10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

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

               For the quarterly period ended June 30, 2012

        or

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

       For the transition period from  _____  to  _____

Commission File Number: 001-33652

FIRST FINANCIAL NORTHWEST, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of August 3, 2012, 18,805,168 shares of the issuer’s common stock, $0.01 par value per share, were outstanding.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to our Form 10-Q for the quarter ended June 30, 2012, initially filed with the Securities and Exchange Commission (“SEC”) on August 7, 2012 (“Original Form 10-Q”), is being filed to amend Item 6 of Part II to furnish Exhibit 101 XBRL (eXtensible Business Reporting Language) interactive data files in accordance with Rule 401(a)(2) of Regulation S-T.  Exhibit 101 to this Form 10-Q/A includes the following information formatted in XBRL: (1) Consolidated Balance Sheets; (2) Consolidated Income Statements; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements.

No other changes have been made to the Original Form 10-Q, and this Form 10-Q/A does not reflect any subsequent events occurring after the filing date of the Original Form 10-Q or modify or update any other disclosures made in the Original Form 10-Q.

Item 6. Exhibits

3.1             Articles of Incorporation of First Financial Northwest (1)

3.2             Amended and Restated Bylaws of First Financial Northwest (2)

4                Form of stock certificate of First Financial Northwest (1)

10.1           Form of Employment Agreement for President and Chief Executive Officer (1)

10.2           Form of Change in Control Severance Agreement for Executive Officers (1)

10.3           Form of First Savings Bank Employee Severance Compensation Plan (1)

10.4           Form of Supplemental Executive Retirement Agreement entered into by First Savings Bank with Victor Karpiak, Harry A. Blencoe and Robert H. Gagnier (1)

10.5           Form of Financial Institutions Retirement Fund (1)

10.6           Form of 401(k) Retirement Plan (3)

10.7           2008 Equity Incentive Plan (4)

10.8           Forms of incentive and non-qualified stock option award agreements (5)

10.9           Form of restricted stock award agreement (5)

14              Code of Business Conduct and Ethics (6)

21              Subsidiaries of the Registrant

31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act (7)

31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act (7)

32              Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act (7)

101            The follwing materials from First Financial Northwest’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in Extensible Business Reporting Language (XBRL): (1) Consolidated Balance Sheets; (2) Consolidated Income Statements; (3) Consolidated Statements of Comprehensive Income; (4) Consolidated Statements of Changes in Stockholders’ Equity; (5) Consolidated Statements of Cash Flows; and (6) Notes to Consolidated Financial Statements.*

________________________________________

        (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 Current Report on Form 8-K dated March 22, 2012.

(3) 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.

(4) Filed as Appendix A to First Financial Northwest’s definitive proxy statement dated April 15, 2008.

(5) Filed as an exhibit to First Financial Northwest’s Current Report on Form 8-K dated July 1, 2008.

(6) Registrant elects to satisfy Regulation S-K §229.406 (c) by posting its code of ethics on its website at www.fsbnw.com.

(7) Previously filed as an exhibit to First Financial Northwest’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, which was filed with the SEC on August 7, 2012.

*Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	First Financial Northwest, Inc.
Date:  September 6, 2012	/s/Victor Karpiak
	Victor Karpiak
	Chairman of the Board, President and
	Chief Executive Officer
	(Principal Executive Officer)
Date:  September 6, 2012	/s/Kari Stenslie
	Kari Stenslie
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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Loans Receivable: Trouble Debt Restructurings on Financing Receivables, TDRs that subsequently defaulted (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Trouble Debt Restructurings on Financing Receivables, TDRs that subsequently defaulted

	Types of Modifications
	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
		Number of Loans		Interest Only Payments with Interest Rate Concession		Interest Rate Concession		Number of Loans		Interest Only Payments with Interest Rate Concession	Interest Rate Concession
	(Dollars in thousands)
TDRs that Subsequently Defaulted:
One-to-four family residential		1	$	274	$	-		1	$	274	$	-
Commercial		1		1,409		-		1		1,409		-
Total		2	$	1,683	$	-		2	$	1,683	$	-

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Loans Receivable: Schedule of Allowance for Loan and Lease Losses, Roll Forward (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended				6 Months Ended														3 Months Ended				6 Months Ended													3 Months Ended				6 Months Ended													3 Months Ended				6 Months Ended													3 Months Ended		6 Months Ended										3 Months Ended				6 Months Ended													3 Months Ended				6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 One-to-four family, residential		Jun. 30, 2011 One-to-four family, residential		Jun. 30, 2012 One-to-four family, residential		Jun. 30, 2011 One-to-four family, residential		Dec. 31, 2011 One-to-four family, residential		Jun. 30, 2012 One-to-four family, residential General Reserve		Jun. 30, 2011 One-to-four family, residential General Reserve		Jun. 30, 2012 One-to-four family, residential Specific Reserve		Jun. 30, 2011 One-to-four family, residential Specific Reserve		Jun. 30, 2012 Multifamily		Jun. 30, 2011 Multifamily		Jun. 30, 2012 Multifamily		Jun. 30, 2011 Multifamily		Dec. 31, 2011 Multifamily	Jun. 30, 2012 Multifamily General Reserve		Jun. 30, 2011 Multifamily General Reserve		Jun. 30, 2012 Multifamily Specific Reserve		Jun. 30, 2011 Multifamily Specific Reserve		Jun. 30, 2012 Commercial Real Estate		Jun. 30, 2011 Commercial Real Estate		Jun. 30, 2012 Commercial Real Estate		Jun. 30, 2011 Commercial Real Estate		Dec. 31, 2011 Commercial Real Estate	Jun. 30, 2012 Commercial Real Estate General Reserve		Jun. 30, 2011 Commercial Real Estate General Reserve		Jun. 30, 2012 Commercial Real Estate Specific Reserve		Jun. 30, 2011 Commercial Real Estate Specific Reserve		Jun. 30, 2012 Construction/Land Development		Jun. 30, 2011 Construction/Land Development		Jun. 30, 2012 Construction/Land Development		Jun. 30, 2011 Construction/Land Development		Dec. 31, 2011 Construction/Land Development	Jun. 30, 2012 Construction/Land Development General Reserve		Jun. 30, 2011 Construction/Land Development General Reserve		Jun. 30, 2012 Construction/Land Development Specific Reserve		Jun. 30, 2011 Construction/Land Development Specific Reserve		Jun. 30, 2011 Business		Jun. 30, 2012 Business		Jun. 30, 2011 Business		Mar. 31, 2012 Business	Dec. 31, 2011 Business	Jun. 30, 2012 Business General Reserve		Jun. 30, 2011 Business General Reserve		Jun. 30, 2012 Consumer		Jun. 30, 2011 Consumer		Jun. 30, 2012 Consumer		Jun. 30, 2011 Consumer		Dec. 31, 2011 Consumer	Jun. 30, 2012 Consumer General Reserve		Jun. 30, 2011 Consumer General Reserve		Jun. 30, 2012 Consumer Specific Reserve		Jun. 30, 2011 Consumer Specific Reserve		Jun. 30, 2012 Property, total		Jun. 30, 2011 Property, total		Jun. 30, 2012 Property, total		Jun. 30, 2011 Property, total		Dec. 31, 2011 Property, total	Jun. 30, 2012 Property, total General Reserve		Jun. 30, 2011 Property, total General Reserve		Jun. 30, 2012 Property, total Specific Reserve		Jun. 30, 2011 Property, total Specific Reserve
Loans and Leases Receivable, Allowance, Beginning Balance	$ 14,450	$ 16,559	$ 5,813		$ 7,756		$ 5,756		$ 8,302				$ 5,349		$ 5,097		$ 617		$ 402		$ 2,357		$ 1,746		$ 950		$ 1,893			$ 2,024		$ 984						$ 5,675		$ 7,275		$ 6,846		$ 6,742			$ 5,430		$ 7,220		$ 204		$ 59		$ 724		$ 3,067		$ 2,503		$ 5,151			$ 567		$ 2,893						$ 13		$ 154		$ 7		$ 35		$ 35		$ 14		$ 228		$ 393		$ 350		$ 439			$ 224		$ 320						$ 14,832		$ 20,250		$ 16,559		$ 22,534			$ 13,629		$ 16,528		$ 821		$ 461
Allowance for Loan and Lease Losses, Provision for Loss, Gross Charge-offs			(619)		(1,031)		(1,337)		(1,616)												(153)		(62)		(153)		(88)											(482)		(1,514)		(3,096)		(3,594)											(95)		(2,256)		(169)		(3,182)																									(113)		(293)		(171)											(1,349)		(4,976)		(5,048)		(8,651)
Allowance for Loan and Lease Losses, Recoveries of Bad Debts			12		14		12		19																													301				472													2		101		102		286																							2				3		1											317		115		589		306
Allowance for Loan and Lease Losses, Provision for Loss, Net			760		(1,240)		1,535		(1,206)												(180)		(700)		1,227		(821)											140		1,518		1,412		4,131											(64)		1,981		(1,869)		638											1		(119)		7								(6)		40		164		51											650		1,600		2,350		2,800
Loans and Leases Receivable, Allowance, Ending Balance	14,450	16,559	5,966		5,499		5,966		5,499				5,349		5,097		617		402		2,024		984		2,024		984			2,024		984						5,634		7,279		5,634		7,279			5,430		7,220		204		59		567		2,893		567		2,893			567		2,893						14		35		14		35		35		14		224		320		224		320			224		320						14,450		16,989		14,450		16,989			13,629		16,528		821		461
Loans receivable allowance for loan losses	14,450	16,559	5,966		5,499		5,966		5,499				5,349		5,097		617		402		2,024		984		2,024		984			2,024		984						5,634		7,279		5,634		7,279			5,430		7,220		204		59		567		2,893		567		2,893			567		2,893						14		35		14		35		35		14		224		320		224		320			224		320						14,450		16,989		14,450		16,989			13,629		16,528		821		461
Loans receivable, net of loans in process			318,377	[1]			318,377	[1]													104,431	[1]			104,431	[1]												210,698	[1]			210,698	[1]												17,670	[1]			17,670	[1]														3,627	[1]									11,328	[1]			11,328	[1]												666,131	[1]			666,131	[1]
Loans receivable	$ 649,965	$ 703,288	$ 318,377	[2]	$ 359,810	[1]	$ 318,377	[2]	$ 359,810	[1]	$ 335,412	[2]	$ 259,572	[3]	$ 293,165	[3]	$ 58,805	[4]	$ 66,645	[4]	$ 104,431		$ 120,023	[1]	$ 104,431		$ 120,023	[1]	$ 113,674	$ 101,145	[3]	$ 116,865	[3]	$ 3,286	[4]	$ 3,158	[4]	$ 210,698		$ 243,393	[1]	$ 210,698		$ 243,393	[1]	$ 232,343	$ 196,414	[3]	$ 225,094	[3]	$ 14,284	[4]	$ 18,299	[4]	$ 18,515		$ 32,597	[1]	$ 18,515		$ 32,597	[1]	$ 25,143	$ 8,939	[3]	$ 16,918	[3]	$ 8,731	[4]	$ 15,679	[4]	$ 1,819	[1]	$ 3,627		$ 1,819	[1]		$ 3,909	$ 3,627	[3]	$ 1,819	[3]	$ 11,328		$ 13,971	[1]	$ 11,328		$ 13,971	[1]	$ 12,499	$ 11,046	[3]	$ 13,856	[3]	$ 282	[4]	$ 115	[4]	$ 666,976		$ 771,613	[1]	$ 666,976		$ 771,613	[1]	$ 722,980	$ 580,743	[3]	$ 667,717	[3]	$ 85,388	[4]	$ 103,896	[4]

[1] Net of undisbursed funds.

[2] Includes $143.9 million and $147.4 million of non-owner occupied loans at June 30, 2012 and December 31, 2011, respectively.

[3] Loans collectively evaluated for impairment.

[4] Loans individually evaluated for impairment.

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Investments: Schedule of Available for sale Securities in Continuous Unrealized Loss positions (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 63,511	$ 45,039
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(401)	(284)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,122	1,137
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(284)	(270)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	64,633	46,176
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	(685)	(554)
Mortgage-backed investments, Fannie Mae
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	9,987
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(36)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	9,987
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	(36)
Mortgage-backed investments, Freddie Mac
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	3,153
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(37)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	3,153
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	(37)
Municipal Bonds
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	1,122	1,137
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	(284)	(270)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	1,122	1,137
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	(284)	(270)
US Government-sponsored Enterprises Debt Securities
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	50,371	45,039
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	(328)	(284)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	50,371	45,039
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	$ (328)	$ (284)

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Fair Value: Schedule of quantitative information about Level 3 Fair Value Measurements on a nonrecurring basis (Details) (Fair Value, Inputs, Level 3, Market Approach Valuation Technique, USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Minimum | Loans Receivable
Fair Value of financial instruments, range	0.00%
Minimum | Other Real Estate Owned
Fair Value of financial instruments, range	0.00%
Maximum | Loans Receivable
Fair Value of financial instruments, range	51.00%
Maximum | Other Real Estate Owned
Fair Value of financial instruments, range	26.00%
Loans Receivable
Liabilities, Fair Value Disclosure, Nonrecurring	$ 84,567
Fair Value Measurements, Valuation Processes, Description	Adjusted for differences between comparable sales
Other Real Estate Owned
Liabilities, Fair Value Disclosure, Nonrecurring	$ 22,206
Fair Value Measurements, Valuation Processes, Description	Adjusted for differences between comparable sales
Weighted Average | Loans Receivable
Fair Value of financial instruments, range	(1.60%)
Weighted Average | Other Real Estate Owned
Fair Value of financial instruments, range	(1.40%)

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Loans Receivable: Non-performing Loans, Foregone interest, and loans committed (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Loans Receivable, non-performing	$ 22,600		$ 22,600		$ 23,700
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	365,000	674,000	776,000	1,900
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0		$ 0		$ 36,000

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Earnings Per Share: Schedule of Earnings Per Share Reconciliation (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Earnings Per Share Reconciliation

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands, except share data)
Net income available to common shareholders	$	1,371	$	1,258	$	1,993	$	2,692
Basic weighted-average common shares outstanding		17,629,899		17,517,051		17,615,793		17,503,025
Plus common stock options considered outstanding for
dilutive purposes (excludes antidilutive options)		19,292		5,966		17,129		2,999
Diluted weighted-average common shares outstanding		17,649,191		17,523,017		17,632,922		17,506,024
Basic earnings per share	$	0.08	$	0.07	$	0.11	$	0.15
Diluted earnings per share	$	0.08	$	0.07	$	0.11	$	0.15

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Loans Receivable: Schedule of Non-performing assets and troubled debt restructured loans (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Non-performing assets and troubled debt restructured loans

	June 30, 2012		December 31, 2011
	(In thousands)
Nonperforming assets (1):
Nonaccrual loans	$	17,853	$	18,613
Nonaccrual TDRs		4,773		5,079
Total nonaccrual loans		22,626		23,692
OREO		22,206		26,044
Total nonperforming assets	$	44,832	$	49,736
Performing TDRs	$	62,762	$	66,225
Nonaccrual TDRs		4,773		5,079
Total TDRs	$	67,535	$	71,304

(1) There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

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Stock-Based Compensation (Details) (First Financial Northwest, Inc. 2008 Equity Incentive Plan, USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Allocated Share-based Compensation Expense	$ 454,000	$ 476,000	$ 932,000	$ 950,000
Other Tax Expense (Benefit)	159,000	167,000	326,000	332,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award, Description	The Plan authorizes the grant of stock options totaling 2,285,280 shares to our directors, advisory directors, officers and employees. Option awards are granted with an exercise price equal to the market price of our common stock at the grant date.
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	2,285,280		2,285,280
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights	These option awards have a vesting period of five years, with 20% vesting on the anniversary date of each grant date and a contractual life of ten years. Any unexercised stock options will expire ten years after the grant date or sooner in the event of the award recipient’s death, disability or termination of service with the Company or the Bank.
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	921,756		921,756
Employee Service Share-based Compensation, Unrecognized Compensation Costs on Nonvested Awards	539,000		539,000
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Description	The Plan authorizes the grant of restricted stock awards amounting to 914,112 shares to our directors, advisory directors, officers and employees. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the grant date. The restricted stock awards’ fair value is equal to the value on the grant date. Shares awarded as restricted stock vest ratably over a five-year period beginning at the grant date with 20% vesting on the anniversary date of each grant date.
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	914,112		914,112
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	171,078		171,078
Employee Service Share-based Compensation, Unrecognized Compensation Costs on Nonvested Awards	1,700		1,700
Stock Repurchased During Period, Shares	293,694
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Total Fair Value	$ 26,000	$ 26,000	$ 79,000	$ 79,000

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Loans Receivable: Schedule of Impaired Financing Receivables, Average Recorded Investment and Interest Income (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
One-to-four family, residential, owner occupied
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	$ 8,405	$ 6,091	$ 8,272	$ 5,948
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	63	46	112	86
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	4,251	7,058	0	7,150
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	45	60	90	136
Impaired Financing Receivable, Average Recorded Investment	12,656	13,149	12,635	13,098
Impaired Financing Receivable, Interest Income, Accrual Method	108	106	202	222
One-to-four family, residential, non-owner occupied
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	37,603	43,306	38,537	43,065
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	526	561	1,057	1,131
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	9,310	11,096	9,399	11,515
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	99	93	212	190
Impaired Financing Receivable, Average Recorded Investment	46,913	54,402	47,936	54,580
Impaired Financing Receivable, Interest Income, Accrual Method	625	654	1,269	1,321
Multifamily
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	3,366	2,833	3,395	2,727
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	49	42	91	84
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment		350		233
Impaired Financing Receivable, Average Recorded Investment	3,366	3,183	3,395	2,960
Impaired Financing Receivable, Interest Income, Accrual Method	49	42	91	84
Commercial Real Estate
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	12,597	11,461	12,666	10,053
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	23	119	180	217
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	4,012	8,450	3,280	9,128
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	69	38	139	104
Impaired Financing Receivable, Average Recorded Investment	16,609	19,911	15,946	19,181
Impaired Financing Receivable, Interest Income, Accrual Method	92	157	319	321
Construction/Land Development
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	8,861	14,145	8,974	11,618
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment		5,438		12,443
Impaired Financing Receivable, Average Recorded Investment	8,861	19,583	8,974	24,061
Consumer
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	258	130	195	102
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	1		2	1
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment		35		50
Impaired Financing Receivable, Average Recorded Investment	258	165	195	152
Impaired Financing Receivable, Interest Income, Accrual Method	1		2	1
Property, total
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	71,090	77,966	72,039	73,513
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	662	768	1,442	1,519
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	17,573	32,427	17,042	40,519
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	213	191	441	430
Impaired Financing Receivable, Average Recorded Investment	88,663	110,393	89,081	114,032
Impaired Financing Receivable, Interest Income, Accrual Method	$ 875	$ 959	$ 1,883	$ 1,949

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Earnings Per Share: Schedule of Earnings Per Share Reconciliation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net Income (Loss) Available to Common Stockholders, Basic	$ 1,371	$ 1,258	$ 1,993	$ 2,692
Weighted Average Number of Shares Outstanding, Basic	17,629,899	17,517,051	17,615,793	17,503,025
Weighted Average Number Diluted Shares Outstanding Adjustment	19,292	5,966	17,129	2,999
Weighted Average Number of Shares Outstanding, Diluted	17,649,191	17,523,017	17,632,922	17,506,024
Basic earnings (loss) per share	$ 0.08	$ 0.07	$ 0.11	$ 0.15
Diluted earnings (loss) per share	$ 0.08	$ 0.07	$ 0.11	$ 0.15

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Earnings Per Share (Details)	3 Months Ended
	Jun. 30, 2012
On June 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,313,524
On June 30, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,323,524

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Fair Value: Fair Value, by Balance Sheet Grouping (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investments available for sale, at fair value	$ 130,483	$ 129,002
Federal Home Loan Bank stock, at cost	7,413	7,413
Fair Value, Inputs, Level 1
Cash and Cash Equivalents, Fair Value Disclosure	4,670
Interest bearing deposits, Fair Value Diclosure	155,327
Federal Home Loan Bank stock, at cost	7,413
Deposits, Fair Value Disclosure	197,802
Fair Value, Inputs, Level 2
Investments available for sale, at fair value	130,483
Accrued Interest	3,665
Federal Home Loan Bank Borrowings, Fair Value Disclosure	84,401
Accrued interest payable, Fair Value Disclosure	180
Fair Value, Inputs, Level 3
Loans Receivable, Fair Value Disclosure	681,585
Certificates of deposit, Fair Value Disclosure	532,298
Carrying (Reported) Amount, Fair Value Disclosure
Cash and Cash Equivalents, Fair Value Disclosure	4,670	4,620
Interest bearing deposits, Fair Value Diclosure	155,327	160,141
Investments available for sale, at fair value	130,483	129,002
Loans Receivable, Fair Value Disclosure	649,965	703,288
Federal Home Loan Bank stock, at cost	7,413	7,413
Accrued Interest	3,665	3,856
Deposits, Fair Value Disclosure	197,802	218,621
Certificates of deposit, Fair Value Disclosure	527,061	570,044
Federal Home Loan Bank Borrowings, Fair Value Disclosure	83,066	83,066
Accrued interest payable, Fair Value Disclosure	180	184
Estimate of Fair Value, Fair Value Disclosure
Cash and Cash Equivalents, Fair Value Disclosure	4,670	4,620
Interest bearing deposits, Fair Value Diclosure	155,327	160,141
Investments available for sale, at fair value	130,483	129,002
Loans Receivable, Fair Value Disclosure	681,585	738,266
Federal Home Loan Bank stock, at cost	7,413	7,413
Accrued Interest	3,665	3,856
Deposits, Fair Value Disclosure	197,802	218,621
Certificates of deposit, Fair Value Disclosure	532,298	577,570
Federal Home Loan Bank Borrowings, Fair Value Disclosure	84,401	84,926
Accrued interest payable, Fair Value Disclosure	$ 180	$ 184

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Fair Value: Fair Value Measurement Policy (Policies)

6 Months Ended

Jun. 30, 2012

Policies

Fair Value Measurement Policy

We determined the fair values of our financial instruments based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair values. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our estimates for market assumptions.

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Investments: Investments pledged as collateral for public deposits (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Investments pledged as collateral for public deposits	$ 25.2	$ 31.8

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Fair Value: Schedule of balances of assets and liabilities, measured at fair value on a non-recurring basis (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of balances of assets and liabilities, measured at fair value on a non-recurring basis

	Fair Value Measurements at June 30, 2012
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable			Total
	Measurements			Assets (Level 1)				Inputs (Level 2)			Inputs (Level 3)		Losses
	(In thousands)
Impaired loans (included in loans
receivable, net) (1) (2)		$	84,567		$	-		$	-		$	84,567		$	821
OREO (3)			22,206			-			-			22,206			235
Total		$	106,773		$	-		$	-		$	106,773		$	1,056
__________
(1) The loss represents the specific reserve against loans that were considered impaired at June 30, 2012.
(2) There were no undisbursed funds at June 30, 2012.
(3) The loss represents OREO market value adjustments for the quarter ended June 30, 2012.

	Fair Value Measurements at December 31, 2011
				Quoted Prices in		Significant
				Active Markets		Other		Significant
		Fair Value		for Identical		Observable		Unobservable			Total
		Measurements		Assets (Level 1)		Inputs (Level 2)			Inputs (Level 3)		Losses
	(In thousands)
Impaired loans including undisbursed
but committed funds of $36 (included
in loans receivable, net) (1)		$	89,389	$	-	$	-		$	89,389		$	564
OREO (2)			26,044		-		-			26,044			1,924
Total		$	115,433	$	-	$	-		$	115,433		$	2,488
__________
(1) The loss represents the specific reserve against loans that were considered impaired at December 31, 2011.
(2) The loss represents OREO market value adjustments for the year ended December 31, 2011.

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Federal Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Deferred Tax Assets, Gross	$ 26,300
Deferred Tax Assets, Valuation Allowance	$ 22,100

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Loans Receivable: Financing Receivables, Summary of loans by type and payment activity (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Financing Receivables, Summary of loans by type and payment activity

	June 30, 2012
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (3)
	(In thousands)
Performing (1)	$	309,267	$	102,392	$	208,164	$	8,939	$	3,627	$	11,116	$	643,505
Nonperforming (2)		9,110		2,039		2,534		8,731		-		212		22,626
Total	$	318,377	$	104,431	$	210,698	$	17,670	$	3,627	$	11,328	$	666,131
(1) There were $169.3 million of owner-occupied one-to-four family residential loans and $140.0 million of non-owner occupied one-to-four family residential loans classified as performing.
(2) There were $5.3 million of owner-occupied one-to-four family residential loans and $3.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.
(3) Net of undisbursed funds.

	December 31, 2011
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (3)
	(In thousands)
Performing (1)	$	325,568	$	112,314	$	228,101	$	15,525	$	3,909	$	12,499	$	697,916
Nonperforming (2)		9,808		949		3,736		9,199		-		-		23,692
Total	$	335,376	$	113,263	$	231,837	$	24,724	$	3,909	$	12,499	$	721,608
(1) There were $183.0 million of owner-occupied one-to-four family residential loans and $142.6 million of non-owner occupied one-to-four family residential loans classified as performing.
(2) There were $5.0 million of owner-occupied one-to-four family residential loans and $4.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.
(3) Net of undisbursed funds.

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Loans Receivable: Schedule of Accounts, Notes, Loans and Financing Receivable (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Mar. 31, 2012	Dec. 31, 2011		Jun. 30, 2011		Mar. 31, 2011	Dec. 31, 2010
Loans receivable	$ 649,965			$ 703,288
Loans and Leases Receivable, Loans in Process	845			1,372
Loans and Leases Receivable, Deferred Income	1,716			1,761
Loans receivable allowance for loan losses	14,450			16,559
Loans and Leases Receivable, Net Amount	649,965			703,288
One-to-four family, residential
Loans receivable	318,377	[1]		335,412	[1]	359,810	[2]
Loans receivable allowance for loan losses	5,966		5,813	5,756		5,499		7,756	8,302
Multifamily, Permanent
Loans receivable	104,431			110,148
Multifamily, Construction
Loans receivable				3,526
Multifamily
Loans receivable	104,431			113,674		120,023	[2]
Loans receivable allowance for loan losses	2,024		2,357	950		984		1,746	1,893
Commercial Real Estate, Permanent
Loans receivable	196,346			218,032
Commercial Real Estate, Construction
Loans receivable	12,500			12,500
Commercial Real Estate, Land
Loans receivable	1,852			1,811
Commercial Real Estate
Loans receivable	210,698			232,343		243,393	[2]
Loans receivable allowance for loan losses	5,634		5,675	6,846		7,279		7,275	6,742
Construction/Land Development, One-to-four family, residential
Loans receivable	1,301	[3]		6,194	[3]
Construction/Land Development, Multifamily
Loans receivable	806	[3]		855	[3]
Construction/Land Development, Commercial
Loans receivable	680	[3]		1,104	[3]
Construction/Land Development, Land Development
Loans receivable	15,728	[3]		16,990	[3]
Construction/Land Development
Loans receivable	18,515			25,143		32,597	[2]
Loans receivable allowance for loan losses	567		724	2,503		2,893		3,067	5,151
Loans excluded from category	1,900			1,800
Business
Loans receivable	3,627			3,909		1,819	[2]
Loans receivable allowance for loan losses	35		35	154		14		13	7
Consumer
Loans receivable	11,328			12,499		13,971	[2]
Loans receivable allowance for loan losses	224		228	350		320		393	439
Property, total
Loans receivable	666,976			722,980		771,613	[2]
Loans receivable allowance for loan losses	14,450		14,832	16,559		16,989		20,250	22,534
One-to-four family, residential, non-owner occupied
Loans receivable	143,900			147,400
Rollover, Commercial
Loans receivable	12,500			12,500
Loans and Notes receivable, category as percent of total	5.90%			5.40%
Rollover, Multifamily
Loans receivable	$ 0			$ 3,500
Loans and Notes receivable, category as percent of total	0.00%			3.10%

[1] Includes $143.9 million and $147.4 million of non-owner occupied loans at June 30, 2012 and December 31, 2011, respectively.

[2] Net of undisbursed funds.

[3] Excludes construction loans that will convert to permanent loans. We consider these loans to be 'rollovers' in that one loan is originated for both the construction loan and permanent financing. These loans are classified according to the underlying collateral. As a result, at June 30, 2012, we had $12.5 million, or 5.9% of our total commercial real estate portfolio and no multifamily loans in these 'rollover' type of loans. At December 31, 2011, we had $12.5 million, or 5.4% of our total commercial real estate portfolio and $3.5 million, or 3.1% of our total multifamily loan portfolio in these 'rollover' type of loans. At June 30, 2012 and December 31, 2011, $1.9 million and $1.8 million, respectively, of commercial real estate land loans were not included in the construction/land development category because we classify our buildable lots where we do not intend to finance the construction as commercial real estate land loans.

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Fair Value: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investments, Fair Value Disclosure	$ 130,483	$ 129,002
Mortgage-backed investments, Fannie Mae
Investments, Fair Value Disclosure	41,913	52,163
Mortgage-backed investments, Freddie Mac
Investments, Fair Value Disclosure	18,190	19,845
Mortgage-backed investments, Ginnie Mae
Investments, Fair Value Disclosure	6,084	7,495
Municipal Bonds
Investments, Fair Value Disclosure	1,792	1,847
US Government-sponsored Enterprises Debt Securities
Investments, Fair Value Disclosure	62,504	47,652
Fair Value, Inputs, Level 2
Investments, Fair Value Disclosure	130,483	129,002
Fair Value, Inputs, Level 2 | Mortgage-backed investments, Fannie Mae
Investments, Fair Value Disclosure	41,913	52,163
Fair Value, Inputs, Level 2 | Mortgage-backed investments, Freddie Mac
Investments, Fair Value Disclosure	18,190	19,845
Fair Value, Inputs, Level 2 | Mortgage-backed investments, Ginnie Mae
Investments, Fair Value Disclosure	6,084	7,495
Fair Value, Inputs, Level 2 | Municipal Bonds
Investments, Fair Value Disclosure	1,792	1,847
Fair Value, Inputs, Level 2 | US Government-sponsored Enterprises Debt Securities
Investments, Fair Value Disclosure	$ 62,504	$ 47,652

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Loans Receivable: Financing Receivables, Summary of loans by type and risk category (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Financing Receivable	$ 666,131	[1],[2]	$ 721,608	[1],[3]
Pass
Financing Receivable	600,661	[1]	649,536	[1]
Special Mention
Financing Receivable	31,134	[1]	33,775	[1]
Substandard
Financing Receivable	34,336	[1]	38,297	[1]
One-to-four family, residential
Financing Receivable	318,377		335,376
One-to-four family, residential | Pass
Financing Receivable	292,513		307,807
One-to-four family, residential | Special Mention
Financing Receivable	12,409		13,193
One-to-four family, residential | Substandard
Financing Receivable	13,455		14,376
Multifamily
Financing Receivable	104,431	[1],[2]	113,263	[1],[3]
Multifamily | Pass
Financing Receivable	98,439		106,900
Multifamily | Special Mention
Financing Receivable	2,706		5,414
Multifamily | Substandard
Financing Receivable	3,286		949
Commercial Real Estate
Financing Receivable	210,698	[1],[2]	231,837	[1],[3]
Commercial Real Estate | Pass
Financing Receivable	187,329		203,997
Commercial Real Estate | Special Mention
Financing Receivable	14,940		14,256
Commercial Real Estate | Substandard
Financing Receivable	8,429		13,584
Construction/Land Development
Financing Receivable	17,670	[1],[2]	24,724	[1],[3]
Construction/Land Development | Pass
Financing Receivable	8,574		15,101
Construction/Land Development | Special Mention
Financing Receivable	365		424
Construction/Land Development | Substandard
Financing Receivable	8,731		9,199
Business
Financing Receivable	3,627	[1],[2]	3,909	[1],[3]
Business | Pass
Financing Receivable	3,627		3,909
Consumer
Financing Receivable	11,328	[1],[2]	12,499	[1],[3]
Consumer | Pass
Financing Receivable	10,179		11,822
Consumer | Special Mention
Financing Receivable	714		488
Consumer | Substandard
Financing Receivable	$ 435		$ 189

[1] Net of undisbursed funds.

[2] There were no loans 90 days or more past due and still accruing interest at June 30, 2012.

[3] There were no loans 90 days or more past due and still accruing interest at December 31, 2011.

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Investments: Available-for-sale Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale Securities, Amortized Cost Basis	$ 129,675	$ 127,701
Available-for-sale Securities, Gross Unrealized Gains	1,493	1,855
Available-for-sale Securities, Gross Unrealized Losses	(685)	(554)
Investments available for sale, at fair value	130,483	129,002
Mortgage-backed investments, Fannie Mae
Available-for-sale Securities, Amortized Cost Basis	40,956	50,981
Available-for-sale Securities, Gross Unrealized Gains	993	1,182
Available-for-sale Securities, Gross Unrealized Losses	(36)
Investments available for sale, at fair value	41,913	52,163
Mortgage-backed investments, Freddie Mac
Available-for-sale Securities, Amortized Cost Basis	17,835	19,285
Available-for-sale Securities, Gross Unrealized Gains	392	560
Available-for-sale Securities, Gross Unrealized Losses	(37)
Investments available for sale, at fair value	18,190	19,845
Mortgage-backed investments, Ginnie Mae
Available-for-sale Securities, Amortized Cost Basis	6,025	7,416
Available-for-sale Securities, Gross Unrealized Gains	59	79
Investments available for sale, at fair value	6,084	7,495
Municipal Bonds
Available-for-sale Securities, Amortized Cost Basis	2,050	2,085
Available-for-sale Securities, Gross Unrealized Gains	26	32
Available-for-sale Securities, Gross Unrealized Losses	(284)	(270)
Investments available for sale, at fair value	1,792	1,847
US Government-sponsored Enterprises Debt Securities
Available-for-sale Securities, Amortized Cost Basis	62,809	47,934
Available-for-sale Securities, Gross Unrealized Gains	23	2
Available-for-sale Securities, Gross Unrealized Losses	(328)	(284)
Investments available for sale, at fair value	$ 62,504	$ 47,652

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Description of Business

6 Months Ended

Jun. 30, 2012

Notes

Description of Business

Note 1 – Description of Business

First Financial Northwest, Inc. (“First Financial Northwest” or the “Company”), a Washington corporation, was formed on June 1, 2007 for the purpose of becoming the holding company for First Savings Bank Northwest (“First Savings Bank” or “the Bank”) in connection with the conversion from a mutual holding company structure to a stock holding company structure. First Financial Northwest’s business activities generally are limited to passive investment activities and oversight of its investment in First Savings Bank. Accordingly, the information presented in the consolidated financial statements and related data, relates primarily to First Savings Bank. First Financial Northwest is a savings and loan holding company and is subject to regulation by the Federal Reserve Board (“FRB”). First Savings Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the Washington State Department of Financial Institutions (“DFI”).

First Savings Bank is a community-based savings bank primarily serving King, and to a lesser extent, Pierce, Snohomish and Kitsap counties through our full-service banking office located in Renton, Washington. First Savings Bank’s business consists of attracting deposits from the public and utilizing these deposits to originate one-to-four family residential, multifamily, commercial real estate, business, consumer and construction/land development loans.

As used throughout this report, the terms “we”, “our”, “us”, or the “Company” refer to First Financial Northwest, Inc. and its consolidated subsidiary First Savings Bank Northwest, unless the context otherwise requires.

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Loans Receivable: Financing Receivables, Summary of loans by type and payment activity (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Financing Receivable	$ 666,131	[1],[2]	$ 721,608	[1],[3]
One-to-four family, residential
Financing Receivable	318,377		335,376
One-to-four family, residential | Performing Financing Receivable
Financing Receivable	309,267	[4]	325,568	[5]
One-to-four family, residential | Nonperforming Financing Receivable
Financing Receivable	9,110	[6]	9,808	[7]
Multifamily
Financing Receivable	104,431	[1],[2]	113,263	[1],[3]
Multifamily | Performing Financing Receivable
Financing Receivable	102,392	[4]	112,314	[5]
Multifamily | Nonperforming Financing Receivable
Financing Receivable	2,039	[6]	949	[7]
Commercial Real Estate
Financing Receivable	210,698	[1],[2]	231,837	[1],[3]
Commercial Real Estate | Performing Financing Receivable
Financing Receivable	208,164	[4]	228,101	[5]
Commercial Real Estate | Nonperforming Financing Receivable
Financing Receivable	2,534	[6]	3,736	[7]
Construction/Land Development
Financing Receivable	17,670	[1],[2]	24,724	[1],[3]
Construction/Land Development | Performing Financing Receivable
Financing Receivable	8,939	[4]	15,525	[5]
Construction/Land Development | Nonperforming Financing Receivable
Financing Receivable	8,731	[6]	9,199	[7]
Business
Financing Receivable	3,627	[1],[2]	3,909	[1],[3]
Business | Performing Financing Receivable
Financing Receivable	3,627	[4]	3,909	[5]
Consumer
Financing Receivable	11,328	[1],[2]	12,499	[1],[3]
Consumer | Performing Financing Receivable
Financing Receivable	11,116	[4]	12,499	[5]
Consumer | Nonperforming Financing Receivable
Financing Receivable	212	[6]
Property, total
Financing Receivable	666,131	[1]	721,608	[1]
Property, total | Performing Financing Receivable
Financing Receivable	643,505	[1]	697,916	[1]
Property, total | Nonperforming Financing Receivable
Financing Receivable	22,626	[1]	23,692	[1]
One-to-four family, residential, owner occupied
Financing Receivable	$ 174,499	[1],[2]	$ 187,997	[1],[3]

[1] Net of undisbursed funds.

[2] There were no loans 90 days or more past due and still accruing interest at June 30, 2012.

[3] There were no loans 90 days or more past due and still accruing interest at December 31, 2011.

[4] There were $169.3 million of owner-occupied one-to-four family residential loans and $140.0 million of non-owner occupied one-to-four family residential loans classified as performing.

[5] There were $183.0 million of owner-occupied one-to-four family residential loans and $142.6 million of non-owner occupied one-to-four family residential loans classified as performing.

[6] There were $5.3 million of owner-occupied one-to-four family residential loans and $3.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.

[7] There were $5.0 million of owner-occupied one-to-four family residential loans and $4.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.

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Fair Value: Schedule of quantitative information about Level 3 Fair Value Measurements on a nonrecurring basis (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of quantitative information about Level 3 Fair Value Measurements on a nonrecurring basis

	June 30, 2012
	Fair Value			Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
					(Dollars in thousands)
Impaired loans		$	84,567	Market approach	Adjusted for differences between comparable sales		0.0% - 51%	(1.6%)
OREO		$	22,206	Market approach	Adjusted for differences between comparable sales		0.0% - 26%	(1.4%)

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Loans Receivable: Schedule of Accounts, Notes, Loans and Financing Receivable (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Accounts, Notes, Loans and Financing Receivable

	June 30, 2012		December 31, 2011
	(In thousands)
One-to-four family residential: (1)	$	318,377	$	335,412
Multifamily:
Permanent		104,431		110,148
Construction		-		3,526
		104,431		113,674
Commercial real estate:
Permanent		196,346		218,032
Construction		12,500		12,500
Land		1,852		1,811
		210,698		232,343
Construction/land development (2):
One-to-four family residential		1,301		6,194
Multifamily		806		855
Commercial		680		1,104
Land development		15,728		16,990
		18,515		25,143
Business		3,627		3,909
Consumer		11,328		12,499
Total loans		666,976		722,980
Less:
Loans in process		845		1,372
Deferred loan fees, net		1,716		1,761
ALLL		14,450		16,559
Loans receivable, net	$	649,965	$	703,288

(1)

Includes $143.9 million and $147.4 million of non-owner occupied loans at June 30, 2012 and December 31, 2011, respectively.

(2)

Excludes construction loans that will convert to permanent loans. We consider these loans to be "rollovers" in that one loan is originated for both the construction loan and permanent financing. These loans are classified according to the underlying collateral. As a result, at June 30, 2012, we had $12.5 million, or 5.9% of our total commercial real estate portfolio and no multifamily loans in these "rollover" type of loans. At December 31, 2011, we had $12.5 million, or 5.4% of our total commercial real estate portfolio and $3.5 million, or 3.1% of our total multifamily loan portfolio in these "rollover" type of loans. At June 30, 2012 and December 31, 2011, $1.9 million and $1.8 million, respectively, of commercial real estate land loans were not included in the construction/land development category because we classify our buildable lots where we do not intend to finance the construction as commercial real estate land loans.

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Investments: Schedule of Available for sale Securities, Debt Maturities (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Available for sale Securities, Debt Maturities

	June 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due after one year through five years	$	50,053	$	49,841
Due after five years through ten years		816		829
Due after ten years		13,990		13,626
		64,859		64,296
Mortgage-backed investments		64,816		66,187
Total	$	129,675	$	130,483

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Loans Receivable: Schedule of Impaired Financing Receivables (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
One-to-four family, residential, owner occupied
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 8,131	[1]	$ 8,007	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	8,954	[2]	8,931	[2]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	4,251	[1]	4,588	[1]
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	4,413	[2]	4,724	[2]
Impaired Financing Receivable, Related Allowance	188		180
Impaired Financing Receivable, Recorded Investment	12,382	[1]	12,595	[1]
Impaired Financing Receivable, Unpaid Principal Balance	13,367	[2]	13,655	[2]
One-to-four family, residential, non-owner occupied
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	36,954	[1]	40,406	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	37,657	[2]	42,794	[2]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	9,469	[1]	9,575	[1]
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	9,659	[2]	9,735	[2]
Impaired Financing Receivable, Related Allowance	429		325
Impaired Financing Receivable, Recorded Investment	46,423	[1]	49,981	[1]
Impaired Financing Receivable, Unpaid Principal Balance	47,316	[2]	52,529	[2]
Multifamily
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	3,286	[1]	3,453	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	3,443	[2]	3,578	[2]
Impaired Financing Receivable, Recorded Investment	3,286	[1]	3,453	[1]
Impaired Financing Receivable, Unpaid Principal Balance	3,443	[2]	3,578	[2]
Commercial Real Estate
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	8,565	[1]	12,802	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	11,575	[2]	15,957	[2]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	5,719	[1]	1,817	[1]
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	5,719	[2]	1,817	[2]
Impaired Financing Receivable, Related Allowance	204		59
Impaired Financing Receivable, Recorded Investment	14,284	[1]	14,619	[1]
Impaired Financing Receivable, Unpaid Principal Balance	17,294	[2]	17,774	[2]
Construction/Land Development
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	8,731	[1]	9,199	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	14,311	[2]	22,776	[2]
Impaired Financing Receivable, Recorded Investment	8,731	[1]	9,199	[1]
Impaired Financing Receivable, Unpaid Principal Balance	14,311	[2]	22,776	[2]
Consumer
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	282	[1]	70	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	558	[2]	70	[2]
Impaired Financing Receivable, Recorded Investment	282	[1]	70	[1]
Impaired Financing Receivable, Unpaid Principal Balance	558	[2]	70	[2]
Property, total
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	65,949	[1]	73,937	[1]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	76,498	[2]	94,106	[2]
Impaired Financing Receivable, with Related Allowance, Recorded Investment	19,439	[1]	15,980	[1]
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	19,791	[2]	16,276	[2]
Impaired Financing Receivable, Related Allowance	821		564
Impaired Financing Receivable, Recorded Investment	85,388	[1]	89,917	[1]
Impaired Financing Receivable, Unpaid Principal Balance	$ 96,289	[2]	$ 110,382	[2]

[1] Represents the loan balance less charge-offs.

[2] Contractual loan principal balance.

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Fair Value: Fair Value, by Balance Sheet Grouping (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Fair Value, by Balance Sheet Grouping

	June 30, 2012
	Carrying		Estimated		Fair Value Measurements Using:
	Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	4,670	$	4,670	$	4,670	$	-	$	-
Interest-bearing deposits		155,327		155,327		155,327		-		-
Investments available-for-sale		130,483		130,483		-		130,483		-
Loans receivable, net		649,965		681,585		-		-		681,585
Federal Home Loan Bank stock		7,413		7,413		7,413		-		-
Accrued interest receivable		3,665		3,665		-		3,665		-
Financial Liabilities:
Deposits		197,802		197,802		197,802		-		-
Certificates of deposit		527,061		532,298		-		-		532,298
Advances from the FHLB		83,066		84,401		-		84,401		-
Accrued interest payable		180		180		-		180		-

	December 31, 2011
	Carrying		Estimated
	Value		Fair Value
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	4,620	$	4,620
Interest-bearing deposits		160,141		160,141
Investments available-for-sale		129,002		129,002
Loans receivable, net		703,288		738,266
Federal Home Loan Bank stock		7,413		7,413
Accrued interest receivable		3,856		3,856
Financial Liabilities:
Deposits		218,621		218,621
Certificates of deposit		570,044		577,570
Advances from the FHLB		83,066		84,926
Accrued interest payable		184		184

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Loans Receivable: Schedule of Allowance for Loan and Lease Losses, Roll Forward (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Allowance for Loan and Lease Losses, Roll Forward

	At or For the Three Months Ended June 30, 2012
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	5,813			$	2,357			$	5,675			$	724			$	35		$	228			$	14,832
Charge-offs			(619	)			(153	)			(482	)			(95	)			-			-				(1,349	)
Recoveries			12				-				301				2				-			2				317
Provision			760				(180	)			140				(64	)			-			(6	)			650
Ending balance		$	5,966			$	2,024			$	5,634			$	567			$	35		$	224			$	14,450
General reserve		$	5,349			$	2,024			$	5,430			$	567			$	35		$	224			$	13,629
Specific reserve		$	617			$	-			$	204			$	-			$	-		$	-			$	821
Loans: (1)
Total Loans		$	318,377			$	104,431			$	210,698			$	17,670			$	3,627		$	11,328			$	666,131
General reserve (2)		$	259,572			$	101,145			$	196,414			$	8,939			$	3,627		$	11,046			$	580,743
Specific reserve (3)		$	58,805			$	3,286			$	14,284			$	8,731			$	-		$	282			$	85,388
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Six Months Ended June 30, 2012
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business				Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	5,756			$	950			$	6,846			$	2,503			$	154			$	350			$	16,559
Charge-offs			(1,337	)			(153	)			(3,096	)			(169	)			-				(293	)			(5,048	)
Recoveries			12				-				472				102				-				3				589
Provision			1,535				1,227				1,412				(1,869	)			(119	)			164				2,350
Ending balance		$	5,966			$	2,024			$	5,634			$	567			$	35			$	224			$	14,450
General reserve		$	5,349			$	2,024			$	5,430			$	567			$	35			$	224			$	13,629
Specific reserve		$	617			$	-			$	204			$	-			$	-			$	-			$	821
Loans: (1)
Total Loans		$	318,377			$	104,431			$	210,698			$	17,670			$	3,627			$	11,328			$	666,131
General reserve (2)		$	259,572			$	101,145			$	196,414			$	8,939			$	3,627			$	11,046			$	580,743
Specific reserve (3)		$	58,805			$	3,286			$	14,284			$	8,731			$	-			$	282			$	85,388
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Three Months Ended June 30, 2011
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	7,756			$	1,746			$	7,275			$	3,067			$	13		$	393			$	20,250
Charge-offs			(1,031	)			(62	)			(1,514	)			(2,256	)			-			(113	)			(4,976	)
Recoveries			14				-				-				101				-			-				115
Provision			(1,240	)			(700	)			1,518				1,981				1			40				1,600
Ending balance		$	5,499			$	984			$	7,279			$	2,893			$	14		$	320			$	16,989
General reserve		$	5,097			$	984			$	7,220			$	2,893			$	14		$	320			$	16,528
Specific reserve		$	402			$	-			$	59			$	-			$	-		$	-			$	461
Loans: (1)
Total Loans		$	359,810			$	120,023			$	243,393			$	32,597			$	1,819		$	13,971			$	771,613
General reserve (2)		$	293,165			$	116,865			$	225,094			$	16,918			$	1,819		$	13,856			$	667,717
Specific reserve (3)		$	66,645			$	3,158			$	18,299			$	15,679			$	-		$	115			$	103,896
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Six Months Ended June 30, 2011
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	8,302			$	1,893			$	6,742			$	5,151			$	7		$	439			$	22,534
Charge-offs			(1,616	)			(88	)			(3,594	)			(3,182	)			-			(171	)			(8,651	)
Recoveries			19				-				-				286				-			1				306
Provision			(1,206	)			(821	)			4,131				638				7			51				2,800
Ending balance		$	5,499			$	984			$	7,279			$	2,893			$	14		$	320			$	16,989
General reserve		$	5,097			$	984			$	7,220			$	2,893			$	14		$	320			$	16,528
Specific reserve		$	402			$	-			$	59			$	-			$	-		$	-			$	461
Loans: (1)
Total Loans		$	359,810			$	120,023			$	243,393			$	32,597			$	1,819		$	13,971			$	771,613
General reserve (2)		$	293,165			$	116,865			$	225,094			$	16,918			$	1,819		$	13,856			$	667,717
Specific reserve (3)		$	66,645			$	3,158			$	18,299			$	15,679			$	-		$	115			$	103,896
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

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Loans Receivable: Schedule of Impaired Financing Receivables (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Impaired Financing Receivables

	June 30, 2012
			Unpaid
	Recorded		Principal		Related
	Investment (1)		Balance (2)		Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	8,131	$	8,954	$	-
Non-owner occupied		36,954		37,657		-
Multifamily		3,286		3,443		-
Commercial real estate		8,565		11,575		-
Construction/land development		8,731		14,311		-
Consumer		282		558		-
Total		65,949		76,498		-
Loans with an allowance:
One-to-four family residential:
Owner occupied		4,251		4,413		188
Non-owner occupied		9,469		9,659		429
Commercial real estate		5,719		5,719		204
Total		19,439		19,791		821
Total impaired loans:
One-to-four family residential:
Owner occupied		12,382		13,367		188
Non-owner occupied		46,423		47,316		429
Multifamily		3,286		3,443		-
Commercial real estate		14,284		17,294		204
Construction/land development		8,731		14,311		-
Consumer		282		558		-
Total	$	85,388	$	96,289	$	821
__________
(1)  Represents the loan balance less charge-offs.
(2)  Contractual loan principal balance.

		December 31, 2011
				Unpaid
		Recorded		Principal		Related
		Investment (1)		Balance (2)		Allowance
				(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied		$	8,007	$	8,931	$	-
Non-owner occupied			40,406		42,794		-
Multifamily			3,453		3,578		-
Commercial real estate			12,802		15,957		-
Construction/land development			9,199		22,776		-
Consumer			70		70		-
Total			73,937		94,106		-
Loans with an allowance:
One-to-four family residential:
Owner occupied			4,588		4,724		180
Non-owner occupied			9,575		9,735		325
Commercial real estate			1,817		1,817		59
Total			15,980		16,276		564
Total impaired loans:
One-to-four family residential:
Owner occupied			12,595		13,655		180
Non-owner occupied			49,981		52,529		325
Multifamily			3,453		3,578		-
Commercial real estate			14,619		17,774		59
Construction/land development			9,199		22,776		-
Consumer			70		70		-
Total		$	89,917	$	110,382	$	564
____________
(1)	Represents the loan balance less charge-offs.
(2)	Contractual loan principal balance.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities
Net income (loss)	$ 1,993	$ 2,692
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	2,350	2,800
OREO market value adjustments	545	917
Gain on sale of OREO property, net	(349)	(1,134)
Depreciation of premises and equipment	524	532
Net amortization of premiums and discounts on investments	884	1,275
ESOP expense	418	307
Compensation expense related to stock options and restricted stock awards	932	950
Net realized gain on investments available-for-sale	(288)	(1,262)
Loss from disposal of premises and equipment	6
Deferred federal income taxes	(998)	430
Changes in operating assets and liabilities:
Prepaid expenses and other assets	615	1,182
Federal income taxes receivable	(12)	(430)
Accrued interest receivable	191	554
Accrued interest payable	(4)	3
Other liabilities	(124)	(79)
Net cash provided by operating activities	6,683	8,737
Cash flows from investing activities
Proceeds from sales of investments	23,199	31,035
Capitalized improvements in OREO		(90)
Proceeds from sales of OREO properties	11,664	20,380
Principal repayments on investments	11,023	17,570
Purchases of investments	(36,792)	(25,451)
Net (increase) decrease in loans receivable	42,951	85,072
Purchases of premises and equipment	(56)	(31)
Net cash provided by investing activities	51,989	128,485
Cash flows from financing activities
Net increase (decrease) in deposits	(63,802)	(46,529)
Advances from the Federal Home Loan Bank	110
Repayment of advances from the Federal Home Loan Bank	(110)
Net increase (decrease) in advance payments from borrowers for taxes and insurance	366	(308)
Net cash used by financing activities	(63,436)	(46,837)
Net increase (decrease) in cash	(4,764)	90,385
Cash and cash equivalents:
Cash at beginning of period	164,761	98,427
Cash at end of period	159,997	188,812
Cash paid during the period for:
Interest	6,594	9,889
Federal income taxes	60
Noncash transactions:
Loans, net of deferred loan fees and allowance for loan losses, transferred to OREO	$ 8,022	$ 15,950

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Loans Receivable: Schedule of Impaired Financing Receivables, Average Recorded Investment and Interest Income (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Impaired Financing Receivables, Average Recorded Investment and Interest Income

	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	8,405	$	63	$	8,272	$	112
Non-owner occupied		37,603		526		38,537		1,057
Multifamily		3,366		49		3,395		91
Commercial real estate		12,597		23		12,666		180
Construction/land development		8,861		-		8,974		-
Consumer		258		1		195		2
Total		71,090		662		72,039		1,442
Loans with an allowance:
One-to-four family residential:
Owner occupied		4,251		45		4,363		90
Non-owner occupied		9,310		99		9,399		212
Commercial real estate		4,012		69		3,280		139
Total		17,573		213		17,042		441
Total impaired loans:
One-to-four family residential:
Owner occupied		12,656		108		12,635		202
Non-owner occupied		46,913		625		47,936		1,269
Multifamily		3,366		49		3,395		91
Commercial real estate		16,609		92		15,946		319
Construction/land development		8,861		-		8,974		-
Consumer		258		1		195		2
Total	$	88,663	$	875	$	89,081	$	1,883

	Three Months Ended June 30, 2011				Six Months Ended June 30, 2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	6,091	$	46	$	5,948	$	86
Non-owner occupied		43,306		561		43,065		1,131
Multifamily		2,833		42		2,727		84
Commercial real estate		11,461		119		10,053		217
Construction/land development		14,145		-		11,618		-
Consumer		130		-		102		1
Total		77,966		768		73,513		1,519
Loans with an allowance:
One-to-four family residential:
Owner occupied		7,058		60		7,150		136
Non-owner occupied		11,096		93		11,515		190
Multifamily		350		-		233		-
Commercial real estate		8,450		38		9,128		104
Construction/land development		5,438		-		12,443		-
Consumer		35		-		50		-
Total		32,427		191		40,519		430
Total impaired loans:
One-to-four family residential:
Owner occupied		13,149		106		13,098		222
Non-owner occupied		54,402		654		54,580		1,321
Multifamily		3,183		42		2,960		84
Commercial real estate		19,911		157		19,181		321
Construction/land development		19,583		-		24,061		-
Consumer		165		-		152		1
Total	$	110,393	$	959	$	114,032	$	1,949

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Other Real Estate Owned: Other Real Estate, Roll Forward (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Other Real Estate, Roll Forward

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands)
Beginning balance	$	22,448		$	31,266		$	26,044		$	30,102
Loans transferred to OREO		6,176			5,673			8,022			15,950
Capitalized improvements		-			2			-			90
Dispositions of OREO		(6,183	)		(10,673	)		(11,315	)		(19,246	)
Market value adjustments		(235	)		(289	)		(545	)		(917	)
Ending balance	$	22,206		$	25,979		$	22,206		$	25,979

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Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Loans Held-for-sale, Other	$ 0	$ 0	$ 0
Troubled debt restructuring, commitment to extend additional credit	0	0
Financing Receivable, Modifications, Nature and Extent of Transaction	primarily a result of granting the borrower interest rate concessions for a period of time ranging from one to three years	primarily a result of granting the borrower interest rate concessions for a period of time ranging from one to three years
Troubled debt restructuring, charge to Allowance for Loan and Lease Losses	$ 390,000	$ 644,000

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Federal Home Loan Bank Stock (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Federal Home Loan Bank stock, at cost	$ 7,413	$ 7,413
Federal Home Loan Bank Stock, Par Value	$ 100

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Assets
Cash on hand and in banks	$ 4,670		$ 4,620
Interest-bearing deposits	155,327		160,141
Investments available for sale, at fair value	130,483		129,002
Loans receivable, net of allowance	649,965		703,288
Premises and equipment, net	18,448		18,922
Federal Home Loan Bank stock, at cost	7,413		7,413
Accrued interest receivable	3,665		3,856
Federal income tax receivable	1,072		1,060
Deferred tax assets	1,000
Other real estate owned ("OREO")	22,206		26,044
Prepaid expenses and other assets	4,429		5,044
Total assets	998,678		1,059,390
Liabilities and Stockholders' Equity
Interest-bearing deposits	719,035		782,652
Noninterest-bearing deposits	5,828		6,013
Advances from the Federal Home Loan Bank	83,066		83,066
Advance payments from borrowers for taxes and insurance	2,459		2,093
Accrued interest payable	180		184
Other liabilities	3,938		4,062
Total liabilities	814,506		878,070
Stockholders' Equity
Preferred stock		[1]		[1]
Common stock	188		188
Additional paid-in capital	189,602		188,816
Retained earnings, substantially restricted	5,930		3,937
Accumulated other comprehensive income, net of tax	20		511
Unearned Employee Stock Ownership Plan ("ESOP") shares	(11,568)		(12,132)
Total stockholders' equity	184,172		181,320
Total liabilities and stockholders' equity	$ 998,678		$ 1,059,390

[1] Preferred stock, $0.01 par value; authorized 10,000,000 shares, no shares issued or outstanding.

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Stock-Based Compensation: Disclosure of Share-based Compensation Arrangements by Share-based Payment Award (Tables) (First Financial Northwest, Inc. 2008 Equity Incentive Plan)

6 Months Ended

Jun. 30, 2012

Stock Options

Tables/Schedules

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

					Weighted-Average	Aggregate		Weighted-Average
			Weighted-Average		Remaining Contractual	Intrinsic		Grant-Date
	Shares		Exercise Price		Term in Years	Value		Fair Value
Outstanding at January 1, 2012	1,373,524		$	9.52	6.60	$	94	$	1.91
Granted	-			-	-		-		-
Exercised	-			-	-				-
Forfeited or expired	(10,000	)		9.78	-				1.92
Outstanding at June 30, 2012	1,363,524			9.52	6.10		205		1.91
Expected to vest assuming a 3% forfeiture
rate over the vesting term	532,922			9.41	6.13		119
Exercisable at June 30, 2012	814,114			9.59	6.08		82

Restricted Stock

Tables/Schedules

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2012		310,494		$	9.66
Granted		-			-
Vested		(12,800	)		6.19
Forfeited		(4,000	)		10.35
Nonvested at June 30, 2012		293,694			9.80
Expected to vest assuming a 3% forfeiture
rate over the vesting term		284,882

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified		Common Stock	Additional Paid-in Capital	Retained Earnings (Accumulated Deficit)	Accumulated Other Comprehensive Income, net of tax	Unearned ESOP Shares	Total Stockholders' Equity
Balances at beginning of period - amount at Dec. 31, 2010
Comprehensive income (loss):
Allocation of ESOP shares - amount	[1]
Balances at end of period - amount at Dec. 31, 2011		188	188,816	3,937	511	(12,132)	181,320
Balances at end of period - shares at Dec. 31, 2011		18,805,168
Comprehensive income (loss):
Net income (loss)				1,993			1,993
Change in fair value of investments available for sale, net					(491)		(491)
Total comprehensive income (loss)							1,502
Compensation related to stock options and restricted stock awards			932				932
Allocation of ESOP shares - amount			(146)			564	418	[2]
Balances at end of period - amount at Jun. 30, 2012		$ 188	$ 189,602	$ 5,930	$ 20	$ (11,568)	$ 184,172
Balances at end of period - shares at Jun. 30, 2012		18,805,168

[1] Allocation of 112,853 ESOP shares.

[2] Allocation of 56,426 ESOP shares.

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Loans Receivable: Schedule of non-accrual loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Nonaccrual Loans, total	$ 22,626	[1]	$ 23,692	[1]
One-to-four family, residential
Nonaccrual Loans, total	9,110		9,808
Multifamily
Nonaccrual Loans, total	2,039		949
Commercial Real Estate
Nonaccrual Loans, total	2,534		3,736
Construction/Land Development
Nonaccrual Loans, total	8,731		9,199
Consumer
Nonaccrual Loans, total	$ 212

[1] There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

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Loans Receivable: Financing Receivables, Aging of loans (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Financing Receivables, Aging of loans

	Loans Past Due at June 30, 2012
					90 Days						Total Loans
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
	(In thousands)
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
Real estate:
One-to-four family residential:
Owner occupied	$	1,973	$	1,539	$	4,253	$	7,765	$	166,734	$	174,499
Non-owner occupied		-		-		2,064		2,064		141,814		143,878
Multifamily		-		-		-		-		104,431		104,431
Commercial real estate		129		-		2,163		2,292		208,406		210,698
Construction/land development		-		-		4,731		4,731		12,939		17,670
Total real estate		2,102		1,539		13,211		16,852		634,324		651,176
Business		-		-		-		-		3,627		3,627
Consumer		69		714		212		995		10,333		11,328
Total	$	2,171	$	2,253	$	13,423	$	17,847	$	648,284	$	666,131
(1) There were no loans 90 days or more past due and still accruing interest at June 30, 2012.
(2) Net of undisbursed funds.

	Loans Past Due at December 31, 2011
					90 Days						Total Loans
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
	(In thousands)
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
Real estate:
One-to-four family residential:
Owner occupied	$	2,594	$	1,318	$	4,076	$	7,988	$	180,009	$	187,997
Non-owner occupied		761		-		3,224		3,985		143,394		147,379
Multifamily		-		-		949		949		112,314		113,263
Commercial real estate		633		-		2,621		3,254		228,583		231,837
Construction/land development		-		-		9,199		9,199		15,525		24,724
Total real estate		3,988		1,318		20,069		25,375		679,825		705,200
Business		240		-		-		240		3,669		3,909
Consumer		1,133		-		-		1,133		11,366		12,499
Total	$	5,361	$	1,318	$	20,069	$	26,748	$	694,860	$	721,608
(1) There were no loans 90 days or more past due and still accruing interest at December 31, 2011.
(2) Net of undisbursed funds.

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Other Real Estate Owned: Other Real Estate, Roll Forward (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011	Jun. 30, 2012		Jun. 30, 2011
Other Real Estate, Beginning Balance	$ 22,448		$ 31,266	$ 26,044	[1],[2]	$ 30,102
Other Real Estate, Additions	6,176		5,673	8,022		15,950
Other Real Estate, Improvements			2			90
Other Real Estate, Disposals	(6,183)		(10,673)	(11,315)		(19,246)
Other Real Estate, Valuation Adjustments	(235)		(289)	(545)		(917)
Other Real Estate, Ending Balance	$ 22,206	[1],[3]	$ 25,979	$ 22,206	[1],[3]	$ 25,979

[1] There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

[2] he loss represents OREO market value adjustments for the year ended December 31, 2011.

[3] The loss represents OREO market value adjustments for the quarter ended June 30, 2012

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Proxy Contest and Related Litigation

6 Months Ended

Jun. 30, 2012

Notes

Proxy Contest and Related Litigation

Note 14 - Proxy Contest and Related Litigation

On March 29, 2012, Stilwell Value Partners II, L.P., one of a group of funds controlled by Joseph Stilwell (the “Stilwell Group”), submitted to First Financial Northwest a notice of the Stilwell Group's intent to nominate Joseph Stilwell and Spencer L. Schneider for election to the Company’s Board of Directors at the Company’s May 24, 2012 Annual Meeting of Shareholders (“Annual Meeting”). The Federal Reserve Bank of San Francisco subsequently advised the Stilwell Group that the solicitation of proxies to elect two directors to the Company’s Board of Directors, along with other actions the Stilwell Group had taken in connection with the proxy contest, could result in a controlling interest that would not be permitted under federal law. As a result, the Stilwell Group determined to nominate only Mr. Schneider for election to the Company’s Board of Directors at the Annual Meeting.

Following the Annual Meeting, the independent inspector of election, Raymond Riley of Carl T. Hagberg and Associates (“Inspector of Election”), issued his Final Report which stated that (1) a quorum was present for the transaction of business at the Annual Meeting; and (2) the opposition proxy holders did not submit an executed master ballot for the Stilwell Group’s nominee prior to the closing of the polls. Thus, the Company’s nominees, Victor Karpiak, M. Scott Gaspard and Daniel L. Stevens, were each duly elected to serve for a three year term; the Stilwell Group’s nominee did not receive the votes required for election to the Company’s Board of Directors.

On June 7, 2012, the Stilwell Group filed a lawsuit in the Superior Court of the State of Washington for King County against First Financial Northwest, Raymond Riley (the independent Inspector of Election) and Victor Karpiak, seeking to overturn the outcome of the election of directors at the Annual Meeting. The Stilwell Group's complaint alleges, among other things, that (i) proxy cards and proxy reporting service tabulations showed that the Stilwell Group’s nominee, Spencer L. Schneider, received more shareholder support than Mr. Karpiak; (ii) the Inspector of Election should have determined the outcome of the election based on proxy cards and proxy reporting service tabulations alone and that submission of a master ballot by the opposition proxy holders was unnecessary; (iii) alternatively, the opposition group's master ballot should have been accepted late—after the polls had been declared closed; and (iv) if the absence of a timely master ballot means shareholders that returned proxies to the Stilwell Group did not vote, then those shareholders were not present for quorum purposes either, and the election was invalid for lack of a quorum. The Company denies all of the Stilwell Group's allegations. A trial is scheduled for January 2013.

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Loans Receivable: Financing Receivables, Summary of loans by type and risk category (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Financing Receivables, Summary of loans by type and risk category

	June 30, 2012
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (1)
	(In thousands)
Risk Rating:
Pass	$	292,513	$	98,439	$	187,329	$	8,574	$	3,627	$	10,179	$	600,661
Special mention		12,409		2,706		14,940		365		-		714		31,134
Substandard		13,455		3,286		8,429		8,731		-		435		34,336
Total	$	318,377	$	104,431	$	210,698	$	17,670	$	3,627	$	11,328	$	666,131
(1) Net of undisbursed funds.

	December 31, 2011
		One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (1)
	(In thousands)
Risk Rating:
Pass	$	307,807	$	106,900	$	203,997	$	15,101	$	3,909	$	11,822	$	649,536
Special mention		13,193		5,414		14,256		424		-		488		33,775
Substandard		14,376		949		13,584		9,199		-		189		38,297
Total	$	335,376	$	113,263	$	231,837	$	24,724	$	3,909	$	12,499	$	721,608
(1) Net of undisbursed funds.

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Loans Receivable: Impaired Financing Receivable, Policy (Policies)

6 Months Ended

Jun. 30, 2012

Policies

Impaired Financing Receivable, Policy

A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the loan. When identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case-by-case basis, after taking into consideration the circumstances surrounding the loan and the borrower, including payment history and the amounts of any payment shortfall, length and reason for delay and the likelihood of a return to stable performance. Impairment is measured on a loan-by-loan basis for all loans in the portfolio.

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Fair Value: Schedule of balances of assets and liabilities, measured at fair value on a non-recurring basis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Mar. 31, 2012	Dec. 31, 2011		Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Loans and Leases Receivable, Impaired	$ 84,567	[1],[2]		$ 89,389	[3]
Impaired Loans including undisbursed but committed funds	821	[1],[2]		564	[3]
Other Real Estate	22,206	[4],[5]	22,448	26,044	[4],[6]	25,979	31,266	30,102
OREO	235	[5]		1,924	[6]
Impaired Loans Receivable and other real estate owned, Fair Value Measurement	106,773			115,433
Accrued losses on Impaired Loans and Other Real Estate Owned	1,056			2,488
Fair Value, Inputs, Level 3
Loans and Leases Receivable, Impaired	84,567	[1],[2]		89,389	[3]
Other Real Estate	22,206	[5]		26,044	[6]
Impaired Loans Receivable and other real estate owned, Fair Value Measurement	$ 106,773			$ 115,433

[1] The loss represents the specific reserve against loans that were considered impaired at June 30, 2012.

[2] There were no undisbursed funds at June 30, 2012.

[3] The loss represents the specific reserve against loans that were considered impaired at December 31, 2011.

[4] There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

[5] The loss represents OREO market value adjustments for the quarter ended June 30, 2012

[6] he loss represents OREO market value adjustments for the year ended December 31, 2011.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Parenthetical)	Mar. 31, 2012
Allocation of ESOP shares - number of shares	28,213

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Loans receivable allowance for loan losses	$ 14,450	$ 16,559
Stockholders' Equity
Preferred stock par value per share	$ 0.01	$ 0.01
Preferred stock shares authorized	10,000,000	10,000,000
Common stock par value per share	$ 0.01	$ 0.01
Common stock shares authorized	90,000,000	90,000,000
Common stock shares issued	18,805,168	18,805,168
Common stock shares outstanding	18,805,168	18,805,168

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Federal Home Loan Bank Stock

6 Months Ended

Jun. 30, 2012

Notes

Federal Home Loan Bank Stock

Note 9 – Federal Home Loan Bank Stock

At June 30, 2012, we held $7.4 million of FHLB stock. FHLB stock is carried at par ($100 per share) and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions, and can only be purchased and redeemed at par. As a result of ongoing turmoil in the capital and mortgage markets, the FHLB has a risk-based capital deficiency largely as a result of write-downs on its private label mortgage-backed securities portfolio.

Management evaluates FHLB stock for impairment. The determination of whether this investment is impaired is based on our assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as: (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB and (4) the liquidity position of the FHLB.

On October 25, 2010, the FHLB agreed to the stipulation and issuance of a Consent Order by its primary regulator, the Federal Housing Finance Agency (“FHFA”). The Consent Order sets forth requirements for capital management, asset composition, and other operational and risk management improvements. In addition, the FHLB may not repurchase member stock or pay dividends, until they achieve and maintain financial thresholds established by the FHFA as part of the agency’s supervisory process, subject to FHFA approval. These restrictions are not expected to have a material effect on our financial position, liquidity or results of operation. We have determined there is no OTTI on the FHLB stock investment as of June 30, 2012.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012
Document and Entity Information
Entity Registrant Name	First Financial Northwest, Inc.
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Entity Central Index Key	0001401564
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding	18,805,168
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Notes

Stock-Based Compensation

Note 10 - Stock-Based Compensation

In June 2008, our shareholders approved the First Financial Northwest, Inc. 2008 Equity Incentive Plan (“Plan”). The Plan provides for the grant of stock options, restricted stock and stock appreciation rights.

Total compensation expense for the Plan was $454,000 and $476,000 for the three months ended June 30, 2012 and 2011, respectively, and the related income tax benefit was $159,000 and $167,000 for the three months ended June 30, 2012 and 2011, respectively.

Total compensation expense for the Plan was $932,000 and $950,000 for the six months ended June 30, 2012 and 2011, respectively, and the related income tax benefit was $326,000 and $332,000 for the six months ended June 30, 2012 and 2011, respectively.

Stock Options

The Plan authorizes the grant of stock options totaling 2,285,280 shares to our directors, advisory directors, officers and employees. Option awards are granted with an exercise price equal to the market price of our common stock at the grant date. These option awards have a vesting period of five years, with 20% vesting on the anniversary date of each grant date and a contractual life of ten years. Any unexercised stock options will expire ten years after the grant date or sooner in the event of the award recipient’s death, disability or termination of service with the Company or the Bank. We have a policy of issuing new shares from authorized but unissued common stock upon the exercise of stock options. At June 30, 2012, remaining options for 921,756 shares of common stock were available for grant under the Plan.

The fair value of each option award is estimated on the grant date using a Black-Scholes model that uses the following assumptions. The dividend yield is based on the current quarterly dividend in effect at the time of the grant. Historical employment data is used to estimate the forfeiture rate. The historical volatility of our stock price over a specified period of time is used for the expected volatility assumption. We base the risk-free interest rate on the U.S. Treasury Constant Maturity Indices in effect on the date of the grant. We elected to use the “Share-Based Payments” method permitted by the SEC to calculate the expected term. This method uses the vesting term of an option along with the contractual term, setting the expected life at the midpoint. There were no options granted during the three and six months ended June 30, 2012.

The following is a summary of our stock option plan awards for the six months ended June 30, 2012:

					Weighted-Average	Aggregate		Weighted-Average
			Weighted-Average		Remaining Contractual	Intrinsic		Grant-Date
	Shares		Exercise Price		Term in Years	Value		Fair Value
Outstanding at January 1, 2012	1,373,524		$	9.52	6.60	$	94	$	1.91
Granted	-			-	-		-		-
Exercised	-			-	-				-
Forfeited or expired	(10,000	)		9.78	-				1.92
Outstanding at June 30, 2012	1,363,524			9.52	6.10		205		1.91
Expected to vest assuming a 3% forfeiture
rate over the vesting term	532,922			9.41	6.13		119
Exercisable at June 30, 2012	814,114			9.59	6.08		82

As of June 30, 2012, there was $539,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.1 years.

Restricted Stock Awards

The Plan authorizes the grant of restricted stock awards amounting to 914,112 shares to our directors, advisory directors, officers and employees. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the grant date. The restricted stock awards’ fair value is equal to the value on the grant date. Shares awarded as restricted stock vest ratably over a five-year period beginning at the grant date with 20% vesting on the anniversary date of each grant date. At June 30, 2012, remaining restricted awards for 171,078 shares were available to be granted. Shares that have been repurchased totaled 293,694 and are held in trust until they are issued in connection with the agreement.

The following is a summary of changes in nonvested restricted stock awards for the six months ended June 30, 2012:

				Weighted-Average
				Grant-Date
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2012		310,494		$	9.66
Granted		-			-
Vested		(12,800	)		6.19
Forfeited		(4,000	)		10.35
Nonvested at June 30, 2012		293,694			9.80
Expected to vest assuming a 3% forfeiture
rate over the vesting term		284,882

As of June 30, 2012, there was $1.7 million of total unrecognized compensation costs related to nonvested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of 1.3 years. The total fair value of shares that vested during both the quarters ended June 30, 2012 and 2011 were $26,000. The total fair value of shares that vested during both the six months ended June 30, 2012 and 2011 were $79,000.

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest income
Loans, including fees	$ 9,802	$ 11,891	$ 20,274	$ 24,319
Investments available for sale	500	1,262	1,093	2,467
Interest-bearing deposits	155,327	170	155,327	170
Total interest income	10,399	13,247	21,561	26,956
Interest expense
Deposits	2,627	4,220	5,568	8,733
Federal Home Loan Bank advances	511	583	1,022	1,159
Total interest expense	3,138	4,803	6,590	9,892
Net interest income	7,261	8,444	14,971	17,064
Provision for loan losses	650	1,600	2,350	2,800
Net interest income (loss) after provision for loan losses	6,611	6,844	12,621	14,264
Noninterest income
Net gain on sale of investments	94	751	288	1,262
Other noninterest income	236	75	323	160
Total noninterest income	330	826	611	1,422
Noninterest expense
Compensation and employee benefits	3,451	3,214	6,878	6,503
Occupancy and equipment	395	395	800	797
Professional fees	468	502	941	982
Data processing	185	183	366	392
Gain on sale of OREO property, net	(128)	(508)	(349)	(1,134)
OREO market value adjustments	235	289	545	917
OREO related expenses, net	446	986	935	1,836
Regulatory assessments	314	612	411	1,322
Insurance and bond premiums	100	248	200	495
Proxy contest and related litigation	604		604
Marketing	61	50	113	111
Other general and administrative	438	441	746	773
Total noninterest expense	6,569	6,412	12,190	12,994
Income (loss) before federal income tax benefit	372	1,258	1,042	2,692
Provision (benefit) for federal income taxes	(999)		(951)
Net Income (loss)	$ 1,371	$ 1,258	$ 1,993	$ 2,692
Basic earnings (loss) per share	$ 0.08	$ 0.07	$ 0.11	$ 0.15
Diluted earnings (loss) per share	$ 0.08	$ 0.07	$ 0.11	$ 0.15

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Recently Issued Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Notes

Recently Issued Accounting Pronouncements

Note 4 – Recently Issued Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements. The update amends existing guidance to remove from the assessment of effective control, the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and, as well, the collateral maintenance implementation guidance related to that criterion. The provisions of ASU No. 2011-03 were effective for the Company’s reporting period beginning on or after December 15, 2011. The guidance applied prospectively to transactions or modifications of existing transactions that occurred on or after the effective date and early adoption was not permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (International Financial Reporting Standards). The update amends existing guidance regarding the highest and best use and valuation premise by clarifying these concepts are only applicable to measuring the fair value of nonfinancial assets. The Update also clarifies that the fair value measurement of financial assets and financial liabilities which have offsetting market risks or counterparty credit risks that are managed on a portfolio basis, when several criteria are met, can be measured at the net risk position. Additional disclosures about Level 3 fair value measurements are required including a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and discussion of the sensitivity of fair value changes in unobservable inputs and interrelationships about those inputs as well as disclosure of the level of the fair value of items that are not measured at fair value in the financial statements but disclosure of fair value is required. The provisions of ASU No. 2011-04 were effective for the Company’s reporting period beginning after December 15, 2011 and were applied prospectively. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The update amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) related to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU No. 2011-05 were effective for the Company’s reporting periods beginning after December 15, 2011 and were applied retrospectively. Early adoption was permitted and there were no required transition disclosures. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update requires an entity to offset, and present as a single net amount, a recognized eligible asset and a recognized eligible liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realize the asset and settle the liability simultaneously. The ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The amendments are effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05 (“ASU 2011-12”). This ASU defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. ASU 2011-12 was issued in order to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, the Company will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the issuance of ASU 2011-05. ASU 2011-12 was effective for the Company’s financial statements for annual and interim periods beginning after December 31, 2011, and was applied prospectively. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-2, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-2”). This ASU states that an entity has the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount, in accordance with Codification Subtopic 350-30, Intangibles—Goodwill and Other, General Intangibles Other than Goodwill. Under guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company’s consolidated financial statements.

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Notes

Basis of Presentation

Note 3 – Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements in accordance with GAAP have been included. All significant intercompany balances and transactions between the Company and its subsidiaries have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. In preparing the unaudited consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the ALLL, the valuation of other real estate owned (“OREO”) and the underlying collateral of loans in the process of foreclosure, deferred tax assets and the fair value of financial instruments.

Certain amounts in the unaudited consolidated financial statements for prior periods have been reclassified to conform to the current unaudited financial statement presentation.

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Loans Receivable: Loans and Leases Receivable, Nonaccrual Loan and Lease Status, Policy (Policies)

6 Months Ended

Jun. 30, 2012

Policies

Loans and Leases Receivable, Nonaccrual Loan and Lease Status, Policy

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when they are 90 days delinquent or when, in management’s opinion, the borrower is unable to meet scheduled payment obligations.

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Federal Income Taxes

6 Months Ended

Jun. 30, 2012

Notes

Federal Income Taxes

Note 11 – Federal Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

Our primary deferred tax assets relate to our ALLL, our contribution to the First Financial Northwest Foundation, our net operating loss carryforward and an impairment charge relating to a past investment in the AMF Ultra Short Mortgage Fund.

Under GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a portion of the deferred tax asset will not be realized. Our policy is to evaluate our deferred tax assets on a quarterly basis and record a valuation allowance for our deferred tax asset if we do not have sufficient positive evidence indicating that it is more likely than not that some or all of the deferred tax asset will be realized. Each quarter, we considered positive and negative evidence, which includes cumulative losses in the most recent three year period and uncertainty regarding short-term future earnings. We further considered that GAAP places heavy emphasis on prior earnings in determining the realizable deferred tax asset. After reviewing and weighing these various factors, in 2010 we recorded a valuation allowance for the balance of the deferred tax asset in excess of the tax carryback refund potential.

As of June 30, 2012, the consolidated balance sheet includes gross deferred tax assets of $26.3 million and a deferred tax asset valuation allowance of $22.1 million. Management has determined that a $1.0 million second quarter partial release, related to future deductible temporary differences is appropriate based upon future expected operating income and has adjusted the valuation account at June 30, 2012 accordingly. Deferred tax assets that will most likely not be recognized total $5.3 million and relate to the contribution carryforward and the AMF capital loss carryforward. The remaining $16.8 million of tax assets may be recognized in the future if the Company remains profitable.

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Other Real Estate Owned

6 Months Ended

Jun. 30, 2012

Notes

Other Real Estate Owned

Note 7 – Other Real Estate Owned

The following table is a summary of OREO:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands)
Beginning balance	$	22,448		$	31,266		$	26,044		$	30,102
Loans transferred to OREO		6,176			5,673			8,022			15,950
Capitalized improvements		-			2			-			90
Dispositions of OREO		(6,183	)		(10,673	)		(11,315	)		(19,246	)
Market value adjustments		(235	)		(289	)		(545	)		(917	)
Ending balance	$	22,206		$	25,979		$	22,206		$	25,979

OREO includes properties acquired by the Bank through foreclosure or deed in lieu of foreclosure. OREO at June 30, 2012 consisted of $4.2 million in one-to-four family residential homes, $560,000 in multifamily properties, $4.6 million in construction/land development projects and $12.8 million in commercial real estate properties.

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Loans Receivable: Financing Receivables, Aging of loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	$ 2,171		$ 5,361
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	2,253		1,318
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	13,423		20,069
Financing Receivable, Recorded Investment, Past Due	17,847		26,748
Financing Receivable, Recorded Investment, Current	648,284		694,860
Financing Receivable	666,131	[1],[2]	721,608	[1],[3]
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0		0
One-to-four family, residential, owner occupied
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	1,973		2,594
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	1,539		1,318
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	4,253		4,076
Financing Receivable, Recorded Investment, Past Due	7,765		7,988
Financing Receivable, Recorded Investment, Current	166,734		180,009
Financing Receivable	174,499	[1],[2]	187,997	[1],[3]
One-to-four family, residential, non-owner occupied
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due			761
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	2,064		3,224
Financing Receivable, Recorded Investment, Past Due	2,064		3,985
Financing Receivable, Recorded Investment, Current	141,814		143,394
Financing Receivable	143,878	[1],[2]	147,379	[1],[3]
Multifamily
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due			949
Financing Receivable, Recorded Investment, Past Due			949
Financing Receivable, Recorded Investment, Current	104,431		112,314
Financing Receivable	104,431	[1],[2]	113,263	[1],[3]
Commercial Real Estate
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	129		633
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	2,163		2,621
Financing Receivable, Recorded Investment, Past Due	2,292		3,254
Financing Receivable, Recorded Investment, Current	208,406		228,583
Financing Receivable	210,698	[1],[2]	231,837	[1],[3]
Construction/Land Development
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	4,731		9,199
Financing Receivable, Recorded Investment, Past Due	4,731		9,199
Financing Receivable, Recorded Investment, Current	12,939		15,525
Financing Receivable	17,670	[1],[2]	24,724	[1],[3]
Real Estate, Total
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	2,102		3,988
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	1,539		1,318
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	13,211		20,069
Financing Receivable, Recorded Investment, Past Due	16,852		25,375
Financing Receivable, Recorded Investment, Current	634,324		679,825
Financing Receivable	651,176	[1],[2]	705,200	[1],[3]
Business
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due			240
Financing Receivable, Recorded Investment, Past Due			240
Financing Receivable, Recorded Investment, Current	3,627		3,669
Financing Receivable	3,627	[1],[2]	3,909	[1],[3]
Consumer
Financing Receivable, Recorded Investment, 30 to 59 Days Past Due	69		1,133
Financing Receivable, Recorded Investment, 60 to 89 Days Past Due	714
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due	212
Financing Receivable, Recorded Investment, Past Due	995		1,133
Financing Receivable, Recorded Investment, Current	10,333		11,366
Financing Receivable	$ 11,328	[1],[2]	$ 12,499	[1],[3]

[1] Net of undisbursed funds.

[2] There were no loans 90 days or more past due and still accruing interest at June 30, 2012.

[3] There were no loans 90 days or more past due and still accruing interest at December 31, 2011.

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Investments

6 Months Ended

Jun. 30, 2012

Notes

Investments

Note 5 – Investments

Investment securities available-for-sale are summarized as follows:

	June 30, 2012
				Gross			Gross
	Amortized			Unrealized			Unrealized
	Cost			Gains			Losses				Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	40,956		$	993		$	(36	)		$	41,913
Freddie Mac			17,835			392			(37	)			18,190
Ginnie Mae			6,025			59			-				6,084
Municipal bonds			2,050			26			(284	)			1,792
U.S. Government sponsored entities and agencies			62,809			23			(328	)			62,504
Total		$	129,675		$	1,493		$	(685	)		$	130,483

	December 31, 2011
				Gross			Gross
	Amortized			Unrealized			Unrealized
	Cost			Gains			Losses				Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	50,981		$	1,182		$	-			$	52,163
Freddie Mac			19,285			560			-				19,845
Ginnie Mae			7,416			79			-				7,495
Municipal bonds			2,085			32			(270	)			1,847
U.S. Government sponsored entities and agencies			47,934			2			(284	)			47,652
Total		$	127,701		$	1,855		$	(554	)		$	129,002

The following table summarizes the aggregate fair value and gross unrealized loss by length of time those investments have been continuously in an unrealized loss position:

	June 30, 2012
	Less Than 12 Months							12 Months or Longer							Total
				Unrealized							Unrealized							Unrealized
	Fair Value			Loss				Fair Value			Loss				Fair Value			Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	9,987		$	(36	)		$	-		$	-			$	9,987		$	(36	)
Freddie Mac			3,153			(37	)			-			-				3,153			(37	)
Municipal bonds			-			-				1,122			(284	)			1,122			(284	)
U.S Government sponsored
entities and agencies			50,371			(328	)			-			-				50,371			(328	)
Total		$	63,511		$	(401	)		$	1,122		$	(284	)		$	64,633		$	(685	)

	December 31, 2011
	Less Than 12 Months								12 Months or Longer						Total
				Unrealized							Unrealized							Unrealized
	Fair Value			Loss				Fair Value			Loss				Fair Value			Loss
	(In thousands)
Municipal bonds		$	-		$	-			$	1,137		$	(270	)		$	1,137		$	(270	)
U.S. Government sponsored
entities and agencies			45,039			(284	)			-			-				45,039			(284	)
Total		$	45,039		$	(284	)		$	1,137		$	(270	)		$	46,176		$	(554	)

At June 30, 2012, we had one security with a gross unrealized loss totaling $284,000 with a fair value totaling $1.1 million that had an unrealized loss for greater than one year. At December 31, 2011, this same security had a gross unrealized loss totaling $270,000 with a fair value totaling $1.1 million that had an unrealized loss for greater than one year. We reviewed the financial condition of the entity underlying this security at both June 30, 2012 and December 31, 2011, and determined an other-than-temporary impairment (“OTTI”) was not warranted.

On a quarterly basis, management makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. We consider many factors including the severity and duration of the impairment, recent events specific to the issuer or industry, and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be an OTTI are written down to fair value. For equity securities, the write-down is recorded as a realized loss in noninterest income on our Consolidated Income Statements. For debt securities, if we intend to sell the security or it is likely that we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is not likely that we will be required to sell the security but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to other comprehensive income (“OCI”). Impairment losses related to all other factors are presented as separate categories within OCI. For the three and six months ended June 30, 2012 and 2011, we did not have any OTTI losses on investments.

The amortized cost and estimated fair value of investments available-for-sale at June 30, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Investments not due at a single maturity date, primarily mortgage-backed investments, are shown separately.

	June 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Due after one year through five years	$	50,053	$	49,841
Due after five years through ten years		816		829
Due after ten years		13,990		13,626
		64,859		64,296
Mortgage-backed investments		64,816		66,187
Total	$	129,675	$	130,483

Under Washington state law, in order to participate in the public funds program we are required to pledge as collateral an amount equal to 100% of the public deposits we hold in the form of eligible securities. Investments with a market value of $25.2 million and $31.8 million were pledged as collateral for public deposits at June 30, 2012 and December 31, 2011, respectively, both of which exceeded collateral requirements established by the Washington Public Deposit Protection Commission.

We sold $12.1 million and $20.6 million of investments during the three months ended June 30, 2012 and 2011, respectively, resulting in gross gains of $100,000 and $751,000, respectively. For the six months ended June 30, 2012 and 2011, we sold $22.9 million and $29.8 million of investments, respectively, resulting in gross gains of $294,000 and $1.3 million, respectively.

For both the three and six months ended June 30, 2012, there were $6,000 of gross losses on sales of securities and no gross losses for the same periods in 2011.

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Loans Receivable

6 Months Ended

Jun. 30, 2012

Notes

Loans Receivable

Note 6 - Loans Receivable

Loans receivable are summarized as follows:

	June 30, 2012		December 31, 2011
	(In thousands)
One-to-four family residential: (1)	$	318,377	$	335,412
Multifamily:
Permanent		104,431		110,148
Construction		-		3,526
		104,431		113,674
Commercial real estate:
Permanent		196,346		218,032
Construction		12,500		12,500
Land		1,852		1,811
		210,698		232,343
Construction/land development (2):
One-to-four family residential		1,301		6,194
Multifamily		806		855
Commercial		680		1,104
Land development		15,728		16,990
		18,515		25,143
Business		3,627		3,909
Consumer		11,328		12,499
Total loans		666,976		722,980
Less:
Loans in process		845		1,372
Deferred loan fees, net		1,716		1,761
ALLL		14,450		16,559
Loans receivable, net	$	649,965	$	703,288

(1)

Includes $143.9 million and $147.4 million of non-owner occupied loans at June 30, 2012 and December 31, 2011, respectively.

(2)

Excludes construction loans that will convert to permanent loans. We consider these loans to be "rollovers" in that one loan is originated for both the construction loan and permanent financing. These loans are classified according to the underlying collateral. As a result, at June 30, 2012, we had $12.5 million, or 5.9% of our total commercial real estate portfolio and no multifamily loans in these "rollover" type of loans. At December 31, 2011, we had $12.5 million, or 5.4% of our total commercial real estate portfolio and $3.5 million, or 3.1% of our total multifamily loan portfolio in these "rollover" type of loans. At June 30, 2012 and December 31, 2011, $1.9 million and $1.8 million, respectively, of commercial real estate land loans were not included in the construction/land development category because we classify our buildable lots where we do not intend to finance the construction as commercial real estate land loans.

At June 30, 2012 and December 31, 2011, there were no loans classified as held for sale.

 The following tables represent a summary of our ALLL and loan portfolio by loan type and impairment method:

	At or For the Three Months Ended June 30, 2012
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	5,813			$	2,357			$	5,675			$	724			$	35		$	228			$	14,832
Charge-offs			(619	)			(153	)			(482	)			(95	)			-			-				(1,349	)
Recoveries			12				-				301				2				-			2				317
Provision			760				(180	)			140				(64	)			-			(6	)			650
Ending balance		$	5,966			$	2,024			$	5,634			$	567			$	35		$	224			$	14,450
General reserve		$	5,349			$	2,024			$	5,430			$	567			$	35		$	224			$	13,629
Specific reserve		$	617			$	-			$	204			$	-			$	-		$	-			$	821
Loans: (1)
Total Loans		$	318,377			$	104,431			$	210,698			$	17,670			$	3,627		$	11,328			$	666,131
General reserve (2)		$	259,572			$	101,145			$	196,414			$	8,939			$	3,627		$	11,046			$	580,743
Specific reserve (3)		$	58,805			$	3,286			$	14,284			$	8,731			$	-		$	282			$	85,388
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Six Months Ended June 30, 2012
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business				Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	5,756			$	950			$	6,846			$	2,503			$	154			$	350			$	16,559
Charge-offs			(1,337	)			(153	)			(3,096	)			(169	)			-				(293	)			(5,048	)
Recoveries			12				-				472				102				-				3				589
Provision			1,535				1,227				1,412				(1,869	)			(119	)			164				2,350
Ending balance		$	5,966			$	2,024			$	5,634			$	567			$	35			$	224			$	14,450
General reserve		$	5,349			$	2,024			$	5,430			$	567			$	35			$	224			$	13,629
Specific reserve		$	617			$	-			$	204			$	-			$	-			$	-			$	821
Loans: (1)
Total Loans		$	318,377			$	104,431			$	210,698			$	17,670			$	3,627			$	11,328			$	666,131
General reserve (2)		$	259,572			$	101,145			$	196,414			$	8,939			$	3,627			$	11,046			$	580,743
Specific reserve (3)		$	58,805			$	3,286			$	14,284			$	8,731			$	-			$	282			$	85,388
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Three Months Ended June 30, 2011
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	7,756			$	1,746			$	7,275			$	3,067			$	13		$	393			$	20,250
Charge-offs			(1,031	)			(62	)			(1,514	)			(2,256	)			-			(113	)			(4,976	)
Recoveries			14				-				-				101				-			-				115
Provision			(1,240	)			(700	)			1,518				1,981				1			40				1,600
Ending balance		$	5,499			$	984			$	7,279			$	2,893			$	14		$	320			$	16,989
General reserve		$	5,097			$	984			$	7,220			$	2,893			$	14		$	320			$	16,528
Specific reserve		$	402			$	-			$	59			$	-			$	-		$	-			$	461
Loans: (1)
Total Loans		$	359,810			$	120,023			$	243,393			$	32,597			$	1,819		$	13,971			$	771,613
General reserve (2)		$	293,165			$	116,865			$	225,094			$	16,918			$	1,819		$	13,856			$	667,717
Specific reserve (3)		$	66,645			$	3,158			$	18,299			$	15,679			$	-		$	115			$	103,896
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

	At or For the Six Months Ended June 30, 2011
	One-to-Four												Construction/
	Family								Commercial				Land
	Residential				Multifamily				Real Estate				Development				Business			Consumer				Total
ALLL:	(In thousands)
Beginning balance		$	8,302			$	1,893			$	6,742			$	5,151			$	7		$	439			$	22,534
Charge-offs			(1,616	)			(88	)			(3,594	)			(3,182	)			-			(171	)			(8,651	)
Recoveries			19				-				-				286				-			1				306
Provision			(1,206	)			(821	)			4,131				638				7			51				2,800
Ending balance		$	5,499			$	984			$	7,279			$	2,893			$	14		$	320			$	16,989
General reserve		$	5,097			$	984			$	7,220			$	2,893			$	14		$	320			$	16,528
Specific reserve		$	402			$	-			$	59			$	-			$	-		$	-			$	461
Loans: (1)
Total Loans		$	359,810			$	120,023			$	243,393			$	32,597			$	1,819		$	13,971			$	771,613
General reserve (2)		$	293,165			$	116,865			$	225,094			$	16,918			$	1,819		$	13,856			$	667,717
Specific reserve (3)		$	66,645			$	3,158			$	18,299			$	15,679			$	-		$	115			$	103,896
(1) Net of undisbursed funds.
(2) Loans collectively evaluated for impairment.
(3) Loans individually evaluated for impairment.

Nonperforming loans, net of undisbursed funds, were $22.6 million and $23.7 million at June 30, 2012 and December 31, 2011, respectively. Foregone interest on nonaccrual loans for the three and six months ended June 30, 2012 was $365,000 and $776,000, respectively. Foregone interest for the same periods in 2011 was $674,000 and $1.9 million, respectively.

There were no loans committed to be advanced in connection with impaired loans at June 30, 2012. At December 31, 2011, $36,000 was committed to be advanced in connection with impaired loans.

The following tables present a summary of loans individually evaluated for impairment by the type of loan:

	June 30, 2012
			Unpaid
	Recorded		Principal		Related
	Investment (1)		Balance (2)		Allowance
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	8,131	$	8,954	$	-
Non-owner occupied		36,954		37,657		-
Multifamily		3,286		3,443		-
Commercial real estate		8,565		11,575		-
Construction/land development		8,731		14,311		-
Consumer		282		558		-
Total		65,949		76,498		-
Loans with an allowance:
One-to-four family residential:
Owner occupied		4,251		4,413		188
Non-owner occupied		9,469		9,659		429
Commercial real estate		5,719		5,719		204
Total		19,439		19,791		821
Total impaired loans:
One-to-four family residential:
Owner occupied		12,382		13,367		188
Non-owner occupied		46,423		47,316		429
Multifamily		3,286		3,443		-
Commercial real estate		14,284		17,294		204
Construction/land development		8,731		14,311		-
Consumer		282		558		-
Total	$	85,388	$	96,289	$	821
__________
(1)  Represents the loan balance less charge-offs.
(2)  Contractual loan principal balance.

		December 31, 2011
				Unpaid
		Recorded		Principal		Related
		Investment (1)		Balance (2)		Allowance
				(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied		$	8,007	$	8,931	$	-
Non-owner occupied			40,406		42,794		-
Multifamily			3,453		3,578		-
Commercial real estate			12,802		15,957		-
Construction/land development			9,199		22,776		-
Consumer			70		70		-
Total			73,937		94,106		-
Loans with an allowance:
One-to-four family residential:
Owner occupied			4,588		4,724		180
Non-owner occupied			9,575		9,735		325
Commercial real estate			1,817		1,817		59
Total			15,980		16,276		564
Total impaired loans:
One-to-four family residential:
Owner occupied			12,595		13,655		180
Non-owner occupied			49,981		52,529		325
Multifamily			3,453		3,578		-
Commercial real estate			14,619		17,774		59
Construction/land development			9,199		22,776		-
Consumer			70		70		-
Total		$	89,917	$	110,382	$	564
____________
(1)	Represents the loan balance less charge-offs.
(2)	Contractual loan principal balance.

	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	8,405	$	63	$	8,272	$	112
Non-owner occupied		37,603		526		38,537		1,057
Multifamily		3,366		49		3,395		91
Commercial real estate		12,597		23		12,666		180
Construction/land development		8,861		-		8,974		-
Consumer		258		1		195		2
Total		71,090		662		72,039		1,442
Loans with an allowance:
One-to-four family residential:
Owner occupied		4,251		45		4,363		90
Non-owner occupied		9,310		99		9,399		212
Commercial real estate		4,012		69		3,280		139
Total		17,573		213		17,042		441
Total impaired loans:
One-to-four family residential:
Owner occupied		12,656		108		12,635		202
Non-owner occupied		46,913		625		47,936		1,269
Multifamily		3,366		49		3,395		91
Commercial real estate		16,609		92		15,946		319
Construction/land development		8,861		-		8,974		-
Consumer		258		1		195		2
Total	$	88,663	$	875	$	89,081	$	1,883

	Three Months Ended June 30, 2011				Six Months Ended June 30, 2011
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance:
One-to-four family residential:
Owner occupied	$	6,091	$	46	$	5,948	$	86
Non-owner occupied		43,306		561		43,065		1,131
Multifamily		2,833		42		2,727		84
Commercial real estate		11,461		119		10,053		217
Construction/land development		14,145		-		11,618		-
Consumer		130		-		102		1
Total		77,966		768		73,513		1,519
Loans with an allowance:
One-to-four family residential:
Owner occupied		7,058		60		7,150		136
Non-owner occupied		11,096		93		11,515		190
Multifamily		350		-		233		-
Commercial real estate		8,450		38		9,128		104
Construction/land development		5,438		-		12,443		-
Consumer		35		-		50		-
Total		32,427		191		40,519		430
Total impaired loans:
One-to-four family residential:
Owner occupied		13,149		106		13,098		222
Non-owner occupied		54,402		654		54,580		1,321
Multifamily		3,183		42		2,960		84
Commercial real estate		19,911		157		19,181		321
Construction/land development		19,583		-		24,061		-
Consumer		165		-		152		1
Total	$	110,393	$	959	$	114,032	$	1,949

The following is a summary of information pertaining to nonperforming assets and troubled debt restructured loans (“TDRs”):

	June 30, 2012		December 31, 2011
	(In thousands)
Nonperforming assets (1):
Nonaccrual loans	$	17,853	$	18,613
Nonaccrual TDRs		4,773		5,079
Total nonaccrual loans		22,626		23,692
OREO		22,206		26,044
Total nonperforming assets	$	44,832	$	49,736
Performing TDRs	$	62,762	$	66,225
Nonaccrual TDRs		4,773		5,079
Total TDRs	$	67,535	$	71,304

(1) There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when they are 90 days delinquent or when, in management’s opinion, the borrower is unable to meet scheduled payment obligations.

A loan is considered impaired when we have determined that we may be unable to collect payments of principal or interest when due under the terms of the loan. When identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case-by-case basis, after taking into consideration the circumstances surrounding the loan and the borrower, including payment history and the amounts of any payment shortfall, length and reason for delay and the likelihood of a return to stable performance. Impairment is measured on a loan-by-loan basis for all loans in the portfolio.

The following table is a summary of nonaccrual loans by loan type:

	June 30,		December 31,
	2012		2011
	(In thousands)
One-to-four family residential	$	9,110	$	9,808
Multifamily		2,039		949
Commercial real estate		2,534		3,736
Construction/land development		8,731		9,199
Consumer		212		-
Total nonaccrual loans	$	22,626	$	23,692

The following tables represent a summary of the aging of loans by type:

	Loans Past Due at June 30, 2012
					90 Days						Total Loans
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
	(In thousands)
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
Real estate:
One-to-four family residential:
Owner occupied	$	1,973	$	1,539	$	4,253	$	7,765	$	166,734	$	174,499
Non-owner occupied		-		-		2,064		2,064		141,814		143,878
Multifamily		-		-		-		-		104,431		104,431
Commercial real estate		129		-		2,163		2,292		208,406		210,698
Construction/land development		-		-		4,731		4,731		12,939		17,670
Total real estate		2,102		1,539		13,211		16,852		634,324		651,176
Business		-		-		-		-		3,627		3,627
Consumer		69		714		212		995		10,333		11,328
Total	$	2,171	$	2,253	$	13,423	$	17,847	$	648,284	$	666,131
(1) There were no loans 90 days or more past due and still accruing interest at June 30, 2012.
(2) Net of undisbursed funds.

	Loans Past Due at December 31, 2011
					90 Days						Total Loans
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
	(In thousands)
	30-59 Days		60-89 Days		and Greater		Total		Current		(1) (2)
Real estate:
One-to-four family residential:
Owner occupied	$	2,594	$	1,318	$	4,076	$	7,988	$	180,009	$	187,997
Non-owner occupied		761		-		3,224		3,985		143,394		147,379
Multifamily		-		-		949		949		112,314		113,263
Commercial real estate		633		-		2,621		3,254		228,583		231,837
Construction/land development		-		-		9,199		9,199		15,525		24,724
Total real estate		3,988		1,318		20,069		25,375		679,825		705,200
Business		240		-		-		240		3,669		3,909
Consumer		1,133		-		-		1,133		11,366		12,499
Total	$	5,361	$	1,318	$	20,069	$	26,748	$	694,860	$	721,608
(1) There were no loans 90 days or more past due and still accruing interest at December 31, 2011.
(2) Net of undisbursed funds.

Credit Quality Indicators. We utilize a nine-point risk rating system and assign a risk rating for all credit exposures. The risk rating system is designed to define the basic characteristics and identify risk elements of each credit extension. Credits risk rated 1 through 5 are considered to be “pass” credits. Pass credits can be assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on our watch list, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower’s financial capacity and threaten their ability to fulfill debt obligations in the future. Credits classified as special mention are risk rated 6 and possess weaknesses that deserve management’s close attention. Special mention assets do not expose the Bank to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. Substandard credits are risk rated 7. An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful are risk rated 8 and have all the weaknesses inherent in those credits classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. Assets classified as loss are risk rated 9 and are considered uncollectible and cannot be justified as a viable asset for the Bank.

The following tables represent a summary of loans by type and risk category:

	June 30, 2012
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (1)
	(In thousands)
Risk Rating:
Pass	$	292,513	$	98,439	$	187,329	$	8,574	$	3,627	$	10,179	$	600,661
Special mention		12,409		2,706		14,940		365		-		714		31,134
Substandard		13,455		3,286		8,429		8,731		-		435		34,336
Total	$	318,377	$	104,431	$	210,698	$	17,670	$	3,627	$	11,328	$	666,131
(1) Net of undisbursed funds.

	December 31, 2011
		One-to-Four Family Residential		Multifamily		Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (1)
	(In thousands)
Risk Rating:
Pass	$	307,807	$	106,900	$	203,997	$	15,101	$	3,909	$	11,822	$	649,536
Special mention		13,193		5,414		14,256		424		-		488		33,775
Substandard		14,376		949		13,584		9,199		-		189		38,297
Total	$	335,376	$	113,263	$	231,837	$	24,724	$	3,909	$	12,499	$	721,608
(1) Net of undisbursed funds.

The following tables summarize the loan portfolio by type and payment activity:

	June 30, 2012
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (3)
	(In thousands)
Performing (1)	$	309,267	$	102,392	$	208,164	$	8,939	$	3,627	$	11,116	$	643,505
Nonperforming (2)		9,110		2,039		2,534		8,731		-		212		22,626
Total	$	318,377	$	104,431	$	210,698	$	17,670	$	3,627	$	11,328	$	666,131
(1) There were $169.3 million of owner-occupied one-to-four family residential loans and $140.0 million of non-owner occupied one-to-four family residential loans classified as performing.
(2) There were $5.3 million of owner-occupied one-to-four family residential loans and $3.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.
(3) Net of undisbursed funds.

	December 31, 2011
		One-to-Four Family Residential	Multifamily			Commercial Real Estate		Construction/ Land Development	Business		Consumer		Total (3)
	(In thousands)
Performing (1)	$	325,568	$	112,314	$	228,101	$	15,525	$	3,909	$	12,499	$	697,916
Nonperforming (2)		9,808		949		3,736		9,199		-		-		23,692
Total	$	335,376	$	113,263	$	231,837	$	24,724	$	3,909	$	12,499	$	721,608
(1) There were $183.0 million of owner-occupied one-to-four family residential loans and $142.6 million of non-owner occupied one-to-four family residential loans classified as performing.
(2) There were $5.0 million of owner-occupied one-to-four family residential loans and $4.8 million of non-owner occupied one-to-four family residential loans classified as nonperforming.
(3) Net of undisbursed funds.

 The following table presents TDRs completed during the three and six months ended June 30, 2012 and their recorded investment prior to the modification and after the modification:

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(Dollars in thousands)
TDRs that Occurred During the Period:
One-to-four family residential:
Principal and interest with interest rate concession		-	$	-	$	-		1	$	214	$	213
Commercial:
Principal and interest with interest rate concession		1		1,415		1,409		1		1,415		1,409
Interest only payments with interest rate concession		1		2,012		2,012		2		2,508		2,508
Total		2	$	3,427	$	3,421		4	$	4,137	$	4,130

At June 30, 2012, the Company had no commitments to extend additional credit to borrowers whose loan terms have been modified in TDRs. All TDRs are classified as impaired loans and are included in the loans individually evaluated for impairment in the calculation of the ALLL.

The TDRs that occurred during the three and six months ended June 30, 2012 were primarily a result of granting the borrower interest rate concessions for a period of time ranging from one to three years. The impaired portion of the loan with an interest rate concession for a specific period of time is calculated based on the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate is the rate of return implicit on the original loan. This impaired amount reduces the ALLL and a valuation allowance is established to reduce the loan balance. As loan payments are received in future periods, the ALLL entry is reversed and the valuation allowance is reduced utilizing the level yield method over the modification period. TDRs resulted in a charge to the ALLL of $390,000 for the three months ended June 30, 2012 and $644,000 for the six months ended June 30, 2012.

The following is a summary of loans that were modified as TDRs within the previous 12 months and for which there was a payment default during the three and six months ended June 30, 2012.

	Types of Modifications
	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
		Number of Loans		Interest Only Payments with Interest Rate Concession		Interest Rate Concession		Number of Loans		Interest Only Payments with Interest Rate Concession	Interest Rate Concession
	(Dollars in thousands)
TDRs that Subsequently Defaulted:
One-to-four family residential		1	$	274	$	-		1	$	274	$	-
Commercial		1		1,409		-		1		1,409		-
Total		2	$	1,683	$	-		2	$	1,683	$	-

TDRs that default after they have been modified are typically evaluated individually on a collateral basis. Any additional impairment further reduces the ALLL.

XML

Fair Value

6 Months Ended

Jun. 30, 2012

Notes

Fair Value

Note 8 – Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We determined the fair values of our financial instruments based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair values. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our estimates for market assumptions.

Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability using one of the three valuation techniques. Inputs can be observable or unobservable. Observable inputs are those assumptions that market participants would use in pricing the particular asset or liability. These inputs are based on market data and are obtained from an independent source. Unobservable inputs are assumptions based on our own information or estimate of assumptions used by market participants in pricing the asset or liability. Unobservable inputs are based on the best and most current information available on the measurement date.

All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy:

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

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

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

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis (there were no transfers between Level 1, Level 2 and Level 3 recurring measurements during the periods presented):

	Fair Value Measurements at June 30, 2012
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable
	Measurements			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)
	(In thousands)
Available-for-sale investments:
Mortgage-backed investments:
Fannie Mae		$	41,913		$	-		$	41,913		$	-
Freddie Mac			18,190			-			18,190			-
Ginnie Mae			6,084			-			6,084			-
Municipal bonds			1,792			-			1,792			-
U.S. Government sponsored entities and agencies			62,504			-			62,504			-
Total		$	130,483		$	-		$	130,483		$	-

	Fair Value Measurements at December 31, 2011
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable
	Measurements			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)
	(In thousands)
Available-for-sale investments:
Mortgage-backed investments:
Fannie Mae		$	52,163		$	-		$	52,163		$	-
Freddie Mac			19,845			-			19,845			-
Ginnie Mae			7,495			-			7,495			-
Municipal bonds			1,847			-			1,847			-
U.S. Government sponsored entities and agencies			47,652			-			47,652			-
Total		$	129,002		$	-		$	129,002		$	-

The estimated fair value of Level 2 investments is based on quoted prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.

The tables below present the balances of assets and liabilities measured at fair value on a nonrecurring basis:

	Fair Value Measurements at June 30, 2012
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable			Total
	Measurements			Assets (Level 1)				Inputs (Level 2)			Inputs (Level 3)		Losses
	(In thousands)
Impaired loans (included in loans
receivable, net) (1) (2)		$	84,567		$	-		$	-		$	84,567		$	821
OREO (3)			22,206			-			-			22,206			235
Total		$	106,773		$	-		$	-		$	106,773		$	1,056
__________
(1) The loss represents the specific reserve against loans that were considered impaired at June 30, 2012.
(2) There were no undisbursed funds at June 30, 2012.
(3) The loss represents OREO market value adjustments for the quarter ended June 30, 2012.

	Fair Value Measurements at December 31, 2011
				Quoted Prices in		Significant
				Active Markets		Other		Significant
		Fair Value		for Identical		Observable		Unobservable			Total
		Measurements		Assets (Level 1)		Inputs (Level 2)			Inputs (Level 3)		Losses
	(In thousands)
Impaired loans including undisbursed
but committed funds of $36 (included
in loans receivable, net) (1)		$	89,389	$	-	$	-		$	89,389		$	564
OREO (2)			26,044		-		-			26,044			1,924
Total		$	115,433	$	-	$	-		$	115,433		$	2,488
__________
(1) The loss represents the specific reserve against loans that were considered impaired at December 31, 2011.
(2) The loss represents OREO market value adjustments for the year ended December 31, 2011.

The fair value of impaired loans is calculated using the collateral value method or on a discounted cash flow basis. Inputs used in the collateral value method include appraised values, estimates of certain completion costs and closing and selling costs. Some of these inputs may not be observable in the marketplace.

OREO properties are measured at the lower of their carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis.

	June 30, 2012
	Fair Value			Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
					(Dollars in thousands)
Impaired loans		$	84,567	Market approach	Adjusted for differences between comparable sales		0.0% - 51%	(1.6%)
OREO		$	22,206	Market approach	Adjusted for differences between comparable sales		0.0% - 26%	(1.4%)

The carrying amounts and estimated fair values of financial instruments were as follows:

	June 30, 2012
	Carrying		Estimated		Fair Value Measurements Using:
	Value		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	4,670	$	4,670	$	4,670	$	-	$	-
Interest-bearing deposits		155,327		155,327		155,327		-		-
Investments available-for-sale		130,483		130,483		-		130,483		-
Loans receivable, net		649,965		681,585		-		-		681,585
Federal Home Loan Bank stock		7,413		7,413		7,413		-		-
Accrued interest receivable		3,665		3,665		-		3,665		-
Financial Liabilities:
Deposits		197,802		197,802		197,802		-		-
Certificates of deposit		527,061		532,298		-		-		532,298
Advances from the FHLB		83,066		84,401		-		84,401		-
Accrued interest payable		180		180		-		180		-

	December 31, 2011
	Carrying		Estimated
	Value		Fair Value
	(In thousands)
Financial Assets:
Cash on hand and in banks	$	4,620	$	4,620
Interest-bearing deposits		160,141		160,141
Investments available-for-sale		129,002		129,002
Loans receivable, net		703,288		738,266
Federal Home Loan Bank stock		7,413		7,413
Accrued interest receivable		3,856		3,856
Financial Liabilities:
Deposits		218,621		218,621
Certificates of deposit		570,044		577,570
Advances from the FHLB		83,066		84,926
Accrued interest payable		184		184

Fair value estimates, methods, and assumptions are set forth below for our financial instruments.

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

·   Investments available-for-sale: The fair value of all investments, excluding FHLB stock, was based upon quoted market prices for similar investments in active markets, identical or similar investments in markets that are not active and model-derived valuations whose inputs are observable.

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

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

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

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business. The fair value has not been estimated for assets and liabilities that are not considered financial instruments.

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Loans Receivable: Trouble Debt Restructurings on Financing Receivables, TDRs that subsequently defaulted (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Preceding 3 months
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	2
Preceding 3 months | One-to-four family, residential
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Preceding 3 months | Commercial Real Estate
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Preceding 3 months | Interest only payments, with Interest Rate Concession
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	1,683
Preceding 3 months | Interest only payments, with Interest Rate Concession | One-to-four family, residential
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	274
Preceding 3 months | Interest only payments, with Interest Rate Concession | Commercial Real Estate
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	1,409
Preceding 6 months
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	2
Preceding 6 months | One-to-four family, residential
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Preceding 6 months | Commercial Real Estate
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Preceding 6 months | Interest only payments, with Interest Rate Concession
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	1,683
Preceding 6 months | Interest only payments, with Interest Rate Concession | One-to-four family, residential
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	274
Preceding 6 months | Interest only payments, with Interest Rate Concession | Commercial Real Estate
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	1,409

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Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Mar. 31, 2012	Dec. 31, 2011		Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Other Real Estate	$ 22,206	[1],[2]	$ 22,448	$ 26,044	[1],[3]	$ 25,979	$ 31,266	$ 30,102
One-to-four family, residential
Other Real Estate	4,200
Multifamily
Other Real Estate	560,000
Construction/Land Development
Other Real Estate	4,600
Commercial Real Estate
Other Real Estate	$ 12,800

[1] There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

[2] The loss represents OREO market value adjustments for the quarter ended June 30, 2012

[3] he loss represents OREO market value adjustments for the year ended December 31, 2011.

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Loans Receivable: Troubled Debt Restructurings on Financing Receivables (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Preceding 3 months
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	$ 3,427
Financing Receivable, Modifications, Post-Modification Recorded Investment	3,421
Preceding 3 months | Commercial Real Estate | Principal and Interest with Interest Rate Concession
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	1,415
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,409
Preceding 3 months | Commercial Real Estate | Interest only payments, with Interest Rate Concession
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	2,012
Financing Receivable, Modifications, Post-Modification Recorded Investment	2,012
Preceding 6 months
Financing Receivable, Modifications, Number of Contracts	4
Financing Receivable, Modifications, Pre-Modification Recorded Investment	4,137
Financing Receivable, Modifications, Post-Modification Recorded Investment	4,130
Preceding 6 months | One-to-four family, residential | Principal and Interest with Interest Rate Concession
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	214
Financing Receivable, Modifications, Post-Modification Recorded Investment	213
Preceding 6 months | Commercial Real Estate | Principal and Interest with Interest Rate Concession
Financing Receivable, Modifications, Number of Contracts	1
Financing Receivable, Modifications, Pre-Modification Recorded Investment	1,415
Financing Receivable, Modifications, Post-Modification Recorded Investment	1,409
Preceding 6 months | Commercial Real Estate | Interest only payments, with Interest Rate Concession
Financing Receivable, Modifications, Number of Contracts	2
Financing Receivable, Modifications, Pre-Modification Recorded Investment	2,508
Financing Receivable, Modifications, Post-Modification Recorded Investment	$ 2,508

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Loans Receivable: Schedule of non-accrual loans (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of non-accrual loans

	June 30,		December 31,
	2012		2011
	(In thousands)
One-to-four family residential	$	9,110	$	9,808
Multifamily		2,039		949
Commercial real estate		2,534		3,736
Construction/land development		8,731		9,199
Consumer		212		-
Total nonaccrual loans	$	22,626	$	23,692

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Investments: Gain/Loss on Investments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Value of Investments sold during period	$ 12,100	$ 20,600	$ 22,900	$ 29,800
Gain (Loss) on Investments	100,000	751,000	294,000	1,300
Marketable Securities, Loss (Gain)	$ 6,000	$ 0	$ 6,000	$ 0

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Segment Information

6 Months Ended

Jun. 30, 2012

Notes

Segment Information

Note 13 – Segment Information

Our activities are considered to be a single industry segment for financial reporting purposes. We are engaged in the business of attracting deposits from the general public and originating loans for our portfolio in our primary market area. Substantially all income is derived from a diverse base of commercial and residential real estate loans, consumer lending activities and investments.

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Investments: Available-for-sale Securities (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Available-for-sale Securities

	June 30, 2012
				Gross			Gross
	Amortized			Unrealized			Unrealized
	Cost			Gains			Losses				Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	40,956		$	993		$	(36	)		$	41,913
Freddie Mac			17,835			392			(37	)			18,190
Ginnie Mae			6,025			59			-				6,084
Municipal bonds			2,050			26			(284	)			1,792
U.S. Government sponsored entities and agencies			62,809			23			(328	)			62,504
Total		$	129,675		$	1,493		$	(685	)		$	130,483

	December 31, 2011
				Gross			Gross
	Amortized			Unrealized			Unrealized
	Cost			Gains			Losses				Fair Value
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	50,981		$	1,182		$	-			$	52,163
Freddie Mac			19,285			560			-				19,845
Ginnie Mae			7,416			79			-				7,495
Municipal bonds			2,085			32			(270	)			1,847
U.S. Government sponsored entities and agencies			47,934			2			(284	)			47,652
Total		$	127,701		$	1,855		$	(554	)		$	129,002

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Investments: Schedule of Available for sale Securities, Debt Maturities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Amortized Cost Basis	$ 50,053
Available-for-sale Securities, Debt Maturities, Year Two Through Five, Fair Value	49,841
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Amortized Cost Basis	816
Available-for-sale Securities, Debt Maturities, Year Six Through Ten, Fair Value	829
Available-for-sale Securities, Debt Maturities, after Ten Years, Amortized Cost Basis	13,990
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	13,626
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	64,859
Schedule of Available for sale Securities, Debt Maturities	64,296
Mortgage-backed investments, Amortized Cost	64,816
Mortgage-backed Securities Available-for-sale, Fair Value Disclosure	66,187
Available-for-sale Securities, Amortized Cost Basis	129,675	127,701
Available-for-sale Securities, Debt Securities	$ 130,483

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Fair Value: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

	Fair Value Measurements at June 30, 2012
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable
	Measurements			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)
	(In thousands)
Available-for-sale investments:
Mortgage-backed investments:
Fannie Mae		$	41,913		$	-		$	41,913		$	-
Freddie Mac			18,190			-			18,190			-
Ginnie Mae			6,084			-			6,084			-
Municipal bonds			1,792			-			1,792			-
U.S. Government sponsored entities and agencies			62,504			-			62,504			-
Total		$	130,483		$	-		$	130,483		$	-

	Fair Value Measurements at December 31, 2011
				Quoted Prices in			Significant
				Active Markets			Other			Significant
	Fair Value			for Identical			Observable			Unobservable
	Measurements			Assets (Level 1)			Inputs (Level 2)			Inputs (Level 3)
	(In thousands)
Available-for-sale investments:
Mortgage-backed investments:
Fannie Mae		$	52,163		$	-		$	52,163		$	-
Freddie Mac			19,845			-			19,845			-
Ginnie Mae			7,495			-			7,495			-
Municipal bonds			1,847			-			1,847			-
U.S. Government sponsored entities and agencies			47,652			-			47,652			-
Total		$	129,002		$	-		$	129,002		$	-

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FIRST FINANCIAL NORTHWEST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net income (loss)	$ 1,371	$ 1,258	$ 1,993	$ 2,692
Other Comprehensive Income, before tax:
Unrealized holding gains (losses) on available-for-sale-securities	(455)	1,592	(203)	1,658
Reclassification adjustment for net gains realized in income	(94)	(751)	(288)	(1,262)
Other Comprehensive income (loss), before tax	(549)	841	(491)	396
Income tax benefit related to items of other comprehensive income				(430)
Other Comprehensive income (loss), net of tax	(549)	841	(491)	826
Comprehensive income	$ 822	$ 2,099	$ 1,502	$ 3,518

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Regulatory Items

6 Months Ended

Jun. 30, 2012

Notes

Regulatory Items

Note 2 – Regulatory Items

On April 14, 2010, the Office of Thrift Supervision (“OTS”) and members of the Board of Directors of First Financial Northwest entered into an informal supervisory agreement or Memorandum of Understanding (“MOU”), which is now enforced by the FRB, the successor to the OTS as the regulator of the holding company. Under the terms of the MOU, the Company agreed, among other things, to provide notice to and obtain a written non-objection from the FRB prior to the Company (a) declaring a dividend or redeeming any capital stock and (b) incurring, issuing, renewing or repurchasing any new debt.

On March 27, 2012, the Bank’s regulators, the FDIC and the DFI terminated the Consent Order (“Order”) which became effective on September 24, 2010. In place of the Order, the Bank entered into an MOU, which is an informal regulatory action with the FDIC and DFI. The Order was terminated as a result of the steps the Bank took in complying with the Order and reducing its level of classified assets, increasing earnings, augmenting management and improving the overall condition of the Bank.

The MOU with the Bank contains provisions concerning the management and directors of the Bank, interest rate risk, minimum capital levels, the allowance for loan and lease losses (“ALLL”), lending and collection policies, policies concerning the Bank and its affiliates, restrictions on paying dividends and a requirement to furnish progress reports to the FDIC and DFI. A copy of the MOU with the Bank is attached to the Form 8-K that we filed with the Securities and Exchange Commission (“SEC”) on April 2, 2012.

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Loans Receivable: Schedule of Non-performing assets and troubled debt restructured loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Mar. 31, 2012	Dec. 31, 2011		Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 17,853	[1]		$ 18,613	[1]
Nonaccrual Troubled Debt Restructured Loans	4,773	[1]		5,079	[1]
Nonaccrual Loans, total	22,626	[1]		23,692	[1]
Other Real Estate	22,206	[1],[2]	22,448	26,044	[1],[3]	25,979	31,266	30,102
Non Performing Assets	44,832	[1]		49,736	[1]
Troubled Debt Restructured Loans, now performing	62,762			66,225
Troubled Debt Restructured Loans, nonaccrual status	4,773			5,079
Loans and Leases Receivable, Impaired, Troubled Debt Restructuring, Amount	67,535			71,304
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	$ 0			$ 0

[1] There were no loans 90 days or more past due and still accruing interest at June 30, 2012 and December 31, 2011.

[2] The loss represents OREO market value adjustments for the quarter ended June 30, 2012

[3] he loss represents OREO market value adjustments for the year ended December 31, 2011.

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Fair Value (Details) (Loans Receivable)	3 Months Ended
	Jun. 30, 2012
Loans Receivable
Fair Value, Option, Methodology and Assumptions	The fair value of impaired loans is calculated using the collateral value method or on a discounted cash flow basis. Inputs used in the collateral value method include appraised values, estimates of certain completion costs and closing and selling costs. Some of these inputs may not be observable in the marketplace.

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Investments: Schedule of Available for sale Securities in Continuous Unrealized Loss positions (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Schedule of Available for sale Securities in Continuous Unrealized Loss positions

	June 30, 2012
	Less Than 12 Months							12 Months or Longer							Total
				Unrealized							Unrealized							Unrealized
	Fair Value			Loss				Fair Value			Loss				Fair Value			Loss
	(In thousands)
Mortgage-backed investments:
Fannie Mae		$	9,987		$	(36	)		$	-		$	-			$	9,987		$	(36	)
Freddie Mac			3,153			(37	)			-			-				3,153			(37	)
Municipal bonds			-			-				1,122			(284	)			1,122			(284	)
U.S Government sponsored
entities and agencies			50,371			(328	)			-			-				50,371			(328	)
Total		$	63,511		$	(401	)		$	1,122		$	(284	)		$	64,633		$	(685	)

	December 31, 2011
	Less Than 12 Months								12 Months or Longer						Total
				Unrealized							Unrealized							Unrealized
	Fair Value			Loss				Fair Value			Loss				Fair Value			Loss
	(In thousands)
Municipal bonds		$	-		$	-			$	1,137		$	(270	)		$	1,137		$	(270	)
U.S. Government sponsored
entities and agencies			45,039			(284	)			-			-				45,039			(284	)
Total		$	45,039		$	(284	)		$	1,137		$	(270	)		$	46,176		$	(554	)

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Stock-Based Compensation: Disclosure of Share-based Compensation Arrangements by Share-based Payment Award (Details) (First Financial Northwest, Inc. 2008 Equity Incentive Plan, USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended			3 Months Ended
	Jun. 30, 2012 Stock Options	Jun. 30, 2012 Stock Options On January 1, 2012	Jun. 30, 2012 Stock Options On June 30, 2012	Jun. 30, 2012 Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	1,373,524
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price	$ 9.52
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term		6 years 7 months 6 days	6 years 1 month 6 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 94
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 1.91
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	(10,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period, Weighted Average Intrinsic Value	$ 9.78
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	1,363,524
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price	$ 9.52
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	205
Share-based Compensation Arrangement by Share-based Payment Award, Options expected to vest	532,922			284,882
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Exercise Price	$ 9.41
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Remaining Contractual Term	6 years 1 month 17 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	119
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	814,114
Share Based Compensation Arrangement By Share Based Payment Award, Options Vested And Expected To Vest, Exercisable, Weighted Average	9.59
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Weighted Average Remaining Contractual Term	6 years 29 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 82
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Beginning Balance				310,494
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Beginning Balance				$ 9.66
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period				(12,800)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value				$ 6.19
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period				(4,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value				$ 10.35
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number, Ending Balance				293,694
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value, Ending Balance				$ 9.80

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Loans Receivable: Troubled Debt Restructurings on Financing Receivables (Tables)

6 Months Ended

Jun. 30, 2012

Tables/Schedules

Troubled Debt Restructurings on Financing Receivables

	Three Months Ended June 30, 2012						Six Months Ended June 30, 2012
	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(Dollars in thousands)
TDRs that Occurred During the Period:
One-to-four family residential:
Principal and interest with interest rate concession		-	$	-	$	-		1	$	214	$	213
Commercial:
Principal and interest with interest rate concession		1		1,415		1,409		1		1,415		1,409
Interest only payments with interest rate concession		1		2,012		2,012		2		2,508		2,508
Total		2	$	3,427	$	3,421		4	$	4,137	$	4,130

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Notes

Earnings Per Share

Note 12 – Earnings Per Share

Per the provisions of FASB ASC 260, Earnings Per Share, nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested restricted stock awards qualify as participating securities but were immaterial for the three and six months ended June 30, 2012 and 2011.

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands, except share data)
Net income available to common shareholders	$	1,371	$	1,258	$	1,993	$	2,692
Basic weighted-average common shares outstanding		17,629,899		17,517,051		17,615,793		17,503,025
Plus common stock options considered outstanding for
dilutive purposes (excludes antidilutive options)		19,292		5,966		17,129		2,999
Diluted weighted-average common shares outstanding		17,649,191		17,523,017		17,632,922		17,506,024
Basic earnings per share	$	0.08	$	0.07	$	0.11	$	0.15
Diluted earnings per share	$	0.08	$	0.07	$	0.11	$	0.15

Options to purchase an additional 1,313,524 and 1,323,524 shares of common stock at June 30, 2012 and 2011, respectively, were not included in the computation of diluted earnings per share because their exercise price resulted in them being antidilutive.