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

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

|   | For the transition period from _____ to _____ |
|--------|-----------------------------------------------|

| 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                |

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|                                                                                                 | Page     |
|------------------------------------------------------------------------------------------------------|----------|
| Item 1 - Financial Statements                                                                   | 3   |
|                                                                                                 |     |
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26  |
|                                                                                                 |     |
| Item 3 - Quantitative and Qualitative Disclosures About Market Risk                             | 40  |
|                                                                                                 |     |
| Item 4 - Controls and Procedures                                                                | 43  |
|                                                                                                 |     |
| PART II - OTHER INFORMATION                                                                          |     |
|                                                                                                 |     |
| Item 1 - Legal Proceedings                                                                      | 45       |
|                                                                                                 |     |
| Item 1A - Risk Factors                                                                          | 45  |
|                                                                                                 |     |
| Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                            | 45  |
|                                                                                                 |     |
| Item 3 - Defaults upon Senior Securities                                                        | 45  |
|                                                                                                 |     |
| Item 4 – [Removed and Reserved]                                                           | 45  |
|                                                                                                 |     |
| Item 5 - Other Information                                                                      | 45  |
|                                                                                                 |     |
| Item 6 - Exhibits                                                                               | 45  |
|                                                                                                 |     |
| SIGNATURES                                                                                           | 47  |

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| FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES          |
|-----------------------------------------------------------|
| Consolidated Balance Sheets                               |
| (Dollars in thousands, except share data)                 |
| (Unaudited)                                               |
|                                                      |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   | March 31, |   | December 31, |
|                                                      |   |   |   | Assets | 2011 |   | 2010 |
|                                                      |   |   |   |   |   |   |   |   |   |
| Cash on hand and in banks                                 | $ | 4,869   |   | $ | 7,466   |
| Interest-bearing deposits                                 |   | 159,126   |   |   | 90,961   |
| Investments available for sale, at fair value             |   | 148,230   |   |   | 164,603   |
| Loans receivable, net of allowance of $20,250 and $22,534 |   | 796,354   |   |   | 856,456   |
| Premises and equipment, net                               |   | 19,585   |   |   | 19,829   |
| Federal Home Loan Bank stock, at cost                     |   | 7,413   |   |   | 7,413   |
| Accrued interest receivable                               |   | 4,339   |   |   | 4,686   |
| Federal income tax receivable                             |   | 6,346   |   |   | 5,916   |
| Other real estate owned                                   |   | 31,266   |   |   | 30,102   |
| Prepaid expenses and other assets                         |   | 6,210   |   |   | 6,226   |
|                                                      |   |   | Total assets | $ | 1,183,738   |   | $ | 1,193,658   |
|                                                      |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   | Liabilities and Stockholders' Equity |   |   |   |   |   |
|                                                      |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                 | $ | 901,408   |   | $ | 911,526   |
| Noninterest bearing deposits                              |   | 4,818   |   |   | 8,700   |
| Advances from the Federal Home Loan Bank                  |   | 93,066   |   |   | 93,066   |
| Advance payments from borrowers for taxes and insurance   |   | 4,293   |   |   | 2,256   |
| Accrued interest payable                                  |   | 230   |   |   | 214   |
| Other liabilities                                         |   | 3,408   |   |   | 3,418   |
|                                                      |   |   | Total liabilities |   | 1,007,223   |   |   | 1,019,180   |
|                                                      |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   | 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 18,805,168 shares at |   |   |   |   |   |
|                                                      |   | March 31, 2011 and December 31, 2010 |   | 188   |   |   | 188   |
|                                                      | Additional paid-in capital |   | 187,707   |   |   | 187,371   |
|                                                      | Retained earnings (accumulated deficit), substantially restricted |   | 1,129   |   |   | (305) |
|                                                      | Accumulated other comprehensive income, net of tax |   | 469   |   |   | 484   |
|                                                      | Unearned Employee Stock Ownership Plan (ESOP) shares |   | (12,978) |   |   | (13,260) |
|                                                      |   |   | Total stockholders' equity |   | 176,515   |   |   | 174,478   |
|                                                      |   |   |   | Total liabilities and stockholders' equity | $ | 1,183,738   |   | $ | 1,193,658   |

----

| FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES           |                         |
|------------------------------------------------------------|------------------------------|
| Consolidated Income Statements                             |                         |
| (Dollars in thousands, except share data)                  |                         |
| (Unaudited)                                                |                         |
|                                                       |                         |   |   |   |   |
|                                                       | Three Months Ended March 31, |   |
|                                                       | 2011                         |   |   | 2010 |   |
| Interest income                                            |                         |   |   |   |   |
| Loans, including fees                                      | $                            | 12,428 |   |   | $ | 14,594 |   |
| Investments available for sale                             |                         | 1,205 |   |   |   | 1,007 |   |
| Cash on hand and in banks                                  |                         | 76 |   |   |   | 61 |   |
| Total interest income                                      | $                            | 13,709 |   |   | $ | 15,662 |   |
|                                                       |                         |   |   |   |   |   |   |
| Interest expense                                           |                         |   |   |   |   |   |   |
|  Deposits                                             |                         | 4,513 |   |   |   | 6,571 |   |
|    Federal Home Loan Bank advances               |                         | 576 |   |   |   | 1,023 |   |
| Total interest expense                                     | $                            | 5,089 |   |   | $ | 7,594 |   |
|                                                       |                         |   |   |   |   |   |   |
| Net interest income                                        |                         | 8,620 |   |   |   | 8,068 |   |
|                                                       |                         |   |   |   |   |   |   |
| Provision for loan losses                                  |                         | 1,200 |   |   |   | 13,000 |   |
|                                                       |                         |   |   |   |   |   |   |
| Net interest income (loss) after provision for loan losses | $                            | 7,420 |   |   | $ | (4,932 | ) |
|                                                       |                         |   |   |   |   |   |   |
| Noninterest income                                         |                         |   |   |   |   |   |   |
|   Net gain on sale of investments                     |                         | 511 |   |   |   | - |   |
| Other                                                      |                         | 85 |   |   |   | 46 |   |
| Total noninterest income                                   | $                            | 596 |   |   | $ | 46 |   |
|                                                       |                         |   |   |   |   |   |   |
| Noninterest expense                                        |                         |   |   |   |   |   |   |
|   Salaries and employee benefits                      |                         | 3,289 |   |   |   | 3,189 |   |
|   Occupancy and equipment                             |                         | 402 |   |   |   | 425 |   |
|   Professional fees                                   |                         | 480 |   |   |   | 459 |   |
|   Data processing                                     |                         | 209 |   |   |   | 170 |   |
|   Loss (gain) on sale of OREO property, net           |                         | (626 | ) |   |   | 437 |   |
|   OREO market value adjustments                       |                         | 628 |   |   |   | 2,271 |   |
|   OREO related expenses, net                          |                         | 850 |   |   |   | 702 |   |
|   FDIC/OTS assessments                                |                         | 710 |   |   |   | 580 |   |
|   Insurance and bond premiums                         |                         | 247 |   |   |   | 149 |   |
| Marketing                                                  |                         | 61 |   |   |   | 43 |   |
|   Other general and administrative                    |                         | 332 |   |   |   | 442 |   |
| Total noninterest expense                                  | $                            | 6,582 |   |   | $ | 8,867 |   |
| Income (loss) before provision for federal income taxes    |                         | 1,434 |   |   |   | (13,753 | ) |
| Provision for federal income taxes                         |                         | - |   |   |   | 3,999 |   |
| Net income (loss)                                          | $                            | 1,434 |   |   | $ | (17,752 | ) |
| Basic earnings (loss) per share                            | $                            | 0.08 |   |   | $ | (1.02 | ) |
| Diluted earnings (loss) per share                          | $                            | 0.08 |   |   | $ | (1.02 | ) |

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| FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES                         |
|--------------------------------------------------------------------------|
| Consolidated Statements of Stockholders' Equity and Comprehensive Income |
| For the Three Months Ended March 31, 2011                                |
| (Dollars in thousands, except share data)                                |
| (Unaudited)                                                              |
|                             |                                |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            | Accumulated Other Comprehensive Income, net of tax |                 |             |                            |                      |                 |               |
|----------------------------------|-------------------------------------|---------------------------------|--------|---------------------------------|---------------------------------|--------|----------------------|---------------------------------|--------|---------------------------------|-----------------------------------------|--------|---------------------------------|----------------------------------------------------|----------------------|------------------|---------------------------------|---------------------------|----------------------|--------------------|
|                             |                                |                            |   |                            |                            |   |                 |                            |   |                            | Retained Earnings (Accumulated Deficit) |   |                            |                                               |                 |             |                            |                      |                 |
|                             |                                |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |
|                             |                                | Shares                          |   |                            | Common                          |   |                 | Additional Paid-in Capital      |   |                            |                                    |   |                            |                                               | Unearned ESOP Shares |             |                            | Total Stockholders Equity |
|                             |                                |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |                 |               |
| Balances at December 31, 2010    | 18,805,168                |                            | $      | 188                   |                            | $      | 187,371    |                            | $      | (305)                      |                                    | $      | 484                   |                                               | $                    | (13,260)    |                            | $                         | 174,478    |
| Comprehensive income:            |                                |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |                 |
|                             | Net income                          | —     |   |                            | —     |   |                 | —     |   |                            | 1,434                         |   |                            | —                        |                 |             | —     |                      |                 | 1,434    |
|                             | Change in fair value of investments |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |                 |               |
|                             | available for sale                  | —     |   |                            | —     |   |                 | —     |   |                            | —             |   |                            | (15)                                          |                 |             | —     |                      |                 | (15)          |
|                             | Total comprehensive income          |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |                 | 1,419    |
| Compensation related to stock    |                                |                            |   |                            |                            |   |                 |                            |   |                            |                                    |   |                            |                                               |                 |             |                            |                      |                 |
|                             | options and restricted stock awards | —     |   |                            | —     |   |                 | 473                   |   |                            | —             |   |                            | —                        |                 |             | —     |                      |                 | 473      |
| Allocation of 28,213 ESOP shares | —         |                            |   | —     |                            |   | (137)           |                            |   | —     |                                    |   | —     |                                               |                 | 282    |                            |                      | 145        |
| Balances at March 31, 2011       | 18,805,168                |                            | $      | 188                   |                            | $      | 187,707    |                            | $      | 1,129                 |                                    | $      | 469                   |                                               | $                    | (12,978)    |                            | $                         | 176,515    |

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| FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES |
|--------------------------------------------------|
| Consolidated Statements of Cash Flows            |
| (In thousands)                                   |
| (Unaudited)                                      |
|                                             |   |   |   |   |   |   |   |   |   |
|                                             |   |   |   |   | Three Months Ended March 31, |
|                                             |   |   |   |   |   | 2011 |   |   | 2010 |
| Cash flows from operating activities:            |   |   |   |   |   |
|                                             | Net income (loss) | $ | 1,434   |   | $ | (17,752)  |
|                                             | Adjustments to reconcile net income (loss) to net cash provided by |   |   |   |   |   |
|                                             | operating activities: |   |   |   |   |   |
|                                             |   | Provision for loan losses |   | 1,200   |   |   | 13,000   |
|                                             |   | OREO market value adjustments |   | 628   |   |   | 2,271   |
|                                             |   | Loss (gain) on sale of OREO property, net |   | (626)  |   |   | 437   |
|                                             |   | Depreciation of premises and equipment |   | 269   |   |   | 254   |
|                                             |   | Net amortization of premiums and discounts on investments |   | 691   |   |   | 250   |
|                                             |   | ESOP expense |   | 145   |   |   | 186   |
|                                             |   | Compensation expense related to stock options and restricted stock awards |   | 473   |   |   | 497   |
|                                             |   | Net realized gain on investments available for sale |   | (511)  |   |   | —    |
|                                             |   | Deferred federal income taxes |   | 430   |   |   | 6,661   |
|                                             |   | Changes in operating assets and liabilities: |   |   |   |   |   |
|                                             |   |   | Prepaid expenses and other assets |   | 16   |   |   | (54)  |
|                                             |   |   | Federal income taxes, net |   | (430)  |   |   | (2,661)  |
|                                             |   |   | Accrued interest receivable |   | 347   |   |   | 164   |
|                                             |   |   | Accrued interest payable |   | 16   |   |   | (55)  |
|                                             |   |   | Other liabilities |   | (10)  |   |   | (871)  |
|                                             |   |   |   | Net cash provided by operating activities | $ | 4,072   |   | $ | 2,327   |
|                                             |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:            |   |   |   |   |   |
|                                             |   | Proceeds from sales of investments |   | 9,701   |   |   | —    |
|                                             |   | Capitalized improvements in OREO |   | (88)  |   |   | —    |
|                                             |   | Proceeds from sales of OREO properties |   | 9,199   |   |   | 3,031   |
|                                             |   | Principal repayments on investments |   | 10,350   |   |   | 6,657   |
|                                             |   | Purchases of investments |   | (4,303)  |   |   | (18,936)  |
|                                             |   | Net (increase) decrease in loans receivable |   | 48,625   |   |   | (5,000)  |
|                                             |   | Purchases of premises and equipment |   | (25)  |   |   | (1,122)  |
|                                             |   |   |   | Net cash provided (used) by investing activities | $ | 73,459   |   | $ | (15,370)  |
|                                             |   |   |   |   |   |   |   |   |   |
|                                             |   |   |   | Balance, carried forward | $ | 77,531   |   | $ | (13,043)  |

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| FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES                                   |   |
|------------------------------------------------------------------------------------|--------|
| Consolidated Statements of Cash Flows                                              |   |
| (In thousands)                                                                     |   |
| (Unaudited)                                                                        |   |
|                                                                               |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |
|                                                                               |   | Three Months Ended March 31, |   |
|                                                                               |   | 2011 |   |   | 2010 |   |
| Balance, brought forward                                                           |   | $ | 77,531 |   |   | $ | (13,043 | ) |
| Cash flows from financing activities:                                              |   |   |   |   |   |   |   |   |
| Net increase (decrease) in deposits                                                |   |   | (14,000 | ) |   |   | 23,167 |   |
| Advances from the Federal Home Loan Bank                                           |   |   | - |   |   |   | 50,000 |   |
| Repayments of advances from the Federal Home Loan Bank                             |   |   | - |   |   |   | (50,000 | ) |
| Net increase in advance payments from borrowers for taxes and insurance            |   |   | 2,037 |   |   |   | 2,132 |   |
| Repurchase and retirement of common stock                                          |   |   | - |   |   |   | (106 | ) |
| Dividends paid                                                                     |   |   | - |   |   |   | (1,421 | ) |
| Net cash provided (used) by financing activities                                   |   | $ | (11,963 | ) |   | $ | 23,772 |   |
|                                                                               |   |   |   |   |   |   |   |   |
| Net increase in cash                                                               |   |   | 65,568 |   |   |   | 10,729 |   |
| Cash and cash equivalents:                                                         |   |   |   |   |   |   |   |   |
| Beginning of period                                                                |   |   | 98,427 |   |   |   | 104,970 |   |
|  End of period                                                                |   | $ | 163,995 |   |   | $ | 115,699 |   |
|                                                                               |   |   |   |   |   |   |   |   |
| Supplemental disclosures of cash flow information:                                 |   |   |   |   |   |   |   |   |
| Cash paid during the period for:                                                   |   |   |   |   |   |   |   |   |
| Interest                                                                           |   | $ | 5,073 |   |   | $ | 7,649 |   |
| Noncash transactions:                                                              |   |   |   |   |   |   |   |   |
| Loans, net of deferred loan fees and allowance for loan losses transferred to OREO |   | $ | 10,277 |   |   | $ | 14,404 |   |
|                                                                               |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |

----

| ·   | Maintain and preserve qualified management; |
|--------------------|---------------------------------------------|

| ·   | Increase the Board of Directors’ participation in the Bank’s affairs; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | Obtain an independent study of management and the personnel structure of the Bank; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | Maintain specified Capital levels; |
|--------------------|------------------------------------|

| ·   | Eliminate loans classified as “Loss” at its regulatory examination, and reduce the loans classified as “Doubtful” and “Substandard” as a percent of capital; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Revise its policy with respect to the allowance for loan losses; |
|--------------------|------------------------------------------------------------------|

| ·   | Not extend additional credit to borrowers whose loan had been classified as “Loss” and is uncollected; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | Revise its lending and collection policies and practices; |
|--------------------|-----------------------------------------------------------|

| ·   | Develop a plan to reduce the amount of commercial real estate loans; |
|--------------------|----------------------------------------------------------------------|

| ·   | Enhance its written funds management and liquidity policy; |
|--------------------|------------------------------------------------------------|

| ·   | Develop a three-year strategic plan; |
|--------------------|--------------------------------------|

| ·   | Not solicit brokered deposits and comply with certain deposit rate restrictions; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | Eliminate and correct all violations of laws; and |
|--------------------|---------------------------------------------------|

----

| ·   | Prepare and submit progress reports to the FDIC and DFI. |
|--------------------|----------------------------------------------------------|

----

|                         |   | March 31, 2011 |    |
|------------------------------|--------|----------------|---------|
|                         |   |           |    |   | Gross |   |   | Gross |   |   |   |
|                         |   | Amortized      |    |   | Unrealized |   |   | Unrealized |   |   |   |
|                         |   | Cost           |    |   | Gains |   |   | Losses |   | Fair Value |   |
|                         |   | (In thousands) |    |
| Mortgage-backed investments: |   |           |    |   |   |   |   |   |   |   |   |   |
| Fannie Mae                   |   | $              | 103,102 |   |   | $ | 1,254 |   |   | $ | (296 | ) |   | $ | 104,060 |   |
| Freddie Mac                  |   |           | 31,230  |   |   |   | 430 |   |   |   | (107 | ) |   |   | 31,553 |   |
| Ginnie Mae                   |   |           | 8,871   |   |   |   | - |   |   |   | (111 | ) |   |   | 8,760 |   |
| Municipal bonds              |   |           | 2,394   |   |   |   | - |   |   |   | (464 | ) |   |   | 1,930 |   |
| U.S. Government agencies     |   |           | 1,805   |   |   |   | 122 |   |   |   | - |   |   |   | 1,927 |   |
|                         |   | $              | 147,402 |   |   | $ | 1,806 |   |   | $ | (978 | ) |   | $ | 148,230 |   |

|                         |   | December 31, 2010 |    |
|------------------------------|--------|-------------------|---------|
|                         |   |              |    |   | Gross |   |   | Gross |   |   |   |
|                         |   | Amortized         |    |   | Unrealized |   |   | Unrealized |   |   |   |
|                         |   | Cost              |    |   | Gains |   |   | Losses |   | Fair Value |   |
|                         |   | (In thousands)    |    |
| Mortgage-backed investments: |   |              |    |   |   |   |   |   |   |   |   |   |
| Fannie Mae                   |   | $                 | 109,134 |   |   | $ | 1,291 |   |   | $ | (281 | ) |   | $ | 110,144 |   |
| Freddie Mac                  |   |              | 40,454  |   |   |   | 860 |   |   |   | (165 | ) |   |   | 41,149 |   |
| Ginnie Mae                   |   |              | 9,542   |   |   |   | - |   |   |   | (98 | ) |   |   | 9,444 |   |
| Municipal bonds              |   |              | 2,395   |   |   |   | - |   |   |   | (473 | ) |   |   | 1,922 |   |
| U.S. Government agencies     |   |              | 1,805   |   |   |   | 139 |   |   |   | - |   |   |   | 1,944 |   |
|                         |   | $                 | 163,330 |   |   | $ | 2,290 |   |   | $ | (1,017 | ) |   | $ | 164,603 |   |

----

|                         | March 31, 2011      |   |
|------------------------------|---------------------|--------|
|                         | Less Than 12 Months |   | 12 Months or Longer |   | Total |   |
|                         |                |   |   | Unrealized |   |   |   |   | Unrealized |   |   |   |   | Unrealized |   |
|                         | Fair Value          |   | Loss |   | Fair Value |   | Loss |   | Fair Value |   | Loss |   |
| Mortgage-backed investments: | (In thousands)      |   |
| Fannie Mae                   |                | $      | 48,959 |   |   | $ | (296 | ) |   | $ | - |   |   | $ | - |   |   | $ | 48,959 |   |   | $ | (296 | ) |
| Freddie Mac                  |                |   | 11,895 |   |   |   | (107 | ) |   |   | - |   |   |   | - |   |   |   | 11,895 |   |   |   | (107 | ) |
| Ginnie Mae                   |                |   | 8,760 |   |   |   | (111 | ) |   |   | - |   |   |   | - |   |   |   | 8,760 |   |   |   | (111 | ) |
| Municipal bonds              |                |   | - |   |   |   | - |   |   |   | 1,893 |   |   |   | (464 | ) |   |   | 1,893 |   |   |   | (464 | ) |
|                         |                | $      | 69,614 |   |   | $ | (514 | ) |   | $ | 1,893 |   |   | $ | (464 | ) |   | $ | 71,507 |   |   | $ | (978 | ) |

|                         |                | December 31, 2010 |   |
|------------------------------|---------------------|-------------------|--------|
|                         | Less Than 12 Months |              |   | 12 Months or Longer |   | Total |   |
|                         |                |              |   | Unrealized |   |   |   |   | Unrealized |   |   |   |   | Unrealized |   |
|                         |                | Fair Value        |   | Loss |   |   | Fair Value |   | Loss |   |   | Fair Value |   | Loss |   |
| Mortgage-backed investments: | (In thousands)      |              |
| Fannie Mae                   |                | $                 | 39,801 |   |   | $ | (281 | ) |   | $ | - |   |   | $ | - |   |   | $ | 39,801 |   |   | $ | (281 | ) |
| Freddie Mac                  |                |              | 15,232 |   |   |   | (165 | ) |   |   | - |   |   |   | - |   |   |   | 15,232 |   |   |   | (165 | ) |
| Ginnie Mae                   |                |              | 5,193  |   |   |   | (98 | ) |   |   | - |   |   |   | - |   |   |   | 5,193 |   |   |   | (98 | ) |
| Municipal bonds              |                |              | -      |   |   |   | - |   |   |   | 1,885 |   |   |   | (473 | ) |   |   | 1,885 |   |   |   | (473 | ) |
|                         |                | $                 | 60,226 |   |   | $ | (544 | ) |   | $ | 1,885 |   |   | $ | (473 | ) |   | $ | 62,111 |   |   | $ | (1,017 | ) |

----

|                                   |   | March 31, 2011 |    |
|----------------------------------------|--------|----------------|---------|
|                                   |   | Amortized Cost |    |   | Fair Value |   |
|                                   |   | (In thousands) |    |
| Due within one year                    |   | $              | -       |   |   | $ | - |   |
| Due after one year through five years  |   |           | 501     |   |   |   | 550 |   |
| Due after five years through ten years |   |           | 503     |   |   |   | 487 |   |
| Due after ten years                    |   |           | 3,195   |   |   |   | 2,820 |   |
|                                   |   |           | 4,199   |   |   |   | 3,857 |   |
| Mortgage-backed investments            |   |           | 143,203 |   |   |   | 144,373 |   |
|                                   |   | $              | 147,402 |   |   | $ | 148,230 |   |

|                                |   | March 31, 2011               |    |   | December 31, 2010 |   |
|-------------------------------------|--------|------------------------------|---------|--------|-------------------|--------|
|                                |   | Amount                       |    |   | Percent           |   |   | Amount |   |   | Percent |   |
|                                |   | (Dollars in thousands)  |    |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |
| One-to-four family residential (1): |   |                         |    |   |              |   |   |   |   |   |   |   |
| Permanent                           |   | $                            | 375,894 |   |              |   | 45.59 | %  |   | $ | 393,334 |   |   |   | 44.08 | % |
| Construction                        |   |                         | -       |   |              |   | - |   |   |   | 5,356 |   |   |   | 0.60 |   |
|                                |   | $                            | 375,894 |   |              |   | 45.59 | % |   | $ | 398,690 |   |   |   | 44.68 | % |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Multifamily:                        |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Permanent                           |   |                         | 126,120 |   |              |   | 15.30 |   |   |   | 140,762 |   |   |   | 15.77 |   |
| Construction                        |   |                         | 3,024   |   |              |   | 0.37 |   |   |   | 4,114 |   |   |   | 0.46 |   |
|                                |   | $                            | 129,144 |   |              |   | 15.67 | % |   | $ | 144,876 |   |   |   | 16.23 | % |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate:             |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Permanent                           |   |                         | 227,202 |   |              |   | 27.56 |   |   |   | 237,708 |   |   |   | 26.64 |   |
| Construction                        |   |                         | 26,861  |   |              |   | 3.26 |   |   |   | 28,362 |   |   |   | 3.18 |   |
| Land                                |   |                         | 4,419   |   |              |   | 0.54 |   |   |   | 6,643 |   |   |   | 0.75 |   |
|                                |   | $                            | 258,482 |   |              |   | 31.36 | % |   | $ | 272,713 |   |   |   | 30.57 | % |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Construction/land development:      |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential      |   |                         | 17,643  |   |              |   | 2.14 |   |   |   | 26,848 |   |   |   | 3.01 |   |
| Multifamily                         |   |                         | 882     |   |              |   | 0.11 |   |   |   | 1,283 |   |   |   | 0.14 |   |
| Commercial                          |   |                         | 1,104   |   |              |   | 0.13 |   |   |   | 1,108 |   |   |   | 0.12 |   |
| Land development                    |   |                         | 23,490  |   |              |   | 2.85 |   |   |   | 27,262 |   |   |   | 3.06 |   |
|                                |   | $                            | 43,119  |   |              |   | 5.23 | % |   | $ | 56,501 |   |   |   | 6.33 | % |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Business                            |   |                         | 1,026   |   |              |   | 0.12 |   |   |   | 479 |   |   |   | 0.05 |   |
| Consumer                            |   |                         | 16,767  |   |              |   | 2.03 |   |   |   | 19,127 |   |   |   | 2.14 |   |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                         |   | $                            | 824,432 |   |              |   | 100.00 | % |   | $ | 892,386 |   |   |   | 100.00 | % |
|                                |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Less:                               |   |                         |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Loans in process                    |   |                         | 5,633   |   |              |   |   |   |   |   | 10,975 |   |   |   |   |   |
| Deferred loan fees, net             |   |                         | 2,195   |   |              |   |   |   |   |   | 2,421 |   |   |   |   |   |
| Allowance for loan losses           |   |                         | 20,250  |   |              |   |   |   |   |   | 22,534 |   |   |   |   |   |
| Loans receivable, net               |   | $                            | 796,354 |   |              |   |   |   |   | $ | 856,456 |   |   |   |   |   |

| (1)   Includes $166.2 million and $173.4 million of non-owner occupied loans at March 31, 2011 and December 31, 2010, respectively. |
|----------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                   | Three Months Ended March 31, |   |
|----------------------------------------|------------------------------|--------|
|                                   | 2011                         |   | 2010 |   |
|                                   | (In thousands)               |   |
| Balance at the beginning of the period |                         | $      | 22,534 |   |   | $ | 33,039 |   |
| Provision for loan losses              |                         |   | 1,200 |   |   |   | 13,000 |   |
| Charge-offs                            |                         |   | (3,675 | ) |   |   | (9,682 | ) |
| Recoveries                             |                         |   | 191 |   |   |   | 122 |   |
| Balance at the end of the period       |                         | $      | 20,250 |   |   | $ | 36,479 |   |

|                    |   | March 31, 2011                 |    |
|-------------------------|--------|--------------------------------|---------|
|                    |   | One-to-Four Family Residential |    |   | Multi-family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|                    |
|                    |
|  ALLL:             |   | (In thousands)                 |    |
|  Beginning balance |   | $                              | 8,302   |   |   | $ | 1,893 |   |   | $ | 6,742 |   |   | $ | 5,151 |   |   | $ | 7 |   |   | $ | 439 |   |   | $ | 22,534 |   |
| Charge-offs             |   |                           | (585    | ) |   |   | (26 | ) |   |   | (2,080 | ) |   |   | (926 | ) |   |   | - |   |   |   | (58 | ) |   |   | (3,675 | ) |
| Recoveries              |   |                           | 5       |   |   |   | - |   |   |   | - |   |   |   | 185 |   |   |   | - |   |   |   | 1 |   |   |   | 191 |   |
| Provision               |   |                           | 34      |   |   |   | (121 | ) |   |   | 2,613 |   |   |   | (1,343 | ) |   |   | 6 |   |   |   | 11 |   |   |   | 1,200 |   |
|  Ending balance    |   | $                              | 7,756   |   |   | $ | 1,746 |   |   | $ | 7,275 |   |   | $ | 3,067 |   |   | $ | 13 |   |   | $ | 393 |   |   | $ | 20,250 |   |
| General reserve         |   | $                              | 6,596   |   |   | $ | 1,684 |   |   | $ | 5,351 |   |   | $ | 1,483 |   |   | $ | 13 |   |   | $ | 298 |   |   | $ | 15,425 |   |
| Specific reserve        |   | $                              | 1,160   |   |   | $ | 62 |   |   | $ | 1,924 |   |   | $ | 1,584 |   |   | $ | - |   |   | $ | 95 |   |   | $ | 4,825 |   |
|                    |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Loans (1):        |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Loans             |   | $                              | 375,858 |   |   | $ | 128,678 |   |   | $ | 255,532 |   |   | $ | 40,938 |   |   | $ | 1,026 |   |   | $ | 16,767 |   |   | $ | 818,799 |   |
| General reserve (2)     |   | $                              | 307,401 |   |   | $ | 125,470 |   |   | $ | 234,006 |   |   | $ | 17,453 |   |   | $ | 1,026 |   |   | $ | 16,552 |   |   | $ | 701,908 |   |
| Specific reserve (3)    |   | $                              | 68,457  |   |   | $ | 3,208 |   |   | $ | 21,526 |   |   | $ | 23,485 |   |   | $ | - |   |   | $ | 215 |   |   | $ | 116,891 |   |

| _________                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| (1) Net of undisbursed funds                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (2) Loans collectively evaluated for impairment |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (3) Loans individually evaluated for impairment |

|                    |   | December 31, 2010              |    |
|-------------------------|--------|--------------------------------|---------|
|                    |   | One-to-Four Family Residential |    |   | Multi-family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|                    |
|                    |
|  ALLL:             |   |                           |    |   |   |   |   |   |   |   | (In thousands) |   |   |   |   |   |   |   |   |   |   |
|  Beginning balance |   | $                              | 11,130  |   |   | $ | 1,896 |   |   | $ | 6,422 |   |   | $ | 13,255 |   |   | $ | 6 |   |   | $ | 330 |   |   | $ | 33,039 |   |
| Charge-offs             |   |                           | (24,594 | ) |   |   | - |   |   |   | (8,012 | ) |   |   | (32,080 | ) |   |   | - |   |   |   | (790 | ) |   |   | (65,476 | ) |
| Recoveries              |   |                           | 176     |   |   |   | - |   |   |   | 823 |   |   |   | 778 |   |   |   | - |   |   |   | 94 |   |   |   | 1,871 |   |
| Provision               |   |                           | 21,590  |   |   |   | (3 | ) |   |   | 7,509 |   |   |   | 23,198 |   |   |   | 1 |   |   |   | 805 |   |   |   | 53,100 |   |
|  Ending balance    |   | $                              | 8,302   |   |   | $ | 1,893 |   |   | $ | 6,742 |   |   | $ | 5,151 |   |   | $ | 7 |   |   | $ | 439 |   |   | $ | 22,534 |   |
| General reserve         |   | $                              | 7,137   |   |   | $ | 1,893 |   |   | $ | 5,499 |   |   | $ | 1,819 |   |   | $ | 7 |   |   | $ | 337 |   |   | $ | 16,692 |   |
| Specific reserve        |   | $                              | 1,165   |   |   | $ | - |   |   | $ | 1,243 |   |   | $ | 3,332 |   |   | $ | - |   |   | $ | 102 |   |   | $ | 5,842 |   |
|                    |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Loans (1):        |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Loans             |   | $                              | 398,583 |   |   | $ | 143,513 |   |   | $ | 266,297 |   |   | $ | 53,412 |   |   | $ | 479 |   |   | $ | 19,127 |   |   | $ | 881,411 |   |
| General reserve (2)     |   | $                              | 330,651 |   |   | $ | 140,998 |   |   | $ | 248,578 |   |   | $ | 20,394 |   |   | $ | 479 |   |   | $ | 19,000 |   |   | $ | 760,100 |   |
| Specific reserve (3)    |   | $                              | 67,932  |   |   | $ | 2,515 |   |   | $ | 17,719 |   |   | $ | 33,018 |   |   | $ | - |   |   | $ | 127 |   |   | $ | 121,311 |   |

| (1) Net of undisbursed funds                    |
|-------------------------------------------------|
| (2) Loans collectively evaluated for impairment |
| (3) Loans individually evaluated for impairment |   |

----

|                             |                                             |           | March 31, 2011 |   |
|----------------------------------|--------------------------------------------------|----------------|----------------|--------|
|                             |                                             |           |           |   |   | Unpaid |   |   |   |   |   | Average |   |   | Interest |   |
|                             |                                             |           | Recorded       |   |   | Principal |   |   | Related |   |   | Recorded |   |   | Income |   |
|                             |                                             |           | Investment (1) |   |   | Balance (2) |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                             |                                             | (In thousands) |           |
|                             |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans with no related allowance: |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |           | $              | 10,090 |   |   | $ | 10,486 |   |   | $ | - |   |   | $ | 8,785 |   |   | $ | 116 |   |
|                             |      Non-owner occupied |           |           | 47,329 |   |   |   | 47,545 |   |   |   | - |   |   |   | 45,700 |   |   |   | 667 |   |
|                             | Multifamily                                      |           |           | 2,508  |   |   |   | 2,508 |   |   |   | - |   |   |   | 2,511 |   |   |   | 42 |   |
|                             | Commercial real estate                           |           |           | 13,117 |   |   |   | 14,039 |   |   |   | - |   |   |   | 12,549 |   |   |   | 164 |   |
|                             | Construction/land development                    |           |           | 12,611 |   |   |   | 25,826 |   |   |   | - |   |   |   | 9,828 |   |   |   | - |   |
|                             | Consumer                                         |           |           | 215    |   |   |   | 257 |   |   |   | - |   |   |   | 167 |   |   |   | 1 |   |
| Total                            |                                             | $              | 85,870         |   |   | $ | 100,661 |   |   | $ | - |   |   | $ | 79,540 |   |   | $ | 990 |   |
|                             |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans with an allowance:         |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |           | $              | 3,117  |   |   | $ | 4,082 |   |   | $ | 271 |   |   | $ | 4,317 |   |   | $ | - |   |
|                             |      Non-owner occupied |           |           | 7,921  |   |   |   | 11,210 |   |   |   | 889 |   |   |   | 9,393 |   |   |   | - |   |
|                             | Multifamily                                      |           |           | 700    |   |   |   | 726 |   |   |   | 62 |   |   |   | 350 |   |   |   | - |   |
|                             | Commercial real estate                           |           |           | 8,408  |   |   |   | 12,524 |   |   |   | 1,924 |   |   |   | 7,073 |   |   |   | - |   |
|                             | Construction/land development                    |           |           | 10,875 |   |   |   | 15,059 |   |   |   | 1,584 |   |   |   | 18,424 |   |   |   | - |   |
|                             | Consumer                                         |           |           | -      |   |   |   | 10 |   |   |   | 95 |   |   |   | 4 |   |   |   | - |   |
| Total                            |                                             | $              | 31,021         |   |   | $ | 43,611 |   |   | $ | 4,825 |   |   | $ | 39,561 |   |   | $ | - |   |
|                             |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans:            |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |           | $              | 13,207 |   |   | $ | 14,568 |   |   | $ | 271 |   |   | $ | 13,102 |   |   | $ | 116 |   |
|                             |      Non-owner occupied |           |           | 55,250 |   |   |   | 58,755 |   |   |   | 889 |   |   |   | 55,093 |   |   |   | 667 |   |
|                             | Multifamily                                      |           |           | 3,208  |   |   |   | 3,234 |   |   |   | 62 |   |   |   | 2,861 |   |   |   | 42 |   |
|                             | Commercial real estate                           |           |           | 21,525 |   |   |   | 26,563 |   |   |   | 1,924 |   |   |   | 19,622 |   |   |   | 164 |   |
|                             | Construction/land development                    |           |           | 23,486 |   |   |   | 40,885 |   |   |   | 1,584 |   |   |   | 28,252 |   |   |   | - |   |
|                             | Consumer                                         |           |           | 215    |   |   |   | 267 |   |   |   | 95 |   |   |   | 171 |   |   |   | 1 |   |
| Total                            |                                             | $              | 116,891        |   |   | $ | 144,272 |   |   | $ | 4,825 |   |   | $ | 119,101 |   |   | $ | 990 |   |
| ____________                |                                             |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)                              | Represents the loan balance less charge-offs.    |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (2)                              | Contractual loan principal balance.              |           |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                             |                                             | December 31, 2010 |    |
|----------------------------------|--------------------------------------------------|-------------------|---------|
|                             |                                             |              |    |   |   | Unpaid |   |   |   |   |   | Interest |   |
|                             |                                             | Recorded          |    |   | Principal |   |   | Related |   |   | Income |   |
|                             |                                             | Investment (1)    |    |   | Balance (2) |   |   | Allowance |   |   | Recognized |   |
|                             |                                             | (In thousands)    |    |
| Loans with no related allowance: |                                             |              |    |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |              |    |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |              | $       | 7,480 |   |   | $ | 7,814 |   |   | $ | - |   |   | $ | 273 |   |
|                             |      Non-owner occupied |              |    | 44,072 |   |   |   | 44,487 |   |   |   | - |   |   |   | 3,050 |   |
|                             | Multifamily                                      |              |    | 2,515 |   |   |   | 2,515 |   |   |   | - |   |   |   | 169 |   |
|                             | Commercial                                       |              |    | 11,981 |   |   |   | 12,498 |   |   |   | - |   |   |   | 631 |   |
|                             | Construction/land development                    |              |    | 7,045 |   |   |   | 9,087 |   |   |   | - |   |   |   | 8 |   |
|                             | Consumer                                         |              |    | 118 |   |   |   | 617 |   |   |   | - |   |   |   | 3 |   |
| Total                            |                                             | $                 | 73,211  |   |   | $ | 77,018 |   |   | $ | - |   |   | $ | 4,134 |   |
|                             |                                             |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans with an allowance:         |                                             |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |              | $       | 5,516 |   |   | $ | 6,753 |   |   | $ | 276 |   |   | $ | - |   |
|                             |      Non-owner occupied |              |    | 10,864 |   |   |   | 15,182 |   |   |   | 889 |   |   |   | - |   |
|                             | Multifamily                                      |              |    | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                             | Commercial                                       |              |    | 5,738 |   |   |   | 9,968 |   |   |   | 1,243 |   |   |   | - |   |
|                             | Construction/land development                    |              |    | 25,973 |   |   |   | 45,546 |   |   |   | 3,332 |   |   |   | - |   |
|                             | Consumer                                         |              |    | 9 |   |   |   | 218 |   |   |   | 102 |   |   |   | - |   |
| Total                            |                                             | $                 | 48,100  |   |   | $ | 77,667 |   |   | $ | 5,842 |   |   | $ | - |   |
|                             |                                             |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total impaired loans             |                                             |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             | One-to-four family residential                   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |      Owner occupied     |              | $       | 12,996 |   |   | $ | 14,567 |   |   | $ | 276 |   |   | $ | 273 |   |
|                             |      Non-owner occupied |              |    | 54,936 |   |   |   | 59,669 |   |   |   | 889 |   |   |   | 3,050 |   |
|                             | Multifamily                                      |              |    | 2,515 |   |   |   | 2,515 |   |   |   | - |   |   |   | 169 |   |
|                             | Commercial                                       |              |    | 17,719 |   |   |   | 22,466 |   |   |   | 1,243 |   |   |   | 631 |   |
|                             | Construction/land development                    |              |    | 33,018 |   |   |   | 54,633 |   |   |   | 3,332 |   |   |   | 8 |   |
|                             | Consumer                                         |              |    | 127 |   |   |   | 835 |   |   |   | 102 |   |   |   | 3 |   |
| Total                            |                                             | $                 | 121,311 |   |   | $ | 154,685 |   |   | $ | 5,842 |   |   | $ | 4,134 |   |
| ____________                |                                             |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)                              | Represents the loan balance less charge-offs.    |              |    |   |   |   |   |   |   |   |   |   |   |   |
| (2)                              | Contractual loan principal balance.              |              |    |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                   |   | March 31,      |         |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------------|--------|--------------|--------|
|                                                                                                                   |   | 2011           |         |   | 2010         |   |
|                                                                                                                   |   | (In thousands) |         |
|                                                                                                                   |   |           |         |   |         |   |
| Impaired loans without a valuation allowance                                                                           |   | $              | 85,870       |   |         | $      | 73,211 |   |
| Impaired loans with a valuation allowance                                                                              |   |           | 31,021  |   |         |   | 48,100 |   |
|     Total impaired loans                                                                           |   | $              | 116,891      |   |         | $      | 121,311 |   |
| Valuation allowance related to impaired loans                                                                          |   | $              | 4,825        |   |         | $      | 5,842 |   |
| Interest income recognized on a cash basis on impaired loans                                                           |   | $              | 990          |   |         | $      | 4,134 |   |
|                                                                                                                   |   |           |         |   |         |   |   |   |
| Nonperforming assets (1):                                                                                              |   |           |         |   |         |   |   |   |
|     Nonaccrual loans                                                                               |   |           | 39,737  |   |         |   | 46,637 |   |
|     Nonaccrual troubled debt restructured loans                                                    |   | $              | 11,349       |   |         | $      | 16,299 |   |
| Total nonperforming loans                                                                                              |   |           | 51,086  |   |         |   | 62,936 |   |
|                                                                                                                   |   |           |         |   |         |   |   |   |
|     Other real estate owned                                                                        |   |           | 31,266  |   |         |   | 30,102 |   |
| Total nonperforming assets                                                                                             |   | $              | 82,352       |   |         | $      | 93,038 |   |
|                                                                                                                   |   |           |         |   |         |   |   |   |
| Performing troubled debt restructured loans                                                                            |   |           | 65,805  |   |         |   | 58,375 |   |
| Nonaccrual troubled debt restructured loans                                                                            |   |           | 11,349  |   |         |   | 16,299 |   |
| Total troubled debt restructured loans (2)                                                                             |   | $              | 77,154       |   |         | $      | 74,674 |   |
| ______________                                                                                                    |   |           |         |   |         |   |   |   |
| (1) There were no loans 90 days or more past due and still accruing interest at March 31, 2011, and December 31, 2010. |   |
| (2) Troubled debt restructured loans are also considered impaired loans and are included in "Total impaired loans."    |   |

----

|                           |   | March 31,      |   |   | December 31, |   |
|--------------------------------|--------|----------------|--------|--------|--------------|--------|
|                           |   | 2011           |   |   | 2010         |   |
|                           |   | (In thousands) |   |
| One-to-four family residential |   | $              | 15,652 |   |         | $      | 22,688 |   |
| Multifamily                    |   |           | 700    |   |         |   | - |   |
| Commercial real estate         |   |           | 11,104 |   |         |   | 7,306 |   |
| Construction/land development  |   |           | 23,485 |   |         |   | 32,885 |   |
| Consumer                       |   |           | 145    |   |         |   | 57 |   |
| Total nonaccrual loans         |   | $              | 51,086 |   |         | $      | 62,936 |   |

|                                                                                    |   | Loans Past Due as of March 31, 2011 |   |   |       |   |   |                |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|------------|--------|--------|---------------------|--------|
|                                                                                    |   | 30-59 Days                          |   |   | 60-89 Days |   |   | 90 Days and Greater |   |   | Total |   |   | Current |   |   | Total Loans (1) (2) |   |
|                                                                                    |   | (In thousands)                      |   |
| Real estate:                                                                            |   |                                |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential:                                                         |   |                                |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |
|      Owner occupied                                            |   | $                                   | 1,239  |   |       | $      | 222    |                |   | $ | 4,021 |   |   | $ | 5,482 |   |   | $ | 204,130 |   |   | $ | 209,612 |   |
|      Non-owned occupied                                        |   |                                | 343    |   |       |   | -      |                |   |   | 10,895 |   |   |   | 11,238 |   |   |   | 155,008 |   |   |   | 166,246 |   |
| Multifamily                                                                             |   |                                | -      |   |       |   | 700    |                |   |   | - |   |   |   | 700 |   |   |   | 127,978 |   |   |   | 128,678 |   |
| Commercial real estate                                                                  |   |                                | 3,256  |   |       |   | 1,172  |                |   |   | 6,643 |   |   |   | 11,071 |   |   |   | 244,461 |   |   |   | 255,532 |   |
| Construction/land development                                                           |   |                                | 1,104  |   |       |   | -      |                |   |   | 22,752 |   |   |   | 23,856 |   |   |   | 17,082 |   |   |   | 40,938 |   |
| Total real estate                                                                       |   | $                                   | 5,942  |   |       | $      | 2,094  |                |   | $ | 44,311 |   |   | $ | 52,347 |   |   | $ | 748,659 |   |   | $ | 801,006 |   |
| Business                                                                                |   |                                | -      |   |       |   | -      |                |   |   | - |   |   |   | - |   |   |   | 1,026 |   |   |   | 1,026 |   |
| Consumer                                                                                |   |                                | -      |   |       |   | -      |                |   |   | - |   |   |   | - |   |   |   | 16,767 |   |   |   | 16,767 |   |
| Total                                                                                   |   | $                                   | 5,942  |   |       | $      | 2,094  |                |   | $ | 44,311 |   |   | $ | 52,347 |   |   | $ | 766,452 |   |   | $ | 818,799 |   |
| ____________                                                                       |   |                                |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) There were no loans 90 days past due and still accruing interest at March 31, 2011. |   |
| (2) Net of loans in process.                                                            |   |

|                                                                                       |   | Loans Past Due as of December 31, 2010 |   |   |       |   |   |                |   |
|--------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------|------------|--------|--------|---------------------|--------|
|                                                                                       |   |                                   |   |   |       |   |   | 90 Days and Greater |   |   |   |   |   |   |   |   | Total Loans (1) (2) |   |
|                                                                                       |   | 30-59 Days                             |   |   | 60-89 Days |   |   | Total               |   |   | Current |   |
|                                                                                       |   | (In thousands)                         |   |
| Real estate:                                                                               |   |                                   |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential:                                                            |   |                                   |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |
|      Owner occupied                                               |   | $                                      | 2,178  |   |       | $      | 780    |                |   | $ | 5,863 |   |   | $ | 8,821 |   |   | $ | 216,392 |   |   | $ | 225,213 |   |
|      Non-owned occupied                                           |   |                                   | 800    |   |       |   | 1,996  |                |   |   | 11,801 |   |   |   | 14,597 |   |   |   | 158,773 |   |   |   | 173,370 |   |
| Multifamily                                                                                |   |                                   | -      |   |       |   | -      |                |   |   | - |   |   |   | - |   |   |   | 143,513 |   |   |   | 143,513 |   |
| Commercial real estate                                                                     |   |                                   | 2,141  |   |       |   | 836    |                |   |   | 6,948 |   |   |   | 9,925 |   |   |   | 256,372 |   |   |   | 266,297 |   |
| Construction/land development                                                              |   |                                   | 133    |   |       |   | 265    |                |   |   | 32,620 |   |   |   | 33,018 |   |   |   | 20,394 |   |   |   | 53,412 |   |
| Total real estate                                                                          |   | $                                      | 5,252  |   |       | $      | 3,877  |                |   | $ | 57,232 |   |   | $ | 66,361 |   |   | $ | 795,444 |   |   | $ | 861,805 |   |
| Business                                                                                   |   |                                   | -      |   |       |   | -      |                |   |   | - |   |   |   | - |   |   |   | 479 |   |   |   | 479 |   |
| Consumer                                                                                   |   |                                   | -      |   |       |   | 55     |                |   |   | 57 |   |   |   | 112 |   |   |   | 19,015 |   |   |   | 19,127 |   |
| Total                                                                                      |   | $                                      | 5,252  |   |       | $      | 3,932  |                |   | $ | 57,289 |   |   | $ | 66,473 |   |   | $ | 814,938 |   |   | $ | 881,411 |   |
| _____________                                                                         |   |                                   |   |   |       |   |   |                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) There were no loans 90 days past due and still accruing interest at December 31, 2010. |
| (2) Net of loans in process.                                                               |

----

|            |   | March 31, 2011                 |    |
|-----------------|--------|--------------------------------|---------|
|            |   | One-to-Four Family Residential |    |   | Multi - family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|            |   | (In thousands)                 |    |
| Grade:          |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass            |   | $                              | 347,258 |   |   | $ | 122,549 |   |   | $ | 231,047 |   |   | $ | 17,029 |   |   | $ | 1,026 |   |   | $ | 16,399 |   |   | $ | 735,308 |   |
| Special mention |   |                           | 10,219  |   |   |   | 5,429 |   |   |   | 12,718 |   |   |   | - |   |   |   | - |   |   |   | 222 |   |   |   | 28,588 |   |
| Substandard     |   |                           | 18,381  |   |   |   | 700 |   |   |   | 11,767 |   |   |   | 23,909 |   |   |   | - |   |   |   | 46 |   |   |   | 54,803 |   |
| Doubtful        |   |                           | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 100 |   |   |   | 100 |   |
| Total           |   | $                              | 375,858 |   |   | $ | 128,678 |   |   | $ | 255,532 |   |   | $ | 40,938 |   |   | $ | 1,026 |   |   | $ | 16,767 |   |   | $ | 818,799 |   |

|            |   | December 31, 2010              |    |
|-----------------|--------|--------------------------------|---------|
|            |   | One-to-Four Family Residential |    |   | Multi - family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|            |   | (In thousands)                 |    |
| Grade:          |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pass            |   | $                              | 360,239 |   |   | $ | 141,224 |   |   | $ | 249,576 |   |   | $ | 17,589 |   |   | $ | 479 |   |   | $ | 18,792 |   |   | $ | 787,899 |   |
| Special mention |   |                           | 10,261  |   |   |   | 1,936 |   |   |   | 5,805 |   |   |   | - |   |   |   | - |   |   |   | 189 |   |   |   | 18,191 |   |
| Substandard     |   |                           | 28,083  |   |   |   | 353 |   |   |   | 10,916 |   |   |   | 35,484 |   |   |   | - |   |   |   | 140 |   |   |   | 74,976 |   |
| Doubtful        |   |                           | -       |   |   |   | - |   |   |   | - |   |   |   | 339 |   |   |   | - |   |   |   | 6 |   |   |   | 345 |   |
| Total           |   | $                              | 398,583 |   |   | $ | 143,513 |   |   | $ | 266,297 |   |   | $ | 53,412 |   |   | $ | 479 |   |   | $ | 19,127 |   |   | $ | 881,411 |   |

----

|                                                                                                                                                                 | March 31, 2011 |                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|--------------------------------|
|                                                                                                                                                                 |           | One-to-Four Family Residential |   |   | Multi - family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|                                                                                                                                                                 | (In thousands) |                           |
| Performing (1)                                                                                                                                                       |           | $                              | 360,206 |   |   | $ | 127,978 |   |   | $ | 244,428 |   |   | $ | 17,453 |   |   | $ | 1,026 |   |   | $ | 16,622 |   |   | $ | 767,713 |   |
| Nonperforming (2)                                                                                                                                                    |           |                           | 15,652 |   |   |   | 700 |   |   |   | 11,104 |   |   |   | 23,485 |   |   |   | - |   |   |   | 145 |   |   |   | 51,086 |   |
| Total                                                                                                                                                                |           | $                              | 375,858 |   |   | $ | 128,678 |   |   | $ | 255,532 |   |   | $ | 40,938 |   |   | $ | 1,026 |   |   | $ | 16,767 |   |   | $ | 818,799 |   |
| __________                                                                                                                                                      |           |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) There were $205.0 million of owner-occupied one-to-four family loans and $155.2 million of non-owner occupied one-to-four family loans classified as performing. |           |
| (2) There were $4.7 million of owner-occupied one-to-four family loans and $11.0 million of non-owner occupied one-to-four family loans classified as nonperforming. |           |

|                                                                                                                                                                 | December 31, 2010 |                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|--------------------------------|
|                                                                                                                                                                 |              | One-to-Four Family Residential |   |   | Multi - family |   |   | Commercial Real Estate |   |   | Construction/ Land Development |   |   | Business |   |   | Consumer |   |   | Total |   |
|                                                                                                                                                                 | (In thousands)    |                           |
| Performing (1)                                                                                                                                                       |              | $                              | 375,895 |   |   | $ | 143,513 |   |   | $ | 258,991 |   |   | $ | 20,527 |   |   | $ | 479 |   |   | $ | 19,070 |   |   | $ | 818,475 |   |
| Nonperforming (2)                                                                                                                                                    |              |                           | 22,688 |   |   |   | - |   |   |   | 7,306 |   |   |   | 32,885 |   |   |   | - |   |   |   | 57 |   |   |   | 62,936 |   |
| Total                                                                                                                                                                |              | $                              | 398,583 |   |   | $ | 143,513 |   |   | $ | 266,297 |   |   | $ | 53,412 |   |   | $ | 479 |   |   | $ | 19,127 |   |   | $ | 881,411 |   |
| ___________                                                                                                                                                     |              |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) There were $217.3 million of owner-occupied one-to-four family loans and $158.6 million of non-owner occupied one-to-four family                                 |              |
| classified as performing.                                                                                                                                            |              |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (2) There were $8.0 million of owner-occupied one-to-four family loans and $14.7 million of non-owner occupied one-to-four family loans classified as nonperforming. |              |

| Note 7 – Other Real Estate Owned |
|----------------------------------------|

|                      |   | Three Months Ended |   |   | Year Ended   |   |
|---------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                      |   | March 31, 2011     |   |   | December 31, 2010 |   |
|                      |   | (In thousands)     |   |
| Beginning Balance         |   | $                  | 30,102 |   |              | $      | 11,835 |   |
| Loans transferred to OREO |   |               | 10,277 |   |              |   | 50,237 |   |
| Capitalized improvements  |   |               | 88     |   |              |   | 767 |   |
| Dispositions of OREO      |   |               | (8,573 | )      |              |   | (27,113 | ) |
| Market value adjustments  |   |               | (628   | )      |              |   | (5,624 | ) |
| Ending Balance            |   | $                  | 31,266 |   |              | $      | 30,102 |   |

----

| ·   | 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 similarinstruments in markets that are not active; and model-derived valuations whose inputs areobservable. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level 3 – Instruments whose significant value drivers are unobservable. |
|--------------------|-------------------------------------------------------------------------------|

|                                      | Fair Value Measurements at March 31, 2011 |   |
|-------------------------------------------|-------------------------------------------|--------|
|                                      |                                      |   |   | Quoted Prices in |   | Significant |   |   |   |   |
|                                      |                                      |   |   | Active Markets |   | Other |   | Significant |   |
|                                      | Fair Value                                |   | for Identical |   | Observable |   | Unobservable |   |
|                                      | Measurements                              |   | Assets (Level 1) |   | Inputs (Level 2) |   | Inputs (Level 3) |   |
|                                      | (In thousands)                            |   |
| Available for sale investments            |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed investments:              |                                      |   |   |   |   |   |   |   |   |   |   |   |
|      Fannie Mae  |                                      | $      | 104,060 |   |   | $ | - |   |   | $ | 104,060 |   |   | $ | - |   |
|      Freddie Mac |                                      |   | 31,553 |   |   |   | - |   |   |   | 31,553 |   |   |   | - |   |
|      Ginnie Mae  |                                      |   | 8,760 |   |   |   | - |   |   |   | 8,760 |   |   |   | - |   |
| Municipal bonds                           |                                      |   | 1,930 |   |   |   | - |   |   |   | 1,930 |   |   |   | - |   |
| U.S. Government agencies                  |                                      |   | 1,927 |   |   |   | - |   |   |   | 1,927 |   |   |   | - |   |
|                                      |                                      | $      | 148,230 |   |   | $ | - |   |   | $ | 148,230 |   |   | $ | - |   |

|                                      | Fair Value Measurements at December 31, 2010 |   |
|-------------------------------------------|----------------------------------------------|--------|
|                                      |                                         |   |   |   | Quoted Prices in |   |   | Significant |   |   |   |   |
|                                      |                                         |   |   | Active Markets |   |   | Other |   |   | Significant |   |
|                                      | Fair Value                                   |   |   | for Identical |   |   | Observable |   |   | Unobservable |   |
|                                      | Measurements                                 |   |   | Assets (Level 1) |   |   | Inputs (Level 2) |   |   | Inputs (Level 3) |   |
|                                      | (In thousands)                               |   |
| Available for sale investments            |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed investments:              |                                         |   |   |   |   |   |   |   |   |   |   |   |
|      Fannie Mae  |                                         | $      | 110,144 |   |   | $ | - |   |   | $ | 110,144 |   |   | $ | - |   |
|      Freddie Mac |                                         |   | 41,149 |   |   |   | - |   |   |   | 41,149 |   |   |   | - |   |
|      Ginnie Mae  |                                         |   | 9,444 |   |   |   | - |   |   |   | 9,444 |   |   |   | - |   |
| Municipal bonds                           |                                         |   | 1,922 |   |   |   | - |   |   |   | 1,922 |   |   |   | - |   |
| U.S. Government agencies                  |                                         |   | 1,944 |   |   |   | - |   |   |   | 1,944 |   |   |   | - |   |
|                                      |                                         | $      | 164,603 |   |   | $ | - |   |   | $ | 164,603 |   |   | $ | - |   |

----

|                                                                                                        | Fair Value Measurements at March 31, 2011 |   |
|-------------------------------------------------------------------------------------------------------------|-------------------------------------------|--------|
|                                                                                                        |                                      |   |   | Quoted Prices in |   | Significant |   |   |   |   |   |   |   |
|                                                                                                        |                                      |   |   | Active Markets |   | Other |   | Significant |   |   |   |   |
|                                                                                                        | Fair Value                                |   | for Identical |   | Observable |   | Unobservable |   | Total |   |
|                                                                                                        | Measurements                              |   | Assets (Level 1) |   | Inputs (Level 2) |   | Inputs (Level 3) |   | Losses |   |
|                                                                                                        | (In thousands)                            |   |
| Impaired loans including undisbursed but committed funds                                                    |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   of $311,000 (included in loans receivable, net) (1)                                                  |                                      | $      | 112,377 |   |   | $ | - |   |   | $ | - |   |   | $ | 112,377 |   |   | $ | 4,825 |   |
| OREO (2)                                                                                                    |                                      |   | 31,266 |   |   |   | - |   |   |   | - |   |   |   | 31,266 |   |   |   | 628 |   |
|                                                                                                        |                                      | $      | 143,643 |   |   | $ | - |   |   | $ | - |   |   | $ | 143,643 |   |   | $ | 5,453 |   |
| _________________                                                                                      |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) The loss represents the specific reserve against loans that were considered impaired at March 31, 2011. |                                      |
| (2) The loss represents OREO market value adjustments for the quarter ended March 31, 2011.                 |                                      |

|                                                                                                           | Fair Value Measurements at December 31, 2010 |   |
|----------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|
|                                                                                                           |                                         |   |   | Quoted Prices in |   | Significant |   |   |   |   |   |   |   |
|                                                                                                           |                                         |   |   | Active Markets |   | Other |   | Significant |   |   |   |   |
|                                                                                                           | Fair Value                                   |   | for Identical |   | Observable |   | Unobservable |   | Total |   |
|                                                                                                           | Measurements                                 |   | Assets (Level 1) |   | Inputs (Level 2) |   | Inputs (Level 3) |   | Losses |   |
|                                                                                                           | (In thousands)                               |   |
| Impaired loans including undisbursed but committed funds                                                       |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   of $1.1 million (included in loans receivable, net) (3)                                                 |                                         | $      | 116,543 |   |   | $ | - |   |   | $ | - |   |   | $ | 116,543 |   |   | $ | 5,842 |   |
| OREO (4)                                                                                                       |                                         |   | 30,102 |   |   |   | - |   |   |   | - |   |   |   | 30,102 |   |   |   | 5,624 |   |
|                                                                                                           |                                         | $      | 146,645 |   |   | $ | - |   |   | $ | - |   |   | $ | 146,645 |   |   | $ | 11,466 |   |
| _________________                                                                                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (3) The loss represents the specific reserve against loans that were considered impaired at December 31, 2010. |                                         |   |   |   |   |   |   |   |   |
| (4) The loss represents OREO market value adjustments for the year ended December 31, 2010.                    |                                         |   |   |   |   |   |   |   |   |   |   |   |   |

----

|         |                                          |   | March 31, 2011 |    |   | December 31, 2010 |   |
|--------------|-----------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
|         |                                          |   | Carrying       |    |   | Estimated         |   |   | Carrying |   |   | Estimated |   |
|         |                                          |   | Value          |    |   | Fair Value        |   |   | Value |   |   | Fair Value |   |
|         |                                          |   | (In thousands) |    |
| Assets:      |                                          |   |           |    |   |              |   |   |   |   |   |   |
|         | Cash on hand and in banks                     |   | $              | 4,869   |   |              | $      | 4,869 |   |   | $ | 7,466 |   |   | $ | 7,466 |   |
|         | Interest-bearing deposits                     |   |           | 159,126 |   |              |   | 159,126 |   |   |   | 90,961 |   |   |   | 90,961 |   |
|         | Investments available for sale                |   |           | 148,230 |   |              |   | 148,230 |   |   |   | 164,603 |   |   |   | 164,603 |   |
|         | Loans receivable, net                         |   |           | 796,354 |   |              |   | 814,570 |   |   |   | 856,456 |   |   |   | 878,737 |   |
|         | Federal Home Loan Bank stock                  |   |           | 7,413   |   |              |   | 7,413 |   |   |   | 7,413 |   |   |   | 7,413 |   |
|         | Accrued interest receivable                   |   |           | 4,339   |   |              |   | 4,339 |   |   |   | 4,686 |   |   |   | 4,686 |   |
|         |                                          |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Liabilities: |                                          |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |
|         | Deposits                                 |   |           | 225,778 |   |              |   | 225,778 |   |   |   | 231,527 |   |   |   | 231,527 |   |
|         | Certificates of deposit                       |   |           | 680,448 |   |              |   | 693,550 |   |   |   | 688,699 |   |   |   | 701,976 |   |
|         | Advances from the Federal Home Loan Bank |   |           | 93,066  |   |              |   | 95,590 |   |   |   | 93,066 |   |   |   | 95,972 |   |
|         | Accrued interest payable                      |   |           | 230     |   |              |   | 230 |   |   |   | 214 |   |   |   | 214 |   |

| ·   | Financial instruments with book value equal to fair value: The fair value of financial instruments that are short-term or reprice frequently and that have little or no risk are considered to have a fair value equal to book value. These instruments include cash on hand and in banks, interest-bearing deposits, investments available for sale, Federal Home Loan Bank (“FHLB”) stock, accrued interest receivable and accrued interest payable. FHLB stock is not publicly-traded, however, it may be redeemed on a dollar-for-dollar basis, for any amount the Bank is not required to hold, subject to the FHLB’s discretion. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Investments: 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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Loans receivable: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value of fixed-rate loans is estimated using discounted cash flow analysis, utilizing interest rates that would be offered for loans with similar terms to borrowers of similar credit quality. As a result of current market conditions, cash flow estimates have been further discounted to include a credit factor. The fair value of nonperforming loans is estimated using the fair value of the underlying collateral. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Liabilities: The fair value of deposits with no stated maturity, such as statement, NOW, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows using current interest rates for certificates of deposit with similar remaining maturities. The fair value of FHLB advances is estimated based on discounting the future cash flows using current interest rates for debt with similar remaining maturities. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Off balance sheet commitments: No fair value adjustment is necessary for commitments made to extend credit, which represents commitments for loan originations or for outstanding commitments to purchase loans. These commitments are at variable rates, are for loans with terms of less than one year and have interest rates which approximate prevailing market rates, or are set at the time of loan closing. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                      |                                                                            |                                                                                                                                        |   |                         |                                        |                                                                               | Weighted-Average                                                                                  |    |                                                                                               | Aggregate                                                                                          |    |                                                                                                                                                                | Weighted-Average                                                                                                                                                    |
|-------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------------------------------------------|------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |                                                                            |                                                                                                                                        |   |                         | Weighted-Average                            |                                                                               | Remaining Contractual                                                                             |    |                                                                                               | Intrinsic                                                                                          |    |                                                                                                                                                                | Grant Date                                                                                                                                                          |
|                                      |                                                                            | Shares                                                                                                                                      |   |                         | Exercise Price                              |                                                                               | Term in Years                                                                                     |    |                                                                                               | Value                                                                                              |    |                                                                                                                                                                | Fair Value                                                                                                                                                          |
|                                      |                                                                            | (Dollars in thousands, except share data)                                                                                                   |
| Outstanding at January 1, 2011            |          1,383,524                 |                                                                                                                                        | $      |     9.52 |                                        |              7.60 |                                                                                              |    |                 -  |                                                                                               |  $ |                         1.91                |
|                                      | Granted                                                                         |                        - |   |                         |        - |                                                                               |                 - |    |                                                                                               |                 -  |    |                                                                                                                                                                |                            - |
|                                      | Exercised                                                                       |                        - |   |                         |        - |                                                                               |                 - |    |                                                                                               |                 -  |    |                                                                                                                                                                |                            - |
|                                      | Forfeited or expired                                                            |             (10,000)                                                            |   |                         |     9.78                |                                                                               |                 - |    |                                                                                               |                 -  |    |                                                                                                                                                                |                            - |
| Outstanding at March 31, 2011             |          1,373,524                 |                                                                                                                                        | $      |     9.52 |                                        |              7.35 |                                                                                              |  $ |                 83 |                                                                                               |  $ |                         1.92                |
|                                      |                                                                            |                                                                                                                                        |   |                         |                                        |                                                                               |                                                                                              |    |                                                                                               |                                                                                               |    |                                                                                                                                                                |                                                                                                                                                                |
| Expected to vest assuming a 3% forfeiture |                                                                            |                                                                                                                                        |   |                         |                                        |                                                                               |                                                                                              |    |                                                                                               |                                                                                               |    |                                                                                                                                                                |
|                                      | rate over the vesting term                                                      |             818,782                                                             |   | $                            |     9.39                |                                                                               |              7.39                |    |  $                                                                                            |                 80 |    |                                                                                                                                                                |                            - |
|                                      |                                                                            |                                                                                                                                        |   |                         |                                        |                                                                               |                                                                                              |    |                                                                                               |                                                                                               |    |                                                                                                                                                                |                                                                                                                                                                |
| Exercisable at March 31, 2011             |             529,410 |                                                                                                                                        | $      |     9.73 |                                        |              7.28 |                                                                                              |  $ |                 -  |                                                                                               |    |                            - |
|                                      |                                                                            |                                                                                                                                        |   |                         |                                        |                                                                               |                                                                                              |    |                                                                                               |                                                                                               |    |                                                                                                                                                                |                                                                                                                                                                |

----

|                                      |   |   |    |   | Weighted-Average     |   |
|-------------------------------------------|--------|--------|---------|--------|----------------------|--------|
|                                      |   |   |    |   | Grant-Date           |   |
| Non-vested Shares                         |   | Shares |    |   | Fair Value Per Share |   |
|                                      |   |   |    |
| Nonvested at January 1, 2011              |   |   | 456,140 |   |                 | $      | 9.75 |   |
| Granted                                   |   |   | -       |   |                 |   | - |   |
| Vested                                    |   |   | (6,400  | )      |                 |   | 8.35 |   |
| Forfeited                                 |   |   | -       |   |                 |   | - |   |
| Nonvested at March 31, 2011               |   |   | 449,740 |   |                 | $      | 9.77 |   |
|                                      |   |   |    |   |                 |   |   |   |
| Expected to vest assuming a 3% forfeiture |   |   |    |   |                 |   |   |   |
| rate over the vesting term                |   |   | 436,246 |   |                 |   |   |   |

----

|                                       | Three Months Ended March 31,              |   |
|--------------------------------------------|-------------------------------------------|--------|
|                                       | 2011                                      |   | 2010 |   |
|                                       | (Dollars in thousands, except share data) |   |
| Net income (loss)                          |                                      | $      | 1,434 |   |   | $ | (17,752 | ) |
| Weighted-average common shares outstanding |                                      |   | 17,488,842 |   |   |   | 17,383,841 |   |
| Basic earnings (loss) per share            |                                      | $      | 0.08 |   |   | $ | (1.02 | ) |
| Diluted earnings (loss) per share          |                                      | $      | 0.08 |   |   | $ | (1.02 | ) |

----

| ·   | Maintain and preserve qualified management; |
|--------------------|---------------------------------------------|

| ·   | Increase the Board of Directors’ participation in the Bank’s affairs; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | Obtain an independent study of management and the personnel structure of the Bank; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | Maintain specified capital levels; |
|--------------------|------------------------------------|

| ·   | Eliminate loans classified as “Loss” at its regulatory examination and reduce the loans classified as “Doubtful” and “Substandard” as a percent of capital; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Revise its policy with respect to the allowance for loan losses; |
|--------------------|------------------------------------------------------------------|

| ·   | Not extend additional credit to borrowers whose loan had been classified as “Loss” and is uncollected; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | Revise its lending and collection policies and practices; |
|--------------------|-----------------------------------------------------------|

----

| ·   | Develop a plan to reduce the amount of commercial real estate loans; |
|--------------------|----------------------------------------------------------------------|

| ·   | Enhance its written funds management and liquidity policy; |
|--------------------|------------------------------------------------------------|

| ·   | Develop a three-year strategic plan; |
|--------------------|--------------------------------------|

| ·   | Not solicit brokered deposits and comply with certain deposit rate restrictions; |
|--------------------|----------------------------------------------------------------------------------|

| ·   | Eliminate and correct all violations of laws; and |
|--------------------|---------------------------------------------------|

| ·   | Prepare and submit progress reports to the FDIC and DFI. |
|--------------------|----------------------------------------------------------|

----

|                 |    | Aggregate Amount                                                                                     |   | Number of |
|----------------------|---------|------------------------------------------------------------------------------------------------------|--------|-----------|
| Borrower (1)         |    | of Loans at March 31, 2011 (2)                                                                       |   | Loans     |
|                 |    |                                                                                                 |   |      |
| Real estate builder  |  $ |               27.4 million (3) |   | 117       |
| Real estate builder  |    |               27.0 million     |   | 104       |
| Real estate builder  |    |               22.1 million (4) |   | 107       |
| Real estate investor |    |               17.9 million     |   | 3         |
| Real estate investor |    |               17.0 million     |   | 41        |
| Total                |  $ |             111.4 million                |   | 372       |

| _________________                                                                                                 |
|------------------------------------------------------------------------------------------------------------------------|
| (1)   The composition of borrowers represented in the table may change from one period to the next.     |
| (2)   Net of undisbursed funds.                                                                         |
| (3)   Of this amount, $26.0 million are considered impaired loans of which $13.4 million are performing |
|  and $12.6 million are nonperforming.                                                                             |
| (4)   Of this amount, $21.2 million are considered impaired loans of which $13.1 million are performing |
| and $8.1 million are nonperforming.                                                                                    |

|                    | One-to-Four Family  |                                                          |                |   |                |                                                          |                 |   |              |                                                |          |   |
|-------------------------|---------------------|---------------------------------------------------------------|---------------------|--------|---------------------|---------------------------------------------------------------|----------------------|--------|-------------------|-----------------------------------------------------|---------------|--------|
|                    | Residential         |                                                          | Multifamily         |   | Commercial          |                                                          | Construction/        |   | Aggregate Balance |
| Borrower                | (Rental Properties) |                                                          | (Rental Properties) |   | (Rental Properties) |                                                          | Land Development (1) |   | of Loans (1)      |
|                    |                |                                                          |                |   |                |                                                          |                 |   |              |                                                |          |   |   |   |   |   |   |   |   |
| Real estate builder (2) | $                   |       16.3                      |  million       |   | $                   |           - |                 |   | $                 |         0.2 |  million |   | $ |       10.9 |  million |   | $ |       27.4 |  million |
| Real estate builder     |                |       17.3                      |  million       |   |                |           - |                 |   |              |         0.1 |  million |   |   |         9.6 |  million |   |   |       27.0 |  million |
| Real estate builder (3) |                |       18.8                      |  million       |   |                |           - |                 |   |              |         1.1 |  million |   |   |         2.2 |  million |   |   |       22.1 |  million |
| Real estate investor    |                |           - |                |   |                |           - |                 |   |              |       17.9            |  million |   |   |           - |   |   |   |       17.9 |  million |
| Real estate investor    |                |       11.0                      |  million       |   |                |         5.1           |  million        |   |              |         0.9 |  million |   |   |           - |   |   |   |       17.0 |  million |
| Total                   | $                   |       63.4                      |  million       |   | $                   |         5.1           |  million        |   | $                 |       20.2            |  million |   | $ |       22.7 |  million |   | $ |      111.4 |  million |

| (1)   Net of undisbursed funds.                                                                                           |
|------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  Of the $26.0 million loans considered impaired, $14.9 million are one-to-four family residential loans, $10.9 million are |
|         construction/land development loans and $256,000 are commercial loans.                   |
| (3)  Of the $21.2 million loans considered impaired, $17.9 million are one-to-four family residential loans, $2.2 million are  |
|         construction/land development loans and $1.1 million are commercial loans.               |

----

| County                                                                          |   | Loan Balance (1)       |   |   | Percent ofLoan Balance (1) |   |   | NonperformingLoans |   |   | Nonperforming Loans as a Percent of Loan Balance (2) |   |
|---------------------------------------------------------------------------------|--------|------------------------|--------|--------|----------------------------|--------|--------|--------------------|--------|--------|------------------------------------------------------|--------|
|                                                                            |   | (Dollars in thousands) |
| King                                                                            |   | $                      | 12,760 |   |                       |   | 31.2   | %                  |   | $      | 4,958                                                |   |   |   | 38.9 | % |
| Pierce                                                                          |   |                   | 10,574 |   |                       |   | 25.8   |               |   |   | 7,026                                                |   |   |   | 66.4 |   |
| Thurston                                                                        |   |                   | 5,577  |   |                       |   | 13.6   |               |   |   | 2,071                                                |   |   |   | 37.1 |   |
| Whatcom                                                                         |   |                   | 4,381  |   |                       |   | 10.7   |               |   |   | 4,381                                                |   |   |   | 100.0 |   |
| Kitsap                                                                          |   |                   | 3,831  |   |                       |   | 9.4    |               |   |   | 3,420                                                |   |   |   | 89.3 |   |
| All other counties                                                              |   |                   | 3,815  |   |                       |   | 9.3    |               |   |   | 1,630                                                |   |   |   | 42.7 |   |
|      Total                                                  |   | $                      | 40,938 |   |                       |   | 100.0  | %                  |   | $      | 23,486                                               |   |   |   | 57.4 | % |
| _____________                                                              |   |                   |   |   |                       |   |   |               |   |   |                                                 |   |   |   |   |   |
| (1) Net of undisbursed funds.                                                   |   |                   |   |   |                       |   |   |               |   |   |                                                 |   |   |   |   |   |
| (2) Represents the percent of the loan balance by county that is nonperforming. |   |                   |   |   |                       |   |   |               |   |

----

----

|                                          |   |                   |      |   | Increase/(Decrease) |   |    |                |   |
|-----------------------------------------------|--------|------------------------|-----------|--------|---------------------|--------|---------|---------------------|--------|
|                                          |   | Balance at             |      |   | from                |   |    | Percentage          |   |
|                                          |   | March 31, 2011         |      |   | December 31, 2010   |   |    | Increase/(Decrease) |   |
|                                          |   | (Dollars in thousands) |      |
|                                          |   |                   |      |   |                |   |    |                |   |
| Cash on hand and in banks                     |   | $                      | 4,869     |   |                | $      | (2,597  | )                   |   |   | (34.8 | ) % |
| Interest-bearing deposits                     |   |                   | 159,126   |   |                |   | 68,165  |                |   |   | 74.9 |   |
| Investments available for sale, at fair value |   |                   | 148,230   |   |                |   | (16,373 | )                   |   |   | (9.9 | ) |
| Loans receivable, net                         |   |                   | 796,354   |   |                |   | (60,102 | )                   |   |   | (7.0 | ) |
| Premises and equipment, net                   |   |                   | 19,585    |   |                |   | (244    | )                   |   |   | (1.2 | ) |
| FHLB stock, at cost                           |   |                   | 7,413     |   |                |   | -       |                |   |   | - |   |
| Accrued interest receivable                   |   |                   | 4,339     |   |                |   | (347    | )                   |   |   | (7.4 | ) |
| Federal income tax receivable                 |   |                   | 6,346     |   |                |   | 430     |                |   |   | 7.3 |   |
| OREO                                          |   |                   | 31,266    |   |                |   | 1,164   |                |   |   | 3.9 |   |
| Prepaid expenses and other assets             |   |                   | 6,210     |   |                |   | (16     | )                   |   |   | (0.3 | ) |
|     Total assets          |   | $                      | 1,183,738 |   |                | $      | (9,920  | )                   |   |   | (0.8 | ) % |

----

|                    | March 31,      |                                                                            | December 31, |   |           | Three Month         |   |     | Percent Change |
|-------------------------|----------------|---------------------------------------------------------------------------------|--------------|--------|----------------|---------------------|--------|----------|----------------|
|                    | 2011           |                                                                            | 2010         |   |           | Increase (Decrease) |   |     |
|                    | (In thousands) |
| Noninterest bearing     | $              | 4,818                                                                      |         | $      | 8,700     |                | $      | (3,882)  |           |   | (44.6) | % |
| NOW                     |           | 13,264                                                                     |         |   | 13,458    |                |   | (194)    |           |   | (1.4) |   |
| Statement savings       |           | 16,658                                                                     |         |   | 15,387    |                |   | 1,271    |           |   | 8.3 |   |
| Money market            |           | 191,038                                                                    |         |   | 193,982   |                |   | (2,944)  |           |   | (1.5) |   |
| Certificates of deposit |           | 680,448                                                                    |         |   | 688,699   |                |   | (8,251)  |           |   | (1.2) |   |
|                    | $              |           906,226   |         | $      | 920,226   |                | $      | (14,000) |           |   | (1.5) | % |

----

|                                             |   | Three Months Ended March 31, 2011              |   |
|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                             |   | Compared to March 31, 2010 Increase (Decrease) |   |
|                                             |   | Rate                                           |   |   | Volume |   |   | Total |   |
|                                             |   | (In thousands)                                 |   |
| Interest-earning assets:                         |   |                                           |   |   |   |   |   |   |   |
|    Loans receivable, net          |   | $                                              | 788    |   |   | $ | (2,954 | ) |   | $ | (2,166 | ) |
|    Investments available for sale |   |                                           | (370   | ) |   |   | 568 |   |   |   | 198 |   |
|    Interest-bearing deposits      |   |                                           |   |   |   |   |   |   |   |   |   |   |
|      with banks         |   |                                           | -      |   |   |   | 15 |   |   |   | 15 |   |
|                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |
| Total net change in income on                    |   |                                           |   |   |   |   |   |   |   |   |   |   |
|    interest-earning assets        |   |                                           | 418    |   |   |   | (2,371 | ) |   |   | (1,953 | ) |
|                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                    |   |                                           |   |   |   |   |   |   |   |   |   |   |
|    NOW accounts                   |   |                                           | (8     | ) |   |   | - |   |   |   | (8 | ) |
|    Statement savings accounts     |   |                                           | (26    | ) |   |   | 2 |   |   |   | (24 | ) |
|    Money market accounts          |   |                                           | (367   | ) |   |   | (8 | ) |   |   | (375 | ) |
|    Certificates of deposit        |   |                                           | (1,390 | ) |   |   | (261 | ) |   |   | (1,651 | ) |
|    Advances from the FHLB         |   |                                           | (103   | ) |   |   | (344 | ) |   |   | (447 | ) |
|                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |
| Total net change in expense on                   |   |                                           |   |   |   |   |   |   |   |   |   |   |
|    interest-bearing liabilities   |   |                                           | (1,894 | ) |   |   | (611 | ) |   |   | (2,505 | ) |
|                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |
| Net change in net interest income                |   | $                                              | 2,312  |   |   | $ | (1,760 | ) |   | $ | 552 |   |

|                                 |                         |                   |          |   |         |    |    |   |   |   |   |      |     |   | Increase/ |   |
|--------------------------------------|------------------------------|------------------------|---------------|--------|--------------|---------|---------|--------|--------|--------|--------|-----------|----------|--------|-----------|--------|
|                                 | Three Months Ended March 31, |                   | (Decrease) in |   |
|                                 | 2011                         |                   | 2010     |   | Interest and |    |
|                                 | Average                      |                   |          |   |         |    | Average |   |   |   |   |      | Dividend |   |
|                                 | Balance                      |                   |          | Yield  |         | Balance |    |   | Yield  |   | Income |      |
|                                 |                         | (Dollars in thousands) |          |
|                                 |                         |                   |          |   |         |    |    |   |   |   |   |      |     |   |      |   |   |
| Loans receivable, net                |                         | $                      | 826,918       |   |         |    | 6.01    | %      |   |   | $      | 1,036,148 |     |   |      | 5.63   | % |   |   | $ | (2,166 | ) |
| Investments available for sale       |                         |                   | 158,367       |   |         |    | 3.04    |   |   |   |   | 101,414   |     |   |      | 3.97   |   |   |   |   | 198 |   |
| Interest-bearing deposits with banks |                         |                   | 123,164       |   |         |    | 0.25    |   |   |   |   | 98,795    |     |   |      | 0.25   |   |   |   |   | 15 |   |
| FHLB stock                           |                         |                   | 7,413         |   |         |    | -       |   |   |   |   | 7,413     |     |   |      | -      |   |   |   |   | - |   |
| Total interest-earning assets        |                         | $                      | 1,115,862     |   |         |    | 4.91    | %      |   |   | $      | 1,243,770 |     |   |      | 5.04   | % |   |   | $ | (1,953 | ) |

----

|                                     | Three Months Ended March 31, |                   |      |   |      |
|------------------------------------------|------------------------------|------------------------|-----------|--------|-----------|
|                                     | 2011                         |                   | 2010      |   | Increase/ |   |
|                                     |                         |                   |      |   |      |   |   |   |   |   |   |   |   |   | (Decrease) in |   |
|                                     | Average                      |                   |      |   |      |   | Average |   |   |   |   |   | Interest |   |
|                                     | Balance                      |                   |      | Cost   |      | Balance |   |   | Cost |   | Expense |   |
|                                     |                         | (Dollars in thousands) |      |
|                                     |                         |                   |      |   |      |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts                             |                         | $                      | 13,080    |   |      |   | 0.21 | % |   |   | $ | 12,895 |   |   |   | 0.47 | % |   |   | $ | (8 | ) |
| Statement savings accounts               |                         |                   | 15,872    |   |      |   | 0.55 |   |   |   |   | 15,120 |   |   |   | 1.22 |   |   |   |   | (24 | ) |
| Money market accounts                    |                         |                   | 191,839   |   |      |   | 0.76 |   |   |   |   | 193,823 |   |   |   | 1.52 |   |   |   |   | (375 | ) |
| Certificates of deposit                  |                         |                   | 686,485   |   |      |   | 2.40 |   |   |   |   | 718,999 |   |   |   | 3.21 |   |   |   |   | (1,651 | ) |
| Advances from the Federal Home Loan Bank |                         |                   | 93,066    |   |      |   | 2.48 |   |   |   |   | 139,900 |   |   |   | 2.92 |   |   |   |   | (447 | ) |
| Total interest-bearing liabilities       |                         | $                      | 1,000,342 |   |      |   | 2.03 | % |   |   | $ | 1,080,737 |   |   |   | 2.81 | % |   |   | $ | (2,505 | ) |

----

|                                                                                    | March 31, 2011 |                                                                                                                  | December 31, 2010 |   | March 31, 2010                                                                                                                                                                        |   | Three Month Increase (Decrease) |                                                                                                                                        |   | One Year Increase (Decrease) |
|-----------------------------------------------------------------------------------------|----------------|-----------------------------------------------------------------------------------------------------------------------|-------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|
|                                                                                    | (In thousands) |
|      One-to-four family residential (1)                        | $              |               15,652                            |              | $      |                     22,688                                                        |   | $                               |               48,035                                                  |   | $                            |         (7,036) |   | $ |            (32,383) |
|   Multifamily                                                                 |           |                    700 |              |   |                               - |   |                            |                        - |   |                         |              700 |   |   |                  700 |
|      Commercial real estate                                    |           |               11,104                            |              |   |                       7,306                                             |   |                            |               14,108                                                  |   |                         |           3,798 |   |   |              (3,004) |
|      Construction/land development                             |           |               23,485                            |              |   |                     32,885                                                        |   |                            |               83,016                                                  |   |                         |         (9,400) |   |   |            (59,531) |
|      Consumer                                                  |           |                    145 |              |   |                            57                  |   |                            |                    759                       |   |                         |                88 |   |   |                 (614) |
| Total nonperforming loans                                                               | $              |               51,086                            |              | $      |                     62,936                                                        |   | $                               |             145,918                                                             |   | $                            |       (11,850) |   | $ |            (94,832) |
|                                                                                    |           |                                                                                                                  |              |   |                                                                                                                                                                                  |   |                            |                                                                                                                                        |   |                         |   |   |   |   |
| Other real estate owned                                                                 |           |               31,266                            |              |   |                     30,102                                                        |   |                            |               20,500                                                  |   |                         |           1,164 |   |   |             10,766 |
|                                                                                    |           |                                                                                                                  |              |   |                                                                                                                                                                                  |   |                            |                                                                                                                                        |   |                         |   |   |   |   |
| Total nonperforming assets                                                              | $              |               82,352                            |              | $      |                     93,038                                                        |   | $                               |             166,418                                                             |   | $                            |       (10,686) |   | $ |            (84,066) |
| _______________                                                                    |           |                                                                                                                  |              |   |                                                                                                                                                                                  |   |                            |                                                                                                                                        |   |                         |   |   |   |   |
| (1) The majority of these loans are related to our merchant builders rental properties. |

|                                                               | March 31,2011   |                                       | December 31, 2010  |   | September 30, 2010                                            |   | June 30, 2010  |                                                                                                                     | March 31, 2010 |
|--------------------------------------------------------------------|----------------------|--------------------------------------------|-------------------------|--------|--------------------------------------------------------------------|--------|---------------------|--------------------------------------------------------------------------------------------------------------------------|----------------|
|                                                               | (In thousands0  |
| Performing troubled debt restructured loans (1)                    | $                    |       65,805 |                    | $      |           58,375 |   | $                   |                    42,891 |           | $ |        46,575 |   | $ |        22,948 |
| Nonaccrual troubled debt restructured loans                        |                 |       11,349 |                    |   |           16,299 |   |                |                    28,387 |           |   |        33,208 |   |   |        37,783 |
|      Troubled debt restructured loans     | $                    |       77,154 |                    | $      |           74,674 |   | $                   |                    71,278 |           | $ |        79,783 |   | $ |        60,731 |
| ___________                                                   |                 |                                       |                    |   |                                                               |   |                |                                                                                                                     |           |   |   |   |   |   |
| (1)  Balances represent loans, net of undisbursed funds. |

----

|                           |  King County            |                                                |  Pierce County |   |  Kitsap County                                                             |   |  Snohomish County |                                                              |  All other counties |   | Total Other Real Estate Owned                                                                                             |   | Percent of Total Other Real Estate Owned |
|--------------------------------|------------------------------|-----------------------------------------------------|---------------------|--------|---------------------------------------------------------------------------------|--------|------------------------|-------------------------------------------------------------------|--------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
|                           |  (Dollars in thousands) |
| One-to-four family residential | $                            |      3,771                 |                | $      |      6,544                                             |   | $                      |           1,904 |                     | $      |              1,674                                       |   | $                                        |                 475 |   | $ |               14,368 |   | 45.95 | % |
| Commercial                     |                         |         563 |                |   |      2,600                                             |   |                   |           1,292 |                     |   |                     - |   |                                     |                 450 |   |   |                 4,905 |   | 15.69 |   |
| Construction/land development  |                         |      5,906                 |                |   |              - |   |                   |           3,522 |                     |   |                     - |   |                                     |              2,565 |   |   |               11,993 |   | 38.36 |   |
| Total other real estate owned  | $                            |    10,240                            |                | $      |      9,144                                             |   | $                      |           6,718 |                     | $      |              1,674                                       |   | $                                        |              3,490 |   | $ |               31,266 |   | 100.00 | % |

----

|                                                                          | At or For the Three Months Ended March 31, |
|-------------------------------------------------------------------------------|--------------------------------------------|
|                                                                          | 2011                                       |   | 2010 |
|                                                                          | (Dollars in thousands)                     |
|                                                                          |                                       |   |   |   |   |   |   |
| Provision for loan losses                                                     | $                                          |            1,200 |   |   | $ |           13,000 |   |
| Charge-offs                                                                   | $                                          |            3,675 |   |   | $ |             9,682 |   |
| Recoveries                                                                    | $                                          |               191 |   |   | $ |                122 |   |
| Allowance for loan losses                                                     | $                                          |          20,250 |   |   | $ |           36,479 |   |
| Allowance for loan losses as a percent of total loans outstanding             |                                       |   |   |   |   |   |   |
|    at the end of the period, net of undisbursed funds          |                                       | 2.47 |  % |   |   |               3.45 |   % |
| Allowance for loan losses as a percent of nonperforming loans                 |                                       |   |   |   |   |   |   |
|    at the end of the period, net of undisbursed funds          |                                       | 39.64 |  % |   |   |             25.00 |  % |
| Total nonaccrual and 90 days or more past due loans, net of undisbursed funds | $                                          |          51,086 |   |   | $ |         145,918 |   |
| Nonaccrual and 90 days or more past due loans as a                            |                                       |   |   |   |   |   |   |
|    percent of total loans, net of undisbursed funds            |                                       | 6.24 |  % |   |   |             13.81 |  % |
| Total loans receivable, net of undisbursed funds                              | $                                          |        818,799 |   |   | $ |      1,056,321 |   |
| Total loans originated, net of undisbursed funds                              | $                                          |            5,772 |   |   | $ |           29,159 |   |

|                               |   | Three Months           |   |   | Increase/(Decrease) |   |   |                |   |
|------------------------------------|--------|------------------------|--------|--------|---------------------|--------|--------|---------------------|--------|
|                               |   | Ended                  |   |   | from                |   |   | Percentage          |   |
|                               |   | March 31, 2011         |   |   | March 31, 2010      |   |   | Increase/(Decrease) |   |
|                               |   | (Dollars in thousands) |   |
|                               |   |                   |   |   |                |   |   |                |   |
| Compensation and benefits          |   | $                      | 3,289  |   |                | $      | 100    |                |   |   | 3.1 | % |
| Occupancy and equipment            |   |                   | 402    |   |                |   | (23    | )                   |   |   | (5.4 | ) |
| Professional fees                  |   |                   | 480    |   |                |   | 21     |                |   |   | 4.6 |   |
| Data processing                    |   |                   | 209    |   |                |   | 39     |                |   |   | 22.9 |   |
| Gain on sale of OREO property, net |   |                   | (626   | )      |                |   | (1,063 | )                   |   |   | (243.3 | ) |
| OREO valuation expense             |   |                   | 628    |   |                |   | (1,643 | )                   |   |   | (72.4 | ) |
| OREO related expenses, net         |   |                   | 850    |   |                |   | 148    |                |   |   | 21.1 |   |
| FDIC/OTS assessments               |   |                   | 710    |   |                |   | 130    |                |   |   | 22.4 |   |
| Insurance/bond premiums            |   |                   | 247    |   |                |   | 98     |                |   |   | 65.8 |   |
| Marketing                          |   |                   | 61     |   |                |   | 18     |                |   |   | 41.9 |   |
| Other                              |   |                   | 332    |   |                |   | (110   | )                   |   |   | (24.9 | ) |
| Total noninterest expense          |   | $                      | 6,582  |   |                | $      | (2,285 | )                   |   |   | 25.8 | % |

----

----

|                                                        |           |                                                                                                |     | Amount of Commitment Expiration - Per Period |
|-------------------------------------------------------------|----------------|-----------------------------------------------------------------------------------------------------|----------|----------------------------------------------|
|                                                        |           |                                                                                                |     |                                         |   |   | After |   | After |   |   |   |
|                                                        |           |                                                                                                |     |                                         |   |   | One |   | Three |   |   |   |
|                                                        | Total          |                                                                                                |     |                                         |   | Through |   | Through |   | After |
|                                                        | Amounts        |                                                                                                | Through  |                                         | Three |   | Five |   | Five |
|                                                        | Committed      |                                                                                                | One Year |                                         | Years |   | Years |   | Years |
|                                                        | (In thousands) |
|                                                        |           |                                                                                                |     |                                         |   |   |   |   |   |   |   |   |   |   |
| Commitments to originate loans                              | $              |                 284 |     | $                                            |             284 |   | $ |                  - |   | $ |                  - |   | $ |                  - |
| Unused portion of lines of credit                           |           |              9,543                 |     |                                         |             410 |   |   |             897 |   |   |          2,669 |   |   |          5,567 |
| Undisbursed portion of construction loans                   |           |              5,633                 |     |                                         |          3,651 |   |   |          1,552 |   |   |             430 |   |   |                  - |
|        Total commitments | $              |            15,460                            |     | $                                            |          4,345 |   | $ |          2,449 |   | $ |          3,099 |   | $ |          5,567 |

----

----

|   | March 31, 2011             |
|--------|----------------------------|
|   | Net Interest Income Change |
|   | Basis PointChange in Rates |   | % Change |
|   | +300                       |   |                          5.94  % |   |
|   | +200                       |   |                    5.39 |   |
|   | +100                       |   |                    4.66 |   |
|   | Base                       |   |                    2.70 |   |
|   | (100)                      |   |                  (0.28) |   |
| (1)    | (200)                      |   |                  N/A |   |
| (1)    | (300)                      |   |                  N/A |   |

| ____________ |
|--------------|
| (1)          | The current federal funds rate is 0.25% |
|         | making a 200 and 300 basis point drop |   |
|         | impossible. |   |   |   |

----

| March 31, 2011         |
|------------------------|
|                   |   |   |   |   |   |   |   |   |   |   | Net Portfolio as % of |   |   |   |
| Basis Point            |   | Net Portfolio Value (2) |   | Portfolio Value of Assets |   | Market Value |
| Change in Rates        |   |   | Amount |   | $ Change |   | % Change |   | NPV Ratio (3) |   | % Change (4) |   | of Assets (5) |
| (Dollars in thousands) |
| +300                   |   | $ |           128,941 |   | $ |      (57,564) |   |        (30.86) | % |         11.67 | % |          (4.76) | % |   | $ |          1,105,171 |
| +200                   |   |   |           147,136 |   |   |      (39,369) |   |        (21.11) |   |   |         12.93 |   |   |          (3.26) |   |   |   |          1,138,114 |
| +100                   |   |   |           167,130 |   |   |      (19,375) |   |        (10.39) |   |   |         14.24 |   |   |          (1.60) |   |   |   |          1,173,319 |
| Base                   |   |   |           186,505 |   |   |                 - |   |               - |   |   |         15.43 |   |   |               - |   |   |   |          1,208,394 |
| (100)                  |   |   |           197,218 |   |   |       10,713 |   |           5.74 |   |   |         16.01 |   |   |           0.89 |   |   |   |          1,232,063 |
| (200)                  | (1) |   |           N/A |   |   |       N/A |   |         N/A |   |   |          N/A |   |   |          N/A |   |   |   | N/A |
| (300)                  | (1) |   |           N/A |   |   |       N/A |   |         N/A |   |   |          N/A |   |   |          N/A |   |   |   | N/A |

| (1)   | The current federal funds rate is 0.25%, making a 200 or 300 basis point decrease in rates impossible. |
|-----------------|--------------------------------------------------------------------------------------------------------|

| (2)   | The difference between the present value of discounted cash flows for assets and liabilities represents the net portfolio value or the market value of equity. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 (base case). |
|-----------------|--------------------------------------------------------------------------------------------------------|

| (5)   | Calculated based on the present value of the discounted cash flows from assets. |
|-----------------|---------------------------------------------------------------------------------|

| (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 |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Accounting 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, 2011, 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, 2011, 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. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 3.1   | Articles of Incorporation of First Financial Northwest (1)                                                                                        |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.2   | Bylaws of First Financial Northwest (1)                                                                                                           |
|   | 4     | Form of stock certificate of First Financial Northwest (1)                                                                                        |
|   | 10.1  | Form of Employment Agreement for President and Chief Executive Officer (1)                                                                        |
|   | 10.2  | Form of Change in Control Severance Agreement for Executive Officers (1)                                                                          |
|   | 10.3  | Form of First Savings Bank Employee Severance Compensation Plan (1)                                                                               |
|   | 10.4  | Form of Supplemental Executive Retirement Agreement entered into by First Savings Bank with Victor Karpiak, Harry A. Blencoe and Robert H. Gagnier (1) |
|   | 10.5       | Form of Financial Institutions Retirement Fund (1)                                                                                                |
|   | 10.6  | Form of 401(k) Retirement Plan (2)                                                                                                                |
|   | 10.7  | 2008 Equity Incentive Plan (3)                                                                                                                    |
|   | 10.8       | Forms of incentive and non-qualified stock option award agreements (4)                                                                            |
|   | 10.9  | Form of restricted stock award agreement (4)                                                                                                      |
|   | 14    | Code of Business Conduct and Ethics (5)                                                                                                           |
|   | 21    | Subsidiaries of the Registrant                                                                                                                    |
|   | 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                                                        |

----

|   | 32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
|--------|------|--------------------------------------------------------------------------------------------|
|   | 32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |

| (1)  | Filed as an exhibit to First Financial Northwest’s Registration Statement on Form S-1 (333-143549).                                                   |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)       | Filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated herein by reference. |
| (3)  | Filed as Appendix A to First Financial Northwest’s definitive proxy statement dated April 15, 2008.                                                   |
| (4)  | Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated July 1, 2008.                                                     |
| (5)       | Registrant elects to satisfy Regulation S-K §229.406 (c) by posting its code of ethics on its website at www.fsbnw.com.                                     |

----

|                          | First Financial Northwest, Inc.                                                                                                                                         |
|-------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |
| Date: May 9, 2011   | /s/ Victor Karpiak                                                  |
|                          | Victor Karpiak                                                                                                                                                          |
|                          | Chairman of the Board, President and                                                                                                                               |
|                          | Chief Executive Officer                                                                                                                                            |
|                          | (Principal Executive Officer)                                                                                                                                           |
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |
| Date: May 9, 2011        | /s/ Kari Stenslie                          |
|                          | Kari Stenslie                                                                                                                                                           |
|                          | Chief Financial Officer                                                                                                                                            |
|                          | (Principal Financial and Accounting Officer)                                                                                                                            |
|                          |                                                                                                                                                                    |
|                          |                                                                                                                                                                    |

----

| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act                                                |
|------|-------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certification of Chief Financial Officer and Principal Financial and Accounting 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                    |

| 48  |
|----------|