June 9, 2009 (FinancialWire) — First Financial Northwest, Inc. (NASDAQ: FFNW), the holding company for First Savings Bank Northwest, has retained an independent firm to perform a stress test analysis of its construction/land development and commercial real estate loan portfolios.

“With the continuation of the recession, rising unemployment and economic pressures on home prices and purchases, we anticipate further credit challenges,” said Victor Karpiak, chairman of the board and chief executive officer. “We are continuing to see a rise in the level of nonperforming assets and further discounts in home prices in our primary market area. In light of this environment, we believe it is prudent to have an independent stress test analysis of our loan portfolio for our construction/land development and commercial real estate loans. In this difficult market, we are committed to proactive management of our troubled assets.”

For the first quarter ended March 31, 2009, the company had an allowance for loan losses of $14.3 million compared to $17.0 million at December 31, 2008. The decline in the allowance for loan losses was the result of the $4.2 million of charge-offs recorded in the first quarter of 2009. Total nonperforming loans, net of undisbursed funds as of March 31, 2009, increased to $80.2 million compared to $58.6 million at December 31, 2008. At March 31, 2009, the allowance for loan losses as a percent of total loans was 1.36%.

“Having an independent stress test of our real estate loan portfolio is part of our comprehensive strategy of identifying and managing our nonperforming loans,” stated Victor Karpiak. “We are aggressively reviewing our position on these collateral backed loans and have increased our activities with these borrowers in order to best protect our security interest in these credit relationships.

“We fully expect the independent stress test to indicate that we need to increase our allowance for loan losses, primarily with our residential construction/land development loans, which was 21% of our total loan portfolio as of March 31, 2009. Preliminary results suggest that we will need to increase the allowance for loan losses between $12 million and $18 million to fully reflect the challenges within our stressed portfolios. Our solid capital and core earnings provide support in this extremely difficult credit cycle.”

At March 31, 2009, the Bank far exceeded the minimum regulatory capital ratios for well capitalized banks with 15.65% Tier I Leverage, 23.14% Tier I Risk-Based and 24.40% Total Risk-Based capital ratios.

First Financial Northwest, Inc. is a Washington corporation headquartered in Renton, Washington. It is the parent company of First Savings Bank Northwest; a Washington chartered stock savings bank that was originally organized in 1923. It serves the Puget Sound Region of Washington including King, Snohomish, Pierce and Kitsap Counties, through its full-service banking office. It is a part of the ABA NASDAQ Community Bank Index as well as the Russell 3000 Index. For additional information, please visit its website at www.fsbnw.com and click on the “Investor Relations” section.

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