Forward-Looking Statements

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This Form 10-Q contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as "believe," "expect," "anticipate," "should," "planned," "estimated," and "potential." These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Company's strategies. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. The Company's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Office of Thrift Supervision and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in the Company's reports filed with the Securities and Exchange Commission. Any of the forward-looking statements that we make in this Form 10-Q and in the other public statements we make may turn out to be wrong because of the inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from those expressed in any forward-looking statements made by or on behalf of the Company. Therefore, these factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no responsibility to update or revise any forward-looking statements.

Overview

First Savings Bank is a community-based savings bank primarily serving King and to a lesser extent, Pierce and Snohomish counties, Washington through our full-service banking office and automated teller machine. We are in the business of attracting deposits from the public through our office and utilizing those deposits to originate loans. Historically, we have been a traditional fixed-rate portfolio lender originating residential home loans, although we have significantly increased the amount of construction/land development loans over the past several years. Our business strategy centers on the continued transition to commercial banking activities in order to expand our net interest margin. At September 30, 2008 our construction/land development loans totaled $268.6 million or 24.4% of our gross loan portfolio, substantially all of which are short-term, adjustable-rate loans. In contrast, our residential mortgage loans, commercial real estate and multifamily loans are generally long-term fixed-rate loans. We have not actively participated in traditional one-to-four family adjustable-rate mortgages, which comprises less than one percent of our total loan portfolio. Included in this portfolio are construction permanent loans which adjust based on prime during the construction phase but convert to a fixed-rate loan upon completion, along with a limited number of seasoned residential loans. We consider this an insignificant portion of our loan portfolio and do not promote this type of loan product, nor do we offer teaser rates or subprime lending. Our loss history for this type of lending has been immaterial.

During the quarter ended September 30, 2008, our total gross loan portfolio increased $34.3 million or 3.2% from June 30, 2008. Our one-to-four family residential loans increased $20.2 million or 4.2%, multifamily residential loans

For the nine months ended September 30, 2008, our total gross loan portfolio increased $99.0 million or 9.9% from December 31, 2007. Our one-to-four family residential loans increased $74.3 million or 17.5%, multifamily residential increased $4.6 million or 6.0% while construction/land development loans decreased $19.7 million or 6.8%, primarily due to the current economic conditions. Commercial real estate increased $33.8 million or 16.5% and consumer loans increased $6.0 million or 89.9%.

Our loan policy limits the maximum amount of loans we can make to one borrower to 20% of First Savings Bank's risk-based capital. As of September 30, 2008, the maximum amount which we could lend to any one borrower was $40.4 million based on our policy. Exceptions may be made to this policy with the prior approval of the Board of Directors if the borrower exhibits financial strength or compensating factors to sufficiently offset any weaknesses based on the loan-to-value ratio, borrower's financial condition, net worth, credit history, earnings capacity, installment obligations, and current payment habits. The five largest borrowing relationships, as of September 30, 2008 and December 31, 2007, in descending order were:

                Aggregate Amount                 Aggregate Amount
                  of Loans (1)        Number       of Loans (1)       Number
 Borrower (4)  September 30, 2008    of Loans   December 31, 2007    of Loans    Collateral

Real estate                                                                     residential
builder           $44.5   million         119    $40.0   million           96   properties
Real estate                                                                     residential
builder           $38.0   million         125    $40.5   million          138   properties
Real estate                                                                     residential
builder           $28.9   million         104    $27.5   million           97   properties
Real estate               million                                               residential
builder           $27.3 (2)                88    $28.0   million           89   properties
Real estate               million                                               residential

All of the loans to these five builders have personal guarantees in place as an additional source of repayment including those made to partnerships and corporations and the Bank is in the first lien position. All of the properties securing these loans were in our geographic market area. Included in the above loan balances are loans on one-to-four family residential properties which the builder holds as rental property. The total of these loans amounts to $65.7 million and range per builder from $6.2 million to $18.6 million.

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

(1) Net of loans in process

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. To offset the impact of the interest rate environment, we continue to seek means of increasing interest income while controlling expenses. Consistent with this strategy, we are continuing to manage the growth in our loan portfolio to achieve our investment and credit quality objectives. In the third quarter of 2008, after analyzing the portfolio including its growth, the current economic environment and other factors affecting the loan portfolio, we determined that an increase in the allowance for loan losses of $3.5 million was necessary.

Our operating expenses consist primarily of salaries and employee benefits, occupancy and equipment, data processing, marketing, postage and supplies, professional services and deposit insurance premiums. Salaries and employee benefits consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement benefits, the equity incentive plan and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of building and equipment, consist primarily of real estate taxes, depreciation charges, maintenance and costs of utilities.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policy is related to our allowance for loan losses.

Allowance for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. Management considers factors such as charge-off history, the economy, the regulatory environment, competition, geographic and loan type concentrations, policy and underwriting standards, nature and volume of the loan portfolio, managements experience level, the Company's loan review system and the value of underlying collateral in assessing the allowance for loan losses. Our methodology for analyzing the allowance for loan losses consists of two components: formulas and specific allowances. The formula allowance is determined by applying an estimated loss percentage, derived from the factors discussed previously, to the various types of loans. The specific allowance component is created when management believes that the collectibility of a specific loan, such as a real estate, multifamily or a commercial real estate loan, has been impaired and a loss is probable.

Our Board of Directors reviews the allowance for loan losses on a quarterly basis and approves the provision for loan losses. The allowance is increased by the provision for loan losses, which is charged against current period earnings and decreased by the amount of actual loan charge-offs, net of recoveries.

We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period requiring management to make assumptions about losses inherent in the loan portfolio. The impact of a sudden large loss could deplete the allowance and potentially require increased provisions to replenish the allowance, which would negatively affect earnings.

General. Our total assets increased $86.5 million, or 7.6% to $1.2 billion at September 30, 2008 from $1.1 billion at December 31, 2007. The asset growth resulted primarily from an increase in net loans receivable of $121.9 million or 13.8%. The investments available for sale and investments held to maturity portfolios decreased $37.4 million or 18.7% as a result of the proceeds from the sale of $62.6 million of tax-exempt investments in the first quarter of 2008 and $8.6 million in the third quarter of 2008, principal repayments of $26.9 million and a $623,000 charge taken for an other-than-temporary loss related to the AMF mutual fund investment. These decreases were offset by the purchases of approximately $59.7 million of FNMA and FHLMC mortgage-backed securities and a Housing and Urban Development ("HUD") agency security. Total liabilities increased $89.8 million or 10.8% to $921.4 million at September 30, 2008 from $831.6 million at December 31, 2007 primarily as a result of increases in deposits of $48.1 million and advances from the Federal Home Loan Bank of Seattle ("FHLB") of $39.0 million. Stockholders' equity decreased $3.3 million or 1.1%. This decrease was primarily due to the repurchase of stock related to the restricted stock for the equity incentive plan of $9.1 million and the payment of cash dividends for the nine months ended September 30, 2008 of $3.3 million offset by net income of $7.6 million and the decrease in unearned ESOP shares of $913,000.

Assets. Total assets increased $86.5 million or 7.6% during the nine months ended September 30, 2008. The following table details the changes in the composition of our assets at September 30, 2008 from December 31, 2007.

                                                                   Increase/(Decrease)
                                             Balance at                    from                  Percentage
                                         September 30, 2008         December 31, 2007        Increase/(Decrease)
                                                                       (Dollars in thousands)

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

Cash and cash equivalents decreased $831,000 between December 31, 2007 and September 30, 2008 primarily as a result of the funding of our loan growth and investment purchases during the nine months ended September 30, 2008.

Net loans receivable increased $121.9 million to $1.0 billion at September 30, 2008 from $880.7 million at December 31, 2007. The increase was primarily due to originations of $120.1 million in one-to-four-family residential mortgage loans, $47.5 million and $12.4 million in commercial real estate and multifamily residential loans, respectively, $28.8 million in construction/land development loans and $9.0 million in consumer loans. The loan growth during the nine months ended September 30, 2008 was partially offset by $118.3 million in principal repayments during the period.

The combined portfolios of investments available for sale and investments held to maturity decreased $37.4 million or 18.7% to $162.8 million at September 30, 2008 from $200.2 million at December 31, 2007. In January 2008, the Company elected to transfer its entire investments held to maturity portfolio to its investments available for sale portfolio. During the nine months ended September 30, 2008, a portion of the tax-exempt municipal bond portfolio was sold. Gross proceeds from the sales were $71.2 million with net gains of $1.7 million. During the second quarter of 2008, the Company recorded an other-than-temporary impairment charge reducing the investment portfolio by $623,000. In the third quarter of 2008, the proceeds from the sale of municipal bonds totaled $8.6 million resulting in a gain of $274,000. For the nine months ended September 30, 2008, the Company has purchased approximately $59.7 million par value, of FNMA and FHLMC mortgage-backed securities including a $2.6 million par value HUD bond.

Management performs an impairment analysis on a loan when it determines it is probable that all contractual amounts of principal and interest will not be paid as scheduled. The analysis usually occurs when a loan has been negatively classified or placed on nonaccrual status. If the current value of the impaired loan is less than the recorded investment in the loan, impairment is recognized by establishing a specific allocation of the allowance for loan losses for the loan or by adjusting an existing allocation. Our analysis of the $32.0 million in nonperforming construction/land development loans revealed a specific allocation of the allowance was appropriate. Based on our analysis of these loans, which included the review of either existing or updated appraisals as well as adjustments to those appraisals for deteriorating market conditions, we established a $5.7 million specific allowance for these loans. We did not have any real estate owned at September 30, 2008.

Deposits. During the nine months ended September 30, 2008, deposits increased $48.1 million to $777.6 million. The increase in deposits was the result of the current interest rate environment with customers preferring fixed term, fixed rate products combined with our practice of competitively pricing our deposit products. Increases in certificate accounts of $85.2 million, noninterest-bearing accounts of $565,000 and savings accounts of $581,000 were partially offset by decreases in NOW accounts of $2.5 million, and money market accounts of $35.8 million. The majority of the decrease in money market accounts was the result of transfers to certificate of deposit accounts within First Savings Bank Northwest. The Bank does not have any brokered deposits.

Advances. Total advances from the FHLB at September 30, 2008 were $135.0 million, an increase of $39.0 million or 40.6% from December 31, 2007. The increase in advances was used to fund loan production.

Stockholders' Equity. Total stockholders' equity decreased $3.3 million, or 1.1% to $306.0 million at September 30, 2008 from $309.3 million at December 31, 2007. The decrease was primarily a result of the repurchase of stock related to the restricted stock portion of the equity incentive plan of $9.1 million and the payment of cash dividends for the nine months ended September 30, 2008 of $3.3 million offset by net income of $7.6 million and the decrease in unearned ESOP shares of $913,000.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2008 and September 30, 2007

General. Our net income for the three months ended September 30, 2008 was $955,000, a decrease of $1.7 million or 64.6% from the comparable quarter in the prior year. The decrease in net income was primarily the result of a $2.4 million increase in net interest income, an increase of $3.3 million in the provision for loan losses and an increase in noninterest expense of $1.8 million.

Net income for the nine months ended September 30, 2008 was $7.6 million, an increase of $1.2 million from the comparable period in 2007. The increase in net income was primarily the result of an increase in net interest income of $9.0 million, an increase in the provision for loan losses of $2.7 million and an increase of $4.6 million in noninterest expense.

Net Interest Income. Our net interest income increased $2.4 million or 40.5% for the three months ended September 30, 2008 to $8.3 million, compared to $5.9 million for the comparable quarter in the prior year. Average total interest-earning assets increased $118.5 million for the three months ended September 30, 2008 to $1.2 billion from $1.1 billion for the same quarter in 2007, while average total interest-bearing liabilities decreased $74.9 million from the three months ended September 30, 2007. During the same period our yield on interest-earning assets decreased 65 basis points while our cost on interest-

Net interest income for the nine months ended September 30, 2008 was $24.6 million, an increase of $9.0 million or 57.8% from $15.6 million for the same period in 2007. Average total interest-earning assets increased $142.3 million for the nine months ended September 30, 2008 from $1.0 billion for the same period in 2007, while average total interest-bearing liabilities decreased $62.8 million from the nine months ended September 30, 2007. During the same period, our yield on interest-earning assets decreased 47 basis points while our cost of interest-bearing liabilities decreased 60 basis points, increasing our interest rate spread for the first nine months of 2008 by 13 basis points to 1.84% from 1.71% during the same period in 2007.

Interest Income. Total interest income for the three months ended September 30, 2008 increased $37,000 to $17.3 million from the quarter ended September 30, 2007. The following table compares detailed average interest-earning asset balances, associated yields and resulting changes in interest income for the three months ended September 30, 2008 and 2007:

                               Three Months Ended September 30,
                             2008                            2007                   Increase/
                                                                                  (Decrease) in
                                                                                  Interest and
                    Average                         Average                         Dividend
                    Balance          Yield          Balance          Yield           Income
                                              (Dollars in thousands)

Loans
receivable, net  $     984,804         6.18 %    $     821,480         7.17 %    $          492
Investments
available for
sale                   172,039         4.68            127,499         4.51                 576
Investments held
to maturity                  -            -             85,636         4.38                (937)
Federal funds
sold and
interest-bearing
  deposits               6,204         2.77             10,879         5.40                (104)
Federal Home
Loan Bank stock          5,633         1.21              4,671         0.60                  10
Total
interest-earning
assets           $   1,168,680         5.92 %    $   1,050,165         6.57 %    $           37

Interest income from loans increased $492,000 during the third quarter of 2008 as compared to the same quarter in 2007 principally as a result of the net increase in our loan portfolio. Average net loans receivable at September 30, 2008 totaled $984.8 million as compared to $821.5 million one year earlier. This increase was partially offset by a decrease in interest income on investments of $455,000. The decline in interest income was attributable to the sale of a majority of our tax exempt securities during the first nine months of 2008. In addition, the yield on interest-earning assets declined 65 basis points to 5.92% for the three months ended September 30, 2008, from 6.57% for the comparable . . .