| [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_____ |
|--------|---------------------------------------------------|

----

|  Washington                                                         |   |                              26-0610707                   |
|--------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (State or      other jurisdiction of incorporation or organization |   |  (I.R.S.      Employer I.D. 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                                                                                                                                                                                                                                               |
|                                                                     |   |                                                                                                                                                                                                                                                                   |

----

----

| FIRST FINANCIAL NORTHWEST, INC. AND      SUBSIDIARIES             |   |
|-------------------------------------------------------------------|--------|
| Consolidated      Balance Sheets                                  |   |
| (Dollars      in thousands, except share data)                    |   |
| (Unaudited)                                                       |   |
|                                                              |   |   |   |   |   |   |
|                                                              |   | June      30, |   |   | December      31, |   |
| Assets                                                            |   | 2009 |   |   | 2008 |   |
|                                                              |   |   |   |   |   |   |
| Cash      on hand and in banks                                    |   | $ | 3,105 |   |   | $ | 3,366 |   |
| Interest-bearing      deposits                                    |   |   | 49,975 |   |   |   | 600 |   |
| Federal      funds sold                                           |   |   | 2,295 |   |   |   | 1,790 |   |
| Investments      available for sale                               |   |   | 172,586 |   |   |   | 149,323 |   |
| Loans      receivable, net of allowance of $32,450 and $16,982    |   |   | 1,025,324 |   |   |   | 1,035,181 |   |
| Premises      and equipment, net                                  |   |   | 13,713 |   |   |   | 13,026 |   |
| Federal      Home Loan Bank stock, at cost                        |   |   | 7,413 |   |   |   | 7,413 |   |
| Accrued      interest receivable                                  |   |   | 5,387 |   |   |   | 5,532 |   |
| Deferred      tax assets, net                                     |   |   | 15,039 |   |   |   | 9,266 |   |
| Goodwill                                                          |   |   | — |   |   |   | 14,206 |   |
| Prepaid      expenses and other assets                            |   |   | 3,279 |   |   |   | 4,737 |   |
| Total      assets                                                 |   | $ | 1,298,116 |   |   | $ | 1,244,440 |   |
|                                                              |   |   |   |   |   |   |   |   |
| Liabilities      and Stockholders' Equity                         |   |   |   |   |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |   |
| Deposits                                                          |   | $ | 884,155 |   |   | $ | 791,483 |   |
| Advances      from the Federal Home Loan Bank                     |   |   | 149,900 |   |   |   | 156,150 |   |
| Advance      payments from borrowers for taxes and insurance      |   |   | 2,510 |   |   |   | 2,745 |   |
| Accrued      interest payable                                     |   |   | 514 |   |   |   | 478 |   |
| Federal      income tax payable                                   |   |   | 2,001 |   |   |   | 336 |   |
| Other      liabilities                                            |   |   | 5,222 |   |   |   | 3,140 |   |
| Total      liabilities                                            |   |   | 1,044,302 |   |   |   | 954,332 |   |
|                                                              |   |   |   |   |   |   |   |   |
| 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 20,337,220 and                |   |   |   |   |   |   |   |   |
|  21,293,368      shares at June 30, 2009 and                 |   |   |   |   |   |   |   |   |
| December      31, 2008, respectively                              |   |   | 204 |   |   |   | 213 |   |
| Additional      paid-in capital                                   |   |   | 195,379 |   |   |   | 202,167 |   |
| Retained      earnings, substantially restricted                  |   |   | 72,303 |   |   |   | 102,358 |   |
| Accumulated      other comprehensive income, net of tax           |   |   | 881 |   |   |   | 887 |   |
| Unearned      Employee Stock Ownership Plan (ESOP) shares         |   |   | (14,953 | ) |   |   | (15,517 | ) |
| Total      stockholders' equity                                   |   |   | 253,814 |   |   |   | 290,108 |   |
| Total      liabilities and stockholders' equity                   |   | $ | 1,298,116 |   |   | $ | 1,244,440 |   |
|                                                              |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial statements. |   |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES                              |   |
|------------------------------------------------------------------------------------|--------|
| Consolidated      Statements of Operations                                         |   |
| (Dollars      in thousands, except share data)                                     |   |
| (Unaudited)                                                                        |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   | Three      Months Ended |   |   | Six      Months Ended |   |
|                                                                               |   | June      30, |   |   | June      30, |   |
|                                                                               |   | 2009 |   |   | 2008 |   |   | 2009 |   |   | 2008 |   |
| Interest      income                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
|          Loans, including fees                                      |   | $ | 14,016 |   |   | $ | 14,928 |   |   | $ | 29,139 |   |   | $ | 29,997 |   |
|          Investments available for sale                             |   |   | 1,691  |   |   |   | 1,774  |   |   |   | 3,316  |   |   |   | 3,123  |   |
|          Tax-exempt investments available for sale                  |   |   | — |   |   |   | 144  |   |   |   | — |   |   |   | 448  |   |
|          Federal funds sold and interest bearing deposits withbanks |   |   | 20  |   |   |   | 220  |   |   |   | 22  |   |   |   | 756  |   |
|          Dividends on Federal Home Loan Bank stock                       |   |   | — |   |   |   | 36  |   |   |   | — |   |   |   | 47  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest income                                                         |   | $ | 15,727 |   |   | $ | 17,102 |   |   | $ | 32,477 |   |   | $ | 34,371 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Deposits                                                         |   |   | 7,428  |   |   |   | 8,016  |   |   |   | 14,757  |   |   |   | 16,095  |   |
|           Federal Home Loan Bank advances                           |   |   | 1,312  |   |   |   | 1,021  |   |   |   | 2,558  |   |   |   | 2,050  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      interest expense                                                        |   | $ | 8,740 |   |   | $ | 9,037 |   |   | $ | 17,315 |   |   | $ | 18,145 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                           |   |   | 6,987  |   |   |   | 8,065  |   |   |   | 15,162  |   |   |   | 16,226  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                                     |   |   | 18,256  |   |   |   | 445  |   |   |   | 19,800  |   |   |   | 445  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income (loss) after provision for loan losses                    |   | $ | (11,269 | ) |   | $ | 7,620 |   |   | $ | (4,638 | ) |   | $ | 15,781 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      income (loss)                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Net gain on sale of investments                            |   |   | — |   |   |   | 10  |   |   |   | 76  |   |   |   | 1,383  |   |
|          Other-than-temporary impairment loss on investments        |   |   | (152 | )        |   |   | (623 | )        |   |   | (152 | )        |   |   | (623 | )        |
|  Other                                                                        |   |   | 55  |   |   |   | 120  |   |   |   | 109  |   |   |   | 110  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      noninterest income (loss)                                               |   | $ | (97 | ) |   | $ | (493 | ) |   | $ | 33 |   |   | $ | 870 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest      expense                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Salaries and employee benefits                             |   |   | 3,037  |   |   |   | 2,192  |   |   |   | 6,076  |   |   |   | 3,953  |   |
|          Occupancy and equipment                                    |   |   | 1,293  |   |   |   | 290  |   |   |   | 1,643  |   |   |   | 584  |   |
|          Professional fees                                          |   |   | 389  |   |   |   | 552  |   |   |   | 696  |   |   |   | 847  |   |
|          Data Processing                                            |   |   | 150  |   |   |   | 113  |   |   |   | 294  |   |   |   | 226  |   |
|          FDIC/OTS assessments                                       |   |   | 896  |   |   |   | 127  |   |   |   | 1,578  |   |   |   | 157  |   |
|          Goodwill impairment                                        |   |   | 14,206  |   |   |   | — |   |   |   | 14,206  |   |   |   | — |   |
|          Other general and administrative                           |   |   | 736  |   |   |   | 512  |   |   |   | 1,358  |   |   |   | 905  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      noninterest expense                                                     |   | $ | 20,707 |   |   | $ | 3,786 |   |   | $ | 25,851 |   |   | $ | 6,672 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) before provision (benefit) for federal income taxes             |   |   | (32,073 | )        |   |   | 3,341  |   |   |   | (30,456 | )        |   |   | 9,979  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision      (benefit) for federal income taxes                                  |   |   | (4,076 | )        |   |   | 1,119  |   |   |   | (3,655 | )        |   |   | 3,285  |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income (loss)                                                             |   | $ | (27,997 | ) |   | $ | 2,222 |   |   | $ | (26,801 | ) |   | $ | 6,694 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per share                                               |   | $ | (1.49 | ) |   | $ | 0.10 |   |   | $ | (1.41 | ) |   | $ | 0.32 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings (loss) per share                                             |   | $ | (1.49 | ) |   | $ | 0.10 |   |   | $ | (1.41 | ) |   | $ | 0.32 |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Consolidated      Statements of Stockholders' Equity and Comprehensive Income      (Loss) |
|-------------------------------------------------------------------------------------------|
| For      the Six Months Ended June 30, 2009                                               |
| (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, 2008                                                        | 21,293,368         |   | $ | 213         | $ | 202,167         | $ | 102,358         | $ | 887         | $ | (15,517)        | $ | 290,108         |
| Comprehensive      income (loss):                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                      | Net      income (loss) | —     |   |   | —     |   | —     |   | (26,801)        |   | —     |   | —     |   | (26,801)        |
|                                                                                      | Change      in fair value of investments |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                      |   | available      for sale, net of tax benefit of $3 | —     |   |   | —     |   | —     |   | —     |   | (6)        |   | —     |   | (6)        |
|                                                                                      |   |   | Total      comprehensive income (loss) |   |   |   |   |   |   |   |   |   |   |   |   |   | (26,807)        |
| Cash      dividend declared and paid ($0.17 per share)                                    | —     |   |   | —     |   | —     |   | (3,254)        |   | —     |   | —     |   | (3,254)        |
| Purchase      and retirement of common stock                                              | (956,148)        |   |   | (9)        |   | (7,730)        |   | —     |   | —     |   | —     |   | (7,739)        |
| Compensation      related to stock options                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                      |   | and      restricted stock awards | —     |   |   | —     |   | 1,038         |   | —     |   | —     |   | —     |   | 1,038         |
| Allocation      of 28,212 ESOP shares                                                     | —     |   |   | —     |   | (96)        |   | —     |   | —     |   | 564         |   | 468         |
| Balances      at June 30, 2009                                                            | 20,337,220         |   | $ | 204         | $ | 195,379         | $ | 72,303         | $ | 881         | $ | (14,953)        | $ | 253,814         |
|                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial  statements.                        |

----

| FIRST FINANCIAL NORTHWEST, INC. AND      SUBSIDIARIES |
|-------------------------------------------------------|
| Consolidated      Statements of Cash Flows            |
| (In      thousands)                                   |
| (Unaudited)                                           |
|                                                  |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |   |   |   |   |   |   | Six      Months Ended |
|                                                  |   |   |   |   |   |   |   | June      30, |
|                                                  |   |   |   |   |   |   |   | 2009 |   | 2008 |
| Cash      flows from operating activities:            |   |   |   |   |
|                                                  | Net      income (loss) | $ | (26,801)  | $ | 6,694        |
|                                                  | Adjustments      to reconcile net income (loss) to net cash provided by operating      activities: |   |   |
|                                                  |   |   | Provision      for loan losses |   | 19,800        |   | 445        |
|                                                  |   |   | Goodwill      impairment |   | 14,206        |   | —    |
|                                                  |   |   | Depreciation      of premises and equipment |   | 394        |   | 366        |
|                                                  |   |   | Net      amortization of premiums and discounts on investments |   | 393        |   | 374        |
|                                                  |   |   | ESOP      expense |   | 468        |   | 616        |
|                                                  |   |   | Compensation      expense related to stock options and restricted stock    awards |   | 1,038        |   | —    |
|                                                  |   |   | Net      realized gain on investments available for sale |   | (76)  |   | (1,383)  |
|                                                  |   |   | Other-than-temporary      impairment loss on investments |   | 152        |   | 623        |
|                                                  |   |   | Mutual      fund dividends |   | —    |   | (132)  |
|                                                  |   |   | Loss      from disposal of equipment |   | 983        |   | 24        |
|                                                  |   |   | Deferred      federal income taxes |   | (5,770)  |   | (62)  |
|                                                  |   |   | Changes      in operating assets and liabilities: |   |   |   |   |
|                                                  |   |   |   |   | Prepaid      expenses and other assets |   | 1,458        |   | 479        |
|                                                  |   |   |   |   | Accrued      interest receivable |   | 145        |   | (26)  |
|                                                  |   |   |   |   | Accrued      interest payable |   | 36        |   | (13)  |
|                                                  |   |   |   |   | Other      liabilities |   | 2,082        |   | 889        |
|                                                  |   |   |   |   | Federal      income tax payable |   | 1,665        |   | (671)  |
|                                                  |   |   |   |   |   | Net      cash provided by operating activities | $ | 10,173        | $ | 8,223        |
|                                                  |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities:            |   |   |   |   |
|                                                  |   | Proceeds      from sales of investments |   | 6,853        |   | 62,562        |
|                                                  |   | Principal      repayments on investments available for sale |   | 18,158        |   | 17,256        |
|                                                  |   | Purchases      of investments available for sale |   | (48,752)  |   | (58,567)  |
|                                                  |   | Net      decrease in loans receivable |   | (9,943)  |   | (80,201)  |
|                                                  |   | Purchases      of Federal Home Loan Bank stock |   | —    |   | (179)  |
|                                                  |   | Purchases      of premises and equipment |   | (2,064)  |   | (58)  |
|                                                  |   |   |   |   |   | Net      cash used by investing activities | $ | (35,748)  | $ | (59,187)  |
|                                                  |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |   |   |   |   | Balance,      carried forward | $ | (25,575)  | $ | (50,964)  |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES   |
|---------------------------------------------------------|
| Consolidated      Statements of Cash Flows              |
| (In      thousands)                                     |
| (Unaudited)                                             |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   |   |   | Six      Months Ended |
|                                                    |   |   |   |   |   |   |   | June      30, |
|                                                    |   |   |   |   |   |   |   | 2009 |   | 2008 |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   | Balance,      brought forward | $ | (25,575)  | $ | (50,964)  |
| Cash      flows from financing activities:              |   |   |   |   |
|                                                    | Net      increase in deposits |   | 92,672        |   | 34,750        |
|                                                    | Advances      from the Federal Home Loan Bank |   | 16,750        |   | 102,000        |
|                                                    | Repayments      of advances from the Federal Home Loan Bank |   | (23,000)  |   | (88,000)  |
|                                                    | Net      increase (decrease) in advance payments from borrowers for taxes and      insurance | (235)  |   | 1,622        |
|                                                    | Repurchase      and retirement of common stock |   | (7,739)  |   | —    |
|                                                    | Dividends      paid |   | (3,254)  |   | (1,589)  |
|                                                    |   |   |   |   | Net      cash provided by financing activities | $ | 75,194        | $ | 48,783        |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   | Net      increase (decrease) in cash |   | 49,619        |   | (2,181)  |
| Cash      and cash equivalents:                         |   |   |   |   |
|                                                    | Beginning      of period |   | 5,756        |   | 11,577        |
|                                                    | End      of period |   | $ | 55,375        | $ | 9,396         |
|                                                    |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosures of cash flow information: |   |   |   |   |
|                                                    | Cash      paid during the period for: |   |   |   |   |
|                                                    |   | Interest |   | $ | 17,287        | $ | 18,158        |
|                                                    |   | Federal      income taxes | $ | 450        | $ | 4,017        |
| Noncash      transactions:                              |   |   |   |   |
|                                                    | Transfer      from investments held to maturity to investments available for      sale | $ | —    | $ | 80,410        |

----

----

----

----

|                                          |   |              |              |                |                |                |                | June      30, 2009  |
|-----------------------------------------------|--------|-------------------|-------------------|---------------------|---------------------|---------------------|---------------------|---------------------|
|                                          |   |              |              |                |                |                |                |                |   | Gross |   | Gross |   |   |
|                                          |   |              |              |                |                |                |                | Amortized           |   | Unrealized |   | Unrealized |   |   |
|                                          |   |              |              |                |                |                |                | Cost                |   | Gains |   | Losses |   | Fair      Value |
|                                          |   |              |              |                |                |                | (In      thousands) |
| Mortgage-backed      and related investments: |   |              |              |                |                |                |                |                |
|                                          |   | Fannie      Mae   | $                 | 88,101         | $                   | 1,036          | $                   | (198)               | $ | 88,939        |
|                                          |   | Freddie      Mac  |              | 59,589         |                | 905            |                | (80)                |   | 60,414        |
|                                          |   | Ginnie      Mae   |              | 6,858          |                | 72             |                | (3)                 |   | 6,927        |
| Tax      exempt municipal bonds               |   | 4,207        |              | 21             |                | (446)               |                | 3,782          |
| Taxable      municipal bonds                  |   | 651          |              | —   |                | (47)                |                | 604            |
| U.S.      Government agencies                 |   | 7,364        |              | 96             |                | —   |                | 7,460          |
| Mutual      fund (1)                          |   |              | 4,460        |                | —   |                | —   |                | 4,460        |
|                                          |   |              |              |                |                |                | $                   | 171,230        | $ | 2,130        | $ | (774) | $ | 172,586        |

|                                          |   |              |              |                |                |                |                | December      31, 2008 |
|-----------------------------------------------|--------|-------------------|-------------------|---------------------|---------------------|---------------------|---------------------|------------------------|
|                                          |   |              |              |                |                |                |                |                   |   | Gross |   | Gross |   |   |
|                                          |   |              |              |                |                |                |                | Amortized              |   | Unrealized |   | Unrealized |   |   |
|                                          |   |              |              |                |                |                |                | Cost                   |   | Gains |   | Losses |   | Fair      Value |
|                                          |   |              |              |                |                |                | (In      thousands) |
| Mortgage-backed      and related investments: |   |              |              |                |                |                |                |                   |
|                                          |   | Fannie      Mae   | $                 | 65,991         | $                   | 799            | $                   | (47)                   | $ | 66,743        |
|                                          |   | Freddie      Mac  |              | 59,296         |                | 844            |                | (28)                   |   | 60,112        |
|                                          |   | Ginnie      Mae   |              | 7,858          |                | 11             |                | (177)                  |   | 7,692        |
| Tax      exempt municipal bonds               |   | 4,206        |              | 16             |                | (523)               |                | 3,699             |
| Taxable      municipal bonds                  |   | 652          |              | —   |                | (41)                |                | 611               |
| U.S.      Government agencies                 |   | 5,344        |              | 511            |                | —   |                | 5,855             |
| Mutual      fund (1)                          |   |              | 4,611        |                | —   |                | —   |                   | 4,611        |
|                                          |   |              |              |                |                |                | $                   | 147,958           | $ | 2,181        | $ | (816) | $ | 149,323        |

----

|                                        |   | June      30, 2009  |    |
|---------------------------------------------|--------|---------------------|---------|
|                                        |   | Amortized      Cost |    |   | Fair      Value |   |
|                                        |   | (In      thousands) |    |
| Due      within one year                    |   | $                   | 1,999   |   |   | $ | 2,007 |   |
| Due      after one year through five years  |   |                | 5,892   |   |   |   | 6,007 |   |
| Due      after five years through ten years |   |                | 37,731  |   |   |   | 38,459 |   |
| Due      after ten years                    |   |                | 121,148 |   |   |   | 121,653 |   |
| Mutual      fund with no maturity           |   |                | 4,460   |   |   |   | 4,460 |   |
|                                        |   |                |    |   |   |   |   |   |
|                                        |   | $                   | 171,230 |   |   | $ | 172,586 |   |

----

|                                                                                                                                                                                                            |   | June      30,       |      |   | December      31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                                                            |   | 2009                |      |   | 2008              |   |
|                                                                                                                                                                                                            |   | (In      thousands) |      |
| One-to-four      family residential (1)                                                                                                                                                                         |   | $                   | 502,930   |   |              | $      | 512,446 |   |
| Multifamily      residential                                                                                                                                                                                    |   |                | 109,691   |   |              |   | 100,940 |   |
| Commercial      real estate                                                                                                                                                                                     |   |                | 273,607   |   |              |   | 260,727 |   |
| Construction/land      development                                                                                                                                                                              |   |                | 220,816   |   |              |   | 250,512 |   |
| Business                                                                                                                                                                                                        |   |                | 251       |   |              |   | — |   |
| Consumer                                                                                                                                                                                                        |   |                | 16,557    |   |              |   | 12,927 |   |
|                                                                                                                                                                                                            |   | $                   | 1,123,852 |   |              | $      | 1,137,552 |   |
| Less:                                                                                                                                                                                                           |   |                |      |   |              |   |   |   |
| Loans      in process                                                                                                                                                                                           |   |                | 63,346    |   |              |   | 82,541 |   |
| Deferred      loan fees                                                                                                                                                                                         |   |                | 2,732     |   |              |   | 2,848 |   |
| Allowance      for loan losses                                                                                                                                                                                  |   |                | 32,450    |   |              |   | 16,982 |   |
|                                                                                                                                                                                                            |   |                |      |   |              |   |   |   |
|                                                                                                                                                                                                            |   | $                   | 1,025,324 |   |              | $      | 1,035,181 |   |
| ___________                                                                                                                                                                                                |   |                |      |   |              |   |
| (1)   Includes $231.1 million and $212.1 million of      non-owner occupied loans as of June 30, 2009 and              December 31, 2008,      respectively.  |

|                           |   | Three      Months Ended June 30, |   |
|--------------------------------|--------|----------------------------------|--------|
|                           |   | 2009                             |   |   | 2008 |   |
|                           |   | (In      thousands)              |   |
|                           |   |                             |   |   |   |   |
| Balance      at April 1, 2009  |   | $                                | 14,294 |   |   | $ | 7,971 |   |
| Provision      for loan losses |   |                             | 18,256 |   |   |   | 445 |   |
| Charge-offs                    |   |                             | (100   | )        |   |   | — |   |
|                           |   |                             |   |   |   |   |   |   |
| Balance      at June 30, 2009  |   | $                                | 32,450 |   |   | $ | 8,416 |   |

|                            | Six      Months Ended June 30, |   |
|---------------------------------|--------------------------------|--------|
|                            | 2009                           |   | 2008 |   |
|                            | (In      thousands)            |   |
| Balance      at January 1, 2009 |                           | $      | 16,982 |   |   | $ | 7,971 |   |
| Provision      for loan losses  |                           |   | 19,800 |   |   |   | 445 |   |
| Charge-offs                     |                           |   | (4,332 | ) |   |   | - |   |
|                            |                           |   |   |   |   |   |   |   |
| Balance      at June 30, 2009   |                           | $      | 32,450 |   |   | $ | 8,416 |   |

----

|                                                                            |   | June      30,                   |   | December      31,               |
|---------------------------------------------------------------------------------|--------|---------------------------------|--------|---------------------------------|
|                                                                            |   | 2009                            |   | 2008                            |
|                                                                            |   | (In      thousands)             |
|                                                                            |   |                            |   |                            |
| Impaired      loans with a valuation allowance                                  | $      | 73,767                | $      | 52,533                |
| Valuation      allowance related to impaired loans                              |   | (12,672)                   |   | (8,537)                    |
| Impaired      loans without a valuation allowance                               |   | —     |   | —     |
| Net      impaired loans                                                         |   | 61,095                |   | 43,996                |
| Nonaccrual      loans not considered impaired                                   |   | 48,531                |   | 4,005                 |
| Total      nonaccrual loans, net of valuation allowance for impaired      loans | $      | 109,626               | $      | 48,001                |

|                                                                  |   | June      30,                   |    | December      31,               |
|-----------------------------------------------------------------------|--------|---------------------------------|---------|---------------------------------|
|                                                                  |   | 2009                            |    | 2008                            |
|                                                                  |   | (In      thousands)             |
|                                                                  |   |                            |    |                            |
| Total      loans past due 90-days or more and still accruing interest | $      | 7,130                 |  $ | 2,104                 |
| Average      investment of impaired loans                             | $      | 56,050                |  $ | 35,967                |
| Interest      income recognized on impaired loans                     | $      | —     |  $ | —     |
| Performing      troubled debt restructured loans                      | $      | 13,965                |  $ | 2,226                 |

----

|                                            |   |             |                                                                                                                                               |                                   |       |                                                                                                                                                                                            | Three      Months Ended                        |   | Three      Months Ended |
|-------------------------------------------------|--------|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|--------|-------------------------|
|                                            |   |             |                                                                                                                                               |                                   |       |                                                                                                                                                                                            | June      30, 2009                             |   | June      30, 2008      |
|                                            |   |             |                                                                                                                                               |                                   |       |                                                                                                                                                                                            | (Dollars      in thousands, except share data) |
| Net      income (loss)                          |   | $                |                        (27,997) |                                   | $          |                                2,222 |
| Weighted-average      common shares outstanding |   | 18,836,770  |                                                                                                                                               |                                   | 21,226,139 |
|                                            |   |             |                                                                                                                                               | Basic      earnings (loss) per share   | $          | (1.49)                                                                                                                                                                                          |                                           | $      | 0.10                    |
|                                            |   |             |                                                                                                                                               | Diluted      earnings (loss) per share | $          | (1.49)                                                                                                                                                                                          |                                           | $      | 0.10                    |

----

|                                            |   |                                                                                                                   |                                                                                                                                               |                                   |                                                                                                                                           |                                                                                                                                                                                            | Six      Months Ended                          |   | Six      Months Ended |
|-------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|--------|-----------------------|
|                                            |   |                                                                                                                   |                                                                                                                                               |                                   |                                                                                                                                           |                                                                                                                                                                                            | June      30, 2009                             |   | June      30, 2008    |
|                                            |   |                                                                                                                   |                                                                                                                                               |                                   |                                                                                                                                           |                                                                                                                                                                                            | (Dollars      in thousands, except share data) |
| Net      income (loss)                          |   | $                                                                                                                      |                        (26,801) |                                   | $                                                                                                                                              |                                6,694 |
| Weighted-average      common shares outstanding |   |                   19,074,587 |                                                                                                                                               |                                   |                       21,212,033 |
|                                            |   |                                                                                                                   |                                                                                                                                               | Basic      earnings (loss) per share   | $                                                                                                                                              | (1.41)                                                                                                                                                                                          |                                           | $      | 0.32                  |
|                                            |   |                                                                                                                   |                                                                                                                                               | Diluted      earnings (loss) per share | $                                                                                                                                              | (1.41)                                                                                                                                                                                          |                                           | $      | 0.32                  |

----

|                            | First      Financial Northwest      Foundation      Contribution                                                                |   | AMF      Ultra Short      Mortgage Fund      (Mutual Fund)                                                                      |   | Total      Deferred Tax      Asset Valuation      Allowance                                                         |
|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|
| Balance      at January 1, 2009 |  $                      603,375            |   |  $                      516,625            |   |  $                 1,120,000                            |
| Additions                       |                          716,625 |   |                          110,466 |   |                        827,091 |
| Balance      at June 30, 2009   |  $                   1,320,000                            |   |  $                      627,091            |   |  $                 1,947,091                            |

----

|                                           |                                                            |                                                                                                                                        |   |                                           |                                                                |                                                                               | Weighted-Average                                                                   |   |                                                                                                    | Aggregate                                                                                               |
|------------------------------------------------|-----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------------------------------------------------------------------|------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                           |                                                            |                                                                                                                                        |   |                                           | Weighted-Average                                                    |                                                                               | Remaining      Contractual                                                         |   |                                                                                                    | Intrinsic                                                                                               |
|                                           |                                                            | Shares                                                                                                                                      |   |                                           | Exercise Price                                                      |                                                                               | Term      in Years                                                                 |   |                                                                                                    | Value                                                                                                   |
|                                           |                                                            |                                                                                                                                        |   |                                           |                                                                |                                                                               |                                                                               |   |                                                                                                    |                                                                                                    |
| Outstanding      at January 1, 2009            |          1,423,524 |                                                                                                                                        | $      |        9.78 |                                                                |              9.50 |                                                                               | $      |                  - |
|                                           | Granted                                                         |               50,000                                                  |   |                                           |        8.35                      |                                                                               |              9.56 |   |                                                                                                    |                                                                                                    |
|                                           | Exercised                                                       |                        - |   |                                           |            - |                                                                               |                                                                               |   |                                                                                                    |                                                                                                    |
|                                           | Forfeited      or expired                                       |                        - |   |                                           |            - |                                                                               |                                                                               |   |                                                                                                    |                                                                                                    |
| Outstanding      at June 30, 2009              |          1,473,524 |                                                                                                                                        | $      |        9.73 |                                                                |              9.03 |                                                                               | $      |                  - |
|                                           |                                                            |                                                                                                                                        |   |                                           |                                                                |                                                                               |                                                                               |   |                                                                                                    |                                                                                                    |
| Expected      to vest assuming a 3% forfeiture |                                                            |                                                                                                                                        |   |                                           |                                                                |                                                                               |                                                                               |   |                                                                                                    |
|                                           | rate      over the vesting term                                 |          1,429,304                                                                             |   | $                                              |        9.73                      |                                                                               |              9.03 |   | $                                                                                                       |                  - |

|                                                                                                                     |   |   |          |   | Weighted-Average |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|------------------|--------|
|                                                                                                                     |   |   |          |   | Grant-Date       |   |
| Nonvested Shares                                                                                                         |   | Shares |          |   | Fair      Value  |   |
|                                                                                                                     |   |   |          |   |             |   |
| Nonvested      at January 1, 2009                                                                                        |   |   | 748,234       |   |             | $      | 10.34 |   |
| Granted                                                                                                                  |   |   | 32,000        |   |             |   | 8.35 |   |
| Vested                                                                                                                   |   |   | -             |   |             |   | - |   |
| Forfeited                                                                                                                |   |   | -             |   |             |   | - |   |
| Nonvested      at June 30, 2009                                                                                          |   |   | 780,234       |   |             | $      | 10.26 |   |
|                                                                                                                     |   |   |          |   |             |   |   |   |
| Expected      to vest assuming a 3% forfeiture             rate      over the vesting term |   |   |  756,824 |   |             |   |   |   |
|                                                                                                                     |   |   |          |   |             |   |   |   |

----

As of June 30, 2009, there was $6.5 million of totalunrecognized compensation costs related to nonvested shares granted asrestricted stock awards. The cost is expected to be recognized over theremaining weighted-average vesting period of 4.19 years.

| ·   | 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 June 30, 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 |   | $      |   |                      172,586 | $ |                        4,460 | $ |                      168,126 | $ |                            - |

|                                                                                                                                         |   |   |   | Fair      Value Measurements at June 30, 2009                                                                                                                               |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                         |   |   |   |                                                                                                                                                                        |   |   | Quoted      Prices in |   | Significant |   |   |   |   |
|                                                                                                                                         |   |   |   |                                                                                                                                                                        |   | Active      Markets |   | Other |   | Significant |   | Total |
|                                                                                                                                         |   |   |   | Fair      Value                                                                                                                                                             |   | for      Identical |   | Observable |   | Unobservable |   | Gains |
|                                                                                                                                         |   |   |   | Measurements                                                                                                                                                                |   | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |   | (Losses)      (1) |
|                                                                                                                                         |   |   |   | (In      thousands)                                                                                                                                                         |
| Impaired      loans including undisbursed but committed funds                                                                                |   |   |   |                                                                                                                                                                        |   |   |   |   |   |
|          of $14.2 million (included in loans receivable, net)                                                                 |   | $      |   |                        75,340                            | $ |                                - | $ |                                  - | $ |                   75,340 | $ |                   (8,467) |
| Servicing      rights (included in prepaid                                                                                                   |   |   |   |                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|     expenses      and other assets)                                                                                      |   |   |   |                             641 |   |                                - |   |                                  - |   |                        641 |   |                            - |
|                                                                                                                                         |   |   | $      |                                                                                                                                                                        |                        75,981 | $ |                                - | $ |                                  - | $ |                   75,981 | $ |                   (8,467) |
|                                                                                                                                         |   |   |   |                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |
| (1)      This represents the loss for the six months ended June 30, 2009. The loss      for the three months ended June 30, 2009 was $7,585. |   |   |

----

|         |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   |                                                                                                                                                | June      30, 2009 |                                                                                                                                                | December      31, 2008 |
|--------------|-----------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|         |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   |                                                                                                                                                | Carrying           |                                                                                                                                                | Estimated              |   | Carrying |   | Estimated |
|         |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   |                                                                                                                                                | Value              |                                                                                                                                                | Fair      Value        |   | Value |   | Fair      Value |
|         |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   | (In      thousands)                                                                                                                                 |
| Assets:      |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   |                                                                                                                                                |               |                                                                                                                                                |                   |   |
|         | Cash      on hand and in banks                | $      |                           3,105                 |   |                           3,105                 |   |                      3,366                 |               |                      3,366                 |
|         | Interest-bearing      deposits                |   |                         49,975                            |   |                    49,975                            |   |                         600 |               |                         600 |
|         | Federal      funds sold                       |   |                           2,295                 |   |                      2,295                 |   |                      1,790                 |               |                      1,790                 |
|         | Investments      available for sale           |   |                       172,586                                       |   |                  172,586                                       |   |                  149,323                                       |               |                  149,323                                       |
|         | Loans      receivable, net                    |   |                    1,025,324                                                       |   |               1,040,959                                                       |   |               1,035,181                                                       |               |               1,029,293                                                       |
|         | Federal      Home Loan Bank stock             |   |                           7,413                 |   |                      7,413                 |   |                      7,413                 |               |                      7,413                 |
|         | Accrued      interest receivable              |   |                           5,387                 |   |                      5,387                 |   |                      5,532                 |               |                      5,532                 |
| Liabilities: |                                          |   |                                                                                                                                                |   |                                                                                                                                                |   |                                                                                                                                                |               |                                                                                                                                                |                   |
|         | Deposits                                      |   |                                                                                                                                                |   |                       209,415                                       |   |                  209,415                                       |               |                  146,035                                       |                   |                  146,035 |
|         | Certificates      of deposit                  |   |                       674,740                                       |   |                  689,338                                       |   |                  645,448                                       |               |                  651,102                                       |
|         | Advances      from the Federal Home Loan Bank |   |                       149,900                                       |   |                  149,900                                       |   |                  156,150                                       |               |                  156,150                                       |
|         | Accrued      interest payable                 |   |                              514 |   |                         514 |   |                         478 |               |                         478 |

| ·   | 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 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 we are not required to hold. The      fair value is therefore equal to the bookvalue. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 the performing loans that do not reprice frequently is estimated using      discounted cash flow analysis, using interest rates currently being      offered or interest rates that would be offered for loans with similar      terms to borrowers of similar credit quality. The fair value of      nonperforming loans is estimated using discounted cash flow analysis,      based on applicable risk-adjusted spreads to the contractual interest      rates applicable to each category ofloan. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 the FHLB advances approximates      book value as the interest rate is comparable to interest rates currently      available for similar debt instruments at June 30, 2009 and December 31,      2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

----

| ·   | We      increased the provision for loan losses to $18.3  million; |
|--------------------|--------------------------------------------------------------------|

| ·   | Goodwill      impairment totaling $14.2 million was  written-off; |
|--------------------|-------------------------------------------------------------------|

| ·   | The      remaining book value of $983,000 related to the building that housed our      lending division was expensed, as a new facility is being      built; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      special assessment was levied on all financial institutions for deposit      insurance by the FDIC, our portion totaled $559,000;  and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      incurred an other-than-temporary impairment (“OTTI”) loss on the AMF Ultra      Short Mortgage Fund totaling$152,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                   |   | June      30, 2009    |          |                    | December      31, 2008 |          |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------|---------------|-------------------------|------------------------|---------------|
|                                                                                                   |   | Aggregate      Amount | Number        |                    | Aggregate      Amount  | Number        |
| Borrower                                                                                               |   | of      Loans (1)     | of      Loans |                    | of      Loans (1)      | of      Loans |
|                                                                                                   |   |                  |          |                    |                   |          |   |   |   |   |
| Real      estate builder                                                                               |   | $                     | 48.5          |        million     | 138                    |          | $ | 47.3 |        million | 131 |
| Real      estate builder                                                                               |   |                  | 38.4          |        million     | 131                    |          |   | 37.2 |        million | 132 |
| Real      estate builder                                                                               |   |                  | 28.7          |        million     | 113                    |          |   | 29.0 |        million | 103 |
| Real      estate builder                                                                               |   |                  | 20.5          |        million (2) | 83                     |          |   | 25.2 |        million (4) | 88 |
| Real      estate builder                                                                               |   |                  | 19.1          |        million (3) | 98                     |          |   | 19.1 |        million (5) | 100 |
| Total                                                                                                  |   | $                     | 155.2         |        million     |                   |          | $ | 157.8 |        million |   |
|                                                                                                   |   |                  |          |                    |                   |          |   |   |   |   |
| (1)   Net      of undisbursed funds.                                                    |   |                  |          |                    |                   |          |   |
| (2)   Of      this amount, $16.1 million is considered impaired and      nonperforming. |   |                  |          |                    |                   |
| (3)   Of      this amount, $7.3 million is considered impaired and      nonperforming.  |   |                  |          |                    |                   |
| (4)   Of      this amount, $20.8 million is considered impaired and      nonperforming. |   |                  |          |                    |                   |
| (5)   Of      this amount, $7.7 million is considered impaired and      nonperforming.  |   |                  |          |                    |                   |

| Top      Five Builder Relationships                 |
|-----------------------------------------------------|
| June      30, 2009                                  |
|                                                | PermanentOne-to-Four      FamilyResidential      Loans |   | PermanentMultifamilyLoans |   | PermanentCommercialLoans |   | Construction/ |   | Aggregate      Amount |
| Borrower                                            | (Rental      Properties) |   | (Rental      Properties) |   | (Rental      Properties) |   | Land      Development (1) |   | of      Loans (1) |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate builder                            | $ | 17.8 |        million |   | $ |             - |   |   | $ | 0.3 |        million |   | $ | 30.4 |        million |   | $ | 48.5 |  million |
| Real      estate builder                            |   | 23.8 |        million |   |   |             - |   |   |   | 0.8 |        million |   |   | 13.8 |        million |   |   | 38.4 |  million |
| Real      estate builder                            |   | 18.1 |        million |   |   | 1.1 |        million |   |   | 0.1 |        million |   |   | 9.4 |        million |   |   | 28.7 |  million |
| Real      estate builder                            |   | 12.6 |        million |   |   |             - |   |   |   |             - |   |   |   | 7.9 |        million |   |   | 20.5 |  million |
| Real      estate builder                            |   | 11.8 |        million |   |   |             - |   |   |   |             - |   |   |   | 7.3 |        million |   |   | 19.1 |  million |
| Total                                               | $ | 84.1 |        million |   | $ | 1.1 |        million |   | $ | 1.2 |        million |   | $ | 68.8 |        million |   | $ | 155.2 |  million |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)   Net      of undisbursed funds. |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| Top      Five Builder Relationships                 |
|-----------------------------------------------------|
| December      31, 2008                              |
|                                                | PermanentOne-to-Four      FamilyResidential      Loans |   | PermanentMultifamilyLoans |   | PermanentCommercialLoans |   | Construction/ |   | Aggregate      Amount |
| Borrower                                            | (Rental      Properties) |   | (Rental      Properties) |   | (Rental      Properties) |   | Land      Development (1) |   | of      Loans (1) |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate builder                            | $ | 15.6 |        million |   | $ |             - |   |   | $ | 0.3 |        million |   | $ | 31.4 |        million |   | $ | 47.3 |  million |
| Real      estate builder                            |   | 20.2 |        million |   |   |             - |   |   |   | 0.9 |        million |   |   | 16.1 |        million |   |   | 37.2 |  million |
| Real      estate builder                            |   | 17.4 |        million |   |   | 1.1 |        million |   |   | 0.1 |        million |   |   | 10.4 |        million |   |   | 29.0 |  million |
| Real      estate builder                            |   | 13.5 |        million |   |   |             - |   |   |   |             - |   |   |   | 11.7 |        million |   |   | 25.2 |  million |
| Real      estate builder                            |   | 6.8 |        million |   |   |             - |   |   |   |             - |   |   |   | 12.3 |        million |   |   | 19.1 |  million |
| Total                                               | $ | 73.5 |        million |   | $ | 1.1 |        million |   | $ | 1.3 |        million |   | $ | 81.9 |        million |   | $ | 157.8 |  million |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)   Net      of undisbursed funds. |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| County                             |   |                                                         | Loan      Balance (1)                                        |   | Percent of      Loan Balance (1) |   |
|------------------------------------|--------|--------------------------------------------------------------|--------------------------------------------------------------|--------|---------------------------------------|--------|
|                               |   |                                                         | (Dollars      in thousands)                                  |   |                                  |   |
| King                               |   | $                                                            |          73,935 |   | 42.8                                  | %      |
| Pierce                             |   |                                                         |          39,431 |   | 22.8                                  |   |
| Kitsap                             |   |                                                         |          18,039 |   | 10.5                                  |   |
| Snohomish                          |   |                                                         |          12,926 |   | 7.5                                   |   |
| Whatcom                            |   |                                                         |          11,648 |   | 6.8                                   |   |
| All      other counties            |   |          16,613 |                                                         | 9.6    |                                  |
| Total                              |   | $                                                            |        172,592            |   | 100.0                                 | %      |
|                               |   |                                                         |                                                         |   |                                  |   |
| (1)      Net of undisbursed funds. |   |                                                         |                                                         |   |

----

----

|                                      |                        |                                                                                                                                                                            |   |                   | Increase/(Decrease)                                                                                                                                                                                                             |                |                                                                                                                                                                |   |
|-------------------------------------------|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                      | Balance      at             |                                                                                                                                                                            |   | from                   |                                                                                                                                                                                                                            | Percentage          |                                                                                                                                                                |
|                                      | June      30, 2009          |                                                                                                                                                                            |   | December      31, 2008 |                                                                                                                                                                                                                            | Increase/(Decrease) |
|                                      | (Dollars      in thousands) |                                                                                                                                                                            |
|                                      |                        |                                                                                                                                                                            |   |                   |                                                                                                                                                                                                                            |                |                                                                                                                                                                |   |
| Cash      on hand and in banks            | $                           |                      3,105                                             |   | $                      |                               (261)                                       |                |                      (7.75)                                | %      |
| Interest-bearing      deposits            |                        |                    49,975                                                        |   |                   |                            49,375                                                        |                |                 8,229.17                                                            |   |
| Federal      funds sold                   |                        |                      2,295                                             |   |                   |                                 505                             |                |                      28.21                                 |   |
| Investments      available for sale       |                        |                  172,586                                                                   |   |                   |                            23,263                                                        |                |                      15.58                                 |   |
| Loans      receivable, net                |                        |               1,025,324                                                                                   |   |                   |                            (9,857)                                                       |                |                      (0.95)                                |   |
| Premises      and equipment, net          |                        |                    13,713                                                        |   |                   |                                 687                             |                |                        5.27                      |   |
| Federal      Home Loan Bank               |                        |                                                                                                                                                                            |   |                   |                                                                                                                                                                                                                            |                |                                                                                                                                                                |   |
|    stock,      at cost     |                        |                      7,413                                             |   |                   |                                      - |                |                            - |   |
| Accrued      interest receivable          |                        |                      5,387                                             |   |                   |                               (145)                                       |                |                      (2.62)                                |   |
| Deferred      tax assets, net             |                        |                    15,039                                                        |   |                   |                              5,773                                             |                |                      62.30                                 |   |
| Goodwill                                  |                        |                              - |   |                   |                          (14,206)                                                                  |                |                  (100.00)                                                      |   |
| Prepaid      expenses and other assets    |                        |                      3,279                                             |   |                   |                            (1,458)                                                       |                |                    (30.78)                                           |   |
|     Total      assets | $                           |               1,298,116                                                                                   |   | $                      |                            53,676                                                        |                |                        4.31                      | %      |

----

----

|                                                           | Three      Months Ended June 30, 2009 |                                                                                                                            | Six      Months Ended June 30, 2009 |
|----------------------------------------------------------------|---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                           | Compared      to June 30, 2008        |                                                                                                                            | Compared      to June 30, 2008      |
|                                                           | Increase      (Decrease) Due to       |                                                                                                                            | Increase      (Decrease) Due to     |
|                                                           |  Rate                            |                                                                                                                            |  Volume                        |   |  Total |   |  Rate |   |  Volume |   |  Total |
|                                                           |  (Dollars      in thousands)     |
| Interest-earning      assets:                                  |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Loans      receivable, net                   | $                                     |            (2,407)                                                       |                                | $ |              1,495 |   | $ |               (912) |   | $ |            (4,585) |   | $ |              3,727 |   | $ |               (858) |
|    Investments      available for sale          |                                  |                 (95)                            |                                |   |               (132) |   |   |               (227) |   |   |               (197) |   |   |                 (58) |   |   |               (255) |
|    Federal      funds sold and interest-        |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      bearing      deposits with banks |                                  |               (252)                                       |                                |   |                   52 |   |   |               (200) |   |   |               (385) |   |   |               (349) |   |   |               (734) |
|    Federal      Home Loan Bank stock            |                                  |                 (55)                            |                                |   |                   19 |   |   |                 (36) |   |   |                 (72) |   |   |                   25 |   |   |                 (47) |
|                                                           |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      net change in income on                             |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    interest-earning      assets                 |                                  |            (2,809)                                                       |                                |   |              1,434 |   |   |            (1,375) |   |   |            (5,239) |   |   |              3,345 |   |   |            (1,894) |
|                                                           |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities                              |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    NOW      accounts                            |                                  |                     1       |                                |   |                     1 |   |   |                     2 |   |   |                     1 |   |   |                   (2) |   |   |                   (1) |
|    Statement      savings accounts              |                                  |                      - |                                |   |                     8 |   |   |                     8 |   |   |                      - |   |   |                   15 |   |   |                   15 |
|    Money      market accounts                   |                                  |                     8       |                                |   |                 169 |   |   |                 177 |   |   |               (120) |   |   |                   64 |   |   |                 (56) |
|    Certificates      of deposit                 |                                  |            (1,409)                                                       |                                |   |                 634 |   |   |               (775) |   |   |            (2,908) |   |   |              1,612 |   |   |            (1,296) |
|    Advances      from the Federal               |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Home      Loan Bank              |                                  |                 (79)                            |                                |   |                 370 |   |   |                 291 |   |   |               (199) |   |   |                 707 |   |   |                 508 |
|                                                           |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      net change in expense on                            |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    interest-bearing      liabilities            |                                  |            (1,479)                                                       |                                |   |              1,182 |   |   |               (297) |   |   |            (3,226) |   |   |              2,396 |   |   |               (830) |
|                                                           |                                  |                                                                                                                            |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      change in net interest income                         | $                                     |            (1,330)                                                       |                                | $ |                 252 |   | $ |            (1,078) |   | $ |            (2,013) |   | $ |                 949 |   | $ |            (1,064) |

----

|                                         | Three      Months Ended June 30, |                                                                    |   |                                                                      |
|----------------------------------------------|----------------------------------|-------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                         | 2009                             |                                                                    | 2008   |                                                                      | Increase/ |
|                                         |                             |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                         |                             |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   | Interest      and |
|                                         | Average                          |                                                                    |   |                                                                      |   | Average |   |   |   |   | Dividend |
|                                         | Balance                          |                                                                    | Yield  |                                                                      | Balance |   | Yield |   | Income |
|                                         |                             | (Dollars      in thousands)                                             |
|                                         |                             |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   | $                                |     1,033,623                                       |   |         5.42                      | % |   | $ |        937,878 |   |         6.37 | % |   | $ |             (912) |
| Investments      available for sale          |                             |        157,047                       |   |         4.31                      |   |   |   |        168,471 |   |         4.55 |   |   |   |             (227) |
| Federal      funds sold and interest-bearing |                             |                                                                    |   |                                                                      |   |   |   |   |   |   |   |   |   |
|    deposits                   |                             |          50,673            |   |         0.16                      |   |   |   |          41,069 |   |         2.14 |   |   |   |             (200) |
| Federal      Home Loan Bank stock            |                             |            7,413 |   |             - |   |   |   |            4,850 |   |         2.97 |   |   |   |               (36) |
| Total      interest-earning assets           | $                                |     1,248,756                                       |   |         5.04                      | % |   | $ |     1,152,268 |   |         5.94 | % |   | $ |          (1,375) |

|                                         |  Six      Months Ended June 30, |                                                                                                                |   |                                                                                        |
|----------------------------------------------|--------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                         | 2009                                 |                                                                                                                | 2008   |                                                                                        | Increase/ |
|                                         |                                 |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                         |                                 |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   | Interest      and |
|                                         | Average                              |                                                                                                                |   |                                                                                        |   | Average |   |   |   |   | Dividend |
|                                         | Balance                              |                                                                                                                | Yield  |                                                                                        | Balance |   | Yield |   | Income |
|                                         |                                 | (Dollars      in thousands)                                                                                         |
|                                         |                                 |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   | $                                    |     1,033,572                                                                                   |   |             5.64                | % |   | $ |        919,062 |   |             6.53 | % |   | $ |                 (858) |
| Investments      available for sale          |                                 |        150,330                                                                   |   |             4.41                |   |   |   |        152,800 |   |             4.67 |   |   |   |                 (255) |
| Investments      held to maturity            |                                 |                    - |   |                - |   |   |   |            7,561 |   |                - |   |   |   |                        - |
| Federal      funds sold and interest-bearing |                                 |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
|    deposits                   |                                 |          30,196                                                        |   |             0.15                |   |   |   |          56,017 |   |             2.70 |   |   |   |                 (734) |
| Federal      Home Loan Bank stock            |                                 |            7,413                                             |   |                - |   |   |   |            4,842 |   |             1.94 |   |   |   |                   (47) |
| Total      interest-earning assets           | $                                    |     1,221,511                                                                                   |   |             5.32                | % |   | $ |     1,140,282 |   |             6.03 | % |   | $ |              (1,894) |

----

|                                          | Three      Months Ended June 30, |
|-----------------------------------------------|----------------------------------|
|                                          | 2009                             |   | 2008 |   |   | Increase      / |
|                                          |                             |   |   |   |   |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                          |   |   |   |   | Average |   |   |   |   |   | Interest |
|                                          | Balance                          |   | Cost |   | Balance |   | Cost |   |   | Expense |
|                                          |                             | (Dollars      in thousands) |
|                                          |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                                |        10,961 |   |            0.73 | % |   | $ |        10,245 |   |            0.70 | % |   | $ |                        2 |
| Statement      savings accounts               |                             |        13,147 |   |            1.73 |   |   |   |        11,339 |   |            1.73 |   |   |   |                        8 |
| Money      market accounts                    |                             |      162,139 |   |            2.00 |   |   |   |      127,586 |   |            1.98 |   |   |   |                    177 |
| Certificates      of deposit                  |                             |      664,138 |   |            3.94 |   |   |   |      611,628 |   |            4.78 |   |   |   |                  (775) |
| Advances      from the Federal Home Loan Bank |                             |      149,765 |   |            3.50 |   |   |   |      110,000 |   |            3.71 |   |   |   |                    291 |
| Total      interest-bearing liabilities       | $                                |   1,000,150 |   |            3.50 | % |   | $ |      870,798 |   |            4.15 | % |   | $ |                  (297) |

|                                          | Six      Months Ended June 30, |
|-----------------------------------------------|--------------------------------|
|                                          | 2009                           |   | 2008 |   |   | Increase      / |
|                                          |                           |   |   |   |   |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                        |   |   |   |   | Average |   |   |   |   |   | Interest |
|                                          | Balance                        |   | Cost |   | Balance |   | Cost |   |   | Expense |
|                                          |                           | (Dollars      in thousands) |
|                                          |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                              |       10,474 |   |           0.71 | % |   | $ |       10,984 |   |           0.69 | % |   | $ |                 (1) |
| Statement      savings accounts               |                           |       12,986 |   |           1.74 |   |   |   |       11,294 |   |           1.74 |   |   |   |                 15 |
| Money      market accounts                    |                           |     141,904 |   |           1.99 |   |   |   |     136,603 |   |           2.14 |   |   |   |               (56) |
| Certificates      of deposit                  |                           |     658,053 |   |           4.01 |   |   |   |     591,804 |   |           4.90 |   |   |   |          (1,296) |
| Advances      from the Federal Home Loan Bank |                           |     147,062 |   |           3.48 |   |   |   |     109,461 |   |           3.75 |   |   |   |               508 |
| Total      interest-bearing liabilities       | $                              |     970,479 |   |           3.57 | % |   | $ |     860,146 |   |           4.22 | % |   | $ |             (830) |

----

----

|                                                              |      At      June 30, |                                                                                                                                  |     At      March 31, |   | At      December 31,                                                                                                                  |
|-------------------------------------------------------------------|------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|                                                              | 2009                                           |                                                                                                                                  | 2009                                      |   | 2008                                                                                                                                  |
|                                                              |  (In      thousands)                      |
| Loans      accounted for on a nonaccrual basis:                   |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Real      estate:                                                 |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
|      One-to-four      family residential | $                                              |             26,912                                                        |                                      | $      |             12,013                                                        |   | $ |                  9,630 |
|      Commercial      real estate         |                                           |               9,025                                             |                                      |   |               5,171                                             |   |   |                  2,865 |
|      Construction/land      development  |                                           |             86,361                                                        |                                      |   |             50,371                                                        |   |   |                44,043 |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Total      loans accounted for on a nonaccrual basis              | $                                              |           122,298                                                                   |                                      | $      |             67,555                                                        |   | $ |                56,538 |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Accruing      loans which are contractually past due              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
|   90      days or more:                                 |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
|      One-to-four      family residential | $                                              |                  891                             |                                      | $      |               4,620                                             |   | $ |                  1,207 |
|      Multifamily                         |                                           |                  809                             |                                      |   |                       - |   |   |                         - |
|      Commercial      real estate         |                                           |               5,380                                             |                                      |   |               4,212                                             |   |   |                     897 |
|      Construction/land      development  |                                           |                       - |                                      |   |               3,775                                             |   |   |                         - |
|      Consumer                            |                                           |                    50                  |                                      |   |                    50                  |   |   |                         - |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Total      accrual loans which are contractually past due         |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
|   90      days or more                                  | $                                              |               7,130                                             |                                      | $      |             12,657                                                        |   | $ |                  2,104 |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Total      real estate owned                                      | $                                              |                       - |                                      | $      |                       - |   | $ |                         - |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
|      Total      nonperforming assets     | $                                              |           129,428                                                                   |                                      | $      |             80,212                                                        |   | $ |                58,642 |
|                                                              |                                           |                                                                                                                                  |                                      |   |                                                                                                                                  |   |   |   |
| Troubled      debt restructured loans                             | $                                              |             38,209                                                        |                                      | $      |             22,290                                                        |   | $ |                23,044 |

----

----

|                                                                                    | At      or For the Six Months |
|-----------------------------------------------------------------------------------------|-------------------------------|
|                                                                                    | Ended      June 30,           |
|                                                                                    | 2009                          |   | 2008 |
|                                                                                    | (Dollars      in thousands)   |
|                                                                                    |                          |   |   |   |   |   |   |
| Provision      for loan losses                                                          | $                             |          19,800 |   |   | $ |                445 |   |
| Charge-offs                                                                             | $                             |            4,332 |   |   | $ |                    - |   |
| Allowances      for loan losses                                                         | $                             |          32,450 |   |   | $ |             8,416 |   |
| Allowance      for  loan losses as a percent of total loans    outstanding         |                          |   |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                          |              3.06 | % |   |   |               0.79 | % |
| Allowance      for loan losses as a percent of nonperforming loans                      |                          |   |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                          |            25.07 | % |   |   |             26.52 | % |
| Total      nonaccrual and 90 days or more past due loans, net of undisbursed      funds | $                             |        129,428 |   |   | $ |           31,740 |   |
| Nonaccrual      and 90 days or more past due loans as a                                 |                          |   |   |   |   |   |   |
|    percent      of total loans, net of undisbursed funds                 |                          |            12.20 | % |   |   |               2.98 | % |
| Total      loans receivable                                                             | $                             |     1,123,852 |   |   | $ |      1,065,433 |   |
| Total      loans originated                                                             | $                             |          78,411 |   |   | $ |         147,313 |   |

|                                                |   | Three      Months                               |   | Increase/(Decrease)                                                             |   |                |                                                |   |                                                                      |
|-----------------------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|---------------------|-----------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                                |   | Ended                                           |   | from                                                                            |   | Percentage          |
|                                                |   | June      30, 2009                              |   | June      30, 2008                                                              |   | Increase/(Decrease) |
|                                                |   | (Dollars      in thousands)                     |   |
|                                                |   |                                            |   |                                                                            |   |                |                                                |   |                                                                      |   |   |   |   |   |   |
| Service      fees on deposit accounts               |   |                                            | $      |           33                  |   |                |                                                | $      |             1 |   |   |   |           3.13 |        % |   |
| Loan      service fees                              |   |                                            |   |           65                  |   |                |                                                |   |          (31)                |   |   |   |        (32.29) |   |   |
| Gain      on sale of investments                    |   |                                            |   |              - |   |                |                                                |   |          (10)                |   |   |   |       100.00 |   |   |
| Other-than-temporary      impairment on investments |   |        (152) |   |                                                                            |   |                |         471 |   |                                                                      |   |         75.60 |   |   |
| Servicing      rights, net                          |   |                                            |   |          (58)                      |   |                |                                                |   |             1 |   |   |   |           1.69 |   |   |
| Other                                               |   |                                            |   |           15                  |   |                |                                                |   |          (36)                |   |   |   |        (70.59) |   |   |
| Total      noninterest income (loss)                |   |                                            | $      |          (97)                      |   |                |                                                | $      | 396                          |   |   |   |        (80.32) |        % |   |

|                                                | Six      Months             |                                            | Increase/(Decrease)                                            |   |                |   |                                                |                                                                                                        |
|-----------------------------------------------------|-----------------------------|-------------------------------------------------|----------------------------------------------------------------|--------|---------------------|--------|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                                | Ended                       |                                            | from                                                           |   | Percentage          |
|                                                | June      30, 2009          |                                            | June      30, 2008                                             |   | Increase/(Decrease) |
|                                                | (Dollars      in thousands) |                                            |
|                                                |                        |                                            |                                                           |   |                |   |                                                |                                                                                                        |   |   |   |   |   |   |
| Service      fees on deposit accounts               |                        | $                                               |           49 |   |                |   | $                                                   |             1                                   |   |   |   |           2.08  | % |   |
| Loan      service fees                              |                        |                                            |         140            |   |                |   |                                                |           42                                              |   |   |   |         42.86  |     |   |
| Gain      on sale of investments                    |                        |                                            |           76 |   |                |   |                                                |     (1,307)                                                                             |   |   |   |        (94.50) |   |   |
| Other-than-temporary      impairment on investments |                        |        (152) |                                                           |   |                |   |         471 |                                                                                                        |   |   |         75.60  |   |   |
| Servicing      rights, net                          |                        |                                            |        (111)                |   |                |   |                                                |             6                                   |   |   |   |           5.13  |   |   |
| Other                                               |                        |                                            |           31 |   |                |   |                                                |          (50)                                                  |   |   |   |        (61.73) |   |   |
| Total      noninterest income                       |                        | $                                               |           33 |   |                |   | $                                                   |                (837)        |   |   |   |        (96.21) |  % |   |

----

|                             | Three      Months           |                                                                                         | Increase/(Decrease) |   |                |                                                                            |   |
|----------------------------------|-----------------------------|----------------------------------------------------------------------------------------------|---------------------|--------|---------------------|---------------------------------------------------------------------------------|--------|
|                             | Ended                       |                                                                                         | from                |   | Percentage          |
|                             | June      30, 2009          |                                                                                         | June      30, 2008  |   | Increase/(Decrease) |
|                             | (Dollars      in thousands) |
|                             |                        |                                                                                         |                |   |                |                                                                            |   |   |   |   |   |
| Compensation      and benefits   | $                           |           3,037                            |                |   | $                   |          845                       |   |   |   |               38.55 |        % |
| Occupancy      and equipment     |                        |           1,293                            |                |   |                |       1,003                                       |   |   |   |             345.86 |   |
| Professional      fees           |                        |              389            |                |   |                |         (163)                           |   |   |   |             (29.53) |   |
| Data      processing             |                        |              150            |                |   |                |            37            |   |   |   |               32.74 |   |
| Marketing                        |                        |                83 |                |   |                |            29            |   |   |   |               53.70 |   |
| Office      supplies and postage |                        |                51 |                |   |                |              1 |   |   |   |                 2.00 |   |
| FDIC/OTS      assessments        |                        |              896            |                |   |                |          760                       |   |   |   |             558.82 |   |
| Bank      and ATM charges        |                        |                35 |                |   |                |             (2)     |   |   |   |               (5.41) |   |
| Goodwill      impairment         |                        |         14,206                                       |                |   |                |     14,206                                                  |   |   |   |             100.00 |   |
| Other                            |                        |              567            |                |   |                |          205                       |   |   |   |               56.63 |   |
| Total      noninterest expense   | $                           |         20,707                                       |                |   | $                   |     16,921                                                  |   |   |   |             446.94 |        % |

----

|                             | Six      Months             |                                                     | Increase/(Decrease) |   |                |                                                                 |   |
|----------------------------------|-----------------------------|----------------------------------------------------------|---------------------|--------|---------------------|----------------------------------------------------------------------|--------|
|                             | Ended                       |                                                     | from                |   | Percentage          |
|                             | June      30, 2009          |                                                     | June      30, 2008  |   | Increase/(Decrease) |
|                             | (Dollars      in thousands) |
|                             |                        |                                                     |                |   |                |                                                                 |   |   |   |   |   |
| Compensation      and benefits   | $                           |     6,076                            |                |   | $                   |       2,123                            |   |   |   |        53.71 | % |
| Occupancy      and equipment     |                        |     1,643                            |                |   |                |       1,059                            |   |   |   |      181.34 |   |
| Professional      fees           |                        |        696            |                |   |                |        (151)                      |   |   |   |      (17.83) |   |
| Data      processing             |                        |        294            |                |   |                |            68 |   |   |   |        30.09 |   |
| Marketing                        |                        |        135            |                |   |                |            35 |   |   |   |        35.00 |   |
| Office      supplies and postage |                        |        122            |                |   |                |            39 |   |   |   |        46.99 |   |
| FDIC/OTS      assessments        |                        |     1,578                            |                |   |                |       1,403                            |   |   |   |      801.71 |   |
| Bank      and ATM charges        |                        |          71 |                |   |                |          (11)           |   |   |   |      (13.41) |   |
| Goodwill      impairment         |                        |   14,206                                       |                |   |                |     14,206                                       |   |   |   |      100.00 |   |
| Other                            |                        |     1,030                            |                |   |                |          408            |   |   |   |        65.59 |   |
| Total      noninterest expense   | $                           |   25,851                                       |                |   | $                   |     19,179                                       |   |   |   |      287.46 | % |

----

----

|                                                             |                |                                                        |          | 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                              | $                   |        26,633            |          | $                                                 |        26,633 |   | $ |                  - |   | $ |                  - |   | $ |                  - |
| Unused      portion of lines of credit                           |                |          8,466 |          |                                              |             249 |   |   |                  - |   |   |             264 |   |   |          7,953 |
| Undisbursed      portion of construction loans                   |                |        63,346            |          |                                              |        48,431 |   |   |          6,702 |   |   |          7,946 |   |   |             267 |
|        Total      commitments | $                   |        98,445            |          | $                                                 |        75,313 |   | $ |          6,702 |   | $ |          8,210 |   | $ |          8,220 |

----

----

|   | June      30, 2009                             |
|--------|------------------------------------------------|
|   | Net      Interest Income Change                |
|   | Basis      PointChange      in Rates           |   | %      Change |
|   | +300                                           |   | 10.74 | % |
|   | +200                                           |   | 10.68 |   |
|   | +100                                           |   | 9.73 |   |
|   | Base                                           |   | 8.64 |   |
|   | (100)                                          |   | 5.97 |   |
| (1)    | (200)                                          |   | N/A |   |
| (1)    | (300)                                          |   | N/A |   |
|   |                                           |   |   |   |
| (1)    | The      current federal funds rate is between |
|   | 0%      and 0.25%, making a 200 and 300        |   |
|   | basis      point drop unlikely.                |   |

----

| June 30,      2009          |
|-----------------------------|
| Basis      Point            |   | Net      Portfolio Value (2) |   | Net      Portfolio as % ofPortfolio      Value of Assets |   | Market      Value |
| Change      in Rates (1)    |   | Amount |   | $      Change (3) |   | %      Change |   | NPV      Ratio (4) |   | %      Change (5) |   | of      Assets (6) |
| (Dollars      in thousands) |
| +300                        |   | $ | 169,035 |   | $ | (78,214) |   | (31.63) | % | 14.09 | % |          (5.93) | % |   | $ | 1,199,367 |
| +200                        |   |   | 195,575 |   |   | (51,674) |   | (20.90) |   |   | 15.81 |   |   |          (3.92) |   |   |   | 1,236,669 |
| +100                        |   |   | 221,296 |   |   | (25,953) |   | (10.50) |   |   | 17.33 |   |   |          (1.97) |   |   |   | 1,277,084 |
| 0                           |   |   | 247,249 |   |   |               -              |   |   - |   |   | 18.75 |   |   |               - |   |   |   | 1,318,811 |
| (100)                       |   |   | 261,997 |   |   | 14,748 |   | 5.96 |   |   | 19.43 |   |   |           1.12 |   |   |   | 1,348,724 |
| (200)                       |   |   | N/A |   |   | N/A |   | N/A |   |   | N/A |   |   |          N/A |   |   |   | N/A |
| (300)                       |   |   | N/A |   |   | N/A |   | N/A |   |   | N/A |   |   |          N/A |   |   |   | N/A |

| (1)   | The      current federal funds rate is between 0% and 0.25%, making a 200 or 300      basis point drop unlikely. |
|-----------------|------------------------------------------------------------------------------------------------------------------|

| (2)   | The      net portfolio value is calculated based upon the present value of the      discontinued cash flows from assets and liabilities. The difference      between the present value of assets and liabilities is the net portfolio      value and represents the market value of equity for the given interest      rate scenario. Net portfolio value is useful for determining, on a market      value basis, how much equity changes in response to various interest rate      scenarios. Large changes in net portfolio value reflect increased interest      rate sensitivity and generally more volatile earnings    streams. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Represents      the increase (decrease) in the estimated net portfolio value at the      indicated change in interest rates compared to the net portfolio      value. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Calculated      as the net portfolio value divided by the market value of assets (“net      portfolio value ratio”). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Calculated      as the increase (decrease) in the net portfolio value ratio assuming the      indicated change in interest rates over the estimated portfolio value of      assets. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Calculated      based on the present value of the discounted cash flows from assets. The      market value of assets represents the value of assets under the various      interest rate scenarios and reflects the sensitivity of those assets to      interest rate changes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (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 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 June 30, 2009, 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 June 30, 2009, 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. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 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, 2009 - January 31, 2009. . . . . . . . . . . . . .                                     |    |                    - |                                                                                | $                   - |    |                        - |      | 725,848                                                                                                                                                                   |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| February      1, 2009 - February 28, 2009. . . . . . . . . . . .                                       |    | 725,848                                                                                                             |                                                                                |                8.28                       |    | 725,848                                                                                                                                     |      |                             - |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| March      1, 2009 - March 31, 2009. . . . . . . . . . . . . . . .                                     |    | 204,400                                                                                                             |                                                                                |                7.44                       |    | 204,400                                                                                                                                     |      | 1,852,352                                                                                                                                                                 |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| April      1, 2009 - April 30, 2009. . . . . . . . . . . . . . . . . .    .                            |    |                    - |                                                                                |                    -  |    |                        - |      | 1,852,352                                                                                                                                                                 |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| May      1, 2009 - May 31, 2009. . . . . . . . . . . . . . . . . . .    .                              |    | 25,900                                                                                                              |                                                                                |                7.98                       |    | 25,900                                                                                                                                      |      | 1,826,452                                                                                                                                                                 |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| June      1, 2009 - June 30, 2009. . . . . . . . . . . . . . . . . . .    .                            |    |                    - |                                                                                |                    -  |    |                        - |      | 1,826,452                                                                                                                                                                 |
|                                                                                                   |    |                                                                                                                |                                                                                |                                                                                                                 |    |                                                                                                                                        |      |                                                                                                                                                                      |
| Total  .      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      . | 956,148 |                                                                                                                | $             8.09 |                                                                                                                 | 956,148 |                                                                                                                                        | 1,826,452 |

----

| Proposal      #1:  Election of Directors                              |   |                 |   |                                |   |                 |   |
|---------------------------------------------------------------------------------|--------|----------------------|--------|-------------------------------------|--------|----------------------|--------|
| The      results of the vote on the election of directors were as      follows: |   |                 |   |                                |   |
|                                                                            |   |                 |   |                                |   |                 |   |   |   |
|                                                                            |   | For                  |   | Withheld                            |   |
|                                                                            |   | Number      of votes |   | Percentage      ofshares      voted |   | Number      of votes |   | Percentage      ofshares      voted |   |
| Victor      Karpiak                                                             |   | 17,632,998           |   | 96.4                                | %      | 658,568              |   | 3.6 | % |
| Robert      W. McLendon                                                         |   | 17,177,552           |   | 93.9                                |   | 1,114,014            |   | 6.1 |   |
| William      A. Longbrake                                                       |   | 17,486,003           |   | 95.6                                |   | 805,563              |   | 4.4 |   |

| Proposal      #2:  Appointment of Auditors                                                                     |                                                                         |   |                                |   |                                                                                                               |   |                                |   |                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------------------------------------------------------------------------------|
| The      results of the vote regarding the Appointment of Moss Adams LLP as the      Company's Auditors were as follows: |                                                                         |   |
|                                                                                                                     |                                                                         |   |                                |   |                                                                                                               |   |                                |   |                                                                                                    |   |   |   |
|                                                                                                                     | For                                                                          |   | Against                             |   | Abstain                                                                                                            |   |
|                                                                                                                     | Number      of votes                                                         |   | Percentage      ofshares      voted |   | Number      of votes                                                                                               |   | Percentage      ofshares      voted |   | Number      of votes                                                                                    |   | Percentage      ofshares      voted |   |
|                                                                                                                     |            18,141,716 |   | 99.2                                | %      |                   41,380 |   | 0.2                                 | %      |                 108,470 |   | 0.6 | %  |

| (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.                                                          |

----

----

----

| EXHIBIT      INDEX  |
|--------------------------|
|                     |   |
| 31.1                     | Certification      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act |
| 31.2                     | Certification      of Chief Financial Officer and Principal Financial and Accounting Officer      Pursuant to Section 302 of the Sarbanes-Oxley Act |
| 32                       | Certification      Pursuant to Section 906 of the Sarbanes-Oxley  Act |

|     |
|----------|
|  50 |