First Financial Northwest, Stilwell Group Announce Settlement of Litigation

First Financial Northwest, Inc. (the "Company")

and the Stilwell Group announced that they have settled the litigation in which the Stilwell Group challenged the counting of votes in a contested director election at the Company's 2012 Annual Meeting of Shareholders. In that election, the Stilwell Group's candidate, Spencer L. Schneider, ran against the Company's Chairman, President and Chief Executive Officer, Victor Karpiak. In accord with the election results certified by an independent Inspector of Election, the Company announced that Mr. Karpiak was the winner of the election, but the Stilwell Group contested the result on the ground that proxies and votes submitted by them had not been counted. The settlement provides, among other things, that (i) Mr. Schneider will be given a seat on the Company's Board after the Company and Mr. Schneider obtain any required regulatory approvals, and will then be nominated by the Company at the 2013 Annual Meeting of Shareholders for a full three-year term; (ii) Mr. Karpiak will resign as Chairman of the Board immediately after Mr. Schneider joins the Board, but Mr. Karpiak will remain a member of the Board until September 1, 2013, whereupon he will resign from the Board; (iii) the Company will reimburse a portion of the Stilwell Group's proxy solicitation expenses in connection with the 2012 Annual Meeting; (iv) the Stilwell Group will support the Board's nominees in the director election to be held at the 2013, 2014 and 2015 Annual Meetings of Shareholders; and (v) the Litigation will be dismissed with mutual releases exchanged. As announced on September 12, 2012, Mr. Karpiak previously entered into a Transition Agreement to facilitate executive succession at First Savings Bank Northwest, a wholly owned subsidiary of the Company. The Company believes that Mr. Karpiak's agreement to resign as Chairman of the Board and to step down from the Board before completing his term as a director is consistent with his prior decision to reduce his obligations to the Bank, as set forth in the Transition Agreement.  Both the Stilwell Group and the Company are pleased that the matter has been resolved. Victor Karpiak, for the Company, states that "We are delighted that we have found a solution to this costly election dispute that, we believe, is in the best interests of our shareholders." Joseph Stilwell, for the Stilwell Group, states that "we are very happy that our candidate will be seated on the Board."