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

|   |   | For      the quarterly period ended .............................................  September      30, 2008 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | [     ] | 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.)          |

|   | Large      accelerated filer____     |  Accelerated      filer        X    |   |
|--------|--------------------------------------|--------------------------------------------------------------|--------|
|   | Non-accelerated      filer ____ |  Smaller      reporting company ____                    |   |

|                      Title      of class: |   |  As of September 30,      2008                                                                |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                                                                                            |   |                                                                                               |
|  Common stock, no par      value                                                                      |   |                    6,399,390    * |

|   | *  Includes      339,341 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 48,587 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.                                                                               |                                                                                    |
|                                 |                                                                                                     |                                                                                    |   |
|                                 | Consolidated      Statements of Financial Condition at                                                   |                                                                                    |
|                                 |                                                                                                     | September      30, 2008 and December 31, 2007                                           | 2 |
|                                 | Consolidated      Statements of Operations for the                                                       |                                                                                    |
|                                 |                                                                                                     | Three      Months and Nine Months Ended September 30, 2008 and 2007                     | 3 |
|                                 | Consolidated      Statements of Shareholders’ Equity for the                                       |                                                                                    |
|                                 |                                                                                                     | Nine      Months Ended September 30, 2008 andTwelve      Months Ended December 31, 2007 |  4 |
|                                 | Consolidated      Statements of Cash Flows for the                                                       |                                                                                    |
|                                 |                                                                                                     | Nine      Months Ended September 30, 2008 and 2007                                      | 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                                                                          | 14                                                                                      |
|                                 | Comparison      of Financial Condition at   September      30, 2008 and December 31, 2007 | 14                                                                                      |
|                                 | Comparison      of Operating Results for the                                                             |                                                                                    |
|                                 | Three Months Ended September      30, 2008 and 2007                                                      | 18                                                                                      |
|                                 | Comparison      of Operating Results for the                                                             |                                                                                    |
|                                 |      Nine      Months Ended September 30, 2008 and 2007                         | 23                                                                                      |
|                                 | Liquidity      and Capital Resources                                                                     | 27                                                                                      |
|                                 |                                                                                                     |                                                                                    |   |
| ITEM      3 -                        | Quantitative      and Qualitative Disclosures about Market Risk                                          | 27                                                                                      |
|                                 |                                                                                                     |                                                                                    |
| ITEM      4 -                        | Controls      and Procedures                                                                             | 28                                                                                      |
|                                 |                                                                                                     |                                                                                    |   |
| PART      II -                       | OTHER      INFORMATION                                                                                   |                                                                                    |
|                                 |                                                                                                     |                                                                                    |   |
| ITEM      1 -                        | Legal      Proceedings                                                                                   | 28                                                                                      |
| ITEM      1A -                       | Risk      Factors                                                                                        | 28                                                                                      |
| ITEM      2 -                        | Unregistered      Sales of Equity Securities and Use of Proceeds                                         | 30                                                                                      |
| ITEM      3 -                        | Defaults      Upon Senior Securities                                                                     | 31                                                                                      |
| ITEM      4 -                        | Submission      of Matters to a Vote of Security Holders                                                 | 31                                                                                      |
| ITEM      5 -                        | Other      Information                                                                                   | 31                                                                                      |
| ITEM      6 -                        | Exhibits                                                                                                 | 32                                                                                      |
|                                 |                                                                                                     |                                                                                    |   |
| SIGNATURES                           | 33                                                                                                       |
|                                 |                                                                                                     |
| EXHIBIT      INDEX                   |                                                                                                     |
|          Exhibit 31.1 | 35                                                                                                       |
|          Exhibit 31.2 | 36                                                                                                       |
|          Exhibit 32   | 37                                                                                                       |

----

| ASSETS                                                                                                                                                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                             |   | At      September 30, |   | At      December 31, |   |
|                                                                                                                                                                                                                                             |   | 2008 |   | 2007 |   |
| ASSETS:                                                                                                                                                                                                                                          |   |   |   |   |   |
|         Cash and cash equivalents                                                                                                                                                                                                      |   | $ | 8,070 |   |   |   | $ | 8,724 |   |
|     Interest-bearing      deposits with banks                                                                                                                                                                                |   |   | 15 |   |   |   |   | 90 |   |
|          Securities available-for-sale                                                                                                                                                                                            |   |   | 65,993 |   |   |   |   | 131,287 |   |
|   Securities      held-to-maturity (fair value at September 30, 2008: $35,650;           at      December 31, 2007: $45,541)                                                         |   |   | 36,516 |   |   |   |   | 45,756 |   |
|     Federal      Home Loan Bank of Seattle (“FHLB”) stock, at cost                                                                                                                                               |   |   | 13,712 |   |   |   |   | 13,712 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
|          Loans                                                                                                                                                                                                                    |   |   | 664,247 |   |   |   |   | 637,000 |   |
| Less allowance for loan      losses                                                                                                                                                                                                              |   |   | (13,943 | ) |   |   |   | (8,079 | ) |
| Loans, net                                                                                                                                                                                                                                       |   |   | 650,304 |   |   |   |   | 628,921 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
|          Premises and equipment, net                                                                                                                                                                                              |   |   | 33,826 |   |   |   |   | 33,813 |   |
|          Accrued interest receivable                                                                                                                                                                                              |   |   | 3,378 |   |   |   |   | 3,980 |   |
|          Other assets                                                                                                                                                                                                             |   |   | 28,835 |   |   |   |   | 12,581 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| TOTAL ASSETS                                                                                                                                                                                                                                     |   | $ | 840,649 |   |   |   | $ | 878,864 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                             |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| LIABILITIES:                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing                                                                                                                                                                                                                        |   | $ | 40,526 |   |   |   | $ | 33,924 |   |
| Interest-bearing                                                                                                                                                                                                                                 |   |   | 423,530 |   |   |   |   | 427,563 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| Total deposits                                                                                                                                                                                                                                   |   |   | 464,056 |   |   |   |   | 461,487 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| Borrowed funds                                                                                                                                                                                                                                   |   |   | 308,500 |   |   |   |   | 320,454 |   |
| Corporate drafts      payable                                                                                                                                                                                                                    |   |   | 4,492 |   |   |   |   | 2,510 |   |
| Accrued compensation and      benefits                                                                                                                                                                                                           |   |   | 1,269 |   |   |   |   | 1,758 |   |
| Other    liabilities                                                                                                                                                                                                                             |   |   | 4,824 |   |   |   |   | 5,835 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| TOTAL    LIABILITIES                                                                                                                                                                                                                             |   |   | 783,141 |   |   |   |   | 792,044 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| SHAREHOLDERS’      EQUITY:                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |
|      Preferred      stock, no par value:  1,000,000 shares authorized; none issued      or outstanding                                                                                                        |   |   | - |   |   |   |   | - |   |
| Common stock, no par value:      49,000,000 shares authorized; 6,399,390 shares issued and 6,011,462 shares      outstanding at September 30, 2008; 6,466,633      shares issued and 5,977,645 shares outstanding at December 31,      2007 |   |   | 50,689 |   |   |   |   | 50,458 |   |
| Unearned Employee Stock      Ownership Plan (“ESOP”) shares                                                                                                                                                                          |   |   | (3,393 | )  |   |   |   | (3,903 | ) |
| Accumulated other      comprehensive loss, net of tax                                                                                                                                                                                            |   |   | (32,783 | )  |   |   |   | (1,441 | ) |
| Retained    earnings                                                                                                                                                                                                                             |   |   | 42,995 |   |   |   |   | 44,840 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| TOTAL SHAREHOLDERS’      EQUITY                                                                                                                                                                                                            |   |   | 57,508 |   |   |   |   | 86,820 |   |
|                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
| TOTAL LIABILITIES AND      SHAREHOLDERS’ EQUITY                                                                                                                                                                                            |   | $ | 840,649 |   |   |   | $ | 878,864 |   |

----

|                                                                                               |   | Three      Months EndedSeptember      30, |      |   | Nine      Months EndedSeptember      30, |   |
|----------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|------------------------------------------|--------|
|                                                                                               |   | 2008                                      |      |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| INTEREST      INCOME                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |
| Loans                                                                                              |   | $                                         | 10,666    |   |                                     | $      | 12,127 |   |   | $ | 33,134 |   |   | $ | 35,371 |   |
| Securities      available-for-sale                                                                 |   |                                      | 1,304     |   |                                     |   | 2,015 |   |   |   | 4,437 |   |   |   | 6,099 |   |
| Securities      held-to-maturity                                                                   |   |                                      | 398       |   |                                     |   | 527 |   |   |   | 1,269 |   |   |   | 1,638 |   |
| Interest-bearing      deposits                                                                     |   |                                      | -         |   |                                     |   | 28 |   |   |   | 33 |   |   |   | 108 |   |
| FHLB dividends                                                                                     |   |                                      | 48        |   |                                     |   | 21 |   |   |   | 130 |   |   |   | 55 |   |
| Total interest      income                                                                         |   |                                      | 12,416    |   |                                     |   | 14,718 |   |   |   | 39,003 |   |   |   | 43,271 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST      EXPENSE                                                                              |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                           |   |                                      | 2,735     |   |                                     |   | 4,104 |   |   |   | 9,301 |   |   |   | 12,268 |   |
| Borrowed funds                                                                                     |   |                                      | 3,527     |   |                                     |   | 3,881 |   |   |   | 10,567 |   |   |   | 11,465 |   |
| Total interest      expense                                                                        |   |                                      | 6,262     |   |                                     |   | 7,985 |   |   |   | 19,868 |   |   |   | 23,733 |   |
|      Net      interest income                                             |   |                                      | 6,154     |   |                                     |   | 6,733 |   |   |   | 19,135 |   |   |   | 19,538 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| PROVISION      FOR LOAN LOSSES                                                                     |   |                                      | 6,000     |   |                                     |   | 150 |   |   |   | 6,700 |   |   |   | 450 |   |
| Net interest income after      provision for loan losses                                           |   |                                      | 154       |   |                                     |   | 6,583 |   |   |   | 12,435 |   |   |   | 19,088 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST      INCOME                                                                           |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposit service      fees                                                                          |   |                                      | 958       |   |                                     |   | 906 |   |   |   | 2,705 |   |   |   | 2,611 |   |
| Loan service    fees                                                                               |   |                                      | 310       |   |                                     |   | 381 |   |   |   | 912 |   |   |   | 1,019 |   |
| Insurance service      fees                                                                        |   |                                      | 598       |   |                                     |   | 552 |   |   |   | 1,677 |   |   |   | 1,717 |   |
| Investment service      fees                                                                       |   |                                      | 147       |   |                                     |   | 189 |   |   |   | 432 |   |   |   | 446 |   |
| Real estate lease      income                                                                      |   |                                      | 270       |   |                                     |   | 298 |   |   |   | 778 |   |   |   | 863 |   |
| Gain on sale of securities,      net                                                               |   |                                      | 1         |   |                                     |   | - |   |   |   | 12 |   |   |   | - |   |
| Gain on sale of loans,      net                                                                    |   |                                      | 190       |   |                                     |   | 60 |   |   |   | 875 |   |   |   | 262 |   |
|      Loss      on sale of real estate owned, net                          |   |                                      | (32       | )      |                                     |   | - |   |   |   | (25 | ) |   |   | - |   |
| Gain (loss) on sale of      premises and equipment, net                                            |   |                                      | -         |   |                                     |   | 1 |   |   |   | (1 | ) |   |   | 11 |   |
| Other operating      income                                                                        |   |                                      | 37        |   |                                     |   | 25 |   |   |   | 536 |   |   |   | 69 |   |
| Total non-interest      income                                                                     |   |                                      | 2,479     |   |                                     |   | 2,412 |   |   |   | 7,901 |   |   |   | 6,998 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST      EXPENSE                                                                          |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and      benefits                                                                     |   |                                      | 4,044     |   |                                     |   | 4,237 |   |   |   | 12,146 |   |   |   | 12,298 |   |
| Office    operations                                                                               |   |                                      | 990       |   |                                     |   | 1,006 |   |   |   | 2,882 |   |   |   | 2,948 |   |
| Occupancy                                                                                          |   |                                      | 572       |   |                                     |   | 649 |   |   |   | 1,802 |   |   |   | 1,908 |   |
| Loan servicing                                                                                     |   |                                      | 127       |   |                                     |   | 130 |   |   |   | 359 |   |   |   | 369 |   |
| Outside and professional      services                                                             |   |                                      | 283       |   |                                     |   | 250 |   |   |   | 979 |   |   |   | 940 |   |
| Marketing                                                                                          |   |                                      | 260283    |   |                                     |   | 278 |   |   |   | 762 |   |   |   | 810 |   |
| Other operating      expenses                                                                      |   |                                      | 746       |   |                                     |   | 799 |   |   |   | 1,950 |   |   |   | 2,287 |   |
| Total non-interest      expense                                                                    |   |                                      | 7,022     |   |                                     |   | 7,349 |   |   |   | 20,880 |   |   |   | 21,560 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| INCOME      (LOSS) BEFORE PROVISION FOR      FEDERAL      INCOME TAX |   |                                      | (4,389    | )      |                                     |   | 1,646 |   |   |   | (544 | ) |   |   | 4,526 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| PROVISION      (BENEFIT) FOR FEDERAL INCOME TAX                                                    |   |                                      | (1,439    | )      |                                     |   | 574 |   |   |   | (55 | ) |   |   | 1,582 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| NET      INCOME (LOSS)                                                                             |   | $                                         | (2,950    | )      |                                     | $      | 1,072 |   |   | $ | (489 | ) |   | $ | 2,944 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| EARNINGS      (LOSS) PER COMMON SHARE:                                                             |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                              |   | $                                         | (0.49     | )      |                                     | $      | 0.18 |   |   | $ | (0.08 | ) |   | $ | 0.49 |   |
| Diluted                                                                                            |   | $                                         | (0.49     | )      |                                     | $      | 0.18 |   |   | $ | (0.08 | ) |   | $ | 0.49 |   |
| Weighted average shares      outstanding-Basic                                                     |   |                                      | 5,998,207 | (1)    |                                     |   | 5,983,586 | (2) |   |   | 5,989,822 | (1) |   |   | 5,985,043 | (2) |
| Weighted average shares      outstanding-Diluted                                                   |   |                                      | 5,998,207 |   |                                     |   | 5,983,586 |   |   |   | 5,989,822 |   |   |   | 6,027,478 |   |
|                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Dividends declared per      share                                                                  |   | $                                         | 0.070     |   |                                     | $      | 0.065 |   |   | $ | 0.210 |   |   | $ | 0.195 |   |

| (1)   | Weighted      average shares outstanding – Basic includes 277,513 vested and ratably      earned shares of the 326,100  restricted shares granted and      issued under the 2004 Management Recognition Plan (“MRP”), net of      forfeited shares. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Weighted      average shares outstanding – Basic includes 212,593 vested and ratably      earned shares of the 327,700 restricted shares granted and issued under      the MRP, net of forfeited shares. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                         |   | Common      Stock |      |   | UnearnedESOP |   |   | Retained |   |   | AccumulatedOtherComprehensive |   |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|--------|--------------|--------|--------|----------|--------|--------|-------------------------------|--------|--------|--------|--------|
|                                                                                                                                                                         |   | Shares            |      |   | Amount       |   |   | Shares   |   |   | Earnings                      |   |   | Loss   |   |   | Total |   |
|                                                                                                                                                                         |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |
| Balance,      December 31, 2006 (as restated)                                                                                                                                |   |              | 6,587,670 |   |         | $      | 50,531 |     |   | $      | (4,582                        | )      |   | $      | 42,687 |   |   | $ | (806 | ) |   | $ | 87,830 |   |
|                                                                                                                                                                         |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock      repurchased                                                                                                                                                |   |              | (126,137  | )      |         |   | (2,113 | )        |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | (2,113 | ) |
| Common stock issued for      Management           Recognition      Plan (“MRP”)                           |   |              | 10,000    |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MRPforfeitures                                                                                                                                                               |   |              | (5,900    | )      |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earned ESOP shares      released                                                                                                                                             |   |              |      |   |         |   |   |     |   |   | 679                           |   |   |   |   |   |   |   |   |   |   |   | 679 |   |
| ESOP activity - Change in      value of shares                committed to be released                                     |   |              |      |   |         |   | 684    |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 684 |   |
| Dividends paid                                                                                                                                                               |   |              |      |   |         |   |   |     |   |   |                          |   |   |   | (1,701 | ) |   |   |   |   |   |   | (1,701 | ) |
| Amortization of compensation      related to MRP                                                                                                                             |   |              |      |   |         |   | 1,025  |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 1,025 |   |
| Amortization of compensation      related to the                Stock Option Plan (“SOP”)                      |   |              |      |   |         |   | 315    |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 315 |   |
| Exercise of stock      options                                                                                                                                               |   |              | 1,000     |   |         |   | 16     |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 16 |   |
| Comprehensive      income:                                                                                                                                                   |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                                                                                                                   |   |              |      |   |         |   |   |     |   |   |                          |   |   |   | 3,854  |   |   |   |   |   |   |   | 3,854 |   |
| Unrealized loss on securities,      net of                      tax benefit of $1,992        |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   | (3,769 | ) |   |   | (3,769 | ) |
| Total comprehensive      income                                                                                                                                              |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 85 |   |
|                                                                                                                                                                         |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      December 31, 2007                                                                                                                                              |   |              | 6,466,633 |   |         |   | 50,458 |     |   |   | (3,903                        | )      |   |   | 44,840 |   |   |   | (4,575 | ) |   |   | 86,820 |   |
|                                                                                                                                                                         |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common stock      repurchased                                                                                                                                                |   |              | (66,443   | )      |         |   | (800   | )        |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | (800 | ) |
| MRPforfeitures                                                                                                                                                               |   |              | (800      | )      |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earned ESOP shares      released                                                                                                                                             |   |              |      |   |         |   |   |     |   |   | 510                           |   |   |   |   |   |   |   |   |   |   |   | 510 |   |
| ESOP activity - Change in      value of shares                committed to be released                                     |   |              |      |   |         |   | 67     |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 67 |   |
| Dividends paid                                                                                                                                                               |   |              |      |   |         |   |   |     |   |   |                          |   |   |   | (1,356 | ) |   |   |   |   |   |   | (1,356 | ) |
| Amortization of compensation      related to MRP                                                                                                                             |   |              |      |   |         |   | 806    |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 806 |   |
| Amortization of compensation      related to SOP                                                                                                                             |   |              |      |   |         |   | 158    |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | 158 |   |
| Comprehensive      income:                                                                                                                                                   |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                     |   |              |      |   |         |   |   |     |   |   |                          |   |   |   | (489   | ) |   |   |   |   |   |   | (489 | ) |
| Unrealized loss on securities,      net of                       tax benefit of $14,531 |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   | (28,208 | ) |   |   | (28,208 | ) |
| Total comprehensive      loss                                                                                                                                                |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   | (28,697 | ) |
|                                                                                                                                                                         |   |              |      |   |         |   |   |     |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      September 30, 2008                                                                                                                                             |   |              | 6,399,390 |   |         | $      | 50,689 |     |   | $      | (3,393                        | )      |   | $      | 42,995 |   |   | $ | (32,783 | ) |   | $ | 57,508 |   |

----

|                                                                                  |   | Nine      Months Ended September 30, |     |
|---------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                  |   | 2008                                 |     |   | 2007 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                             |   |                                 |     |   |   |   |
| Net income    (loss)                                                                  |   | $                                    | (489     | ) |   | $ | 2,944 |   |
| Adjustments to reconcile net      income to net cash from operating activities:       |   |                                 |     |   |   |   |   |   |
| Depreciation                                                                          |   |                                 | 1,763    |   |   |   | 1,681 |   |
| Provision for loan      losses                                                        |   |                                 | 6,700    |   |   |   | 450 |   |
| Deferred income tax      (benefit)                                                    |   |                                 | 141      |   |   |   | (310 | ) |
| Gain on sale of securities,      net                                                  |   |                                 | (12      | ) |   |   | - |   |
| Loss on sale of real estate      owned, net                                           |   |                                 | 25       |   |   |   | - |   |
|      (Gain)      loss on sale of premises and equipment, net |   |                                 | 1        |   |   |   | (11 | ) |
| Gain on sale of loans,      net                                                       |   |                                 | (875     | ) |   |   | (262 | ) |
| Amortization of premiums and      discounts on securities                             |   |                                 | 774      |   |   |   | 477 |   |
| Amortization of intangible      assets                                                |   |                                 | 258      |   |   |   | 198 |   |
| Compensation for restricted      stock awards                                         |   |                                 | 806      |   |   |   | 771 |   |
| Compensation for stock      options                                                   |   |                                 | 158      |   |   |   | 247 |   |
| Change in operating assets and      liabilities, net:                                 |   |                                 |     |   |   |   |   |   |
| Accrued interest      receivable                                                      |   |                                 | 602      |   |   |   | 102 |   |
| Other assets                                                                          |   |                                 | (2,013   | ) |   |   | 21 |   |
| Corporate drafts      payable                                                         |   |                                 | 1,982    |   |   |   | (545 | ) |
| Other    liabilities                                                                  |   |                                 | (379     | ) |   |   | (144 | ) |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| Net cash provided from      operating activities                                      |   |                                 | 9,442    |   |   |   | 5,619 |   |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                             |   |                                 |     |   |   |   |   |   |
| Decrease (increase) in      interest-bearing deposits with banks                      |   |                                 | 75       |   |   |   | (675 | ) |
| Activity in securities      available-for-sale:                                       |   |                                 |     |   |   |   |   |   |
| Sales                                                                                 |   |                                 | 19,021   |   |   |   | - |   |
| Maturities, prepayments, and      calls                                               |   |                                 | 2,768    |   |   |   | 5,894 |   |
| Activity in securities      held-to-maturity:                                         |   |                                 |     |   |   |   |   |   |
| Sales                                                                                 |   |                                 | 3,702    |   |   |   | - |   |
| Maturities, prepayments, and      calls                                               |   |                                 | 5,536    |   |   |   | 5,201 |   |
| Increase in loans,      net                                                           |   |                                 | (77,004  | ) |   |   | (11,773 | ) |
| Proceeds from sales of      loans                                                     |   |                                 | 48,221   |   |   |   | 17,504 |   |
| Proceeds from sales of real      estate owned                                         |   |                                 | 1,447    |   |   |   | - |   |
| Purchases of premises and      equipment                                              |   |                                 | (1,778   | ) |   |   | (1,029 | ) |
| Proceeds from sales of      premises and equipment                                    |   |                                 | 1        |   |   |   | 11 |   |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| Net cash provided from      investing activities                                      |   |                                 | 1,989    |   |   |   | 15,133 |   |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                             |   |                                 |     |   |   |   |   |   |
| Net increase in      deposits                                                         |   |                                 | 2,569    |   |   |   | 3,492 |   |
| Advances on borrowed      funds                                                       |   |                                 | 229,954  |   |   |   | 331,820 |   |
| Repayments of borrowed      funds                                                     |   |                                 | (241,908 | ) |   |   | (355,641 | ) |
| Cash payments related to      acquisition of insurance agencies                       |   |                                 | (1,121   | ) |   |   | (1,226 | ) |
| Repayment of ESOP      debt                                                           |   |                                 | 510      |   |   |   | 510 |   |
| Change in value of ESOP shares      committed to be released                          |   |                                 | 67       |   |   |   | 304 |   |
| Proceeds from exercise of      stock options                                          |   |                                 | -        |   |   |   | 16 |   |
| Dividends paid                                                                        |   |                                 | (1,356   | ) |   |   | (1,278 | ) |
| Common stock      repurchased                                                         |   |                                 | (800     | ) |   |   | (1,404 | ) |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| Net cash used in financing      activities                                            |   |                                 | (12,085  | ) |   |   | (23,407 | ) |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| NET      DECREASE IN CASH AND CASH EQUIVALENTS                                        |   |                                 | (654     | ) |   |   | (2,655 | ) |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS, at beginning of period                                |   |                                 | 8,724    |   |   |   | 11,847 |   |
|                                                                                  |   |                                 |     |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS, at end of period                                      |   | $                                    | 8,070    |   |   | $ | 9,192 |   |

----

|                                                           |   | Nine      Months Ended September 30, |    |
|----------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                           |   | 2008                                 |    |   | 2007 |   |
| SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION         |   |                                 |    |   |   |   |
| Cash payments    for:                                          |   |                                 |    |   |   |   |
| Interest                                                       |   | $                                    | 19,952  |   |   | $ | 23,784 |   |
|                                                           |   |                                 |    |   |   |   |   |   |
| Income taxes                                                   |   | $                                    | 1,750   |   |   | $ | 1,830 |   |
|                                                           |   |                                 |    |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURES OF NON-CASH INVESTING ACTIVITIES |   |                                 |    |   |   |   |   |   |
| Unrealized losses on      available-for-sale securities        |   | $                                    | (42,739 | ) |   | $ | (465 | ) |
|                                                           |   |                                 |    |   |   |   |   |   |

----

----

|                                                         |   | Three      Months Ended September 30, |   |   | Nine      Months Ended September 30, |   |
|--------------------------------------------------------------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|
|                                                         |   | 2008                                  |   |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
| Allowance      at beginning of period                        |   | $                                     | 8,271  |   |                                 | $      | 8,235 |   |   | $ | 8,079 |   |   | $ | 8,283 |   |
|      Provision      for loan losses |   |                                  | 6,000  |   |                                 |   | 150 |   |   |   | 6,700 |   |   |   | 450 |   |
|      Recoveries                     |   |                                  | 29     |   |                                 |   | 55 |   |   |   | 167 |   |   |   | 191 |   |
|      Charge-offs                    |   |                                  | (357   | )      |                                 |   | (298 | ) |   |   | (1,003 | ) |   |   | (782 | ) |
| Allowance      at end of period                              |   | $                                     | 13,943 |   |                                 | $      | 8,142 |   |   | $ | 13,943 |   |   | $ | 8,142 |   |

----

|                               |   | Number      of Options |    |   | Weighted-Average      Price Exercise      Price |   | Aggregate      Intrinsic      Value* |
|------------------------------------|--------|-----------------------------|---------|--------|-------------------------------------------------|--------|--------------------------------------|
| Balance      at December 31, 2007  |   |                        | 718,600 |   |                                            | $      | 16.68                                |   |   |
|                               |   |                        |    |   |                                            |   |                                 |   |   |
| Granted                            |   |                        | -       |   |                                            |   | -                                    |   |   |
| Exercised                          |   |                        | -       |   |                                            |   | -                                    |   |   |
| Forfeited                          |   |                        | (20,200 | )      |                                            |   | 17.08                                |   |   |
|                               |   |                        |    |   |                                            |   |                                 |   |   |
| Balance      at September 30, 2008 |   |                        | 698,400 |   |                                            | $      | 16.67                                |   | $                - |

|                                 |   | 2007     |   |   | 2005     |   |   | 2004          |   |
|--------------------------------------|--------|----------|--------|--------|----------|--------|--------|---------------|--------|
|                                 |   |     |   |   |     |   |   |          |   |
| Option      exercise price           |   | $        | 20.40  |   |     | $      | 16.72  |          |   | $ | 16.26 |   |
| Stock      price on grant date       |   | $        | 20.40  |   |     | $      | 16.72  |          |   | $ | 16.26 |   |
| Annual      dividend yield           |   |     | 1.28   | %      |     |   | 1.40   | %             |   |   | 2.00 | % |
| Expected      volatility             |   |     | 18.88  | %      |     |   | 19.63  | %             |   |   | 21.95 | % |
| Risk-free      interest rate         |   |     | 4.92   | %      |     |   | 3.99   | %             |   |   | 4.39 | % |
| Employee      attrition rate         |   |     | 7.50   | %      |     |   | 5.00   | %             |   |   | 3.00 | % |
| Vesting      period                  |   | 5 years  |   |   | 5 years  |   |   | 5      years  |   |
| Expected      life                   |   | 6 years  |   |   | 6 years  |   |   | 7      years  |   |
| Contractual      term                |   | 10 years |   |   | 10 years |   |   | 10      years |   |
| Estimated      fair value of options |   | $        | 3.70   |   |     | $      | 3.92   |          |   | $ | 3.60 |   |

| Year      of Grant |   | Number      of Outstanding Options |    |   | Weighted-AverageRemainingContractual      Lifein      Years |   |   | Weighted-AverageExercise      Price of      Outstanding Options |   |   | NumberExercisable |   |   | Weighted-AverageExercise      Priceof      ExercisableOptions |    |
|--------------------|--------|-----------------------------------------|---------|--------|-------------------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|-------------------|--------|--------|---------------------------------------------------------------|---------|
| 2004               |   |                                    | 614,400 |   |                                                        |   | 5.75   |                                                            |   | $      | 16.26             |   |   |                                                          | 491,520 |   |   | $ | 16.26 |   |
| 2005               |   |                                    | 16,800  |   |                                                        |   | 7.00   |                                                            |   |   | 16.72             |   |   |                                                          | 10,080  |   |   |   | 16.72 |   |
| 2007               |   |                                    | 67,200  |   |                                                        |   | 8.75   |                                                            |   |   | 20.40             |   |   |                                                          | 13,440  |   |   |   | 20.40 |   |
|               |   |                                    | 698,400 |   |                                                        |   | 6.07   |                                                            |   | $      | 16.67             |   |   |                                                          | 515,040 |   |   | $ | 16.38 |   |

----

|                                                                                                                                                                                                                     |   | Three      Months EndedSeptember      30, |      |   | Nine      Months EndedSeptember      30, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                     |   | 2008                                      |      |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
| Numerator:                                                                                                                                                                                                               |   |                                      |      |   |                                     |   |   |   |   |   |   |   |
| Net income    (loss)                                                                                                                                                                                                     |   | $                                         | (2,950    | )      |                                     | $      | 1,072 |   |   | $ | (489 | ) |   | $ | 2,944 |   |
|                                                                                                                                                                                                                     |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                                                                                                                             |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic earnings      (loss) per share:                                                                                                                                                                    |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average      shares                                                                                                                                                                                             |   |                                      | 5,998,207 |   |                                     |   | 5,983,586 |   |   |   | 5,989,822 |   |   |   | 5,985,043 |   |
| Effect of dilutive common      stock equivalents:                                                                                                                                                                        |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Stock options                                                                                                                                                                                                            |   |                                      | -         |   |                                     |   | - |   |   |   | - |   |   |   | 42,435 |   |
| MRP restricted      stock                                                                                                                                                                                                |   |                                      | -         |   |                                     |   | - |   |   |   | - |   |   |   | - |   |
| Denominator for diluted      earnings (loss) per share:                                                                                                                                                                  |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares and      assumed conversion                   of      dilutive stock options and restricted stock |   |                                      | 5,998,207 |   |                                     |   | 5,983,586 |   |   |   | 5,989,822 |   |   |   | 6,027,478 |   |
|                                                                                                                                                                                                                     |   |                                      |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per share                                                                                                                                                                                     |   | $                                         | (0.49     | )      |                                     | $      | 0.18 |   |   | $ | (0.08 | ) |   | $ | 0.49 |   |
| Diluted      earnings (loss) per share                                                                                                                                                                                   |   | $                                         | (0.49     | )      |                                     | $      | 0.18 |   |   | $ | (0.08 | ) |   | $ | 0.49 |   |

|                               |   | 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 |   | $                                                                       | -      |   |                                                   | $      | 7,145  |                                               |   | $      | 58,848                    |   |   | $ | 65,993 |   |

----

| 1.   | The      implied rate of return on the last date in which the market was considered      active for the trust preferred securities was 6.23%.  Based on      an analysis of limited available observable inputs for trust preferred      securities in inactive markets, we have determined that the market rates      of return have generally increased in the marketplace since the last date      on which the market was considered active for trust preferred      securities.  More specifically, the Company estimates that      market spreads have widened by approximately 165 and 175 basis points;      credit risk spreads have widened between 50 and 300 basis points depending      on the quality of the security and underlying issuers; and that liquidity      risk premiums have increased during that period by approximately 200 basis      points.  Other risks, such as interest rate risk, have not      changed as the trust preferred securities are indexed to three-month LIBOR      and re-price quarterly.  Using this information, the Company      estimates that an appropriate indication of a rate of return for the      Company’s various investments in trust preferred securities ranges from      10.10% to 13.10% depending on the issue.  In making our      determination, we considered all available market information that could      be obtained without undue cost and effort, and considered the unique      characteristics of each trust preferred security individually by assessing      the available market information and the various risks associated with      that security including: |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a.   | Valuation      estimates provided by our investment accounting service provider and      estimates provided by a broker; |
|----------------|--------------------------------------------------------------------------------------------------------------------------|

| b.   | Relevant      reports issued by analyst and credit rating  agencies; |
|----------------|----------------------------------------------------------------------|

| c.   | Level      of interest rates and any movement in pricing for credit and other      risks; |
|----------------|-------------------------------------------------------------------------------------------|

| d.   | Information      about the performance of the underlying institutions that issued the debt      instruments, such as net income, return on equity, capital adequacy,      non-performing assets, etc; and |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e.   | Other      relevant observable inputs. |
|----------------|----------------------------------------|

| 2.   | The      Company reviewed investment grade debt offerings by banking institutions      in the third quarter of 2008 which included trust preferred securities,      senior debt, and subordinated note offerings.  The rates on this      debt ranged from a low of 7.02% to a high of 10.75% on fixed rates and on      floating rates from three-month LIBOR plus 65 basis points to 400 basis      points.  Based on the rates we observed, an appropriate discount      rate that a market participant would use for investment grade bank debt      securities would be between 10.00% and 15% based on the underlying credit      and structure. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | The      Company received two valuation estimates on its trust preferred securities      for September 30, 2008.  Those valuation estimates were based on      proprietary pricing models utilizing significant unobservable inputs in an      inactive market with distressed sales, Level 3 inputs, rather than actual      transactions in an active market.  Those proprietary pricing      models valued the Company’s trust preferred securities portfolio at      approximately 38% and 40% of parvalue. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                                                                                                                               |   | Securities      Available-for- Sale(Level      3) |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|---------|
|                                                                                                                                                                                                                               |   |                                              |    |
| Beginning      Balance at December 31, 2007                                                                                                                                                                                        |   | $                                                 | 102,356 |   |
|    Total      realized and unrealized gains(losses)                                                                                                                                                                 |   |                                              | (43,024 | ) |
|    Purchases                                                                                                                                                                                                        |   |                                              | -       |   |
|    Paydowns      and Maturities                                                                                                                                                                                     |   |                                              | (484    | ) |
|    Transfers      into Level 3                                                                                                                                                                                      |   |                                              | -       |   |
| Ending      Balance at September 30, 2008                                                                                                                                                                                          |   | $                                                 | 58,848  |   |
|                                                                                                                                                                                                                               |   |                                              |    |   |
| The      amount of total gains (losses) for the nine months ended September 30,      2008 included in earnings attributable to the change in unrealized gains      (losses) relating to assets still held at September 30,    2008 |   | $                                                 | -       |   |

|                   |   | 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    |   | $                                                                            | -      |   |                                                   | $      | -      |                                               |   | $      | 29,058                    |   |   | $ | 29,058 |   |
| Real      estate owned |   |                                                                         | -      |   |                                                   |   | -      |                                               |   |   | 103                       |   |   |   | 103 |   |
| Total                  |   | $                                                                            | -      |   |                                                   | $      | -      |                                               |   | $      | 29,161                    |   |   | $ | 29,161 |   |

----

----

|                                                              |   | At      September 30, |    |   | At      December 31, |   |    |  $      Increase |   |   |  %      Increase |   |
|-------------------------------------------------------------------|--------|-----------------------|---------|--------|----------------------|--------|---------|-----------------------|--------|--------|-----------------------|--------|
|                                                              |   | 2008                  |    |   | 2007                 |   |    | (Decrease)            |   |   | (Decrease)            |   |
|                                                              |   |                  |    |   |                 |   |    |                  |   |   |                  |   |
|    Total      assets                               |   | $                     | 840,649 |   |                 | $      | 878,864 |                  |   | $      | (38,215               | )      |   |   | (4.3 | )% |
|          Investment securities (1)                 |   |                  | 102,509 |   |                 |   | 177,043 |                  |   |   | (74,534               | )      |   |   | (42.1 | ) |
|     Interest-bearing      deposits with banks |   |                  | 15      |   |                 |   | 90      |                  |   |   | (75                   | )      |   |   | (83.3 | ) |
|     Loans,      net                           |   |                  | 650,304 |   |                 |   | 628,921 |                  |   |   | 21,383                |   |   |   | 3.4 |   |
|          Deposits                                  |   |                  | 464,056 |   |                 |   | 461,487 |                  |   |   | 2,569                 |   |   |   | 0.6 |   |
|          Borrowed funds                            |   |                  | 308,500 |   |                 |   | 320,454 |                  |   |   | (11,954               | )      |   |   | (3.7 | ) |
|          Total shareholders’ equity          |   |                  | 57,508  |   |                 |   | 86,820  |                  |   |   | (29,312               | )      |   |   | (33.8 | ) |
|                                                              |   |                  |    |   |                 |   |    |                  |   |   |                  |   |   |   |   |   |

----

|                                 | At      September 30, 2008      |               |                        | At      December 31, 2007 |   | $      Increase (Decrease)                  |   | %      Increase (Decrease)                                                                    |
|--------------------------------------|---------------------------------|--------------------|-----------------------------|---------------------------|--------|---------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                 | Amount                          |               | Percent                     |                      |   | Amount                                      |   | Percent                                                                                       |   |   |
| Real      estate:                    |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| One-to four-family      residential  |    $65,997  |               | 9.9                         | %                    |   | $         76,882   |   | 12.1%                                                                                    |   |    $(10,855) |   | (14.2)% |
| Five or more family      residential | 141,449                    |               | 21.3                        |                      |   | 149,080                           |   | 23.4                                                                      |   | (7,631) |   | (5.1)     |
| Commercial                           | 248,243                    |               | 37.4                        |                      |   | 212,901                                     |   | 33.4                                                                      |   | 35,342 |   | 16.6      |
| Total real    estate                 | 455,689                    |               | 68.6                        |                      |   | 438,863                           |   | 68.9                                                                      |   | 16,826 |   | 3.8      |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Real      estate construction:       |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| One-to four-family      residential  | 79,120                     |               | 11.9                        |                      |   | 73,114                            |   |          11.5                |   | 6,006 |   | 8.2      |
| Five or more family      residential | 471                        |               | 0.1                         |                      |   | 1,839                             |   |            0.3     |   | (1,368) |   | (74.4)     |
| Commercial                           | 5,991                      |               |     0.9 |                      |   | 3,827                             |   |            0.6     |   | 2,164 |   |     56.5      |
| Total real estate      construction  | 85,582                     |               | 12.9                        |                      |   | 78,780                            |   |          12.4                |   | 6,802 |   | 8.6      |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Consumer:                            |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Automobile                           | 13,409                     |               | 2.0                         |                      |   | 20,798                            |   |     3.3                                               |   | (7,389) |   | (35.5)     |
| Home equity                          | 42,660                     |               | 6.4                         |                      |   | 45,293                            |   |        7.1                             |   | (2,633) |   | (5.8)     |
| Credit cards                         | 22,793                     |               | 3.5                         |                      |   | 23,172                            |   |            3.6     |   | (379) |   | (1.6)     |
| Other                                | 8,123                      |               | 1.2                         |                      |   | 7,411                                       |   |            1.2     |   | 712 |   | 9.6      |
| Total consumer                       | 86,985                     |               | 13.1                        |                      |   | 96,674                                      |   |          15.2                |   | (9,689) |   | (10.0)     |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Commercial      business             | 35,991                     |     | 5.4                         |                      |   | 22,683                                      |   |          3.5                 |   | 13,308 |   | 58.7      |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Total      loans                     | 664,247                    |               | 100.0                       | %                    |   | 637,000                                     |   | 100.0%                                                                                   |   | 27,247 |   | 4.3      |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Less allowance for loan      losses  | (13,943)                        |               |                        |                      |   | (8,079)                                     |   |                                                                                          |   | (5,864) |   | 72.6      |
|                                 |                            |               |                        |                      |   |                                        |   |                                                                                          |   |   |   |   |
| Loans,      net                      | $650,304                   |               |                        |                      |   | $  628,921                             |   |                                                                                          |   | $21,383 |   | 3.4%   |

----

|                                         | At      September 30,                                                            |   | At      December 31,                                                                                   |   | $      Increase (Decrease) |   | %      Increase (Decrease)                                                                                                      |
|----------------------------------------------|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|                                         | 2008                                                                             |   | 2007                                                                                                   |   |                       |
| Available-for-sale:                          |                                                                             |   |                                                                                                   |   |                       |   |                                                                                                                            |
| U. S. Government      agencies               | $             - |   | $                     5,705 |   | $(5,705)                   |   | (100.0)%                                                                                                                        |
| Corporate      securities                    | -                                                                                |   | 5,023                                                                                                  |   | (5,023)                    |   | (100.0)                                                                                                          |
| Trust preferred      securities              | 58,848                                                                           |   | 102,356                                                                                                |   | (43,508)                   |   | (42.5)                                                                                                           |
| Mortgage-backed      securities              | 7,145                                                                            |   | 18,203                                                                                                 |   | (11,058)                   |   | (60.7)                                                                                                           |
| Total available-for-sale      portfolio      | 65,993                                                                           |   | 131,287                                                                                                |   | (65,294)                   |   | (49.7)                                                                                                           |
|                                         |                                                                             |   |                                                                                                   |   |                       |   |                                                                                                                            |
| Held-to-maturity:                            |                                                                             |   |                                                                                                   |   |                       |   |                                                                                                                            |
| Municipal      obligations                   | 11,790                                                                           |   | 12,784                                                                                                 |   | (994)                      |   | (7.8)                                                                                                            |
| Mortgage-backed      securities              | 24,726                                                                           |   | 32,972                                                                                                 |   | (8,246)                    |   | (25.0)                                                                                                           |
| Total held-to-maturity      portfolio        | 36,516                                                                           |   | 45,756                                                                                                 |   | (9,240)                    |   | (20.2)                                                                                                           |
|                                         |                                                                             |   |                                                                                                   |   |                       |   |                                                                                                                            |
| Total      Investment Securities             | 102,509                                                                          |   | 177,043                                                                                                |   | (74,534)                   |   | (42.1)                                                                                                           |
|                                         |                                                                             |   |                                                                                              |   |                       |   |                                                                                                                            |
| Federal Home Loan Bank of      Seattle stock | 13,712                                                                           |   | 13,712                                                                                                 |   | -                          |   |                 -      |
|                                         |                                                                             |   |                                                                                                   |   |                       |   |                                                                                                                  |
|  Total                                  | $ 116,221                                                                        |   | $190,755                                                                                               |   | $ (74,534)                 |   | (39.1)%                                                                                                                         |

----

|                                                                                                                                                  |   | At      September 30, 2008 |   |   | At      December 31, 2007 |   |   | $      Increase |   |   | %      Increase  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|---------------------------|--------|--------|-----------------|--------|--------|------------------|--------|
|                                                                                                                                                  |   | Amount                     |   |   | Percent      (1)          |   |   | Amount          |   |   | Percent      (1) |   |   | (Decrease) |   |   | (Decrease) |   |
| Loans      90 days or more past due or non-accrual loans:                                                                                             |   |                       |   |   |                      |   |   |            |   |   |             |   |   |   |   |   |   |   |
| Real estate                                                                                                                                           |   | $                          | -      |   |                      |   | -      | %               |   | $      | -                |   |   |   | - | %  |   | $ | - |   |   |   | - | % |
| Real estate      construction                                                                                                                         |   |                       | 31,243 |   |                      |   | 4.70   |            |   |   | -                |   |   |   | - |   |   |   | 31,243 |   |   |   | 100.0 |   |
| Consumer                                                                                                                                              |   |                       | 242    |   |                      |   | 0.04   |            |   |   | 497              |   |   |   | 0.08 |   |   |   | (255 | ) |   |   | (51.3 | ) |
| Commercial      business                                                                                                                              |   |                       | 288    |   |                      |   | 0.04   |            |   |   | -                |   |   |   | - |   |   |   | 288 |   |   |   | 100.0 |   |
| Total non-performing      loans                                                                                                                       |   |                       | 31,773 |   |                      |   | 4.78   |            |   |   | 497              |   |   |   | 0.08 |   |   |   | 31,276 |   |   |   | 6,293.0 |   |
|                                                                                                                                                  |   |                       |   |   |                      |   |   |            |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      non-performing assets                                                                                                                      |   |                       |   |   |                      |   |   |            |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Repossessed    assets                                                                                                                                 |   |                       | -      |   |                      |   |   |            |   |   | 49               |   |   |   |   |   |   |   | (49 | ) |   |   | (100.0 | ) |
| Real estate    owned                                                                                                                                  |   |                       | 103    |   |                      |   |   |            |   |   | -                |   |   |   |   |   |   |   | 103 |   |   |   | 100.0 |   |
| Total other non-performing      assets                                                                                                                |   |                       | 103    |   |                      |   |   |            |   |   | 49               |   |   |   |   |   |   |   | 54 |   |   |   | 110.2 |   |
| Total      non-performing assets                                                                                                                      |   | $                          | 31,876 |   |                      |   |   |            |   | $      | 546              |   |   |   |   |   |   | $ | 31,330 |   |   |   | 5,738.1 | % |
|                                                                                                                                                  |   |                       |   |   |                      |   |   |            |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
|          Total non-performing assets as a percentage of                 total assets |   |                       | 3.79   | %      |                      |   |   |            |   |   | 0.06             | %      |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                               | At      September 30, 2008 |   |    | At      December 31, 2007 |   |     | $      Increase (Decrease) |    | %      Increase (Decrease) |
|------------------------------------|----------------------------|--------|---------|---------------------------|--------|----------|---------------------------------|---------|----------------------------|
|                               | Amount                     |   | Percent |                      |   | Amount   |                            | Percent |                       |   |   |
|                               |                       |   |    |                      |   |     |                            |    |                       |   |   |   |   |
| Non-interest-bearing      checking | $40,526                    |   | 8.7     | %                    |   | $33,924  |                            | 7.4     | %                     |   | $6,602  |   | 19.5% |
| Interest-bearing      checking     | 36,930                     |   | 8.0     |                      |   | 41,083   |                            | 8.9     |                       |   | (4,153) |   | (10.1)   |
| Savings      accounts              | 29,056                     |   | 6.3     |                      |   | 28,397   |                            | 6.1     |                       |   | 659  |   | 2.3    |
| Money      market accounts         | 135,570                    |   | 29.1    |                      |   | 117,626  |                            | 25.5    |                       |   | 17,944  |   | 15.3    |
| IRA      accounts                  | 5,908                      |   | 1.3     |                      |   | 5,713    |                            | 1.2     |                       |   | 195  |   | 3.4    |
| Certificates      of deposit       | 216,066                    |   | 46.6    |                      |   | 234,744  |                            | 50.9    |                       |   | (18,678) |   | (8.0)   |
| Total deposits                     | $464,056                   |   | 100.0   | %                    |   | $461,487 |                            | 100.0   | %                     |   | $    2,569  |   | 0.6% |
|                               |                       |   |    |                      |   |     |                            |    |                       |   |   |   |   |
| Core      deposits                 | $247,990                   |   | 53.4    | %                    |   | $226,743 |                            | 49.1    | %                     |   | $20,247  |   | 9.4% |
| Non-core      deposits             | 216,066                    |   | 46.6    |                      |   | 234,744  |                            | 50.9    |                       |   | (18,678) |   | (8.0)   |
| Total deposits                     | $464,056                   |   | 100.0   | %                    |   | $461,487 |                            | 100.0   | %                     |   | $    2,569  |   | 0.6% |

|                           | Three      Months Ended September 30,           |   | $      Increase (Decrease)     |   | %      Increase (Decrease)                      |
|--------------------------------|-------------------------------------------------|--------|--------------------------------|--------|-------------------------------------------------|
|                           | 2008                                            |   | 2007                           |   |                                            |
|                           |                                            |   |                           |   |                                            |   |   |
| Net      interest income       | $    6,154             |   | $    6,733 |   | $     (579)            |   | (8.6)% |
| Non-interest      income       | 2,479                                      |   | 2,412                          |   | 67                                         |   | 2.8      |
| Total      revenue             |      8,633        |   | 9,145                          |   | (512)                                           |   | (5.6)     |
| Provision      for loan losses |      6,000        |   | 150                            |   | 5,850                                      |   | 3,900.0      |
| Non-interest      expense      |       7,022  |   | 7,349                          |   |        (327) |   | (4.4)     |
| Net      income (loss)         | (2,950)                                         |   | 1,072                          |   | (4,022)                                         |   | (375.2)     |

----

|                                        | Three      Months Ended September 30, |   | $      Increase (Decrease)     |   | %      Increase (Decrease)           |
|---------------------------------------------|---------------------------------------|--------|--------------------------------|--------|--------------------------------------|
|                                        | 2008                                  |   | 2007                           |   |                                 |
| Interest      income:                       |                                  |   |                           |   |                                 |   |   |
| Loans                                       | $10,666                               |   | $12,127                        |   | $(1,461)                             |   | (12.0)% |
| Securities      available-for-sale          | 1,304                                 |   | 2,015                          |   | (711)                                |   | (35.3)     |
| Securities      held-to-maturity            | 398                                   |   | 527                            |   | (129)                                |   | (24.5)     |
| Interest-bearing      deposits              | -                                     |   | 28                             |   | (28)                                 |   | (100.0)     |
| Federal Home Loan Bank stock      dividends | 48                                    |   | 21                             |   | 27                              |   | 128.6      |
| Total interest      income                  | 12,416                                |   | 14,718                         |   | (2,302)                              |   | (15.6)     |
|                                        |                                  |   |                           |   |                                 |   |   |
| Interest      expense:                      |                                  |   |                           |   |                                 |   |   |
| Deposits                                    | 2,735                                 |   | 4,104                          |   | (1,369)                              |   | (33.4)     |
| Borrowed funds                              | 3,527                                 |   | 3,881                          |   | (354)                                |   | (9.1)     |
| Total interest      expense                 | 6,262                                 |   | 7,985                          |   | (1,723)                              |   | (21.6)     |
| Net      interest income                    | $ 6,154                               |   | $    6,733 |   | $          (579) |   | (8.6)% |

----

|                                  | Three      Months Ended September 30, |    |   | $      Increase (Decrease) |    | %      Increase (Decrease) |
|---------------------------------------|---------------------------------------|---------|--------|---------------------------------|---------|----------------------------|
|                                  | 2008                                  |    |   | 2007                            |    |                       |   |
| Allowance      at beginning of period | $8,271                                |    |   | $8,235                          |    |                       | $        36  |   | 0.4% |
| Provision for loan      losses        | 6,000                                 |    |   |    150           |    |                       | 5,850  |   | 3,900.0    |
| Recoveries                            | 29                                    |    |   | 55                              |    |                       | (26) |   | (47.3)   |
| Charge-offs                           | (357                                  | )  |   | (298                            | )  |                       | (59) |   | (19.8)   |
| Allowance      at end of period       | $13,943                               |    |   | $8,142                          |    |                       | $5,801  |   |  71.2% |

----

|                                            | Three      Months Ended September 30,                                      |   | $      Increase (Decrease)                                      |   | %      Increase (Decrease)                                                 |
|-------------------------------------------------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|----------------------------------------------------------------------------|
|                                            | 2008                                                                       |   | 2007                                                                 |   |                                                                       |
| Deposit      service fees                       | $      958                              |   | $      906                             |   | $        52                   |   | 5.7% |
| Loan      service fees                          |         310                   |   |         381                  |   |         (71)                       |   | (18.6)   |
| Insurance      service fees                     |      598                                     |   |     552                                          |   |      46                                      |   | 8.3    |
| Investment      service fees                    |     147                                           |   |     189                                          |   |      (42)                                         |   | (22.2)   |
| Real      estate lease income                   |    270                                                 |   |    298                                                |   |    (28)                                                     |   | (9.4)   |
| Gain      on sale of securities, net            |    1                                                   |   |    -                                                  |   |    1                                                   |   | 100.0    |
| Gain      on sale of loans, net                 |     190                                           |   |     60                                           |   |    130                                                 |   | 216.7    |
| Loss      on sale of real estate owned          |     (32)                                               |   |     -                                            |   |    (32)                                                     |   | (100.0)   |
| Gain      on sale of premises andequipment, net |    -                                                   |   |    1                                                  |   |    (1)                                                      |   | (100.0)   |
| Other      operating income                     |            37  |   |            25 |   |            12  |   | 48.0    |
| Total non-interest      income                  | $   2,479                                              |   | $   2,412                                             |   | $        67                   |   | 2.8% |

|                                   | Three      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease)     |
|----------------------------------------|---------------------------------------|--------|----------------------------|--------|--------------------------------|
|                                   | 2008                                  |   | 2007                       |   |                           |
| Compensation      and benefits         | $4,044                                |   | $4,237                     |   | $    (193) |   | (4.6)% |
| Office      operations                 | 990                                   |   | 1,006                      |   | (16)                           |   | (1.6)    |
| Occupancy                              | 572                                   |   | 649                        |   | (77)                           |   | (11.9)    |
| Loan      servicing                    | 127                                   |   | 130                        |   | (3)                            |   | (2.3)    |
| Outside      and professional services | 283                                   |   | 250                        |   | 33                        |   | 13.2     |
| Marketing                              | 260                                   |   | 278                        |   | (18)                           |   | (6.5)    |
| Other      operating expenses          | 746                                   |   | 799                        |   | (53)                           |   | (6.6)    |
| Total non-interest      expense        | $7,022                                |   | $7,349                     |   | $(327)                         |   | (4.4)% |

----

|                                                                                    |   | Three      Months Ended |    |   | Three      Months Ended |   |   |                 |   |   |                    |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|-------------------------|--------|--------|----------------------|--------|--------|-------------------------|--------|
|                                                                                    |   | September      30, 2008 |    |   | September      30, 2007 |   |   |                 |   |   |                    |   |
|                                                                                    |   | Average      Balance    |    |   | Average      Yield/Cost |   |   | Average      Balance |   |   | Average      Yield/Cost |   |   | $      Increase (Decrease) |   |   | %      Increase (Decrease) |   |
| INTEREST-EARNING      ASSETS:                                                           |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |
|     Total      loans                                                |   | $                       | 665,609 |   |                    |   | 6.39   | %                    |   | $      | 642,857                 |   |   |   | 7.53 | % |   | $ | 22,752 |   |   |   | 3.5 | % |
|     Mortgage-backed      securities                                 |   |                    | 37,168  |   |                    |   | 4.37   |                 |   |   | 55,863                  |   |   |   | 4.40 |   |   |   | (18,695 | ) |   |   | (33.5 | ) |
| Investment      securities                                                              |   |                    | 88,734  |   |                    |   | 5.84   |                 |   |   | 132,303                 |   |   |   | 5.83 |   |   |   | (43,569 | ) |   |   | (32.9 | ) |
| Federal Home Loan Bank      stock                                                       |   |                    | 13,712  |   |                    |   | 1.40   |                 |   |   | 13,712                  |   |   |   | 0.60 |   |   |   | - |   |   |   | - |   |
| Interest-bearing deposits in      other banks                                           |   |                    | 96      |   |                    |   | 2.12   |                 |   |   | 2,159                   |   |   |   | 5.21 |   |   |   | (2,063 | ) |   |   | (95.6 | ) |
| Total interest-earning      assets                                                      |   |                    | 805,319 |   |                    |   | 6.15   |                 |   |   | 846,894                 |   |   |   | 6.94 |   |   |   | (41,575 | ) |   |   | (4.9 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-earning      assets                                                        |   |                    | 56,663  |   |                    |   |   |                 |   |   | 50,745                  |   |   |   |   |   |   |   | 5,918 |   |   |   | 11.7 |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                            |   | $                       | 861,982 |   |                    |   |   |                 |   | $      | 897,639                 |   |   |   |   |   |   | $ | (35,657 | ) |   |   | (4.0 | )% |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST-BEARING      LIABILITIES:                                                      |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings    accounts                                                                     |   | $                       | 30,823  |   |                    |   | 0.25   |                 |   | $      | 31,692                  |   |   |   | 0.26 |   |   | $ | (869 | ) |   |   | (2.7 | )% |
| Interest-bearing checking      accounts                                                 |   |                    | 36,769  |   |                    |   | 0.70   |                 |   |   | 42,907                  |   |   |   | 1.41 |   |   |   | (6,138 | ) |   |   | (14.3 | ) |
| Money market deposit      accounts                                                      |   |                    | 125,912 |   |                    |   | 2.43   |                 |   |   | 122,829                 |   |   |   | 3.71 |   |   |   | 3,083 |   |   |   | 2.5 |   |
| Certificates of      deposit                                                            |   |                    | 231,750 |   |                    |   | 3.26   |                 |   |   | 229,497                 |   |   |   | 4.87 |   |   |   | 2,253 |   |   |   | 1.0 |   |
| Total deposits                                                                          |   |                    | 425,254 |   |                    |   | 2.56   |                 |   |   | 426,925                 |   |   |   | 3.81 |   |   |   | (1,671 | ) |   |   | (0.4 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal Home Loan Bank      advances                                                    |   |                    | 321,381 |   |                    |   | 4.37   |                 |   |   | 336,149                 |   |   |   | 4.58 |   |   |   | (14,768 | ) |   |   | (4.4 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total      interest-bearing liabilities |   |                    | 746,635 |   |                    |   | 3.34   |                 |   |   | 763,074                 |   |   |   | 4.15 |   |   |   | (16,439 | ) |   |   | (2.2 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST      BEARING LIABILITIES:                                                  |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing      checking                                                      |   |                    | 37,711  |   |                    |   |   |                 |   |   | 32,880                  |   |   |   |   |   |   |   | 4,831 |   |   |   | 14.7 |   |
| Other                                                                                   |   |                    | 8,434   |   |                    |   |   |                 |   |   | 12,012                  |   |   |   |   |   |   |   | (3.578 | ) |   |   | (29.8 | ) |
| Total      non-interest bearing liabilities                                             |   |                    | 46,145  |   |                    |   |   |                 |   |   | 44,892                  |   |   |   |   |   |   |   | 1,253 |   |   |   | 2.8 |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total    liabilities                                                                    |   |                    | 792,780 |   |                    |   |   |                 |   |   | 807,966                 |   |   |   |   |   |   |   | (15,186 | ) |   |   | (1.9 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity                                                                                  |   |                    | 69,202  |   |                    |   |   |                 |   |   | 89,673                  |   |   |   |   |   |   |   | (20,471 | ) |   |   | (22.8 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and      equity                                                       |   | $                       | 861,982 |   |                    |   |   |                 |   | $      | 897,639                 |   |   |   |   |   |   | $ | (35,657 | ) |   |   | (4.0 | )% |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                                |   | $                       | 6,154   |   |                    |   |   |                 |   | $      | 6,733                   |   |   |   |   |   |   | $ | (579 | ) |   |   | (8.6 | )% |
| Interest      rate spread      (1)                                                      |   |                    |    |   |                    |   | 2.81   | %                    |   |   |                    |   |   |   | 2.79 | % |   |   |   |   |   |   |   |   |
| Net      interest margin (2)                                                            |   |                    | 3.06    | %      |                    |   |   |                 |   |   | 3.20                    | %      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                           | Nine      Months Ended September 30,                               |   | $      Increase (Decrease) |   | %      Increase (Decrease)                                                    |
|--------------------------------|--------------------------------------------------------------------|--------|---------------------------------|--------|-------------------------------------------------------------------------------|
|                           | 2008                                                               |   | 2007                            |   |                                                                          |
|                           |                                                               |   |                            |   |                                                                          |   |   |
| Net      interest income       | $19,135                                                       |   | $19,538                         |   | $     (403)                                          |   | (2.1)% |
| Non-interest      income       | 7,901                                                         |   | 6,998                           |   | 903                                                                      |   | 12.9     |
| Total      revenue             |               27,036  |   | 26,536                          |   |        500                            |   | 1.9     |
| Provision      for loan losses |      6,700                           |   | 450                             |   |            6,250  |   | 1,388.9     |
| Non-interest      expense      |      20,880                          |   | 21,560                          |   |        (680)                               |   | (3.2)    |
| Net      income (loss)         | (489)                                                              |   | 2,944                           |   | (3,433)                                                                       |   | (116.6)    |

|                                        | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease)           |
|---------------------------------------------|--------------------------------------|--------|----------------------------|--------|--------------------------------------|
|                                        | 2008                                 |   | 2007                       |   |                                 |
| Interest      income:                       |                                 |   |                       |   |                                 |   |   |
| Loans                                       | $33,134                              |   | $35,371                    |   | $(2,237)                             |   | (6.3)% |
| Securities      available-for-sale          | 4,437                                |   | 6,099                      |   | (1,662)                              |   | (27.3)          |
| Securities      held-to-maturity            | 1,269                                |   | 1,638                      |   | (369)                                |   | (22.5)          |
| Interest-bearing      deposits              | 33                                   |   | 108                        |   | (75)                                 |   | (69.4)          |
| Federal Home Loan Bank stock      dividends | 130                                  |   | 55                         |   | 75                              |   | 136.4           |
| Total interest      income                  | 39,003                               |   | 43,271                     |   | (4,268)                              |   | (9.9)          |
|                                        |                                 |   |                       |   |                                 |   |   |
| Interest      expense:                      |                                 |   |                       |   |                                 |   |           |
| Deposits                                    | 9,301                                |   | 12,268                     |   | (2,967)                              |   | (24.2)          |
| Borrowed funds                              | 10,567                               |   | 11,465                     |   | (898)                                |   | (7.8)     |
| Total interest      expense                 | 19,868                               |   | 23,733                     |   | (3,865)                              |   | (16.3)     |
| Net      interest income                    | $ 19,135                             |   | $19,538                    |   | $          (403) |   | (2.1)% |

----

|                                  | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease) |
|---------------------------------------|--------------------------------------|--------|---------------------------------|--------|---------------------------------|
|                                  | 2008                                 |   | 2007                            |   |                            |
| Allowance      at beginning of period | $8,079                          |   | $8,283                     |   | $    (204)  |   |      (2.5)% |
| Provision for loan      losses        | 6,700                           |   | 450                        |   | 6,250                      |   |   1,388.9      |
| Recoveries                            | 167                             |   | 191                        |   | (24)                            |   | (12.6)     |
| Charge-offs                           | (1,003)                              |   | (782)                           |   | (221)                           |   | 28.3      |
| Allowance      at end of period       | $13,943                         |   | $8,142                     |   | $5,801                     |   | 71.2%  |

----

|                                                   | Nine      Months Ended September 30,                            |   | $      Increase (Decrease) |   | %      Increase (Decrease)                                      |
|--------------------------------------------------------|-----------------------------------------------------------------|--------|---------------------------------|--------|-----------------------------------------------------------------|
|                                                   | 2008                                                            |   | 2007                            |   |                                                            |
| Deposit      service fees                              | $  2,705                                         |   | $  2,611              |   | $        94        |   | 3.6% |
| Loan      service fees                                 |         912        |   | 1,019                           |   |       (107)                       |   | (10.5)   |
| Insurance      service fees                            |      1,677                        |   | 1,717                           |   |      (40)                              |   | (2.3)   |
| Investment      service fees                           |      432                          |   | 446                             |   |      (14)                              |   | (3.1)   |
| Real      estate lease income                          |     778                                |   | 863                             |   |     (85)                                    |   | (9.8)   |
| Gain      on sale of securities, net                   |     12                                 |   | -                               |   |     12                                 |   | 100.0    |
| Gain      on sale of loans, net                        |    875                                      |   | 262                             |   |     613                                |   | 234.0    |
| Loss      on sale of real estate owned                 |    (25)                                          |   | -                               |   |     (25)                                    |   | (100.0)   |
| Gain      (loss) on sale of premises andequipment, net |    (1)                                           |   | 11                              |   |    (12)                                          |   | (109.1)   |
| Other      operating income                            |          536  |   | 69                              |   |          467  |   | 676.8    |
| Total non-interest      income                         | $   7,901                                   |   | $   6,998        |   | $      903                   |   | 12.9% |

|                                   | Nine      Months Ended September 30, |   | $      Increase (Decrease) |   | %      Increase (Decrease)     |
|----------------------------------------|--------------------------------------|--------|---------------------------------|--------|--------------------------------|
|                                   | 2008                                 |   | 2007                            |   |                           |
| Compensation      and benefits         | $12,146                              |   | $12,298                         |   | $    (152) |   | (1.2)% |
| Office      operations                 | 2,882                                |   | 2,948                           |   | (66)                           |   | (2.2)    |
| Occupancy                              | 1,802                                |   | 1,908                           |   | (106)                          |   | (5.6)    |
| Loan      servicing                    | 359                                  |   | 369                             |   | (10)                           |   | (2.7)    |
| Outside      and professional services | 979                                  |   | 940                             |   | 39                        |   | 4.1     |
| Marketing                              | 762                                  |   | 810                             |   | (48)                           |   | (5.9)    |
| Other      operating expenses          | 1,950                                |   | 2,287                           |   | (337)                          |   | (14.7)    |
| Total non-interest      expense        | $20,880                              |   | $21,560                         |   | $(680)                         |   | (3.2)% |

----

|                                                                                    |   | Nine      Months Ended  |    |   | Nine      Months Ended  |   |   |                 |   |   |                    |   |
|-----------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|-------------------------|--------|--------|----------------------|--------|--------|-------------------------|--------|
|                                                                                    |   | September      30, 2008 |    |   | September      30, 2007 |   |   |                 |   |   |                    |   |
|                                                                                    |   | Average      Balance    |    |   | Average      Yield/Cost |   |   | Average      Balance |   |   | Average      Yield/Cost |   |   | $      Increase (Decrease) |   |   | %      Increase (Decrease) |   |
| INTEREST-EARNING      ASSETS:                                                           |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |
| Total loans                                                                             |   | $                       | 652,667 |   |                    |   | 6.77   | %                    |   | $      | 642,787                 |   |   |   | 7.35 | % |   | $ | 9,877 |   |   |   | 1.5 | % |
| Mortgage-backed      securities                                                         |   |                    | 40,609  |   |                    |   | 4.33   |                 |   |   | 59,166                  |   |   |   | 4.35 |   |   |   | (18,577 | ) |   |   | (31.4 | ) |
| Investment      securities                                                              |   |                    | 104,295 |   |                    |   | 5.61   |                 |   |   | 133,415                 |   |   |   | 5.80 |   |   |   | (29,120 | ) |   |   | (21.8 | ) |
| Federal Home Loan Bank      stock                                                       |   |                    | 13,712  |   |                    |   | 1.27   |                 |   |   | 13,712                  |   |   |   | 0.53 |   |   |   | - |   |   |   | - |   |
| Interest-bearing deposits in      other banks                                           |   |                    | 1,634   |   |                    |   | 2.68   |                 |   |   | 2,784                   |   |   |   | 5.13 |   |   |   | (1,150 | ) |   |   | (41.3 | ) |
| Total interest-earning      assets                                                      |   |                    | 812,914 |   |                    |   | 6.40   |                 |   |   | 851,864                 |   |   |   | 6.78 |   |   |   | (38,950 | ) |   |   | (4.6 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest-earning      assets                                                        |   |                    | 55,532  |   |                    |   |   |                 |   |   | 50,069                  |   |   |   |   |   |   |   | 5,463 |   |   |   | 10.9 |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                            |   | $                       | 868,446 |   |                    |   |   |                 |   | $      | 901,933                 |   |   |   |   |   |   | $ | (33,487 | ) |   |   | (3.7 | )% |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INTEREST-BEARING      LIABILITIES:                                                      |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings    accounts                                                                     |   | $                       | 30,881  |   |                    |   | 0.26   |                 |   | $      | 32,176                  |   |   |   | 0.27 |   |   | $ | (1,295 | ) |   |   | (4.0 | )% |
| Interest-bearing checking      accounts                                                 |   |                    | 36,747  |   |                    |   | 0.69   |                 |   |   | 42,158                  |   |   |   | 1.68 |   |   |   | (5,411 | ) |   |   | (12.8 | ) |
| Money market deposit      accounts                                                      |   |                    | 120,215 |   |                    |   | 2.53   |                 |   |   | 123,129                 |   |   |   | 3.73 |   |   |   | (2,914 | ) |   |   | (2.4 | ) |
| Certificates of      deposit                                                            |   |                    | 232,838 |   |                    |   | 3.88   |                 |   |   | 229,224                 |   |   |   | 4.79 |   |   |   | 3,614 |   |   |   | 1.6 |   |
| Total deposits                                                                          |   |                    | 420,681 |   |                    |   | 2.95   |                 |   |   | 426,687                 |   |   |   | 3.84 |   |   |   | (6,006 | ) |   |   | (1.4 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal Home Loan Bank      advances                                                    |   |                    | 321,948 |   |                    |   | 4.38   |                 |   |   | 341,242                 |   |   |   | 4.49 |   |   |   | (19,294 | ) |   |   | (5.7 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Total      interest-bearing liabilities |   |                    | 742,629 |   |                    |   | 3.57   |                 |   |   | 767,929                 |   |   |   | 4.13 |   |   |   | (25,300 | ) |   |   | (3.3 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NON-INTEREST      BEARING LIABILITIES:                                                  |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing      checking                                                      |   |                    | 36,118  |   |                    |   |   |                 |   |   | 33,527                  |   |   |   |   |   |   |   | 2,591 |   |   |   | 7.7 |   |
| Other                                                                                   |   |                    | 10,896  |   |                    |   |   |                 |   |   | 11,291                  |   |   |   |   |   |   |   | (395 | ) |   |   | (3.5 | ) |
| Total      non-interest bearing liabilities                                             |   |                    | 47,014  |   |                    |   |   |                 |   |   | 44,818                  |   |   |   |   |   |   |   | 2,196 |   |   |   | 4.9 |   |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total    liabilities                                                                    |   |                    | 789,643 |   |                    |   |   |                 |   |   | 812,747                 |   |   |   |   |   |   |   | (23,104 | ) |   |   | (2.8 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity                                                                                  |   |                    | 78,803  |   |                    |   |   |                 |   |   | 89,186                  |   |   |   |   |   |   |   | (10,383 | ) |   |   | (11.6 | ) |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total liabilities and      equity                                                       |   | $                       | 868,446 |   |                    |   |   |                 |   | $      | 901,933                 |   |   |   |   |   |   | $ | (33,487 | ) |   |   | (3.7 | )% |
|                                                                                    |   |                    |    |   |                    |   |   |                 |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income                                                                |   | $                       | 19,135  |   |                    |   |   |                 |   | $      | 19,538                  |   |   |   |   |   |   | $ | (403 | ) |   |   | (2.1 | )% |
| Interest      rate spread      (1)                                                      |   |                    |    |   |                    |   | 2.83   | %                    |   |   |                    |   |   |   | 2.65 | % |   |   |   |   |   |   |   |   |
| Net      interest margin (2)                                                            |   |                    | 3.14    | %      |                    |   |   |                 |   |   | 3.06                    | %      |   |   |   |   |   |   |   |   |   |   |   |   |

----

----

----

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

----

----

| Period                                                                  |   | Total      Number of Shares      Purchased |   |   | Average      Price Paid      per Share |   |   | Total      Number of Shares      Purchased      as Part      of Publicly Announced      Plans      or Programs      (1) |   |   | Maximum      Number      of Shares      that May Yet      be Purchased      Under      the Plans or      Programs |   |
|-------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|----------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                    |   |                                       |   |   |                                   |   |   |                                                                                                                    |   |   |                                                                                                              |   |
| July      1, 2008 –July 31, 2008                                  |   |                                       | 12,000 |   |                                   | $      | 8.38   |                                                                                                                    |   |   | 12,000                                                                                                            |   |   |   | 58,390 |   |
| August      1, 2008 – August 31, 2008                             |   |                                       | 10,350 |   |                                   |   | 8.01   |                                                                                                                    |   |   | 10,350                                                                                                            |   |   |   | 48,040 |   |
| September      1, 2008 – September 30, 2008                       |   |                                       | -      |   |                                   |   | -      |                                                                                                                    |   |   | -                                                                                                                 |   |   |   | 48,040 |   |
|                                                                    |   |                                       |   |   |                                   |   |   |                                                                                                                    |   |   |                                                                                                              |   |   |   |   |   |
|                 Total |   |                                       | 22,350 |   |                                   | $      | 8.21   |                                                                                                                    |   |   | 22,350                                                                                                            |   |   |   |   |   |

| (1) | On February 22, 2006, we      announced our intention to purchase an additional 5% (i.e., 307,000) of      Rainier Pacific Financial Group, Inc. outstanding shares of common      stock.  On January 31, 2008, we announced a 12-month extension      of this repurchase program.  At September 30, 2008, there were      48,040 shares remaining to be purchased under this repurchase      program. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 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 | Employment      Agreement between the Company and the Bank and Joel G. Edwards (2) |
|--------|------|------------------------------------------------------------------------------------|

|   | 10.5 | Form      of Rainier Pacific Savings Bank Employee Severance Compensation Plan (1) |
|--------|------|------------------------------------------------------------------------------------|

|   | 10.6 | Rainier      Pacific 2004 Stock Option Plan (3) |
|--------|------|-------------------------------------------------|

|   | 10.7 | Rainier      Pacific 2004 Management Recognition Plan (3) |
|--------|------|-----------------------------------------------------------|

|   | 10.8 | Form      of Incentive Stock Option Agreement (4) |
|--------|------|---------------------------------------------------|

|   | 10.9 | Form      of Non-Qualified Stock Option Agreement (4) |
|--------|------|-------------------------------------------------------|

|   | 10.10 | Form      of Restricted Stock Award Agreement (4) |
|--------|-------|---------------------------------------------------|

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

|   | 31.1 | Certification      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act |
|--------|------|------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act |
|--------|------|------------------------------------------------------------------------------------------------------|

|   | 32     | Certification      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. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                   | Rainier Pacific      Financial Group, Inc.                                                                                                                                                                                                                                                                                                                     |
|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                   |                                                                                                                                                                                                                                                                                                                                                                |
| November 4,      2008        | /s/John      A.      Hall                                                             |
|                                   | John A.      Hall                                                                                                                                                                                                                                                                                                                                              |
|                                   | President and Chief      Executive Officer                                                                                                                                                                                                                                                                                                                     |
|                                   | (Principal Executive      Officer)                                                                                                                                                                                                                                                                                                                             |
|                                   |                                                                                                                                                                                                                                                                                                                                                                |
|                                   |                                                                                                                                                                                                                                                                                                                                                                |
| November 4,      2008   |  /s/Joel G.      Edwards                                                                                       |
|                                   |  Joel G.      Edwards                                                                                                                                                                                                                                                                                                                                          |
|                                   |  Chief      Financial Officer                                                                                                                                                                                                                                                                                                                                  |
|                                   |  (Principal      Financial and Accounting Officer)                                                                                                                                                                                                                                                                                                             |

----

| 31.1 | Certification      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act                             |
|------|----------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Certification      of Chief Financial Officer 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. | I      have reviewed this Quarterly Report on Form 10-Q of Rainier Pacific      Financial Group, Inc.; |
|----|--------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

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

| Date:  November      4, 2008  | /s/John      A.      Hall                                             |
|----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         | John A.      Hall                                                                                                                                                                                                                                                                            |
|                                         | President and Chief      Executive Officer                                                                                                                                                                                                                                                   |

----

| 1. | I      have reviewed this Quarterly Report on Form 10-Q of Rainier Pacific      Financial Group, Inc.; |
|----|--------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

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

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

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

| Date:  November      4, 2008   | /s/Joel      G.      Edwards                              |
|----------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                               | Joel G.      Edwards                                                                                                                                                                                  |
|                                               | Chief Financial      Officer                                                                                                                                                                          |

----

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

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

| /s/John      A.      Hall                                           | /s/Joel      G.      Edwards                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  John A.      Hall                                                                                                                                                                                                                                                | Joel G.      Edwards                                                                                                                                                                      |
| President and Chief      Executive Officer                                                                                                                                                                                                                                  | Chief Financial      Officer                                                                                                                                                              |

|  37 |
|----------|
|     |