Construction Land Development
Financing Receivable, after Allowance for Credit Loss	107,401,000	113,665,000
Business
Financing Receivable, after Allowance for Credit Loss	34,702,000	37,779,000
Consumer
Financing Receivable, after Allowance for Credit Loss	37,225,000	30,199,000
Property total
Financing Receivable, after Allowance for Credit Loss	1,105,959,000	1,122,238,000
One-to-four family, residential, owner occupied
Financing Receivable, after Allowance for Credit Loss	203,045,000	210,898,000
One to four family residential non owner occupied
Financing Receivable, after Allowance for Credit Loss	168,208,000	161,630,000
Performing Financing Receivable \| One to four family residential
Financing Receivable, after Allowance for Credit Loss	371,162,000	372,433,000
Performing Financing Receivable \| Multifamily
Financing Receivable, after Allowance for Credit Loss	167,364,000	172,915,000
Performing Financing Receivable \| Commercial Real Estate
Financing Receivable, after Allowance for Credit Loss	385,910,000	395,152,000
Performing Financing Receivable \| Construction Land Development
Financing Receivable, after Allowance for Credit Loss	107,401,000	113,665,000
Performing Financing Receivable \| Business
Financing Receivable, after Allowance for Credit Loss	34,702,000	37,779,000
Performing Financing Receivable \| Consumer
Financing Receivable, after Allowance for Credit Loss	37,225,000	30,199,000
Performing Financing Receivable \| Property total
Financing Receivable, after Allowance for Credit Loss	1,103,764,000	1,122,143,000
Performing Financing Receivable \| One-to-four family, residential, owner occupied
Financing Receivable, after Allowance for Credit Loss	203,000,000	210,800,000
Performing Financing Receivable \| One to four family residential non owner occupied
Financing Receivable, after Allowance for Credit Loss	168,200,000	161,600,000
Nonperforming Financing Receivable \| One to four family residential
Financing Receivable, after Allowance for Credit Loss	91,000	95,000
Nonperforming Financing Receivable \| Multifamily
Financing Receivable, after Allowance for Credit Loss	2,104,000	0
Nonperforming Financing Receivable \| Commercial Real Estate
Financing Receivable, after Allowance for Credit Loss	0	0
Nonperforming Financing Receivable \| Construction Land Development
Financing Receivable, after Allowance for Credit Loss	0	0
Nonperforming Financing Receivable \| Business
Financing Receivable, after Allowance for Credit Loss	0	0
Nonperforming Financing Receivable \| Consumer
Financing Receivable, after Allowance for Credit Loss	0	0
Nonperforming Financing Receivable \| Property total
Financing Receivable, after Allowance for Credit Loss	2,195,000	95,000
Nonperforming Financing Receivable \| One-to-four family, residential, owner occupied
Financing Receivable, after Allowance for Credit Loss	91,000	95,000
Pass
Financing Receivable, after Allowance for Credit Loss	1,086,531,000	1,105,919,000
Special Mention
Financing Receivable, after Allowance for Credit Loss	16,702,000	15,690,000
Substandard
Financing Receivable, after Allowance for Credit Loss	2,726,000	629,000
Consumer
Financing Receivable, after Allowance for Credit Loss	37,225,000	30,199,000
Consumer \| Pass
Financing Receivable, after Allowance for Credit Loss	37,225,000	30,199,000
Consumer \| Special Mention
Financing Receivable, after Allowance for Credit Loss	0	0
Consumer \| Substandard
Financing Receivable, after Allowance for Credit Loss	0	0
Business
Financing Receivable, after Allowance for Credit Loss	34,702,000	37,779,000
Business \| Pass
Financing Receivable, after Allowance for Credit Loss	34,702,000	37,779,000
Business \| Special Mention
Financing Receivable, after Allowance for Credit Loss	0	0
Business \| Substandard
Financing Receivable, after Allowance for Credit Loss	0	0
Commercial Real Estate
Financing Receivable, after Allowance for Credit Loss	385,910,000	395,152,000
Commercial Real Estate \| Pass
Financing Receivable, after Allowance for Credit Loss	385,389,000	394,627,000
Commercial Real Estate \| Special Mention
Financing Receivable, after Allowance for Credit Loss	521,000	525,000
Commercial Real Estate \| Substandard
Financing Receivable, after Allowance for Credit Loss	0	0
Multifamily
Financing Receivable, after Allowance for Credit Loss	169,468,000	172,915,000
Multifamily \| Pass
Financing Receivable, after Allowance for Credit Loss	167,364,000	170,810,000
Multifamily \| Special Mention
Financing Receivable, after Allowance for Credit Loss	0	2,105,000
Multifamily \| Substandard
Financing Receivable, after Allowance for Credit Loss	2,104,000	0
One to four family residential
Financing Receivable, after Allowance for Credit Loss	371,253,000	372,528,000
One to four family residential \| Pass
Financing Receivable, after Allowance for Credit Loss	370,100,000	371,363,000
One to four family residential \| Special Mention
Financing Receivable, after Allowance for Credit Loss	531,000	536,000
One to four family residential \| Substandard
Financing Receivable, after Allowance for Credit Loss	622,000	629,000
Construction Land Development
Financing Receivable, after Allowance for Credit Loss	107,401,000	113,665,000
Construction Land Development \| Pass
Financing Receivable, after Allowance for Credit Loss	91,751,000	101,141,000
Construction Land Development \| Special Mention
Financing Receivable, after Allowance for Credit Loss	15,650,000	12,524,000
Construction Land Development \| Substandard
Financing Receivable, after Allowance for Credit Loss	$ 0	$ 0

Other Real Estate Owned - Other Real Estate, Roll Forward (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Other Real Estate [Roll Forward]
Balance at beginning of period	$ 454,000	$ 483,000
Market value adjustments	0	29,000
Balance at end of period	$ 454,000	$ 454,000

Fair Value: Schedule of quantitative information about Level 3 Fair Value Measurements on a nonrecurring basis (Details) - Level 3 - Market Approach Valuation Technique - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Loans Receivable
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Unobservable Input(s)	Appraised value discounted by market or borrower conditions	Appraised value discounted by market or borrower conditions
Loans Receivable \| Minimum
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Loans Receivable \| Maximum
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Loans Receivable \| Weighted Average
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Other Real Estate Owned
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Unobservable Input(s)	Appraised value less selling costs	Appraised value less selling costs
Other Real Estate Owned \| Minimum
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Other Real Estate Owned \| Maximum
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Other Real Estate Owned \| Weighted Average
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Fair value of financial instruments, range	0.00%	0.00%
Fair Value, Nonrecurring \| Loans Receivable
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 22,840	$ 19,939
Fair Value, Nonrecurring \| Other Real Estate Owned
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Financial and Nonfinancial Liabilities, Fair Value Disclosure	$ 454	$ 454

Branch Acquisition (Narrative) (Details) - USD ($)		3 Months Ended
Branch Acquisition (Narrative) (Details) - USD ($)	Aug. 25, 2017	Mar. 31, 2020	Dec. 31, 2019
Business Acquisition [Line Items]
Goodwill		$ 889,000	$ 889,000
Opus Bank
Business Acquisition [Line Items]
Retail deposits	$ 74,700,000
Deposit premium rate	3.125%
Deposit premium, amount	$ 2,500,000
Fair Value of Branch Owned, Rate	80.00%
Fair Value of The Branch Owned	$ 488,000
Fixed assets	56,000
Adjustments at Closing Date	14,000
Cash payment to acquire business	71,600,000
Core Deposits Intangible \| Opus Bank
Business Acquisition [Line Items]
Finite-lived Intangible Assets Acquired	1,300,000	1,000,000
Goodwill	$ 889,000
Goodwill \| Opus Bank
Business Acquisition [Line Items]
Goodwill		$ 889,000

Fair Value: Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments available-for-sale	$ 132,159	$ 136,601
Investments held-to-maturity	2,371
FHLB stock	8,010	7,009
Derivative Asset, Fair Value, Gross Asset		426
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash on hand and in banks	6,453	10,094
Interest-earning deposits with banks	22,063	12,896
Investments available-for-sale	0	0
Investments held-to-maturity	0
Loans receivable, net	0	0
FHLB stock	0	0
Accrued interest receivable	0	0
Derivative Asset, Fair Value, Gross Asset		0
Deposits	536,850	513,959
Certificates of deposit, retail	0	0
Certificates of deposit, brokered	0	0
Advances from the FHLB	0	0
Accrued interest payable	0	0
Derivative fair value liability	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash on hand and in banks	0	0
Interest-earning deposits with banks	0	0
Investments available-for-sale	132,159	136,601
Investments held-to-maturity	2,371
Loans receivable, net	0	0
FHLB stock	8,010	7,009
Accrued interest receivable	4,302	4,138
Derivative Asset, Fair Value, Gross Asset		426
Deposits	0	0
Certificates of deposit, retail	448,700	430,418
Certificates of deposit, brokered	25,546	94,556
Advances from the FHLB	163,306	137,706
Accrued interest payable	236	285
Derivative fair value liability	3,287
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash on hand and in banks	0	0
Interest-earning deposits with banks	0	0
Investments available-for-sale	0	0
Investments held-to-maturity	0
Loans receivable, net	1,088,184	1,096,499
FHLB stock	0	0
Accrued interest receivable	0	0
Derivative Asset, Fair Value, Gross Asset		0
Deposits	0	0
Certificates of deposit, retail	0	0
Certificates of deposit, brokered	0	0
Advances from the FHLB	0	0
Accrued interest payable	0	0
Derivative fair value liability	0
Carrying Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash on hand and in banks	6,453	10,094
Interest-earning deposits with banks	22,063	12,896
Investments available-for-sale	132,159	136,601
Investments held-to-maturity	2,371
Loans receivable, net	1,092,128	1,108,462
FHLB stock	8,010	7,009
Accrued interest receivable	4,302	4,138
Derivative Asset, Fair Value, Gross Asset		426
Deposits	536,850	513,959
Certificates of deposit, retail	437,676	425,103
Certificates of deposit, brokered	25,457	94,472
Advances from the FHLB	160,000	137,700
Accrued interest payable	236	285
Derivative fair value liability	3,287
Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash on hand and in banks	6,453	10,094
Interest-earning deposits with banks	22,063	12,896
Investments available-for-sale	132,159	136,601
Investments held-to-maturity	2,371
Loans receivable, net	1,088,184	1,096,499
FHLB stock	8,010	7,009
Accrued interest receivable	4,302	4,138
Derivative Asset, Fair Value, Gross Asset		426
Deposits	536,850	513,959
Certificates of deposit, retail	448,700	430,418
Certificates of deposit, brokered	25,546	94,556
Advances from the FHLB	163,306	137,706
Accrued interest payable	236	$ 285
Derivative fair value liability	$ 3,287

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities
Net income	$ 1,684,000	$ 1,945,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	300,000	400,000
OREO market value adjustments	0	29,000
Net amortization of premiums and discounts on investments	235,000	193,000
Loss on sale of investments available-for-sale	0	(8,000)
Depreciation of premises and equipment	538,000	427,000
Deferred federal income taxes	122,000	7,000
Allocation of ESOP shares	382,000	445,000
Stock compensation expense	80,000	124,000
BOLI income	254,000	269,000
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets	(72,000)	(182,000)
Increase in ROU	(237,000)	(1,730,000)
Increase in advance payments from borrowers for taxes and insurance	2,039,000	2,441,000
Increase in accrued interest receivable	(164,000)	(793,000)
Increase in lease liability	259,000	1,745,000
Decrease in accrued interest payable	(49,000)	0
(Decrease) increase in other liabilities	(1,731,000)	153,000
Net cash provided by operating activities	3,132,000	4,943,000
Cash flows from investing activities:
Proceeds from sales, calls and maturities of investments available-for-sale	0	2,995,000
Principal repayments on investments available-for-sale	3,880,000	1,300,000
Net decrease (increase) in loans receivable	16,034,000	(29,207,000)
Purchase of FHLB stock	(1,001,000)	(731,000)
Purchase of premises and equipment	(663,000)	(466,000)
Purchase of BOLI	(54,000)	(52,000)
Net cash provided (used) by investing activities	15,825,000	(26,161,000)
Cash flows from financing activities:
Net (decrease) increase in deposits	(33,550,000)	16,240,000
Advances from the FHLB	199,000,000	71,500,000
Purchase of investments held-to-maturity	(2,371,000)	0
Repayments of advances from the FHLB	(176,700,000)	(54,500,000)
Net share settlement of stock awards	(73,000)	(93,000)
Repurchase and retirement of common stock	(1,120,000)	(4,170,000)
Dividends paid	(988,000)	(807,000)
Net cash (used) provided by financing activities	(13,431,000)	28,170,000
Cash and cash equivalents:
Net decrease in cash and cash equivalents	5,526,000	6,952,000
Cash and cash equivalents at beginning of period	22,990,000	17,010,000
Cash and cash equivalents at end of period	28,516,000	23,962,000
Cash paid during the period for:
Interest paid	4,884,000	4,719,000
Noncash transactions:
Change in unrealized loss on investments available-for-sale	(327,000)	984,000
Change in gain on cash flow hedge	(3,713,000)	(460,000)
Initial recognition of ROU	1,312,000	1,853,000
Initial recognition of lease liability	$ 1,312,000	$ 1,853,000

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest income
Loans, including fees	$ 13,474,000	$ 13,281,000
Investments available-for-sale	919,000	1,159,000
Interest-earning deposits	31,000	40,000
Dividends on FHLB stock	76,000	91,000
Total interest income	14,500,000	14,571,000
Interest expense
Deposits	4,366,000	3,822,000
Other borrowings	470,000	897,000
Total interest expense	4,836,000	4,719,000
Net interest income	9,664,000	9,852,000
Provision for loan losses	300,000	400,000
Net interest income after provision for loan losses	9,364,000	9,452,000
Noninterest income
Loss on sale of investments available-for-sale	0	(8,000)
BOLI income	254,000	269,000
Wealth management revenue	165,000	196,000
Deposit related fees	176,000	171,000
Loan related fees	392,000	63,000
Other	3,000	9,000
Total noninterest income	990,000	700,000
Noninterest expense
Salaries and employee benefits	5,212,000	5,000,000
Occupancy and equipment	1,071,000	866,000
Professional fees	430,000	496,000
Data processing	694,000	518,000
OREO related expenses, net	1,000	31,000
Regulatory assessments	144,000	137,000
Insurance and bond premiums	120,000	105,000
Marketing	64,000	86,000
Other general and administrative	532,000	470,000
Total noninterest expense	8,268,000	7,709,000
Income before federal income tax provision	2,086,000	2,443,000
Federal income tax provision	402,000	498,000
Net income	$ 1,684,000	$ 1,945,000
Earnings per common share
Basic earnings per share (in dollars per share)	$ 0.17	$ 0.19
Diluted earnings per share (in dollars per share)	$ 0.17	$ 0.19
Weighted average number of common shares outstanding
Basic shares outstanding (in shares)	9,896,234	10,118,286
Diluted shares outstanding (in shares)	9,978,060	10,220,900

Investments: Schedule of Available for sale Securities, Debt Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Investments [Abstract]
Due within one year, Amortized Cost	$ 497
Due after one year through five years, Amortized Cost	6,554
Due after five years through ten years, Amortized Cost	22,097
Due after ten years, Amortized Cost	51,758
Debt Securities, Amortized Cost Total	80,906
Mortgage-backed investments, Amortized Cost	52,274
Due within one year, Fair Value	501
Due after one year through five years, Fair Value	6,976
Due after five years through ten years, Fair Value	21,389
Due after ten years, Fair Value	50,385
Debt maturities, Fair Value	79,251
Mortgage-backed investments, Fair Value	52,908
Fair Value	$ 132,159	$ 136,601

Loans Receivable: Financing Receivables, Aging of loans (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Financing Receivable, 90 Days or More Past Due, Still Accruing	$ 0	$ 0
Total Loans	1,105,959,000	1,122,238,000
One-to-four family, residential, owner occupied
Total	79,000	79,000
Current	202,966,000	210,819,000
Total Loans	203,045,000	210,898,000
One to four family residential non owner occupied
Total	0	0
Current	168,208,000	161,630,000
Total Loans	168,208,000	161,630,000
Multifamily
Total	2,104,000	2,105,000
Current	167,364,000	170,810,000
Total Loans	169,468,000	172,915,000
Commercial Real Estate
Total	0	0
Current	385,910,000	395,152,000
Total Loans	385,910,000	395,152,000
Construction Land Development
Total	0	0
Current	107,401,000	113,665,000
Total Loans	107,401,000	113,665,000
Real Estate, Total
Total	2,183,000	2,184,000
Current	1,031,849,000	1,052,076,000
Total Loans	1,034,032,000	1,054,260,000
Business
Total	0	0
Current	34,702,000	37,779,000
Total Loans	34,702,000	37,779,000
Consumer
Total	0	0
Current	37,225,000	30,199,000
Total Loans	37,225,000	30,199,000
Property total
Total	2,183,000	2,184,000
Current	1,103,776,000	1,120,054,000
Total Loans	1,105,959,000	1,122,238,000
Financial Asset, 30 to 59 Days Past Due \| One-to-four family, residential, owner occupied
Total	79,000	79,000
Financial Asset, 30 to 59 Days Past Due \| One to four family residential non owner occupied
Total	0	0
Financial Asset, 30 to 59 Days Past Due \| Multifamily
Total	0	2,105,000
Financial Asset, 30 to 59 Days Past Due \| Commercial Real Estate
Total	0	0
Financial Asset, 30 to 59 Days Past Due \| Construction Land Development
Total	0	0
Financial Asset, 30 to 59 Days Past Due \| Real Estate, Total
Total	79,000	2,184,000
Financial Asset, 30 to 59 Days Past Due \| Business
Total	0	0
Financial Asset, 30 to 59 Days Past Due \| Consumer
Total	0	0
Financial Asset, 30 to 59 Days Past Due \| Property total
Total	79,000	2,184,000
Financial Asset, 60 to 89 Days Past Due \| One-to-four family, residential, owner occupied
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| One to four family residential non owner occupied
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Multifamily
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Commercial Real Estate
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Construction Land Development
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Real Estate, Total
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Business
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Consumer
Total	0	0
Financial Asset, 60 to 89 Days Past Due \| Property total
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| One-to-four family, residential, owner occupied
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| One to four family residential non owner occupied
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Multifamily
Total	2,104,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Commercial Real Estate
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Construction Land Development
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Real Estate, Total
Total	2,104,000	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Business
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Consumer
Total	0	0
Financial Asset, Equal to or Greater than 90 Days Past Due \| Property total
Total	$ 2,104,000	$ 0

Stock-Based Compensation Disclosure of Share-based Compensation Arrangements by Share-based Payment Award (Details)	3 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding Beginning Balance, Shares \| shares	313,000
Outstanding Ending Balance, Shares \| shares	313,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
Outstanding Beginning Balance, Weighted Average Exercise Price	$ 10.34
Outstanding Ending Balance, Weighted Average Exercise Price	$ 10.34
Share-based Compensations Arrangement by Share-based Payment Award, Options Outstanding, Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding Beginning Balance, Weighted Average Remaining Contractual Term	3 years 8 months 23 days
Outstanding Ending Balance, Weighted Average Remaining Contractual Term	3 years 8 months 23 days
Share-based Compensation Arrangement by Share-based Payment Award, Options Outstanding, Aggregate Intrinsic [Roll Forward]
Outstanding Beginning Balance, Aggregate Intrinsic Value \| $	$ 1,440,310
Outstanding Ending Balance, Aggregate Intrinsic Value \| $	$ 166,050
Share Based Compensation, Stock Option Plan, Additional Disclosures [Abstract]
Expected to Vest, Weighted Average Exercise Price	$ 3.66
Exercisable at end of period, Shares \| shares	305,000
Exercisable at end of period, Weighted Average Exercise Price	10.27
Exercisable at end of period, Weighted Average Remaining Contractual Term in Years	3 years 8 months 5 days
Exercisable at end of period, Aggregate Intrinsic Value \| $	$ 166,050
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Nonvested Beginning Balance, Weighted-Average Grant Date Fair Value	$ 3.69
Nonvested Ending Balance, Weighted-Average Grant Date Fair Value	$ 3.69
First Financial Northwest, Inc. 2008 Equity Incentive Plan \| Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Nonvested Beginning Balance \| shares	16,698
Granted, Shares \| shares	16,228
Vested, Shares \| shares	(16,698)
Nonvested Ending Balance \| shares	16,228
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Nonvested Beginning Balance, Weighted-Average Grant Date Fair Value	$ 16.53
Granted, Weighted Average Grant Date Fair Value	13.61
Vested, Weighted Average Grant Date Fair Value	16.53
Nonvested Ending Balance, Weighted-Average Grant Date Fair Value	$ 13.61
Expected to vest assuming a 3% forfeiture rate over the vesting term
Share Based Compensation, Stock Option Plan, Additional Disclosures [Abstract]
Expected to Vest, Shares \| shares	312,760
Expected to Vest, Weighted Average Exercise Price	$ 10.34
Expected to Vest, Weighted Average Remaining Contractual Term in Years	3 years 8 months 23 days
Expected to Vest, Aggregate Intrinsic Value \| $	$ 166,050
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Vested, Weighted Average Grant Date Fair Value	$ 3.69
Expected to vest assuming a 3% forfeiture rate over the vesting term \| First Financial Northwest, Inc. 2008 Equity Incentive Plan \| Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Nonvested Ending Balance \| shares	0
Expected to vest assuming a 3% forfeiture rate over the vesting term, Shares \| shares	15,741
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Nonvested Ending Balance, Weighted-Average Grant Date Fair Value	$ 13.61

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2020	May 06, 2020
Cover [Abstract]
Entity Registrant Name	First Financial Northwest, Inc.
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Amendment Flag	false
Entity Central Index Key	0001401564
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		10,177,511
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 1,684	$ 1,945
Other comprehensive (loss) income, before tax:
Unrealized holding (losses) gains on investments available-for-sale	(327)	976
Tax benefit (provision)	68	(205)
Reclassification adjustment for net losses realized in income	0	8
Tax provision	0	(1)
Losses on cash flow hedges	(3,713)	(460)
Tax benefit	780	97
Other comprehensive (loss) income, net of tax	(3,192)	415
Total comprehensive (loss) income	$ (1,508)	$ 2,360

Description of Business	3 Months Ended
Description of Business	Mar. 31, 2020
Accounting Policies [Abstract]
Description of Business	Description of Business First Financial Northwest, Inc. (“First Financial Northwest”), a Washington corporation, was formed on June 1, 2007 for the purpose of becoming the holding company for First Financial Northwest Bank (the “Bank”) in connection with the conversion from a mutual holding company structure to a stock holding company structure completed on October 9, 2007. First Financial Northwest’s business activities generally are limited to passive investment activities and oversight of its investment in First Financial Northwest Bank. Accordingly, the information presented in the consolidated financial statements and accompanying data, relates primarily to First Financial Northwest Bank. First Financial Northwest is a bank holding company, having converted from a savings and loan holding company on March 31, 2015, and as a bank holding company is subject to regulation by the Federal Reserve Bank of San Francisco. First Financial Northwest Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of Financial Institutions (“DFI”). At March 31, 2020, First Financial Northwest Bank operated in thirteen locations in Washington with the headquarters and six retail branch locations in King County, five retail branch locations in Snohomish County and one retail branch in Pierce County. The Bank has received regulatory approval to open a retail branch in Gig Harbor, in Pierce County, Washington. The Bank’s primary market area consists of King, Snohomish, Pierce and Kitsap counties, Washington. The Bank is a portfolio lender, originating and purchasing one-to-four family residential, multifamily, commercial real estate, construction/land development, business, and consumer loans. Loans are primarily funded by deposits from the general public, supplemented by borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”) and deposits raised in the national brokered deposit market. As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to First Financial Northwest, Inc. and its consolidated subsidiary First Financial Northwest Bank, unless the context otherwise requires.

Investments: Narrative (Details)	1 Months Ended	3 Months Ended
Investments: Narrative (Details)	Jan. 31, 2020 USD ($)	Mar. 31, 2020 USD ($) securities	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($) securities
Debt Securities, Available-for-sale [Line Items]
Investments pledged as collateral for FHLB advances		50.00%
Investments pledged as collateral for public deposits		$ 18,800,000		$ 19,000,000
Principal repayments on investments available-for-sale		0	$ 3,000,000
Loss on sale of investments available-for-sale		$ 0	$ (8,000)
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year \| securities		16		18
Unrealized Loss \| securities		34		37
Payments to Acquire Marketable Securities	$ 2,400,000

Fair Value: Schedule of balances of assets and liabilities, measured at fair value on a non-recurring basis (Details) - USD ($)	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (included in loans receivable, net)	$ 22,840,000	$ 19,939,000
OREO	454,000	454,000	$ 454,000	$ 483,000
Total, Fair Value	23,294,000	20,393,000
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	29,000	31,000
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (included in loans receivable, net)	0	0
OREO	0	0
Total, Fair Value	0	0
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (included in loans receivable, net)	0	0
OREO	0	0
Total, Fair Value	0	0
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (included in loans receivable, net)	22,840,000	19,939,000
OREO	454,000	454,000
Total, Fair Value	$ 23,294,000	$ 20,393,000

Loans Receivable: Troubled Debt Restructurings on Financing Receivables (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2020 USD ($) loan	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Loan Restructuring, Trial Modifications, Amount \| loan	9
Financing Receivable, Troubled Debt Restructuring	$ 5,000,000		$ 5,200,000
Troubled Debt Restructuring Commitment To Extend Additional Credit	0	$ 0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default	0
Financing Receivable, Troubled Debt Restructuring, Premodification	1,518,000
Financing Receivable, Troubled Debt Restructuring, Postmodification	$ 1,518,000
Minimum
Troubled Debt Restructuring, Interest Rate Concession Period	1 year	1 year	1 year
Maximum
Troubled Debt Restructuring, Interest Rate Concession Period	3 years	3 years	3 years
One to four family residential \| Principal and Interest with Interest Rate Concession
Loan Restructuring, Trial Modifications, Amount \| loan	6
Financing Receivable, Troubled Debt Restructuring, Premodification	$ 824,000
Financing Receivable, Troubled Debt Restructuring, Postmodification	$ 824,000
One to four family residential \| Advancement of Maturity Date
Loan Restructuring, Trial Modifications, Amount \| loan	3
Financing Receivable, Troubled Debt Restructuring, Premodification	$ 694,000
Financing Receivable, Troubled Debt Restructuring, Postmodification	$ 694,000

Investments: Available-for-sale Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 133,180	$ 137,294
Gross Unrealized Gains	2,113	1,087
Gross Unrealized Losses	(3,134)	(1,780)
Fair Value	132,159	136,601
Mortgage-backed investments, Fannie Mae
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	15,416	15,605
Gross Unrealized Gains	620	128
Gross Unrealized Losses	(28)	(104)
Fair Value	16,008	15,629
Mortgage-backed investments, Freddie Mac
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,169	4,196
Gross Unrealized Gains	178	96
Gross Unrealized Losses	0	0
Fair Value	4,347	4,292
Mortgage backed investments Ginnie Mae
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	21,559	23,239
Gross Unrealized Gains	259	140
Gross Unrealized Losses	(149)	(329)
Fair Value	21,669	23,050
Other
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	11,130	11,407
Gross Unrealized Gains	0	66
Gross Unrealized Losses	(246)	(25)
Fair Value	10,884	11,448
Municipal Bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	10,653	10,675
Gross Unrealized Gains	307	272
Gross Unrealized Losses	(4)	(36)
Fair Value	10,956	10,911
US Government agencies
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	44,753	46,672
Gross Unrealized Gains	29	13
Gross Unrealized Losses	(1,594)	(935)
Fair Value	43,188	45,750
Corporate Bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	25,500	25,500
Gross Unrealized Gains	720	372
Gross Unrealized Losses	(1,113)	(351)
Fair Value	$ 25,107	$ 25,521

Loans Receivable: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Loans receivable	$ 1,105,959	$ 1,122,238
Deferred loan fees, net	301	558
ALLL	13,530	13,218
Loans receivable, net	1,092,128	1,108,462
One-to-four family, residential, owner occupied
Loans receivable	203,045	210,898
One to four family residential non owner occupied
Loans receivable	168,208	161,630
One to Four Family
Loans receivable	371,253	372,528
One to four family residential
ALLL	3,055	3,034	$ 3,032	$ 3,387
Multifamily
Loans receivable	169,468	172,915
ALLL	1,658	1,607	1,579	1,680
Commercial Real Estate
Loans receivable	385,910	395,152
ALLL	4,693	4,559	4,809	4,777
Construction/Land Development One-to-four family residential
Loans receivable	43,279	44,491
Construction Land Development Multifamily
Loans receivable	35,201	40,954
Construction Land Development Commercial
Loans receivable	22,946	19,550
Construction Land Development Land Development
Loans receivable	5,975	8,670
Construction Land Development
Loans receivable	107,401	113,665
ALLL	2,143	2,222	3,132	2,331
Business
Loans receivable	34,702	37,779
ALLL	1,074	1,140	1,030	936
Consumer
Loans receivable	37,225	30,199
ALLL	907	656	226	236
Property total
ALLL	$ 13,530	$ 13,218	$ 13,808	$ 13,347

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Assets
Loans receivable allowance for loan losses	$ 13,530	$ 13,218
Stockholders' Equity
Preferred stock par value per share (in usd per share)	$ 0.01	$ 0.01
Preferred stock shares authorized (in shares)	10,000,000	10,000,000
Preferred stock shares issued (in shares)	0	0
Preferred stock shares outstanding (in shares)	0	0
Common stock par value per share (in usd per share)	$ 0.01	$ 0.01
Common stock shares authorized (in shares)	90,000,000	90,000,000
Common stock shares issued (in shares)	10,184,411	10,252,953
Common stock shares outstanding (in shares)	10,184,411	10,252,953

FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMETNS OF STOCKHOLDERS' EQUITY (PARENTHETICALS) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]
Dividends (usd per share)	$ 0.10	$ 0.08
Allocated shares	28,214	28,213

Recently Issued Accounting Pronouncements	3 Months Ended
Recently Issued Accounting Pronouncements	Mar. 31, 2020
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Recently Issued Accounting Pronouncements	Recently Issued Accounting Pronouncements Recent Accounting Pronouncements Adopted in 2020 In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU remove certain disclosure requirements regarding transfers between Level 1 and Level 2 of the fair value hierarchy and changes in unrealized gains and losses for recurring Level 3 fair value measurements. In addition, the amendments modified and added certain disclosure requirements for Level 3 fair value measurements. The Company adopted this ASU as of January 1, 2020, with no material impact on the Company’s consolidated financial statements. Recent Accounting Pronouncements ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) as amended by ASU 2018-19, ASU 2019-04 and ASU 2019-05, was originally issued in June 2016. This ASU replaces the existing incurred loss impairment methodology that recognizes credit losses when a probable loss has been incurred with new methodology where loss estimates are based upon lifetime expected credit losses. The amendments in this ASU require a financial asset that is measured at amortized cost to be presented at the net amount expected to be collected. The income statement would then reflect the measurement of credit losses for newly recognized financial assets as well as changes to the expected credit losses that have taken place during the reporting period. The measurement of expected credit losses will be based on historical information, current conditions, and reasonable and supportable forecasts that impact the collectability of the reported amount. Available-for-sale securities will bifurcate the fair value mark and establish an allowance for credit losses through the income statement for the credit portion of that mark. The interest portion will continue to be recognized through accumulated other comprehensive income or loss. The change in allowance recognized as a result of adoption will occur through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the ASU is adopted. This ASU is effective for smaller reporting companies, such as the Company, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating its current expected loss methodology on the loan and investment portfolios to identify the necessary modifications in accordance with this standard and expects a change in the processes and procedures to calculate the ALLL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. A valuation adjustment to the ALLL or investment portfolio that is identified in this process will be reflected as a one-time adjustment in equity rather than earnings. ASU 2019-05 issued in April 2019 further provides that entities that have certain financial instruments measured at amortized cost that has credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of Topic 326. The fair value option applies to available-for-sale debt securities. This ASU is effective upon adoption of ASU 2016-13, and should be applied on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition as of the adoption date. The Company is in the process of compiling historical and industry data that will be used to calculate expected credit losses on the loan portfolio to ensure that it is fully compliant with the ASU at the adoption date and is evaluating the potential impact adoption of this ASU will have on its consolidated financial statements. The Company intends to adopt ASU 2016-13 in the first quarter of 2023, and as a result, the ALLL may increase. Until the evaluation is complete, however, the magnitude of the increase will not be known. In April 2019, FASB issued ASU 2019-05, Financial Instruments--Credit Losses (Topic 326), Targeted Transition Relief. The amendments in this ASU provide entities that have certain financial instruments measured at amortized cost that have credit losses, to irrevocably elect the fair value option in Subtopic 825-10, upon adoption of Topic 326. The fair value option applies to available-for-sale debt securities. This ASU is effective when ASU 2016-13 is adopted, and will be applied on a modified-retrospective basis as a cumulative-effect adjustment to the opening balance of retained earnings in the statement of financial condition as of the adoption date. Adoption of ASU 2019-05 is not expected to have a material impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). This ASU simplifies the accounting for income taxes by removing (i) the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (ii) the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, and (iii) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. For a cash flow hedge, a change in the method used to assess hedge effectiveness will not result in de-designation of the hedging relationship if certain criteria are met. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is party to cash flow hedge arrangements where the hedge effectiveness is based on LIBOR. The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

Revenue Recognition (Details)	Mar. 31, 2020 USD ($)
Revenue from Contract with Customer [Abstract]
Contract Liability	$ 0
Performance Obligation	$ 0

Other Real Estate Owned (Details)	3 Months Ended
Other Real Estate Owned (Details)	Mar. 31, 2020 USD ($) property	Mar. 31, 2019 USD ($) property	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Real Estate [Line Items]
Real estate properties sold \| property	0	0
Market value adjustments	$ 0	$ (29,000)
Other real estate	454,000	$ 454,000	$ 454,000	$ 483,000
Real Estate Acquired Through Foreclosure	2,100,000
Commercial Real Estate
Real Estate [Line Items]
Other real estate	454,000
One to four family residential
Real Estate [Line Items]
Real Estate Acquired Through Foreclosure	$ 0

Revenue Recognition Disaggregation of Revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Loss on sale of investments available-for-sale	$ 0	$ (8,000)
Revenue from Contract with Customer, Excluding Assessed Tax	990,000	700,000
BOLI change in cash surrender value
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	254,000	269,000
Wealth management revenue
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	165,000	196,000
Deposit related fees
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	68,000	69,000
Debit card and ATM fees
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	108,000	102,000
Loan related fees
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	392,000	47,000
Loan interest swap fees
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	0	16,000
Other
Disaggregation of Revenue [Line Items]
Revenue from Contract with Customer, Excluding Assessed Tax	$ 3,000	$ 9,000

Loans Receivable: Average Recorded Investment and Interest Income Recognized (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	$ 19,275	$ 5,680
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	248	85
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	2,146	3,379
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	32	39
Impaired Financing Receivable, Average Recorded Investment	21,421	9,059
Impaired Financing Receivable, Interest Income, Accrual Method	280	124
One-to-four family, residential, owner occupied
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	433	1,078
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	9	15
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	504	512
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	9	9
Impaired Financing Receivable, Average Recorded Investment	937	1,590
Impaired Financing Receivable, Interest Income, Accrual Method	18	24
One to four family residential non owner occupied
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	1,388	2,208
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	21	31
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	1,642	2,746
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	23	30
Impaired Financing Receivable, Average Recorded Investment	3,030	4,954
Impaired Financing Receivable, Interest Income, Accrual Method	44	61
Multifamily
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	2,105	0
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	46	0
Impaired Financing Receivable, Average Recorded Investment	2,105	0
Impaired Financing Receivable, Interest Income, Accrual Method	46	0
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	1,262	2,328
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	22	38
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0	121
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	0	0
Impaired Financing Receivable, Average Recorded Investment	1,262	2,449
Impaired Financing Receivable, Interest Income, Accrual Method	22	38
Consumer Loan
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	0	66
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	0	1
Impaired Financing Receivable, Average Recorded Investment	0	66
Impaired Financing Receivable, Interest Income, Accrual Method	0	1
Construction Land Development
Accounts, Notes, Loans and Financing Receivable
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	14,087	0
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	150	0
Impaired Financing Receivable, Average Recorded Investment	14,087	0
Impaired Financing Receivable, Interest Income, Accrual Method	$ 150	$ 0

Fair Value: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	$ 132,159	$ 136,601
Derivative Asset, Fair Value, Gross Asset		426
Assets, Fair Value Disclosure		137,027
Mortgage-backed investments, Fannie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	16,008	15,629
Mortgage-backed investments, Freddie Mac
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	4,347	4,292
Mortgage-backed investments, Ginnie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	21,669	23,050
Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	10,884	11,448
Municipal Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	10,956	10,911
US Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	43,188	45,750
Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	25,107	25,521
Derivative fair value liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative fair value liability	3,287
Derivative fair value asset
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Asset, Fair Value, Gross Asset		426
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Derivative fair value liability	0
Derivative Asset, Fair Value, Gross Asset		0
Assets, Fair Value Disclosure		0
Level 1 \| Mortgage-backed investments, Fannie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Mortgage-backed investments, Freddie Mac
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Mortgage-backed investments, Ginnie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Municipal Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| US Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 1 \| Derivative fair value liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative fair value liability	0
Level 1 \| Derivative fair value asset
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Asset, Fair Value, Gross Asset		0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	132,159	136,601
Derivative fair value liability	3,287
Derivative Asset, Fair Value, Gross Asset		426
Assets, Fair Value Disclosure		137,027
Level 2 \| Mortgage-backed investments, Fannie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	16,008	15,629
Level 2 \| Mortgage-backed investments, Freddie Mac
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	4,347	4,292
Level 2 \| Mortgage-backed investments, Ginnie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	21,669	23,050
Level 2 \| Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	10,884	11,448
Level 2 \| Municipal Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	10,956	10,911
Level 2 \| US Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	43,188	45,750
Level 2 \| Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	25,107	25,521
Level 2 \| Derivative fair value liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative fair value liability	3,287
Level 2 \| Derivative fair value asset
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Asset, Fair Value, Gross Asset		426
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Derivative fair value liability	0
Derivative Asset, Fair Value, Gross Asset		0
Assets, Fair Value Disclosure		0
Level 3 \| Mortgage-backed investments, Fannie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Mortgage-backed investments, Freddie Mac
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Mortgage-backed investments, Ginnie Mae
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Other
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Municipal Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| US Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, fair value disclosure	0	0
Level 3 \| Derivative fair value liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative fair value liability	$ 0
Level 3 \| Derivative fair value asset
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative Asset, Fair Value, Gross Asset		$ 0

Earnings Per Share: Schedule of Earnings Per Share Reconciliation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share [Abstract]
Net income	$ 1,684	$ 1,945
Less: Earnings allocated to participating securities	3	3
Earnings allocated to common shareholders	$ 1,681	$ 1,942
Basic weighted average common shares outstanding	9,896,234	10,118,286
Dilutive stock options	72,120	89,718
Dilutive restricted stock grants	9,706	12,896
Diluted weighted average common shares outstanding	9,978,060	10,220,900
Basic earnings (loss) per share (in dollars per share)	$ 0.17	$ 0.19
Diluted earnings (loss) per share (in dollars per share)	$ 0.17	$ 0.19

Leases (Maturity of Leases) (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Operating Lease, Weighted Average Remaining Lease Term	6 years 7 months 20 days
Due through one year	$ 617
Due after one year through two years	446
Due after two years through three years	428
Due after three years through four years	324
Due after four years through five years	249
Due after five years	728
Total minimum lease payments	2,792
Less: present value discount	(254)
Lease liability	$ 2,538	$ 2,279

Investments: Schedule of Available for sale Securities in Continuous Unrealized Loss positions (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	$ 3,134	$ 1,780
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	30,942	28,858
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	849	360
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	45,268	57,572
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	2,285	1,420
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	76,210	86,430
Mortgage-backed investments, Fannie Mae
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	28	104
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	1,406	8,340
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	28	104
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	1,406	8,340
Mortgage-backed investments, Freddie Mac
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	0	0
Mortgage backed investments Ginnie Mae
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	149	329
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	13,779	156
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	149	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	12,921
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	0	329
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	13,779	13,077
Other
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	246	25
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	4,989	2,843
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	130	7
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	5,895	6,000
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	116	18
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	10,884	8,843
Municipal Bonds
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	4	36
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	517	3,257
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	4	36
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	517	3,257
US Government agencies
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	1,594	935
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	8,354	12,266
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	428	201
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	32,876	31,490
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,166	734
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	41,230	43,756
Corporate Bonds
Debt Securities, Available-for-sale [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss	1,113	351
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	1,897	1,996
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	110	12
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	6,497	7,161
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	1,003	339
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 8,394	$ 9,157