Exhibit 10.1

AMENDMENT NO. 2
 
TO THE SETTLEMENT AGREEMENT AND MUTUAL RELEASES
 
This AMENDMENT NO. 2 TO THE SETTLEMENT AGREEMENT AND MUTUAL RELEASES ("Amendment
No. 2") is made and entered into, as of the date on which it is fully executed,
as indicated by the signatures below, by and among the Stilwell Group (as
defined in the Settlement Agreement and Mutual Releases (the "Agreement")),
Spencer L. Schneider, an individual, First Financial Northwest, Inc., a
Washington corporation (the "Company"), Raymond J. Riley, an individual, Carl T.
Hagberg and Associates, a sole proprietorship registered in New Jersey, and
Victor Karpiak, an individual (collectively, "the parties" and each a "party").
 
RECITALS
 
WHEREAS, the parties entered into the Agreement as of December 20, 2012;
 
WHEREAS, the parties entered into Amendment No. 1 to the Settlement Agreement
and Mutual Releases as of January 16, 2013 ("Amendment No. 1"); and
 
WHEREAS, the parties desire to further modify the Agreement to provide
additional time for certain regulatory authorities to approve the appointment of
Kevin D. Padrick to the Boards of Directors of the Company, First Savings Bank
Northwest, and First Financial Diversified Corporation;
 
NOW, THEREFORE, in consideration of the mutual promises, representations,
covenants and agreements of the parties contained herein, and for other good and
valuable consideration, the receipt and legal sufficiency of which the parties
hereby acknowledge, the parties hereto, intending to be legally bound, agree as
follows:
 
TERMS
 
1.  
Effective Date

 
In Section 5.1 of the Agreement, both references to "February 15, 2013" (which
were changed by Amendment No. 1 to March 1, 2013) are changed to "March 22,
2013."
 
2.  
Joint Motion for Extension of Stay

 
No later than three court days following the execution of this Amendment No. 2
by all parties, counsel for the parties shall cause to be filed in the
Litigation a joint motion to extend the stay of the Litigation, and all
proceedings or deadlines therein, until the Effective Date, as modified by this
Amendment No. 2, has or has not occurred.
 
3.  
Communications

 
The parties agree that the Joint Press Release attached to this Amendment No. 2
as Exhibit A will be issued upon execution of this Amendment No. 2; and that the
Company will file with the U.S. Securities and Exchange Commission ("SEC") a
Form 8-K announcing this
 
 
 
 
 

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Amendment No. 2, to which copies of this Amendment No. 2 and the Joint Press
Release will be attached as exhibits.
 
4.  
Miscellaneous

 
(a)           This Amendment No. 2 and the Agreement (as previously modified by
Amendment No. 1) shall be read together, as one document, and together
constitute the entire agreement among the parties regarding its subject matter
and supersede any prior oral or written agreements among them (other than the
Agreement as modified by Amendment No. 1 and this Amendment No. 2) regarding the
subject matter contained herein.
 
(b)           Except as specifically provided herein, all terms and conditions
of the Agreement (as modified by Amendment No. 1) shall remain in full force and
effect, without waiver or modification.  In the event of any inconsistencies,
the terms of this Amendment No. 2 shall govern.
 
(c)           All capitalized terms used in this Amendment No. 2 and not
otherwise defined herein have the same meanings as when used in the Agreement
(as modified by Amendment No. 1).
 
(d)           To facilitate execution, this Amendment No. 2 may be executed in
any number of counterparts (including by facsimile and email/pdf transmission),
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same Amendment No. 2 binding on all the parties,
notwithstanding that not all parties are signatories to the same counterpart.
 
(e)           This Amendment No. 2 shall be governed and construed in accordance
with the laws of the State of Washington, without regard to the conflict of law
principles thereof.  Should any dispute arise between or among the parties
regarding the interpretation or performance of this Amendment No. 2, the parties
agree that such dispute shall be resolved in the Superior Court for the State of
Washington in King County.
 
IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 2 as of
the last date shown below.
 
VICTOR KARPIAK
 
/s/Victor Karpiak                                                 
 
Date: February 25, 2013                                    
                                                                          
 

 
FIRST FINANCIAL NORTHWEST, INC.
 
By: /s/Victor Karpiak                                         
 
[Print Name]Victor Karpiak                            
                                                                          
 
Title: Chief Executive Officer                         
 
Date: February 25, 2013                                 
                                                                          
 

 
 
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RAYMOND J. RILEY
 
/s/Raymond J. Riley                                           
 
Date: February 25,
2013                                                                                                             
 

 
CARL T. HAGBERG AND ASSOCIATES
 
By:/s/Carl T. Hagberg                                       
[Print Name]Carl T. Hagberg                     
                                                                              
Title: Chief Executive Officer                        
                       Date: February 25, 2013                                
                                                                          
 

 
THE STILWELL GROUP
Joseph Stilwell;
Stilwell Value Partners II, L.P.;
Stilwell Value Partners V, L.P.;
Stilwell Value Partners VI, L.P.;
Stilwell Value Partners VII, L.P.;
Stilwell Partners, L.P.;
Stilwell Associates, L.P.;
Stilwell Associates Insurance Fund of the
      S.A.L.I. Multi-Series Fund, L.P.;
Stilwell Value LLC; and
Stilwell Advisers LLC
 
By:/s/Joseph Stilwell                                     
[Print Name]  Joseph
Stilwell                                                                                                
Title: Managing Member/General Partner  
                       Date: February 25,
2013                                                                          
 
                    SPENCER L. SCHNEIDER
   
                                                                                          
/s/Spencer L. Schneider                                
                                                                                          
Date: February 25, 2013                              

 
 
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Exhibit A
 
JOINT PRESS RELEASE
 
**For Immediate Release**
 

 
For more information, contact:
For First Financial Northwest, Inc.:
  Victor Karpiak, President and Chief Executive Officer,
  (425) 255-4400
For The Stilwell Group:
  Ms. Megan Parisi, (212) 269-1551

 
FIRST FINANCIAL NORTHWEST, INC. AND THE STILWELL GROUP ANNOUNCE
AGREEMENT TO EXTEND TIME TO COMPLETE SETTLEMENT
 
Renton, Washington – February 26, 2013 – First Financial Northwest, Inc. (the
"Company") (NASDAQ GS: FFNW) and the Stilwell Group announced that they have
entered into a second amendment to the agreement to settle the litigation in
which the Stilwell Group challenged the counting of votes in a contested
director election at the Company's 2012 Annual Meeting of Shareholders.
 
The settlement agreement, as previously amended, provides, among other things,
that Kevin D. Padrick will be seated on the Company's Board of Directors after
receiving any required regulatory approvals.  The second amendment simply
extends the time by which required regulatory approvals for Mr. Padrick's
appointment must be received.  All other terms of the settlement remain the
same.
 
First Financial Northwest, Inc. is the parent company of First Savings Bank
Northwest, a Washington chartered stock savings bank headquartered in Renton,
Washington, serving the Puget Sound Region through its full-service banking
office.  The Company is a part of the ABA NASDAQ Community Bank Index.  For
additional information about the Company, please visit www.fsbnw.com and click
on the "Investor Relations" section.
 
The Stilwell Group is a New York-based money management firm which currently
owns approximately 9.72% of the Company's outstanding shares of common stock.
 
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