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

|   | For      the quarterly period ended .............................................  September      30, 2009 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| [     ] | 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 000-50362                         |
|--------------------------------------------------------------------|
|                                                               |
|  RAINIER PACIFIC      FINANCIAL GROUP, INC.                   |
|  (Exact      name of registrant as specified in its  charter) |

| Washington                                                               |   |   87-0700148                 |
|--------------------------------------------------------------------------|--------|-----------------------------------|
| (State or other      jurisdiction of       |   |  (I.R.S.  Employer |
| incorporation or      organization)                       |   |  Identification      No.)    |

| Title      of    class:          |   | As      of September 30, 2009 |
|---------------------------------------|--------|-------------------------------|
| Common stock, no par      value  |   |  6,294,898  *            |

|   | *  Includes      271,445 shares held by the Rainier Pacific 401(k) Employee Stock Ownership      Plan that have not been released, committed to be released, or allocated      to participant accounts; and 1,067 restricted shares granted under the      Rainier Pacific Financial Group, Inc. 2004 Management Recognition Plan      that have not yet vested. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| PART      I  -           | FINANCIAL      INFORMATION                                                                                     | Page                                                                                    |
|------------------------------------|----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
|                               |                                                                                                           |                                                                                    |   |
| ITEM      1 -                      | Financial      Statements (Unaudited)                                                                          |                                                                                    |
|                               |                                                                                                           |                                                                                    |   |
|                               | Consolidated      Statements of Financial Condition at                                                         |                                                                                    |
|                               |                                                                                                           | September      30, 2009 and December 31, 2008                                           | 2 |
|                               | Consolidated      Statements of Operations for the                                                             |                                                                                    |
|                               |                                                                                                           | Three      Months Ended and Nine Months Ended September 30, 2009 and 2008               | 3 |
|                               | Consolidated      Statements of Shareholders’ Equity for the                                             |                                                                                    |
|                               |                                                                                                           | Nine      Months Ended September 30, 2009 andTwelve      Months Ended December 31, 2008 |  4 |
|                               | Consolidated      Statements of Cash Flows for the                                                             |                                                                                    |
|                               |                                                                                                           | Nine      Months Ended September 30, 2009 and 2008                                      | 5 |
|                               | Selected      Notes to Unaudited Interim Consolidated Financial Statements                                     | 7                                                                                       |
|                               |                                                                                                           |                                                                                    |   |
| ITEM      2 -                      | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations.         |                                                                                    |
|                               |                                                                                                           |                                                                                    |   |
|                               | Forward-Looking      Statements                                                                                | 21                                                                                      |
|                               | Comparison      of Financial Condition at    September      30, 2009 and December 31, 2008 | 22                                                                                      |
|                               | Comparison      of Operating Results for the                                                                   |                                                                                    |
|                               |          Three Months Ended September 30, 2009 and 2008                                         | 26                                                                                      |
|                               | Comparison      of Operating Results for the                                                                   |                                                                                    |
|                               |     Nine      Months Ended September 30, 2009 and 2008                                     | 30                                                                                      |
|                               | Liquidity      and Capital Resources                                                                           | 35                                                                                      |
|                               |                                                                                                           |                                                                                    |   |
| ITEM      3 -                      | Quantitative      and Qualitative Disclosures about Market Risk                                                | 36                                                                                      |
|                               |                                                                                                           |                                                                                    |
| ITEM      4 -                      | Controls      and Procedures                                                                                   | 36                                                                                      |
|                               |                                                                                                           |                                                                                    |   |
| PART      II -                     | OTHER      INFORMATION                                                                                         |                                                                                    |
|                               |                                                                                                           |                                                                                    |   |
| ITEM      1 -                      | Legal      Proceedings                                                                                         | 37                                                                                      |
| ITEM      1A -                     | Risk      Factors                                                                                              | 37                                                                                      |
| ITEM      2 -                      | Unregistered      Sales of Equity Securities and Use of Proceeds                                               | 39                                                                                      |
| ITEM      3 -                      | Defaults      Upon Senior Securities                                                                           | 39                                                                                      |
| ITEM      4 -                      | Submission      of Matters to a Vote of Security Holders                                                       | 40                                                                                      |
| ITEM      5 -                      | Other      Information                                                                                         | 40                                                                                      |
| ITEM      6 -                      | Exhibits                                                                                                       | 40                                                                                      |
|                               |                                                                                                           |                                                                                    |   |
| SIGNATURES                         | 41                                                                                                             |
|                               |                                                                                                           |
| EXHIBIT      INDEX                 |                                                                                                           |
|          Exhibit 31 | 43                                                                                                             |
|          Exhibit 32 | 44                                                                                                             |

----

| ASSETS                                                                                                                                                                                                                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                  |   | At      September 30, |   | At      December 31, |   |
|                                                                                                                                                                                                                                                                                                                  |   | 2009 |   | 2008 |   |
| ASSETS:                                                                                                                                                                                                                                                                                                               |   | (Unaudited) |   |   |   |
| Cash and cash      equivalents                                                                                                                                                                                                                                                                                        |   | $       8,156  |   | $       8,811 |   |
|      Interest-bearing      deposits with banks                                                                                                                                                                                                                                               |   | 41,035  |   | 29,425 |   |
| Securities      available-for-sale                                                                                                                                                                                                                                                                                    |   | 23,396  |   | 14,895 |   |
| Securities held-to-maturity      (fair value at September 30, 2009:$28,744;      at December 31, 2008: $34,162)                                                                                                                                                                                                       |   | 27,631  |   | 33,984 |   |
| Federal Home Loan Bank of      Seattle (“FHLB”) stock, at cost                                                                                                                                                                                                                                            |   | 13,712  |   | 13,712 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| Loans      held-for-sale                                                                                                                                                                                                                                                                                              |   | 1,389  |   | 1,505 |   |
| Loans                                                                                                                                                                                                                                                                                                                 |   | 582,697  |   | 670,776 |   |
| Less allowance for loan      losses                                                                                                                                                                                                                                                                                   |   | (9,684) |   | (13,329 | )  |
| Total loans,    net                                                                                                                                                                                                                                                                                                   |   | 574,402  |   | 658,952 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| Premises and equipment,      net                                                                                                                                                                                                                                                                                      |   | 32,621  |   | 33,770 |   |
| Accrued interest      receivable                                                                                                                                                                                                                                                                                      |   | 2,857  |   | 3,535 |   |
| Real estate    owned                                                                                                                                                                                                                                                                                                  |   | 12,890  |   | 6,796 |   |
| Income tax assets, net of      valuation allowance                                                                                                                                                                                                                                                                    |   | 21,071  |   | 37,551 |   |
| Other assets                                                                                                                                                                                                                                                                                                          |   | 6,383  |   | 5,802 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| TOTAL ASSETS                                                                                                                                                                                                                                                                                                          |   | $764,154  |   | $847,233 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                  |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| LIABILITIES:                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |
| Deposits                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |
| Non-interest      bearing                                                                                                                                                                                                                                                                                             |   | $     45,107  |   | $     40,331 |   |
| Interest-bearing                                                                                                                                                                                                                                                                                                      |   | 421,217  |   | 478,908 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| Total deposits                                                                                                                                                                                                                                                                                                        |   | 466,324  |   | 519,239 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| Borrowed funds                                                                                                                                                                                                                                                                                                        |   | 279,337  |   | 291,217 |   |
| Corporate drafts      payable                                                                                                                                                                                                                                                                                         |   | 97  |   | 1,554 |   |
| Accrued compensation and      benefits                                                                                                                                                                                                                                                                                |   | 1,697  |   | 1,745 |   |
| Other    liabilities                                                                                                                                                                                                                                                                                                  |   | 3,852  |   | 4,184 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| TOTAL    LIABILITIES                                                                                                                                                                                                                                                                                                  |   | 751,307  |   | 817,939 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| SHAREHOLDERS’      EQUITY:                                                                                                                                                                                                                                                                                      |   |   |   |   |   |
| Common stock, no par value:      49,000,000 shares authorized;6,294,898 shares issued and      6,022,386 shares outstanding atSeptember 30, 2009; and      6,295,298 shares issued and 5,968,393 shares             outstanding      at December 31, 2008 |   | 51,046  |   | 51,303 |   |
|               Unearned Employee Stock Ownership Plan (“ESOP”) shares                                                                                                                                                                                              |   |  (2,714) |   |  (3,224 | )  |
|               Accumulated      other comprehensive income (loss) (“OCI (loss)”), net of    tax                                                                                                                                                                         |   |  (31,980) |   |  (47,206 | )  |
| Retained earnings (accumulated      deficit)                                                                                                                                                                                                                                                                          |   | (3,505) |   | 28,421 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| TOTAL SHAREHOLDERS’      EQUITY                                                                                                                                                                                                                                                                                 |   | 12,847  |   | 29,294 |   |
|                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |
| TOTAL LIABILITIES AND      SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                 |   | $764,154  |   | $   847,233 |   |

----

|                                                                   |   | Three      Months EndedSeptember      30,   |               | Nine      Months EndedSeptember      30,          |                     |
|------------------------------------------------------------------------|--------|---------------------------------------------|--------------------|---------------------------------------------------|--------------------------|
|                                                                   |   | 2009                                        |               | 2008                                              |                     | 2009 |   | 2008 |   |
| INTEREST      INCOME                                                   |   |                                        |               |                                              |                     |   |   |   |   |
| Loans                                                                  |   | $     9,291   |               | $     10,666        |                     | $   29,067  |   | $   33,134  |   |
| Securities      available-for-sale                                     |   | 217                                    |               | 1,304                                        |                     | 1,646  |   | 4,437  |   |
| Securities      held-to-maturity                                       |   | 301                                    |               | 398                                          |                     | 984  |   | 1,269  |   |
| Interest-bearing      deposits                                         |   | 34                                     |               | -                                            |           | 85  |   | 33  |   |
| FHLB      dividends                                                    |   | -                                      |               | 48                                           |                     | -  |   | 130  |   |
| Total      interest income                                             |   | 9,843                                  |               | 12,416                                       |                     | 31,782  |   | 39,003  |   |
| INTEREST      EXPENSE                                                  |   |                                        |               |                                              |                     |   |   |   |   |
| Deposits                                                               |   | 1,656                                  |          | 2,735                                        |                     | 6,363  |   | 9,301  |   |
| Borrowed      funds                                                    |   | 3,156                                  |               | 3,527                                        |                     | 9,614  |   | 10,567  |   |
|          Total interest expense                         |   | 4,812                                  |               | 6,262                                        |                     | 15,977  |   | 19,868  |   |
|          Net interest income                            |   | 5,031                                  |               | 6,154                                        |                     | 15,805  |   | 19,135  |   |
| PROVISION      FOR LOAN LOSSES                                         |   | 5,700                                  |               | 6,000                                        |                     | 12,000  |   | 6,700  |   |
| Net interest income (loss)      after provision for loan losses        |   | (669)                                       |               | 154                                          |                     | 3,805  |   | 12,435  |   |
|                                                                   |   |                                        |               |                                              |                     |   |   |   |   |
| NON-INTEREST      INCOME                                               |   |                                        |               |                                              |                     |   |   |   |   |
| Deposit      service fees                                              |   | 948                                    |               | 958                                          |                     | 2,614  |   | 2,705  |   |
| Loan      service fees                                                 |   | 169                                    |               | 310                                          |                     | 614  |   | 912  |   |
| Insurance      service fees                                            |   | 566                                    |               | 598                                          |                     | 1,656  |   | 1,677  |   |
| Investment      service fees                                           |   | 120                                    |               | 147                                          |                     | 470  |   | 432  |   |
| Real      estate lease income                                          |   | 183                                    |          | 270                                          |                     | 617  |   | 778  |   |
| Gain      on sale of securities, net                                   |   | -                                      |               | 1                                            |                     | -  |   | 12  |   |
| Gain      on sale of loans, net                                        |   | 431                                    |               | 190                                          |                     | 4,866  |   | 875  |           |
| Gain      (loss) on sale of other real estate owned                    |   | 33                                     |               | (32)                                              |                     | 23  |   | (25) |   |
| Loss      on sale of premises and equipment, net                       |   | -                                      |          | -                                            |                     | (3) |   | (1) |   |
| Other      operating income                                            |   | 46                                     |               | 37                                           |                     | 130  |   | 536  |   |
| Total      non-interest income                                         |   | 2,496                                  |               | 2,479                                        |                | 10,987  |   | 7,901  |   |
|                                                                   |   |                                        |               |                                              |                     |   |   |   |   |
| NON-INTEREST      EXPENSE                                              |   |                                        |               |                                              |                     |   |   |   |   |
| Compensation      and benefits                                         |   | 3,719                                  |               | 4,044                                        |                     | 10,985  |   | 12,146  |   |
| Office      operations                                                 |   | 1,039                                  |               | 990                                          |                     | 2,922  |    | 2,882  |   |
| Occupancy                                                              |   | 654                                    |               | 572                                          |                     | 1,922  |   | 1,802  |   |
| Loan      servicing                                                    |   | 57                                     |               | 127                                          |                     | 311  |   | 359  |   |
| Outside      and professional services                                 |   | 442                                    |               | 283                                          |                     | 1,191  |   | 979  |   |
| Marketing                                                              |   | 235                                    |               | 260                                          |                     | 766  |   | 762  |          |
| Federal      deposit insurance premiums                                |   | 796                                    |               | 81                                           |                     | 2,551  |   | 211  |   |
| Other      operating expenses                                          |   | 604                                    |               | 665                                          |                     | 2,058  |          | 1,739  |   |
| Total      non-interest expense                                        |   | 7,546                                  |          | 7,022                                        |                | 22,706  |   | 20,880  |   |
|                                                                   |   |                                        |               |                                              |                     |   |   |   |   |
| OTHER-THAN-TEMPORARY      IMPAIRMENT (“OTTI”) ONSECURITIES |   |                                        |               |                                              |                     |   |   |   |   |
| Total      other-than-temporary impairment losses                      |   | (53,835)                                    |               | -                                            |                     | (57,303) |   | -  |   |
| Portion      of losses recognized in OCI/(loss)                        |   | 31,783                                 |               | -                                            |                     | 24,960  |   | -  |   |
|   Net      impairment losses                                 |   | (22,052)                                    |               | -                                            |           | (32,343) |   | -  |   |
| LOSS      BEFORE PROVISION (BENEFIT) FOR FEDERAL INCOME TAX            |   | (27,771)                                    |               | (4,389)                                           |                     | (40,257) |   | (544) |   |
| PROVISION      (BENEFIT) FOR FEDERAL INCOME TAX                        |   | 7,239                                  |               | (1,439)                                           |                     | 3,066  |   | (55) |   |
| NET      LOSS                                                          |   | $  (35,010)                            |               | $    (2,950)                  |                     | $  (43,323) |   | $           (489) |   |
| EARNINGS      (LOSS) PER COMMON SHARE                                  |   |                                        |               |                                              |                     |   |   |   |   |
| Basic                                                                  |   | $      (5.82) |               | $       (0.49) |                     | $      (7.23) |   | $     (0.08) |   |
| Diluted                                                                |   | $      (5.82) |               | $       (0.49) |                     | $      (7.23) |   | $     (0.08) |   |
| Weighted      average shares outstanding – Basic                 |   |    6,011,065                 | (1)           |    5,998,207                       | (2)                 |  5,992,934 | (1)  |    5,989,822  | (2)  |
| Weighted      average shares outstanding – Diluted               |   |      6,011,065     |               |      5,998,207           |                     |      5,992,934 |   |    5,989,822  |   |

| (1)   | Weighted      average shares outstanding – Basic includes 268,273 vested and ratably      earned shares of the 269,340 restricted shares granted and issued under      the 2004 Management Recognition Plan (“MRP”), net of forfeited      shares. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Weighted      average shares outstanding – Basic includes 277,513 vested and ratably      earned shares of the 326,100 restricted shares granted and issued under      the MRP, net of forfeitedshares. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                           |   | Common      Stock |   | UnearnedESOP  |   | RetainedEarnings      (Accumulated | AccumulatedOtherComprehensive |          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|---------------|--------|------------------------------------|-------------------------------|---------------|
|                                                                                                                                                                                           |   | Shares            |   | Amount        |   | Shares                             |                          | Deficit)      |   | Loss |   | Total |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Balance,      December 31, 2007                                                                                                                                                                |   | 6,466,633    |   | $50,458  |   | $(3,903)                           |                          | $44,840  |   | $(4,575) |   | $86,820  |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Common stock      repurchased                                                                                                                                                                  |   | (114,175)         |   | (983)         |   |                               |                          |          |   |   |   | (983) |
| MRPforfeitures                                                                                                                                                                                 |   | (57,160)          |   |          |   |                               |                          |          |   |   |   |   |
| Earned ESOP shares      released                                                                                                                                                               |   |              |   |          |   | 679                           |                          |          |   |   |   | 679  |
| ESOP activity - Change in      value of shares                committed to be released                                                       |   |              | (52)   |          |   |                               |                          |          |   |   | (52) |
| Dividends paid                                                                                                                                                                                 |   |              |   |          |   |                               |                          | (1,804)       |   |   |   | (1,804) |
| Amortization of compensation      related to MRP                                                                                                                                               |   |              |   | 1,542    |   |                               |                          |          |   |   |   | 1,542  |
| Amortization of compensation      related to the           Stock      Option Plan (“SOP”)                                   |   |              |   | 338      |   |                               |                          |          |   |   |   | 338  |
| Comprehensive income      (loss):                                                                                                                                                              |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Net loss                                                                                                                                                                                       |   |              |   |          |   |                               |                          | (14,615)      |   |   |   | (14,615) |
| Unrealized loss on      available-for-sale                 securities,      net of tax benefit of $21,961 |   |              |   |          |   |                               |                          |          |   | (42,631) |   | (42,631) |
| Total comprehensive income      (loss)                                                                                                                                                         |   |              |   |          |   |                               |                          |          |   |   |   | (57,246) |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Balance,      December 31, 2008                                                                                                                                                                |   | 6,295,298    |   | 51,303   |   | (3,224)                            |                          | 28,421   |   | (47,206) |   | 29,294  |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Cumulative effect adjustment      for OTTI/                     credit loss, net of tax of $5,871(1)                |   |              |   |          |   |                               |                          | 11,397   |          | (11,397) |   | -  |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Balance,      January 1, 2009                                                                                                                                                                  |   | 6,295,298    |   | 51,303   |   | (3,224)                            |                          | 39,818   |   | (58,603) |   | 29,294  |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
|          MRP forfeitures                                                                                                                                                        |   | (400)             |   |          |   |                               |                          |          |   |   |   |   |
|     Earned      ESOP shares released                                                                                                                                       |   |              |   |          |   | 510                           |                          |          |   |   |   | 510  |
|     ESOP      activity - Change in value of shares                committed to be released                               |   |              |   | (334)         |   |                               |                          |          |   |   |   | (334) |
| Amortization of compensation      related to MRP                                                                                                                                               |   |              |   | 51       |   |                               |                          |          |   |   |   | 51  |
| Amortization of compensation      related to SOP                                                                                                                                               |   |              |   | 26       |   |                               |                          |          |   |   |   | 26  |
| Comprehensive      income:                                                                                                                                                                     |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Net loss                                                                                                                                                                                       |   |              |   |          |   |                               |                          | (43,323)      |   |   |   | (43,323) |
| Unrealized gain on      available-for-sale                 securities,      net of tax of $13,715         |   |              |   |          |   |                               |                          |          |   | 26,623  |   | 26,623  |
| Total comprehensive income      (loss)                                                                                                                                                         |   |              |   |          |   |                               |                          |          |   |   |   | (16,700) |
|                                                                                                                                                                                           |   |              |   |          |   |                               |                          |          |   |   |   |   |
| Balance,      September 30, 2009                                                                                                                                                               |   | 6,294,898    |   | $51,046  |   | $(2,714)                           |                          | $(3,505)      |   | $(31,980) |   | $12,847  |

| (1)   | The      impact of adopting ASC 320-10-65, Recognition and Presentation      of Other-than-Temporary Impairments, was to increase the beginning      balance of retained earnings and reduce the beginning balance of other      comprehensive income/(loss) by $17.3 million (or $11.4 million after tax)      as of January 1, 2009. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                          |   | Nine      Months Ended September 30,                   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------------|
|                                                                          |   | 2009                                                   |   | 2008 |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                     |   |                                                   |   |   |
| Net loss                                                                      |   | $(43,323)                                              |   | $        (489) |
| Adjustments to reconcile net      loss to net cash from operating activities: |   |                                                   |   |   |
| Depreciation                                                                  |   | 1,728                                             |   | 1,763  |
| Impairment losses on      securities, net                                     |   | 32,343                                            |   | -  |
| Provision for loan      losses                                                |   | 12,000                                            |   | 6,700  |
| Deferred income      tax                                                      |   | 16,686                                            |   | 141  |
| Gain on sale of securities,      net                                          |   | -                                                 |   | (12) |
| Loss (gain) on sale of real      estate owned (“REO”)             |   | (23)                                                   |   | 25  |
| Loss on sale of premises and      equipment, net                              |   | 3                                                 |   | 1  |
| Gain on sale of loans,      net                                               |   | (4,866)                                                |   | (875) |
| Amortization of premiums and      discounts on securities                     |   | 170                                               |   | 774  |
| Amortization of intangible      assets                                        |   | 262                                               |   | 258  |
| Compensation for restricted      stock awards                                 |   | 51                                                |   | 806  |
| Compensation for stock      options                                           |   | 26                                                |   | 158  |
| Change in operating assets and      liabilities, net:                         |   |                                                   |   |   |
| Accrued interest      receivable                                              |   | 678                                               |   | 602  |
| Other assets                                                                  |   | (15,383)                                               |   | (2,013) |
| Corporate drafts      payable                                                 |   | (1,457)                                                |   | 1,982  |
| Other    liabilities                                                          |   | (380)                                                  |   | (379) |
|                                                                          |   |                                              |   |    |
| Net cash provided (used in)      from operating activities                    |   | (1,485)                                                |   | 9,442  |
|                                                                          |   |                                                   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                     |   |                                                   |   |   |
| Decrease (increase) in      interest-bearing deposits with banks              |   | (11,610)                                               |   | 75  |
| Activity in securities      available-for-sale:                               |   |                                                   |   |   |
| Sales                                                                         |   | -                                                 |   | 19,021  |
| Maturities, prepayments, and      calls                                       |   | 46                                                |   | 2,768  |
| Activity in securities      held-to-maturity:                                 |   |                                                   |   |   |
| Sales                                                                         |   | -                                                 |   | 3,702  |
| Maturities, prepayments, and      calls                                       |   | 6,298                                             |   | 5,536  |
| Increase in loans,      net                                                   |   | (36,716)                                               |   | (77,004) |
| Proceeds from sales of      loans                                             |   | 106,891                                           |   | 48,221  |
| Proceeds from sales of      REO                                               |   | 1,122                                             |          | 1,447  |
| Purchases of premises and      equipment                                      |   | (582)                                                  |   | (1,778) |
| Proceeds from sales of      premises and equipment                            |   | -                                                 |          | 1  |
|                                                                          |   |                                                   |   |   |
| Net cash provided from      investing activities                              |   | 65,449                                            |   | 1,989  |
|                                                                          |   |                                                   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                     |   |                                                   |   |   |
| Net increase (decrease) in      deposits                                      |   | (52,915)                                               |   | 2,569  |
| Advances on borrowed      funds                                               |   | 22,753                                            |   | 229,954  |
| Repayments of borrowed      funds                                             |   | (34,633)                                               |   | (241,908) |
| Repayment of ESOP      debt                                                   |   | 510                                               |   | 510  |
| Cash payments related to      acquisition of insurance agencies               |   | -                                                 |   | (1,121) |
| Change in value of ESOP shares      committed to be released                  |   | (334)                                                  |   | 67  |
| Dividends paid                                                                |   | -                                                 |   | (1,356) |
| Common stock      repurchased                                                 |   | -                                                 |          | (800) |
|                                                                          |   |                                                   |   |   |
| Net cash used in financing      activities                                    |   | (64,619)                                               |   | (12,085) |
|                                                                          |   |                                                   |   |   |
| NET      DECREASE IN CASH AND CASH EQUIVALENTS                                |   | (655)                                                  |   | (654) |
|                                                                          |   |                                                   |   |   |
| CASH      AND CASH EQUIVALENTS, at beginning of period                        |   | 8,811                                             |   | 8,724  |
|                                                                          |   |                                                   |   |   |
| CASH      AND CASH EQUIVALENTS, at end of period                              |   | $       8,156  |   | $       8,070  |

----

|                                                             |   | Nine      Months Ended September 30,                             |
|------------------------------------------------------------------|--------|------------------------------------------------------------------|
|                                                             |   | 2009                                                             |   | 2008 |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION           |   |                                                             |   |   |
| Cash payments    for:                                            |   |                                                             |   |   |
| Interest                                                         |   | $     16,070                            |   | $     19,952  |
|                                                             |   |                                                             |   |   |
| Income taxes                                                     |   | $          300 |   | $       1,750  |
|                                                             |   |                                                             |   |   |
| SUPPLEMENTAL      DISCLOSURES OF NON-CASH INVESTING ACTIVITIES   |   |                                                             |   |   |
|                                                             |   |                                                             |   |   |
| Loans charged-off to the      allowance for loan losses          |   | $     15,645                            |   | $          836  |
|                                                             |   |                                                             |   |   |
| Loans foreclosed upon with      repossessions transferred to REO |   | $       7,241                 |   | $       1,566  |
|                                                             |   |                                                             |   |   |
| Unrealized gains (losses) on      available-for-sale securities  |   | $     23,070                            |   | $        (42,739) |
|                                                             |   |                                                             |   |   |

----

----

| ·   | ASC      320-10-65, Recognition      and Presentation of Other-than-Temporary Impairments provides      additional guidance designed to create greater clarity and consistency in      accounting for and presenting impairment losses on      securities.    This was effective for interim      reporting periods ending after June 15, 2009, with early adoption      permitted for periods ending after March 15, 2009.  The Company      elected early adoption of this FSP in its interim consolidated financial      statements for the three months ended March 31,  2009. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | ASC      820-10-65 Determining      Fair Value When the Volume and Level of Activity for the Assets or      Liability Have Significantly Decreased and Identifying Transactions That      Are Not Orderly provides guidelines for making fair value      measurements more consistent with the principles presented in ASC      820-10-65, Fair Value      Measurements.  ASC 820-10-65 provides additional guidance      for estimating fair value when the volume and level of activity for the      asset or liability has significantly decreased.  This      pronouncement emphasizes that even if there has been a significant      decrease in the volume and level of activity for the asset or liability      and regardless of the valuation technique(s) used, the objective of a fair      value measurement remains the same.  Fair value is the price      that would be received to sell an asset or paid to transfer a liability in      an orderly transaction (that is, not a forced liquidation or distressed      sale) between market participants at the measurement date under current      market conditions.  ASC 820-10-65 is effective for all periods      ending after June 15, 2009, and shall be applied      prospectively.  Early adoption is permitted for all periods      ending after March 15, 2009, and the Company elected early adoption of      this pronouncement in its interim consolidated financial statements for      the three months ended March 31, 2009 (see Note 6  below). |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | ASC      825-10-65, Interim      Disclosures about Fair Value of Financial Instruments enhances      consistency in financial reporting by increasing the frequency of fair      value disclosures.  This pronouncement was effective for interim      reporting periods ending after June 15, 2009, with early adoption      permitted for periods ending after March 15, 2009.  The Company      did not elect early adoption of this pronouncement (see Note 6 below for      more information). |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|               |                                             |
|--------------------|--------------------------------------------------|
| ·   | Maintain      and preserve qualified management, |

| ·   | Increase      board of directors’ participation in the affairs of the    Bank, |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | Increase      the Bank’s capital, |
|--------------------|-----------------------------------------|

| ·   | Maintain      the Bank’s allowance for loan and lease losses at a level proportionate      with the risk in its loanportfolio, |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Reduce      the Bank’s classified assets, and prohibit the extension of loans to      borrowers that have had loans with the Bank that were classified or      charged-off, |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Implement      accurate and realistic models for valuing and pricing the Bank’s      collateralized debt obligations portfolio and recognizing      other-than-temporary impairmentsecurities, |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Develop      a three-year strategic businessplan, |
|--------------------|---------------------------------------------------|

| ·   | Formulate      and implement a profit plan, |
|--------------------|---------------------------------------------|

| ·   | Eliminate      and/or correct all violations of law and contraventions of      policy, |
|--------------------|----------------------------------------------------------------------------------------|

| ·   | Implement      a liquidity and funds management oversight  policy, |
|--------------------|--------------------------------------------------------------------|

| ·   | Restrict      interest rates that the Bank pays ondeposits; |
|--------------------|-------------------------------------------------------------|

| ·   | Reduce      the Bank’s brokered deposits, and |
|--------------------|-----------------------------------------------------|

| ·   | Prepare      and submit progress reports to the FDIC andDFI. |
|--------------------|--------------------------------------------------------------|

----

|                                |   |                |   | Gross                                                                |   | Gross      Unrealized Losses                                         |   |                                                                       |
|-------------------------------------|--------|---------------------|--------|----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|----------------------------------------------------------------------------|
| Securities      Available-for-Sale  |   | Amortized      Cost |   | Unrealized      Gains                                                |   | Less      Than12      months                                         |   | Greater      Than12      Months                                            |   | FairValue |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| September      30, 2009:            |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| Trust      preferred CDO securities |   | $71,851             |   | $           - |   | $           - |   | $48,455                                                                    |   | $23,396 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
|                                |   | $71,851             |   | $           - |   | $           - |   | $48,455                                                                    |   | $23,396 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| December      31, 2008:             |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| Trust      preferred CDO securities |   | $86,419             |   | $           - |   | $           - |   | $71,524                                                                    |   | $14,895 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
|                                |   | $86,419             |   | $           - |   | $           - |   | $71,524                                                                    |   | $14,895 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| Securities      Held-to-Maturity    |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| September      30, 2009:            |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| Mortgage-backed      securities     |   | $18,254             |   | $       811                       |   | $           - |   | $           -       |   | $19,065 |
| Municipal      obligations          |   | 9,377               |   | 302                                                                  |   | -                                                                    |   | -                                                                          |   | 9,679 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
|                                |   | $27,631             |   | $    1,113                                       |   | $           - |   | $           -       |   | $28,744 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| December      31, 2008:             |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
| Mortgage-backed      securities     |   | $22,899             |   | $       472                       |   | $           - |   | $            - |   | $23,371 |
| Municipal      obligations          |   | 11,085              |   | 20                                                                   |   | 186                                                                  |   | 128                                                                        |   | 10,791 |
|                                |   |                |   |                                                                 |   |                                                                 |   |                                                                       |   |   |
|                                |   | $33,984             |   | $       492                       |   | $       186                       |   | $        128                       |   | $34,162 |

----

|                                                              |   | September      30, 2009                                              |
|-------------------------------------------------------------------|--------|----------------------------------------------------------------------|
|                                                              |   | Less      than 12 Months                                             |   | 12      Months or Longer |   | Total |
|                                                              |   | Fair  Value                                                |   | Unrealized      Losses |   | Fair      Value |   | Unrealized      Losses |   | Fair      Value |   | Unrealized      Losses |
| Securities      Available-for-Sale                                |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
|      Trust      preferred CDO securities |   | $           - |   | $            - |   | $23,396 |   | $48,455 |   | $23,396 |   | $48,455 |
|                                                              |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
| Securities      Held-to-Maturity                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
|      Mortgage-backed      securities     |   | -                                                                    |   | - |   | - |   | - |   | - |   | - |
|      Municipal      obligations          |   | -                                                                    |   | - |   | - |   | - |   | - |   | - |
|       Total                         |   | $          -       |   | $            - |   | $23,396 |   | $48,455 |   | $23,396 |   | $48,455 |
|                                                              |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
|                                                              |   | December      31, 2008                                               |
|                                                              |   | Less      than 12 Months                                             |   | 12      Months or Longer |   | Total |
|                                                              |   | Fair  Value                                                |   | Unrealized      Losses |   | Fair      Value |   | Unrealized      Losses |   | Fair      Value |   | Unrealized      Losses |
| Securities      Available-for-Sale                                |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
|      Trust      preferred CDO securities |   | $          -       |   | $            - |   | $14,895 |   | $71,524 |   | $14,895 |   | $71,524 |
|                                                              |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
| Securities      Held-to-Maturity                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |   |
|      Mortgage-backed      securities     |   | -                                                                    |   | - |   | - |   | - |   | - |   | - |
|      Municipal      obligations          |   | 7,726                                                                |   | 186 |   | 2,183 |   | 128 |   | 9,909 |   | 314 |
|       Total                         |   | $  7,726                                                   |   | $       186 |   | $17,078 |   | $71,652 |   | $24,804 |   | $71,838 |

|                               |   | Available-for-Sale                                 |   | Held-to-Maturity                                   |
|------------------------------------|--------|----------------------------------------------------|--------|----------------------------------------------------|
|                               |   | Amortized      Cost                                |   | FairValue                                          |   | Amortized      Cost |   | Fair Value |
|                               |   |                                               |   |                                               |   |   |   |   |
| In      one year or less           |   | $        - |   | $        - |   | $       - |   | $        - |
| After      one year to five years  |   | -                                                  |   | -                                                  |   | - |   | - |
| After      five years to ten years |   | -                                                  |   |                                               |   | 3,343 |   | 3,500 |
| After      ten years               |   | 71,851                                             |   | 23,396                                             |   | 6,034 |   | 6,179 |
| Mortgage-backed      securities    |   | -                                                  |   | -                                                  |   | 18,254 |   | 19,065 |
|                               |   |                                               |   |                                               |   |   |   |   |
|                               |   | $71,851                                            |   | $23,396                                            |   | $27,631 |   | $28,744 |

----

----

| Trust      Preferred CDO Securities  |   | Par                            |   | Amortized      Cost            |   | Fair      Value                |   | Unrealized      Loss           |
|--------------------------------------|--------|--------------------------------|--------|--------------------------------|--------|--------------------------------|--------|--------------------------------|
|                                 |   |                           |   |                           |   |                           |   |                           |
| Temporarily      impaired            |   | $    9,570 |   | $    9,570 |   | $    3,341 |   | $    6,229 |
| Other-than-temporarily      impaired |   | 99,190                         |   | 62,281                         |   | 20,055                         |   | 42,226                         |
|                                 |   | $108,760                       |   | $71,851                        |   | $23,396                        |   | $48,455                        |

| PreTSL      Security |   | Note      Class |   | Original      Credit      Ratings      (1) |   | Current      Credit      Ratings      (1) |   | Payment      in Kind      (2)(3) |   | Total      # of      Issuers |   | Total      # of Performing Issuers |   | Actual      Default      % (4) |   | Actual      Deferral      % (5) |   | Projected      Deferrals/      Defaults      (% of performing collateral)      (6) |   | Excess      Subordination      (as a %      of performing      collateral)      (7) |
|----------------------|--------|-----------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|----------------------------------|--------|------------------------------|--------|------------------------------------|--------|--------------------------------|--------|---------------------------------|--------|------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|
| IV                   |   | Mezz.           |   | A3                                         |   | Ca                                        |   | No                               |   | 6                            |   | 4                                  |   | -                              |   | 2.1%                            |   | 39.0%                                                                              |   | 18.94%                                                                              |
| VI                   |   | Mezz.           |   | A1                                         |   | Caa1                                      |   | Yes                              |   | 5                            |   | 4                                  |   | -                              |   | 4.8%                            |   | -                                                                                  |   | -                                                                                   |
| VII                  |   | B               |   | A1                                         |   | Ca                                        |   | Yes                              |   | 20                           |   | 11                                 |   | 18.3%                          |   | 17.6%                           |   | 12.7%                                                                              |   | -                                                                                   |
| VIII                 |   | B-2,      3     |   | A2                                         |   | Ca                                        |   | Yes                              |   | 37                           |   | 24                                 |   | 11.4%                          |   | 24.4%                           |   | 3.5%                                                                               |   | -                                                                                   |
| IX                   |   | B-3             |   | A2                                         |   | Ca                                        |   | No                               |   | 49                           |   | 37                                 |   | 6.5%                           |   | 17.0%                           |   | 2.7%                                                                               |   | -                                                                                   |
| X                    |   | B-3             |   | A2                                         |   | Ca                                        |   | Yes                              |   | 58                           |   | 43                                 |   | 7.6%                           |   | 19.0%                           |   | -                                                                                  |   | -                                                                                   |
| XI                   |   | B-1             |   | A2                                         |   | Ca                                        |   | No                               |   | 65                           |   | 54                                 |   | 6.3%                           |   | 10.6%                           |   | 6.7%                                                                               |   | -                                                                                   |
| XII                  |   | B-1,      2, 3  |   | A2                                         |   | Ca                                        |   | Yes                              |   | 79                           |   | 63                                 |   | 7.3%                           |   | 15.2%                           |   | 3.4%                                                                               |   | -                                                                                   |
| XIII                 |   | B-2,      3     |   | A2                                         |   | Ca                                        |   | No                               |   | 65                           |   | 55                                 |   | 4.4%                           |   | 12.3%                           |   | 7.3%                                                                               |   | -                                                                                   |
| XIV                  |   | B-1,      2     |   | A2                                         |   | Ca                                        |   | No                               |   | 64                           |   | 50                                 |   | 1.7%                           |   | 13.4%                           |   | 2.9%                                                                               |   | -                                                                                   |
| XV                   |   | B-1             |   | A2                                         |   | Ca                                        |   | Yes                              |   | 72                           |   | 59                                 |   | 11.4%                          |   | 10.6%                           |   | 4.4%                                                                               |   | -                                                                                   |
| XVI                  |   | C               |   | A2                                         |   | Ca                                        |   | Yes                              |   | 58                           |   | 45                                 |   | 6.9%                           |   | 19.0%                           |   | 8.6%                                                                               |   | -                                                                                   |
| XVII                 |   | C               |   | A2                                         |   | Ca                                        |   | Yes                              |   | 59                           |   | 47                                 |   | 3.2%                           |   | 13.2%                           |   | 6.2%                                                                               |   | -                                                                                   |
| XVIII                |   | C               |   | A2                                         |   | Ca                                        |   | Yes                              |   | 83                           |   | 63                                 |   | 1.5%                           |   | 18.3%                           |   | 5.7%                                                                               |   | -                                                                                   |
| XIX                  |   | C               |   | A2                                         |   | Ca                                        |   | Yes                              |   | 74                           |   | 62                                 |   | 8.2%                           |   | 6.5%                            |   | 9.9%                                                                               |   | -                                                                                   |

| (1)   | Ratings      presented are those of Moody’s Investor  Services. |
|-----------------|-----------------------------------------------------------------------|

| (2)   | The      structure of these securities allows for the deferral of interest payments      by the underlying issuers for up to 20 consecutive      quarters.  When such deferrals reach a certain level, the cash      flow to the mezzanine tranches (i.e., the Note Class in the table above)      held by the Company will be reduced and the amount actually paid to the      mezzanine tranches will be less than the amount due.  When this      “shortfall” in payments occurs, the security is considered to be      experiencing a “payment in kind” condition.  A “yes” indicator      in the table above signifies that the security held by the Company is      experiencing a “payment in kind” condition, and a “no” indicator signifies      that the security is paying all amounts due in  full. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | For      those securities that experience a “payment in kind” condition (as      indicated with a “yes” in the table above), the Company capitalizes any      interest payment shortfall as an increase to the par value of the      security.  As of September 30, 2009, the cumulative amount      capitalized across all 15 securities was $963,000, of which $176,000 was      reversed from interest income and $787,000 was charged-off against      earnings. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | This      represents the percentage of the original collateral that has actually      defaulted; and for cash flow modeling, it is assumed that there will be no      recovery of this collateral. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | This      represents the percentage of the original collateral that has actually      deferred; and for cash flow modeling, it is assumed that there will be no      recovery of this collateral. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | Projected      Deferrals/Defaults represent the additional defaults that the Company      projects the security will incur immediately and is expressed as a      percentage of the performing collateral.  In addition to these      Projected Deferrals/Defaults, the Company projects an additional 0.50%      annual default rate on the performing collateral in its cash flow      models. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Excess      Subordination represents the additional defaults in excess of the actual      defaults and deferrals that the CDO can absorb before the mezzanine      tranche of the security held by the Company experiences a “shortfall” in      principal or interest due.  With the exception of PreTSL IV,      there is no excess subordination available to the mezzanine tranches held      by the Company. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                          |   |   |                         |   |                               |   |                             |   |                                 |   |   | OTTI      Credit Losses                                                     |         |                                                              |
|-------------------------------------------------------------------------------|--------|--------|------------------------------|--------|------------------------------------|--------|----------------------------------|--------|--------------------------------------|--------|--------|----------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------|
|  Pre      TSLSecurity                                                    |   |   | Par      Value          |   | AmortizedCost                 |   | FairValue                   |   | UnrealizedLoss                  |   |   | For      the Three Months      EndedSeptember 30, 2009                      |    | For      the NineMonths EndedSeptember 30, 2009              |   | Cumulative(History-to-Date)  |   |   |
| IV                                                                            |   |   |  $   488 |   | $     420 |   | $   253           |   | $     (167) |   |   |  $            - |         |  $         (68) |   |  $       (68) |   |   |
| VI                                                                            |   |   |    194        |   |     132        |   |      94 |   |     (38)         |   |   |      -                                                  |         |      (62)                                |   |       (62) |   |   |
| VII                                                                           |   |   | 6,505                        |   |  2,217                        |   | 1,182                            |   | (1,035)                              |   |   | (1,379)                                                                          |         | (2,403)                                                           |   | (4,252) |   |   |
| VIII                                                                          |   |   | 15,000                       |   | 4,124                              |   | 1,601                            |   | (2,523)                              |   |   | -                                                                                |         | (8,774)                                                           |   | (10,750) |   |   |
| IX                                                                            |   |   | 5,000                        |   | 4,063                              |   | 1,449                            |   | (2,614)                              |   |   | (719)                                                                            |         | (937)                                                             |   | (937) |   |   |
| X                                                                             |   |   | 4,000                        |   | 2,414                              |   | 805                              |   | (1,609)                              |   |   | (872)                                                                            |         | (966)                                                             |   | (1,582) |   |   |
| XI                                                                            |   |   | 2,000                        |   | 1,934                              |   | 693                              |   | (1,241)                              |   |   | (66)                                                                             |         | (66)                                                              |   | (66) |   |   |
| XII                                                                           |   |   | 11,063                       |   | 8,709                              |   | 3,038                            |   | (5,671)                              |   |   | (2,354)                                                                          |         | (2,354)                                                           |   | (2,354) |   |   |
| XIII                                                                          |   |   | 4,000                        |   | 3,734                              |   | 1,212                            |   | (2,522)                              |   |   | (266)                                                                            |         | (266)                                                             |   | (266) |   |   |
| XIV                                                                           |   |   | 9,570                        |   | 9,570                              |   | 3,341                            |   | (6,229)                              |   |   | -                                                                                |         | -                                                                 |   | - |   |   |
| XV                                                                            |   |   | 15,644                       |   | 13,386                             |   | 3,230                            |   | (10,156)                             |   |   | (2,258)                                                                          |         | (2,258)                                                           |   | (2,258) |   |   |
| XVI                                                                           |   |   | 13,125                       |   | 3,187                              |   | 1,751                            |   | (1,436)                              |   |   | (9,951)                                                                          |         | (9,951)                                                           |   | (9,951) |   |   |
| XVII                                                                          |   |   | 9,347                        |   | 7,728                              |   | 1,890                            |   | (5,838)                              |   |   | (1,623)                                                                          |         | (1,623)                                                           |   | (1,623) |   |   |
| XVIII                                                                         |   |   | 2,964                        |   | 2,054                              |   | 664                              |   | (1,390)                              |   |   | (878)                                                                            |         | (929)                                                             |   | (929) |   |   |
| XIX                                                                           |   |   | 9,860                        |   | 8,179                              |   | 2,193                            |   | (5,986)                              |   |   | (1,686)                                                                          |         | (1,686)                                                           |   | (1,686) |   |   |
|             Total |   |   | $108,760                |   | $71,851                       |   | $23,396                     |   | $(48,455)                       |   |   | $(22,052)                                                                   |         | $(32,343)                                                    |   | $(36,784)  |   |   |

|                                                       |   |   | For      the Three Months      Ended September      30, 2009                                                                                                  |   | For      the Nine Months      Ended September      30, 2009                                                                                 |
|------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|                                                       |   |   |                                                                                                                                                          |   |                                                                                                                                        |
| Estimated      credit losses, beginning balance (1)        |   |   | $     14,731                                                                                                                         |   | $     4,440                                                                                                        |
| Additions      for credit losses not previously recognized |   |   |  22,052                                                                                                                                                  |   |      32,343                                                                                                        |
| Reduction      for increases in cash flows                 |   |   |                      -                               |   |                        - |
| Reduction      for realized losses                         |   |   |                           - |   |                        - |
| Estimated      credit losses at September 30, 2009         |   |   | $     36,783                                                                                                                         |   | $36,783                                                                                                                                     |

| (1)   | The      beginning balance represents the cumulative amount of credit losses      recognized as of January 1, 2009, and reflects the impact of adopting ASC      320-10-65, Recognition      and Presentation of Other-than-Temporary    Impairments. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                      |                                 |   |                                                                           |
|-------------------------------------------|--------------------------------------|--------|--------------------------------------------------------------------------------|
|                                      | Carrying      Amount                 |   | Estimated     Fair      Value     |
| Financial      assets                     |                                 |   |                                                                           |
| Cash      and cash equivalents            | $     8,156 |   | $          8,156             |
| Interest      bearing deposits with banks | 41,035                               |   | 41,035                                                                         |
| Securities                                | 51,027                               |   | 52,140                                                                         |
| FHLB      stock                           | 13,712                               |   | 13,712                                                                         |
| Loans      receivable, net (1)            | 574,402                              |   | 629,538                                                                        |
|                                      |                                 |   |                                                                           |
| Financial      liabilities                |                                 |   |                                                                           |
| Deposits                                  | $466,324                             |   | $      467,272                                   |
| Borrowed      funds                       | 279,337                              |   | 310,354                                                                        |
| Corporate      drafts payable             | 97                                   |   | 97                                                                             |

| (1)   | Loans      receivable are not specifically discounted for credit losses that a      potential buyer of the loans might apply under current economic      conditions, but does include a discount for credit losses equal to the      allowance for loan losses established by the Company.  The      carrying amount of loans receivable includes $19.5 million in      non-performing loans for which their estimated fair value was determined      in a manner consistent with all otherloans. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Measured      on a recurring basis:                      |   | Quoted      Prices in Active      Markets for Identical      Assets(Level      1) |   | Significant      Other Observable      Inputs(Level      2)                |   | Significant      Unobservable      Inputs(Level      3) |   | Assets      at Fair Value |
|----------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------|
| Available-for-sale      securities:                      |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
|                                                     |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
|      At      September 30, 2009 |   | $            -        |   | $            - |   | $    23,396                         |   | $23,396                   |
|                                                     |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
|      At      June 30, 2009      |   | $            -        |   | $            - |   | $    36,280                         |   | $36,280                   |
|                                                     |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
|      At      March 31, 2009     |   | $            -        |   | $            - |   | $    28,233                         |   | $28,233                   |
|                                                     |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
|      At      December 31, 2008  |   | $            -        |   | $            - |   | $    14,895                         |   | $14,895                   |

----

|                                                                      |   | SecuritiesAvailable-for-Sale(Level      3)                                                    |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                      |   |                                                                                          |
| Beginning      Balance at June 30, 2009                                   |   | $   36,280                                                                |
|    Transfers      into Level 3 (1)                         |   |               318  |
|    Total      realized losses on OTTI securities (2)       |   |         (22,052)                                      |
|    Total      unrealized net gains on OTTI securities      |   |          11,071                             |
|    Total      unrealized net losses on non-OTTI securities |   |          (2,221)                                 |
|    Purchases                                               |   |          -                                  |
|    Paydowns      and Maturities                            |   |             -                |
| Ending      Balance at September 30, 2009                                 |   | $    23,396                                                          |
|                                                                      |   |                                                                                          |

----

|                                                                     |   | SecuritiesAvailable-for-Sale(Level      3)                                                    |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                     |   |                                                                                          |
| Beginning      Balance at December 31, 2008                              |   | $    14,895                                                               |
|    Transfers      into Level 3 (1)                        |   |               787  |
|    Total      realized losses on OTTI securities (2)      |   |         (32,343)                                      |
|    Total      unrealized net gains on OTTI securities     |   |          38,109                             |
|    Total      unrealized net gains on non-OTTI securities |   |            1,994                  |
|    Purchases                                              |   |          -                                  |
|    Paydowns      and Maturities                           |   |         (46)                                          |
| Ending      Balance at September 30, 2009                                |   | $     23,396                                                    |
|                                                                     |   |                                                                                          |

| Measured      on a non-recurring basis: |   | Quoted      Prices in Active      Markets for Identical      Assets(Level      1) |   | Significant      Other Observable      Inputs(Level      2)                |   | Significant      Unobservable      Inputs(Level      3) |   | Assets      at Fair Value |
|-----------------------------------------|--------|-----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------|
|                                    |   |                                                                              |   |                                                                       |   |                                                    |   |                      |
| Impaired      loans                     |   | $            -        |   | $            - |   | $     18,853                   |   | $18,853                   |
| Real      estate owned                  |   |  -                                                                           |   |  -                                                                    |   | 12,890                                                  |   | 12,890                    |
|    Total                 |   | $            -        |   | $            - |   | $     31,743                   |   | $31,743                   |

----

|                                  | Three      Months Ended                                                        |   | Nine      Months Ended                           |
|---------------------------------------|--------------------------------------------------------------------------------|--------|--------------------------------------------------|
|                                  | September      30,                                                             |   | September      30,                               |
|                                  | 2009                                                                           |   | 2008                                             |   | 2009 |   | 2008 |
| Allowance      at beginning of period | $          11,719       |   | $      8,271  |   | $          13,329  |   | $        8,079   |
|                                  |                                                                           |   |                                             |   |   |   |   |
| Provision for loan      losses        | 5,700                                                                     |   | 6,000                                       |   | 12,000 |   | 6,700 |
| Recoveries                            | 33                                                                        |   | 29                                          |   | 95 |   | 167 |
| Charge-offs                           | (7,768)                                                                        |   | (357)                                            |   | (15,740) |   |   (1,003) |
|                                  |                                                                           |   |                                             |   |   |   |   |
| Allowance      at end of period       | $           9,684  |   | $    13,943             |   | $        9,684  |   | $     13,943    |

----

|                               | Number      of Options           |   | Weighted-Average      Price Exercise      Price                     |   | Aggregate      Intrinsic      Value (1)                                                                                          |
|------------------------------------|---------------------------------------|--------|---------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------|
| Balance      at December 31, 2008  |      560,800 |   | $          16.55  |   |                                                                                                                             |
|                               |                                  |   |                                                                |   |                                                                                                                             |
| Granted                            | -                                     |   |            - |   |                                                                                                                             |
| Exercised                          | -                                     |   |            - |   |                                                                                                                             |
| Cancelled/Forfeited                | (54,600)                              |   | 16.93                                                               |   |                                                                                                                             |
|                               |                                  |   |                                                                |   |                                                                                                                             |
| Balance      at September 30, 2009 |    506,200             |   | $        16.51              |   | $                     - |

| Year      of Grant |   | Number      of Outstanding      Options |   | Weighted-AverageRemainingContractual      Lifein      Years |   | Weighted-AverageExercise      Price of      Outstanding Options |   | NumberExercisable |   | Weighted-AverageExercise      Priceof      ExercisableOptions |
|--------------------|--------|-----------------------------------------|--------|-------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-------------------|--------|---------------------------------------------------------------|
| 2004               |   | 461,800                                 |   | 4.75                                                        |   | $     16.26                            |   | 461,800           |   | $    16.26                                |
| 2005               |   | 15,600                                  |   | 6.00                                                        |   | 16.72                                                           |   | 12,480            |   | 16.72                                                         |
| 2007               |   | 28,800                                  |   | 7.75                                                        |   | 20.40                                                           |   | 11,520            |   | 20.40                                                         |
|               |   | 506,200                                 |   | 4.96                                                        |   | $     16.51                            |   | 485,800           |   | $    16.37                                |

----

|                                                                                                                                                                                        |   | Three      Months EndedSeptember      30,                           |   | Nine      Months EndedSeptember      30,                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------------|
|                                                                                                                                                                                        |   | 2009                                                                |   | 2008                                                                      |   | 2009 |   | 2008 |
| Numerator:                                                                                                                                                                                  |   |                                                                |   |                                                                      |   |   |   |   |
| Net loss                                                                                                                                                                                    |   | $  (35,010)                                               |   | $      (2,950)                              |   | $    (43,323) |   | $         (489) |
|                                                                                                                                                                                        |   |                                                                |   |                                                                      |   |   |   |   |
| Denominator:                                                                                                                                                                                |   |                                                                |   |                                                                      |   |   |   |   |
| Denominator for basic earnings      per share:                                                                                                                                              |   |                                                                |   |                                                                      |   |   |   |   |
| Weighted average      shares                                                                                                                                                                |   | 6,011,065                                                      |   | 5,998,207                                                            |   | 5,992,934  |   | 5,989,822  |
| Effect of dilutive common      stock equivalents:                                                                                                                                           |   |                                                                |   |                                                                      |   |   |   |   |
| Stock options                                                                                                                                                                               |   | -                                                              |   | -                                                                    |   | -  |   | -  |
| MRP restricted      stock                                                                                                                                                                   |   | -                                                              |   | -                                                                    |   | -  |   | -  |
| Denominator for diluted      earnings per share:                                                                                                                                            |   |                                                                |   |                                                                      |   |   |   |   |
| Weighted average shares and      assumed conversion of                    dilutive stock options and restricted stock |   | 6,011,065                                                      |   | 5,998,207                                                            |   | 5,992,934  |   | 5,989,822  |
|                                                                                                                                                                                        |   |                                                                |   |                                                                      |   |   |   |   |
| Basic      loss per share                                                                                                                                                                   |   | $               (5.82) |   | $           (0.49) |   | $           (7.23) |   | $           (0.08) |
| Diluted      loss per share                                                                                                                                                                 |   | $          (5.82) |   | $           (0.49) |   | $           (7.23) |   | $           (0.08) |

----

----

|                                      | At      September 30,            |   | At      December 31,             |   | $      Increase (Decrease)        |   | %      Increase (Decrease)   |
|-------------------------------------------|----------------------------------|--------|----------------------------------|--------|-----------------------------------|--------|------------------------------|
|                                      | 2009                             |   | 2008                             |
|                                      |                             |   |                             |   |                              |   |                         |
| Total assets                              | $    764,154 |   | $    847,233 |   | $    (83,079) |   | (9.8)%                       |
| Investment securities (1)                 | 51,027                           |   | 48,879                           |   | 2,148                        |   | 4.4      |
| Interest-bearing deposits with      banks | 41,035                           |   | 29,425                           |   | 11,610                       |   | 39.5     |
| Loans, net                                | 574,402                          |   | 658,952                          |   | (84,550)                          |   | (12.8)        |
| Deposits                                  | 466,324                          |   | 519,239                          |   | (52,915)                          |   | (10.2)        |
| Borrowed funds                            | 279,337                          |   | 291,217                          |   | (11,880)                          |   | (4.1)         |
| Total shareholders’      equity     | 12,847                           |   | 29,294                           |   | (16,447)                          |   | (56.1)        |

|                                 | At      September 30, 2009            |   | At      December 31, 2008                                                 |    | $      Increase (Decrease)            |   | %      Increase (Decrease)  |
|--------------------------------------|---------------------------------------|--------|---------------------------------------------------------------------------|---------|---------------------------------------|--------|-----------------------------|
|                                 | Amount                                |   | Percent                                                                   |    | Amount                                |   | Percent                     |   |   |
| Real      estate:                    |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| One-to four-family      residential  |    $       47,841 |   | 8.2                                                                       | %  |    $       56,325 |   | 8.4                         | %  |    $       (8,484) |   | (15.1)% |
| Five or more family      residential | 135,023                               |   | 23.1                                                                      |    | 148,949                               |   | 22.2                        |   | (13,926) |   | (9.3)          |
| Commercial                           | 251,003                               |   | 43.0                                                                      |    | 253,801                               |   | 37.7                        |   | (2,798) |   | (1.1)          |
| Total real    estate                 | 433,867                               |   | 74.3                                                                      |    | 459,075                               |   | 68.3                        |   | (25,208) |   | (5.5)    |
|                                 |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Real      estate construction:       |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| One-to four-family      residential  | 41,956                                |   | 7.2                                                                       |    | 71,424                                |   | 10.6                        |   | (29,468) |   | (41.3)    |
| Five or more family      residential | 496                                   |   | 0.1                                                                       |    | 483                                   |   | 0.1                         |   | 13  |   | 2.7     |
| Commercial                           | 11,484                                |   | 1.9                                                                       |    | 9,953                                 |   |     1.5 |   | 1,531  |   | 15.4     |
| Total real estate      construction  | 53,936                                |   | 9.2                                                                       |    | 81,860                                |   | 12.2                        |   | (27,924) |   | (34.1)    |
|                                 |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Consumer:                            |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Automobile                           | 7,491                                 |   | 1.3                                                                       |    | 11,818                                |   | 1.8                         |   | (4,327) |   | (36.6)    |
| Home equity                          | 36,085                                |   | 6.2                                                                       |    | 42,442                                |   | 6.3                         |   | (6,357) |   | (15.0)    |
| Credit cards                         | -                                     |   |             - |    | 23,192                                |   | 3.4                         |   | (23,192) |   | (100.0)    |
| Other                                | 7,401                                 |   | 1.2                                                                       |    | 8,132                                 |   | 1.2                         |   | (731) |   | (9.0)    |
| Total consumer                       | 50,977                                |   | 8.7                                                                       |    | 85,584                                |   | 12.7                        |   | (34,607) |   | (40.4)    |
|                                 |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Commercial      business             | 45,306                                |   | 7.8                                                                       |    | 45,762                                |   | 6.8                         |   | (456) |   | (1.0)    |
|                  |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Total      loans                     | 584,086                               |   | 100.0                                                                     | %       | 672,281                               |   | 100.0                       | %  | (88,195) |   | (13.1)    |
|                                 |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Less allowance for loan      losses  | (9,684)                               |   |                                                                      |    | (13,329)                              |   |                        |   | 3,645  |   | (27.3)    |
|                                 |                                  |   |                                                                      |    |                                  |   |                        |   |   |   |   |
| Loans,      net                      | $574,402                              |   |                                                                      |    | $658,952                              |   |                        |   | $(84,550) |   | (12.8)% |

----

|                                         |                            |   |                            |   | $      Increase (Decrease)                 |   | %      Increase (Decrease)                                                                                                |
|----------------------------------------------|---------------------------------|--------|---------------------------------|--------|--------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
|                                         | At      September 30,2009       |   | At      December 31, 2008       |   |                                       |
| Available-for-sale:                          |                            |   |                            |   |                                       |   |                                                                                                                      |
| Trust preferred CDO      securities          | $    23,396 |   | $    14,895 |   | $      8,501 |   | 57.1%                                                                                                                     |
| Total      available-for-sale                | 23,396                          |   | 14,895                          |   | 8,501                                      |   | 57.1                                                                                                       |
|                                         |                            |   |                            |   |                                       |   |                                                                                                                      |
| Held-to-maturity:                            |                            |   |                            |   |                                       |   |                                                                                                                      |
| Municipal      obligations                   | 9,377                           |   | 11,085                          |   | (1,708)                                    |   | (15.4)                                                                                                          |
| Mortgage-backed      securities              | 18,254                          |   | 22,899                          |   | (4,645)                                    |   | (20.3)                                                                                                          |
| Total      held-to-maturity                  | 27,631                          |   | 33,984                          |   | (6,353)                                    |   | (18.7)                                                                                                               |
|                                         |                            |   |                            |   |                                       |   |                                                                                                                      |
| Total      Investment Securities             | 51,027                          |   | 48,879                          |   | 2,148                            |   | 4.4                                                                                                        |
|                                         |                       |   |                       |   |                                       |   |                                                                                                                      |
| Federal Home Loan Bank of      Seattle stock | 13,712                          |   | 13,712                          |   | -                                |   |                  -    |
|                                         |                            |   |                            |   |                                       |   |                                                                                                                      |
|  Total                                  | $    64,739 |   | $    62,591 |   | $         2,148   |   | 3.4%                                                                                                                      |

----

|                                                                       | At      September 30, 2009            |    | At      December 31, 2008                                                                                   |   |                                                                                         |    |                                                                                         |
|----------------------------------------------------------------------------|---------------------------------------|---------|-------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------------------|
|                                                                       | Amount                                |    | Percent      of Total      Loans                                                                            |   | Amount                                                                                       |    | Percent      of Total      Loans                                                             |   | $      Increase  (Decrease) |   |  %      Increase (Decrease) |
| Loans      90 days or more past due or non-accrual      loans:             |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
|                                                                       |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
| Real estate                                                                |    $1,604              |    |                  0.27% |   | $              -  |    |               -%  |   |    $1,604 |   |                100.0% |
| Real estate      construction                                              | 18,155                                |    | 3.11                                                                                         |   |        24,042                                        |    |          3.58                    |   | (5,887) |   |        (24.5)   |
| Consumer                                                                   | 229                                   |    | 0.04                                                                                         |   |        488                                           |    |          0.07                    |   | (259) |   | (53.1)   |
| Commercial      business                                                   | 872                                   |    | 0.15                                                                                         |   |        14                                            |    |          -                       |   | 858 |   | 6,128.6    |
| Total non-performing      loans                                            | 20,860                                |    | 3.57%                                                                                                       |   |        24,544                                        |    |       3.65%                                                    |   | (3,684) |   | (15.0)   |
|                                                                       |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
| Other      non-performing assets                                           |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
| Real estate    owned                                                       | 12,890                                |    |                                                                                                        |   | 6,796                                                                                        |    |                                                                                         |   | 6,094 |   | 89.7    |
| Other repossessed      assets                                              | 2                                     |    |                                                                                                        |   | 38                                                                                           |    |                                                                                         |   | (36) |   | (94.7)   |
| Total other non-performing      assets                                     | 12,892                                |    |                                                                                                        |   | 6,834                                                                                        |    |                                                                                         |   | 6,058 |   | 88.6    |
|                                                                       |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
|  Total      non-performing assets (1)                                 | $     33,752 |    |                                                                                                        |   | $31,378                                                                                      |    |                                                                                         |   | $      2,374 |   | 7.6% |
|                                                                       |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
| Total      non-performing assets as a percentage of total assets (1)       | 4.42                                  | %  |                                                                                                        |   | 3.70                                                                                         | %  |                                                                                         |   |   |   |   |
|                                                                       |                                  |    |                                                                                                        |   |                                                                                         |    |                                                                                         |   |   |   |   |
| Loans      greater than 30 days delinquent as percentage of total    loans | 3.75                                  | %  |                                                                                                        |   | 4.00                                                                                         | %  |                                                                                         |   |   |   |   |

|   | (1)  Excludes seven trust preferred      CDO securities in an amount of $14.4 million (at fair value) as of      September 30, 2009 that are being treated by the Company as      “non-accrual.”  Due to the rights granted to the issuers of the      debt collateralizing the security that allow the issuers to contractually      defer interest payments for up to 20 consecutive quarters, the security is      not deemed to be “non-performing” under its original      terms.  However, if these securities were deemed “non-performing      assets,” the non-performing assets as a percentage of assets reported for      September 30, 2009 would be6.29%. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                  | At      September 30, 2009 |   | At      December 31, 2008 |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------|----------------------------|--------|---------------------------|--------|----------------------------|--------|----------------------------|
|                                  | Amount                     |   | Percent                   |   | Amount                     |   | Percent                    |   |   |
|                                  |                       |   |                      |   |                       |   |                       |   |   |   |   |
| Non-interest-bearing      checking    | $  45,107             |   | 9.7%                      |   | $  40,331             |   | 7.8%                       |   | $4,776  |   | 11.8%  |
| Interest-bearing      checking        | 42,678                     |   | 9.1        |   | 36,468                     |   | 7.0         |   | 6,210  |   | 17.0           |
| Savings      accounts                 | 31,601                     |   | 6.8        |   | 28,197                     |   | 5.4         |   | 3,404  |   | 12.1           |
| Money      market accounts            | 131,855                    |   | 28.3       |   | 145,311                    |   | 28.0        |   | (13,456) |   | (9.3)          |
| IRA      accounts                     | 5,586                      |   | 1.2        |   | 6,382                      |   | 1.2         |   | (796) |   | (12.5)          |
| Brokered      certificates of deposit | 18,998                     |   | 4.1        |   | 87,442                     |   | 16.9        |   | (68,444) |   | (78.3)          |
| Retail      certificates of deposit   | 190,499                    |   | 40.8       |   | 175,108                    |   | 33.7        |   | 15,391  |   | 8.8           |
| Total deposits                        | $466,324                   |   | 100.0%                    |   | $519,239                   |   | 100.0%                     |   | $(52,915) |   | (10.2)% |
|                                  |                       |   |                      |   |                       |   |                       |   |   |   |   |
| Core      deposits                    | $256,827                   |   | 55.1%                     |   | $256,689                   |   | 49.4%                      |   | $       138  |   | 0.1%  |
| Non-core      deposits                | 209,497                    |   | 44.9       |   | 262,550                    |   | 50.6        |   | (53,053) |   | (20.2)          |
| Total deposits                        | $466,324                   |   | 100.0%                    |   | $519,239                   |   | 100.0%                     |   | $(52,915) |   | (10.2)%  |

----

|                                            | Three      Months Ended September 30,           |   | $      Increase (Decrease)                      |   | %      Increase (Decrease) |
|-------------------------------------------------|-------------------------------------------------|--------|-------------------------------------------------|--------|----------------------------|
|                                            | 2009                                            |   | 2008                                            |   |                       |
| Net      interest income                        | $    5,031             |   | $    6,154             |   | $ (1,123)                  |   | (18.2)% |
| Non-interest      income                        | 2,496                                      |   | 2,479                                      |   | 17                    |   | 0.7      |
| Total      revenue                              |      7,527        |   |      8,633        |   | (1,106)                    |   | (12.8)     |
| Provision      for loan losses                  |     5,700              |   |       6,000  |   | (300)                      |   | (5.0)     |
| Non-interest      expense                       |       7,546  |   |       7,022  |   | 524                   |   | 7.5      |
| Impairment      loss on securities              |   (22,052)                            |   | -                                          |   | (22,052)                   |   | (100.0)     |
| Provision      (benefit) for federal income tax |       7,239  |   | (1,439)                                         |   | 8,678                 |   | (603.1)    |
| Net      loss                                   | (35,010)                                        |   | (2,950)                                         |   | (32,060)                   |   | (1,086.8)    |

|                                  | Three      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------|---------------------------------------|--------|----------------------------|--------|----------------------------|
|                                  | 2009                                  |   | 2008                       |   |                       |
| Interest      income:                 |                                  |   |                       |   |                       |   |   |
| Loans                                 | $    9,291        |   | $10,666                    |   | $ (1,375)                  |   | (12.9)% |
| Securities      available-for-sale    | 217                                   |   | 1,304                      |   | (1,087)                    |   | (83.4)    |
| Securities      held-to-maturity      | 301                                   |   | 398                        |   | (97)                       |   | (24.4)    |
| Interest-bearing      deposits        | 34                                    |   | -                          |   | 34                    |   | 100.0     |
| Federal Home Loan Bank      dividends | -                                     |   | 48                         |   | (48)                       |   | (100.0)    |
| Total interest      income            | 9,843                                 |   | 12,416                     |   | (2,573)                    |   | (20.7)    |
|                                  |                                  |   |                       |   |                       |   |   |
| Interest      expense:                |                                  |   |                       |   |                       |   |   |
| Deposits                              | 1,656                                 |   | 2,735                      |   | (1,079)                    |   | (39.5)    |
| Borrowed funds                        | 3,156                                 |   | 3,527                      |   | (371)                      |   | (10.5)         |
| Total interest      expense           | 4,812                                 |   | 6,262                      |   | (1,450)                    |   | (23.2)    |
| Net      interest income              | $ 5,031                               |   | $ 6,154                    |   | $(1,123)                   |   | (18.2)% |

----

|                                  | Three      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------|---------------------------------------|--------|----------------------------|--------|----------------------------|
|                                  | 2009                                  |   | 2008                       |   |                       |
| Allowance      at beginning of period | $11,719                          |   | $  8,271         |   | $ 3,448               |   | 41.7%  |
| Provision for loan      losses        | 5,700                            |   | 6,000                 |   | (300)                      |   | (5.0)          |
| Recoveries                            | 33                               |   | 29                    |   | 4                     |   | 13.8           |
| Charge-offs                           | (7,768)                               |   | (357)                      |   | (7,411)                    |   | 2,075.9           |
| Allowance      at end of period       | $  9,684                    |   | $13,943               |   | $(4,259)                   |   | (30.5)% |

----

|                                 | Three      Months Ended September 30,                                |   | $      Increase (Decrease)                                                 |   | %      Increase (Decrease)                                |
|--------------------------------------|----------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|-----------------------------------------------------------|
|                                 | 2009                                                                 |   | 2008                                                                       |   |                                                      |
| Deposit      service fees            | $      948                             |   | $      958                              |   | $            (10)           |   | (1.0)% |
| Loan      service fees               |         169                  |   |         310                   |   | (141)                                                     |   | (45.5)    |
| Insurance      service fees          |    566                                                |   |    598                                                 |   | (32)                                                      |   | (5.4)    |
| Investment      service fees         |    120                                                |   |    147                                                 |   | (27)                                                      |   | (18.4)    |
| Real      estate lease income        |    183                                                |   |    270                                                 |   | (87)                                                      |   | (32.2)    |
| Gain      on sale of securities, net |    -                                                  |   |    1                                                   |   | (1)                                                       |   | (100.0)    |
| Gain      on sale of loans, net      |    431                                                |   |     190                                           |   | 241                                                  |   | 126.8     |
| Gain      (loss) on sale of REO, net |    33                                                 |   |    (32)                                                     |   | 65                                                   |   | (203.1)    |
| Other      operating income          |            46 |   |            37  |   | 9                                                    |   | 24.3     |
| Total non-interest      income       | $   2,496                                             |   | $   2,479                                              |   | $        17  |   | 0.7% |

|                                                                           | Three      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease)                     |
|--------------------------------------------------------------------------------|---------------------------------------|--------|----------------------------|--------|------------------------------------------------|
|                                                                           | 2009                                  |   | 2008                       |   |                                           |
| Compensation      and benefits                                                 | $3,719                                |   | $4,044                     |   | $    (325)                 |   | (8.0)% |
| Office      operations                                                         | 1,039                                 |   | 990                        |   | 49                                        |   | 4.9     |
| Occupancy                                                                      | 654                                   |   | 572                        |   | 82                                        |   | 14.3     |
| Loan      servicing                                                            | 57                                    |   | 127                        |   | (70)                                           |   | (55.1)    |
| Outside      and professional services                                         | 442                                   |   | 283                        |   | 159                                       |   | 56.2     |
| Marketing                                                                      | 235                                   |   | 260                        |   | (25)                                           |   | (9.6)    |
| Federal      deposit insurance premiums and    assessments | 796                                   |   | 81                         |   | 715                                       |   | 882.7     |
| Other      operating expenses                                                  | 604                                   |   | 665                        |   | (61)                                           |   | (9.2)    |
| Total non-interest      expense                                                | $7,546                                |   | $7,022                     |   | $      524  |   | 7.5% |

----

|                                                                                                 | Three      Months Ended                                |   | Three      Months Ended      |                     |                                               |   |                    |
|------------------------------------------------------------------------------------------------------|--------------------------------------------------------|--------|------------------------------|--------------------------|----------------------------------------------------|--------|-------------------------|
|                                                                                                 | September      30, 2009                                |   | September      30, 2008      |                     |                                               |   |                    |
|                                                                                                 | Average      Balance                                   |   | Average      Yield/Cost      |                     | Average      Balance                               |   | Average      Yield/Cost |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
| INTEREST-EARNING      ASSETS:                                                                        |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
|           Total loans                                                            | $       607,055                                   |   | 6.11%                        |                     | $       665,609                               |   | 6.39%                   |   | $(58,554) |   | (8.8)% |
|           Mortgage-backed securities                                             | 19,040                                                 |   | 4.34          |           | 37,168                                             |   | 4.37     |   | (18,128) |   | (48.8)    |
| Investment      securities                                                                           |      46,995                   |   | 2.66     |                     |      88,734               |   | 5.84     |   | (41,739) |   | (47.0)    |
|           Federal Home Loan Bank stock                                           |        13,712       |   | -        |                     |        13,712   |   | 1.40     |   | - |   |  -     |
| Interest-bearing deposits with      banks                                                            |         49,174 |   | 0.27     |                     |         96 |   | 2.12     |   | 49,078 |   | 51,122.9    |
| Total interest-earning      assets                                                                   |     735,976                        |   | 5.34     |                     |     805,319                    |   | 6.15          |   | (69,343) |   | (8.6)   |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Non-interest-earning      assets                                                                     |        72,077       |   |                         |                     |        56,663   |   |                    |   | 15,414 |   | 27.2    |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Total assets                                                                                         | $  808,053                                   |   |                         |                     | $        861,982                         |   |                    |   | $(53,929) |   | (6.3)% |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| INTEREST-BEARING      LIABILITIES:                                                                   |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Savings    accounts                                                                                  | $         33,877                        |   | 0.01          |                     | $          30,823              |   | 0.25     |   | $3,054 |   | 9.9% |
| Interest-bearing checking      accounts                                                              | 42,819                                                 |   | 0.18     |                     | 36,769                                             |   | 0.70     |   | 6,050 |   | 16.5    |
| Money market deposit      accounts                                                                   | 145,103                                                |   | 0.99     |                     | 125,912                                            |   | 2.43     |   | 19,191 |   | 15.2    |
| Certificates of      deposit                                                                         | 219,088                                                |   | 2.33     |                     | 231,750                                            |   | 3.26     |   | (12,662) |   | (5.5)   |
| Total deposits                                                                                       | 440,887                                                |   | 1.49     |                     | 425,254                                            |   | 2.56     |   | 15,633 |   | 3.7    |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Federal Home Loan Bank      advances                                                                 |   280,457                                    |   | 4.46     |                     |   321,381                                |   | 4.37     |   |     (40,924) |   | (12.7)   |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
|                 Total interest-bearing liabilities |      721,344                  |   | 2.65     |                     |      746,635              |   | 3.34     |   |     (25,291) |   | (3.4)         |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| NON-INTEREST      BEARING LIABILITIES:                                                               |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Non-interest bearing      checking                                                                   |        43,239       |   |                         |                     |        37,711   |   |                    |   | 5,528 |   | 14.7    |
| Other                                                                                                |       8,050              |   |                         |                     |       8,434          |   |                    |   |       (384) |   | (4.6)   |
| Total      non-interest bearing liabilities                                                          |       51,289             |   |                         |                     |       46,145         |   |                    |   |       5,144 |   | 11.1    |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Total    liabilities                                                                                 |      772,633                  |   |                         |                     |      792,780              |   |                    |   | (20,147) |   | (2.5)    |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Equity                                                                                               |        35,420       |   |                         |                     |        69,202   |   |                    |   |  (33,782) |   | (48.8)    |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Total liabilities and      equity                                                                    | $         808,053                       |   |                         |                     | $        861,982                         |   |                    |   | $      (53,929) |   | (6.3)% |
|                                                                                                 |                                                   |   |                         |                     |                                               |   |                    |   |   |   |   |
| Net      interest income                                                                             | $       5,031       |   |                         |                     | $       6,154   |   |                    |   | $    (1,123) |   | (18.2)% |
| Interest      rate spread      (1)                                                                   |                                                   |   | 2.69%                        |                     |                                               |   | 2.81%                   |   |   |   |   |
| Net      interest margin (2)                                                                         | 2.75%                                                  |   |                         |                     | 3.06%                                    |   |                    |   |   |   |   |

----

|                                            | Nine      Months Ended September 30,                         |   | $      Increase (Decrease)                                   |   | %      Increase (Decrease)                |
|-------------------------------------------------|--------------------------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------------------|
|                                            | 2009                                                         |   | 2008                                                         |   |                                      |
|                                            |                                                         |   |                                                         |   |                                      |   |   |
| Net      interest income                        | $15,805                                                      |   | $19,135                                                      |   | $(3,330)                                  |   | (17.4)% |
| Non-interest      income                        | 10,987                                                       |   | 7,901                                                        |   | 3,086                                     |   | 39.1      |
| Total      revenue                              |               26,792 |   |               27,036 |   |      (244)       |   | (0.9)     |
| Provision      for loan losses                  |               12,000 |   |      6,700                          |   | 5,300                                     |   | 79.1      |
| Non-interest      expense                       |      22,706                         |   |      20,880                         |   |       1,826 |   | 8.7      |
| Impairment      loss on securities              | (32,343)                                                     |   | -                                                            |   | (32,343)                                  |   | (100.0)     |
| Provision      (benefit) for federal income tax | 3,066                                                        |   | (55)                                                         |   | 3,121                                     |   | (5,674.5)     |
| Net      loss                                   | (43,323)                                                     |   | (489)                                                        |   | (42,834)                                  |   | (8,759.5)     |

|                                        | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------------|--------------------------------------|--------|----------------------------|--------|----------------------------|
|                                        | 2009                                 |   | 2008                       |   |                       |
| Interest      income:                       |                                 |   |                       |   |                       |   |   |
| Loans                                       | $29,067                              |   | $33,134                    |   | $(4,067)                   |   | (12.3)% |
| Securities      available-for-sale          | 1,646                                |   | 4,437                      |   | (2,791)                    |   | (62.9)    |
| Securities      held-to-maturity            | 984                                  |   | 1,269                      |   | (285)                      |   | (22.5)    |
| Interest-bearing      deposits              | 85                                   |   | 33                         |   | 52                         |   | 157.6      |
| Federal Home Loan Bank stock      dividends | -                                    |   | 130                        |   | (130)                      |   | (100.0)    |
| Total interest      income                  | 31,782                               |   | 39,003                     |   | (7,221)                    |   | (18.5)    |
|                                        |                                 |   |                       |   |                       |   |   |
| Interest      expense:                      |                                 |   |                       |   |                       |   |   |
| Deposits                                    | 6,363                                |   | 9,301                      |   | (2,938)                    |   | (31.6)     |
| Borrowed funds                              | 9,614                                |   | 10,567                     |   | (953)                      |   | (9.0)     |
| Total interest      expense                 | 15,977                               |   | 19,868                     |   | (3,891)                    |   | (19.6)     |
| Net      interest income                    | $ 15,805                             |   | $ 19,135                   |   | $ (3,330)                  |   | (17.4)% |

----

|                                  | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------|--------------------------------------|--------|----------------------------|--------|----------------------------|
|                                  | 2009                                 |   | 2008                       |   |                       |
| Allowance      at beginning of period | $  13,329                  |   | $   8,079   |   | $   5,250   |   |      65.0%   |
| Provision for loan      losses        | 12,000                          |   | 6,700                 |   | 5,300                 |   |   79.1           |
| Recoveries                            | 95                              |   | 167                   |   | (72)                       |   | (43.1)          |
| Charge-offs                           | (15,740)                             |   | (1,003)                    |   | (14,737)                   |   | 1,469.3           |
| Allowance      at end of period       | $          9,684      |   | $  13,943             |   | $  (4,259)            |   | (30.5)% |

----

|                                            | Nine      Months Ended September 30,                            |   | $      Increase (Decrease)                                      |   | %      Increase (Decrease)                      |
|-------------------------------------------------|-----------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-------------------------------------------------|
|                                            | 2009                                                            |   | 2008                                                            |   |                                            |
| Deposit      service fees                       | $    2,614                                  |   | $   2,705                                        |   | $            (91) |   | (3.4)% |
| Loan      service fees                          |         614        |   |         912        |   |       (298)       |   | (32.7)    |
| Insurance      service fees                     |      1,656                        |   |      1,677                        |   |      (21)              |   | (1.3)    |
| Investment      service fees                    |      470                          |   |      432                          |   |      38           |   | 8.8     |
| Real      estate lease income                   |     617                                |   |     778                                |   |     (161)                   |   | (20.7)    |
| Gain      on sale of securities, net            |     -                                  |   |     12                                 |   |     (12)                    |   | (100.0)    |
| Gain      on sale of loans, net                 |     4,866                              |   |     875                                |   |     3,991              |   | 456.1     |
| Gain      (loss) on sale of REO, net            | 23                                                         |   | (25)                                                            |   |     48                 |   | (192.0)    |
| Loss      on sale of premises andequipment, net |    (3)                                           |   |    (1)                                           |   |    (2)                           |   | 200.0     |
| Other      operating income                     |          130  |   |          536  |   |        (406) |   | (75.7)    |
| Total non-interest      income                  | $   10,987                                  |   | $   7,901                                   |   | $   3,086                   |   | 39.1% |

|                                                                                 | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|--------------------------------------------------------------------------------------|--------------------------------------|--------|----------------------------|--------|----------------------------|
|                                                                                 | 2009                                 |   | 2008                       |   |                       |
| Compensation      and benefits                                                       | $10,985                              |   | $12,146                    |   | $(1,161)                   |   | (9.6)% |
| Office      operations                                                               | 2,922                                |   | 2,882                      |   | 40                         |   | 1.4     |
| Occupancy                                                                            | 1,922                                |   | 1,802                      |   | 120                        |   | 6.7     |
| Loan      servicing                                                                  | 311                                  |   | 359                        |   | (48)                       |   | (13.4)    |
| Outside      and professional services                                               | 1,191                                |   | 979                        |   | 212                        |   | 21.7     |
| Marketing                                                                            | 766                                  |   | 762                        |   | 4                          |   | 0.5     |
| Federal      deposit insurance premiums and     assessments | 2,551                                |   | 211                        |   | 2,340                      |   | 1,109.0     |
| Other      operating expenses                                                        | 2,058                                |   | 1,739                      |   | 319                        |   | 18.3     |
| Total non-interest      expense                                                      | $22,706                              |   | $20,880                    |   | $1,826                     |   | 8.7% |

----

----

|                                                                                    | Nine      Months Ended                           |   | Nine      Months Ended                                                                                  |   |                                                  |   |                    |
|-----------------------------------------------------------------------------------------|--------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|--------|-------------------------|
|                                                                                    | September      30, 2009                          |   | September      30, 2008                                                                                 |   |                                                  |   |                    |
|                                                                                    | Average      Balance                             |   | Average      Yield/Cost                                                                                 |   | Average      Balance                                  |   | Average      Yield/Cost |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
| INTEREST-EARNING      ASSETS:                                                           |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Total loans                                                                             | $      630,711                                   |   | 6.15%                                                                                                   |   | $652,664                                              |   | 6.77%                   |   | $(21,953) |   | (3.4)% |
| Mortgage-backed      securities                                                         | 20,691                                           |   | 4.31                                                                                     |   | 40,609                                                |   | 4.33     |   | (19,918) |   | (49.0)    |
| Investment      securities                                                              |     44,822                   |   | 5.84                                                                                     |   |      104,295                 |   | 5.61     |   |     (59,473) |   | (57.0)    |
| Federal Home Loan Bank      stock                                                       |        13,712 |   |               -    |   |        13,712      |   | 1.27     |   |        - |   | -     |
| Interest-bearing deposits in      other banks                                           |        47,489 |   | 0.24                                                                                     |   |         1,634 |   | 2.68     |   |         45,855 |   | 2,806.3    |
| Total interest-earning      assets                                                      |     757,425                  |   | 5.60                                                                                     |   |     812,914                       |   | 6.40     |   |     (55,489) |   | (6.8)   |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Non-interest-earning      assets                                                        |        74,052 |   |                                                                                                    |   |        55,532      |   |                    |   |        18,520 |   | 33.4    |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Total assets                                                                            | $  831,477                             |   |                                                                                                    |   | $  868,446                                  |   |                    |   | $  (36,969) |   | (4.3)% |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| INTEREST-BEARING      LIABILITIES:                                                      |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Savings    accounts                                                                     | $      32,871                                    |   | 0.05                                                                                     |   | $      30,881                                         |   | 0.26     |   | $      1,990 |   | 6.4% |
| Interest-bearing checking      accounts                                                 | 38,770                                           |   | 0.22                                                                                     |   | 36,747                                                |   | 0.69     |   | 2,023 |   | 5.5    |
| Money market deposit      accounts                                                      | 147,349                                          |   | 1.44                                                                                     |   | 120,215                                               |   | 2.53     |   | 27,134 |   | 22.6    |
| Certificates of      deposit                                                            | 237,029                                          |   | 2.64                                                                                     |   | 232,838                                               |   | 3.88     |   | 4,191 |   | 1.8    |
| Total deposits                                                                          | 456,019                                          |   | 1.86                                                                                     |   | 420,681                                               |   | 2.95     |   | 35,338 |   | 8.4    |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Federal Home Loan Bank      advances                                                    |      288,681            |   | 4.45                                                                                     |   |      321,948                 |   | 4.38     |   |      (33,267) |   | (10.3)  |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
|         Total      interest-bearing liabilities |      744,700            |   | 2.87                                                                                     |   |      742,629                 |   | 3.57     |   |      2,071 |   | 0.3   |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| NON-INTEREST      BEARING LIABILITIES:                                                  |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Non-interest bearing      checking                                                      |  41,002                                     |   |                                                                                                    |   |        36,118      |   |                    |   |  4,884 |   | 13.5    |
| Other                                                                                   | 9,727                                            |   |                                                                                                    |   |       10,896            |   |                    |   | (1,169) |   | (10.7)   |
| Total      non-interest bearing liabilities                                             |     50,729                   |   |                                                                                                    |   |       47,014            |   |                    |   |     3,715 |   | 7.9    |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Total    liabilities                                                                    |      795,429            |   |                                                                                                    |   |      789,643                 |   |                    |   |         5,786 |   | 0.7    |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Equity                                                                                  | 36,048                                           |   |                                                                                                    |   |        78,803      |   |                    |   | (42,755) |   | (54.3)   |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |   |   |   |
| Total liabilities and      equity                                                       | $831,477                                         |   |                                                                                                    |   | $      868,446                                        |   |                    |   | $(36,969) |   | (4.3)% |
|                                                                                    |                                        |   |                                                                                                    |   |                                                  |   |                    |   |    |   |   |
| Net      interest income                                                                | $15,805                                          |   |                                                                                                    |   | $     19,135                 |   |                    |   | $(3,330) |   | (17.4)% |
| Interest      rate spread      (1)                                                      |                                             |   | 2.73%                                                                                                   |   |                                                  |   | 2.83%                   |   |   |   |   |
| Net      interest margin (2)                                                            |  2.78%                            |   |                                                                                                    |   |    3.14%                |   |                    |   |   |   |   |
|                                                                                    |                                             |   |                                                                                                    |   |                                                  |   |                    |   |    |   |   |

----

----

----

----

----

----

|                                                                           |   | Votes      Cast |   | Votes    |   | Total    |
|--------------------------------------------------------------------------------|--------|-----------------|--------|----------|--------|----------|
|                                                                           |   | For             |   | Against  |   | Withheld |   | Votes      Cast |
| Election      of Directors                                                     |   |            |   |     |   |     |   |   |
|      Brian      E. Knutson – 3-year term        |   | 4,667,580       |   | -      - |   | 542,090  |   | 5,209,670 |
|      Victor      J. Toy – 3-year term           |   | 4,730,232       |   | -      - |   | 479,838  |   | 5,210,070 |
|      Alfred      H. Treleven, III – 3-year term |   | 4,652,986       |   | -      - |   | 557,083  |   | 5,210,069 |
|      Bruce      W. Valentine – 1-year term      |   | 4,745,045       |   | -      - |   | 465,025  |   | 5,210,070 |

|   | 3.1  | Articles      of Incorporation of the Registrant (1)  |
|--------|-----------|------------------------------------------------------------|
|   | 3.2       | Bylaws      of the Registrant (1)                          |

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

|   | 10.2 | Amended      and Restated Employment Agreement between the Company and the Bank and      John A. Hall (2) |
|--------|------|-----------------------------------------------------------------------------------------------------------|

|   | 10.3 | Employment      Agreement between the Company and the Bank and Victor J. Toy (2) |
|--------|------|----------------------------------------------------------------------------------|

|   | 10.4 | Form      of Rainier Pacific Savings Bank Employee Severance Compensation Plan (1) |
|--------|------|------------------------------------------------------------------------------------|

|   | 10.5 | Rainier      Pacific 2004 Stock Option Plan (3) |
|--------|------|-------------------------------------------------|

|   | 10.6 | Rainier      Pacific 2004 Management Recognition Plan (3) |
|--------|------|-----------------------------------------------------------|

|   | 10.7 | Form      of Incentive Stock Option Agreement (4) |
|--------|------|---------------------------------------------------|

|   | 10.8 | Form      of Non-Qualified Stock Option Agreement (4) |
|--------|------|-------------------------------------------------------|

|   | 10.9 | Form      of Restricted Stock Award Agreement (4) |
|--------|------|---------------------------------------------------|

|   | 14 | Code      Business Conduct and Ethics (5) |
|--------|----|-------------------------------------------|

|   | 31     | Certification      of Chief Executive Officer and Chief Financial Officer Pursuant to Section      302 |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   |   | of      the Sarbanes-Oxley Act                                                                    |

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

|   | (1)       | Filed      as an exhibit to the Registrant's Registration Statement on Form S-1      (333-106349).                                                      |
|--------|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2)  | Filed      as an exhibit to the Registrant’s Current Report on Form 8-K dated      December 20, 2005 and incorporated herein by  reference.  |

|   | (3) | Filed      as an exhibit to the Registrant's Registration Statement on Form S-8      (333-117568) and incorporated herein by  reference. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Filed      as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the      quarter ended September 30, 2005 and incorporated herein by      reference. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Filed      as an exhibit to the Registrant's Annual Report on Form 10-K for the year      ended December 31, 2006 and incorporated herein by    reference. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 31     | Certification      of Chief Executive Officer and Chief Financial Officer Pursuant to Section      302 of the Sarbanes-Oxley Act |
|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                             |
| 32     | Certification      of Chief Executive Officer and Chief Financial Officer Pursuant to Section      906 of the Sarbanes-Oxley Act |

| 42  |
|----------|