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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549

FORM 10-Q

(mark one) 
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period endedJune 30, 2004

OR

[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from _________ to _________

Commission File Number0-24024

Venture Financial Group, Inc.(Exact name of registrant as specified in its charter)

Washington
	
	91 -1277503(State or other jurisdiction
	
	(IRS Employer Identification Number)of incorporation or organization)


721 College Street. SE, P.O. Box 3800, Lacey, WA 98509(Address of principal executive offices)

Issuer's telephone number: (360) 459-1100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   
[X]    Yes     [_]    No

Indicate by check mark whether the registrant is
an accelerated filer (as defined by Rule 12b-2 of the Exchange Act)    
[_]    Yes     [X]    No

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Title of Class
	
	Outstanding at July 16, 2004Common Stock
	
	6,526,839


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Venture Financial Group, Inc.

Table of Contents

PART I - FINANCIAL INFORMATION
	
	PageItem 1
	
	Financial StatementsCondensed Consolidated Balance Sheets
	
	3Condensed Consolidated Statements of Income and Comprehensive Income
	
	4Condensed Consolidated Statement of Stockholders' Equity
	
	5Condensed Consolidated Statements of Cash Flows
	
	6Notes to Condensed Consolidated Financial Statements
	
	7Item 2
	
	Management's Discussion and Analysis of Financial Condition andResults of Operations
	
	10Item 3
	
	Quantitative and Qualitative Disclosures about Market Risk
	
	19Item 4
	
	Controls and Procedures
	
	20PART II - OTHER INFORMATIONItem 1
	
	Legal Proceedings
	
	21Item 2(e)
	
	Changes in Securities and Use of Proceeds
	
	21Item 4
	
	Submission of Matters of a Vote of Security Holders
	
	21Item 6
	
	Exhibits and Reports on Form 8-K
	
	22SIGNATURES
	
	
	
	23


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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)

June 30
	
	December 312004
	
	2003(Unaudited)AssetsCash and due from banks
	
	$ 21,271
	
	$ 19,048Interest bearing deposits in banks
	
	5,575
	
	213Federal funds sold
	
	- -
	
	5,530Securities available for sale, at fair value
	
	74,695
	
	84,878Securities held to maturity, at amortized cost
	
	504
	
	505FHLB Stock
	
	1,181
	
	1,156Trust preferred securities
	
	589
	
	- -Loans held for sale
	
	2,625
	
	4,138Loans
	
	386,172
	
	363,493Allowance for credit losses
	
	7,512
	
	7,589Net loans
	
	378,660
	
	355,904Premises and equipment
	
	12,988
	
	12,112Foreclosed real estate
	
	1,328
	
	1,996Accrued interest receivable
	
	1,972
	
	1,824Cash surrender value of life insurance
	
	13,397
	
	13,113Intangible assets
	
	11,653
	
	11,597Other assets
	
	1,601
	
	1,886Total assets
	
	$528,039
	
	$513,900LiabilitiesDeposits:Demand
	
	$ 87,024
	
	$ 81,344Savings and interest bearing demand
	
	205,352
	
	182,545Time deposits
	
	105,278
	
	118,334Total deposits
	
	397,654
	
	382,223Short term borrowing
	
	33,115
	
	34,394Long term debt
	
	42,589
	
	42,000Accrued interest payable
	
	394
	
	174Other liabilities
	
	4,291
	
	6,436Total liabilities
	
	478,043
	
	465,227Stockholders' EquityCommon stock, (no par value); 10,000,000 shares authorized,
	
	23,740
	
	25,289shares outstanding: June 2004 - 6,423,505; December 2003 - 6,474,244Retained earnings
	
	26,448
	
	23,254Accumulated other comprehensive income (loss), net of tax
	
	(192)
	
	130Total stockholders' equity
	
	49,996
	
	48,673Total liabilities and stockholders' equity
	
	$528,039
	
	$513,900


See notes to condensed consolidated financial statements

3

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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(Dollars in thousands, except per share amounts)

Three months ended
	
	Six months endedJune30
	
	June302004
	
	2003
	
	2004
	
	2003Interest incomeLoans
	
	$6,786
	
	$7,788
	
	$13,437
	
	$15,671Federal funds sold and deposits in banks
	
	10
	
	28
	
	13
	
	30Investments
	
	767
	
	348
	
	1,674
	
	699Total interest income
	
	7,563
	
	8,164
	
	15,124
	
	16,400Interest ExpenseDeposits
	
	1,018
	
	1,169
	
	2,020
	
	2,429Other
	
	504
	
	381
	
	999
	
	739Total interest expense
	
	1,522
	
	1,550
	
	3,019
	
	3,168Provision for credit losses
	
	143
	
	622
	
	275
	
	1,199Net interest income after provisionFor credit losses
	
	5,898
	
	5,992
	
	11,830
	
	12,033Non-interest incomeService charges on deposit accounts
	
	1,065
	
	935
	
	1,954
	
	1,855Mortgage loans sold
	
	312
	
	990
	
	650
	
	1,848Other operating income
	
	611
	
	524
	
	1,180
	
	1,312Total non-interest income
	
	1,988
	
	2,449
	
	3,784
	
	5,015Non-interest expenseSalaries and employee benefits
	
	2,713
	
	2,971
	
	5,597
	
	6,211Occupancy and equipment
	
	863
	
	915
	
	1,718
	
	1,718Other expense
	
	1,547
	
	1,765
	
	2,734
	
	3,702Total non-interest expense
	
	5,123
	
	5,651
	
	10,049
	
	11,631Operating income before income taxes
	
	2,763
	
	2,790
	
	5,565
	
	5,417Income Taxes
	
	873
	
	836
	
	1,767
	
	1,681Net income
	
	$1,890
	
	$1,954
	
	$ 3,798
	
	$ 3,736Other comprehensive income, net of tax:Unrealized holding gains (losses) on securitiesarising during the period
	
	(988)
	
	179
	
	(489)
	
	146Comprehensive Income
	
	$902
	
	$2,133
	
	$ 3,309
	
	$ 3,882Earnings per Share DataBasic earnings per share
	
	$ .29
	
	$.30
	
	$ .59
	
	$ .57Diluted earnings per share
	
	$ .28
	
	$.28
	
	$ .57
	
	$ .54Dividends declared per share
	
	$ 0.05
	
	$ 0.03
	
	$ 0.09
	
	$ 0.07Weighted average number of common shares
	
	6,443,482
	
	6,572,003
	
	6,452,650
	
	6,571,398Weighted average number of common shares,Including dilutive stock options
	
	6,707,145
	
	6,895,296
	
	6,716,313
	
	6,861,501Return on average assets (annualized)
	
	1.46%
	
	1.66%
	
	1.47%
	
	1.57%Return on average equity (annualized)
	
	15.30%
	
	17.20%
	
	15.48%
	
	16.58%


See notes to condensed consolidated financial statements

4

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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
(Dollars in thousands)

Six Months Ended June 30, 2003 and 2004

AccumulatedOtherCommon
	
	Retained
	
	ComprehensiveStock
	
	Earnings
	
	Income (Loss)
	
	TotalBalance, December 31, 2002
	
	$28,430
	
	$15,246
	
	$533
	
	$44,209Net income
	
	- -
	
	3,736
	
	- -
	
	3,736Stock options exercised
	
	1,297
	
	- -
	
	- -
	
	1,297Stock repurchased
	
	(3,385)
	
	- -
	
	- -
	
	(3,385)Cash dividend ($0.07 per share)
	
	- -
	
	(440)
	
	- -
	
	(440)Other comprehensive income
	
	- -
	
	- -
	
	146
	
	146Balance, June 30, 2003
	
	$26,342
	
	$18,542
	
	$679
	
	$45,563Balance, December 31, 2003
	
	$25,289
	
	$23,254
	
	$130
	
	$48,673Net income
	
	- -
	
	3,798
	
	- -
	
	3,798Stock options exercised
	
	524
	
	- -
	
	- -
	
	524Stock repurchased
	
	(2,073)
	
	- -
	
	- -
	
	(2,073)Cash dividend ($0.09 per share)
	
	- -
	
	(604)
	
	- -
	
	(604)Other comprehensive loss
	
	- -
	
	- -
	
	(322)
	
	(322)Balance, June 30, 2004
	
	$23,740
	
	$26,448
	
	$(192)
	
	$49,996


See notes to condensed consolidated financial statements

5

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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIESCondensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

Six months ended June 302004
	
	2003Cash Flows from Operating ActivitiesNet Income
	
	$ 3,798
	
	$ 3,736Adjustments to reconcile net income to net cash providedby operating activities:Provision for credit losses
	
	275
	
	1,199Depreciation and amortization
	
	787
	
	722Income from mortgage loans sold
	
	(650)
	
	(1,848)Other - net
	
	(389)
	
	(215)Originations of loans held for sale
	
	(21,545)
	
	(77,252)Proceeds from sales of loans held for sale
	
	23,708
	
	74,707Net cash provided by operating activities
	
	5,984
	
	1,049Cash Flows from Investing ActivitiesNet increase in interest bearing deposits in banks
	
	(5,362)
	
	(517)Net decrease in federal funds sold
	
	5,530
	
	900Purchases of securities available for sale
	
	(10,367)
	
	- -Proceeds from maturities and prepayments of available-for-sale securities
	
	19,358
	
	1,226Net (increase) decrease in loans
	
	(23,430)
	
	861Proceeds from sale of other real estate
	
	244
	
	1,069Additions to premises and equipment
	
	(1,733)
	
	(1,195)Net cash provided (used) by investing activities
	
	(15,760)
	
	2,344Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
	
	15,431
	
	(8,137)Net increase (decrease) in short-term borrowings
	
	(1,279)
	
	2,588Sale of common stock
	
	524
	
	1,297Repurchase of common stock
	
	(2,073)
	
	(3,385)Increase of long-term borrowings
	
	- -
	
	5,000Payment of cash dividends
	
	(604)
	
	(440)Net cash provided (used) by financing activities
	
	11,999
	
	(3,077)Net change in cash and due from banks
	
	2,223
	
	316Cash and Due from Banks:Beginning of period
	
	19,048
	
	30,965End of period
	
	$21,271
	
	$31,281Supplemental Disclosures of Cash Flow Information:Cash payments for:Interest
	
	$2,799
	
	$3,301Taxes
	
	2,330
	
	1,580Supplemental Disclosures of Non-Cash Investing and Financing Activities:Fair value adjustment of securities available for sale, net
	
	(322)
	
	146Foreclosed real estate acquired in settlement of loans
	
	(276)
	
	4,474Trust preferred securities
	
	589
	
	- -


See notes to condensed consolidated financial statements

6

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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information
and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial
statements.  In the opinion of management, adjustments considered necessary for a fair presentation (consisting of normally recurring accruals) have been included.  The interim condensed consolidated financial statements should be read in
conjunction with the December 31, 2003 consolidated financial statements, including notes thereto, included in the Company's 2003 Annual Report to Shareholders. Operating results for the six months ended June 30, 2004 are not necessarily indicative
of the results anticipated for the year ending December 31, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Stock Based Compensation

The Company accounts for stock-based awards to employees and directors using the intrinsic value method, in accordance with APB No. 25,Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the condensed consolidated financial statements for employee and director stock arrangements where the grant price is equal to market
price. However, the required pro forma disclosures of the effects of all options granted on or after January 1, 1995have been provided in accordance with SFAS No.
123,
Accounting for Stock-Based Compensation.

At June 30, 2004, the Company has one stock-based employee and director compensation plan.  The following illustrates the effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation,to stock-based compensation awards for the effects of all options granted on or after
January 1, 1995 for the periods ended June 30:

2004
	
	2003Net income, as reported
	
	$3,798
	
	$3,736Less total stock-based compensation expense determinedunder fair value method for all qualifying awards
	
	165
	
	135Pro forma net income
	
	$3,633
	
	$3,601Earnings per ShareBasic:As reported
	
	$.59
	
	$.57Pro forma
	
	.56
	
	.55Diluted:As reported
	
	.57
	
	.54Pro forma
	
	.54
	
	.54


7

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2. Basic and Diluted Earnings per Share

Basic and diluted earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding during the periods presented.  Diluted earnings per share assumes all dilutive
stock options outstanding are issued such that their dilutive effect is maximized.

Three Months Ended June 30,
	
	Six Months Ended June 30,2004
	
	2003
	
	2004
	
	2003Basic EPS computation
	
	$ 1,890
	
	$ 1,954
	
	$ 3,798
	
	$ 3,736Numerator - Net IncomeDenominator - Weighted Averagecommon shares outstanding
	
	6,443,482
	
	6,572,003
	
	6,452,650
	
	6,571,398Basic EPS
	
	$ .29
	
	$ .30
	
	$ .59
	
	$ .57Three Months Ended June 30,
	
	Six Months Ended June 30,2004
	
	2003
	
	2004
	
	2003Diluted EPS computation
	
	$ 1,890
	
	$ 1,954
	
	$ 3,798
	
	$ 3,736Numerator - Net IncomeDenominator - Weighted average
	
	6,443,482
	
	6,572,003
	
	6,452,650
	
	6,571,398common shares outstandingEffect of dilutive stock options
	
	263,663
	
	323,293
	
	263,663
	
	290,103Weighted average common shares
	
	6,707,145
	
	6,895,295
	
	6,716,313
	
	6,861,501and common stock equivalentsDiluted EPS
	
	$ .28
	
	$ .28
	
	$ .57
	
	$ .54


8

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3. Issuance of Trust Preferred Securities

On April 10, 2003, the Company completed an offering of trust preferred securities and received net proceeds of approximately $5,910,000. The proceeds are being used for general Company purposes, including utilization
in the stock repurchase program and potentially to provide additional capital to Venture Bank. Trust preferred securities consist of the issuance of subordinated debt securities to a wholly owned subsidiary business trust, which then issues
preferred stock to investors.  In accordance with FASB Interpretation No. 46Consolidation of Variable Interest Entities,the wholly owned subsidiary trust is
deconsolidated for purposes of reporting in the Consolidated Financial Statements. The Company will be able to recognize a deduction of the interest cost for income tax purposes, while the net proceeds, up to one-quarter of total capital adjusted
for accumulated other comprehensive income, will qualify as Tier 1 capital.

4. Three for two stock dividend

On April 24, 2004, the Company's Board of Directors approved a three for two stock dividend paid to all shareholders of record as of May 16, 2004. All share and earnings per share information included in this filing
has been adjusted to reflect the dividend.

9

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Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains a review of the Company's and its subsidiaries operating results and financial condition for the three and six months ended and as of June 30, 2004. When warranted, comparisons are
made to the same period in 2003, and to the previous year ended December 31, 2003. The discussion should be read in conjunction with the financial statements (unaudited) and related notes contained elsewhere in this report.  The reader is assumed to
have access to the Company's Form 10-K for the year ended December 31, 2003, which contains additional statistics and explanations.  All dollars in tables, except per share data, are expressed in thousands.

Forward-Looking Information

In addition to historical information, statements appearing in this report which are not historical in nature, including the discussions of the adequacy of the Company's capital resources and allowance for credit
losses, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PLSRA"). Any statements that expressly or implicitly predict future results, performance, or events should be considered
forward-looking. Forward-looking statements are subject to the risks and uncertainties that may cause actual future results to differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date of this Quarterly Report. The Company does not undertake any obligation to publicly release any revisions to forward-looking statements contained in this Quarterly Report, with respect to events or circumstances after the date of
this Report, or to reflect the occurrence of unanticipated events.

Such risks and uncertainties with respect to the Company include, among others, those related to the general economic environment, particularly in the region in which the Company operates, competitive products and
pricing, that may lead to pricing pressures on rates the Bank charges on loans and pays on deposits, loss of customers of greatest value to the Bank, litigation or other losses, fiscal and monetary policies of the federal government, changes in
government regulations affecting financial institutions and small loan practices, including regulatory fees and capital requirements, changes in prevailing interest rates that could lead to decreased net interest margin, acquisitions and the
integration of acquired businesses, credit risk management and asset/liability management, the financial and securities markets, changes in technology or required investments in technology, and the availability of and costs associated with sources
of liquidity.

Financial Condition

GeneralThe Company's consolidated assets at June 30, 2004 totaling $528,039,000 represents a 2.8% or $14,139,000 increase from December 31, 2003 assets totaling $513,900,000.  These increases are represented primarily by a
$22,679,000 increase in loans and $5,362,000 increase in interest bearing deposits in banks.  This increase was largely offset by a $10,183,000 decrease in securities available for sale and a $5,530,000 decrease in fed funds sold. Other assets were
largely unchanged.

Loans and loans held for saleAs previously noted, loans have increased $22,679,000 or 6.2% as of June 30, 2004 compared to December 31, 2003.  Loan growth continues to be attributed to an improved economy.  In addition, management believes the
rebranding effort that transpired in 2003, including the name change to Venture Bank, has created a renewed awareness providing the Bank more lending opportunities. Loans held for sale decreased $1,513,000 to $2,625,000 as of June 30, 2004. The June
30, 2004 balance is consistent with the March 31, 2004 balance. The reduction in this balance was expected and is attributed to the rising interest rates which have impacted the mortgage refinance market. In response to the reduced activity,
management reallocated staffing in the Bank's mortgage department in the first quarter.

10

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The composition of the loan portfolio was as follows (dollars in thousands):

> June 30
> 	
> 	December 312004
> 	
> 	2003Commercial
> 	
> 	$57,571
> 	
> 	$52,515Real EstateCommercial
> 	
> 	232,576
> 	
> 	211,541Mortgage
> 	
> 	9,327
> 	
> 	9,545Construction
> 	
> 	76,827
> 	
> 	79,788Consumer
> 	
> 	6,729
> 	
> 	6,946Small Loans
> 	
> 	3,142
> 	
> 	3,158Total Loans
> 	
> 	$386,172
> 	
> 	$363,493

The total non-performing loans, defined as those loans on non-accrual and accruing loans over 90-days past due, decreased since December 31, 2003 by $580,000 as shown in the following table of non-performing assets
(dollars in thousands):

June 30
	
	December 312004
	
	2003Non-accrual loans
	
	$ 1,624
	
	$ 2,204Accruing loans past due 90 days or more
	
	2
	
	2Foreclosed real estate
	
	1,328
	
	1,996Other assets
	
	18
	
	3$ 2,972
	
	$ 4,205


The percentage of non-performing loans to total loans decreased to .42% on June 30, 2004 from .60% on December 31, 2003. Non-accrual loans decreased $580,000 during the first six months of 2004, while foreclosed real
estate and other assets decreased $653,000 during the same period. The reduction in non-accrual loans and foreclosed real estate continues to be attributed to the Company's attention to non-performing assets.

Allowance for Credit LossesThe allowance for credit losses reflects management's current estimate of the amount required to absorb losses on existing loans and commitments to extend credit. Determination of the appropriate level of the allowance
is based on an analysis of various factors including historical loss experience based on volumes and types of loans; volumes and trends in delinquencies and non-accrual loans; trends in portfolio volume; results of internal credit reviews; and
economic conditions.  All commercial and real estate loans in the portfolio are assigned a grade indicating credit quality by the originating loan officer at the time of loan origination. These grades are reviewed at regular intervals and, if
performance concerns arise on an individual loan, the grade is lowered to the appropriate level. Management reviews the composite changes in loan grades within the portfolio in its assessment of the adequacy of the allowance. If a loan becomes
impaired, the Company's loss exposure on that loan is measured based on expected cash flows or collateral values, and if necessary, a portion of the allowance for credit losses is allocated to that loan. After reviewing the composition of the loan
portfolio at June 30, 2004, the levels of classified loans, losses experienced during the period, and the changes in the economy, management has determined the allowance for credit losses to be adequate to cover the loss exposure in the loan
portfolio at that date.  An analysis of the adequacy of the allowance is subject to quarterly review by the Board of Directors. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance
for loan losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments of information available at the time of their examination.

The allowance for credit losses decreased $77,000 for the first six months of 2004, with the ratio of the allowance for credit losses to loans at 1.93%	 on June 30, 2004, compared to 2.06%	 on December 31, 2003. During
the first six months, an additional $275,000 was reserved for potential losses, and net charge-offs were $352,000, or 0.09%	 of the loan portfolio. Gross charges offs consisted primarily of one foreclosed real estate property write down in the
amount of $491,000. The Company had fully reserved for this charge-off. The charge off was partially offset by a $267,000 recovery on one loan previously charged off in 1999. The allowance for credit losses to nonperforming loans was 462.00% on June
30, 2004, compared to 344.02%	 on December 31, 2003. Due to the recovery previously discussed and the improved condition of the overall loan portfolio, Management anticipates additional provisions for the general loan portfolio during 2004 will be
significantly reduced compared to 2003. Management will continue to provide a reserve for its small loan portfolio.

11

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Investment PortfolioInvestment securities decreased $10,183,000, or 12% during the first six months of 2004 to a total of $74,695,000. The decrease in securities available for sale is primarily attributed to principal reductions on
mortgage backed securities and agency securities called.  Cash received from these investments was partially redirected into the Bank's loan portfolio. Securities are typically purchased from time to time as either collateral for various operational
purposes or for additional income in times of excess liquidity.

Premises and equipmentThe increase in Premises and equipment is attributed to the purchase of a building in South King County for $1.1 million; the transaction closed on June 11, 2004. This building will be utilized as a full service
financial center and is tentatively scheduled to open November 1, 2004.

Deposits and BorrowingsTotal deposits increased $15,431,000, or 4.0% in the six months ended June 30, 2004 to $397,654,000. Savings and interest-bearing deposit accounts and non-interest bearing demand increased $28,487,000 or 10.8% while
time deposits decreased $13,056,000 or 11.0% . In an effort to shift the deposit base toward savings and demand deposit accounts, Management continues to implement programs which encourage growth in these products. Short term and long term
borrowings also experienced minimum fluctuations.

LiquidityLiquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs. Liquidity is generated from both internal and external sources. Internal sources are those assets that can be converted to cash with little or no risk of loss. These include overnight investments in interest bearing deposits
in banks and federal funds sold and investment securities, particularly those of shorter maturity, and are the principal source of asset liquidity. At June 30, 2004, cash, deposits in banks, federal funds sold and securities available for sale
totaled $101,541,000. External sources refer to the ability to access new borrowings and capital. They include increasing savings and demand deposits, federal funds purchased, borrowings, and the issuance of capital and debt securities. At June 30,
2004, borrowing lines of credit totaled $53,390,000. These credit facilities are being used regularly as a source of funds. At June 30, 2004, $10,000,000 was borrowed against these lines of credit in the form of long term advances.

Net cash flows from operations and financing activities contributed to liquidity while net cash flows from investing activities used liquidity. As indicated on the Company's Condensed Consolidated Statement of Cash
Flows, net cash from operating activities for the six months ended June 30, 2004 contributed $5,984,000 to liquidity compared to $1,049,000 for the six months ended June 30, 2003. The majority of the cash provided from operating activities for the
first six months of 2004 was contributed from net income and net loans held for sale in the amount of $2,163,000. Cash flow from investing activity used cash of $15,760,000 for the six months ended June 30, 2004 compared to contributing cash of
$2,344,000 for the same period in 2003. Cash used to fund investing activities during the first six months of 2004 included an increase in net loans of $23,430,000, the purchase of securities available for sale of $10,367,000 and the increase in
interest bearing deposits in banks of $5,362,000. Certain investment activities also provided cash during the first six months including $5,530,000 from a reduction in federal funds sold and $19,358,000 from cash paydowns on mortgage back securities
and securities called. Cash flow from financing activities provided cash of $11,999,000 as of June 30, 2004 compared to a use of $3,077,000 during the same period in 2003. The substantial majority of cash provided came from the increase in net
deposits of $15,431,000. These monies were partially used to fund financing activities including the pay down of short-term borrowings of $1,279,000 and the repurchase of common stock in the amount of $2,073,000.

The stock repurchase program authorizes the Company to make scheduled purchases over time in either privately negotiated transactions or through the open market.  On December 11, 2002, the Company's board of directors
authorized the repurchase of 198,000 shares over a three month period. As of March 11, 2003 a total of 104,358 shares had been repurchased under this plan for a total of $1,174,792. On February 19, 2003, June 18, 2003 and October 15, 2003 the
Company's board of directors authorized 131,370, 56,130, and 225,000 shares, respectively, be added to the stock repurchase program.  Under this program the Board authorized the purchase of a total of 412,500 of the Company's common stock or
approximately 4% of the total common shares currently outstanding. As of June 30, 2004 the Company had repurchased 402,579 shares at a cost of $5,727,000.

On June 16, 2004 the Company's board of directors authorized 200,000 shares added to the stock repurchase program or approximately 3%. This plan commences on July 1, 2004 and has an expiration date of December 31,
2005.

12

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On June 24, 2004 the Company announced that it has signed an agreement to sell seven of its branches located in three counties to Timberland Bank. The transaction is expected to close in early fall 2004. These branches
had average deposit balances for the month of June 2004 totaling $89,000,000. The transaction includes the sale of certain real estate and personal property and the assumption by Timberland of deposits at these branches. No loans or investment
securities are being transferred. Had the transaction closed June 30, 2004, the Company would have transferred approximately $78,000,000 to Timberland representing the amount of deposits assumed net of the price of the assets transferred and the
premium paid by Timberland for such deposits. The Company does not expect the net cash payment to be materially different at the anticipated time of closing. The Company expects to be able to fund the payment at the time of closing from available
cash, deposits with or due from banks, Fed Funds Purchased and long term borrowings with the Federal Home Loan Bank, without resorting to the sale of securities held for sale.

Management believes that the Company's liquidity position at June 30, 2004 was, and following the transfer of the deposits, will remain, adequate to fund ongoing operations.

CapitalConsolidated capital of the Company increased $1,323,000 or 2.72%	 during the first six months of 2004. The net income for the first six months and its corresponding increase to retained earnings was the primary
component of this increase along with the exercising of stock options, which added $524,000.  Capital decreases were the result of $2,073,000 in stock being repurchased, a decrease in themarket value of securities available for sale of $322,000 on an after-tax basis and quarterly cash dividends paid to shareholders totaling $604,000.

There are regulatory constraints placed upon capital adequacy, and it is necessary to maintain an appropriate ratio between capital and assets. Regulations require banks and holding companies to maintain a minimum
"leverage" ratio (primary capital ratio) of total assets. For the most highly rated holding companies this ratio must be at least 3%, and for others it must be 4 to 5%. At June 30, 2004, the Company's leverage ratio was 10.84%,	 compared to 10.70%
at year-end 2003.  In addition, banks and holding companies are required to meet minimum risk-based capital guidelines under which risk percentages are assigned to various categories of assets and off-balance-sheet items to calculate a risk-adjusted
capital ratio. Tier I capital generally consists of common stockholders' equity, less goodwill, while total capital includes the allowance for possible credit losses, subject to 1.25% limitation of risk-adjusted assets. The rules require Tier I
capital of 4% of risk-adjusted assets and total capital of 8%.  At June 30, 2004, the Company's Tier I capital ratio was 11.01%,	 and total capital was 12.71%	. At December 31, 2003 the Company's Tier I capital ratio was 11.20%	 and the total
capital ratio was 13.04%	.

13

---

Issuance of Trust Preferred Securities

On April 10, 2003, the Company completed an offering of trust preferred securities and received net proceeds of approximately $5,910,000. The proceeds are being used for general Company purposes, including utilization
in the stock repurchase program and potentially to provide additional capital to Venture Bank. Trust preferred securities consist of the issuance of subordinated debt securities to a wholly owned subsidiary business trust, which then issues
preferred stock to investors.  In accordance with FASB Interpretation No. 46Consolidation of Variable Interest Entities,the wholly owned subsidiary trust is
deconsolidated for purposes of reporting in the Consolidated Financial Statements.  The Company recognizes a deduction of the interest cost for income tax purposes, while the net proceeds, up to one-quarter of total capital adjusted for accumulated
other comprehensive income, qualifies as Tier 1 capital.

Results of Operations

General

Net income for the six months ended June 30, 2004 increased 1.66%	 to $3,798,000, compared to $3,736,000 for the same period in 2003. The increase in net income can be attributed to an increase in investment interest
income, a reduction in the provision for credit losses and a decrease in other non-interest expenses. This positive impact to net income was offset by a reduction in loan and fee income due to the Company discontinuing origination of small loans in
Alabama in July 2003 and a decrease in income on mortgage loans sold due to a reduction in the origination of mortgage refinance transactions.

Interest income for the six months ended June 30, 2004 decreased $1,277,000, or 7.78%,	 from the same period in the prior year. Increased volume of earning assets provided an additional $2,005,000 of interest income
for the first six months which was offset by a $3,281,000 reduction in interest income due to the reduced earnings rate of these assets. Average earning assets for the first six months of 2004 were $52,746,000 or 12.95%	 higher than in the same
period of 2003. The average rate earned on assets decreased to 6.61% for the first six months of 2004 from 8.07% for the same period in 2003, a decrease of 146 basis points.

Total interest expense for the six months ended June 30, 2004 decreased $149,000, or 4.70%,	 from the comparable period in the prior year. The decrease in the interest rate paid on deposits and borrowings, which
declined 25 basis points, to 1.59%	 in the first six months of 2004 from 1.84%	 for the same period of 2003, resulted in a reduction to interest expense of $777,000.  This amount was offset by a $628,000 increase attributed to the volume of these
liabilities, which rose from an average of $345,279,000 in 2003 to $381,039,000 in 2004. The increase in volumes is primarily attributed to the increased borrowings in the third quarter 2003 utilized to partially fund the acquisition of additional
available for sale investments.

Net interest income decreased $1,127,000, a decrease of 8.52% for the six months ended June 30, 2004 over the same period for 2003. The Company's small loan product impacted the growth in net interest income for the
period. This product's contribution to net interest income decreased to $906,000 in the first six months of 2004 from $2,889,000 during the same period in 2003, a $1,983,000 or 69% decrease. The decrease in the product's contribution to net interest
income can be attributed to a modification in the Company's Advance America agreement related specifically to loan originations in Alabama. Effective July 11, 2003 the Company discontinued the origination of small loans in Alabama; Advance America
paid the Company a fee equal to the loan fees that would have been received under its original agreement through October 31, 2003.

Net interest margin, defined as net interest income as a percentage of average earning assets, decreased by 123 basis points to 5.28% from 6.51%	 in the first six months of 2004 compared to the same period in 2003.

Net income for the three months ended June 30, 2004 decreased a nominal 3.28%	 to $1,890,000, compared to $1,954,000 for the same period in 2003. The decrease in net income can be attributed to a reduction in loan and
fee income due to the Company discontinuing origination of small loans in Alabama in July 2003 and a decrease in income on mortgage loans sold due to the reduction in the origination of mortgage refinance transactions.  This reduction in income was
offset by an increase in investment interest income and a decrease in other non-interest expenses.

14

---

Interest income for the three months ended June 30, 2004 decreased $601,000, or 7.36%,	 from the same period in the prior year.  Increased volume of earning assets provided an additional $2,620,000 of interest income
for the second quarter which was offset by a $3,221,000 reduction in interest income due to the reduced earnings rate of these assets. Average earning assets for the second quarter of 2004 were $57,596,000 or 14.07%	 higher than in the same period
of 2003. The average rate earned on assets decreased to 6.51%	 in the second quarter of 2004 from 8.00% for the same period in 2003, a decrease of 149 basis points.

Total interest expense for the three months ended June 30, 2004 decreased $28,000, or 1.81%,	 from the comparable period in the prior year. The decrease in the interest rate paid on deposits and borrowings, which
declined 22 basis points, to 1.59%	 in the second quarter of 2004 from 1.81%	 in the second quarter of 2003, resulted in a reduction to interest expense of $650,000. This amount was offset by a $678,000 increase in the volume of these liabilities,
which rose from an average of $342,678,000 in 2003 to $382,892,000 in 2004. The increase in volumes is primarily attributed to the increased borrowings in the third quarter 2003 utilized to partially fund the acquisition of additional available for
sale investments.

Net interest income decreased $573,000, a decrease of 8.66% for the three months ended June 30, 2004 over the same period for 2003. The Company's small loan product impacted the growth in net interest income for the
period. This product's contribution to net interest income decreased to $456,000 in the second three months of 2004 from $1,452,000 during the same period in 2003, a $996,000 or 69% decrease. The decrease in the product's contribution to net
interest income can be attributed to a modification in the Company's Advance America agreement related specifically to loan originations in Alabama.  As previously noted, effective July 11, 2003 the Company discontinued the origination of small
loans in Alabama; Advance America paid the Company a fee equal to the loan fees that would have been received under its original agreement through October 31, 2003.

The yield and cost of funds for earning assets and interest bearing liabilities were as follows as of and for the six months ended June 30 (dollars in thousands):

2004
	
	
	
	
	
	2003Average
	
	Interest
	
	
	
	Average
	
	Interest
	
	AverageBalance
	
	Income
	
	Average
	
	Balance
	
	Income
	
	Rates(Expense)
	
	Rates
	
	
	
	(Expense)Earning Assets:Loans (Interest and fees)a
	
	$377,088
	
	$13,437
	
	7.17%
	
	$368,036
	
	$15,671
	
	8.54%Federal funds sold
	
	2,913
	
	13
	
	0.90%
	
	5,941
	
	30
	
	1.01%Investment securitiesb
	
	80,114
	
	1,674
	
	4.20%
	
	33,392
	
	699
	
	4.20%Total earning assetsand interest income
	
	$460,115
	
	$15,124
	
	6.61%
	
	$407,369
	
	$16,400
	
	8.07%Interest bearing liabilities:Deposits:Savings, NOW, andMoney Market Deposits
	
	$186,695
	
	$(776)
	
	0.83%
	
	$160,235
	
	$(749)
	
	0.94%Time deposits
	
	113,638
	
	(1,244)
	
	2.20%
	
	138,194
	
	(1,680)
	
	2.44%Total interest bearing deposits
	
	$300,333
	
	$(2,020)
	
	1.35%
	
	$298,429
	
	$(2,429)
	
	1.63%Other borrowings
	
	80,706
	
	(999)
	
	2.48%
	
	46,850
	
	(739)
	
	3.16%Total interest bearing liabilitiesand interest expense
	
	$381,039
	
	$(3,019)
	
	1.59%
	
	$345,279
	
	$(3,168)
	
	1.84%Net interest income
	
	
	
	$12,105
	
	
	
	
	
	$13,232Net interest margin as a percentof average earning assets:
	
	
	
	
	
	5.28%
	
	
	
	
	
	6.51%


---

aAverage loan balance includes non accrual loans. Interest income on non accrual loans has been included.

bThe yield on investment securities is calculated using historical cost basis.

15

---

An analysis of the change in net interest income is as follows for the six months ended June 30 (dollars in thousands):

2004 comparedto2003Increase(decrease) due toVolume
	
	Rate
	
	NetInterest earned on:Loansc
	
	$ 1,044
	
	$ (3,278)
	
	$ (2,234)Federal funds sold and deposits in banks
	
	(14)
	
	(3)
	
	(17)Investment securities
	
	975
	
	- -
	
	975Total interest income
	
	2,005
	
	(3,281)
	
	(1,276)Interest paid on:Savings, NOW and MMA
	
	215
	
	(188)
	
	27Time deposits
	
	(279)
	
	(157)
	
	(436)Other borrowings
	
	692
	
	(432)
	
	260Total Interest expense
	
	628
	
	(777)
	
	(149)Net interest income
	
	$ 1,377
	
	$ (2,504)
	
	$(1,127)


The change in interest, due to both rate and volume, has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

The yield and cost of funds for earning assets and interest bearing liabilities were as follows as of and for the three months ended June 30 (dollars in thousands):

2004
	
	
	
	
	
	2003Average
	
	Interest
	
	
	
	Average
	
	Interest
	
	AverageBalance
	
	Income
	
	Average
	
	Balance
	
	Income
	
	Rates(Expense)
	
	Rates
	
	
	
	(Expense)Earning Assets:Loans (Interest and fees)d
	
	$383,720
	
	$6,786
	
	7.11%
	
	$365,572
	
	$7,788
	
	8.54%Federal funds sold
	
	4,381
	
	11
	
	1.01%
	
	8,847
	
	28
	
	1.27%Investment securitiese
	
	78,913
	
	766
	
	3.90%
	
	34,999
	
	348
	
	3.99%Total earning assetsand interest income
	
	$467,014
	
	$7,563
	
	6.51%
	
	$409,418
	
	$8,164
	
	8.00%Interest bearing liabilities:Deposits:Savings, NOW, andMoney Market Deposits
	
	$193,158
	
	$(413)
	
	0.86%
	
	$162,831
	
	$(368)
	
	.91%Time deposits
	
	110,797
	
	(605)
	
	2.19%
	
	133,799
	
	(801)
	
	2.40%Total interest bearing deposits
	
	$303,955
	
	$(1,018)
	
	1.34%
	
	$296,630
	
	$(1,169)
	
	1.58%Other borrowings
	
	78,937
	
	(504)
	
	2.56%
	
	46,048
	
	(381)
	
	3.32%Total interest bearing liabilitiesand interest expense
	
	$382,892
	
	$(1,522)
	
	1.59%
	
	$342,678
	
	$(1,550)
	
	1.81%Net interest income
	
	
	
	$6,041
	
	
	
	
	
	$6,614Net interest margin as a percentof average earning assets:
	
	
	
	
	
	5.19%
	
	
	
	
	
	6.48%


---

cBalances of nonaccrual loans, if any, and related income recognized have been included for computational purposes.

dAverage loan balance includes nonaccrual loans. Interest income on nonaccrual loans has been included.

eThe yield on investment securities is calculated using historical cost basis.

16

---

An analysis of the change in net interest income is as follows for the three months ended June 30 (dollars in thousands):

2004 comparedto2003Increase(decrease) due toVolume
	
	Rate
	
	NetInterest earned on:Loansf
	
	$ 2,163
	
	$ (3,165)
	
	$ (1,002)Federal funds sold and deposits in banks
	
	(12)
	
	(5)
	
	(17)Investment securities
	
	469
	
	(51)
	
	418Total interest income
	
	2,620
	
	(3,221)
	
	(601)Interest paid on:Savings, NOW and MMA
	
	158
	
	(113)
	
	45Time deposits
	
	(130)
	
	(66)
	
	(196)Other borrowings
	
	622
	
	(499)
	
	123Total Interest expense
	
	650
	
	(678)
	
	(28)Net interest income
	
	$ 1,970
	
	$ (2,543)
	
	$ (573)


The change in interest, due to both rate and volume, has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

Non-interest income for the three months ended June 30, 2004 was $461,000, or 18.82%	 less than the same period for 2003. This reduction can be attributed to a $678,000 or 68% reduction in mortgage loans sold. This
decrease was anticipated and is attributed primarily to the increased interest rate negatively impacting activity in the mortgage refinance market.

The six months ending June 30, 2004 showed a decrease in non interest income of $1,200,000 or 25% compared to the previous year. This was due largely to a decrease in originations fees on mortgage loans sold of
$1,198,000 or 65%.

Non-interest expense for the three months ended June 30, 2004 decreased by $528,000 or 9.34%	 over the same period in 2003. Salaries and employee benefits for the quarter ended June 30, 2004 decreased $258,000 or
8.68%	 compared to the same period in 2003. This expense reduction is primarily attributed to the expected decrease in mortgage commissions associated with reduced mortgage loans originated as previously discussed and a fewer number of employees.
Other expenses for the quarter ended June 30, 2004 decreased $218,000 or 12.35%	 compared to the same period in 2003. The other expense decrease can be primarily attributed to a continued focus on expense control in 2004 and additional increased
expenses in the second quarter 2003 approximating $200,000 associated with branding including the Company's name change to Venture Financial Group.

Non interest expense for the six months ending June 30, 2004 decreased $1,600,000 or 14% compared to the same period in 2003. This reduction is due to a decrease in salary and benefit expense of $614,000 resulting
primarily from a reduction in mortgage commissions. In addition, the Company incurred $604,000 in marketing and branding costs in the first six months of 2003 not incurred in 2004.

Business Segment Reporting

The Company is managed along two major lines of business; community banking, its core business, and the small loan division, which began operations in the fourth quarter of 2000.  Community banking consists of all
lending, deposit and administrative operations conducted through its 20 offices in Washington State. The small loan division provides small, short-term consumer loans to customers in Arkansas and prior to July, 2003 in Alabama. Effective July 14,
2003 the Company discontinued originating small loans in Alabama.  The Company continued to receive income comparable to the amount the Company would have received if it had continued to originate these loans in the State of Alabama. This income
only continued through October 31, 2003 and accordingly is not included in the June 30, 2004 income numbers.  In May 2004 the Company extended its agreement with Advance America to continue originating loans in Arkansas. The extended agreement
expires May 2007.

The financial performance of the business lines is measured by the Company's profitability reporting process, which utilizes various management accounting techniques to more accurately reflect each business line's
financial results.



---

fBalances of nonaccrual loans, if any, and related income recognized have been included for computational purposes.

17

---

Revenues and expenses are primarily assigned directly to business lines. The organizational structure of the Company is not necessarily comparable with other companies. As such, the Company's business line performance
may not be directly comparable with similar information from other financial institutions.  Selected comparative financial information for community banking and the small loan division, which are included in the overall financial results, as of and
for the six months ended June 30, are as follows (dollars in thousands):

Six months ended June 30, 2004
	
	
	
	Community
	
	
	
	SmallBanking
	
	
	
	Loans
	
	
	
	TotalNet Interest income after provision for credit losses
	
	$
	
	11,655
	
	$
	
	668
	
	$
	
	12,323Non-interest income
	
	
	
	3,633
	
	
	
	0
	
	
	
	3,633Non-interest expense
	
	
	
	9,783
	
	
	
	42
	
	
	
	9,825Income taxes
	
	
	
	1,741
	
	
	
	213
	
	
	
	1,954Net Income
	
	$
	
	3,764
	
	$
	
	413
	
	$
	
	4,177Total assets
	
	$
	
	517,161
	
	$
	
	9,692
	
	$
	
	526,853Total Loans
	
	$
	
	385,650
	
	$
	
	3,142
	
	$
	
	388,792Six months ended June 30, 2003
	
	
	
	Community
	
	
	
	SmallBanking
	
	
	
	Loans
	
	
	
	TotalNet Interest income after provision for credit losses
	
	$
	
	10,231
	
	$
	
	2,257
	
	$
	
	12,488Non-Interest income
	
	
	
	4,628
	
	
	
	11
	
	
	
	4,639Non-Interest expense
	
	
	
	10,866
	
	
	
	255
	
	
	
	11,121Income taxes
	
	
	
	1,180
	
	
	
	742
	
	
	
	1,922Net Income
	
	$
	
	2,814
	
	$
	
	1,271
	
	$
	
	4,085Total assets
	
	$
	
	455,104
	
	$
	
	20,564
	
	$
	
	475,668Total Loans
	
	$
	
	359,066
	
	$
	
	8,682
	
	$
	
	367,748


Regulatory Developments

Three legislative and regulatory developments have and may continue to impact the operations and earnings generated by the small loan division.

In 2003 the Alabama legislature enacted the Deferred Presentment Services Act.  The Act creates a regulatory framework within which licensed, non-bank lenders may now make small loans in Alabama.  Due to changes in
Alabama law, the Bank and Advance America terminated the original Marketing and Servicing Agreement effective July 11, 2003. The terms of the termination agreement include Advance America continuing to remit to the Bank a portion of the fees earned
for the period July 11, 2003 through October 31, 2003, the termination date of the original agreement. The fee structure was established to keep the Bank financially whole as if the Bank had continued in the small loan program in Alabama through the
original agreement termination date. The termination of this agreement has impacted loan interest income for the first six months of 2004.

The Washington State legislature in 2003 passed amendments to the Check Cashers and Sellers Act, the law that authorizes small loans in Washington. Among other changes, the amendments increase the maximum small loan
amount from $500 to $700 (with lower fees allowed on any amounts over $500), allows borrowers to rescind a loan within one business day, and requires lenders to offer payment plans to certain repeat borrowers.  To date this amendment has had minimal
impact on operations and earnings. While these amendments could cause an increase in certain administrative expenses, we do not anticipate that they will have a material impact on our small loan operations.

The Federal Deposit Insurance Corporation (FDIC) in 2003 issued Guidelines for state chartered, nonmember banks that participate in small loan programs with third party contractors.  The Guidelines cover safety and
soundness considerations, including loan concentrations, capital adequacy, allowance for loan and lease losses, and loan classification guidelines. Compliance considerations, such as Community Reinvestment Act performance, Truth in Lending, and
consumer privacy are also covered. The Guidelines allow examiners wide discretion to review and, where necessary, critique a bank's loan program based upon these considerations. Where serious deficiencies exist, the FDIC may order a bank to
discontinue its small loan program.  The Guidelines will certainly increase the regulatory scrutiny of the Bank's small loan program. While we do not believe that grounds exist for the FDIC to order the Bank to curtail or discontinue its small loan
program, it is likely that the increased regulatory scrutiny will add to the Bank's compliance burdens and costs.  It may also cause the Bank to evaluate the extent of its continued participation in the small loan business.

18

---

The Company continues to take steps to forestall any negative effect that may occur from these developments, including the discussions regarding providing small loan programs with Advance America and other small loan
providers in other states and the introduction of replacement programs. While the Company believes it will be able to minimize any long-term negative impact on its earnings from these developments, there can be no assurance that its efforts will be
wholly successful. The short-term impact of the Alabama legislation on the Company's earnings was previously discussed.

Item 3Quantitative and Qualitative Disclosure About Market Risk

The Company's results of operation are dependent upon its ability to manage interest rate risk. Management considers interest rate risk to be a risk that could have a material effect on the Company's financial
condition and results of operations. The Company does not currently use derivatives to manage market and interest rate risk. A number of measures are used to monitor and manage interest rate risk, including income simulations and interest
sensitivity (gap) analyses.  An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Key assumptions in the model include repayment speeds
on certain assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing.  These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely
predict the impact of higher or lower interest rates on net interest income.

Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. At June 30, 2004, based
on the measures used to monitor and manage interest rate risk, there has not been a material change in the Company's interest rate risk since December 31, 2003. For additional information, refer to the Company's annual report on Form 10-K for the
year ended December 31, 2003.

19

---

Interest Rate Gap Analysis June 30, 2004

After OneWithin
	
	But Within
	
	After(dollars in thousands)
	
	One Year
	
	Five Years
	
	Five Years
	
	TotalLoans
	
	$ 159,678
	
	$175,722
	
	$51,773
	
	$387,173Securities:Available for sale
	
	487
	
	13,233
	
	57,933
	
	71,653Held to maturity
	
	- -
	
	504
	
	- -
	
	504Interest bearing deposits in banks
	
	5,575
	
	- -
	
	- -
	
	5,575Total Earning Assets
	
	$ 165,740
	
	$ 189,459
	
	$109,706
	
	$464,905Deposits:Savings, NOW and money market
	
	$ 205,352
	
	$ - -
	
	$ - -
	
	$205,352Time deposits
	
	64,743
	
	40,535
	
	- -
	
	105,278Short-term borrowings
	
	33,115
	
	- -
	
	- -
	
	33,115Long-term debt
	
	- -
	
	23,000
	
	19,589
	
	42,589Total Interest Bearing Liabilities
	
	$ 303,210
	
	$ 63,535
	
	19,589
	
	$386,334Net Interest Rate Sensitivity Gap
	
	($ 137,470)
	
	$ 125,924
	
	$ 90,117
	
	$ 78,571


Item 4Controls and Procedures

(a) Evaluation of Controls and Procedures.

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, have conducted an evaluation of the Company's disclosure controls and procedures in accordance with Rule 13a-14 under
the Securities Exchange Act of 1934 as of a date (the "evaluation date") within 90 days prior to the filing date of this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the
evaluation date, the Company's disclosure controls and procedures were effective in ensuring that all material information relating to the Company required to be filed in this quarterly report has been made known to them in a timely manner.

(b) Changes in Internal Controls

Since the evaluation date, there have been no changes to the Company's internal controls or in other factors that could significantly affect those controls.

20

---



> Due to the nature of the banking business, we are in involved in legal proceedings in the ordinary course of business.
>         At this time, we do not believe that there is pending litigation the
>         outcome of which will have a material adverse affect on the financial condition, results of operations, or liquidity of the Company.

Item 2 
Changes in Securities and Use of Proceeds

> Share counts and per share data reflects a three for two stock dividend declared on April 24, 2004.

Total number ofshares purchased aspart of publicly
	
	Maximum number ofTotal number of
	
	Average price paid
	
	announced plans or
	
	shares that may yetPeriod
	
	shares purchased
	
	per share
	
	programs
	
	be purchasedMonth #1April 1, 2004 throughApril 30, 2004
	
	--
	
	--
	
	--
	
	69,780Month #2May 1, 2004 throughMay 31, 2004
	
	50,000
	
	$15.25
	
	50,000
	
	19,780Month #3June 1, 2004 throughJune 30, 2004
	
	9,859
	
	$15.00
	
	9,859
	
	9,921Total
	
	59,859
	
	$15.21
	
	59,859
	
	9,921


Date repurchase authorized
	
	Date publicly announced
	
	# of shares authorized
	
	Expiration DateFebruary 19, 2003
	
	March 5, 2003
	
	131,370
	
	August 19, 2004June 18, 2003
	
	June 24, 2003
	
	56,130
	
	December 18, 2004October 15, 2003
	
	October 17, 2003
	
	225,000
	
	April 15, 2005June 16, 2004
	
	June 22, 2004
	
	200,000
	
	December 31, 2005Total
	
	
	
	612,500


Item 4 Submission of Matters to a Vote of Security Holders

> Share counts and per share data reflects a three for two stock dividend declared on April 24, 2004.
> (a)     The Company's Annual Shareholders' Meeting was held on May 6, 2004
> (b)     Not Applicable
> (c)     A brief description of each matter voted upon at the Annual Meeting and number of votes cast for, against or withheld, including a
>          separate tabulation with respect to each nominee to serve on the Board is
> presented below:
>   (1)     Election of two Directors for terms expiring in 2007 or until their successors have been elected and qualified.

21

---

> Directors:A. Richard Panowicz -Votes Cast For:
> 	
> 	5,077,338Votes Cast Against:
> 	
> 	- -Votes Withheld:
> 	
> 	156,316Larry J. Schorno -Votes Cast For:
> 	
> 	5,078,409Votes Cast Against:
> 	
> 	- -Votes Withheld:
> 	
> 	155,245(2) 2004 Stock Incentive PlanVotes Cast For:
> 	
> 	4,867,062Votes Cast Against:
> 	
> 	219,897Abstentions:
> 	
> 	146,695

> (d)     None

Item 6     Exhibits and Reports on Form 8-K

> (a)     Exhibits

The following exhibits are filed herewith, and this list constitutes the exhibit index:

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2003

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2003

32 Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of Sarbanes-Oxley Act of 2003

> (b)     Reports on Form 8-K
>   Report filed April 27, 2004.  The information attached as Exhibit 99 was not filed, but was furnished under Item 9, Regulation FD disclosure.  The report included a press release announcing the first quarter 2004
> Earnings Release and Cash Dividend.
> Report filed May 11, 2004.  The report included a press release announcing a three-for-two Stock dividend.
> Report filed June 2, 2004. The report included a press release announcing an employment Agreement for Ken F. Parsons, Sr.
> Report filed June 22, 2004. The report included a press release announcing a new Stock Repurchase Plan for Venture Financial Group.
> Report filed June 24, 2004.  The report included a press release announcing an agreement to sell seven of the company's branches.

22

---

Exhibit 31.1

Venture Financial Group, Inc.

SIGNATURES

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

> VENTURE FINANCIAL GROUP, INC.  	 	
> (Registrant)

Date: August 12, 2004                                              
By: /s/ Ken F. Parsons, Sr.                                                                                     	 	Ken F. Parsons, Sr.

                                                                                     	 	President, Chief Executive Officer

> By:/s/ Catherine M. Reines      	 	Catherine M. Reines 
>       	 	Chief Financial Officer

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Exhibit 31.1

CERTIFICATION UNDER SECTION 312 OF SARBANES-OXLEY ACT OF 2003

I,Ken F. Parsons, Sr. certify that:

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;

> (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) 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
> (c) 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:August 12, 2004/s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr.President, Chief Executive Officer


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Exhibit 31.2

CERTIFICATION UNDER SECTION 312 
OF SARBANES-OXLEY ACT OF 2003

I, Catherine M. Reines, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Venture Financial Group, Inc. (the "registrant");

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)) 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) 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
> (c) 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:August 12, 2004 |                        
|                     | /s/ Catherine M. Reines
|                     | Catherine M. Reines    
|                     | Chief Financial Officer

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Exhibit 32

CERTIFICATION OF 
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

This certification is given by the undersigned
Chief Executive Officer and Chief Financial Officer of Venture Financial Group,
Inc. (the "Registrant") pursuant to Section 906 of the Sarbanes-Oxley Act of
2003. Each of the undersigned hereby certifies, with respect to the Registrant's
quarterly report of Form 10-Q for the period ended June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), that:

> (1) The Report fully complies with the
> requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
> and
> (2) The information contained in the Report
> fairly presents, in all material respects, the financial condition and result of
> operations of the Registrant.

/s/ Ken F. Parsons, Sr. 
Ken F. Parsons, Sr. 
President, Chief Executive Officer

/s/ Catherine M. Reines
Catherine M. Reines 
Chief Financial Officer

August 12, 2004

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