| [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.   |
|--------------------------------------------------|

| 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                                                                                                     |

----

| PART 1 - FINANCIAL      INFORMATION |                                                                                                                                           |
|-------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                                           |  Page |
| Item 1    -                    | Financial      Statements                                                                                                            |  3 |
|                                |                                                                                                                                           |   |
| Item 2    -                    | Management’s      Discussion and Analysis of Financial Condition          and      Results of Operations   |  22 |
|                                |                                                                                                                                           |   |
| Item 3    -                    | Quantitative and      Qualitative Disclosures About Market Risk                                                                           |  36 |
|                                |                                                                                                                                           |   |
| Item 4    -                    | Controls and      Procedures                                                                                                              |  39 |
|                                |                                                                                                                                           |   |
|                                |                                                                                                                                           |   |
| PART II - OTHER      INFORMATION    |                                                                                                                                           |
|                                |                                                                                                                                           |   |
| Item 1    -                    | Legal      Proceedings                                                                                                                    | 40  |
|                                |                                                                                                                                           |   |
| Item 1A      -                 | Risk      Factors                                                                                                                         | 40  |
|                                |                                                                                                                                           |   |
| Item 2    -                    | Unregistered Sales      of Equity Securities and Use of Proceeds                                                                          | 42  |
|                                |                                                                                                                                           |   |
| Item 3    -                    | Defaults upon Senior      Securities                                                                                                      | 42  |
|                                |                                                                                                                                           |   |
| Item 4    –              | [Removed and      Reserved]                                                                                                               | 43  |
|                                |                                                                                                                                           |   |
| Item 5    -                    | Other      Information                                                                                                                    | 43  |
|                                |                                                                                                                                           |   |
| Item 6    -                    | Exhibits                                                                                                                             | 43  |
|                                |                                                                                                                                           |   |
| SIGNATURES                          | 44                                                                                                                                             |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated      Balance Sheets                                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Dollars      in thousands, except share data)                                                                                                                                                                                                                                                  |
| (Unaudited)                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   | March      31, |   | December      31, |
| Assets                                                                                                                                                                                                                                                                                          | 2010 |   | 2009 |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Cash      on hand and in banks                                                                                                                                                                                                                                                                  | $ | 8,373        |   | $ | 8,937        |
| Interest-bearing      deposits                                                                                                                                                                                                                                                                  |   | 107,326        |   |   | 96,033        |
| Investments      available for sale                                                                                                                                                                                                                                                             |   | 109,593        |   |   | 97,383        |
| Loans      receivable, net of allowance of $36,479 and $33,039                                                                                                                                                                                                                                  |   | 1,016,896        |   |   | 1,039,300        |
| Premises      and equipment, net                                                                                                                                                                                                                                                                |   | 20,453        |   |   | 19,585        |
| Federal      Home Loan Bank stock, at cost                                                                                                                                                                                                                                                      |   | 7,413        |   |   | 7,413        |
| Accrued      interest receivable                                                                                                                                                                                                                                                                |   | 4,716        |   |   | 4,880        |
| Federal      income tax receivable                                                                                                                                                                                                                                                              |   | 12,160        |   |   | 9,499        |
| Deferred      tax assets, net                                                                                                                                                                                                                                                                   |   | 5,415        |   |   | 12,139        |
| Other      real estate owned (OREO)                                                                                                                                                                                                                                                             |   | 20,500        |   |   | 11,835        |
| Prepaid      expenses and other assets                                                                                                                                                                                                                                                          |   | 8,384        |   |   | 8,330        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   | Total      assets | $ | 1,321,229        |   | $ | 1,315,334        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   |   |   | Liabilities      and Stockholders' Equity |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                                                                                                                                                                                        |   |   |   | $ | 962,590        |   | $ | 939,423        |
| Advances      from the Federal Home Loan Bank                                                                                                                                                                                                                                                   |   | 139,900        |   |   | 139,900        |
| Advance      payments from borrowers for taxes and insurance                                                                                                                                                                                                                                    |   | 4,509        |   |   | 2,377        |
| Accrued      interest payable                                                                                                                                                                                                                                                                   |   | 402        |   |   | 457        |
| Other      liabilities                                                                                                                                                                                                                                                                          |   |   |   | 3,789        |   |   | 4,660        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   | Total      liabilities |   | 1,111,190        |   |   | 1,086,817        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                 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 and 18,823,068 |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                            |   | shares      at March 31, 2010 and December 31, 2009 |   | 188        |   |   | 188        |
|                                                                                                                                                                                                                                                                                            | Additional      paid-in capital |   | 186,415        |   |   | 186,120        |
|                                                                                                                                                                                                                                                                                            | Retained      earnings, substantially restricted |   | 36,078        |   |   | 55,251        |
|                                                                                                                                                                                                                                                                                            | Accumulated      other comprehensive income, net of tax |   | 1,465        |   |   | 1,347        |
|                                                                                                                                                                                                                                                                                            | Unearned      Employee Stock Ownership Plan (ESOP) shares |   | (14,107) |   |   | (14,389) |
|                                                                                                                                                                                                                                                                                            |   |   |   |   | Total      stockholders' equity |   | 210,039        |   |   | 228,517        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   | Total      liabilities and stockholders' equity | $ | 1,321,229        |   | $ | 1,315,334        |
|                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated      Statements of Operations |
|-------------------------------------------------------------------------------------------------|
| (Dollars      in thousands, except share data)                                                  |
| (Unaudited)                                                                                     |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   |   |   |   |   |   | Three      Months Ended March 31, |
|                                                                                            |   |   |   |   |   |   | 2010 |   | 2009 |
| Interest      income                                                                            |   |   |   |   |   |
|                                                                                            | Loans,      including fees | $ | 14,594         |   | $ | 15,123         |
|                                                                                            | Investments      available for sale |   | 1,007         |   |   | 1,625         |
|                                                                                            | Federal      funds sold and interest-bearing deposits with banks |   | 61         |   |   | 2         |
|                                                                                            |   |   |   |   | Total      interest income | $ | 15,662         |   | $ | 16,750         |
| Interest      expense                                                                           |   |   |   |   |   |   |
|                                                                                            | Deposits |   |   |   | 6,571         |   |   | 7,329         |
|                                                                                            | Federal      Home Loan Bank advances |   | 1,023         |   |   | 1,246         |
|                                                                                            |   |   |   |   | Total      interest expense | $ | 7,594         |   | $ | 8,575         |
|                                                                                            |   |   |   |   | Net      interest income |   | 8,068         |   |   | 8,175         |
| Provision      for loan losses                                                                  |   | 13,000         |   |   | 1,544         |
|                                                                                            |   |   |   |   | Net      interest income (loss) after provision for loan losses | $ | (4,932)        |   | $ | 6,631         |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      income                                                                         |   |   |   |   |   |
|                                                                                            | Net      gain on sale of investments |   | —     |   |   | 76         |
|                                                                                            | Other |   |   |   |   | 46         |   |   | 54         |
|                                                                                            |   |   |   |   | Total      noninterest income | $ | 46         |   | $ | 130         |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      expense                                                                        |   |   |   |   |   |
|                                                                                            | Salaries      and employee benefits |   | 3,189         |   |   | 3,039         |
|                                                                                            | Occupancy      and equipment |   | 425         |   |   | 350         |
|                                                                                            | Professional      fees |   | 459         |   |   | 307         |
|                                                                                            | Data      processing |   | 170         |   |   | 144         |
|                                                                                            | Loss      on sale of OREO property, net |   | 437         |   |   | —     |
|                                                                                            | OREO      valuation expense |   | 2,271         |   |   | —     |
|                                                                                            | OREO      related expenses, net |   | 702         |   |   | —     |
|                                                                                            | FDIC/OTS      assessments |   | 580         |   |   | 682         |
|                                                                                            | Other      general and administrative |   | 634         |   |   | 622         |
|                                                                                            |   |   |   |   | Total      noninterest expense | $ | 8,867         |   | $ | 5,144         |
|                                                                                            |   |   |   |   | Income      (loss) before provision for federal income taxes |   | (13,753)        |   |   | 1,617         |
| Provision      for federal income taxes                                                         |   | 3,999         |   |   | 421         |
|                                                                                            |   |   |   |   | Net      income (loss) | $ | (17,752)        |   | $ | 1,196         |
|                                                                                            |   |   |   |   | Basic      earnings (loss) per share | $ |                       (1.02)   |   | $ |                        0.06    |
|                                                                                            |   |   |   |   | Diluted      earnings (loss) per share | $ |                       (1.02)   |   | $ |                        0.06    |
|                                                                                            |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   |   |   |   |   |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated      Statements of Stockholders' Equity and Comprehensive Income      (Loss)For      the Three Months Ended March 31, 2010(Dollars      in thousands, except share data)(Unaudited) |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   | Additional |   |   |   |   | Other |   | Unearned |   | Total |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |   | Common |   | Paid-in |   | Retained |   | Comprehensive |   | ESOP |   | Stockholders' |
|                                                                                                                                                                                                                                                  |   |   |   |   |   |   | Shares |   | Stock |   | Capital |   | Earnings |   | Income,      net of tax |   | Shares |   | Equity |
| Balances      at December 31, 2009                                                                                                                                                                                                                    | 18,823,068  |   | $ | 188         |   | $ | 186,120         |   | $ | 55,251         |   | $ | 1,347         |   | $ | (14,389)        |   | $ | 228,517         |
| Comprehensive      loss:                                                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  | Net      loss | —   |   |   | —     |   |   | —     |   |   | (17,752)        |   |   | —     |   |   | —     |   |   | (17,752)        |
|                                                                                                                                                                                                                                                  | Change      in fair value of investments |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   | available      for sale, net of tax $63 | —   |   |   | —     |   |   | —     |   |   | —     |   |   | 118         |   |   | —     |   |   | 118         |
|                                                                                                                                                                                                                                                  |   |   |   | Total      comprehensive loss: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (17,634)        |
| Cash      dividend declared and paid ($0.085 per share)                                                                                                                                                                                               | —   |   |   | —     |   |   | —     |   |   | (1,421)        |   |   | —     |   |   | —     |   |   | (1,421)        |
| Purchase      and retirement of common stock                                                                                                                                                                                                          | (17,900) |   |   | —     |   |   | (106)        |   |   | —     |   |   | —     |   |   | —     |   |   | (106)        |
| Compensation      related to stock options                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                  |   | and      restricted stock awards | —   |   |   | —     |   |   | 497         |   |   | —     |   |   | —     |   |   | —     |   |   | 497         |
| Allocation      of 28,213 ESOP shares                                                                                                                                                                                                                 | —   |   |   | —     |   |   | (96)        |   |   | —     |   |   | —     |   |   | 282         |   |   | 186         |
| Balances      at March 31, 2010                                                                                                                                                                                                                       | 18,805,168  |   | $ | 188         |   | $ | 186,415         |   | $ | 36,078         |   | $ | 1,465         |   | $ | (14,107)        |   | $ | 210,039  |
|  See      accompanying notes to consolidated financial  statements.                                                                                                                                                                              |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated      Statements of Cash Flows(In      thousands)(Unaudited) |
|-------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                          |   |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   |   |   |   | Three      months ended March 31, |
|                                                                                                                          |   |   |   |   |   |   |   | 2010 |   | 2009 |
| Cash      flows from operating activities:                                                                                    |   |   |   |   |   |   |
|                                                                                                                          | Net      income (loss) |   | $ | (17,752)  |   | $ | 1,196        |
|                                                                                                                          | Adjustments      to reconcile net income to |   |   |   |   |   |   |
|                                                                                                                          |   | net      cash provided by operating activities: |   |   |   |   |   |   |
|                                                                                                                          |   |   | Provision      for loan losses |   |   | 13,000        |   |   | 1,544        |
|                                                                                                                          |   |   | OREO      valuation expense |   |   | 2,271        |   |   | —    |
|                                                                                                                          |   |   | Loss      on sale of OREO property, net |   |   | 437        |   |   | —    |
|                                                                                                                          |   |   | Depreciation      and amortization of premises and equipment |   |   | 254        |   |   | 197        |
|                                                                                                                          |   |   | Net      amortization of premiums and discounts on investments |   |   | 250        |   |   | 146        |
|                                                                                                                          |   |   | ESOP      expense |   |   | 186        |   |   | 234        |
|                                                                                                                          |   |   | Compensation      expense related to stock options and restricted stock    awards | 497        |   |   | 515        |
|                                                                                                                          |   |   | Net      realized gain on investments available for sale |   |   | —    |   |   | (76)  |
|                                                                                                                          |   |   | Deferred      federal income taxes |   |   | 6,661        |   |   | 412        |
|                                                                                                                          |   |   | Changes      in operating assets and liabilities: |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   | Other      assets |   |   | (54)  |   |   | 1,370        |
|                                                                                                                          |   |   |   |   | Accrued      interest receivable |   |   | 164        |   |   | (262)  |
|                                                                                                                          |   |   |   |   | Accrued      interest payable |   |   | (55)  |   |   | 16        |
|                                                                                                                          |   |   |   |   | Other      liabilities |   |   | (871)  |   |   | 596        |
|                                                                                                                          |   |   |   |   | Federal      income taxes |   |   | (2,661)  |   |   | (242)  |
|                                                                                                                          |   |   |   |   |   | Net      cash provided by operating activities |   | $ | 2,327        |   | $ | 5,646        |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                    |   |   |   |   |   |   |
|                                                                                                                          |   | Proceeds      from sales of investments |   |   | —    |   |   | 6,853        |
|                                                                                                                          |   | Proceeds      from sales of OREO's |   |   | 3,031        |   |   | —    |
|                                                                                                                          |   | Principal      repayments on investments available for sale |   |   | 6,657        |   |   | 7,215        |
|                                                                                                                          |   | Purchases      of investments available for sale |   |   | (18,936)  |   |   | (4,671)  |
|                                                                                                                          |   | Net      increase (decrease) in loans receivable |   |   | (5,000)  |   |   | 2,451        |
|                                                                                                                          |   | Purchases      of premises and equipment |   |   | (1,122)  |   |   | (353)  |
|                                                                                                                          |   |   |   |   |   | Net      cash provided (used) by investing activities |   | $ | (15,370)  |   | $ | 11,495        |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   |   | Balance,      carried forward |   | $ | (13,043)  |   | $ | 17,141        |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIESConsolidated      Statements of Cash Flows(In      thousands)(Unaudited) |
|-------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                          |   |   |   |   |   |   | Three      Months Ended March 31, |
|                                                                                                                          |   |   |   |   |   |   | 2010 |   | 2009 |
|                                                                                                                          |   |   |   |   |   | Balance,      brought forward | $ | (13,043)  |   | $ | 17,141        |
| Cash      flows from financing activities:                                                                                    |   |   |   |   |   |
|                                                                                                                          | Net      increase in deposits |   | 23,167        |   |   | 29,703        |
|                                                                                                                          | Advances      from the Federal Home Loan Bank |   | 50,000        |   |   | 15,000        |
|                                                                                                                          | Repayments      of advances from the Federal Home Loan Bank |   | (50,000)  |   |   | (23,000)  |
|                                                                                                                          | Net      increase in advance payments from borrowers for taxes and      insurance |   | 2,132        |   |   | 2,013        |
|                                                                                                                          | Repurchase      and retirement of common stock |   | (106)  |   |   | (7,533)  |
|                                                                                                                          | Dividends      paid |   | (1,421)  |   |   | (1,667)  |
|                                                                                                                          |   |   |   |   | Net      cash provided by financing activities | $ | 23,772        |   | $ | 14,516        |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                          |   |   |   |   | Net      increase in cash |   | 10,729        |   |   | 31,657        |
| Cash      and cash equivalents:                                                                                               |   |   |   |   |   |
|                                                                                                                          | Beginning      of period |   | 104,970        |   |   | 5,756        |
|                                                                                                                          | End      of period |   | $ | 115,699        |   | $ | 37,413        |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosures of cash flow information:                                                                       |   |   |   |   |   |
|                                                                                                                          | Cash      paid during the period for: |   |   |   |   |   |
|                                                                                                                          |   | Interest |   | $ | 7,649        |   | $ | 8,559        |
|                                                                                                                          |   | Federal      income taxes | $ | —    |   | $ | 450        |
| Noncash      transactions:                                                                                                    |   |   |   |   |   |
|                                                                                                                          | Loans,      net of deferred loan fees and allowance for loan losses, transferred to      OREO | $ | 14,404        |   | $ | —    |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financialstatements.                                                              |
|                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |

----

----

|                                          |   |              |   |   |                |   | March      31, 2010 |
|-----------------------------------------------|--------|-------------------|--------|--------|---------------------|--------|---------------------|
|                                          |   |              |   |   |                |   |                |   |   | Gross |   | Gross |   |   |   |
|                                          |   |              |   |   |                |   | Amortized           |   | Unrealized |   | Unrealized |   |   |   |
|                                          |   |              |   |   |                |   | Cost                |   | Gains |   | Losses |   | Fair      Value |
|                                          |   |              |   |   |                |   | (In      thousands) |
| Mortgage-backed      and related investments: |   |              |   |   |                |   |                |   |   |   |   |
|                                          |   | Fannie      Mae   |   | $      | 58,736         |   | $                   | 1,403        |   | $ | (101) |   | $ | 60,038        |
|                                          |   | Freddie      Mac  |   |   | 32,543         |   |                | 1,128        |   |   | (54) |   |   | 33,617        |
|                                          |   | Ginnie      Mae   |   |   | 4,809          |   |                | 90        |   |   | —   |   |   | 4,899        |
| Tax-exempt      municipal bonds               |   | 4,207        |   |   | 45             |   |                | (492) |   |   | 3,760        |
| Taxable      municipal bonds                  |   | 649          |   |   | —   |   |                | (11) |   |   | 638        |
| U.S.      Government agencies                 |   | 1,936        |   |   | 87             |   |                | —   |   |   | 2,023        |
| Mutual      fund (1)                          |   | 4,460        |   |   | 158            |   |                | —   |   |   | 4,618        |
|                                          |   |              |   |   |                |   | $                   | 107,340        |   | $ | 2,911        |   | $ | (658) |   | $ | 109,593        |
|                                          |   |              |   |   |                |   |                |   |   |   |   |   |   |   |   |   |   |

|                                          |   |              |   |   |                |   | December      31, 2009 |
|-----------------------------------------------|--------|-------------------|--------|--------|---------------------|--------|------------------------|
|                                          |   |              |   |   |                |   |                   |   |   | Gross |   | Gross |   |   |   |
|                                          |   |              |   |   |                |   | Amortized              |   | Unrealized |   | Unrealized |   |   |   |
|                                          |   |              |   |   |                |   | Cost                   |   | Gains |   | Losses |   | Fair      Value |
|                                          |   |              |   |   |                |   | (In      thousands)    |
| Mortgage-backed      and related investments: |   |              |   |   |                |   |                   |   |   |   |   |
|                                          |   | Fannie      Mae   |   | $      | 50,025         |   | $                      | 1,267        |   | $ | (21) |   | $ | 51,271        |
|                                          |   | Freddie      Mac  |   |   | 28,924         |   |                   | 1,020        |   |   | (3) |   |   | 29,941        |
|                                          |   | Ginnie      Mae   |   |   | 5,099          |   |                   | 84        |   |   | —   |   |   | 5,183        |
| Tax-exempt      municipal bonds               |   | 4,207        |   |   | 49             |   |                   | (484) |   |   | 3,772        |
| Taxable      municipal bonds                  |   | 650          |   |   | —   |   |                   | (48) |   |   | 602        |
| U.S.      Government agencies                 |   | 1,946        |   |   | 57             |   |                   | —   |   |   | 2,003        |
| Mutual      fund (1)                          |   | 4,460        |   |   | 151            |   |                   | —   |   |   | 4,611        |
|                                          |   |              |   |   |                |   | $                      | 95,311        |   | $ | 2,628        |   | $ | (556) |   | $ | 97,383        |
|                                          |   |              |   |   |                |   |                   |   |   |   |   |   |   |   |   |   |   |

| (1)   | The      majority of the fund value is invested in U.S. Government or agency      securities with additional holdings of private label mortgage-backed      securities. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | March      31, 2010      |
|---------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------------------------|
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | Less      Than 12 Months |   | 12      Months or Longer |   | Total |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |   |   | Unrealized |   |   |   |   | Unrealized |   |   |   |   | Unrealized |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | Fair      Value          |   | Loss |   | Fair      Value |   | Loss |   | Fair      Value |   | Loss |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |                                                    (In      thousands) |   |   |   |   |   |   |
| Fannie      Mae                 |   | $                                                                                                                   |         12,049                                                              |   | $                                                                                                                   |              (101)                                 |                     | $ |                    - |   | $ |                    - |   | $ |         12,049 |   | $ |              (101) |
| Freddie      Mac                |   |                                                                                                                |          4,442                                                         |   |                                                                                                                |               (52)                            |                     |   |              249 |   |   |                 (2) |   |   |           4,691 |   |   |               (54) |
| Tax-exempt      municipal bonds |   |                    - |                                                                                                                |   |                    - |                                                                                                                |                     |             1,617 |   |   |            (492) |   |   |             1,617 |   |   |            (492) |
| Taxable      municipal bonds    |   |                    - |                                                                                                                |   |                    - |                                                                                                                |                     |              639 |   |   |                (11) |   |   |              639 |   |   |                (11) |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | $                        |          16,491 |   | $ |             (153) |   | $ |           2,505 |   | $ |             (505) |   | $ |         18,996 |   | $ |            (658) |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | December      31, 2009   |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | Less      Than 12 Months |   | 12      Months or Longer |   | Total |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |   |   | Unrealized |   |   |   |   | Unrealized |   |   |   |   | Unrealized |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | Fair      Value          |   | Loss |   | Fair      Value |   | Loss |   | Fair      Value |   | Loss |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |                                                    (In      thousands) |   |   |   |   |   |   |
| Fannie      Mae                 |   | $                                                                                                                   | 3,255                                                                                                               |   | $                                                                                                                   | (21)                                                                                                                |                     | $ |                    - |   | $ |                    - |   | $ | 3,255 |   | $ | (21) |
| Freddie      Mac                |   |                                                                                                                |                    - |   |                                                                                                                |                    - |                     |   | 255 |   |   | (3) |   |   | 255 |   |   | (3) |
| Tax-exempt      municipal bonds |   |                    - |                                                                                                                |   |                    - |                                                                                                                |                     | 1,625 |   |   | (484) |   |   | 1,625 |   |   | (484) |
| Taxable      municipal bonds    |   |                    - |                                                                                                                |   |                    - |                                                                                                                |                     | 602 |   |   | (48) |   |   | 602 |   |   | (48) |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                | $                        |           3,255 |   | $ |               (21) |   | $ |          2,482 |   | $ |             (535) |   | $ |            5,737 |   | $ |             (556) |
|                            |   |                                                                                                                |                                                                                                                |   |                                                                                                                |                                                                                                                |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    | March      31, 2010                                                                                                                                                       |
|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    | Amortized      Cost                                                                                                                                                       |   | Fair      Value |
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    | (In      thousands)                                                                                                                                                       |
| Due      within one year                    |   |                                                                                                                                    | $                                                                                                                       |                             - |                                                                                                                                    | $                                                                                                                       |                             - |
| Due      after one year through five years  |   |                    1,292                 |                                                                                                                    |                                                                                                                                                                      |                    1,367                 |
| Due      after five years through ten years |   |                       685 |                                                                                                                    |                                                                                                                                                                      |                       693 |
| Due      after ten years                    |   |                                                                                                                                    |                    4,815 |                                                                                                                                                                      |                                                                                                                                    |                    4,361 |
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                   6,792 |   |   |                    6,421 |
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |   |   |   |   |
| Mortgage-backed      investments            |   |                 96,088                                  |                                                                                                                    |                                                                                                                                                                      |                 98,554                                  |
| Mutual      fund                            |   |                                                                                                                                    |                   4,460       |                                                                                                                                                                      |                                                                                                                                    |                    4,618 |
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    | $                                                                                                                                                                         |               107,340 |   | $ |               109,593 |
|                                        |   |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |                                                                                                                                    |                                                                                                                    |                                                                                                                                                                      |   |   |   |   |

----

|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       | March      31, 2010                                                                                              |                  |                | December      31, 2009                                                                          |                                                                                                             |                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|--------|-----------------------|---------------------|---------------------|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|-----------------------|---------------------|-------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       | Amount                                                                                                           |                  | Percent             |                                                                                            |                                                                                                             | Amount                                                                                                     |   | Percent |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       | (Dollars      in thousands)                                                                                      |                  |                |
| One-to-four      family residential: (1)                                                                                                                    |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |
|                                                                                                                                                        | Permanent                           |   | $                     | 474,210        |                |               43.65                        | %                                                                                                          |                                                                                                             | $                     | 481,046        |                                                                                            |               43.13                        | %                                                                                                          |   |
|                                                                                                                                                        | Construction                        |   |                  | 14,050         |                |                  1.29       |                                                                                                       |                                                                                                             |                  | 15,685         |                                                                                            |                   1.41 |                                                                                                       |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             | 488,260          |                |              44.94             |                                                                                                             |                                                                                                       |   | 496,731        |   |               44.54 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Multifamily      residential:                                                                                                                               |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |
|                                                                                                                                                        | Permanent                           |   |                  |                | 133,989        |                                                                                                             |               12.34                  |                                                                                                             |                  |                | 128,943                                                                                    |                                                                                                             |                 11.56      |   |   |
|                                                                                                                                                        | Construction                        |   |                  |                | 18,190         |                                                                                                             |                  1.67 |                                                                                                             |                  |                | 17,565                                                                                     |                                                                                                             |                  1.58 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             | 152,179          |                |                14.01 |                                                                                                             |                                                                                                       |   | 146,508        |   |                13.14 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Commercial      real estate:                                                                                                                                |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |
|                                                                                                                                                        | Permanent                           |   |                  |                | 250,334        |                                                                                                             |              23.04                        |                                                                                                             |                  |                | 251,185                                                                                    |                                                                                                             |               22.52                  |   |   |
|                                                                                                                                                        | Construction                        |   |                  |                | 31,599         |                                                                                                             |                  2.91 |                                                                                                             |                  |                | 31,605                                                                                     |                                                                                                             |                 2.83       |   |   |
|                                                                                                                                                        | Land                                |   |                  |                | 5,877          |                                                                                                             |                 0.54       |                                                                                                             |                  |                | 6,206                                                                                      |                                                                                                             |                 0.56       |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             | 287,810          |                |              26.49             |                                                                                                             |                                                                                                       |   | 288,996        |   |                25.91 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Speculative      construction/land development:                                                                                                             |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |
|                                                                                                                                                        | One-to-four      family residential |   |                  | 78,043         |                |                  7.18       |                                                                                                       |                                                                                                             |                  | 95,699         |                                                                                            |                 8.58             |                                                                                                       |   |
|                                                                                                                                                        | Multifamily      residential        |   |                  | 3,624          |                |                 0.33             |                                                                                                       |                                                                                                             |                  | 3,624          |                                                                                            |                 0.33             |                                                                                                       |   |
|                                                                                                                                                        | Commercial                          |   |                  | 1,125          |                |                  0.10       |                                                                                                       |                                                                                                             |                  | 1,129          |                                                                                            |                  0.10       |                                                                                                       |   |
|                                                                                                                                                        | Land      development               |   |                  | 56,179         |                |                   5.17 |                                                                                                       |                                                                                                             |                  | 63,501         |                                                                                            |                 5.69             |                                                                                                       |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             | 138,971          |                |                12.78 |                                                                                                             |                                                                                                       |   | 163,953        |   |                14.70 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Business                                                                                                                                                    |                                |   |                  |                |                | 347                                                                                                         |                                                                                                       |                 0.03             |                  |                |                                                                                            | 353                                                                                                         |                                                                                                       |                 0.03 |   |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Consumer                                                                                                                                                    |                                |   |                  |                |                | 19,006                                                                                                      |                                                                                                       |                   1.75 |                  |                |                                                                                            | 18,678                                                                                                      |                                                                                                       |                  1.68 |   |   |
| Total      loans                                                                                                                                            |                                |   |                  |                | $                   | 1,086,573                                                                                                   |                                                                                                       |             100.00                                   | %                     |                | $                                                                                               | 1,115,219                                                                                                   |                                                                                                       |             100.00 | % |   |
|                                                                                                                                                        |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |   |   |   |
| Less:                                                                                                                                                       |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |   |   |   |
|                                                                                                                                                        | Loans      in process               |   |                  | 30,252         |                |                                                                                                             |                                                                                                       |                                                                                                             |                  | 39,942         |                                                                                            |                                                                                                             |                                                                                                       |   |
|                                                                                                                                                        | Deferred      loan fees             |   |                  | 2,946          |                |                                                                                                             |                                                                                                       |                                                                                                             |                  | 2,938          |                                                                                            |                                                                                                             |                                                                                                       |   |
|                                                                                                                                                        | Allowance      for loan losses      |   |                  | 36,479         |                |                                                                                                             |                                                                                                       |                                                                                                             |                  | 33,039         |                                                                                            |                                                                                                             |                                                                                                       |   |
| Loans      receivable, net                                                                                                                                  |                                | $      | 1,016,896        |                |                |                                                                                                             |                                                                                                       | $                                                                                                                | 1,039,300        |                |                                                                                            |                                                                                                             |                                                                                                       |
| ____________________________________                                                                                                                   |                                |   |                  |                |                |                                                                                                             |                                                                                                       |                                                                                                             |                  |                |                                                                                            |                                                                                                             |                                                                                                       |
| (1)   Includes      $216.5 million and $230.8 million of non-owner occupied loans at March 31,      2010 and December 31, 2009,respectively. |

----

|                                    |   |                                                                                       |                                                                                                                        |   |               |                                                                                                                                                          | Three      Months Ended March 31, |
|-----------------------------------------|--------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|
|                                    |   |                                                                                       |                                                                                                                        |   |               |                                                                                                                                                          | 2010                              |   | 2009 |
|                                    |   |                                                                                       |                                                                                                                        |   |               |                                                                                                                                                          | (In      thousands)          |
| Beginning      balance, January 1, 2010 | $      |             33,039        |                                                                                                                        | $      | 16,982        |
| Provision      for loan losses          |   |              13,000  |                                                                                                                   |   | 1,544         |
| Charge-offs                             |   |                                                                                       |              (9,682)                                       |   |               |              (4,232)                                                                         |
| Recoveries                              |   |                                                                                       |                    122  |   |               |                         -   |
| Ending      balance, March 31, 2010     | $      |             36,479        |                                                                                                                        | $      | 14,294        |
|                                    |   |                                                                                       |                                                                                                                        |   |               |                                                                                                                                                          |                              |   |   |   |   |

|                                                                                                     | March      31,      |                                                                                                                                                          | December      31, |
|----------------------------------------------------------------------------------------------------------|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                     | 2010                |                                                                                                                                                          | 2009              |
|                                                                                                     | (In      thousands) |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Impaired      loans without a valuation allowance                                                        | $                   | 38,216                                                                                                                                              |              | $ | 46,282 |
| Impaired      loans with a valuation allowance                                                           |                | 130,650                                                                                                                                             |              |   | 109,879 |
|     Total      impaired loans                                                        | $                   | 168,866                                                                                                                                             |              | $ | 156,161 |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Valuation      allowance related to impaired loans                                                       | $                   | 18,356                                                                                                                                              |              | $ | 13,432 |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Average      investment of impaired loans                                                                | $                   | 144,696                                                                                                                                             |              |  $ | 117,644 |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Interest      income recognized on a cash basis on impaired loans                                        | $                   | 345                                                                                                                                                 |              |  $ | 2,134 |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Nonperforming      assets                                                                                |                |                                                                                                                                                          |              |   |   |
|     90      days or more past due and still accruing                                 | $                   |                        -    |              | $ |                        - |
|     Nonaccrual      loans                                                            |                | 108,135                                                                                                                                             |              |   | 94,682 |
|     Nonaccrual      troubled debt restructured loans                                 |                | 37,783                                                                                                                                              |              |   | 26,021 |
| Total      nonperforming loans                                                                           |                | 145,918                                                                                                                                             |              |   | 120,703 |
|     Other      real estate owned                                                     |                | 20,500                                                                                                                                              |              |   | 11,835 |
| Total      nonperforming assets                                                                          | $                   | 166,418                                                                                                                                             |              | $ | 132,538 |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |
| Performing      troubled debt restructured loans                                                         | $                   | 22,948                                                                                                                                              |              | $ | 35,458 |
| Nonaccrual      troubled debt restructured loans                                                         |                | 37,783                                                                                                                                              |              |   | 26,021 |
| Total      troubled debt restructured loans (1)                                                          | $                   | 60,731                                                                                                                                              |              | $ | 61,479 |
|  __________________________________________________                                                 |                |                                                                                                                                                          |              |   |   |
| (1)      Troubled debt restuctured loans are also considered impaired loans and are      included in the |
| impaired      category at the beginning of the table.                                                    |
|                                                                                                     |                |                                                                                                                                                          |              |   |   |

----

|                                                        | March      31, 2010               |                                       | December      31, 2009 |
|-------------------------------------------------------------|-----------------------------------|--------------------------------------------|------------------------|
|                                                        |  Amount                      |                                       |  Number           |   |  Amount |   |  Number |
|                                                        |  (Dollars      in thousands) |
| Beginning      balance, January 1, 2010                     | $                                 |      11,835  |                   |   |             32  |   | $ |                - |   |   |                - |
|      Additions                     |                              |      14,404  |                   |   |             34  |   |   |      11,835 |   |   |             32 |
|      Market      value adjustments |                              |      (2,271)      |                   |   |  N/A  |   |   |                - |   |   |  N/A |
|      Sales                         |                              |      (3,468)      |                   |   |             (7) |   |   |                - |   |   |                - |
| Ending      balance, March 31, 2010                         | $                                 |      20,500  |                   |   |             59  |   | $ |      11,835 |   |   |             32 |
|                                                        |                              |                                       |                   |   |   |   |   |   |   |   |   |

| ·   | Level      1 – Quoted prices for identical instruments in active    markets. |
|--------------------|------------------------------------------------------------------------------------|

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

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

----

|                                |                                           |   | Fair      Value Measurements at March 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  |   | $                                                 |                       60,038 |   | $ |                               - |   | $ |                        60,038 |   | $ |                             - |
|                                |      Freddie      Mac |   |                                              |                       33,617 |   |   |                               - |   |   |                   33,617 |   |   |                             - |
|                                |      Ginnie      Mae  |   |                                              |                        4,899 |   |   |                               - |   |   |                          4,899 |   |   |                             - |
|                                | Tax-exempt      municipal bonds                |   |                                              |                   3,760 |   |   |                               - |   |   |                    3,760 |   |   |                             - |
|                                | Taxable      municipal bonds                   |   |                                              |                      638 |   |   |                               - |   |   |                       638 |   |   |                             - |
|                                | U.S.      Government agencies                  |   |                                              |                   2,023 |   |   |                               - |   |   |                          2,023 |   |   |                             - |
|                                | Mutual      Fund                               |   |                                              |                   4,618 |   |   |                       4,618 |   |   |                             - |   |   |                             - |
|                                |                                           |   | $                                                 |               109,593 |   | $ |                       4,618 |   | $ |                104,975 |   | $ |                             - |
|                                |                                           |   |                                              |   |   |   |   |   |   |   |   |   |   |
|                                |                                           |   | Fair      Value Measurements at December 31, 2009 |
|                                |                                           |   |                                              |   |   |   | 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  |   | $                                                 |                   51,271 |   | $ |                               - |   | $ |                    51,271 |   | $ |                             - |
|                                |      Freddie      Mac |   |                                              |                        29,941 |   |   |                               - |   |   |                          29,941 |   |   |                             - |
|                                |      Ginnie      Mae  |   |                                              |                           5,183 |   |   |                               - |   |   |                            5,183 |   |   |                             - |
|                                | Tax-exempt      municipal bonds                |   |                                              |                          3,772 |   |   |                               - |   |   |                            3,772 |   |   |                             - |
|                                | Taxable      municipal bonds                   |   |                                              |                             602 |   |   |                               - |   |   |                               602 |   |   |                             - |
|                                | U.S.      Government agencies                  |   |                                              |                          2,003 |   |   |                               - |   |   |                       2,003 |   |   |                             - |
|                                | Mutual      Fund                               |   |                                              |                           4,611 |   |   |                        4,611 |   |   |                             - |   |   |                             - |
|                                |                                           |   | $                                                 |              97,383 |   | $ |                        4,611 |   | $ |                  92,772 |   | $ |                             - |
|                                |                                           |   |                                              |   |   |   |   |   |   |   |   |   |   |

----

|                                                                       | Fair      Value Measurements at March 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      (1) |   |
|                                                                       | (In      thousands)                               |   |
| Impaired      loans including undisbursed but committed funds              |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of      $12.6 million (included in loans receivable, net)                  |                                              | $      | 163,077 |   |   | $ | - |   |   | $ | - |   |   | $ | 163,077 |   |   | $ | 4,924 |   |
| Other      real estate owned                                               |                                              |   | 20,500 |   |   |   | - |   |   |   | - |   |   |   | 20,500 |   |   |   | 2,271 |   |
|                                                                       |                                              | $      | 183,577 |   |   | $ | - |   |   | $ | - |   |   | $ | 183,577 |   |   | $ | 7,195 |   |
|        ____________________________________________                   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      This represents the loss for the quarter ended March 31,    2010. |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       | Fair      Value Measurements at December 31, 2009 |   |
|                                                                       |                                              |   |   |   | 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      (1) |   |
|                                                                       | (In      thousands)                               |   |
| Impaired      loans including undisbursed but committed funds              |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of      $10.6 million (included in loans receivable, net)                  |                                              | $      | 153,300 |   |   | $ | - |   |   | $ | - |   |   | $ | 153,300 |   |   | $ | 4,895 |   |
| Goodwill      impairment                                                   |                                              |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 14,206 |   |
| Other      real estate owned                                               |                                              |   | 11,835 |   |   |   | - |   |   |   | - |   |   |   | 11,835 |   |   |   | - |   |
|                                                                       |                                              | $      | 165,135 |   |   | $ | - |   |   | $ | - |   |   | $ | 165,135 |   |   | $ | 19,101 |   |
|          ____________________________________________       |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      This represents the loss for the year ended December 31,    2009. |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                       |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|         |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                | March      31, 2010                                                |                                                          | December      31, 2009                                                                              |
|--------------|-------------------------------------|----------------|--------|-----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------|-----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|         |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                | Carrying                                                           |                                                          | Estimated                                                                                           |   | Carrying |   | Estimated |
|         |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                | value                                                              |                                                          | fair      value                                                                                     |   | value |   | fair      value |
|         |                                |           |   |                                                                                                |                                                               |                                                    | (In      thousands)                                                                                 |
| Assets:      |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                |                                                               |                                                          |                                                                                                |   |   |   |   |   |   |
|         | Cash      on hand and in banks      |           | $      |             8,373                       |                                                               | $                                                       |             8,373                       |                                                               | $                                                             |             8,937                       |   | $ |             8,937 |
|         | Interest-bearing      deposits      |           |   |         107,326                                             |                                                               |                                                    |         107,326                                             |                                                               |                                                          |           96,033                                  |   |   |           96,033 |
|         | Investments      available for sale |           |   |         109,593                                             |                                                               |                                                    |         109,593                                             |                                                               |                                                          |           97,383                                  |   |   |           97,383 |
|         | Loans      receivable, net          |           |   |       1,016,896                                                       |                                                               |                                                    |        982,000                                                   |                                                               |                                                          |      1,039,300                                                             |   |   |       1,001,562 |
|         | Federal      Home Loan Bank stock   |           |   |              7,413                 |                                                               |                                                    |              7,413                 |                                                               |                                                          |              7,413                 |   |   |              7,413 |
|         | Accrued      interest receivable    |           |   |              4,716                 |                                                               |                                                    |              4,716                 |                                                               |                                                          |             4,880                       |   |   |             4,880 |
|         | OREO                                |           |   |                                                                                                |           20,500 |                                                    |                                                                                                |           20,500 |                                                          |                                                                                                |             11,835 |   |   |             11,835 |
| Liabilities: |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                |                                                               |                                                          |                                                                                                |   |   |   |   |
|         | Deposits                            |           |   |                                                                                                |                                                               |        229,524       |                                                                                                |                                                               |        229,524             |                                                                                                |   |        225,772 |   |   |        225,772 |
|         | Certificates      of deposit        |           |   |        733,066                                                   |                                                               |                                                    |        749,288                                                   |                                                               |                                                          |          713,651                                       |   |   |        727,250 |
|         | Advances      from the Federal Home |           |   |                                                                                                |                                                               |                                                    |                                                                                                |                                                               |                                                          |                                                                                                |   |   |   |
|         |                                | Loan      Bank |   |                                                                                                |                                                               |         139,900 |                                                                                                |                                                               |          141,685 |                                                                                                |   |         139,900 |   |   |         140,994 |
|         | Accrued      interest payable       |           |   |                 402 |                                                               |                                                    |                 402 |                                                               |                                                          |                 457 |   |   |                 457 |
|         |                                |           |   |                                                                                                |                                                               |                                                    |                                                                                                |                                                               |                                                          |                                                                                                |   |   |   |   |   |   |   |   |

| ·   | 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. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Investments: The fair      value of all investments excluding Federal Home Loan Bank of Seattle      (“FHLB”) stock was based upon quoted market prices. 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. The fair value is      therefore equal to the book value. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 current interest rates that would be offered for loans with      similar terms to borrowers of similar credit quality. As a result of the      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. 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                           |                                                          |        Shares                                                                                                                                |   |                                     | Weighted-AverageExercise Price                                                  |                                                                         | Weighted-AverageRemaining      ContractualTerm      in Years                                                        |   |                                                                                                          | AggregateIntrinsicValue                                                                                       |
|------------------------------------------------|---------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------------------------------------------------------------------------------|------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
|                                           |                                                          |                                                                                                                                              |   |                                     |                                                                            |                                                                         |                                                                                                                |   |                                                                                                          |                                                                                                          |
| Outstanding      at January 1, 2010            |        1,433,524           |                                                                                                                                              | $      |       9.73 |                                                                            |             8.52 |                                                                                                                |   |                                                                                                          |
|                                           | Granted                                                       |                         - |   |                                     |              - |                                                                         |                    - |   |                                                                                                          |                                                                                                          |
|                                           | Exercised                                                     |                         - |   |                                     |              - |                                                                         |                    - |   |                                                                                                          |                                                                                                          |
|                                           | Forfeited      or expired                                     |            (10,000)                                                                        |   |                                     |       9.78                                        |                                                                         |             8.26                                        |   |                                                                                                          |                                                                                                          |
| Outstanding      at March 31, 2010             |        1,423,524           |                                                                                                                                              | $      |       9.73 |                                                                            |             8.28 |                                                                                                                | $      |                   - |
|                                           |                                                          |                                                                                                                                              |   |                                     |                                                                            |                                                                         |                                                                                                                |   |                                                                                                          |                                                                                                          |
| Expected      to vest assuming a 3% forfeiture |                                                          |                                                                                                                                              |   |                                     |                                                                            |                                                                         |                                                                                                                |   |                                                                                                          |
|                                           | rate      over the vesting term                               |         1,104,643                                                                                         |   | $                                        |       9.73                                        |                                                                         |             8.28                                        |   | $                                                                                                             |                   - |
|                                           |                                                          |                                                                                                                                              |   |                                     |                                                                            |                                                                         |                                                                                                                |   |                                                                                                          |                                                                                                          |
| Exercisable      at March 31, 2010             |          284,705 |                                                                                                                                              | $      |       9.73 |                                                                            |             8.28 |                                                                                                                | $      |                   - |
|                                           |                                                          |                                                                                                                                              |   |                                     |                                                                            |                                                                         |                                                                                                                |   |                                                                                                          |                                                                                                          |

|                                           |                                                    |                                                                                                                                  |    |                                                                                                                                                              | Weighted-AverageGrant-Date                                                                                                                                                                              |   |
|------------------------------------------------|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Nonvested Shares                               |                                                    | Shares                                                                                                                                |    | Fair      Value                                                                                                                                                   |                                                                                                                                                                                                    |
|                                           |                                                    |                                                                                                                                  |    |                                                                                                                                                              |                                                                                                                                                                                                    |   |   |
| Nonvested      at January 1, 2010              |         604,987 |                                                                                                                                  | $       |                           10.22 |                                                                                                                                                                                                    |
|                                           | Granted                                                 |                       - |    |                                                                                                                                                              |                                  - |   |
|                                           | Vested                                                  |            (6,400                                                              | )  |                                                                                                                                                              |                             8.35                            |   |
|                                           | Forfeited                                               |                       - |    |                                                                                                                                                              |                                  - |   |
| Nonvested      at March 31, 2010               |         598,587 |                                                                                                                                  | $       |                           10.24 |                                                                                                                                                                                                    |
|                                           |                                                    |                                                                                                                                  |    |                                                                                                                                                              |                                                                                                                                                                                                    |   |   |
| Expected      to vest assuming a 3% forfeiture |                                                    |                                                                                                                                  |    |                                                                                                                                                              |                                                                                                                                                                                                    |
|                                           | rate      over the vesting term                         |         580,627                                                                               |    |                                                                                                                                                              |                                    |   |
|                                           |                                                    |                                                                                                                                  |    |                                                                                                                                                              |                                                                                                                                                                                                    |   |   |

----

|                                            |   |             |   |                                                                                                                 |       |   | Three      Months Ended March 31,                                                                                                               |   |
|-------------------------------------------------|--------|------------------|--------|----------------------------------------------------------------------------------------------------------------------|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                            |   |             |   |                                                                                                                 |       |   | 2010                                                                                                                                            |   | 2009 |   |
|                                            |   |             |   |                                                                                                                 |       |   | (Dollars      in thousands, except share data)                                                                                                  |   |
| Net      income (loss)                          |   |             | $      |                   (17,752) |       | $      |                        1,196 |   |
| Weighted-average      common shares outstanding |   | 17,383,841  |   |                                                                                                                 | 19,315,048 |   |
|                                            |   |             |   | Basic      income (loss) per share                                                                                   | $          | (1.02) |                                                                                                                                            | $      | 0.06 |   |
|                                            |   |             |   | Diluted      income (loss) per share                                                                                 | $          | (1.02) |                                                                                                                                            | $      | 0.06 |   |

----

----

----

----

|                                                                                         | Aggregate      Amount |                                     | Number           |   |                                                                                              |
|----------------------------------------------------------------------------------------------|-----------------------|------------------------------------------|------------------|--------|---------------------------------------------------------------------------------------------------|
| Borrower      (1)                                                                            | of      Loans (2)     |                                     | of      Loans    |   |                                                                                              |
|                                                                                         |                  |                                     |             |   |                                                                                              |   |   |
| Real      estate builder                                                                     | $                     |     47.0        | million      (3) |   |             143                       |   |   |
| Real      estate builder                                                                     |                  |     39.7        | million      (4) |   |             144                       |   |   |
| Real      estate builder                                                                     |                  |     28.2        | million          |   |              119                 |   |   |
| Real      estate builder                                                                     |                  |      19.2  | million      (5) |   |               71            |   |   |
| Real      estate investor                                                                    |                  |      17.6  | million          |   |                 3 |   |   |
| Total                                                                                        | $                     |    151.7             | million          |   |            480                             |   |   |
| _________________                                                                       |                  |                                     |             |   |                                                                                              |   |   |
| (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, $21.9 million are considered impaired loans.       |                  |                                     |             |
| (4)   Of      this amount, $21.9 million are considered impaired loans.       |                  |                                     |             |
| (5)   Of      this amount, $14.8 million are considered impaired loans.       |                  |                                     |             |

|                                                                                                                                                  | PermanentOne-to-Four      Family |                                                                      | PermanentMultifamily     |   | PermanentCommercial      |                                                                |                      |   |                  |                                                                |                |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|---------------------------------------------------------------------------|--------------------------|--------|--------------------------|---------------------------------------------------------------------|---------------------------|--------|-----------------------|---------------------------------------------------------------------|---------------------|--------|--------|
|                                                                                                                                                  | Residential      Loans           |                                                                      | Loans                    |   | Loans                    |                                                                | Construction/             |   | Aggregate      Amount |
| Borrower                                                                                                                                              | (Rental      Properties)         |                                                                      | (Rental      Properties) |   | (Rental      Properties) |                                                                | Land      Development (1) |   | of      Loans (1)     |
|                                                                                                                                                  |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |                |   |   |   |   |   |   |   |   |
| Real      estate builder (2)                                                                                                                          | $                                |       18.4                             |  million            |   | $                        |            - |                      |   | $                     |         0.3                 |        million |   | $      |      28.3 |        million |   | $ |       47.0 |        million |
| Real      estate builder (3)                                                                                                                          |                             |      26.8                                   |  million            |   |                     |            - |                      |   |                  |         0.8                 |        million |   |   |        12.1 |        million |   |   |       39.7 |        million |
| Real      estate builder                                                                                                                              |                             |        18.7                       |  million            |   |                     |          1.0           |        million       |   |                  |          0.1           |        million |   |   |         8.4 |        million |   |   |      28.2 |        million |
| Real      estate builder (4)                                                                                                                          |                             |        11.0                       |  million            |   |                     |            - |                      |   |                  |            - |                |   |   |         8.2 |        million |   |   |       19.2 |        million |
| Real      estate investor                                                                                                                             |                             |            -  |                     |   |                     |            - |                      |   |                  |        17.6                      |        million |   |   |            - |   |   |   |        17.6 |        million |
| Total                                                                                                                                                 | $                                |       74.9                             |  million            |   | $                        |          1.0           |        million       |   | $                     |       18.8                            |        million |   | $      |       57.0 |        million |   | $ |       151.7 |        million |
| __________________                                                                                                                               |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |                |   |   |   |   |   |   |
| (1)   Net      of undisbursed funds.                                                                                                   |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |                |   |   |   |   |   |   |
| (2)  Of      the $21.9 million loans considered impaired, $3.2 million are one-to-four      family residential loans and $18.4 million are  |                             |                                                                      |                     |   |
|         construction/land      development loans and $0.3 million are commercial loans.                       |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |
| (3)  Of      the $21.9 million loans considered impaired, $10.4 million are one-to-four      family residential loans and $11.5 million are |                             |                                                                      |                     |   |
|         construction/land      development loans.                                                             |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |                |   |   |
| (4)  Of      the $14.8 million loans considered impaired, $6.7 million are one-to-four      family residential loans and $8.1 million are   |                             |                                                                      |                     |   |
|         construction/land      development loans.                                                             |                             |                                                                      |                     |   |                     |                                                                |                      |   |                  |                                                                |                |   |   |

----

|                                                                                      |             |                        |                                                                                |   |            |                              |   |          |   |                 |                                                                                                  |   | NonperformingLoans      as a |   |
|-------------------------------------------------------------------------------------------|------------------|-----------------------------|-------------------------------------------------------------------------------------|--------|-----------------|-----------------------------------|--------|---------------|--------|----------------------|-------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                      |             |                        |                                                                                |   | Percent      of |                              |   | Nonperforming |   | Percent      of Loan |                                                                                                  |
| County                                                                                    | Loan Balance (1) | Loan Balance (1)            |                                                                                | Loans  |            | Balance (2)                       |   |
|                                                                                      |             | (Dollars      in thousands) |                                                                                |
| King                                                                                      |             | $                           |                  50,433      |   |            |         41.8            | %      |          |   | $                    |                     37,137      |   |        73.6             | %      |
| Pierce                                                                                    |             |                        |                  20,155      |   |            |         16.7            |   |          |   |                 |                      9,451 |   |        46.9             |   |
| Kitsap                                                                                    |             |                        |                  15,815      |   |            |         13.1            |   |          |   |                 |                    10,366            |   |   65.5             |   |
| Whatcom                                                                                   |             |                        |             11,491      |   |            |           9.5 |   |          |   |                 |               11,491            |   | 100.0                        |   |
| Snohomish                                                                                 |             |                        |                   6,767 |   |            |          5.6       |   |          |   |                 |                      4,339 | (3)    |        64.1             |   |
| All      other counties                                                                   |             |                        |                 15,974            |   |            |        13.3                  |   |          |   |                 |                     10,232      |   |        64.1             |   |
| Total                                                                                     |             | $                           |          120,635                       |   |            | 100.0                             | %      |          |   | $                    |                     83,016      |   |        68.8             | %      |
| ____________                                                                         |             |                        |                                                                                |   |            |                              |   |          |   |                 |                                                                                                  |   |                         |   |
| (1)      Net of undisbursed funds.                                                        |             |                        |                                                                                |   |            |                              |   |          |   |                 |                                                                                                  |
| (2)      Represents the percent of the loan balance by county that is      nonperforming. |             |                        |                                                                                |   |            |
| (3)      Represents one loan.                                                             |             |                        |                                                                                |   |            |                              |   |          |   |                 |                                                                                                  |   |                         |

----

----

|                                      | Balance      at                                                                                      |                                                                                                                                                                                | Increase/(Decrease)from |   | Percentage                                                                                                                                                                                                                                              |    |
|-------------------------------------------|------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                      | March      31, 2010                                                                                  |                                                                                                                                                                                | December      31, 2009  |   | Increase/(Decrease)                                                                                                                                                                                                                                     |    |
|                                      |                   (Dollars in thousands) |
|                                      |                                                                                                 |                                                                                                                                                                                |                    |   |                                                                                                                                                                                                                                                    |    |   |   |
| Cash      on hand and in banks            | $                                                                                                    |                             8,373       |                    | $      |                                  (564                                              | )  |                           (6.31 | )% |
| Interest-bearing      deposits            |                                                                                                 |                         107,326                             |                    |   |                                11,293                                                        |    |                           11.76 |   |
| Investments      available for sale       |                                                                                                 |                         109,593                             |                    |   |                                12,210                                                        |    |                          12.54 |   |
| Loans      receivable, net                |                                                                                                 |                      1,016,896                                             |                    |   |                            (22,404                                                                               | )  |                           (2.16 | )  |
| Premises      and equipment, net          |                                                                                                 |                          20,453                        |                    |   |                                    868                                   |    |                            4.43 |   |
| Federal      Home Loan Bank               |                                                                                                 |                                                                                                                                                                                |                    |   |                                                                                                                                                                                                                                                    |    |   |   |
|    stock,      at cost     |                                                                                                 |                              7,413 |                    |   |                                          - |    |                                 - |   |
| Accrued      interest receivable          |                                                                                                 |                              4,716 |                    |   |                                   (164                                        | )  |                          (3.36 | )  |
| Federal      income tax receivable        |                                                                                                 |                            12,160            |                    |   |                                 2,661                                                   |    |                          28.01 |   |
| Deferred      tax assets, net             |                                                                                                 |                              5,415 |                    |   |                              (6,724                                                                    | )  |                       (55.39 | )  |
| OREO                                      |                                                                                                 |                          20,500                        |                    |   |                                8,665                                                         |    |                         73.22 |   |
| Prepaid      expenses and other assets    |                                                                                                 |                             8,384       |                    |   |                                      54                        |    |                            0.65 |   |
|     Total      assets | $                                                                                                    |                      1,321,229                                             |                    | $      |                                5,895                                                         |    |                            0.45 | % |
|                                      |                                                                                                 |                                                                                                                                                                                |                    |   |                                                                                                                                                                                                                                                    |    |   |   |

----

|                              |   |                                                                                            |   |                                                                           |                |   | March      31,      |                                                          | December      31, |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|---------------------|--------|---------------------|---------------------------------------------------------------|-------------------|
|                              |   |                                                                                            |   |                                                                           |                |   | 2010                |                                                          | 2009              |
|                              |   |                                                                                            |   |                                                                           |                |   | (In      thousands) |
| Noninterest-bearing      accounts | $      |                5,201 |   | $                                                                              | 3,294          |
| NOW      accounts                 |   |                                                                                            |   |             12,728 |                |   | 12,740         |
| Statement      savings accounts   |   |             14,340                  |   |                                                                           | 15,423         |
| Money      market accounts        |   |           197,255                             |   |                                                                           | 194,315        |
| Certificates      of deposit      |   |          733,066                                   |   |                                                                           | 713,651        |
|                              |   |                                                                                            |   |                                                                           |                |   | $                   |          962,590 |              | $ | 939,423        |
|                              |   |                                                                                            |   |                                                                           |                |   |                |                                                          |              |   |   |

----

|                                                           | Three      Months Ended March 31, 2010Increase      (Decrease) Due to |
|----------------------------------------------------------------|-----------------------------------------------------------------------|
|                                                           |  Rate                                                            |   |  Volume |   |  Total |
|                                                           |  (Dollars      in thousands)                                     |
| Interest-earning      assets:                                  |                                                                  |   |   |   |   |   |   |   |
|    Loans      receivable, net                   | $                                                                     |                (567) |   | $ |                    38  |   | $ |                (529) |
|    Investments      available for sale          |                                                                  |                 (142) |   |   |                (476) |   |   |                 (618) |
|    Federal      funds sold and interest-        |                                                                  |   |   |   |   |   |   |   |
|      bearing      deposits with banks |                                                                  |                     41  |   |   |                     18  |   |   |                    59  |
|                                                           |                                                                  |   |   |   |   |   |   |   |
| Total      net change in income on                             |                                                                  |   |   |   |   |   |   |   |
|    interest-earning      assets                 |                                                                  |                (668) |   |   |                (420) |   |   |             (1,088) |
|                                                           |                                                                  |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                             |                                                                  |   |   |   |   |   |   |   |
|    NOW      accounts                            |                                                                  |                     (7) |   |   |                       5  |   |   |                     (2) |
|    Statement      savings accounts              |                                                                  |                   (19) |   |   |                     10  |   |   |                     (9) |
|    Money      market accounts                   |                                                                  |                (227) |   |   |                  365  |          |   |                   138  |
|    Certificates      of deposit                 |                                                                  |             (1,574) |   |   |                  689  |   |   |                (885) |
|    Advances      from the Federal               |                                                                  |   |   |   |   |   |   |   |
|      Home      Loan Bank              |                                                                  |                 (185) |   |   |                  (38) |   |   |                (223) |
|                                                           |                                                                  |   |   |   |   |   |   |   |
| Total      net change in expense on                            |                                                                  |   |   |   |   |   |   |   |
|    interest-bearing      liabilities            |                                                                  |             (2,012) |   |   |                1,031  |   |   |                 (981) |
|                                                           |                                                                  |   |   |   |   |   |   |   |
| Net      change in net interest income                         | $                                                                     |               1,344  |   | $ |              (1,451) |   | $ |                 (107) |
|                                                           |                                                                  |   |   |   |   |   |   |   |

|                                         |                              |                                                                    |   |                                                                      |
|----------------------------------------------|-----------------------------------|-------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                         |                              |                                                                    |   |                                                                      |   |   | Increase/ |
|                                         | Three      Months Ended March 31, |                                                                    |   | (Decrease)      in                                                        |
|                                         |    2010            |                                                                    |   | 2009                                                                      |   |   | Interest      and |
|                                         | Average                           |                                                                    |   |                                                                      |   | Average |   |   |   |   | Dividend |
|                                         | Balance                           |                                                                    | Yield  |                                                                      |   | Balance |   | Yield |   |   | Income |
|                                         |                              | (Dollars      in thousands)                                             |
|                                         |                              |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   | $                                 |    1,036,148                                             |   |        5.63                            | % |   | $ |       1,033,521 |   |        5.85 | % |   | $ |            (529) |
| Investments      available for sale          |                              |         101,414                 |   |        3.97                            |   |   |   |          143,539 |   |        4.53 |   |   |   |             (618) |
| Federal      funds sold and interest-bearing |                              |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   |   |   |
|    deposits                   |                              |        98,795                        |   |        0.25                            |   |   |   |              9,492 |   |        0.08 |   |   |   |                59  |
| Federal      Home Loan Bank stock            |                              |            7,413 |   |             - |   |   |   |               7,413 |   |             - |   |   |   |                    -  |
| Total      interest-earning assets           | $                                 |   1,243,770                                                   |   |        5.04                            | % |   | $ |       1,193,965 |   |         5.61 | % |   | $ |         (1,088) |
|                                         |                              |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   |   |   |

----

|                                          | Three      Months Ended March 31, |                                                   |   |                                                       |
|-----------------------------------------------|-----------------------------------|--------------------------------------------------------|--------|------------------------------------------------------------|
|                                          | 2010                              |                                                   |   | 2009                                                       |   |   | Increase/ |
|                                          |                              |                                                   |   |                                                       |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                           |                                                   |   |                                                       |   | Average |   |   |   |   | Interest |
|                                          | Balance                           |                                                   | Cost   |                                                       |   | Balance |   | Cost |   |   | Expense |
|                                          | (Dollars      in thousands)       |
|                                          |                              |                                                   |   |                                                       |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                                 |        12,895       |   |         0.47       | % |   | $ |          9,981 |   |         0.68 | % |   | $ |                   (2) |
| Statement      savings accounts               |                              |         15,120 |   |          1.22 |   |   |   |        12,824 |   |           1.72 |   |   |   |                   (9) |
| Money      market accounts                    |                              |     193,823                        |   |          1.52 |   |   |   |       121,445 |   |          1.98 |   |   |   |                 138  |
| Certificates      of deposit                  |                              |      718,999                  |   |          3.21 |   |   |   |      651,902 |   |         4.08 |   |   |   |               (885) |
| Advances      from the Federal Home Loan Bank |                              |     139,900                        |   |         2.92       |   |   |   |     144,328 |   |          3.45 |   |   |   |              (223) |
| Total      interest-bearing liabilities       | $                                 |   1,080,737                                  |   |          2.81 | % |   | $ |    940,480 |   |          3.65 | % |   | $ |               (981) |
|                                          |                              |                                                   |   |                                                       |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                              | March      31,      |   |    | December      31, |   | March      31, |    |   | One-Year      |   |   | One-Year      |   |
|-------------------------------------------------------------------------------------------------------------------|---------------------|--------|---------|-------------------|--------|----------------|---------|--------|---------------|--------|--------|---------------|--------|
|                                                                                                              | 2010                |   |    | 2009              |   | 2009           |    |   | Change      $ |   |   | Change      % |   |
|                                                                                                              | (In      thousands) |   |
|      One-to-four      family residential (1)                                             |                | $      | 48,035  |              |   | $              | 36,874  |   |          | $      | 16,633 |          |   | $ | 31,402 |   |   |   | 188.79 | % |
|      Commercial      real estate                                                         |                |   | 14,108  |              |   |           | 11,535  |   |          |   | 9,383  |          |   |   | 4,725 |   |   |   | 50.36 |   |
|      Construction/land      development                                                  |                |   | 83,016  |              |   |           | 71,780  |   |          |   | 54,146 |          |   |   | 28,870 |   |   |   | 53.32 |   |
|      Consumer                                                                            |                |   | 759     |              |   |           | 514     |   |          |   | 50     |          |   |   | 709 |   |   |   | 1,418.00 |   |
| Total      nonperforming loans (2)                                                                                |                | $      | 145,918 |              |   | $              | 120,703 |   |          | $      | 80,212 |          |   | $ | 65,706 |   |   |   | 81.92 | %   |
|                                                                                                              |                |   |    |              |   |           |    |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Other      real estate owned                                                                                      |                |   | 20,500  |              |   |           | 11,835  |   |          |   | -      |          |   |   | 20,500 |   |   |   | 100.00 |   |
|                                                                                                              |                |   |    |              |   |           |    |   |          |   |   |          |   |   |   |   |   |   |   |   |
| Total      nonperforming assets                                                                                   |                | $      | 166,418 |              |   | $              | 132,538 |   |          | $      | 80,212 |          |   | $ | 86,206 |   |   |   | 107.47 | % |
| ________________________________                                                                             |                |   |    |              |   |           |    |   |          |   |   |          |   |   |   |   |   |   |   |   |
| (1)      The majority of these loans are related to our merchant builders rental      properties.                 |                |   |    |              |   |           |    |   |          |   |   |          |   |
| (2)      There were no accruing loans which were contractually past due 90 days or      more at March 31, 2010 or |                |   |    |              |   |           |    |   |          |
|            December 31, 2009, these loans totaled $12.7 million at March 31,      2009.  |                |   |    |              |   |           |    |   |          |   |   |          |   |
|                                                                                                              |                |   |    |              |   |           |    |   |          |   |   |          |   |   |   |   |   |   |   |   |

----

|                                |   | King County                       |   |   | Pierce County                                                 |   |   | Snohomish    County                                                                                     |   |   | Kitsap County                                                 |   |   | All other    counties                                                                                   |   |   | Total      Other Real Estate Owned                                 |   | Percent      of Total      Other Real Estate Owned |   |
|-------------------------------------|--------|-----------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                |   | (Dollars      in thousands)  |   |
| One-to      four-family residential | $      |   1,994                 |   | $      |   2,061                                             |   | $      |             958                             |   | $      |           - |   | $      |             610                             |   | $      |           5,623  |   | 27.43                                              | %      |
| Commercial                          |   |      188 |   |   |   2,817                                             |   |   |                  - |   |   |           - |   |   |                  - |   |   |           3,005  |   | 14.66                                              |   |
| Construction/land      development  |   |   7,354                 |   |   |           - |   |   |         2,076                                                   |   |   |      970                             |   |   |          1,472                                             |   |   |           11,872 |   | 57.91                                              |   |
| Total      other real estate owned  | $      |  9,536                       |   | $      |  4,878                                                   |   | $      |         3,034                                                   |   | $      |      970                             |   | $      |         2,082                                                   |   | $      |         20,500             |   | 100.00                                             | %      |
|                                |   |                              |   |   |                                                          |   |   |                                                                                                    |   |   |                                                          |   |   |                                                                                                    |   |   |                                                               |   |                                               |   |

|                                                                    | At      March 31,2010     |                                                                                                                           | At      December 31,2009 |
|-------------------------------------------------------------------------|---------------------------|--------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                                                                    |  (In      thousands) |
| Nonaccrual      troubled debt restructured loans (1)                    | $                         |                    37,783       |                     | $ |                     26,021 |
| Performing      troubled debt restructured loans                        |                      |                    22,948       |                     |   |                    35,458 |
|      Troubled      debt restructured loans     | $                         |                     60,731 |                     | $ |                     61,479 |
| __________________________________________                         |                      |                                                                                                                           |                     |   |   |
| (1)  Balances      represent loans, net of undisbursed funds. |                      |                                                                                                                           |                     |   |

----

|                                                                                    | At      or For the Three Months Ended March 31, |                                                                                    |
|-----------------------------------------------------------------------------------------|-------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                                                                    | 2010                                            |                                                                                    |   | 2009 |   |
|                                                                                    | (Dollars      in thousands)                     |                                                                                    |
|                                                                                    |                                            |                                                                                    |   |   |   |   |   |
| Provision      for loan losses                                                          | $                                               |         13,000                                  |   |   | $ |            1,544 |   |
| Charge-offs                                                                             | $                                               |          9,682                             |   |   | $ |           4,232 |   |
| Recoveries                                                                              | $                                               |               122 |   |   | $ |                    - |   |
| Allowances      for loan losses                                                         | $                                               |        36,479                                        |   |   | $ |         14,294 |   |
| Allowance      for loan losses as a percent of total loans outstanding                  |                                            |                                                                                    |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                                            |             3.45            | % |   |   |              1.36 | % |
| Allowance      for loan losses as a percent of nonperforming loans                      |                                            |                                                                                    |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                                            |          25.00                             | % |   |   |            17.82 | % |
| Total      nonaccrual and 90 days or more past due loans, net of undisbursed      funds | $                                               |       145,918                                             |   |   | $ |         80,212 |   |
| Nonaccrual      and 90 days or more past due loans as a                                 |                                            |                                                                                    |   |   |   |   |   |
|    percent      of total loans, net of undisbursed funds                 |                                            |            13.81                 | % |   |   |             7.65 | % |
| Total      loans receivable                                                             | $                                               |    1,056,321                                                             |   |   | $ |    1,048,185 |   |
| Total      loans originated, net of undisbursed funds                                   | $                                               |         29,159                                  |   |   | $ |        22,236 |   |
|                                                                                    |                                            |                                                                                    |   |   |   |   |   |

|                                  |   |  Three      Months                                                            |   |                                                                                  |        Increase/(Decrease) |   |   |                |                                                                                  |               |
|---------------------------------------|--------|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------------------------------|--------|--------|---------------------|---------------------------------------------------------------------------------------|--------------------|
|                                  |   | Ended                                                                              |   |                                                                                  | from                            |   |   | Percentage          |                                                                                  |
|                                  |   | March      31, 2010                                                                |   |                                                                                  | March      31, 2009             |   |   | Increase/(Decrease) |                                                                                  |
|                                  |   |                (Dollars in thousands) |   |
|                                  |   |                                                                               |   |                                                                                  |                            |   |   |                |                                                                                  |               |   |   |   |   |   |
| Service      fees on deposit accounts |   |                                                                               | $      |            19                  |                            |   |   | $                   |                    2 |          |   |   |           11.76 | % |   |
| Loan      service fees                |   |                                                                               |   |           47                        |                            |   |   |                |                  (28           | )             |   |   |                (37.33 | )  |   |
| Gain      on sale of investments      |   |                                                                               |   |               - |                            |   |   |                |                  (76           | )             |   |   |              (100.00 | )  |   |
| Amortization      of servicing rights |   |                                                                               |   |         (36                                   | )                          |   |   |                |             18            |               |   |   |                (33.33 | )  |   |
| Other                                 |   |                                                                               |   |            16                  |                            |   |   |                |               - |               |   |   |                   - |   |   |
| Total      noninterest income         |   |                                                                               | $      |           46                        |                            |   |   | $                   |         (84                                   | )        |   |   |                (64.62 | )% |   |
|                                  |   |                                                                               |   |                                                                                  |                            |   |   |                |                                                                                  |               |   |   |   |   |   |

----

|                                    | Three      Months                                                                                                            |                                                                                                                                                                                               | Increase/(Decrease) |   |                                                                              |
|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------|-----------------------------------------------------------------------------------|
|                                    | Ended                                                                                                                        |                                                                                                                                                                                               | from                |   | Percentage                                                                        |
|                                    | March      31, 2010                                                                                                          |                                                                                                                                                                                               | March      31, 2009 |   | Increase/(Decrease)                                                               |
|                                    |                       (Dollars in thousands) |
|                                    |                                                                                                                         |                                                                                                                                                                                               |                |   |                                                                              |   |   |   |   |   |
| Compensation      and benefits          | $                                                                                                                            |                            3,189                            |                | $      |            150             |   |   |   |                  4.94 | % |
| Occupancy      and equipment            |                                                                                                                         |                               425            |                |   |             75        |   |   |   |                 21.43 |   |
| Professional      fees                  |                                                                                                                         |                               459            |                |   |            152             |   |   |   |                 49.51 |   |
| Data      processing                    |                                                                                                                         |                                170      |                |   |             26        |   |   |   |                 18.06 |   |
| Marketing                               |                                                                                                                         |                                 43 |                |   |              (9) |   |   |   |                (17.31) |   |
| Office      supplies and postage        |                                                                                                                         |                                 57 |                |   |            (14)            |   |   |   |               (19.72) |   |
| Loss      on sale of OREO property, net |                                                                                                                         |                               437            |                |   |           437                   |   |   |   |              100.00 |   |
| OREO      valuation expense             |                                                                                                                         |                            2,271                            |                |   |        2,271                                   |   |   |   |              100.00 |   |
| OREO      related expenses, net         |                                                                                                                         |                               702            |                |   |           702                   |   |   |   |              100.00 |   |
| FDIC/OTS      assessments               |                                                                                                                         |                               580            |                |   |           (113)                 |   |   |   |                (16.31) |   |
| Bank      and ATM charges               |                                                                                                                         |                                 34 |                |   |              (2) |   |   |   |                (5.56) |   |
| Other                                   |                                                                                                                         |                               500            |                |   |             48        |   |   |   |                 10.62 |   |
| Total      noninterest expense          | $                                                                                                                            |                           8,867                                  |                | $      |       3,723                                         |   |   |   | 72.38 | % |

----

|                                                             |                |                                                  | 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                              | $                   |              2,844 |                                              | $ |                - |   | $ |                  - |   | $ |               - |   | $ |              - |
| Unused      portion of lines of credit                           |                |              9,088 |                                              |   |            298 |   |   |                  - |   |   |        2,525 |   |   |        6,265 |
| Undisbursed      portion of construction loans                   |                |            30,252            |                                              |   |       23,102 |   |   |         6,791 |   |   |            359 |   |   |              - |
|        Total      commitments | $                   |       42,184            |                                              | $ |       23,400 |   | $ |         6,791 |   | $ |        2,884 |   | $ |        6,265 |
|                                                             |                |                                                  |                                              |   |   |   |   |   |   |   |   |   |   |   |

----

----

|                                                                                                                                                                                | March      31, 2010                          |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|
|                                                                                                                                                                                | Net      Interest Income Change              |   |
|                                                                                                                                                                                | Basis      PointChange      in Rates         |   |        %      Change |   |
|                                                                                                                                                                                | +300                                         |   |                           9.27  % |   |
|                                                                                                                                                                                | +200                                         |   |                           9.98       |   |
|                                                                                                                                                                                | +100                                         |   |                      9.21       |   |
|                                                                                                                                                                                | Base                                         |   |                     7.58      |   |
|                                                                                                                                                                                | (100)                                        |   |                      5.18       |   |
| (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, 2010 |                                                                            |               |   |                       |   |               |
|-----------------------------|--------|------------------------------|---------|---------------|--------------------------------|---------------------------------------------------------------------------------------------|----------------|---------------------------------------------------------------------------------|--------------------|--------|----------------------------|--------|--------------------|
|                        |   |                         |    |          |                           |                                                                                        |           |                                                                            |               |   | 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                        |   | $                            | 139,407 |          | $                              |            (64,569)                                                |           | (31.65)                                                                         | %                  |   | 11.31                      | %      |               |        (4.81) | % |   | $ |       1,232,156 |
| +200                        |   |                         | 162,147 |          |                           |            (41,823)                                                |           | (20.50)                                                                         |               |   | 12.80                      |   |               |        (3.12) |   |   |   |        1,267,113 |
| +100                        |   |                         | 184,356 |          |                           |            (19,614)                                                |           | (9.62)                                                                          |               |   | 14.14                      |   |               |        (1.46) |   |   |   |       1,304,178 |
| Base                        |   |                         | 203,970 |          |                           |                - |           |              - |               |   | 15.20                      |   |               |              - |   |   |   |        1,341,715 |
| (100)                       |   |                         | 212,880 |          |                           |              8,910                                       |           | 4.37                                                                            |               |   | 15.56                      |   |               |         0.66 |   |   |   |        1,367,881 |
| (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 and      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, 2010,      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, 2010, 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. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| ·           | the      cash flow of the borrower and/or the project being    financed; |
|--------------------------------------|--------------------------------------------------------------------------|

| ·           | changes      and uncertainties as to the future value of the collateral, in the case of      a collateralized loan; |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------|

| ·           | the      duration of the loan; |
|--------------------------------------|--------------------------------|

| ·           | the      credit history of a particular borrowerand |
|--------------------------------------|-----------------------------------------------------|

| ·           | changes      in economic and industryconditions. |
|--------------------------------------|--------------------------------------------------|

| ·           | our      general reserve, based on our historical default and loss experience and      certain macroeconomic factors based on management’s expectations of future      events; |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·           | and      our specific reserve, based on our evaluation of nonperforming loans and      their underlying collateral. |
|--------------------------------------|---------------------------------------------------------------------------------------------------------------------|

----

| Period                                    |   | Total      Number of      Shares Purchased                                                                                            |   |    | Average      Price      Paid per      Share                                                                                           |   | Total      Number of Shares      Purchased      as Part      of Publicly Announced Plans                                                                            |   |        Maximum      Number of      Shares that May Yet      Be Purchased Under      the Plans                  |
|-------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |
| January      1, 2010 - January 31, 2010   |   |                       - |   |  $ |                       - |   |                            - |   |                   312,300 |
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |
| February      1, 2010 - February 28, 2010 |   |            17,900                                                              |   |    |                5.92                                        |   |                 17,900                                                              |   |                  294,400       |
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |
| March      1, 2010 - March 31, 2010       |   |                       - |   |    |                       - |   |                            - |   |                  294,400       |
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |
| Total                           |   |            17,900                                                              |   |  $ |                5.92                                        |   |                 17,900                                                              |   |                  294,400       |
|                                      |   |                                                                                                                                  |   |    |                                                                                                                                  |   |                                                                                                                                                                |   |                                                                                                                |

----

|   | 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)        |   | Filed as an exhibit      to First Financial Northwest’s Annual Report on Form 10-K for the year      ended December 31, 2007 and incorporated herein by    reference.  |

----

|                         | First Financial      Northwest, Inc.               |
|------------------------------|---------------------------------------------------------|
|                         |                                                    |
|                         |                                                    |
| Date: May 7,      2010  | /s/Victor      Karpiak                                  |
|                         | Victor      Karpiak                                |
|                         | Chairman of the      Board, President and          |
|                         | Chief Executive      Officer                       |
|                         | (Principal Executive      Officer)                 |
|                         |                                                    |
|                         |                                                    |
| Date: May 7,      2010  |  /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 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 |

|  45 |
|----------|