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

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

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

|  FIRST      FINANCIAL NORTHWEST, INC.                  |
|-------------------------------------------------------------|
| (Exact name of      registrant as specified in its charter) |

| Washington                                                                           |           26-0610707                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (State or      other jurisdiction of incorporation                                                                                                                                                                                                                                                                                                                                                                                                     |  (I.R.S.      Employer                                                                                                                                                                                                          |
|  or      organization)                                                                                                                                                                                                                                                                                                                                                                                                                             |  I.D.      Number)                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                 |
| 201      Wells Avenue South, Renton,      Washington                                                                                                                                                                                                                                                                                                                                             |                                  98057           |
|  (Address of      principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                           |  (Zip      Code)                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                 |
|  Registrant’s      telephone number, including area code:                                                                                                                                                                                                                                                                                                                                                                                    |   (425)      255-4400                                                                                                                                                                                                      |

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

----

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES              |
|--------------------------------------------------------------------|
| Consolidated      Balance Sheets                                   |
| (Dollars      in thousands, except share data)                     |
| (Unaudited)                                                        |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |
|                                                               |   |   |   |   |   |   |   | September      30, |   |   | December      31, |
| Assets                                                             |   | 2008 |   |   | 2007 |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Cash      on hand and in banks                                     | $ | 4,045        |   | $ | 3,675        |
| Interest-bearing      deposits                                     |   | 2,736        |   |   | 787        |
| Federal      funds sold                                            |   | 3,965        |   |   | 7,115        |
| Investments      available for sale                                |   | 162,877        |   |   | 119,837        |
| Investments      held to maturity (fair value                      |   |   |   |   |   |
|                                                               | of      $0 and $81,545) |   |   |   | —   |   |   | 80,410        |
| Loans      receivable, net of allowance of $11,837 and $7,971      |   | 1,002,562        |   |   | 880,664        |
| Premises      and equipment, net                                   |   | 12,992        |   |   | 13,339        |
| Federal      Home Loan Bank stock, at cost                         |   | 6,425        |   |   | 4,671        |
| Accrued      interest receivable                                   |   | 5,457        |   |   | 5,194        |
| Deferred      tax assets, net                                      |   | 8,627        |   |   | 7,093        |
| Goodwill                                                           |   |   |   |   | 14,206        |   |   | 14,206        |
| Prepaid      expenses and other assets                             |   | 3,489        |   |   | 3,897        |
|                                                               |                  Total assets | $ | 1,227,381        |   | $ | 1,140,888        |
| Liabilities      and Stockholders' Equity                          |   |   |   |   |   |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                           |   |   |   | $ | 777,569        |   | $ | 729,494        |
| Advances      from the Federal Home Loan Bank                      |   | 135,000        |   |   | 96,000        |
| Advance      payments from borrowers for taxes                     |   |   |   |   |   |
|                                                               | and      insurance |   | 4,161        |   |   | 2,092        |
| Accrued      interest payable                                      |   | 117        |   |   | 132        |
| Federal      income tax payable                                    |   | 865        |   |   | 726        |
| Other      liabilities                                             |   |   | 3,653        |   |   | 3,158        |
|                                                               |                  Total liabilities |   | 921,365        |   |   | 831,602        |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |
| 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 22,852,800 |   |   |   |   |   |
|                                                               |           at      September 30, 2008 and December 31, 2007 |   | 229        |   |   | 229        |
|                                                               | Additional      paid-in capital |   | 215,329        |   |   | 224,181        |
|                                                               | Retained      earnings, substantially restricted |   | 107,133        |   |   | 102,769        |
|                                                               | Accumulated      other comprehensive loss, net |   | (875) |   |   | (1,180) |
|                                                               | Unearned      Employee Stock Ownership Plan (ESOP) shares | (15,800) |   |   | (16,713) |
|                                                               |                  Total stockholders' equity |   | 306,016        |   |   | 309,286        |
|                                                               |                         Total      liabilities and stockholders' equity | $ | 1,227,381        |   | $ | 1,140,888        |
|                                                               |   |   |   |   |   |   |   |   |   |   |   |
| See      accompanying notes to consolidated financial  statements. |

----

| FIRST      FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES                                  |                                                             |
|----------------------------------------------------------------------------------------|------------------------------------------------------------------|
| Consolidated      Statements of Income                                                 |                                                             |
| (Dollars      in thousands, except share data)                                         |                                                             |
| (Unaudited)                                                                            |                                                             |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |   |   |   |   |   |   | Three      Months Ended |   | Nine      Months Ended |   |
|                                                                                   |                                                             |   |   |   |   |   |   | September      30, |   | September      30, |   |
|                                                                                   |                                                             |   |   |   |   |   |   | 2008 |   |   | 2007 |   | 2008 |   |   | 2007 |   |
| Interest      income                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Loans,      including fees                                       | $ | 15,220         |   | $ | 14,728         | $ | 45,217         |   | $ | 40,872         |   |
|                                                                                   | Investments      available for sale                              |   | 1,883         |   |   | 1,439         |   | 5,006         |   |   | 4,559         |   |
|                                                                                   | Tax-exempt      investments available for sale                   |   | 132         |   |   | —     |   | 580         |   |   | —     |   |
|                                                                                   | Investments      held to maturity                                |   | —     |   |   | 74         |   | —     |   |   | 220         |   |
|                                                                                   | Tax-exempt      investments held to maturity                     |   | —     |   |   | 863         |   | —     |   |   | 2,626         |   |
|                                                                                   | Federal      funds sold and interest bearing deposits with banks |   | 43         |   |   | 147         |   | 799         |   |   | 536         |   |
|                                                                                   | Dividends      on Federal Home Loan Bank stock                   |   | 17         |   |   | 7         |   | 64         |   |   | 19         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Total      interest income | $ | 17,295         |   | $ | 17,258         | $ | 51,666         |   | $ | 48,832         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                  |                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Deposits                                                         |   |   |   | 7,827         |   |   | 8,865         |   | 23,922         |   |   | 26,419         |   |
|                                                                                   | Federal      Home Loan Bank advances                             |   | 1,137         |   |   | 2,462         |   | 3,187         |   |   | 6,851         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Total      interest expense | $ | 8,964         |   | $ | 11,327         | $ | 27,109         |   | $ | 33,270         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Net      interest income |   | 8,331         |   |   | 5,931         |   | 24,557         |   |   | 15,562         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Provision      for loan losses                                                         |                                                             | 3,498         |   |   | 225         |   | 3,943         |   |   | 1,200         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Net      interest income after provision for loan losses | $ | 4,833         |   | $ | 5,706         | $ | 20,614         |   | $ | 14,362         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Noninterest      income (loss)                                                         |                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Net      gain on sale of investments                             |   | 274         |   |   | —     |   | 1,657         |   |   | —     |   |
|                                                                                   | Other-than-temporary      impairment loss on investments         |   | —     |   |   | —     |   | (623)  |   |   | —     |   |
|                                                                                   | Other                                                            |   |   |   |   | 69         |   |   | 48         |   | 179         |   |   | 136         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Total      noninterest income | $ | 343         |   | $ | 48         | $ | 1,213         |   | $ | 136         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Noninterest      expense                                                               |                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                                   | Salaries      and employee benefits                              |   | 2,459         |   |   | 1,236         |   | 6,412         |   |   | 3,481         |   |
|                                                                                   | Occupancy      and equipment                                     |   | 303         |   |   | 236         |   | 887         |   |   | 761         |   |
|                                                                                   | Professional      fees                                           |   | 264         |   |   | 43         |   | 1,111         |   |   | 209         |   |
|                                                                                   | Data      processing                                             |   | 125         |   |   | 116         |   | 351         |   |   | 339         |   |
|                                                                                   | Other      general and administrative                            |   | 627         |   |   | 396         |   | 1,689         |   |   | 1,075         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Total      noninterest expense | $ | 3,778         |   | $ | 2,027         | $ | 10,450         |   | $ | 5,865         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Income      before provision for federal income taxes |   | 1,398         |   |   | 3,727         |   | 11,377         |   |   | 8,633         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |
| Provision      for federal income taxes                                                |                                                             | 443         |   |   | 1,030         |   | 3,728         |   |   | 2,216         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Net      income | $ | 955         |   | $ | 2,697         | $ | 7,649         |   | $ | 6,417         |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Basic      earnings per share (1) | $ |                                     0.04 |   | $ | N/A | $ |                                     0.36    |   | $ | N/A |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                   |                                                             |        Diluted      earnings per share (1) | $ |                                     0.04    |   | $ | N/A | $ |                                     0.36    |   | $ | N/A |   |
|                                                                                   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      The Company completed its mutual to stock conversion on October 9,      2007. |

----

| FIRST      FINANCIAL NORTHWEST, INC.                                           |
|--------------------------------------------------------------------------------|
| AND      SUBSIDIARIES                                                          |
| Consolidated      Statements of Stockholders' Equity and Comprehensive  Income |
| For      the Nine Months Ended September 30, 2008                              |
| (Dollars      in thousands, except share data)                                 |
| (Unaudited)                                                                    |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated |   |   |   |   |
|                                                                           |   |   |   |   |   |   |   |   |   | Additional |   |   |   | Other |   | Unearned |   | Total |
|                                                                           |   |   |   |   |   |   |   | Common |   | Paid-in |   | Retained |   | Comprehensive |   | ESOP |   | Stockholders' |
|                                                                           |   |   |   |   |   |   |   | Stock |   | Capital |   | Earnings |   | Income      (Loss) |   | Shares |   | Equity |
| Balances      at December 31, 2007                                             | $ | 229         | $ | 224,181         | $ | 102,769         | $ | (1,180)        | $ | (16,713)        | $ | 309,286         |
| Comprehensive      income:                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           | Net      income |   |   | —     |   | —     |   | 7,649         |   | —     |   | —     |   | 7,649         |
|                                                                           | Change      in fair value of investments |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |         available      for sale, net of tax of $157 |   | —     |   | —     |   | —     |   | 305         |   | —     |   | 305         |
|                                                                           |   |   |        Total      comprehensive income |   |   |   |   |   |   |   |   |   |   |   | 7,954         |
| Cash      dividend declared ($0.155 per share)                                 |   | —     |   | —     |   | (3,285)        |   | —     |   | —     |   | (3,285) |
| Repurchase      of stock for equity incentive plan                             |   |        —     |           | (9,071)        |   |        —     |   |        —     |   |        —     |   | (9,071) |
| Compensation      related to stock options                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |        and      restricted stock |   |        —     |   | 226         |   |        —     |           |        —     |   |        —     |   | 226         |
| Allocation      of 84,636 ESOP shares                                          |   | —     |   | (7)        |   | —     |   | —     |   | 913         |   | 906         |
| Balances      at September 30, 2008                                            | $ | 229         | $ | 215,329         | $ | 107,133         | $ | (875)        | $ | (15,800)        | $ | 306,016         |
|                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |   |   |   |   |   |   |   |   |   |   |

----

| FIRST FINANCIAL NORTHWEST, INC.            |
|--------------------------------------------|
| AND      SUBSIDIARIES                      |
| Consolidated      Statements of Cash Flows |
| (Dollars      in thousands)                |
| (Unaudited)                                |
|                                       |   |   |   |   |   |   |   |   |   |   |
|                                       |   |   |   |   |   |   |   | Nine      Months Ended |
|                                       |   |   |   |   |   |   |   | September      30, |
|                                       |   |   |   |   |   |   |   | 2008 |   | 2007 |
| Cash      flows from operating activities: |   |   |   |   |
|                                       | Net      income |   | $ | 7,649        | $ | 6,417        |
|                                       | Adjustments      to reconcile net income to |   |   |   |   |
|                                       |   | net      cash provided by operating activities: |   |   |   |   |
|                                       |   |   | Provision      for loan losses |   | 3,943        |   | 1,200        |
|                                       |   |   | Depreciation      and amortization of |   |   |   |   |
|                                       |   |   |   | premises      and equipment |   | 552        |   | 544        |
|                                       |   |   | Net      amortization of premiums and |   |   |   |   |
|                                       |   |   |   | discounts      on investments |   | 543        |   | 804        |
|                                       |   |   | ESOP      expense |   | 906        |   | —    |
|                                       |   |   | Stock      options and restricted stock expense |   | 226        |   | —    |
|                                       |   |   | Net      realized gain on investments |   |   |   |   |
|                                       |   |   |   | available      for sale |   | (1,657)  |   | —    |
|                                       |   |   | Other-than-temporary      impairment loss on investments |   | 623        |   | —    |
|                                       |   |   | Mutual      funds dividends |   | (132)  |   | (225)  |
|                                       |   |   | Loss      from disposal of premises and equipment |   | 36        |   | —    |
|                                       |   |   | Deferred      federal income taxes |   | (1,692)  |   | (687)  |
|                                       |   |   | Cash      provided by (used in) changes in operating |   |   |   |   |
|                                       |   |   |   | assets      and liabilities: |   |   |   |   |
|                                       |   |   |   |   | Other      assets |   | 408        |   | (1,362)  |
|                                       |   |   |   |   | Accrued      interest receivable |   | (263)  |   | (1,284)  |
|                                       |   |   |   |   | Accrued      interest payable |   | (15)  |   | (10)  |
|                                       |   |   |   |   | Other      liabilities |   | 495        |   | 1,404        |
|                                       |   |   |   |   | Federal      income taxes |   | 139        |   | 1,300        |
|                                       |   |   |   |   |   | Net      cash provided by operating activities | $ | 11,761        | $ | 8,101        |
|                                       |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities: |   |   |   |   |
|                                       |   | Proceeds      from sale of investments |   | 71,228        |   | —    |
|                                       |   | Proceeds      from maturity or call on investments |   |   |   |   |
|                                       |   |   | held      to maturity |   | —    |   | 1,530        |
|                                       |   | Principal      repayments on investments |   |   |   |   |
|                                       |   |   | available      for sale |   | 26,883        |   | 23,953        |
|                                       |   | Principal      repayments on investments |   |   |   |   |
|                                       |   |   | held      to maturity |   | —    |   | 166        |
|                                       |   | Purchases      of investments available for sale |   | (59,655)  |   | —    |
|                                       |   | Purchases      of investments held to maturity |   | —    |   | (509)  |
|                                       |   | Net      increase in loans receivable |   | (125,841)  |   | (153,322)  |
|                                       |   | Purchases      of Federal Home Loan Bank stock |   | (1,754)  |   | —    |
|                                       |   | Purchases      of premises and equipment |   | (241)  |   | (308)  |
|                                       |   |   |   |   |   | Net      cash used in investing activities | $ | (89,380)  | $ | (128,490)  |
|                                       |   |   |   |   |   |   |   |   |   |   |
|                                       |   |   |   |   |   | Balance,      carried forward | $ | (77,619)  | $ | (120,389)  |

----

| FIRST      FINANCIAL NORTHWEST, INC.                    |
|---------------------------------------------------------|
| AND      SUBSIDIARIES                                   |
| Consolidated      Statements of Cash Flows, continued   |
| (Dollars      in thousands)                             |
| (Unaudited)                                             |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   |   |   | Nine      Months Ended |
|                                                    |   |   |   |   |   |   |   | September      30, |
|                                                    |   |   |   |   |   |   |   | 2008 |   | 2007 |
|                                                    |   |   |   |    Balance,      brought forward | $ | (77,619)  | $ | (120,389)  |
| Cash      flows from financing activities:              |   |   |   |   |
|                                                    | Net      increase in deposits |   | 48,075        |   | 200,970        |
|                                                    | Advances      from the Federal Home Loan Bank |   | 137,000        |   | 185,000        |
|                                                    | Repayments      of advances from the Federal Home |   |   |   |   |
|                                                    |   | Loan      Bank |   | (98,000)  |   | (283,000)  |
|                                                    | Net      increase in advance payments from borrowers |   |   |   |   |
|                                                    |   | for      taxes and insurance |   | 2,069        |   | 2,396        |
|                                                    | Repurchase      of stock for equity incentive plan |   | (9,071)  |   | —    |
|                                                    | Dividends      paid |   | (3,285)  |   | —    |
|                                                    |   |   |   |        Net      cash provided by financing activities | $ | 76,788        | $ | 105,366        |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |        Net      decrease in cash |   | (831)  |   | (15,023)  |
| Cash      and cash equivalents:                         |   |   |   |   |
|                                                    | Beginning      of period |   | 11,577        |   | 26,663        |
|                                                    | End      of period |   | $ | 10,746        | $ | 11,640         |
|                                                    |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosures of cash flow information: |   |   |   |   |
|                                                    | Cash      paid during the period for: |   |   |   |   |
|                                                    |   | Interest |   | $ | 27,124        | $ | 33,281        |
|                                                    |   | Federal      income taxes | $ | 5,281        | $ | 1,602        |
| Noncash      transactions:                              |   |   |   |   |
|                                                    | Transfer      from investments held to maturity to |   |   |   |   |
|                                                    |   | investments      available for sale | $ | 80,410        | $ | —    |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |

----

----

----

|                            |                      |                    |              |               |                |            |                        | September      30, 2008 |
|---------------------------------|---------------------------|-------------------------|-------------------|--------------------|---------------------|-----------------|-----------------------------|-------------------------|
|                            |                      |                    |              |               |                |            |                        |                    |   | Gross |   | Gross |   |   |
|                            |                      |                    |              |               |                |            |                        | Amortized               |   | unrealized |   | unrealized |   |   |
|                            |                      |                    |              |               |                |            |                        | cost                    |   | gains |   | losses |   | Fair      value |
|                            |                      |                    |              |               |                |            | (Dollars      in thousands) |
| Mortgage-backed      and        |                      |                    |              |               |                |            |                        |                    |
|                            | related      investments: |                    |              |               |                |            |                        |                    |   |
|                            |                      | FNMA      certificates  | $                 | 74,630        | $                   | 86         | $                           | 317                | $ | 74,399        |
|                            |                      | FHLMC      certificates |              | 65,363        |                | 107        |                        | 383                |   | 65,087        |
|                            |                      | GNMA      certificates  |              | 8,261         |                | 61         |                        | 42                 |   | 8,280        |
| Tax-exempt      municipal bonds |                      | 4,326              |              | 10            |                | 369        |                        | 3,967              |
| Taxable      municipal bonds    |                      | 653                |              | 4             |                | 4          |                        | 653                |
| U.S.      Government agencies   |                      | 5,340              |              | 51            |                | 36         |                        | 5,355              |
| Mutual      fund (1)            |                      |                    | 5,629        |               | —   |            | 493                    |                    | 5,136        |
|                            |                      |                    |              |               |                |            | $                           | 164,202            | $ | 319        | $ | 1,644        | $ | 162,877        |

|                          |                      |                    |              |               |                |                |                        | December      31, 2007 |
|-------------------------------|---------------------------|-------------------------|-------------------|--------------------|---------------------|---------------------|-----------------------------|------------------------|
|                          |                      |                    |              |               |                |                |                        |                   |   | Gross |   | Gross |   |   |
|                          |                      |                    |              |               |                |                |                        | Amortized              |   | unrealized |   | unrealized |   |   |
|                          |                      |                    |              |               |                |                |                        | cost                   |   | gains |   | losses |   | Fair      value |
|                          |                      |                    |              |               |                |                | (Dollars      in thousands) |
| Mortgage-backed      and      |                      |                    |              |               |                |                |                        |                   |
|                          | related      investments: |                    |              |               |                |                |                        |                   |   |
|                          |                      | FNMA      certificates  | $                 | 66,594        | $                   | 73             | $                           | 1,029             | $ | 65,638        |
|                          |                      | FHLMC      certificates |              | 36,794        |                | 34             |                        | 638               |   | 36,190        |
|                          |                      | GNMA      certificates  |              | 10,116        |                | 20             |                        | 79                |   | 10,057        |
| U.S.      Government agencies |                      | 2,001              |              | 3             |                | —   |                        | 2,004             |
| Mutual      fund (1)          |                      |                    | 6,120        |               | —   |                | 172                    |                   | 5,948        |
|                          |                      |                    |              |               |                |                | $                           | 121,625           | $ | 130        | $ | 1,918        | $ | 119,837        |

----

|                                       |   |               |   |               |   |   | September      30, 2008     |
|--------------------------------------------|--------|--------------------|--------|--------------------|--------|--------|-----------------------------|
|                                       |   |               |   |               |   |   |                        | Amortized      cost |   | Fair      value |
|                                       |   |               |   |               |   |   | (Dollars      in thousands) |
| Due      within one year                   | $      | 7,774         | $      | 7,312         |
| Due      after one year through five years |   | 12,625        |   | 12,621        |
| Due      after five years through 10 years |   | 52,477        |   | 52,308        |
| Due      after ten years                   |   | 91,326        |   | 90,636        |
|                                       |   |               |   |               |   |   | $                           | 164,202        | $ | 162,877        |

----

|                                   |                           |                |               |                |                |              |   | September      30,          |   | December      31,     |
|----------------------------------------|--------------------------------|---------------------|--------------------|---------------------|---------------------|-------------------|--------|-----------------------------|--------|-----------------------|
|                                   |                           |                |               |                |                |              |   | 2008                        |   | 2007                  |
|                                   |                           |                |               |                |                |              |   | (Dollars      in thousands) |
| One-to-four      family residential    | $                              | 499,214        | $                  | 424,863        |
| Multifamily      residential           |                           | 80,639         |               | 76,039         |
| Commercial      real estate            |                           | 238,581        |               | 204,798        |
| Construction      and land development |                           | 268,646        |               | 288,378        |
| Home      equity                       |                           |                |               | 12,366         |                | 6,368        |
| Savings      account loans             |                           | 163            |               | 127            |
| Other      loans                       |                           |                |               | 139            |                | 177          |
|                                   |                           |                |               |                |                |              | $      | 1,099,748              | $      | 1,000,750        |
|                                   |                           |                |               |                |                |              |   |                        |
| Less:                                  |                           |                |               |                |                |              |   |                        |
|                                   | Loans      in process          |                | 82,574        |                | 108,939        |
|                                   | Deferred      loan fees        |                | 2,775         |                | 3,176          |
|                                   | Allowance      for loan losses |                | 11,837        |                | 7,971          |
|                                   |                           |                |               |                |                |              | $      | 1,002,562              | $      | 880,664          |

|                           | September      30,          |                                                                                     | September      30, |
|--------------------------------|-----------------------------|------------------------------------------------------------------------------------------|--------------------|
|                           | 2008                        |                                                                                     | 2007               |
|                           | (Dollars      in thousands) |
| Beginning      balance         | $                           |            7,971                  |               | $ |            1,971 |
| Provision      for loan losses |                        |            3,943                  |               |   |            1,200 |
| Charge-offs                    |                        |               (77) |               |   |                   - |
|                           | $                           |          11,837                             |               |  $ |            3,171 |

|                                                   | September      30,          |                                                                                                          | December      31, |
|--------------------------------------------------------|-----------------------------|---------------------------------------------------------------------------------------------------------------|-------------------|
|                                                   | 2008                        |                                                                                                          | 2007              |
|                                                   | (Dollars      in thousands) |
| Troubled      debt restructured and/or impaired loans  |  $                     |          42,142                                                  |              |  $ |          30,693 |
| Undisbursed      portion                               |  $                     |          11,180                                                  |              |  $ |            7,212 |
| Amount      of the allowance for loan losses allocated |  $                     |            5,723                                       |              |  $ |            4,500 |
| Interest      income recognized during impairment      |  $                     |                   - |              |  $ |                   - |
| Cash-basis      interest income recognized             |  $                     |                   - |              |  $ |                   - |

----

|                                                | September      30,          |                                                                    | December      31, |
|-----------------------------------------------------|-----------------------------|-------------------------------------------------------------------------|-------------------|
|                                                | 2008                        |                                                                    | 2007              |
|                                                | (Dollars      in thousands) |
| Loans      past due over 90 days and still accruing | $                           |            3,212 |              | $ |                   - |
| Nonaccrual      loans, net of loans in process      | $                           |          33,933            |              | $ |          25,042 |

|                                                  |   |                            |   |    | Three      Months Ended |   | Nine      Months Ended  |   |
|-------------------------------------------------------|--------|---------------------------------|--------|---------|-------------------------|--------|-------------------------|--------|
|                                                  |   |                            |   |    | September      30, 2008 |   | September      30, 2008 |   |
| Net      income                                  | $      | 955                        |   | $  | 7,649              |   |
| Weighted-average      common shares outstanding  | $      | 21,254                     |   | $  | 21,226             |   |
|                                                  |   | Basic      earnings per share   | $      | 0.04    |                    | $      | 0.36                    |   |
|                                                  |   | Diluted      earnings per share | $      | 0.04    |                    | $      | 0.36                    |   |

----

| Annual dividend yield        |   |   | 3.27%          |
|------------------------------|--------|--------|----------------|
| Expected      volatility     | 23.74% | -      | 25.55%         |
| Risk-free      interest rate | 2.89%  | -      | 3.51%          |
| Expected      term           |   |   | 6.5      years |

|                                          |                                                                                                                                                                      |   |   |                                                                                              |   | Weighted-Average                                                                                  |   |   | Aggregate                                                                                               |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------|
|                                          |                                                                                                                                                                      |   |   | Weighted-Average                                                                                  |   | Remaining      Contractual                                                                        |   |   | Intrinsic                                                                                               |
|                                          | Shares                                                                                                                                                                    |   |   | Exercise Price                                                                                    |   | Term      in Years                                                                                |   |   | Value                                                                                                   |
|                                          |                                                                                                                                                                      |   |   |                                                                                              |   |                                                                                              |   |   |                                                                                                    |
| Outstanding      at the beginning of the year |                                  - |   | $      |                 - |   |                                                                                              |   |   |                                                                                                    |
| Granted                                       |                    1,423,524                                                                             |   |   |              9.78                |   |                                                                                              |   |   |                                                                                                    |
| Exercised                                     |                                  - |   |   |                 - |   |                                                                                              |   |   |                                                                                                    |
| Forfeited      or expired                     |                                  - |   |   |                 - |   |                                                                                              |   |   |                                                                                                    |
| Outstanding      at September 30, 2008        |                   1,423,524                                                                                   |   | $      |              9.78                |   |              9.75                |   | $      |       768,703                                                             |
|                                          |                                                                                                                                                                      |   |   |                                                                                              |   |                                                                                              |   |   |                                                                                                    |
| Expected      to vest                         |             1,380,804                                                                                         |   | $      |              9.78                |   |              9.75                |   | $      |       745,634                                                             |
|                                          |                                                                                                                                                                      |   |   |                                                                                              |   |                                                                                              |   |   |                                                                                                    |
| Exercisable      at September 30, 2008        |                                -             |   | $      |                 - |   |                 - |   | $      |                  - |

----

| Nonvested      Shares                                 |   | Shares      (1) |    |   | Weighted-AverageGrant-DateFair      Value |   |
|-------------------------------------------------------|--------|-----------------|---------|--------|-------------------------------------------|--------|
|                                                  |   |            |    |   |                                      |   |
| Nonvested      at January 1, 2008                     |   |            | -       |   |                                      | $      | - |   |
|      Granted                 |   |            | 748,234 |   |                                      |   | 10.34 |   |
|      Vested                  |   |            | -       |   |                                      |   | - |   |
|      Forfeited               |   |            | -       |   |                                      |   | - |   |
| Nonvested      at September 30, 2008                  |   |            | 748,234 |   |                                      | $      | 10.34 |   |
|                                                  |   |            |    |   |                                      |   |   |   |
| (1)      Includes a forfeiture rate assumption of 3%. |   |

As of September 30, 2008 there was $7.4 million of totalunrecognized compensation costs related to nonvested shares granted asrestricted stock awards.  The cost is expected to be recognized over aweighted-average period of 4.92 years.

|                   · |  Level 1 -      Quoted prices for identical isntruments 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 September 30, 2008                                                                                                                                                                    |    |
|-------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                              |    |                                                                                                                                                                                                                  |    |   | Quoted      Prices in |   | Significant |   |   |   |
|                                                                                                              |    |                                                                                                                                                                                                                  |    | Active      Markets |   | Other |   | Significant |   |
|                                                                                                              |    | Fair      Value                                                                                                                                                                                                       |    | for      Identical |   | Observable |   | Unobservable |   |
|                                                                                                              |    | Measurements                                                                                                                                                                                                          |    | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |   |
|                                                                                                              |    | (Dollars      in thousands)                                                                                                                                                                                           |    |
|  Available      for sale investments                                                                         |  $ |                                   162,877                                 | $  |                        5,136  | $  |                      157,741  | $  |                            -  |   |
| Mortgage      servicing rights (included in prepaid                                                          |    |                                                                                                                                                                                                                  |    |   |   |   |   |   |   |
|     expenses      and other assets)                                                      |    |                                         872 |    |                                -  |   |                                  -  |   |                        872  |   |
|                   Total |  $ |                                  163,749                                       | $       |                        5,136 | $ |                      157,741 | $ |                        872 |   |

|                                                              |   | Fair      Value Measurements at September 30, 2008                                                                                                |   |
|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                              |   |                                                                                                                                              |   |   | Quoted      Prices in |   | Significant |   |   |   |
|                                                              |   |                                                                                                                                              |   | Active      Markets |   | Other |   | Significant |   |
|                                                              |   | Fair      Value                                                                                                                                   |   | for      Identical |   | Observable |   | Unobservable |   |
|                                                              |   | Measurements                                                                                                                                      |   | Assets      (Level 1) |   | Inputs      (Level 2) |   | Inputs      (Level 3) |   |
|                                                              |   | (Dollars      in thousands)                                                                                                                       |   |
| Impaired      loans including undisbursed but committed funds     |   |                                                                                                                                              |   |   |   |   |   |   |   |
|           (included in loans receivable, net) |   | $                       36,220 |   | $                               - |   | $                                 - |   | $                  36,220 |   |

----

----

|                                                                                                                                   | Aggregate      Amount   |                          |          |   | Aggregate      Amount  |   |                      |   |       |
|----------------------------------------------------------------------------------------------------------------------------------------|-------------------------|-------------------------------|---------------|--------|------------------------|--------|---------------------------|--------|------------|
|                                                                                                                                   | of      Loans (1)       |                          | Number        |   | of      Loans (1)      |   | Number                    |   |       |
| Borrower      (4)                                                                                                                      | September      30, 2008 |                          | of      Loans |   | December      31, 2007 |   | of      Loans             |   | Collateral |
|                                                                                                                                   |                    |                          |          |   |                   |   |                      |   |       |   |   |
| Real      estate builder                                                                                                               | $44.5                   |         million     |          | 119    |                   | $40.0  |         million |   | 96         |   | residential      properties |
| Real      estate builder                                                                                                               | $38.0                   |         million     |          | 125    |                   | $40.5  |         million |   | 138        |   | residential      properties |
| Real      estate builder                                                                                                               | $28.9                   |         million     |          | 104    |                   | $27.5  |         million |   | 97         |   | residential      properties |
| Real      estate builder                                                                                                               | $27.3                   |         million (2) |          | 88     |                   | $28.0  |         million |   | 89         |   | residential      properties |
| Real      estate builder                                                                                                               | $19.1                   |         million (3) |          | 105    |                   | $19.7  |         million |   | 128        |   | residential      properties |
| ______________                                                                                                                         |                    |                          |          |   |                   |   |                      |   |       |   |   |
| (1)   Net      of loans in process.                                                                                     |                    |                          |          |   |                   |   |                      |   |       |   |
| (2)   Of      this amount, $22.8 million is considered impaired loans.                                                  |                    |                          |          |   |                   |
| (3)   Of      this amount, $7.9 million is considered impaired loans.                                                   |                    |                          |          |   |                   |
| (4)   While      the customers with the largest borrowing relationship didn't change from      December 31, 2007, their |
|         order      within the table has changed.                                               |                    |                          |          |   |                   |   |                      |   |       |

----

| County                           |   |    | Loan      Balance (1)       |   | %      of Loan Balance (1) |
|----------------------------------|--------|---------|-----------------------------|--------|----------------------------|
|                             |   |    | (Dollars      in thousands) |   |                       |
| King                             |   |    | $89,749                     |   | 45.5%                      |
| Pierce                           |   |    | $46,184                     |   | 23.4%                      |
| Kitsap                           |   |    | $19,193                     |   | 9.8%                       |
| All      other counties          |   | $42,037 |                        | 21.3%  |
| Total                            |   |    | $197,163                    |   | 100.0%                     |
|                             |   |    |                        |   |                       |
| (1)      Net of loans in process |   |    |                        |   |

----

|                                      |                                                                                                                                                                                           |                                                                                                                                                                                                                |   |                   | Increase/(Decrease)                                                                                                                                                                                                 |                |                                                                                                                                                                |   |
|-------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                      | Balance      at                                                                                                                                                                                |                                                                                                                                                                                                                |   | from                   |                                                                                                                                                                                                                | Percentage          |
|                                      | September      30, 2008                                                                                                                                                                        |                                                                                                                                                                                                                |   | December      31, 2007 |                                                                                                                                                                                                                | Increase/(Decrease) |
|                                      |                                  (Dollars in thousands) |                                                                                                                                                                                                                |
|                                      |                                                                                                                                                                                           |                                                                                                                                                                                                                |   |                   |                                                                                                                                                                                                                |                |                                                                                                                                                                |   |
| Cash      on hand and in banks            | $                                                                                                                                                                                              |                            4,045                                             |   | $                      |                               370                             |                |                      10.07                                 | %      |
| Interest-bearing      deposits            |                                                                                                                                                                                           |                            2,736                                             |   |                   |                            1,949                                             |                |                    247.65                                            |   |
| Federal      Funds sold                   |                                                                                                                                                                                           |                            3,965                                             |   |                   |                           (3,150)                                                 |                |                    (44.27)                                           |   |
| Investments      available for sale       |                                                                                                                                                                                           |                        162,877                                                                   |   |                   |                          43,040                                                        |                |                      35.92                                 |   |
| Investments      held to maturity         |                                                                                                                                                                                           |                                    - |   |                   |                         (80,410)                                                            |                |                  (100.00)                                                      |   |
| Loans      receivable, net                |                                                                                                                                                                                           |                     1,002,562                                                                                   |   |                   |                        121,898                                                                   |                |                      13.84                                 |   |
| Premises      and equipment, net          |                                                                                                                                                                                           |                          12,992                                                        |   |                   |                              (347)                                 |                |                      (2.60)                                |   |
| Federal      Home Loan Bank               |                                                                                                                                                                                           |                                                                                                                                                                                                                |   |                   |                                                                                                                                                                                                                |                |                                                                                                                                                                |   |
|    stock,      at cost     |                                                                                                                                                                                           |                            6,425                                             |   |                   |                            1,754                                             |                |                      37.55                                 |   |
| Accrued      interest receivable          |                                                                                                                                                                                           |                            5,457                                             |   |                   |                               263                             |                |                        5.06                      |   |
| Deferred      tax assets, net             |                                                                                                                                                                                           |                            8,627                                             |   |                   |                            1,534                                             |                |                      21.63                                 |   |
| Goodwill                                  |                                                                                                                                                                                           |                          14,206                                                        |   |                   |                                    - |                |                            - |   |
| Prepaid      expenses and other assets    |                                                                                                                                                                                           |                            3,489                                             |   |                   |                              (408)                                 |                |                    (10.47)                                           |   |
|     Total      assets | $                                                                                                                                                                                              |                     1,227,381                                                                                   |   | $                      |                          86,493                                                        |                |                        7.58                      | %      |

----

----

|                                         | Three      Months Ended September 30, |                                                                                                                |   |                                                                                        |
|----------------------------------------------|---------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                         | 2008                                  |                                                                                                                | 2007   |                                                                                        | Increase/ |
|                                         |                                  |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                         |                                  |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   | Interest      and |
|                                         | Average                               |                                                                                                                |   |                                                                                        |   | Average |   |   |   |   | Dividend |
|                                         | Balance                               |                                                                                                                | Yield  |                                                                                        | Balance |   | Yield |   | Income |
|                                         |                                  | (Dollars      in thousands)                                                                                         |
|                                         |                                  |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   | $                                     |        984,804                                                                   |   |             6.18                | % |   | $ |        821,480 |   |             7.17 | % |   | $ |                   492 |
| Investments      available for sale          |                                  |        172,039                                                                   |   |             4.68                |   |   |   |        127,499 |   |             4.51 |   |   |   |                   576 |
| Investments      held to maturity            |                                  |                    - |   |                - |   |   |   |          85,636 |   |             4.38 |   |   |   |                 (937) |
| Federal      funds sold and interest-bearing |                                  |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
|    deposits                   |                                  |            6,204                                             |   |             2.77                |   |   |   |          10,879 |   |             5.40 |   |   |   |                 (104) |
| Federal      Home Loan Bank stock            |                                  |            5,633                                             |   |             1.21                |   |   |   |            4,671 |   |             0.60 |   |   |   |                     10 |
| Total      interest-earning assets           | $                                     |     1,168,680                                                                                   |   |             5.92                | % |   | $ |     1,050,165 |   |             6.57 | % |   | $ |                     37 |
|                                         |                                  |                                                                                                                |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |

|                                         | Nine      Months Ended September 30, |                                                              |   |                                                                                        |
|----------------------------------------------|--------------------------------------|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                         | 2008                                 |                                                              | 2007   |                                                                                        | Increase/ |
|                                         |                                 |                                                              |   |                                                                                        |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                         |                                 |                                                              |   |                                                                                        |   |   |   |   |   |   |   |   | Interest      and |
|                                         | Average                              |                                                              |   |                                                                                        |   | Average |   |   |   |   | Dividend |
|                                         | Balance                              |                                                              | Yield  |                                                                                        | Balance |   | Yield |   | Income |
|                                         |                                 | (Dollars      in thousands)                                       |
|                                         |                                 |                                                              |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable, net                   | $                                    |       941,136                       |   |             6.41                | % |   | $ |       767,957 |   |             7.10 | % |   | $ |                4,345 |
| Investments      available for sale          |                                 |       159,292                       |   |             4.68                |   |   |   |       135,718 |   |             4.48 |   |   |   |                1,027 |
| Investments      held to maturity            |                                 |           5,022 |   |                - |   |   |   |         86,356 |   |             4.39 |   |   |   |              (2,846) |
| Federal      funds sold and interest-bearing |                                 |                                                              |   |                                                                                        |   |   |   |   |   |   |   |   |   |   |
|    deposits                   |                                 |         39,359            |   |             2.71                |   |   |   |         12,932 |   |             5.54 |   |   |   |                   263 |
| Federal      Home Loan Bank stock            |                                 |           5,108 |   |             1.67                |   |   |   |           4,671 |   |             0.54 |   |   |   |                     45 |
| Total      interest-earning assets           | $                                    |    1,149,917                                       |   |             5.99                | % |   | $ |    1,007,634 |   |             6.46 | % |   | $ |                2,834 |

----

|                                          | Three      Months Ended September      30,                                           |
|-----------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          | 2008                                                                                                                                                                                                                                                                                                   |   | 2007 |   |   | Increase      / |
|                                          |                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                                                                                                                                                                                                                                                                                                |   |   |   |   | Average |   |   |   |   |   | Interest |
|                                          | Balance                                                                                                                                                                                                                                                                                                |   | Cost |   | Balance |   | Cost |   |   | Expense |
|                                          |                                                                                                                                                                                                                                                                                                   | (Dollars      in thousands) |
|                                          |                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                                                                                                                                                                                                                                                                                                      |          9,845 |   |            0.73 | % |   | $ |        55,082 |   |            0.23 | % |   | $ |                    (13) |
| Statement      savings accounts               |                                                                                                                                                                                                                                                                                                   |        11,803 |   |            1.76 |   |   |   |        16,217 |   |            1.75 |   |   |   |                    (19) |
| Money      market accounts                    |                                                                                                                                                                                                                                                                                                   |      124,204 |   |            2.03 |   |   |   |      205,045 |   |            4.06 |   |   |   |               (1,452) |
| Certificates      of deposit                  |                                                                                                                                                                                                                                                                                                   |      617,880 |   |            4.61 |   |   |   |      510,143 |   |            5.24 |   |   |   |                    446 |
| Advances      from the Federal Home Loan Bank |                                                                                                                                                                                                                                                                                                   |      126,739 |   |            3.59 |   |   |   |      178,923 |   |            5.50 |   |   |   |               (1,325) |
| Total      interest-bearing liabilities       | $                                                                                                                                                                                                                                                                                                      |      890,471 |   |            4.03 | % |   | $ |      965,410 |   |            4.69 | % |   | $ |               (2,363) |

|                                          | Nine      Months Ended September      30,                                                               |
|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          | 2008                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2007 |   |   | Increase      / |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   | (Decrease)      in |
|                                          | Average                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   | Average |   |   |   |   |   | Interest |
|                                          | Balance                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Cost |   | Balance |   | Cost |   |   | Expense |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                          | (Dollars      in thousands) |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW      accounts                             | $                                                                                                                                                                                                                                                                                                                                                                                                                             |        10,602 |   |            0.70 | % |   | $ |        28,627 |   |            0.32 | % |   | $ |                    (12) |
| Statement      savings accounts               |                                                                                                                                                                                                                                                                                                                                                                                                                          |        11,465 |   |            1.74 |   |   |   |        14,806 |   |            1.75 |   |   |   |                    (44) |
| Money      market accounts                    |                                                                                                                                                                                                                                                                                                                                                                                                                          |      132,440 |   |            2.11 |   |   |   |      202,699 |   |            4.27 |   |   |   |               (4,392) |
| Certificates      of deposit                  |                                                                                                                                                                                                                                                                                                                                                                                                                          |      600,559 |   |            4.80 |   |   |   |      520,112 |   |            5.04 |   |   |   |                 1,951 |
| Advances      from the Federal Home Loan Bank |                                                                                                                                                                                                                                                                                                                                                                                                                          |      115,263 |   |            3.69 |   |   |   |      166,923 |   |            5.47 |   |   |   |               (3,664) |
| Total      interest-bearing liabilities       | $                                                                                                                                                                                                                                                                                                                                                                                                                             |      870,329 |   |            4.15 | % |   | $ |      933,167 |   |            4.75 | % |   | $ |               (6,161) |

----

----

|                                                                           | At      or For the Nine Months |
|--------------------------------------------------------------------------------|--------------------------------|
|                                                                           | Ended      September 30,       |
|                                                                           | 2008                           |   | 2007 |
|                                                                           | (Dollars      in thousands)    |
|                                                                           |                           |   |   |   |   |   |   |
| Provision      for loan losses                                                 | $                              |           3,943 |   |   | $ |        1,200 |   |
| Net      charge-offs                                                           |                           |                77 |   |   |   |                - |   |
| Allowances      for loan losses                                                | $                              |         11,837 |   |   | $ |        3,171 |   |
| Allowance      for losses as a percent of total loans outstanding              |                           |   |   |   |   |   |   |
|    at      the end of the period net of undisbursed funds       |                           |             1.16 | % |   |   |          0.37 | % |
| Allowance      for loan losses as a percent of nonperforming                   |                           |   |   |   |   |   |   |
|    loans      at the end of the period net of undisbursed funds |                           |           34.88 | % |   |   |   1,263.35 | % |
| Total      nonaccrual and 90 days or more past due loans net                   | $                              |         37,145 |   |   | $ |           251 |   |
|    of      undisbursed funds                                    |                           |   |   |   |   |   |   |
| Nonaccrual      and 90 days or more past due loans as a percent                |                           |   |   |   |   |   |   |
|    of      total loans net of undisbursed funds                 |                           |             3.65 | % |   |   |          0.03 | % |
| Total      loans receivable net of undisbursed funds                           | $                              |    1,017,174 |   |   | $ |    859,098 |   |
| Total      loans originated                                                    | $                              |       217,802 |   |   | $ |    372,612 |   |

|                                  |   | Three      Months           |   | Increase/(Decrease)                                                                                |   |                |   |   |                                                                                                                        |
|---------------------------------------|--------|-----------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|
|                                  |   | Ended                       |   | from                                                                                               |   | Percentage          |
|                                  |   | September      30, 2008     |   | September      30, 2007                                                                            |   | Increase/(Decrease) |
|                                  |   | (Dollars      in thousands) |   |
|                                  |   |                        |   |                                                                                               |   |                |   |   |                                                                                                                        |   |   |   |   |   |   |
| Service      fees on deposit accounts |   |                        | $      |                 17 |   |                |   | $      |              -                                        |   |   |   |               - | % |   |
| Loan      service fees                |   |                        |   |                 86 |   |                |   |   |          (10)                                                                  |   |   |   |        (10.42) |   |   |
| Gain      on sale of investments      |   |                        |   |               274            |   |                |   |   |         274                                                                    |           |   |   |       100.00 |   |   |
| Mortgage      servicing rights, net   |   |                        |   |                (59)     |   |                |   |   |           22                                                         |   |   |   |         27.16 |   |   |
| Other                                 |   |                        |   |                 25 |   |                |   |   |             9                                              |   |   |   |         56.25 |   |   |
| Total      noninterest income         |   |                        | $      |               343            |   |                |   | $      |                         295  |   |   |   |       614.58 | % |   |

----

|                                  |   | Nine      Months            |   | Increase/(Decrease)                                                                                |   |                |   |   |                                                                                                        |
|---------------------------------------|--------|-----------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------------------------------------------------------------------------------------------------|
|                                  |   | Ended                       |   | from                                                                                               |   | Percentage          |
|                                  |   | September      30, 2008     |   | September      30, 2007                                                                            |   | Increase/(Decrease) |
|                                  |   | (Dollars      in thousands) |   |
|                                  |   |                        |   |                                                                                               |   |                |   |   |                                                                                                        |   |   |   |   |   |   |
| Service      fees on deposit accounts |   |                        | $      |                      65 |   |                |   | $      |             5                              |   |   |   |           8.33 | % |   |
| Loan      service fees                |   |                        |   |               184            |   |                |   |   |          (74)                                                  |   |   |   |        (28.68) |   |   |
| Gain      on sale of investments      |   |                        |   |            1,657                            |   |                |   |   |      1,657                                                                    |           |   |   |       100.00 |   |   |
| Other-than-temporary      impairment  |   |                        |   |                                                                                               |   |                |   |   |                                                                                                        |   |   |   |   |   |   |
|    on      investments |   |                        |   |              (623)                |   |                |   |   |        (623)                                                             |   |   |   |       100.00 |   |   |
| Mortgage      servicing rights, net   |   |                        |   |              (176)                |   |                |   |   |           73                                         |   |   |   |         29.32 |   |   |
| Other                                 |   |                        |   |               106            |   |                |   |   |           39                                         |   |   |   |         58.21 |   |   |
| Total      noninterest income         |   |                        | $      |            1,213                            |   |                |   | $      |                      1,077  |   |   |   |       791.91 | % |   |

|                                      | Three      Months           |                                                                                                                             | Increase/(Decrease)     |   |                |                                                                                                                            |   |
|-------------------------------------------|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------|-------------------------|--------|---------------------|---------------------------------------------------------------------------------------------------------------------------------|--------|
|                                      | Ended                       |                                                                                                                             | from                    |   | Percentage          |
|                                      | September      30, 2008     |                                                                                                                             | September      30, 2007 |   | Increase/(Decrease) |
|                                      | (Dollars      in thousands) |
|                                      |                        |                                                                                                                             |                    |   |                |                                                                                                                            |   |   |   |   |   |
| Compensation      and benefits            | $                           |                       2,459                      |                    |   | $                   |                     1,223                                 |   |   |   |        98.95 |         % |
| Occupancy      and equipment              |                        |                          303      |                    |   |                |                          67           |   |   |   |        28.39 |   |
| Data      processing                      |                        |                          125      |                    |   |                |                           9 |   |   |   |          7.76 |   |
| Professional      fees                    |                        |                         264            |                    |   |                |                       221                            |   |   |   |      513.95 |   |
| Marketing                                 |                        |                           66      |                    |   |                |                       (22)                      |   |   |   |      (25.00) |   |
| Office      supplies and postage          |                        |                           61 |                    |   |                |                          2            |   |   |   |          3.39 |   |
| Regulatory      fees and deposit          |                        |                                                                                                                             |                    |   |                |                                                                                                                            |   |   |   |   |   |
|    insurance      premiums |                        |                         170            |                    |   |                |                      139                             |   |   |   |      448.39 |   |
| Bank      and ATM charges                 |                        |                           35 |                    |   |                |                      (22)                            |   |   |   |      (38.60) |   |
| Other                                     |                        |                         295            |                    |   |                |                     134                                   |   |   |   |        83.23 |   |
| Total      noninterest expense            | $                           |                      3,778                            |                    |   | $                   |                  1,751                                                   |   |   |   |        86.38 |         % |

----

|                                      | Nine      Months            |                                                                                                                  | Increase/(Decrease)     |   |                |                                                                                                                                          |   |
|-------------------------------------------|-----------------------------|-----------------------------------------------------------------------------------------------------------------------|-------------------------|--------|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                      | Ended                       |                                                                                                                  | from                    |   | Percentage          |
|                                      | September      30, 2008     |                                                                                                                  | September      30, 2007 |   | Increase/(Decrease) |
|                                      | (Dollars      in thousands) |
|                                      |                        |                                                                                                                  |                    |   |                |                                                                                                                                          |   |   |   |   |   |
| Compensation      and benefits            | $                           |                      6,412                 |                    |   | $                   |                   2,931                             |   |   |   |        84.20 |         % |
| Occupancy      and equipment              |                        |                    887 |                    |   |                |                           126             |   |   |   |        16.56 |   |
| Data      processing                      |                        |                    351 |                    |   |                |                             12  |   |   |   |          3.54 |   |
| Professional      fees                    |                        |                 1,111                 |                    |   |                |                           902             |   |   |   |      431.58 |   |
| Marketing                                 |                        |                    166 |                    |   |                |                      (27)            |   |   |   |      (13.99) |   |
| Office      supplies and postage          |                        |                    144 |                    |   |                |                             (6) |   |   |   |        (4.00) |   |
| Regulatory      fees and deposit          |                        |                                                                                                                  |                    |   |                |                                                                                                                                          |   |   |   |   |   |
|    insurance      premiums |                        |                    345 |                    |   |                |                           253             |   |   |   |      275.00 |   |
| Bank      and ATM charges                 |                        |                    117 |                    |   |                |                           (31)            |   |   |   |      (20.95) |   |
| Other                                     |                        |                    917 |                    |   |                |                           425             |   |   |   |        86.38 |   |
| Total      noninterest expense            | $                           |               10,450                            |                    |   | $                   |                        4,585                             |   |   |   |        78.18 |         % |
|                                      |                        |                                                                                                                  |                    |   |                |                                                                                                                                          |   |   |   |   |   |

----

----

|                                                             |                        |                                                        |          | 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 |
|                                                             | (Dollars      in thousands) |
|                                                             |                        |                                                        |          |                                              |   |   |   |   |   |   |   |   |   |   |
| Commitments      to originate loans                              | $                           |        48,194            |          | $                                                 |        48,194 |   | $ |                  - |   | $ |                  - |   | $ |                  - |
| Unused      portion of lines of credit                           |                        |          5,180 |          |                                              |                  - |   |   |                  - |   |   |                  - |   |   |          5,180 |
| Undisbursed      portion of construction                         |                        |                                                        |          |                                              |   |   |   |   |   |   |   |   |   |   |
|     loans      in process                    |                        |        82,574            |          |                                              |        60,713 |   |   |        20,595 |   |   |             906 |   |   |             360 |
|        Total      commitments | $                           |      135,948                       |          | $                                                 |      108,907 |   | $ |        20,595 |   | $ |             906 |   | $ |          5,540 |

----

| September 30,      2008               |
|---------------------------------------|
|  Net      Interest Income Change |
| Basis      PointChange      in Rates  |   | %      Change |
| +300                                  |   | 6.46% |
| +200                                  |   | 5.43% |
| +100                                  |   | 3.76% |
| Base                                  |   | 2.24% |
| (100)                                 |   | 0.07% |
| (200)                                 |   | -2.01% |

----

|   | September 30,      2008     |
|--------|-----------------------------|
|   |                        |   |   |   |   |   |   |   |   |   |   | Net      Portfolio as % of |   |   |   |
|   | Basis      Point            |   | Net      Portfolio Value (1) |   | Portfolio      Value of Assets |   | Market      Value |
|   | Change      in Rates        |   | Amount |   | $      Change (2) |   | %      Change |   | NPV      Ratio (3) |   | %      Change (4) |   | of      Assets (5) |
|   | (Dollars      in thousands) |
|   | +300                        |   | $ | 206,693 |   | $ |      (86,408) |   |        (29.48) | % |         18.71 | % |          (7.07) | % |   | $ | 1,104,576 |
|   | +200                        |   | $ | 234,061 |   | $ |      (59,040) |   |        (20.14) |   |   |         20.52 |   |   |          (4.83) |   |   | $ | 1,140,509 |
|   | +100                        |   | $ | 263,019 |   | $ |      (30,082) |   |        (10.26) |   |   |         22.31 |   |   |          (2.46) |   |   | $ | 1,179,066 |
|   | 0                           |   | $ | 293,101 |   | $ |                 - |   |               - |   |   |         24.00 |   |   |               - |   |   | $ | 1,221,329 |
|   | (100)                       |   | $ | 316,656 |   | $ |       23,555 |   |           8.04 |   |   |         25.18 |   |   |           1.93 |   |   | $ | 1,257,363 |
|   | (200)                       |   | $ | 331,607 |   | $ |       38,506 |   |         13.14 |   |   |         25.81 |   |   |           3.15 |   |   | $ | 1,284,654 |
| (6)    | (300)                       |   | $ |  N/A |   | $ |         N/A |   |         N/A |   |   |         N/A |   |   |          N/A |   |   | $ |                    N/A |

| (1)   | The      net portfolio value is calculated based upon the present value of the      discounted cash flows from assets and liabilities. The difference between      the present value of assets and liabilities is the net portfolio value and      represents the market value of equity for the given interest rate      scenario. Net portfolio value is useful for determining, on a market value      basis, how much equity changes in response to various interest rate      scenarios. Large changes in net portfolio value reflect increased interest      rate sensitivity and generally more volatile earnings    streams. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Represents      the increase (decrease) in the estimated net portfolio value at the      indicated change in interest rates compared to the net portfolio value      assuming no change in interestrates. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Calculated      as the net portfolio value divided by the market value of assets (“net      portfolio value ratio”). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Calculated      as the increase (decrease) in the net portfolio value ratio assuming the      indicated change in interest rates over the estimated portfolio value of      assets assuming no change in interestrates. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Calculated      based on the present value of the discounted cash flows from assets. The      market value of assets represents the value of assets under the various      interest rate scenarios and reflects the sensitivity of those assets to      interest rate changes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | The      current federal funds rate is 2.0%, making a 300 basis point drop      impossible. |
|-----------------|---------------------------------------------------------------------------------------------|

----

----

| ·   | We      potentially face increased regulation of our industry. Compliance with      such regulation may increase our costs and limit our ability to pursue      business opportunities. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      process we use to estimate losses inherent in our credit exposure requires      difficult, subjective and complex judgments, including forecasts of      economic conditions and how these economic conditions might impair the      ability of our borrowers to repay their loans.  The level of      uncertainty concerning economic conditions may adversely affect the      accuracy of our estimates which may, in turn, impact the reliability of      the process. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We      may be required to pay significantly higher FDIC premiums because market      developments have significantly depleted the insurance fund of the FDIC      and reduced the ratio of reserves to insured  deposits. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Current      levels of market volatility are unprecedented. |
|--------------------|-------------------------------------------------------------|

----

| ·   | The      capital and credit markets have been experiencing volatility and      disruption for more than a year. In recent months, the volatility and      disruption has reached unprecedented levels. In some cases, the markets      have produced downward pressure on stock prices and credit availability      for certain issuers without regard to those issuers’ underlying financial      strength. If current levels of market disruption and volatility continue      or worsen, there can be no assurance that we will not experience an      adverse effect, which may be material, on our ability to access capital      and on our business, financial condition and results of      operations.  |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Authority      for the Federal Reserve to pay interest on depository institution      balances; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | Mortgage      loss mitigation and homeownerprotection; |
|--------------------|--------------------------------------------------------|

| ·   | Temporary      increase in Federal Deposit Insurance Corporation (“FDIC”) insurance      coverage from $100,000 to $250,000 through December 31, 2009;      and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Authority      to the Securities and Exchange Commission (the “SEC”) to suspend      mark-to-market accounting requirements for any issuer or class of category      of transactions. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Changes      in economic conditions, particularly a further economic slowdown in      Washington State, could hurt ourbusiness. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| o   | loan      delinquencies may increase; |
|---------------|---------------------------------------|

| o   | problem      assets and foreclosures mayincrease; |
|---------------|---------------------------------------------------|

| o   | demand      for our products and services may decline;and |
|---------------|-----------------------------------------------------------|

| o   | collateral      for loans made by us, especially real estate, may decline in value, in      turn reducing a customer’s borrowing power and reducing the value of      assets and collateral securing ourloans. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Downturns      in the real estate markets in our primary market area have hurt our      business. |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | We      may suffer losses in our loan portfolio despite our underwriting      practices. |
|--------------------|------------------------------------------------------------------------------------------|

----

| ·   | Construction /Land Development      Loans. This type of lending contains the inherent difficulty in      estimating both a property’s value at completion of the project and the      estimated cost (including interest) of the project.  If the      estimate of construction cost proves to be inaccurate, we may be required      to advance funds beyond the amount originally committed to permit      completion of the project.  If the estimate of value upon      completion proves to be inaccurate, we may be confronted at, or prior to,      the maturity of the loan with a project the value of which is insufficient      to assure full repayment.  In addition, speculative construction      loans to a builder are often associated with homes that are not pre-sold,      and thus pose a greater potential risk to us than construction loans to      individuals on their personal residences.  Loans on land under      development or held for future construction also pose additional risk      because of the lack of income being produced by the property and the      potential illiquid nature of the collateral.  These risks can be      significantly impacted by supply and demand conditions.  As a      result, this type |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | of      lending often involves the disbursement of substantial funds with      repayment dependent on the success of the ultimate project and the ability      of the borrower to sell or lease the property, rather than the ability of      the borrower or guarantor themselves to repay principal and      interest.  At September 30, 2008, we had $268.6 million or 24.4%      of gross loans in construction/land development  loans. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Commercial and Multifamily      Mortgage Loans.  These loans typically involve higher      principal amounts than other types of loans, and repayment is dependent      upon income generated, or expected to be generated, by the property      securing the loan in amounts sufficient to cover operating expenses and      debt service, which may be adversely affected by changes in the economy or      local market conditions.  Commercial and multifamily mortgage      loans also expose a lender to greater credit risk than loans secured by      residential real estate because the collateral securing these loans      typically cannot be sold as easily as residential real      estate.  In addition, many of our commercial and multifamily      real estate loans are not fully amortizing and contain large balloon      payments upon maturity.  Such balloon payments may require the      borrower to either sell or refinance the underlying property in order to      make the payment, which may increase the risk of default or      non-payment.  At September 30, 2008, we had $319.2 million or      29.0% of gross loans in commercial and multifamily mortgage      loans. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Consumer      Loans.  Consumer loans (such as personal lines of credit)      are collateralized, if at all, with assets that may not provide an      adequate source of payment of the loan due to depreciation, damage, or      loss.  In addition, consumer loan collections are dependent on      the borrower’s financial stability, and thus are more likely to be      adversely affected by job loss, divorce, illness or personal      bankruptcy.  Furthermore, the application of various federal and      state laws, including federal and state bankruptcy and insolvency laws,      may limit the amount that can be recovered on these      loans.   At September 30, 2008, we had $12.7 million or      1.2% of gross loans in consumerloans. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 3.1   | Articles      of Incorporation of First Financial Northwest, Inc.  (1) |
|-----------------|------------------------------------------------------------------------|

| 3.2   | Bylaws      of First Financial Northwest, Inc.(1) |
|-----------------|---------------------------------------------------|

| 4           | Form      of stock certificate of First Financial Northwest, Inc. (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 Northwest 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)                                                                  |
|----------------------------------|------------------------------------------------------------------------------------------------------|
| 14           | Code      of Business Conduct and Ethics                                                             |
| 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           | Certification      Pursuant to Section 906 of the Sarbanes-OxleyAct                                  |

|   | (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 September 30, 2007 and incorporated herein by      reference. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Filed      as an exhibit to First Financial Northwest’s Registration Statement on      Form S-8 (333-152928). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------|

----

| Date:  November      12, 2008 |   | /s/ Victor      Karpiak                                                         |
|-----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |   | Victor      Karpiak                                                                                                                                                                                                                                                                                                                                                |
|                                    |   | President      and  Chief Executive Officer                                                                                                                                                                                                                                                                                                              |
|                                    |   |                                                                                                                                                                                                                                                                                                                                                                    |
|                                    |   |                                                                                                                                                                                                                                                                                                                                                                    |
|                                    |   |                                                                                                                                                                                                                                                                                                                                                                    |
| Date:  November      12, 2008 |   | /s/      Kari A.      Stenslie                                                            |
|                                    |   | Kari A.      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      Pursuant to Section 906 of the Sarbanes-Oxley  Act                                                                               |

----

EXHIBIT 31.1

| 1. | I      have reviewed this Quarterly Report on Form 10-Q of First Financial      Northwest, Inc.; |
|----|--------------------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer(s) and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal      control over financial reporting (as defined in Exchange Act Rules      13a-15(f) and 15d-15(f)) for the registrant and  have: |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | Designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this quarterly report is      being prepared; |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Designed      such internal control over financial reporting, or caused such internal      control over financial reporting to be designed under our supervision, to      provide reasonable assurance regarding the reliability of financial      reporting and the preparation of financial statements for external      purposes in accordance with generally accepted accounting      principles; |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c)   | Evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on such evaluation;  and |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | Disclosed      in this report any change in the registrant’s internal control over      financial reporting that occurred during the registrant’s most recent      fiscal quarter (the registrant’s fiscal fourth quarter in the case of an      annual report) that has materially affected, or is reasonably likely to      materially affect, the registrant’s internal control over financial      reporting; and |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of registrant’s board      of directors (or persons performing the equivalent    functions): |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | All      significant deficiencies and material weakness in the design or operation      of internal control over financial reporting which are reasonably likely      to adversely affect the registrant’s ability to record, process, summarize      and report financial data information;and |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal control      over financial reporting. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1. | I      have reviewed this Quarterly Report on Form 10-Q of First Financial      Northwest, Inc.; |
|----|--------------------------------------------------------------------------------------------------|

| 2. | Based      on my knowledge, this report does not contain any untrue statement of a      material fact or omit to state a material fact necessary to make the      statements made, in light of the circumstances under which such statements      were made, not misleading with respect to the period covered by this      report; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based      on my knowledge, the financial statements, and other financial information      included in this report, fairly present in all material respects the      financial condition, results of operations and cash flows of the      registrant as of, and for, the periods presented in this      report; |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The      registrant’s other certifying officer(s) and I are responsible for      establishing and maintaining disclosure controls and procedures (as      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal      control over financial reporting (as defined in Exchange Act Rules      13a-15(f) and 15d-15(f)) for the registrant and  have: |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | Designed      such disclosure controls and procedures, or caused such disclosure      controls and procedures to be designed under our supervision, to ensure      that material information relating to the registrant, including its      consolidated subsidiaries, is made known to us by others within those      entities, particularly during the period in which this quarterly report is      being prepared; |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Designed      such internal control over financial reporting, or caused such internal      control over financial reporting to be designed under our supervision, to      provide reasonable assurance regarding the reliability of financial      reporting and the preparation of financial statements for external      purposes in accordance with generally accepted accounting      principles; |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c)   | Evaluated      the effectiveness of the registrant’s disclosure controls and procedures      and presented in this report our conclusions about the effectiveness of      the disclosure controls and procedures, as of the end of the period      covered by this report based on such evaluation;  and |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | Disclosed      in this report any change in the registrant’s internal control over      financial reporting that occurred during the registrant’s most recent      fiscal quarter (the registrant’s fiscal fourth quarter in the case of an      annual report) that has materially affected, or is reasonably likely to      materially affect, the registrant’s internal control over financial      reporting; and |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The      registrant’s other certifying officer(s) and I have disclosed, based on      our most recent evaluation of internal control over financial reporting,      to the registrant’s auditors and the audit committee of registrant’s board      of directors (or persons performing the equivalent    functions): |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (a)   | All      significant deficiencies and material weakness in the design or operation      of internal control over financial reporting which are reasonably likely      to adversely affect the registrant’s ability to record, process, summarize      and report financial data information;and |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Any      fraud, whether or not material, that involves management or other      employees who have a significant role in the registrant’s internal control      over financial reporting. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1. | the      Report fully complies with the requirements of Section 13(a) or 15(d) of      the Securities Exchange Act of 1934, as amended;  and |
|----|----------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | the      information contained in the Report fairly presents, in all material      respects, the financial condition and results of operations of the Company      as of the dates and for the periods presented in the financial statements      included in the Report. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

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