| [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      Identification Number)                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                             |
| 201 Wells Avenue South, Renton,      Washington                                                                                                                                                                                                                                                                                                                                                                 |                                    98057                                |
| (Address of      principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (Zip      Code)                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                             |
| Registrant’s      telephone number, including area code:                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  (425) 255-4400                                                                                                                                                                                                                                                  |

| Large accelerated      filer [ ]  |  Accelerated      filer [ X ]  |  Non-accelerated      filer [ ]  |  Smaller      reporting company [ ]  |
|----------------------------------------|------------------------------------------|--------------------------------------------|------------------------------------------------|

----

| PART 1 - FINANCIAL      INFORMATION                                                                                |   |  Page |
|--------------------------------------------------------------------------------------------------------------------|--------|------------|
|                                                                                                               |   |       |
| Item 1 - Financial      Statements                                                                            |   |  3    |
|                                                                                                               |   |       |
| Item      2 - Management’s Discussion and Analysis of Financial      Conditionand Results of      Operations |   |  23   |
|                                                                                                               |   |       |
| Item 3 -      Quantitative and Qualitative Disclosures About Market Risk                                      |   |  39   |
|                                                                                                               |   |       |
| Item 4 - Controls      and Procedures                                                                         |   |  42   |
|                                                                                                               |   |       |
| PART II - OTHER      INFORMATION                                                                                   |   |       |
|                                                                                                               |   |  44   |
| Item 1 - Legal      Proceedings                                                                               |   |       |
|                                                                                                               |   |       |
|  Item 1A - Risk      Factors                                                                             |   |  44   |
|                                                                                                               |   |       |
|  Item 2 -      Unregistered Sales of Equity Securities and Use ofProceeds                                |   |  47   |
|                                                                                                               |   |       |
|  Item 3 -      Defaults upon Senior Securities                                                           |   |  47   |
|                                                                                                               |   |       |
|  Item 4 –      [Removed and Reserved]                                                              |   |  47   |
|                                                                                                               |   |       |
|  Item 5 - Other      Information                                                                         |   |  47   |
|                                                                                                               |   |       |
|  Item 6 -      Exhibits                                                                                  |   |  47   |
|                                                                                                               |   |       |
| SIGNATURES                                                                                                         |   |  49   |

----

|                                                           |                                                         |                                                          |                |                  |                                            |                | June      30,         |   | December      31, |
|----------------------------------------------------------------|--------------------------------------------------------------|---------------------------------------------------------------|---------------------|-----------------------|-------------------------------------------------|---------------------|-----------------------|--------|-------------------|
| Assets                                                         |  2010                                                   |                                                          |  2009          |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
| Cash      on hand and in banks                                 | $                                                            | 7,867                                                    |                | $                     | 8,937                                      |
| Interest-bearing      deposits                                 |                                                         | 122,944                                                  |                |                  | 96,033                                     |
| Investments      available for sale                            |                                                         | 142,398                                                  |                |                  | 97,383                                     |
| Loans      receivable, net of allowance of $29,858 and $33,039 | 971,710                                                 |                                                          |                | 1,039,300        |
| Premises      and equipment, net                               |                                                         | 20,272                                                   |                |                  | 19,585                                     |
| Federal      Home Loan Bank stock, at cost                     |                                                         | 7,413                                                    |                |                  | 7,413                                      |
| Accrued      interest receivable                               |                                                         | 4,813                                                    |                |                  | 4,880                                      |
| Federal      income tax receivable                             |                                                         | 5,379                                                    |                |                  | 9,499                                      |
| Deferred      tax assets, net                                  |                                                         | —                                             |                |                  | 12,139                                     |
| Other      real estate owned, net                              |                                                         | 16,493                                                   |                |                  | 11,835                                     |
| Prepaid      expenses and other assets                         |                                                         | 7,350                                                    |                |                  | 8,330                                      |
|                                                           |                                                         |                                                          |                |                  | Total      assets                               | $                   | 1,306,639        |   | $                 | 1,315,334        |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
| Liabilities      and Stockholders' Equity                      |                                                         |                                                          |                |                  |                                            |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
| Deposits                                                       |                                                         |                                                          | $                   | 972,099          |                                            | $                   | 939,423          |
| Advances      from the Federal Home Loan Bank                  |                                                         | 139,900                                                  |                |                  | 139,900                                    |
| Advance      payments from borrowers for taxes and insurance   | 2,422                                                   |                                                          |                | 2,377            |
| Accrued      interest payable                                  |                                                         | 394                                                      |                |                  | 457                                        |
| Other      liabilities                                         |                                                         | 5,032                                                    |                |                  | 4,660                                      |
|                                                           |                                                         |                                                          |                |                  | Total      liabilities                          |                | 1,119,847        |   |              | 1,086,817        |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
| Commitments      and contingencies                   |                                                         |                                                          |                |                  |                                            |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
| Stockholders'      Equity                                      |                                                         |                                                          |                |                  |                                            |
|                                                           | Preferred      stock, $0.01 par value; authorized 10,000,000 |                                                          |                |                  |
|                                                           |                                                         | shares,      no shares issued or outstanding                  |                | —     |                                            |                | —     |
|                                                           | Common      stock, $0.01 par value; authorized 90,000,000    |                                                          |                |                  |                                            |
|                                                           |                                                         | shares;      issued and outstanding 18,805,168 and 18,823,068 |                |                  |                                            |
|                                                           |                                                         | shares      at June 30, 2010 and December 31, 2009            |                | 188              |                                            |                | 188              |
|                                                           | Additional      paid-in capital                              |                                                          | 186,770        |                  |                                            | 186,120        |
|                                                           | Retained      earnings, substantially restricted             |                                                          | 11,197         |                  |                                            | 55,251         |
|                                                           | Accumulated      other comprehensive income, net of tax      | 2,462                                                    |                |                  | 1,347                                      |
|                                                           | Unearned      Employee Stock Ownership Plan shares           |                                                          | (13,825)            |                  |                                            | (14,389)            |
|                                                           |                                                         |                                                          |                |                  | Total      stockholders' equity                 |                | 186,792          |   |              | 228,517        |
|                                                           |                                                         |                                                          |                |                  | Total      liabilities and stockholders' equity | $                   | 1,306,639        |   | $                 | 1,315,334        |
|                                                           |                                                         |                                                          |                |                  |                                            |                |                  |   |              |   |   |
|                                                           |                                                         |                                                          |                |

----

|                                              |                                                             |                            |                            |   |                                                          |                            | Three      Months Ended                                                                                                              |                     | Six      Months Ended           |
|---------------------------------------------------|------------------------------------------------------------------|---------------------------------|---------------------------------|--------|---------------------------------------------------------------|---------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------|
|                                              |                                                             |                            |                            |   |                                                          |                            | June      30,                                                                                                                        |                     | June      30,                   |
|                                              |                                                             |                            |                            |   |                                                          |                            | 2010                                                                                                                                 |                     | 2009                            |   | 2010 |   | 2009 |
| Interest      income                              |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |
|                                              | Loans,      including fees                                       | $                               | 14,245                |   | $                                                             | 14,016                |                                                                                                                                 | $                        | 28,839                |   | $ | 29,139         |
|                                              | Investments      available for sale                              |                            | 1,106                 |   |                                                          | 1,691                 |                                                                                                                                 |                     | 2,113                 |   |   | 3,316         |
|                                              | Federal      funds sold and interest-bearing deposits with banks |                            | 73                    |   |                                                          | 20                    |                                                                                                                                 |                     | 134                   |   |   | 22         |
|                                              |                                                             |                            |                            |   | Total      interest income                                    | $                               | 15,424                                                                                                                     |                     | $                               | 15,727         |   | $ | 31,086         |   | $ | 32,477         |
| Interest      expense                             |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |   |
|                                              | Deposits                                                         |                            |                            |   | 6,322                                               |                            |                                                                                                                                 | 7,428          |                            |   | 12,893         |   |   | 14,757         |
|                                              | Federal      Home Loan Bank advances                             |                            | 1,035                 |   |                                                          | 1,312                 |                                                                                                                                 |                     | 2,058                 |   |   | 2,558         |
|                                              |                                                             |                            |                            |   | Total      interest expense                                   | $                               | 7,357                                                                                                                      |                     | $                               | 8,740         |   | $ | 14,951         |   | $ | 17,315         |
|                                              |                                                             |                            |                            |   | Net      interest income                                      |                            | 8,067                                                                                                                      |                     |                            | 6,987         |   |   | 16,135         |   |   | 15,162         |
| Provision      for loan losses                    |                                                             | 26,000                |                            |   | 18,256                                              |                            |                                                                                                                                 | 39,000         |                            |   | 19,800         |
|                                              |                                                             |                            |                            |   | Net      interest loss after provision for loan losses        | $                               | (17,933)                                                                                                                        |                     | $                               | (11,269)        |   | $ | (22,865)        |   | $ | (4,638)        |
|                                              |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |   |   |   |   |   |   |
| Noninterest      income (loss)                    |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |
|                                              | Net      gain on sale of investments                             |                            | —     |   |                                                          | —     |                                                                                                                                 |                     | —     |   |   | 76         |
|                                              | Other-than-temporary      impairment loss on investments         |                            | —     |   |                                                          | (152)                      |                                                                                                                                 |                     | —     |   |   | (152)        |
|                                              | Other                                                            |                            |                            |   |                                                          | 62                    |                                                                                                                                 |                     | 55                    |   |   | 108         |   |   | 109         |
|                                              |                                                             |                            |                            |   | Total      noninterest income (loss)                          | $                               | 62                                                                                                                         |                     | $                               | (97)        |   | $ | 108         |   | $ | 33         |
|                                              |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |   |   |   |   |   |   |
| Noninterest      expense                          |                                                             |                            |                            |   |                                                          |                            |                                                                                                                                 |                     |                            |   |   |
|                                              | Salaries      and employee benefits                              |                            | 2,892                 |   |                                                          | 3,037                 |                                                                                                                                 |                     | 6,081                 |   |   | 6,076         |
|                                              | Occupancy      and equipment                                     |                            | 424                   |   |                                                          | 1,293                 |                                                                                                                                 |                     | 849                   |   |   | 1,643         |
|                                              | Professional      fees                                           |                            | 487                   |   |                                                          | 389                   |                                                                                                                                 |                     | 946                   |   |   | 696         |
|                                              | Data      processing                                             |                            | 172                   |   |                                                          | 150                   |                                                                                                                                 |                     | 342                   |   |   | 294         |
|                                              | Loss      (gain) on sale of OREO property, net                   |                            | (14)                       |   |                                                          | —     |                                                                                                                                 |                     | 423                   |   |   | —     |
|                                              | OREO      market value adjustments                               |                            | 897                   |   |                                                          | —     |                                                                                                                                 |                     | 3,168                 |   |   | —     |
|                                              | OREO      related expenses, net                                  |                            | 708                   |   |                                                          | —     |                                                                                                                                 |                     | 1,410                 |   |   | —     |
|                                              | FDIC/OTS      assessments                                        |                            | 515                   |   |                                                          | 896                   |                                                                                                                                 |                     | 1,095                 |   |   | 1,578         |
|                                              | Insurance      and bond premiums                                 |                            | 150                   |   |                                                          | 18                    |                                                                                                                                 |                     | 299                   |   |   | 36         |
|                                              | Goodwill      impairment                                         |                            | —     |   |                                                          | 14,206                |                                                                                                                                 |                     | —     |   |   | 14,206         |
|                                              | Other      general and administrative                            |                            | 779                   |   |                                                          | 718                   |                                                                                                                                 |                     | 1,264                 |   |   | 1,322         |
|                                              |                                                             |                            |                            |   | Total      noninterest expense                                | $                               | 7,010                                                                                                                      |                     | $                               | 20,707         |   | $ | 15,877         |   | $ | 25,851         |
|                                              |                                                             |                            |                            |   | Loss      before provision (benefit) for federal income taxes |                            | (24,881)                                                                                                                        |                     |                            | (32,073)        |   |   | (38,634)        |   |   | (30,456)        |
| Provision      (benefit) for federal income taxes |                                                             | —     |                            |   | (4,076)                                                  |                            |                                                                                                                                 | 3,999          |                            |   | (3,655)        |
|                                              |                                                             |                            |                            |   | Net      loss                                                 | $                               | (24,881)                                                                                                                        |                     | $                               | (27,997)        |   | $ | (42,633)  |   | $ | (26,801)        |
|                                              |                                                             |                            |                            |   | Basic      loss per share                                     | $                               |                      (1.43) |                     | $                               |                 (1.49)   |   | $ | (2.45)  |   | $ |                  (1.41)   |
|                                              |                                                             |                            |                            |   | Diluted      loss per share                                   | $                               |                           (1.43) |                     | $                               |                 (1.49)   |   | $ | (2.45)  |           | $ |                  (1.41)   |

----

|                                                    |                                     |                                     |                |                           |                |                |                |                |                |                |    |                |                |                |                    |                      |                      | Accumulated               |                |           |              |   |           |   |
|---------------------------------------------------------|------------------------------------------|------------------------------------------|---------------------|--------------------------------|---------------------|---------------------|---------------------|---------------------|---------------------|---------------------|---------|---------------------|---------------------|---------------------|-------------------------|---------------------------|---------------------------|---------------------------|---------------------|----------------|-------------------|--------|----------------|--------|
|                                                    |                                     |                                     |                |                           |                |                |                |                |                |                |    | Additional          |                |                |                    |                      | Other                     |                      | Unearned            |           | Total             |
|                                                    |                                     |                                     |                |                           |                |                |                |                | Common              |                | Paid-in |                | Retained            |                | Comprehensive           |                      | ESOP                      |                      | Stockholders'       |
|                                                    |                                     |                                     |                |                           |                |                | Shares              |                | Stock               |                | Capital |                | Earnings            |                | Income,      net of tax |                      | Shares                    |                      | Equity              |
| Balances      at December 31, 2009                      | 18,823,068                          |                                     | $                   | 188                       |                | $                   | 186,120        |                | $                   | 55,251              |    | $                   | 1,347          |                | $                       | (14,389)             |                      | $                         | 228,517   |
| Comprehensive      loss:                                |                                     |                                     |                |                           |                |                |                |                |                |                |    |                |                |                |                    |                      |                      |                      |                |
|                                                    | Net      loss                            | —                        |                |                           | —   |                |                | —   |                |                | (42,633 | )              |                | —   |                    |                      | —    |                      |                | (42,633)  |
|                                                    | Change      in fair value of investments |                                     |                |                           |                |                |                |                |                |                |    |                |                |                |                    |                      |                      |                      |                |           |
|                                                    |                                     | available      for sale, net of tax $601 | —   |                           |                | —   |                |                | —   |                |    | —        |                |                | 1,115              |                      |                      | —    |                |           | 1,115   |
|                                                    |                                     |                                     |                | Total      comprehensive loss: |                |                |                |                |                |                |    |                |                |                |                    |                      |                      |                      |                |           |              |   | (41,518)  |
| Cash      dividend declared and paid ($0.085 per share) | —                        |                                     |                | —              |                |                | —   |                |                | (1,421              | )  |                | —   |                |                    | —    |                      |                      | (1,421)        |
| Purchase      and retirement of common stock            | (17,900)                                 |                                     |                | —              |                |                | (106)               |                |                | —   |    |                | —   |                |                    | —    |                      |                      | (106)          |
| Compensation      related to stock options              |                                     |                                     |                |                           |                |                |                |                |                |                |    |                |                |                |                    |                      |                      |                      |                |
|                                                    |                                     | and      restricted stock awards         | —   |                           |                | —   |                |                | 978            |                |    | —   |                |                | —       |                      |                      | —    |                |           | 978          |
| Allocation      of 56,426 ESOP shares                   | —                        |                                     |                | —              |                |                | (222)               |                |                | —   |    |                | —   |                |                    | 564                  |                      |                      | 342            |
| Balances      at June 30, 2010                          | 18,805,168                          |                                     | $                   | 188                       |                | $                   | 186,770        |                | $                   | 11,197         |    | $                   | 2,462          |                | $                       | (13,825)                  |                      | $                         | 186,792        |
|                                                    |                                     |                                     |                |                           |                |                |                |                |                |                |    |                |                |                |                    |                      |                      |                      |                |           |              |   |           |   |   |

```
See accompanying notes to consolidated financial statements.
```

----

|                                       |                                      |                                                        |                                                                              |            |                             |                                           |              | Six      Months Ended June 30, |
|--------------------------------------------|-------------------------------------------|-------------------------------------------------------------|-----------------------------------------------------------------------------------|-----------------|----------------------------------|------------------------------------------------|-------------------|--------------------------------|
|                                       |                                      |                                                        |                                                                              |            |                             |                                           |              | 2010                           |   | 2009 |
| Cash      flows from operating activities: |                                      |                                                        |                                                                              |            |                             |                                           |
|                                       | Net      loss                             |                                                        |                                                                              |            | $                                | (42,633)                                  |              | $                              | (26,801)  |
|                                       | Adjustments      to reconcile net loss to |                                                        |                                                                              |            |                             |                                           |              |
|                                       |                                      | net      cash provided by operating activities:             |                                                                              |            |                             |                                           |              |                           |
|                                       |                                      |                                                        | Provision      for loan losses                                                    |            |                             | 39,000                                    |              |                           | 19,800        |
|                                       |                                      |                                                        | Goodwill      impairment                                                          |            |                             | —                         |              |                           | 14,206        |
|                                       |                                      |                                                        | OREO      market value adjustments                                                |            |                             | 3,168                                     |              |                           | —    |
|                                       |                                      |                                                        | Loss      on sale of OREO property, net                                           |            |                             | 423                                       |              |                           | —    |
|                                       |                                      |                                                        | Depreciation      and amortization of premises and equipment                      | 542        |                             |                                           | 394          |
|                                       |                                      |                                                        | Net      amortization of premiums and discounts on investments                    | 623        |                             |                                           | 393          |
|                                       |                                      |                                                        | ESOP      expense                                                                 |            |                             | 342                                       |              |                           | 468        |
|                                       |                                      |                                                        | Compensation      expense related to stock options and restricted stock    awards | 978        |                             |                                           | 1,038        |
|                                       |                                      |                                                        | Net      realized gain on investments available for sale                          |            |                             | —                         |              |                           | (76)  |
|                                       |                                      |                                                        | Other-than-temporary      impairment loss on investments                          |            | —           |                                           |              | 152                       |
|                                       |                                      |                                                        | Loss      on disposal of equipment                                                |            |                             | —                         |              |                           | 983        |
|                                       |                                      |                                                        | Deferred      federal income taxes                                                |            |                             | 11,538                                    |              |                           | (5,770)  |
|                                       |                                      |                                                        | Changes      in operating assets and liabilities:                                 |            |                             |                                           |              |                           |   |
|                                       |                                      |                                                        |                                                                              |            | Other      assets                |                                           |              | 980                       |   |   | 1,458        |
|                                       |                                      |                                                        |                                                                              |            | Accrued      interest receivable |                                           |              | 67                        |   |   | 145        |
|                                       |                                      |                                                        |                                                                              |            | Accrued      interest payable    |                                           |              | (63)                      |   |   | 36        |
|                                       |                                      |                                                        |                                                                              |            | Other      liabilities           |                                           |              | 372                       |   |   | 2,082        |
|                                       |                                      |                                                        |                                                                              |            | Federal      income taxes        |                                           |              | 4,120                     |   |   | 1,665        |
|                                       |                                      |                                                        |                                                                              |            |                             | Net      cash provided by operating activities |              | $                              | 19,457        |   | $ | 10,173        |
|                                       |                                      |                                                        |                                                                              |            |                             |                                           |              |                           |   |   |   |   |
| Cash      flows from investing activities: |                                      |                                                        |                                                                              |            |                             |                                           |
|                                       |                                      | Proceeds      from sales of investments                     |                                                                              |            | —           |                                           |              | 6,853                     |
|                                       |                                      | Capitalized      improvements in OREO                       |                                                                              |            | (286)                       |                                           |              | —         |
|                                       |                                      | Proceeds      from sales of OREO properties                 |                                                                              |            | 9,703                       |                                           |              | —         |
|                                       |                                      | Principal      repayments on investments available for sale |                                                                              |            | 14,618                      |                                           |              | 18,158                    |
|                                       |                                      | Purchases      of investments available for sale            |                                                                              |            | (58,540)                    |                                           |              | (48,752)                  |
|                                       |                                      | Net      (increase) decrease in loans receivable, net       |                                                                              |            | 10,924                      |                                           |              | (9,943)                   |
|                                       |                                      | Purchases      of premises and equipment                    |                                                                              |            | (1,229)                     |                                           |              | (2,064)                   |
|                                       |                                      |                                                        |                                                                              |            |                             | Net      cash used by investing activities     |              | $                              | (24,810)  |   | $ | (35,748)  |
|                                       |                                      |                                                        |                                                                              |            |                             |                                           |              |                           |   |   |   |   |
|                                       |                                      |                                                        |                                                                              |            |                             | Balance,      carried forward                  |              | $                              | (5,353)  |   | $ | (25,575)  |

----

|                                                    |                                                                                          |                      |                |                      |                                           |                          | Six      Months Ended June 30, |
|---------------------------------------------------------|-----------------------------------------------------------------------------------------------|---------------------------|---------------------|---------------------------|------------------------------------------------|-------------------------------|--------------------------------|
|                                                    |                                                                                          |                      |                |                      |                                           |                          | 2010                           |   | 2009 |
|                                                    |                                                                                          |                      |                |                      |                                           | Balance,      brought forward | $                              | (5,353)  |   | $ | (25,575)  |
| Cash      flows from financing activities:              |                                                                                          |                      |                |                      |                                           |
|                                                    | Net      increase in deposits                                                                 |                      | 32,676         |                      |                                           | 92,672                   |
|                                                    | Advances      from the Federal Home Loan Bank                                                 |                      | 50,000         |                      |                                           | 16,750                   |
|                                                    | Repayments      of advances from the Federal Home Loan Bank                                   |                      | (50,000)       |                      |                                           | (23,000)                 |
|                                                    | Net      increase (decrease) in advance payments from borrowers for taxes and      insurance  | 45                   |                |                      | (235)                                     |
|                                                    | Repurchase      and retirement of common stock                                                |                      | (106)          |                      |                                           | (7,739)                  |
|                                                    | Dividends      paid                                                                           |                      | (1,421)        |                      |                                           | (3,254)                  |
|                                                    |                                                                                          |                      |                |                      | Net      cash provided by financing activities | $                             | 31,194                    |   | $ | 75,194        |
|                                                    |                                                                                          |                      |                |                      |                                           |                          |                           |   |   |   |   |
|                                                    |                                                                                          |                      |                |                      | Net      increase in cash                      |                          | 25,841                    |   |   | 49,619        |
| Cash      and cash equivalents:                         |                                                                                          |                      |                |                      |                                           |
|                                                    | Beginning      of period                                                                      |                      | 104,970        |                      |                                           | 5,756                    |
|                                                    | End      of period                                                                            | $                         | 130,811        |                      | $                                              | 55,375                   |
|                                                    |                                                                                          |                      |                |                      |                                           |                          |                           |   |   |   |   |
| Supplemental      disclosures of cash flow information: |                                                                                          |                      |                |                      |                                           |
|                                                    | Cash      paid during the period for:                                                         |                      |                |                      |                                           |                          |
|                                                    |                                                                                          | Interest                  | $                   | 15,014               |                                           | $                             | 17,287                    |
|                                                    |                                                                                          | Federal      income taxes | $                   | —    |                                           | $                             | 450                       |
| Noncash      transactions:                              |                                                                                          |                      |                |                      |                                           |
|                                                    | Loans,      net of deferred loan fees and allowance for loan losses, transferred to      OREO | $                         | 17,666         |                      | $                                              | —        |
|                                                    |                                                                                          |                      |                |                      |                                           |                          |                           |   |   |   |   |

----

----

----

|                                          |   |              |   |              |                |   | June      30, 2010  |
|-----------------------------------------------|--------|-------------------|--------|-------------------|---------------------|--------|---------------------|
|                                          |   |              |   |              |                |   |                |   |   | Gross |   | Gross |   |   |   |
|                                          |   |              |   |              |                |   | Amortized           |   | Unrealized |   | Unrealized |   |   |   |
|                                          |   |              |   |              |                |   | Cost                |   | Gains |   | Losses |   | Fair      Value |
|                                          |   |              |   |              |                |   | (In      thousands) |
| Mortgage-backed      and related investments: |   |              |   |              |                |   |                |   |   |   |   |
|                                          |   | Fannie      Mae   |   | $                 | 86,665         |   | $                   | 2,258        |   | $ | (37) |   | $ | 88,886        |
|                                          |   | Freddie      Mac  |   |              | 36,163         |   |                | 1,402        |   |   | (13) |   |   | 37,552        |
|                                          |   | Ginnie      Mae   |   |              | 4,531          |   |                | 92        |   |   | —   |   |   | 4,623        |
| Tax-exempt      municipal bonds               |   | 4,207        |   |              | 61             |   |                | (376) |   |   | 3,892        |
| Taxable      municipal bonds                  |   | 649          |   |              | —   |   |                | (14) |   |   | 635        |
| U.S.      Government agencies                 |   | 1,935        |   |              | 194            |   |                | —   |   |   | 2,129        |
| Mutual      fund (1)                          |   |              |   | 4,460        |                |   | 221            |   |   | —   |   |   | 4,681        |
|                                          |   |              |   |              |                |   | $                   | 138,610        |   | $ | 4,228        |   | $ | (440) |   | $ | 142,398        |

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

| (1)   | Represents      an investment in the AMF Ultra Short Mortgage Fund. The majority of the      fund value is invested in U.S. Government or agency securities with      additional holdings of private label mortgage-backed      securities. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | June      30, 2010                                                          |
|---------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | Less      Than 12 Months                                                    |   | 12      Months or Longer |   | Total |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |   |   | Unrealized |   |   |   | Unrealized |   |   |   | Unrealized |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        | Fair      Value |   | Loss |   | Fair      Value |   | Loss |   | Fair      Value |   | Loss |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |                                                    (In      thousands) |   |   |   |   |   |   |
| Fannie      Mae                 | $                                                                                                       |        13,421                                                        |   | $                                                                                                       |              (37)                      |   | $                                                                           |                  - |   | $ |                  - |   | $ |        13,421 |   | $ |              (37) |
| Freddie      Mac                |                                                                                                    |          6,388                                             |   |                                                                                                    |              (10)                      |   |                                                                        |             241 |   |   |                (3) |   |   |          6,629 |   |   |              (13) |
| Tax-exempt      municipal bonds |                  - |                                                                                                    |   |                  - |                                                                                                    |   |          1,733                 |   |   |            (376) |   |   |          1,733 |   |   |            (376) |
| Taxable      municipal bonds    |                  - |                                                                                                    |   |                  - |                                                                                                    |   |             635 |   |   |              (14) |   |   |             635 |   |   |              (14) |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | $                                                                           |        19,809 |   | $ |              (47) |   | $ |          2,609 |   | $ |            (393) |   | $ |        22,418 |   | $ |            (440) |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | December      31, 2009                                                      |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | Less      Than 12 Months                                                    |   | 12      Months or Longer |   | Total |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |   |   | Unrealized |   |   |   | Unrealized |   |   |   | Unrealized |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | Fair      Value                                                             |   | Loss |   | Fair      Value |   | Loss |   | Fair      Value |   | Loss |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |                                                    (In      thousands) |   |   |   |   |   |   |
| Fannie      Mae                 | $                                                                                                       | 3,255                                                                                                   |   | $                                                                                                       | (21)                                                                                                    |   | $                                                                           |                  - |   | $ |                  - |   | $ | 3,255 |   | $ | (21) |
| Freddie      Mac                |                                                                                                    |                  - |   |                                                                                                    |                  - |   |                                                                        | 255 |   |   | (3) |   |   | 255 |   |   | (3) |
| Tax-exempt      municipal bonds |                  - |                                                                                                    |   |                  - |                                                                                                    |   | 1,625                                                                       |   |   | (484) |   |   | 1,625 |   |   | (484) |
| Taxable      municipal bonds    |                  - |                                                                                                    |   |                  - |                                                                                                    |   | 602                                                                         |   |   | (48) |   |   | 602 |   |   | (48) |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   | $                                                                           |          3,255 |   | $ |              (21) |   | $ |          2,482 |   | $ |            (535) |   | $ |          5,737 |   | $ |            (556) |
|                            |                                                                                                    |                                                                                                    |   |                                                                                                    |                                                                                                    |   |                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   | June      30, 2010                                                                                          |
|---------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   | Amortized      Cost                                                                                         |   | Fair      Value |
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   | (In      thousands)                                                                                         |
| Due      within one year                    | $      |                          - |   | $                                                                                                           |                          - |
| Due      after one year through five years  |   |                  1,293                                             |   |                                                                                                        |                  1,380                                             |
| Due      after five years through ten years |   |                  1,189                                             |   |                                                                                                        |                  1,193                                             |
| Due      after ten years                    |   |                  4,309                                             |   |                                                                                                        |                  4,083                                             |
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   |                                                                                                        |                  6,791 |   |   |                  6,656 |
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   |                                                                                                        |   |   |   |   |
| Mortgage-backed      investments            |   |              127,359                                                                   |   |                                                                                                        |              131,061                                                                   |
| Mutual      fund                            |   |                                                                                                                                                    |   |                  4,460 |                                                                                                                                                    |   |                  4,681 |
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   | $                                                                                                           |              138,610 |   | $ |              142,398 |
|                                        |   |                                                                                                                                                    |   |                                                                                                        |                                                                                                                                                    |   |                                                                                                        |   |   |   |   |

----

|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 | June      30, 2010                                                                                   |                                                                                                 |               | December      31, 2009 |                                                                                                 |                                                                                                 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|--------|---------------------|--------------------|-----------------------|------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|--------------------|------------------------|------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 | Amount                                                                                               |                                                                                                 | Percent            |                   |                                                                                                 | Amount                                                                                               |   | Percent |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 | (Dollars      in thousands)                                                                          |                                                                                                 |               |
| One-to-four      family residential (1):                                                                                                                    |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |
|                                                                                                                                                        | Permanent                           |   |                | $                  | 458,010          |                                                                                                 |               44.78            | %                                                                                                    |                                                                                                 | $                  | 481,046           |                                                                                                 |               43.13            | % |   |
|                                                                                                                                                        | Construction                        |   |                |               | 11,409           |                                                                                                 |                 1.12 |                                                                                                 |                                                                                                 |               | 15,685            |                                                                                                 |                 1.41 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 | 469,419                                                                                         |               | 45.90                  |                                                                                                 |                                                                                                 |   | 496,731        |   |               44.54 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Multifamily      residential:                                                                                                                               |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |
|                                                                                                                                                        | Permanent                           |   |                |               | 134,250          |                                                                                                 |               13.12            |                                                                                                 |                                                                                                 |               | 128,943           |                                                                                                 |               11.56            |   |   |
|                                                                                                                                                        | Construction                        |   |                |               | 20,439           |                                                                                                 |                 2.00 |                                                                                                 |                                                                                                 |               | 17,565            |                                                                                                 |                 1.58 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 | 154,689                                                                                         |               | 15.12                  |                                                                                                 |                                                                                                 |   | 146,508        |   |               13.14 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Commercial      real estate:                                                                                                                                |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |
|                                                                                                                                                        | Permanent                           |   |                |               | 250,185          |                                                                                                 |               24.46            |                                                                                                 |                                                                                                 |               | 251,185           |                                                                                                 |               22.52            |   |   |
|                                                                                                                                                        | Construction                        |   |                |               | 27,948           |                                                                                                 |                 2.73 |                                                                                                 |                                                                                                 |               | 31,605            |                                                                                                 |                 2.83 |   |   |
|                                                                                                                                                        | Land                                |   |                |               |                  |                                                                                                 | 6,771                                                                                           |                                                                                                 |                 0.66 |               |                   |                                                                                                 | 6,206                                                                                           |   |                 0.56 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 | 284,904                                                                                         |               | 27.85                  |                                                                                                 |                                                                                                 |   | 288,996        |   |               25.91 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Construction/land      development:                                                                                                                         |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |
|                                                                                                                                                        | One-to-four      family residential |   |                | 60,279        |                  |                 5.89 |                                                                                                 |                                                                                                 |                                                                                                 | 95,699        |                   |                 8.58 |                                                                                                 |   |
|                                                                                                                                                        | Multifamily      residential        |   |                | 1,283         |                  |                 0.13 |                                                                                                 |                                                                                                 |                                                                                                 | 3,624         |                   |                 0.33 |                                                                                                 |   |
|                                                                                                                                                        | Commercial                          |   |                | 1,117         |                  |                 0.11 |                                                                                                 |                                                                                                 |                                                                                                 | 1,129         |                   |                 0.10 |                                                                                                 |   |
|                                                                                                                                                        | Land      development               |   |                | 31,859        |                  |                 3.11 |                                                                                                 |                                                                                                 |                                                                                                 | 63,501        |                   |                 5.69 |                                                                                                 |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 | 94,538                                                                                          |               | 9.24                   |                                                                                                 |                                                                                                 |   | 163,953        |   |               14.70 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Business                                                                                                                                                    |                                |   |                |               | 280              |                                                                                                 |                 0.03 |                                                                                                 |                                                                                                 |               | 353               |                                                                                                 |                 0.03 |   |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Consumer                                                                                                                                                    |                                |   |                |               |                  | 19,060                                                                                          |                                                                                                 |                 1.86 |                                                                                                 |               |                   | 18,678                                                                                          |                                                                                                 |                 1.68 |   |   |
| Total      loans                                                                                                                                            |                                |   |                | $                  | 1,022,890        |                                                                                                 |             100.00                       | %                                                                                                    |                                                                                                 | $                  | 1,115,219         |                                                                                                 |             100.00                       | % |   |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |
| Less:                                                                                                                                                       |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |
|                                                                                                                                                        | Loans      in process               |   |                | 18,497        |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 | 39,942        |                   |                                                                                                 |                                                                                                 |   |
|                                                                                                                                                        | Deferred      loan fees             |   |                | 2,825         |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 | 2,938         |                   |                                                                                                 |                                                                                                 |   |
|                                                                                                                                                        | Allowance      for loan losses      |   |                | 29,858        |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 | 33,039        |                   |                                                                                                 |                                                                                                 |   |
| Loans      receivable, net                                                                                                                                  |                                | $      | 971,710        |               |                  |                                                                                                 |                                                                                                 | $                                                                                                    | 1,039,300                                                                                       |               |                   |                                                                                                 |                                                                                                 |
| ____________________________________                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |
| (1)   Includes      $213.8 million and $230.8 million of non-owner occupied loans at June 30,      2010 and December 31, 2009, respectively. |                                |   |                |
|                                                                                                                                                        |                                |   |                |               |                  |                                                                                                 |                                                                                                 |                                                                                                 |                                                                                                 |               |                   |                                                                                                 |                                                                                                 |   |   |   |   |   |   |

|                                        |   |                                             |   |                                                                             |               |   | Three      Months Ended June 30,                                                            |                                             | Six      Months Ended June 30, |
|---------------------------------------------|--------|--------------------------------------------------|--------|----------------------------------------------------------------------------------|--------------------|--------|---------------------------------------------------------------------------------------------|--------------------------------------------------|--------------------------------|
|                                        |   |                                             |   |                                                                             |               |   | 2010                                                                                        |                                             | 2009                           |   | 2010 |   | 2009 |
|                                        |   |                                             |   |                                                                             |               |   | (In      thousands)                                                                         |
| Balance      at the beginning of the period | $      |        36,479 |   | $                                                                                | 14,294        |   | $                                                                                           |        33,039 |                           | $ | 16,982        |
| Provision      for loan losses              |   |        26,000 |   |                                                                             | 18,256        |   |                                                                                        |        39,000 |                           |   | 19,800        |
| Charge-offs                                 |   |                                             |   |      (32,703)                                           |               |   |           (100)                           |                                             |                           |      (42,385) |   |   |        (4,332) |
| Recoveries                                  |   |                                             |   |              82 |               |   |                - |                                             |                           |            204 |   |   |                - |
| Balance      at the end of the period       | $      |        29,858 |   | $                                                                                | 32,450        |   | $                                                                                           |        29,858 |                           | $ | 32,450        |

----

|                                                                                                         | June      30, |                            | December      31, |
|--------------------------------------------------------------------------------------------------------------|---------------|---------------------------------|-------------------|
|                                                                                                         | 2010          |                            | 2009              |
|                                                                                                         |          | (In      thousands)             |
|                                                                                                         |          |                            |              |   |   |
| Impaired      loans without a valuation allowance                                                            | $             | 10,958                |              | $ | 46,282 |
| Impaired      loans with a valuation allowance                                                               |          | 156,262               |              |   | 109,879 |
|     Total      impaired loans                                                            | $             | 167,220               |              | $ | 156,161 |
|                                                                                                         |          |                            |              |   |   |
| Valuation      allowance related to impaired loans                                                           | $             | 11,367                |              | $ | 13,432 |
|                                                                                                         |          |                            |              |   |   |
| Average      investment of impaired loans                                                                    | $             | 166,246               |              |  $ | 117,644 |
|                                                                                                         |          |                            |              |   |   |
| Interest      income recognized on a cash basis on impaired loans                                            | $             | 1,631                 |              |  $ | 2,134 |
|                                                                                                         |          |                            |              |   |   |
| Nonperforming      assets:                                                                                   |          |                            |              |   |   |
|     90      days or more past due and still accruing                                     | $             | —     |              | $ | —     |
|     Nonaccrual      loans                                                                |          | 87,437                |              |   | 94,682 |
|     Nonaccrual      troubled debt restructured loans (2)                                 |          | 33,208                |              |   | 26,021 |
| Total      nonperforming loans                                                                               |          | 120,645               |              |   | 120,703 |
|     Other      real estate owned                                                         |          | 16,493                |              |   | 11,835 |
| Total      nonperforming assets                                                                              | $             | 137,138               |              | $ | 132,538 |
|                                                                                                         |          |                            |              |   |   |
| Performing      troubled debt restructured loans (1)                                                         | $             | 46,575                |              | $ | 35,458 |
| Nonaccrual      troubled debt restructured loans (2)                                                         |          | 33,208                |              |   | 26,021 |
| Total      troubled debt restructured loans                                                                  | $             | 79,783                |              | $ | 61,479 |
| ___________________________________________________                                                     |          |                            |              |   |   |
| (1)      Performing troubled debt restructured loans are loans that have been      modified due to financial |
| difficulty      of the borrower where the borrower has complied with the terms of the loan      modification |
| for  a      minimum of six months.                                                                 |          |                            |              |   |   |
| (2)      Troubled debt restuctured loans are also considered impaired loans and are      included in the     |
| impaired      category at the beginning of the table.                                                        |          |                            |              |   |   |

----

|                                                         |  Six      Months Ended                |                                                            |  Twelve      Months Ended  |
|--------------------------------------------------------------|--------------------------------------------|-----------------------------------------------------------------|---------------------------------|
|                                                         | June      30, 2010                         |                                                            | December      31, 2009          |
|                                                         |  Amount                               |                                                            |  Number      of Properties |   |         Amount |   |  Number      of Properties |
|                                                         |  (Dollars      in thousands)          |
| Balance      at the beginning of the period                  | $                                          |       11,835                      |                            |   |             32 |   | $ |               - |   |   |               - |
|      Loans      transferred to OREO |       17,666 |                                                            |                            |             40 |   |   |       11,835 |   |   |             32 |
|      Capitalized      improvements  |                                       |           286 |                            |   |  N/A |   |   |               - |   |   |  N/A |
|      Market      value adjustments  |                                       |       (3,168)                     |                            |   |  N/A |   |   |               - |   |   |  N/A |
|      Dispositions      of OREO      |                                       |     (10,126)                                |                            |   |            (29) |   |   |               - |   |   |               - |
| Balance      at the end of the period                        | $                                          |       16,493                      |                            |   |             43 |   | $ |       11,835 |   |   |             32 |

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

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

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

----

|                                |                                           |   | Fair      Value Measurements at June 30, 2010     |
|-------------------------------------|------------------------------------------------|--------|---------------------------------------------------|
|                                |                                           |   |                                              |   |   | Quoted      Prices in |   | Significant |   |   |   |
|                                |                                           |   |                                              |   |   | Active      Markets |   | Other |   | Significant |
|                                |                                           |   | Fair      Value                                   |   | for      Identical |   | Observable |   | Unobservable |
|                                |                                           |   | Measurements                                      |   | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |
|                                |                                           |   | (In      thousands)                               |
| Available      for sale investments |                                           |   |                                              |   |   |   |   |   |   |   |   |   |
|                                | Mortgage-backed      investments               |   |                                              |   |   |   |   |   |   |   |   |   |   |
|                                |      Fannie      Mae  |   | $                                                 |                88,886 |   | $ |                             - |   | $ |                 88,886 |   | $ |                          - |
|                                |      Freddie      Mac |   |                                              |                37,552 |   |   |                             - |   |   |                 37,552 |   |   |                          - |
|                                |      Ginnie      Mae  |   |                                              |                  4,623 |   |   |                             - |   |   |                   4,623 |   |   |                          - |
|                                | Tax-exempt      municipal bonds                |   |                                              |                  3,892 |   |   |                             - |   |   |                   3,892 |   |   |                          - |
|                                | Taxable      municipal bonds                   |   |                                              |                     635 |   |   |                             - |   |   |                      635 |   |   |                          - |
|                                | U.S.      Government agencies                  |   |                                              |                  2,129 |   |   |                             - |   |   |                   2,129 |   |   |                          - |
|                                | Mutual      Fund                               |   |                                              |                  4,681 |   |   |                     4,681 |   |   |                          - |   |   |                          - |
|                                |                                           |   | $                                                 |              142,398 |   | $ |                     4,681 |   | $ |               137,717 |   | $ |                          - |
|                                |                                           |   |                                              |   |   |   |   |   |   |   |   |   |   |
|                                |                                           |   | Fair      Value Measurements at December 31, 2009 |
|                                |                                           |   |                                              |   |   |   | Quoted      Prices in |   |   | Significant |   |   |   |
|                                |                                           |   |                                              |   |   |   | Active      Markets |   |   | Other |   |   | Significant |
|                                |                                           |   | Fair      Value                                   |   |   | for      Identical |   |   | Observable |   |   | Unobservable |
|                                |                                           |   | Measurements                                      |   |   | Assets      (Level 1) |   |   | Inputs      (Level 2) |   |   | Inputs      (Level 3) |
|                                |                                           |   | (In      thousands)                               |
| Available      for sale investments |                                           |   |                                              |   |   |   |   |   |   |   |   |   |
|                                | Mortgage-backed      investments               |   |                                              |   |   |   |   |   |   |   |   |   |   |
|                                |      Fannie      Mae  |   | $                                                 |                51,271 |   | $ |                             - |   | $ |                 51,271 |   | $ |                          - |
|                                |      Freddie      Mac |   |                                              |                29,941 |   |   |                             - |   |   |                 29,941 |   |   |                          - |
|                                |      Ginnie      Mae  |   |                                              |                  5,183 |   |   |                             - |   |   |                   5,183 |   |   |                          - |
|                                | Tax-exempt      municipal bonds                |   |                                              |                  3,772 |   |   |                             - |   |   |                   3,772 |   |   |                          - |
|                                | Taxable      municipal bonds                   |   |                                              |                     602 |   |   |                             - |   |   |                      602 |   |   |                          - |
|                                | U.S.      Government agencies                  |   |                                              |                  2,003 |   |   |                             - |   |   |                   2,003 |   |   |                          - |
|                                | Mutual      Fund                               |   |                                              |                  4,611 |   |   |                     4,611 |   |   |                          - |   |   |                          - |
|                                |                                           |   | $                                                 |                97,383 |   | $ |                     4,611 |   | $ |                 92,772 |   | $ |                          - |
|                                |                                           |   |                                              |   |   |   |   |   |   |   |   |   |   |

----

|                                                          |                                                                       |   | Fair      Value Measurements at June 30, 2010                                                                                                                                   |                                                                                                    |
|---------------------------------------------------------------|----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   | Quoted      Prices in |   | Significant |   |   |   |   |   |   |   |
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   | Active      Markets |   | Other |   | Significant |   |   |   |   |
|                                                          |                                                                       |   | Fair      Value                                                                                                                                                                 |                                                                                                    | for      Identical |   | Observable |   | Unobservable |   | Total      (Gains) |   |
|                                                          |                                                                       |   | Measurements                                                                                                                                                                    |                                                                                                    | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |   | Losses(1) |   |
|                                                          |                                                                       |   | (In      thousands)                                                                                                                                                             |                                                                                                    |
| Impaired      loans including undisbursed but committed funds |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          | of      $5.7 million (included in loans receivable, net)                   |   | $                                                                                                                                                                               |                 161,538 |   | $ |                                  - |   | $ |                               - |   | $ |                   161,538 |   | $ |             (2,065 | )  |
| Other      real estate owned                                  |                                                                       |   |                   16,493                                                              |                                                                                                    |   |                                  - |   |   |                               - |   |   |                    16,493 |   |   |                3,168 |   |
|                                                          |                                                                       |   | $                                                                                                                                                                               |                 178,031 |   | $ |                                  - |   | $ |                               - |   | $ |                   178,031 |   | $ |                 1,103 |   |
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          | (1)      This represents the (gain) loss for the quarter                   |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          | ended      June 30, 2010.                                                  |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          |                                                                       |   | Fair      Value Measurements at December 31, 2009                                                                                                                               |                                                                                                    |
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   | Quoted      Prices in |   | Significant |   |   |   |   |   |   |   |
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   | Active      Markets |   | Other |   | Significant |   |   |   |   |
|                                                          |                                                                       |   | Fair      Value                                                                                                                                                                 |                                                                                                    | for      Identical |   | Observable |   | Unobservable |   | Total |   |
|                                                          |                                                                       |   | Measurements                                                                                                                                                                    |                                                                                                    | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |   | Losses      (1) |   |
|                                                          |                                                                       |   | (In      thousands)                                                                                                                                                             |                                                                                                    |
| Impaired      loans including undisbursed but committed funds |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          | of      $10.6 million (included in loans receivable, net)                  |   | $                                                                                                                                                                               |                153,300       |   | $ |                                  - |   | $ |                               - |   | $ |                  153,300 |   | $ |               4,895 |   |
| Goodwill      impairment                                      |                                                                       |   |                              - |                                                                                                    |   |                                  - |   |   |                               - |   |   |                               - |   |   |             14,206 |   |
| Other      real estate owned                                  |                                                                       |   |                    11,835                                                        |                                                                                                    |   |                                  - |   |   |                               - |   |   |                     11,835 |   |   |                        - |   |
|                                                          |                                                                       |   | $                                                                                                                                                                               |                 165,135 |   | $ |                                  - |   | $ |                               - |   | $ |                   165,135 |   | $ | 19,101        |   |
|                                                          |                                                                       |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          | (1)      This represents the loss for the year ended December 31,    2009. |   |                                                                                                                                                                            |                                                                                                    |   |   |   |   |   |   |   |   |   |

----

|         |                                |           |   |                                                                                          |   |                                                    |                                                                                          | June      30, 2010 |                                                    | December      31, 2009                                                                        |
|--------------|-------------------------------------|----------------|--------|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|-----------------------------------------------------------------------------------------------|--------------------|---------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|         |                                |           |   |                                                                                          |   |                                                    |                                                                                          | Carrying           |                                                    | Estimated                                                                                     |   | Carrying |   | Estimated |
|         |                                |           |   |                                                                                          |   |                                                    |                                                                                          | value              |                                                    | fair      value                                                                               |   | value |   | fair      value |
|         |                                |           |   |                                                                                          |   |                                                    | (In      thousands)                                                                           |
| Assets:      |                                |           |   |                                                                                          |   |                                                    |                                                                                          |               |                                                    |                                                                                          |   |   |   |   |   |
|         | Cash      on hand and in banks      |           | $      |             7,867                 |   | $                                                       |             7,867                 |               | $                                                       |             8,937                 |   | $ |             8,937 |
|         | Interest-bearing      deposits      |           |   |         122,944                                       |   |                                                    |         122,944                                       |               |                                                    |           96,033                            |   |   |           96,033 |
|         | Investments      available for sale |           |   |         142,398                                       |   |                                                    |         142,398                                       |               |                                                    |           97,383                            |   |   |           97,383 |
|         | Loans      receivable, net          |           |   |         971,710                                       |   |                                                    |         949,880                                       |               |                                                    |      1,039,300                                                       |   |   |      1,001,562 |
|         | Federal      Home Loan Bank stock   |           |   |             7,413                 |   |                                                    |             7,413                 |               |                                                    |             7,413                 |   |   |             7,413 |
|         | Accrued      interest receivable    |           |   |             4,813                 |   |                                                    |             4,813                 |               |                                                    |             4,880                 |   |   |             4,880 |
|         | OREO                                |           |   |                                                                                          |   |                                                    |           16,493                            |               |                                                    |           16,493                            |   |   |           11,835 |   |   |           11,835 |
|         |                                |           |   |                                                                                          |   |                                                    |                                                                                          |               |                                                    |                                                                                          |   |   |   |   |
| Liabilities: |                                |           |   |                                                                                          |   |                                                    |                                                                                          |               |                                                    |                                                                                          |   |   |   |   |
|         | Deposits                            |           |   |                                                                                          |   |         232,775 |                                                                                          |               |         232,775 |                                                                                          |   |         225,772 |   |   |         225,772 |
|         | Certificates      of deposit        |           |   |         739,324                                       |   |                                                    |         748,496                                       |               |                                                    |         713,651                                       |   |   |         727,250 |
|         | Advances      from the Federal Home |           |   |                                                                                          |   |                                                    |                                                                                          |               |                                                    |                                                                                          |   |   |   |
|         |                                | Loan      Bank |   |                                                                                          |   |         139,900 |                                                                                          |               |         143,021 |                                                                                          |   |         139,900 |   |   |         140,994 |
|         | Accrued      interest payable       |           |   |                394 |   |                                                    |                394 |               |                                                    |                457 |   |   |                457 |

| ·   | Financial instruments with      book value equal to fair value: The fair value of financial      instruments that are short-term or reprice frequently and that have little      or no risk are considered to have a fair value equal to book      value. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Investments: The fair      value of all investments excluding Federal Home Loan Bank of Seattle      (“FHLB”) stock was based upon quoted market prices. FHLB stock is not      publicly-traded, however it may be redeemed on a dollar-for-dollar basis,      for any amount the Bank is not required to hold. The fair value is      therefore equal to the book value. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | OREO: The carrying      amount represents fair value. |
|--------------------|-------------------------------------------------------|

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

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

----

----

| Annual      dividend yield                                  | 0.00%          |
|-------------------------------------------------------------|----------------|
| Expected      volatility                                    | 46.32%         |
| Risk-free      interest rate                                | 2.42%          |
| Expected      term                                          | 6.5      years |
| Weighted-average      grant date fair                       |           |
|      value      per option granted | $1.28          |

|                                           |                                                                |        Shares                                                                                                              |    |                                     |        Weighted-AverageExercise Price                                |                                                                   |        Weighted-AverageRemaining      ContractualTerm      in Years                                |   |                                                                                              |        AggregateIntrinsicValue                                                               |
|------------------------------------------------|---------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|---------|------------------------------------------|---------------------------------------------------------------------------|------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                           |                                                                |                                                                                                                            |    |                                     |                                                                      |                                                                   |                                                                                                    |   |                                                                                              |                                                                                              |
| Outstanding      at January 1, 2010            |        1,433,524                 |                                                                                                                            | $       |       9.73 |                                                                      |            8.52 |                                                                                                    |   |                                                                                              |
|                                           | Granted                                                             |             50,000                                                  |    |                                     |       4.03                                  |                                                                   |            9.98                                  |   |                                                                                              |                                                                                              |
|                                           | Exercised                                                           |                      - |    |                                     |             - |                                                                   |                  - |   |                                                                                              |                                                                                              |
|                                           | Forfeited      or expired                                           |           (30,000                                                             | )  |                                     |       9.78                                  |                                                                   |                  - |   |                                                                                              |                                                                                              |
| Outstanding      at June 30, 2010              |        1,453,524                 |                                                                                                                            | $       |       9.53 |                                                                      |            8.10 |                                                                                                    | $      |                 - |
|                                           |                                                                |                                                                                                                            |    |                                     |                                                                      |                                                                   |                                                                                                    |   |                                                                                              |                                                                                              |
| Expected      to vest assuming a 3% forfeiture |                                                                |                                                                                                                            |    |                                     |                                                                      |                                                                   |                                                                                                    |   |                                                                                              |
|                                           | rate      over the vesting term                                     |        1,133,743                                                                             |    | $                                        |       9.49                                  |                                                                   |            8.11                                  |   | $                                                                                                 |                 - |
|                                           |                                                                |                                                                                                                            |    |                                     |                                                                      |                                                                   |                                                                                                    |   |                                                                                              |                                                                                              |
| Exercisable      at June 30, 2010              |           284,705 |                                                                                                                            | $       |       9.73 |                                                                      |            8.03 |                                                                                                    | $      |                 - |
|                                           |                                                                |                                                                                                                            |    |                                     |                                                                      |                                                                   |                                                                                                    |   |                                                                                              |                                                                                              |

----

|                                           |                                                    |                                                    |                                                                     |                                                                                                                                                       | Weighted-Average |
|------------------------------------------------|---------------------------------------------------------|---------------------------------------------------------|--------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
|                                           |                                                    |                                                    |                                                                     |                                                                                                                                                       | Grant-Date       |
| Non-vested Shares                              | Shares                                                  |                                                    | Fair      Value                                                          |
|                                           |                                                    |                                                    |                                                                     |                                                                                                                                                       |             |   |
| Non-vested      at January 1, 2010             |         604,987 |                                                    | $                                                                        |                        10.22            |
|                                           | Granted                                                 |                                                    |           32,000       |                                                                                                                                                       |             |                          4.03 |
|                                           | Vested                                                  |                                                    |            (6,400 | )                                                                                                                                                     |             |                              - |
|                                           | Forfeited                                               |                                                    |            (8,000 | )                                                                                                                                                     |             |                        10.35 |
| Non-vested      at June 30, 2010               |         622,587 |                                                    | $                                                                        |                          9.91 |
|                                           |                                                    |                                                    |                                                                     |                                                                                                                                                       |             |   |
| Expected      to vest assuming a 3% forfeiture |                                                    |                                                    |                                                                     |                                                                                                                                                       |
|                                           | rate      over the vesting term                         |         603,907 |                                                                     |                                                                                                                                                       |             |
|                                           |                                                    |                                                    |                                                                     |                                                                                                                                                       |             |   |

----

|                                            |   |             |   |                        |             |                                                                                 | Three      Months Ended June 30,               |             | Six      Months Ended June 30, |
|-------------------------------------------------|--------|------------------|--------|-----------------------------|------------------|--------------------------------------------------------------------------------------|------------------------------------------------|------------------|--------------------------------|
|                                            |   |             |   |                        |             |                                                                                 | 2010                                           |             | 2009                           |   | 2010 |   | 2009 |
|                                            |   |             |   |                        |             |                                                                                 | (Dollars      in thousands, except share data) |
| Net      loss                                   |   |             |   |                        |             | $                                                                                    | (24,881)                                       |             | $                              |          (27,997) |   | $ | (42,633) |   | $ |          (26,801) |
| Weighted-average      common shares outstanding |   | 17,421,031  |   |                        | 18,836,770  |                                                                                 |                                           | 17,398,285  |                           |   | 19,074,587  |
|                                            |   |             |   | Basic      loss per share   | $                |              (1.43) |                                           | $                | (1.49)                         |   | $ |              (2.45) |   | $ | (1.41) |
|                                            |   |             |   | Diluted      loss per share | $                |              (1.43) |                                           | $                | (1.49)                         |   | $ |              (2.45) |   | $ | (1.41) |

----

----

----

|                                                                                                                                   | June      30, 2010Aggregate      Amount |                         | Number                 |   |                                                                                        |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|------------------------------|------------------------|--------|---------------------------------------------------------------------------------------------|--------|--------|
| Borrower      (1)                                                                                                                      | of      Loans (2)                       |                         | of      Loans          |   |                                                                                        |   |   |
|                                                                                                                                   |                                    |                         |                   |   |                                                                                        |   |   |   |   |
| Real      estate builder                                                                                                               | $                                       |     38.8 |  million      (3) |   |            147                       |   |   |   |   |
| Real      estate builder                                                                                                               |                                    |     29.3 |  million      (4) |   |            128                       |   |   |   |   |
| Real      estate builder                                                                                                               |                                    |     27.6 |  million          |   |            113                       |   |   |   |   |
| Real      estate investor                                                                                                              |                                    |     17.5 |  million          |   |                3 |   |   |   |   |
| Real      estate investor                                                                                                              |                                    |     17.2 |  million          |   |              41            |   |   |   |   |
| Total                                                                                                                                  | $                                       |   130.4            |  million          |   |            432                       |   |   |   |   |
| ________________                                                                                                                       |                                    |                         |                   |   |                                                                                        |   |   |   |   |
| (1)   The      composition of borrowers represented in the table                                                        |                                    |                         |                   |   |
|         may      change from one period to the next.                                           |                                    |                         |                   |   |                                                                                        |   |
| (2)   Net      of undisbursed funds.                                                                                    |                                    |                         |                   |   |                                                                                        |   |   |
| (3)   Of      this amount, $36.0 million are considered impaired loans                                                  |                                    |                         |                   |   |
|         (of      which $13.6 million are performing and $22.4 million are      nonperforming). |                                    |
| (4)   Of      this amount, $26.1 million are considered impaired loans                                                  |                                    |                         |                   |   |
|         (of      which $12.0 million are performing and $14.1 million are      nonperforming). |                                    |

|                                                                                                                                                      | PermanentOne-to-Four      Family |                                                          | PermanentMultifamily     |   | PermanentCommercial      |                                                          |                      |   |                  |                                                |                |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|---------------------------------------------------------------|--------------------------|--------|--------------------------|---------------------------------------------------------------|---------------------------|--------|-----------------------|-----------------------------------------------------|---------------------|--------|--------|
|                                                                                                                                                      | Residential      Loans           |                                                          | Loans                    |   | Loans                    |                                                          | Construction/             |   | Aggregate      Amount |
| Borrower                                                                                                                                                  | (Rental      Properties)         |                                                          | (Rental      Properties) |   | (Rental      Properties) |                                                          | Land      Development (1) |   | of      Loans (1)     |
|                                                                                                                                                      |                             |                                                          |                     |   |                     |                                                          |                      |   |                  |                                                |                |   |   |   |   |   |   |   |   |
| Real      estate builder (2)                                                                                                                              | $                                |       18.5                      |        million      |   | $                        |           - |                      |   | $                     |         1.7 |        million |   | $      |       18.6 |        million |   | $ |       38.8 |        million |
| Real      estate builder (3)                                                                                                                              |                             |       22.7                      |        million      |   |                     |           - |                      |   |                  |         0.8 |        million |   |   |         5.8 |        million |   |   |       29.3 |        million |
| Real      estate builder                                                                                                                                  |                             |       18.2                      |        million      |   |                     |         1.0           |        million       |   |                  |         0.1 |        million |   |   |         8.3 |        million |   |   |       27.6 |        million |
| Real      estate investor                                                                                                                                 |                             |           - |                     |   |                     |           - |                      |   |                  |       17.5            |        million |   |   |           - |   |   |   |       17.5 |        million |
| Real      estate investor                                                                                                                                 |                             |       11.1                      |        million      |   |                     |         5.1           |        million       |   |                  |         1.0 |        million |   |   |           - |   |   |   |       17.2 |        million |
| Total                                                                                                                                                     | $                                |       70.5                      |        million      |   | $                        |         6.1           |        million       |   | $                     |       21.1            |        million |   | $      |       32.7 |        million |   | $ |     130.4 |        million |
|  ________________                                                                                                                                    |                             |                                                          |                     |   |                     |                                                          |                      |   |                  |                                                |                |   |   |   |   |   |   |
| (1)   Net      of undisbursed funds.                                                                                                       |                             |                                                          |                     |   |                     |                                                          |                      |   |                  |                                                |                |   |   |   |   |   |   |
| (2)        Of the $36.0 million loans considered impaired, $16.3 million      are one-to-four family residential loans and $17.9 million    are |                             |                                                          |                     |   |
|         construction/land      development loans and $1.7 million are commercial loans.                           |                             |                                                          |                     |   |                     |                                                          |                      |   |                  |                                                |
| (3)        Of the $26.1 million loans considered impaired, $21.1 million      are one-to-four family residential loans and $5.0 million    are  |                             |                                                          |                     |   |
|         construction/land      development loans.                                                                 |                             |                                                          |                     |   |                     |                                                          |                      |   |                  |                                                |                |   |   |   |   |   |

----

|                                                                                      |             |                                                         |                                                                    |   |            |        |   |          |   |                                                                                |                                                                                |                              | Nonperforming   |   |
|-------------------------------------------------------------------------------------------|------------------|--------------------------------------------------------------|-------------------------------------------------------------------------|--------|-----------------|-------------|--------|---------------|--------|-------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------|-----------------------------------|-----------------|--------|
|                                                                                      |             |                                                         |                                                                    |   |            |        |   |          |   |                                                                                |                                                                                |                              | Loans      as a |   |
|                                                                                      |             |                                                         |                                                                    |   | Percent      of |        |   | Nonperforming |   | Percent      of Loan                                                                |                                                                                |
| County                                                                                    | Loan Balance (1) | Loan Balance (1)                                             |                                                                    | Loans  |            | Balance (2) |   |
|                                                                                      |             | (Dollars      in thousands)                                  |                                                                    |
| King                                                                                      |             | $                                                            |          38,484            |   |            | 46.26       | %      |          |   | $                                                                                   |            26,252            |                              | 68.2            | %      |
| Pierce                                                                                    |             |                                                         |          13,738            |   |            | 16.51       |   |          |   |                                                                                |              7,788 |                              | 56.7            |   |
| Kitsap                                                                                    |             |                                                         |            9,768 |   |            | 11.74       |   |          |   |                                                                                |              9,017 |                              | 92.3            |   |
| Whatcom                                                                                   |             |                                                         |            4,381 |   |            | 5.27        |   |          |   |                                                                                |              4,381 |      (3) | 100.0           |   |
| Snohomish                                                                                 |             |                                                         |            3,138 |   |            | 3.77        |   |          |   |                                                                                |              1,782 |                              | 56.8            |   |
| All      other counties                                                                   |             |          13,690 |                                                                    |   | 16.45           |        |   |          |   |              7,775 |                                                                                | 56.8                              |            |
| Total                                                                                     |             | $                                                            |          83,199            |   |            | 100.0       | %      |          |   | $                                                                                   |            56,995            |                              | 68.5            | %      |
| ___________                                                                          |             |                                                         |                                                                    |   |            |        |   |          |   |                                                                                |                                                                                |
| (1)      Net of undisbursed funds.                                                        |             |                                                         |                                                                    |   |            |        |   |          |   |                                                                                |                                                                                |
| (2)      Represents the percent of the loan balance by county that is      nonperforming. |             |                                                         |
| (3)      Represents one loan.                                                             |             |                                                         |                                                                    |   |            |        |   |          |   |                                                                                |                                                                                |

----

----

|                                      |                                                                                                             |                                                                                                                                                                                                    |                   | Increase/(Decrease) |                                                                                                                                                                                                                                  |   |                                                                                                                                                                      |
|-------------------------------------------|------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      | Balance      at                                                                                                  |                                                                                                                                                                                                    | from                   |                | Percentage                                                                                                                                                                                                                            |   |
|                                      | June      30, 2010                                                                                               |                                                                                                                                                                                                    | December      31, 2009 |                | Increase/(Decrease)                                                                                                                                                                                                                   |
|                                      |                     (Dollars in thousands) |
|                                      |                                                                                                             |                                                                                                                                                                                                    |                   |                |                                                                                                                                                                                                                                  |   |                                                                                                                                                                      |   |
| Cash      on hand and in banks            | $                                                                                                                |                           7,867                                       |                   | $                   |                            (1,070)                                                             |   |                      (11.97)      %                              |
| Interest-bearing      deposits            |                                                                                                             |                       122,944                                                             |                   |                |                            26,911                                                         |   |                        28.02                           |   |
| Investments      available for sale       |                                                                                                             |                       142,398                                                             |                   |                |                            45,015                                                         |   |                        46.22                           |   |
| Loans      receivable, net                |                                                                                                             |                       971,710                                                             |                   |                |                          (67,590)                                                                        |   |                        (6.50)                          |   |
| Premises      and equipment, net          |                                                                                                             |                         20,272                                                  |                   |                |                                 687                              |   |                          3.51                |   |
| Federal      Home Loan Bank               |                                                                                                             |                                                                                                                                                                                                    |                   |                |                                                                                                                                                                                                                                  |   |                                                                                                                                                                      |   |
|    stock,      at cost     |                                                                                                             |                           7,413                                       |                   |                |                                      -  |   |                             - |   |
| Accrued      interest receivable          |                                                                                                             |                           4,813                                       |                   |                |                                 (67)                                  |   |                        (1.37)                          |   |
| Federal      income tax receivable        |                                                                                                             |                           5,379                                       |                   |                |                            (4,120)                                                             |   |                      (43.37)                                     |   |
| Deferred      tax assets, net             |                                                                                                             |                                  - |                   |                |                          (12,139)                                                                        |   |                    (100.00)                                                |   |
| Other      real estate owned              |                                                                                                             |                         16,493                                                  |                   |                |                              4,658                                              |   |                        39.36                           |   |
| Prepaid      expenses and other assets    |                                                                                                             |                           7,350                                       |                   |                |                               (980)                                             |   |                      (11.76)                                     |   |
|     Total      assets | $                                                                                                                |                    1,306,639                                                                             |                   | $                   |                            (8,695)                                                             |   |                        (0.66)      %                   |
|                                      |                                                                                                             |                                                                                                                                                                                                    |                   |                |                                                                                                                                                                                                                                  |   |                                                                                                                                                                      |   |

----

|                              |   |                                                        |   |   |                |   | June      30,       |                                  | December      31, |
|-----------------------------------|--------|-------------------------------------------------------------|--------|--------|---------------------|--------|---------------------|---------------------------------------|-------------------|
|                              |   |                                                        |   |   |                |   | 2010                |                                  | 2009              |
|                              |   |                                                        |   |   |                |   | (In      thousands) |
| Noninterest-bearing      accounts | $      |          4,697 |   | $      | 3,294          |
| NOW      accounts                 |   |        12,792            |   |   | 12,740         |
| Statement      savings accounts   |   |        17,057            |   |   | 15,423         |
| Money      market accounts        |   |      198,229                       |   |   | 194,315        |
| Certificates      of deposit      |   |      739,324                       |   |   | 713,651        |
|                              |   |                                                        |   |   |                |   | $                   |      972,099 |              | $ | 939,423        |

----

|                                                           | Three      Months Ended June 30, 2010              |                                                                                                                             | Six      Months Ended June 30, 2010                |   |
|----------------------------------------------------------------|----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|--------|
|                                                           | Compared      to June 30, 2009 Increase (Decrease) |                                                                                                                             | Compared      to June 30, 2009 Increase (Decrease) |   |
|                                                           |  Rate                                         |                                                                                                                             |  Volume                                       |   |  Total |   |  Rate |   |  Volume |   |  Total |   |
|                                                           |  (Dollars      in thousands)                  |                                                                                                                             |
| Interest-earning      assets:                                  |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Loans      receivable, net                   | $                                                  |                   584                  |                                               | $      |                 (355 | )  | $ |                   229 |   | $ |                      49 |   | $ |                 (349 | )  | $ |                 (300 | )  |
|    Investments      available for sale          |                                               |                 (206                             | )                                             |   |                 (379 | )  |   |                 (585 | )  |   |                 (347 | )  |   |                 (856 | )  |   |               (1,203 | )  |
|    Federal      funds sold and interest-        |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      bearing      deposits with banks |                                               |                      26 |                                               |   |                      27 |   |   |                      53 |   |   |                      54 |   |   |                      58 |   |   |                     112 |   |
|                                                           |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      net change in income on                             |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    interest-earning      assets                 |                                               |                   404                  |                                               |   |                 (707 | )  |   |                 (303 | )  |   |                 (244 | )  |   |                (1,147 | )  |   |                (1,391 | )  |
|                                                           |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                             |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    NOW      accounts                            |                                               |                      (9 | )                                             |   |                        4 |   |   |                      (5 | )  |   |                     (15 | )  |   |                        8 |   |   |                      (7 | )  |
|    Statement      savings accounts              |                                               |                     (18      | )                                             |   |                       10 |   |   |                      (8 | )  |   |                    (38 | )  |   |                      20 |   |   |                     (18 | )  |
|    Money      market accounts                   |                                               |                  (314                       | )                                             |   |                    190 |   |   |                  (124 | )  |   |                 (562 | )  |   |                   577 |   |   |                       15 |   |
|    Certificates      of deposit                 |                                               |               (1,639                                       | )                                             |   |                   670 |   |   |                 (969 | )  |   |              (3,226 | )  |   |                 1,372 |   |   |               (1,854 | )  |
|    Advances      from the Federal               |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Home      Loan Bank              |                                               |                  (190                       | )                                             |   |                    (87 | )  |   |                 (277 | )  |   |                 (376 | )  |   |                  (124 | )  |   |                 (500 | )  |
|                                                           |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      net change in expense on                            |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    interest-bearing      liabilities            |                                               |               (2,170                                       | )                                             |   |                   787 |   |   |               (1,383 | )  |   |               (4,217 | )  |   |                 1,853 |   |   |              (2,364 | )  |
|                                                           |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      change in net interest income                         | $                                                  |                2,574                                  |                                               | $      |               (1,494 | )  | $ |                 1,080 |   | $ |                3,973 |   | $ |              (3,000 | )  | $ |                   973 |   |
|                                                           |                                               |                                                                                                                             |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                         |                             |                                                              |               |                                                          |              |    |   |                                                                          |   |                                                          |     |   | Increase/ |                                                                                                    |
|----------------------------------------------|----------------------------------|-------------------------------------------------------------------|--------------------|---------------------------------------------------------------|-------------------|---------|--------|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|-----------|---------------------------------------------------------------------------------------------------------|
|                                         | Three      Months Ended June 30, |                                                              | (Decrease)      in |                                                          |
|                                         | 2010                             |                                                              | 2009               |                                                          | Interest      and |    |
|                                         | Average                          |                                                              |               |                                                          |              | Average |   |                                                                          |   |                                                          | Dividend |   |
|                                         | Balance                          |                                                              | Yield              |                                                          |              | Balance |   | Yield                                                                         |   |                                                          | Income   |   |
|                                         |                             | (Dollars      in thousands)                                       |               |
|                                         |                             |                                                              |               |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                                                                                                    |   |
| Loans      receivable, net                   | $                                |    1,005,428                                       |               |        5.67                | %                 |    | $      |      1,033,623                                       |   |        5.42                | %        |   | $         |             229                             |   |
| Investments      available for sale          |                             |       121,742                       |               |        3.63                |              |    |   |         157,047                       |   |        4.31                |     |   |      |            (585                                  | )  |
| Federal      funds sold and interest-bearing |                             |                                                              |               |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                  - |   |
|    deposits                   |                             |       116,145                       |               |        0.25                |              |    |   |           50,673            |   |        0.16                |     |   |      |               53                  |   |
| Federal      Home Loan Bank stock            |                             |           7,413 |               |           - |              |    |   |             7,413 |   |           - |     |   |      |                  - |   |
| Total      interest-earning assets           | $                                |    1,250,728                                       |               |        4.93                | %                 |    | $      |      1,248,756                                       |   |        5.04                | %        |   | $         |            (303                                  | )  |
|                                         |                             |                                                              |               |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                                                                                                    |   |

|                                         |                           |                                                              |   |                                                          |              |    |   |                                                                          |   |                                                          |     |   | Increase/ |                                                                                                    |
|----------------------------------------------|--------------------------------|-------------------------------------------------------------------|--------|---------------------------------------------------------------|-------------------|---------|--------|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------|----------|--------|-----------|---------------------------------------------------------------------------------------------------------|
|                                         | Six      Months Ended June 30, |                                                              |   | (Decrease)      in                                            |              |
|                                         | 2010                           |                                                              | 2009   |                                                          | Interest      and |    |
|                                         | Average                        |                                                              |   |                                                          |              | Average |   |                                                                          |   |                                                          | Dividend |   |
|                                         | Balance                        |                                                              | Yield  |                                                          |              | Balance |   | Yield                                                                         |   |                                                          | Income   |   |
|                                         |                           | (Dollars      in thousands)                                       |   |
|                                         |                           |                                                              |   |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                                                                                                    |   |
| Loans      receivable, net                   | $                              |    1,020,703                                       |   |        5.65                | %                 |    | $      |      1,033,572                                       |   |        5.64                | %        |   | $         |            (300                                  | )  |
| Investments      available for sale          |                           |       111,634                       |   |        3.79                |              |    |   |         150,330                       |   |        4.41                |     |   |      |         (1,203                                                  | )  |
| Federal      funds sold and interest-bearing |                           |                                                              |   |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                                                                                                    |   |
|    deposits                   |                           |       107,518                       |   |        0.25                |              |    |   |           30,196            |   |        0.15                |     |   |      |             112                             |   |
| Federal      Home Loan Bank stock            |                           |           7,413 |   |           - |              |    |   |             7,413 |   |           - |     |   |      |                  - |   |
| Total      interest-earning assets           | $                              |    1,247,268                                       |   |        4.98                | %                 |    | $      |      1,221,511                                       |   |        5.32                | %        |   | $         |         (1,391                                                  | )  |
|                                         |                           |                                                              |   |                                                          |              |    |   |                                                                          |   |                                                          |     |   |      |                                                                                                    |   |

----

|                                          | Three      Months Ended June 30, |                                       |   |                                                 |   |
|-----------------------------------------------|----------------------------------|--------------------------------------------|--------|------------------------------------------------------|--------|
|                                          | 2010                             |                                       |   | 2009                                                 |   |   | Increase/ |
|                                          |                             |                                       |   |                                                 |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                          |                                       |   |                                                 |   | Average |   |   |   |   | Interest |
|                                          | Balance                          |                                       | Cost   |                                                 |   | Balance |   | Cost |   |   | Expense |
|                                          |                             | (Dollars      in thousands)                |
|                                          |                             |                                       |   |                                                 |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                                |       13,046 |   |         0.46 | %      |   | $ |        10,961 |   |         0.73 | % |   | $ |                  (5) |
| Statement      savings accounts               |                             |       15,474 |   |         1.27 |   |   |   |        13,147 |   |         1.73 |   |   |   |                  (8) |
| Money      market accounts                    |                             |     199,557            |   |         1.38 |   |   |   |      162,139 |   |         2.00 |   |   |   |              (124) |
| Certificates      of deposit                  |                             |     732,534            |   |         3.04 |   |   |   |      664,138 |   |         3.94 |   |   |   |              (969) |
| Advances      from the Federal Home Loan Bank |                             |     139,900            |   |         2.96 |   |   |   |      149,765 |   |         3.50 |   |   |   |              (277) |
| Total      interest-bearing liabilities       | $                                |  1,100,511                            |   |         2.67 | %      |   | $ |   1,000,150 |   |         3.50 | % |   | $ |           (1,383) |

|                                          | Six      Months Ended June 30, |                                       |   |                                                 |   |
|-----------------------------------------------|--------------------------------|--------------------------------------------|--------|------------------------------------------------------|--------|
|                                          | 2010                           |                                       |   | 2009                                                 |   |   | Increase/ |
|                                          |                           |                                       |   |                                                 |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                        |                                       |   |                                                 |   | Average |   |   |   |   | Interest |
|                                          | Balance                        |                                       | Cost   |                                                 |   | Balance |   | Cost |   |   | Expense |
|                                          |                           | (Dollars      in thousands)                |
|                                          |                           |                                       |   |                                                 |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                              |       12,971 |   |         0.46 | %      |   | $ |       10,474 |   |         0.71 | % |   | $ |                  (7) |
| Statement      savings accounts               |                           |       15,298 |   |         1.24 |   |   |   |       12,986 |   |         1.74 |   |   |   |                (18) |
| Money      market accounts                    |                           |     196,706            |   |         1.45 |   |   |   |     141,904 |   |         1.99 |   |   |   |                  15  |
| Certificates      of deposit                  |                           |     725,804            |   |         3.13 |   |   |   |     658,053 |   |         4.01 |   |   |   |           (1,854) |
| Advances      from the Federal Home Loan Bank |                           |     139,900            |   |         2.94 |   |   |   |     147,062 |   |         3.48 |   |   |   |              (500) |
| Total      interest-bearing liabilities       | $                              |  1,090,679                            |   |         2.74 | %      |   | $ |     970,479 |   |         3.57 | % |   | $ |           (2,364) |

----

|                                                                                                                          | June      30,       |                                                                                          | March      31, |   | December      31,                                                                                               |   | Three-Month   |                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------|---------------------|-----------------------------------------------------------------------------------------------|----------------|--------|-----------------------------------------------------------------------------------------------------------------|--------|---------------|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                                          | 2010                |                                                                                          | 2010           |   | 2009                                                                                                            |   | Change      $ |                                                                                                            |
|                                                                                                                          | (In      thousands) |                                                                                          |
|                                                                                                                          |                |                                                                                          |           |   |                                                                                                            |   |          |                                                                                                            |   |   |   |   |
|      One-to-four      family residential (1)                                                         | $                   |           48,246                            |           | $      |              48,035                            |   | $             |              36,874                            |   | $ |                  211  |   |
|      Commercial      real estate                                                                     |                |           14,657                            |           |   |              14,108                            |   |          |              11,535                            |   |   |                  549  |   |
|      Construction/land      development                                                              |                |           56,995                            |           |   |              83,016                            |   |          |              71,780                            |   |   |           (26,021) |   |
|      Consumer                                                                                        |                |                747 |           |   |                   759 |   |          |                   514 |   |   |                  (12) |   |
| Total      nonperforming loans (2)                                                                                            | $                   |         120,645                                       |           | $      |            145,918                                       |   | $             |            120,703                                       |   | $ |           (25,273) |   |
|                                                                                                                          |                |                                                                                          |           |   |                                                                                                            |   |          |                                                                                                            |   |   |   |   |
| Other      real estate owned                                                                                                  |                |           16,493                            |           |   |              20,500                            |   |          |              11,835                            |   |   |             (4,007) |   |
|                                                                                                                          |                |                                                                                          |           |   |                                                                                                            |   |          |                                                                                                            |   |   |   |   |
| Total      nonperforming assets                                                                                               | $                   |         137,138                                       |           | $      |            166,418                                       |   | $             |            132,538                                       |   | $ |           (29,280) |   |
| ________________________________                                                                                         |                |                                                                                          |           |   |                                                                                                            |   |          |                                                                                                            |   |   |   |   |
| (1)      The majority of these loans are related to our merchant builders rental      properties.                             |                |                                                                                          |           |   |                                                                                                            |   |          |
| (2)      There were no loans accruing interest which were contractually past due 90      days or more at the dates indicated. |                |                                                                                          |           |   |

----

|                                |  King      County            |  Pierce      County                                                                    |  Snohomish      County |  Kitsap      County |  All      other counties             | Total      Other Real      Estate Owned | Percent      of Total      Other Real      Estate Owned |
|-------------------------------------|-----------------------------------|---------------------------------------------------------------------------------------------|-----------------------------|--------------------------|-------------------------------------------|-----------------------------------------|---------------------------------------------------------|
|                                |  (Dollars      in thousands) |
| One-to-four      family residential | $                                 |       1,369                                                   |                        | $                        |       1,473 |                                    | $                                                       |                   332 |   | $ |                - |   | $ |                    510 |   | $ |                  3,684 |   |             22.34 | % |
| Commercial                          |                              |                - |                        |                     |      2,523       |                                    |                                                    |                         - |   |   |                - |   |   |                         - |   |   |                  2,523 |   |              15.30 |   |
| Construction/land      development  |                              |      4,968                                                         |                        |                     |       1,208 |                                    |                                                    |                 1,842 |   |   |          970 |   |   |                 1,298 |   |   |                 10,286 |   |             62.36 |   |
| Total      other real estate owned  | $                                 |      6,337                                                         |                        | $                        |      5,204       |                                    | $                                                       |                 2,174 |   | $ |          970 |   | $ |                 1,808 |   | $ |                 16,493 |   |           100.00 | % |

----

|                                                                    | At      June 30,          |                                                                                                               | At      December 31, |
|-------------------------------------------------------------------------|---------------------------|--------------------------------------------------------------------------------------------------------------------|----------------------|
|                                                                    | 2010                      |                                                                                                               | 2009                 |
|                                                                    |  (In      thousands) |
| Performing      troubled debt restructured loans                        | $                         |                   46,575 |                 | $ |                   35,458 |
| Nonaccrual      troubled debt restructured loans (1)                    |                      |                   33,208 |                 |   |                   26,021 |
|      Troubled      debt restructured loans     | $                         |                   79,783 |                 | $ |                   61,479 |
| ____________________________________________                       |                      |                                                                                                               |                 |   |   |
| (1)  Balances      represent loans, net of undisbursed funds. |                      |                                                                                                               |                 |

|                                                                                    | At      or For the Six Months Ended June 30, |                                                                        |
|-----------------------------------------------------------------------------------------|----------------------------------------------|-----------------------------------------------------------------------------|
|                                                                                    | 2010                                         |                                                                        |   | 2009 |   |
|                                                                                    | (Dollars      in thousands)                  |                                                                        |
|                                                                                    |                                         |                                                                        |   |   |   |   |   |
| Provision      for loan losses                                                          | $                                            |        39,000                            |   |   | $ |         19,800 |   |
| Charge-offs                                                                             | $                                            |        42,385                            |   |   | $ |           4,332 |   |
| Recoveries                                                                              | $                                            |             204 |   |   | $ |                  - |   |
| Allowance      for loan losses                                                          | $                                            |        29,858                            |   |   | $ |         32,450 |   |
| Allowance      for loan losses as a percent of total loans outstanding                  |                                         |                                                                        |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                                         |            2.97      | % |   |   |             3.06 | % |
| Allowance      for loan losses as a percent of nonperforming loans                      |                                         |                                                                        |   |   |   |   |   |
|    at      the end of the period, net of undisbursed funds               |                                         |          24.75                 | % |   |   |           25.07 | % |
| Total      nonaccrual and 90 days or more past due loans, net of undisbursed      funds | $                                            |      120,645                                       |   |   | $ |       129,428 |   |
| Nonaccrual      and 90 days or more past due loans as a                                 |                                         |                                                                        |   |   |   |   |   |
|    percent      of total loans, net of undisbursed funds                 |                                         |          12.01                 | % |   |   |           12.20 | % |
| Total      loans receivable, net of undisbursed funds                                   | $                                            |   1,004,393                                                       |   |   | $ |    1,060,506 |   |
| Total      loans originated, net of undisbursed funds                                   | $                                            |        38,665                            |   |   | $ |         78,411 |   |

----

|                                                |                                                                                                                                     | Three      Months                                                               |   | Increase/(Decrease)                                            |   |                |                                                |   |                                                                      |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|---------------------|-----------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                                |                                                                                                                                     | Ended                                                                           |   | from                                                           |   | Percentage          |
|                                                |                                                                                                                                     | June      30, 2010                                                              |   | June      30, 2009                                             |   | Increase/(Decrease) |
|                                                |                         (Dollars in thousands) |
|                                                |                                                                                                                                     |                                                                            |   |                                                           |   |                |                                                |   |                                                                      |   |   |   |   |   |   |
| Service      fees on deposit accounts               |                                                                                                                                     |                                                                            | $      |           34 |   |                |                                                | $      |             1 |   |   |   |           3.03   | % |   |
| Loan      service fees                              |                                                                                                                                     |                                                                            |   |           42 |   |                |                                                |   |         (23                       | )  |   |   |        (35.38) |   |   |
| Other-than-temporary      impairment on investments |                                                                                                                                     |              - |   |                                                           |   |                |         152 |   |                                                                      |   |      (100.00) |   |   |
| Amortization      of servicing rights               |                                                                                                                                     |                                                                            |   |         (36)           |   |                |                                                |   |           22            |   |   |   |        (37.93) |   |   |
| Other                                               |                                                                                                                                     |                                                                            |   |           22 |   |                |                                                |   |             7 |   |   |   |         46.67 |   |   |
| Total      noninterest income                       |                                                                                                                                     |                                                                            | $      |           62 |   |                |                                                | $      |         159                       |   |   |   |      (163.92) | % |   |
|                                                |                                                                                                                                     |                                                                            |   |                                                           |   |                |                                                |   |                                                                      |   |   |   |   |   |   |

|                                                |                                                                                                                                                       | Six      Months                                                                 |   | Increase/(Decrease)                                                             |    |                |                                                |   |                                                                      |
|-----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|---------|---------------------|-----------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                                |                                                                                                                                                       | Ended                                                                           |   | from                                                                            |    | Percentage          |
|                                                |                                                                                                                                                       | June      30, 2010                                                              |   | June      30, 2009                                                              |    | Increase/(Decrease) |
|                                                |                            (Dollars in thousands) |
|                                                |                                                                                                                                                       |                                                                            |   |                                                                            |    |                |                                                |   |                                                                      |   |   |   |   |   |   |
| Service      fees on deposit accounts               |                                                                                                                                                       |                                                                            | $      |           53                  |    |                |                                                | $      |             4 |   |   |   |           8.16 | % |   |
| Loan      service fees                              |                                                                                                                                                       |                                                                            |   |           89                  |    |                |                                                |   |         (51                       | )  |   |   |        (36.43) |   |   |
| Gain      on sale of investments                    |                                                                                                                                                       |                                                                            |   |              - |    |                |                                                |   |         (76                       | )  |   |   |      (100.00) |   |   |
| Other-than-temporary      impairment on investments |                                                                                                                                                       |              - |   |                                                                            |    |                |         152 |   |                                                                      |   |      (100.00) |   |   |
| Amortization      of servicing rights               |                                                                                                                                                       |                                                                            |   |         (72                             | )  |                |                                                |   |           39            |   |   |   |        (35.14) |   |   |
| Other                                               |                                                                                                                                                       |                                                                            |   |           38                  |    |                |                                                |   |             7 |   |   |   |         22.58 |   |   |
| Total      noninterest income                       |                                                                                                                                                       |                                                                            | $      |         108                             |    |                |                                                | $      |           75            |   |   |   |       227.27 | % |   |

----

|                                    | Three      Months           |                                                                                                                                                                                              | Increase/(Decrease) |   |                                                                                  |    |   |
|-----------------------------------------|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------|---------------------------------------------------------------------------------------|---------|--------|
|                                    | Ended                       |                                                                                                                                                                                              | from                |   | Percentage                                                                            |
|                                    | June      30, 2010          |                                                                                                                                                                                              | June      30, 2009  |   | Increase/(Decrease)                                                                   |
|                                    | (Dollars      in thousands) |
|                                    |                        |                                                                                                                                                                                              |                |   |                                                                                  |    |   |   |   |   |
| Compensation      and benefits          | $                           |                         2,892                                             |                | $      |         (145                                  | )  |   |   |                (4.77 | )% |
| Occupancy      and equipment            |                        |                            424                             |                |   |         (869                                  | )  |   |   |              (67.21 | )  |
| Professional      fees                  |                        |                            487                             |                |   |             98            |    |   |   |               25.19 |   |
| Data      processing                    |                        |                            172                             |                |   |             22            |    |   |   |               14.67 |   |
| Marketing                               |                        |                              78                  |                |   |             (5            | )  |   |   |                (6.02 | )  |
| Office      supplies and postage        |                        |                              74                  |                |   |             23            |    |   |   |               45.10 |   |
| Gain      on sale of OREO property, net |                        |                             (14                       | )              |   |           (14                       | )  |   |   |            (100.00 | )  |
| OREO      valuation expense             |                        |                            897                             |                |   |           897                       |    |   |   |             100.00 |   |
| OREO      related expenses, net         |                        |                            708                             |                |   |           592                       |    |   |   |             510.34 |   |
| FDIC/OTS      assessments               |                        |                            515                             |                |   |         (381                                  | )  |   |   |              (42.52 | )  |
| Goodwill                                |                        |                                 - |                |   |    (14,206                                                             | )  |   |   |            (100.00 | )  |
| Bank      and ATM charges               |                        |                              35                  |                |   |               - |    |   |   |                     - |   |
| Insurance/Bond      premiums            |                        |                            150                             |                |   |           132                       |    |   |   |             733.33 |   |
| Other                                   |                        |                            592                             |                |   |           159                       |    |   |   |               36.72 |   |
| Total      noninterest expense          | $                           |                         7,010                                             |                | $      |    (13,697                                                             | )  |   |   |              (66.15 | )% |
|                                    |                        |                                                                                                                                                                                              |                |   |                                                                                  |    |   |   |   |   |

|                                    | Six      Months             |                                                                                                                                                                                              | Increase/(Decrease) |   |                                                                                  |    |   |
|-----------------------------------------|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--------|---------------------------------------------------------------------------------------|---------|--------|
|                                    | Ended                       |                                                                                                                                                                                              | from                |   | Percentage                                                                            |
|                                    | June      30, 2010          |                                                                                                                                                                                              | June      30, 2009  |   | Increase/(Decrease)                                                                   |
|                                    | (Dollars      in thousands) |
|                                    |                        |                                                                                                                                                                                              |                |   |                                                                                  |    |   |   |   |   |
| Compensation      and benefits          | $                           |                         6,081                                             |                | $      |               5 |    |   |   |                 0.08 | % |
| Occupancy      and equipment            |                        |                            849                             |                |   |         (794                                  | )  |   |   |              (48.33 | )  |
| Professional      fees                  |                        |                            946                             |                |   |           250                       |    |   |   |               35.92 |   |
| Data      processing                    |                        |                            342                             |                |   |             48            |    |   |   |               16.33 |   |
| Marketing                               |                        |                            121                             |                |   |           (14                       | )  |   |   |              (10.37 | )  |
| Office      supplies and postage        |                        |                            131                             |                |   |               9 |    |   |   |                 7.38 |   |
| Loss      on sale of OREO property, net |                        |                            423                             |                |   |           423                       |    |   |   |             100.00 |   |
| OREO      valuation expense             |                        |                         3,168                                             |                |   |        3,168                                       |    |   |   |             100.00 |   |
| OREO      related expenses, net         |                        |                         1,410                                             |                |   |        1,294                                       |    |   |   |          1,115.52 |   |
| FDIC/OTS      assessments               |                        |                         1,095                                             |                |   |         (483                                  | )  |   |   |              (30.61 | )  |
| Goodwill                                |                        |                                 - |                |   |    (14,206                                                             | )  |   |   |            (100.00 | )  |
| Bank      and ATM charges               |                        |                              69                  |                |   |             (2            | )  |   |   |                (2.82 | )  |
| Insurance/Bond      premiums            |                        |                            299                             |                |   |           262                       |    |   |   |             708.11 |   |
| Other                                   |                        |                            943                             |                |   |             66            |    |   |   |                 7.53 |   |
| Total      noninterest expense          | $                           |                       15,877                                                        |                | $      |      (9,974                                                  | )  |   |   | (38.58 | )% |

----

----

|                                                             |                |                                                                    |          | 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                              | $                   |          13,905            |          | $                                                 |      13,905 |   | $ |                - |   | $ |                - |   | $ |                - |
| Unused      portion of lines of credit                           |                |            9,423 |          |                                              |           358 |   |   |                - |   |   |        2,603 |   |   |        6,462 |
| Undisbursed      portion of construction loans                   |                |          18,497            |          |                                              |      14,432 |   |   |        3,565 |   |   |           500 |   |   |                - |
|        Total      commitments | $                   |          41,825            |          | $                                                 |      28,695 |   | $ |        3,565 |   | $ |        3,103 |   | $ |        6,462 |

----

----

|                                                                                                                    | June      30, 2010                           |   |
|-------------------------------------------------------------------------------------------------------------------------|----------------------------------------------|--------|
|                                                                                                                    | Net      Interest Income Change              |   |
|                                                                                                                    | Basis      PointChange      in Rates         |   | %      Change |   |
|                                                                                                                    | +300                                         |   | 6.51%   |
|                                                                                                                    | +200                                         |   |                    6.17 |   |
|                                                                                                                    | +100                                         |   |                    5.58 |   |
|                                                                                                                    | Base                                         |   |                    3.88 |   |
|                                                                                                                    | (100)                                        |   |                    1.21 |   |
| (1)                                                                                                                     | (200)                                        |   | N/A       |           |
| (1)                                                                                                                     | (300)                                        |   | N/A            |   |
|                _______________________  |                                         |   |   |
| (1)                                                                                                                     | The      current federal funds rate is 0.25% |   |
|                                                                                                                    | making      a 200 and 300 basis point drop   |   |
|                                                                                                                    | impossible.                                  |   |

----

|                 |   |                         |                                              |          |                           |                                                                                  | June 30, 2010 |                                                                      |               |   |                                                 |   |               |                                                                      |   |   |   |
|----------------------|--------|------------------------------|---------------------------------------------------|---------------|--------------------------------|---------------------------------------------------------------------------------------|---------------|---------------------------------------------------------------------------|--------------------|--------|------------------------------------------------------|--------|--------------------|---------------------------------------------------------------------------|--------|--------|--------|
|                 |   |                         |                                              |          |                           |                                                                                  |          |                                                                      |               |   | Net      Portfolio as % of                           |   |               |                                                                      |   |
| Basis      Point     |   | Net      Portfolio Value (2) |                                              |          | Portfolio      Value of Assets |                                                                                  |          | Market      Value                                                         |
| Change      in Rates |   | Amount                       |                                              | $      Change |                           | %      Change                                                                         |          |                                                                      | NPV      Ratio (3) |   | %      Change (4)                                    |   | of      Assets (5) |
|                 |   |                         |                                              |          | (Dollars      in thousands)    |                                                                                  |          |                                                                      |               |   |                                                 |   |
| +300                 |   | $                            |        120,522 |          | $                              |   (69,168)                                                                  |          |     (36.46)                                           | %                  |   |         9.94 | %      |               |       (5.23)                                | %      |   | $      |      1,212,690 |
| +200                 |   |                         |        146,008 |          |                           |   (43,682)                                                                  |          |     (23.03)                                           |               |   |       11.64            |   |               |       (3.30)                                |   |   |   |      1,253,960 |
| +100                 |   |                         |        169,064 |          |                           |   (20,626)                                                                  |          |     (10.87)                                           |               |   |       13.10            |   |               |       (1.56)                                |   |   |   |      1,290,668 |
| Base                 |   |                         |        189,690 |          |                           |               - |          |             - |               |   |       14.34            |   |               |             - |   |   |   |      1,322,815 |
| (100)                |   |                         |        207,887 |          |                           |     18,197                                                        |          |         9.59                      |               |   |       15.39            |   |               |         1.38                      |   |   |   |      1,350,401 |
| (200)                | (1)    |                         | N/A                                               |          |                           | N/A                                                                                   |          | N/A                                                                       |               |   | N/A                                                  |   |               |          N/A                 |   |   |   | N/A |
| (300)                | (1)    |                         | N/A                                               |          |                           | N/A                                                                                   |          | N/A                                                                       |               |   | N/A                                                  |   |               |          N/A                 |   |   |   | N/A |

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

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

| (3)   | Net      portfolio value divided by the market value of  assets. |
|-----------------|------------------------------------------------------------------|

| (4)   | The      increase or decrease in the net portfolio value divided by the market      value of assets (base case). |
|-----------------|------------------------------------------------------------------------------------------------------------------|

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

----

| (a)   | Evaluation of Disclosure      Controls and Procedures: An evaluation of our disclosure controls      and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was      carried out under the supervision and with the participation of our Chief      Executive Officer, Chief Financial Officer (Principal Financial and      Accounting Officer) and several other members of our senior management as      of the end of the period covered by this report. Our Chief Executive      Officer and Chief Financial Officer concluded that, as of June 30, 2010,      our disclosure controls and procedures were effective in ensuring that the      information required to be disclosed by us in the reports we file or      submit under the Exchange Act is (i) accumulated and communicated to our      management (including the Chief Executive Officer and Chief Financial      Officer) in a timely manner and (ii) recorded, processed, summarized and      reported within the time periods specified in the SEC’s rules and      forms. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Changes in Internal Controls:      In the quarter ended June 30, 2010, there was no change in our      internal control over financial reporting that has materially affected, or      is reasonably likely to materially affect, our internal control over      financial reporting. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

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

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

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

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

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

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

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

----

| ·   | Increases      the minimum reserve ratio for the deposit insurance fund from 1.15% to      1.35% and changes the basis for determining FDIC premiums from deposits to      assets; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Creates      a new consumer financial protection bureau that will have rulemaking      authority for a wide range of consumer protection laws that would apply to      all banks and would have broad powers to supervise and enforce consumer      protection laws; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Provides      for new disclosure and other requirements relating to executive      compensation and corporategovernance; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Provides      mortgage reform provisions regarding a customer’s ability to repay,      restricting variable-rate lending by requiring the ability to repay to be      determined for variable-rate loans by using the maximum rate that will      apply during the first five years of a variable-rate loan term and making      more loans subject to provisions for higher cost loans, new disclosures,      and certain other revisions; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Creates      a financial stability oversight council that will recommend to the Federal      Reserve increasingly strict rules for capital, leverage, liquidity,      risk management and other requirements as companies grow in size and      complexity; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Permanently      increases the deposit insurance coverage to $250,000 and allows depository      institutions to pay interest on checking accounts;  and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Merges      the Office of Thrift Supervision within eighteen months into the Office of      Comptroller of the Currency and transfers the supervision of savings and      loan holding companies to the FederalReserve. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3.1   | Articles of      Incorporation of First Financial Northwest (1)                                                                                                  |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.2   | Bylaws of First      Financial Northwest (1)                                                                                                                     |
|   | 4     | Form of stock      certificate of First Financial Northwest (1)                                                                                                  |
|   | 10.1  | Form of Employment      Agreement for President and Chief Executive Officer (1)                                                                                  |
|   | 10.2  | Form of Change in      Control Severance Agreement for Executive Officers (1)                                                                                    |
|   | 10.3  | Form of First      Savings Bank Employee Severance Compensation Plan (1)                                                                                         |
|   | 10.4       | Form      of Supplemental Executive Retirement Agreement entered into by First      Savings Bank with Victor Karpiak, Harry A. Blencoe and Robert H. Gagnier      (1) |
|   | 10.5  | Form of Financial      Institutions Retirement Fund (1)                                                                                                          |
|   | 10.6  | Form of 401(k)      Retirement Plan (2)                                                                                                                          |
|   | 10.7  | 2008 Equity      Incentive Plan (3)                                                                                                                              |
|   | 10.8  | Forms of incentive      and non-qualified stock option award agreements (4)                                                                                      |
|   | 10.9  | Form of restricted      stock award agreement (4)                                                                                                                |
|   | 14    | Code of Business      Conduct and Ethics (5)                                                                                                                     |
|   | 21    | Subsidiaries of the      Registrant                                                                                                                              |
|   | 31.1  | Certification of      Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act                                                             |
|   | 31.2  | Certification of      Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act                                                             |
|   | 32.1  | Certification of      Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley      Act                                                             |
|   | 32.2  | Certification of      Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley      Act                                                             |

| (1)  | Filed as an exhibit      to First Financial Northwest’s Registration Statement on Form S-1      (333-143549).                                                        |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)       | Filed      as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q      for the quarter ended June 30, 2007 and incorporated herein by      reference. |
| (3)  | Filed as Appendix A      to First Financial Northwest’s definitive proxy statement dated April 15,      2008.                                                        |

----

| (4)  | Filed as an exhibit      to First Financial Northwest’s Current Report on Form 8-K dated July 1,      2008.                                                        |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5)       | Filed      as an exhibit to First Financial Northwest’s Annual Report on Form 10-K      for the year ended December 31, 2007 and incorporated herein by      reference. |

----

|                            |  First      Financial Northwest, Inc.                                                                                                                                                                                                                                                                                                                                   |
|---------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                            |                                                                                                                                                                                                                                                                                                                                                                              |
|                            |                                                                                                                                                                                                                                                                                                                                                                              |
| Date: August 5,      2010  |  /s/Victor      Karpiak                                                                        |
|                            |  Victor      Karpiak                                                                                                                                                                                                                                                                                                                                                         |
|                            |  Chairman of      the Board, President and                                                                                                                                                                                                                                                                                                                                   |
|                            |  Chief      Executive Officer                                                                                                                                                                                                                                                                                                                                                |
|                            |  (Principal      Executive Officer)                                                                                                                                                                                                                                                                                                                                          |
|                            |                                                                                                                                                                                                                                                                                                                                                                              |
|                            |                                                                                                                                                                                                                                                                                                                                                                              |
| Date: August 5,      2010  |   /s/Kari      Stenslie                                                         |
|                            |   Kari      Stenslie                                                                                                                                                                                                                                                                                                                                                    |
|                            |  Chief      Financial Officer                                                                                                                                                                                                                                                                                                                                                |
|                            |  (Principal      Financial and Accounting Officer)                                                                                                                                                                                                                                                                                                                           |
|                            |                                                                                                                                                                                                                                                                                                                                                                              |
|                            |                                                                                                                                                                                                                                                                                                                                                                              |

----

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

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

----