|UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
|----------------------------------------------------------------------



|FORM 10-Q
|---------

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



|For the Quarterly period ended June 30, 2007
|--------------------------------------------



|OR
|--



|[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from _________ to _________
|-------------------------------------------------------------------------------------------------------------------------------------------



|Commission File Number 0-24024
|------------------------------



|VENTURE FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter)
|------------------------------------------------------------------------------------

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

|1495 Wilmington Drive, P.O. Box 970, DuPont, WA 98327
|-----------------------------------------------------
|(Address of Principal Executive Offices)             
|                                                     
|                                                     
|Registrants telephone number: (253) 441-4000        

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer ___ |  | Accelerated filer ___ |  | Non-accelerated filer _X_
|--------------------------- |  | --------------------- |  | -------------------------

Indicate by check mark whether the registrant is a shell company (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 Common Stock | Outstanding at August 10, 2007 7,212,826
|--------------------------- | ----------------------------------------



|1
|-

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|                               |  | Venture Financial Group, Inc.                                    |  |   
|------------------------------ |  | ---------------------------------------------------------------- |  | --
|                               |  | Table of Contents                                                |  |   
|                              
|PART I - FINANCIAL INFORMATION |  | Page                                                            
|Item 1                         |  | Financial Statements                                             |  |   
|                               |  | Condensed Consolidated Balance Sheets (unaudited)                |  | 3 
|                               |  | Condensed Consolidated Statements of Income and                  |  |   
|                               |  | Comprehensive Income (unaudited)                                 |  | 4 
|                               |  | Condensed Consolidated Statements of Stockholders Equity and    |  |   
|                               |  | Comprehensive Income (unaudited)                                 |  | 5 
|                               |  | Condensed Consolidated Statements of Cash Flows (unaudited)      |  | 6 
|                               |  | Notes to Condensed Consolidated Financial Statements (unaudited) |  | 7 
|Item 2                         |  | Management's Discussion and Analysis of Financial Condition and  |  |   
|                               |  | Results of Operations                                            |  | 13
|Item 3                         |  | Quantitative and Qualitative Disclosures about Market Risk       |  | 31
|Item 4                         |  | Controls and Procedures                                          |  | 33
|PART II - OTHER INFORMATION    |  |                                                                 
|Item 1                         |  | Legal Proceedings                                                |  | 34
|Item 1A                        |  | Risk Factors                                                     |  | 34
|Item 2                         |  | Unregistered Sales of Equity Securities and Use of Proceeds      |  | 34
|Item 4                         |  | Submission of Matters to a Vote of Security Holders              |  | 34
|Item 6                         |  | Exhibits                                                         |  | 35
|SIGNATURES                     |  |                                                                  |  | 36

2

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|Item 1. Financial Statements
|----------------------------

VENTURE FINANCIAL GROUP, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(dollars in thousands)

|ASSETS                                                           
|-----------------------------------------------------------------
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash and due from banks                                          
|Interest bearing deposits in other banks                         
|Federal funds sold                                               
|Securities available-for-sale                                    
|Securities held-to-maturity (fair value $9,859 at June 30, 2007) 
|Investment in trusts                                             
|FHLB Stock and TIB Stock                                         
|Loans held-for-sale                                              
|                                                                 
|Loans                                                            
|Allowance for credit losses                                      
|Net loans                                                        
|                                                                 
|Premises and equipment, net of accumulated depreciation          
|Foreclosed real estate                                           
|Accrued interest receivable                                      
|Cash surrender value of bank owned life insurance                
|Goodwill                                                         
|Other intangible assets                                          
|Other assets                                                     
|                                                                 
|Total assets                                                     
|                                                                 
|LIABILITIES AND SHAREHOLDERS EQUITY                             
|Deposits                                                         
|Non-interest bearing checking                                    
|NOW, Savings and MMDA                                            
|Time certificates of deposit                                     
|Total deposits                                                   
|                                                                 
|Securities sold under agreement to repurchase                    
|Short-term debt                                                  
|Accrued interest payable                                         
|Long-term debt                                                   
|Junior subordinated debentures                                   
|Junior subordinated debentures at fair value                     
|Other liabilities                                                
|Total liabilities                                                
|                                                                 
|SHAREHOLDERS' EQUITY                                             
|Common stock (no par value); 30,000,000 shares authorized, shares
|issued and outstanding: June 2007 -7,197,226;                    
|December 2006  7,186,349                                        
|Additional paid-in capital                                       
|Retained earnings                                                
|Advance to KSOP                                                  
|Accumulated other comprehensive income (loss)                    
|Total shareholders' equity                                       
|                                                                 
|Total liabilities and shareholders' equity                       
|See notes to condensed consolidated financial statements         

3

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VENTURE FINANCIAL GROUP, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)(dollars in thousands, except per share data)

|                                                         |  |   |  | For the three months ended |   |  |   |  | For the six months ended |  
|-------------------------------------------------------- |  | - |  | -------------------------- | - |  | - |  | ------------------------ | -
|                                                         |  |   |  | June 30,                   |   |  |   |  | June 30,                 |  
|                                                         |  |  
|                                                         |  |   |  | 2007                       |   |  |   |  | 2006                     |  
|INTEREST INCOME                                          |  |   |  |                            |   |  |   |  |                          |  
|Loans                                                    |  | $ |  | 16,442                     |   |  | $ |  | 13,662                   |  
|Federal funds sold and deposits in banks                 |  |   |  | 32                         |   |  |   |  | 120                      |  
|Investment securities                                    |  |   |  | 3,226                      |   |  |   |  | 1,722                    |  
|                                                        
|Total interest income                                    |  |   |  | 19,700                     |   |  |   |  | 15,504                   |  
|                                                        
|INTEREST EXPENSE                                         |  |   |  |                            |   |  |   |  |                          |  
|Deposits                                                 |  |   |  | 7,960                      |   |  |   |  | 4,978                    |  
|Federal funds purchased                                  |  |   |  | 2                          |   |  |   |  | 128                      |  
|Short-term repurchase agreements and debt                |  |   |  | 1,447                      |   |  |   |  | 977                      |  
|Long-term repurchase agreements and debt                 |  |   |  | 498                        |   |  |   |  | 952                      |  
|                                                        
|Total interest expense                                   |  |   |  | 9,907                      |   |  |   |  | 7,035                    |  
|                                                        
|Net interest income                                      |  |   |  | 9,793                      |   |  |   |  | 8,469                    |  
|                                                        
|PROVISION FOR CREDIT LOSSES                              |  |   |  | 375                        |   |  |   |  | 150                      |  
|Net interest income after provision for credit losses    |  |   |  | 9,418                      |   |  |   |  | 8,319                    |  
|                                                        
|NON-INTEREST INCOME                                      |  |   |  |                            |   |  |   |  |                          |  
|Service charges on deposit accounts                      |  |   |  | 1,009                      |   |  |   |  | 1,039                    |  
|Origination fees and gain on sales of loans              |  |   |  | 463                        |   |  |   |  | 440                      |  
|Other non-interest income                                |  |   |  | 790                        |   |  |   |  | 804                      |  
|                                                        
|Total non-interest income                                |  |   |  | 2,262                      |   |  |   |  | 2,283                    |  
|                                                        
|NON-INTEREST EXPENSES                                    |  |   |  |                            |   |  |   |  |                          |  
|Salaries and employee benefits                           |  |   |  | 3,720                      |   |  |   |  | 3,441                    |  
|Occupancy and equipment                                  |  |   |  | 1,284                      |   |  |   |  | 1,039                    |  
|Amortization of intangible assets                        |  |   |  | 71                         |   |  |   |  | 71                       |  
|Other non-interest expense                               |  |   |  | 2,158                      |   |  |   |  | 2,008                    |  
|                                                        
|Total non-interest expenses                              |  |   |  | 7,233                      |   |  |   |  | 6,559                    |  
|                                                        
|Income before provision for income taxes                 |  |   |  | 4,447                      |   |  |   |  | 4,043                    |  
|                                                        
|PROVISION FOR INCOME TAXES                               |  |   |  | 1,277                      |   |  |   |  | 1,414                    |  
|                                                        
|NET INCOME                                               |  | $ |  | 3,170                      |   |  | $ |  | 2,629                    |  
|OTHER COMPREHENSIVE INCOME                               |  |   |  |                            |   |  |   |  |                          |  
|Unrealized holding gains (losses) on securities arising  |  |   |  |                            |   |  |   |  |                          |  
|during the period, net of tax                            |  |   |  | (5,180                     | ) |  |   |  | (2,000                   | )
|Less
		reclassification adjustment for gains (losses),   |  |   |  |                            |   |  |   |  |                          |  
|netof tax                                                |  |   |  | (90                        | ) |  |   |  | 18                       |  
|Minimum pension liability adjustment, net of tax         |  |   |  | -                          |   |  |   |  | (124                     | )
|COMPREHENSIVE INCOME (LOSS)                              |  | $ |  | (2,100                     | ) |  | $ |  | 523                      |  
|                                                        
|EARNINGS PER SHARE                                       |  |   |  |                            |   |  |   |  |                          |  
|Basic                                                    |  | $ |  | 0.44                       |   |  | $ |  | 0.37                     |  
|Diluted                                                  |  |   |  | 0.44                       |   |  |   |  | 0.36                     |  
|Weighted average shares outstanding, basic               |  |   |  | 7,150,658                  |   |  |   |  | 7,196,060                |  
|Weighted average of diluted shares outstanding for the   |  |   |  | 7,271,374                  |   |  |   |  | 7,306,542                |  
|period                                                   |  |   |  |                            |   |  |   |  |                          |  
|See notes to condensed consolidated financial statements |  |   |  |                            |   |  |   |  |                          |  

4

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|VENTUREFINANCIALGROUP,INC. andSUBSIDIARIES
CONDENSEDCONSOLIDATEDSTATEMENTSOFSTOCKHOLDERSEQUITYANDCOMPREHENSIVEINCOME(Unaudited)
For the Six Months Ended June 30, 2007 and 2006 (Dollars in thousands) | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                        | 
|                                                                                                                                                                                                        | 
|                                                                                                                                                                                                        | 
|                                                                                                                                                                                                        | 
|                                                                                                                                                                                                        | 
|Balance, December 31, 2005                                                                                                                                                                              | 
|Comprehensive Income                                                                                                                                                                                    | 
|Net Income                                                                                                                                                                                              | 
|Other comprehensive income, net of tax                                                                                                                                                                  | 
|Change in fair value of securities available for sale, net of tax                                                                                                                                       | 
|(benefit) of ($1,180)                                                                                                                                                                                   | 
|Minimum pension liability adjustment, net of tax (benefit) of ($61)                                                                                                                                     | 
|Comprehensive Income                                                                                                                                                                                    | 
|Stock options exercised                                                                                                                                                                                 | 
|Stock issued for purchase of WAM                                                                                                                                                                        | 
|Common Stock repurchased                                                                                                                                                                                | 
|Restricted stock award                                                                                                                                                                                  | 
|Compensation for stock options                                                                                                                                                                          | 
|Cash dividends ($0.14 per share)                                                                                                                                                                        | 
|Excess tax benefit from share-based payment arrangements                                                                                                                                                | 
|Reclassify restricted stock awards                                                                                                                                                                      | 
|Compensation for restricted stock awards                                                                                                                                                                | 
|Balance, June 30, 2006                                                                                                                                                                                  | 
|Balance, December 31, 2006                                                                                                                                                                              | 
|Comprehensive income                                                                                                                                                                                    | 
|Net income                                                                                                                                                                                              | 
|Other comprehensive income, net of tax                                                                                                                                                                  | 
|Change in fair value of securities available for sale, net of tax benefit                                                                                                                               | 
|of ($2,916)                                                                                                                                                                                             | 
|Comprehensive Income                                                                                                                                                                                    | 
|Stock options exercised                                                                                                                                                                                 | 
|Stock issued for purchase of WAM                                                                                                                                                                        | 
|Common Stock repurchased                                                                                                                                                                                | 
|Compensation expense for stock options                                                                                                                                                                  | 
|Cash dividends ($0.16 per share)                                                                                                                                                                        | 
|Fair value adjustment of Junior subordinated debentures, net of tax                                                                                                                                     | 
|Excess tax benefit from share-based payment arrangements                                                                                                                                                | 
|Compensation expense for unallocated ESOP shares committed to                                                                                                                                           | 
|be released                                                                                                                                                                                             | 
|Compensation expense for restricted stock awards                                                                                                                                                        | 
|Balance, June 30, 2007                                                                                                                                                                                  | 
|See notes to condensed consolidated financial statements                                                                                                                                                | 

5

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VENTURE FINANCIAL GROUP, INC. and SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)For the Six Months Ended June 30, 2007 and 2006 (Dollars in thousands)

|                                                                          |  |   |  | 2007     |   |  |   |  | 2006     |  
|------------------------------------------------------------------------- |  | - |  | -------- | - |  | - |  | -------- | -
|Cash Flows from Operating Activities                                      |  |   |  |          |   |  |   |  |          |  
|Net Income                                                                |  | $ |  | 6,364    |   |  | $ |  | 4,943    |  
|Adjustments to reconcile net income to net cash provided                  |  |   |  |          |   |  |   |  |          |  
|by operating activities:                                                  |  |   |  |          |   |  |   |  |          |  
|Provision for credit losses                                               |  |   |  | 750      |   |  |   |  | 300      |  
|Depreciation and amortization                                             |  |   |  | 905      |   |  |   |  | 834      |  
|Origination fees and gains on sales of loans                              |  |   |  | (865     | ) |  |   |  | (882     | )
|Increase in cash surrender value of life insurance                        |  |   |  | (514     | ) |  |   |  | (319     | )
|Compensation expense for stock options                                    |  |   |  | 151      |   |  |   |  | 108      |  
|Compensation expense for unallocated ESOP shares committed to be released |  |   |  | 4        |   |  |   |  | - -      |  
|Restricted stock award compensation                                       |  |   |  | 17       |   |  |   |  | 14       |  
|Increase in minimum employee pension                                      |  |   |  | - -      |   |  |   |  | (237     | )
|Excess tax benefit from share-based payment arrangements                  |  |   |  | (22      | ) |  |   |  | (202     | )
|Other                                                                     |  |   |  | (3,316   | ) |  |   |  | (480     | )
|Originations of loans held for sale                                       |  |   |  | (47,184  | ) |  |   |  | (40,273  | )
|Proceeds from sales of loans held for sale                                |  |   |  | 47,889   |   |  |   |  | 41,335   |  
|Net cash provided by operating activities                                 |  |   |  | 4,179    |   |  |   |  | 5,141    |  
|                                                                         
|Cash Flows from Investing Activities                                      |  |   |  |          |   |  |   |  |          |  
|Net decrease in interest bearing deposits in banks                        |  |   |  | 116      |   |  |   |  | 1,050    |  
|Net (increase) decrease in federal funds sold                             |  |   |  | 6,790    |   |  |   |  | (8,125   | )
|Purchases of securities available for sale                                |  |   |  | (123,859 | ) |  |   |  | (101,387 | )
|Purchases of securities held to maturity                                  |  |   |  | (10,000  | ) |  |   |  | - -      |  
|Proceeds from maturities and prepayments of available-for-sale securities |  |   |  | 9,402    |   |  |   |  | 9,130    |  
|Proceeds from sales of securities available for sale                      |  |   |  | 42,532   |   |  |   |  | 4,936    |  
|Purchase of other equity securities                                       |  |   |  | - -      |   |  |   |  | (100     | )
|Net (increase) in loans                                                   |  |   |  | (31,296  | ) |  |   |  | (64,882  | )
|Purchase of bank owned life insurance policies                            |  |   |  | - -      |   |  |   |  | (191     | )
|Additions to premises and equipment                                       |  |   |  | (3,415   | ) |  |   |  | (4,255   | )
|Proceeds from sale of premises and equipment                              |  |   |  | 4        |   |  |   |  | - -      |  
|Net cash used by investing activities                                     |  |   |  | (109,726 | ) |  |   |  | (163,824 | )
|                                                                         
|Cash Flows from Financing Activities                                      |  |   |  |          |   |  |   |  |          |  
|Net increase in deposits                                                  |  |   |  | 67,255   |   |  |   |  | 197,675  |  
|Net increase in repurchase agreements                                     |  |   |  | 340      |   |  |   |  | 8,088    |  
|Net increase (decrease) in short-term debt                                |  |   |  | 60,810   |   |  |   |  | (41,976  | )
|Issuance of common stock for WAM Acquisition                              |  |   |  | 35       |   |  |   |  | 31       |  
|Exercise of share options                                                 |  |   |  | 321      |   |  |   |  | 578      |  
|Repurchase of common stock                                                |  |   |  | (391     | ) |  |   |  | (1,808   | )
|Net (decrease) long term debt                                             |  |   |  | (20,000  | ) |  |   |  | - -      |  
|Excess tax benefits from share-based payment arrangements                 |  |   |  | 22       |   |  |   |  | 202      |  
|Payment of cash dividends                                                 |  |   |  | (1,148   | ) |  |   |  | (1,016   | )
|Net cash provided by financing activities                                 |  |   |  | 107,244  |   |  |   |  | 161,774  |  
|                                                                         
|Net change in cash and due from banks                                     |  |   |  | 1,697    |   |  |   |  | 3,091    |  
|                                                                         
|Cash and Due from Banks:                                                  |  |   |  |          |   |  |   |  |          |  
|Beginning of period                                                       |  |   |  | 16,676   |   |  |   |  | 16,791   |  
|End of period                                                             |  | $ |  | 18,373   |   |  | $ |  | 19,882   |  
|                                                                         
|Supplemental Disclosures of Cash Flow Information:                        |  |   |  |          |   |  |   |  |          |  
|Cash payments for:                                                        |  |   |  |          |   |  |   |  |          |  
|Interest                                                                  |  | $ |  | 18,841   |   |  | $ |  | 11,941   |  
|Taxes                                                                     |  | $ |  | 4,057    |   |  | $ |  | 2,722    |  
|                                                                         
|Supplemental Disclosures of Non-Cash Investing and Financing Activities:  |  |   |  |          |   |  |   |  |          |  
|Fair value adjustment of securities available for sale, net of tax        |  | $ |  | (5,414   | ) |  | $ |  | (2,193   | )
|Junior subordinated debentures fair value option                          |  | $ |  | 341      |   |  | $ |  | - -      |  
|Cumulative effect of early adoption of SFAS 159                           |  | $ |  | (428     | ) |  | $ |  | - -      |  
|                                                                         
|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, 2006 consolidated financial statements, including notes thereto, included in Venture Financial Group, Inc.s (the Company, VFG) 2006 Annual Report to Shareholders. Operating results for the six months ended June 30, 2007 are not necessarily indicative of the results anticipated for the year ending December 31, 2007.

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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, income taxes, fair value and benefit plans. .

Certain prior year amounts have been reclassified to conform to the 2007 presentation. The reclassifications had no effect on net income or retained earnings as previously reported.



|2. Share-Based Compensation
|---------------------------

On June 30, 2007 the Company had one active share-based compensation plan which is described below. The compensation cost that has been charged to income year-to-date in 2007 for both stock options and restricted stock grants is $168,671. The total income tax benefits recognized in the income statement for share-based compensation cost in 2007 is $59,114. The tax benefits recognized include the exercise of certain options and the tax benefit of the expense recognition.

The Companys Stock Incentive Plan (2004 Plan), which is shareholder approved, permits the grant of share-based awards to its employees and directors for up to 300,000 shares of common stock. The 2004 Plan addresses non-qualified stock options, incentive stock options, restricted stock awards, and other stock based compensation awards. The Company believes that such awards better align the interest of its employees and directors with those of its shareholders. Awards are generally granted with an exercise price equal to the market price of the Companys stock at the date of grant. The outstanding stock option awards have been granted with a 10 year term. The stock option awards when granted have a vesting period of five years with 20% of the shares vesting per year. There are two outstanding restricted stock awards; one award for 5,000 shares vests over a 4 year period with 25% of the shares vesting per year. The other award for 750 shares cliff vests over a 2 year period with all shares vesting at the end of 2 years. Unlike the option shares, restricted stock awards are granted at no cost to the recipient. These awards are subject to forfeiture until certain restrictions have lapsed, including continued employment for a specified period. The recipient of a share of restricted stock is entitled to voting rights and dividends on the common stock. At June 30, 2007, 187,550 option shares and 5,750 restricted stock award shares have been granted under the Plan since Plan inception. At June 30, 2007, 5,900 shares previously granted under the 2004 Plan since Plan inception were forfeited and returned to the Plan and are available for future grants. As of June 30, 2007, 112,600 shares remain available for grant under the 2004 Plan. It is the Companys policy to issue authorized but unissued shares of common stock upon stock option exercises or restricted stock awards. The Company may, as part of its repurchase program purchase shares that have been listed for sale that may have been acquired through the 2004 share-based award plan or previous plans.

As permitted by Statement No. 123, prior to January 1, 2006, the Company accounted for share-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 was recognized in the consolidated financial statements for employee and director stock arrangements where the grant price was equal to market price on the date of grant. However, the required pro forma disclosures of the effects of all options granted on or after January 1, 1995 were provided in accordance with SFAS No. 123, Accounting for Share-Based Compensation.

Effective January 1, 2006, the Company adopted SFAS No. 123(R) which permits public companies to adopt its requirements using the modified prospective method. Under the modified prospective method, the compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No.123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement No. 123 for all awards granted to employees and directors prior to the effective date of SFAS 123(R) that remain unvested on the effective date.

7

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Beginning January 1, 2006 the Company began accounting for share-based awards to employees and directors using the fair value method, in accordance with SFAS No. 123(R),Share-Based Payment. The Company currently uses the Black-Scholes valuation model to estimate the fair value of stock option awards. The following assumptions are used in the Black-Scholes model: expected volatility, expected dividends, expected term and risk-free rate. Expected volatilities are not based on implied volatilities from traded options on the Company stock because the Company stock does not have any options traded on it. Instead, expected volatilities are based on the historical volatility of the Company stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is a combination of a projection based on historical experience and managements future expectations. The expected term represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions are determined at the date of grant and are not subsequently adjusted for actual. There was only one grant date in each of the periods presented below.

|                         |  | 4-18-2007 |   |  | 4-19-2006 |   |  | 4-16-2005 |  
|------------------------ |  | --------- | - |  | --------- | - |  | --------- | -
|Expected volatility      |  | 23.06     | % |  | 23.90     | % |  | 24.32     | %
|Expected dividends       |  | 1.37      | % |  | 1.40      | % |  | 2.33      | %
|Expected term (in years) |  | 7.3 years |   |  | 6.5 years |   |  | 7 years   |  
|Risk-free rate           |  | 4.62      | % |  | 4.92      | % |  | 4.38      | %

The weighted average fair value of options granted during 2007, 2006, and 2005 was $6.62, $6.03 and $5.02, respectively. In the opinion of management, the assumptions used in the option pricing model are subjective and represent only one estimate of possible value, as there is no active market for Company options granted.

Options granted by the Company during 2006, 2005, and 2004 are 20% vested on each of the five subsequent anniversaries of the grant date. Options granted by Washington Commercial Bancorp were all vested effective as of the date of the merger, September 2, 2005 and therefore were not expensed o the merger but have been and will be added to goodwill at the date of exercise. Stock option and per share amounts for current and prior periods have been adjusted to reflect the effect of stock splits. Actual forfeited shares and the related compensation expense of those shares is taken out at the time of forfeiture. Managements estimate of future forfeitures, after reviewing historical trends is based on future forfeiture expectations.

A summary of option activity under the Plan as of June 30, 2007, and changes during the quarter then ended is presented below:

|                                     |  |          |   |  |          |   |  |         |   |  |   |  |          |  | Weighted    |  |   |  |           | 
|------------------------------------ |  | -------- | - |  | -------- | - |  | ------- | - |  | - |  | -------- |  | ----------- |  | - |  | --------- | 
|                                     |  |          |   |  |          |   |  |         |   |  |   |  | Weighted |  | Average     |  |   |  | Aggregate | 
|                                     |  |          |   |  |          |   |  |         |   |  |   |  | Average  |  | Remaining   |  |   |  | Intrinsic | 
|                                     |  | Director |   |  | Employee |   |  | Total   |   |  |   |  | Exercise |  | Contractual |  |   |  | Value     | 
|Options                              |  | Shares   |   |  | Shares   |   |  | Shares  |   |  |   |  | Price    |  | Term        |  |   |  | (000s)   | 
|                                    
|Outstanding at January 1, 2007       |  | 69,503   |   |  | 294,935  |   |  | 364,438 |   |  | $ |  | 12.65    |  | 5.80 years  |  | $ |  | 3,308     | 
|Exercisable at January 1, 2007       |  | 46,073   |   |  | 175,205  |   |  | 221,278 |   |  | $ |  | 9.75     |  | 4.36 years  |  | $ |  | 2,650     | 
|Granted 1stquarter 2007              |  | -        |   |  | -        |   |  | -       |   |  |   |  | -        |  |             |  |   |  |           | 
|Exercised 1stquarter 2007            |  | (3,000   | ) |  | (4,310   | ) |  | (7,310  | ) |  | $ |  | 9.11     |  |             |  |   |  |           | 
|Forfeited or expired 1stquarter 2007 |  | -        |   |  | -        |   |  | -       |   |  |   |  | -        |  |             |  |   |  |           | 
|Outstanding at March 31, 2007        |  | 66,503   |   |  | 290,625  |   |  | 357,128 |   |  | $ |  | 12.72    |  | 5.59 years  |  | $ |  | 3,109     | 
|Exercisable at March 31, 2007        |  | 43,073   |   |  | 170,895  |   |  | 213,968 |   |  | $ |  | 9.78     |  | 4.11 years  |  | $ |  | 2,493     | 
|Granted 2ndquarter 2007              |  | 14,000   |   |  | 73,800   |   |  | 87,800  |   |  | $ |  | 21.87    |  |             |  |   |  |           | 
|Exercised 2ndquarter 2007            |  | (6,370   | ) |  | (13,530  | ) |  | (19,900 | ) |  | $ |  | 12.85    |  |             |  |   |  |           | 
|Forfeited or expired 2ndquarter 2007 |  | -        |   |  | -        |   |  | -       |   |  |   |  | -        |  |             |  |   |  |           | 
|Outstanding at June 30, 2007         |  | 74,133   |   |  | 350,895  |   |  | 425,028 |   |  | $ |  | 14.61    |  | 6.22 years  |  | $ |  | 3,401     | 
|Exercisable at June 30, 2007         |  | 46,573   |   |  | 188,015  |   |  | 234,588 |   |  | $ |  | 10.42    |  | 4.20 years  |  | $ |  | 2,859     | 

The total intrinsic value at June 30, 2007 of options exercised during 2007 was $269,605. The intrinsic value represents the fair market value of the shares at exercise of $591,881 (where fair market value is the prior month weighted average price) less the cost to the recipient to exercise which was $322,276. The tax benefits created by these exercises are allocated to additional paid in capital and goodwill depending on the source of those options and prior accounting for those options. Fair market value for options exercised is calculated differently than for options outstanding and exercisable. The fair market value is the weighted average share price in the previous month of the exercise for timely tax and compensation calculations.

8

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The following summarizes information about stock options outstanding at June 30, 2007:

|                 |  | Options Outstanding |  |              |  |   |  | Options Exercisable
|---------------- |  | ------------------- |  | ------------ |  | - |  | -------------------
|                 |  |                     |  | Weighted     |  |   |  |                    
|                 |  |                     |  | Average      |  |   |  | Weighted           
|Range of         |  |                     |  | Remaining    |  |   |  | Average            
|Exercise         |  | Number              |  | Contractual  |  |   |  | Exercise           
|Prices           |  | Outstanding         |  | Life (Years) |  |   |  | Price              
|                
|$7.00 and under  |  | 43,504              |  | 4.61         |  | $ |  | 6.77               
|$7.01 to $10.00  |  | 120,098             |  | 2.23         |  | $ |  | 8.59               
|$10.01 to $15.00 |  | 44,646              |  | 6.68         |  | $ |  | 13.47              
|$15.01 to $19.00 |  | 40,950              |  | 6.80         |  | $ |  | 15.33              
|$19.01 to $23.00 |  | 175,830             |  | 9.10         |  | $ |  | 20.78              
|                 |  |                    
|                
|                 |  | 425,028             |  | 6.22         |  | $ |  | 14.61              
|                 |  |                     |  |              |  |   |  |                    

A summary of the status of the Companys non-vested shares as of June 30, 2007 and changes during the quarter ended June 30, 2007, is presented below:

|                              |  |          |   |  |          |   |  |         |   |  |   |  | Weighted  
|----------------------------- |  | -------- | - |  | -------- | - |  | ------- | - |  | - |  | ----------
|                              |  |          |   |  |          |   |  |         |   |  |   |  | Average   
|                              |  | Director |   |  | Employee |   |  | Total   |   |  |   |  | Grant Date
|Non-vested Shares             |  | Shares   |   |  | Shares   |   |  | Shares  |   |  |   |  | Fair Value
|                             
|                             
|Non-vested at January 1, 2007 |  | 23,430   |   |  | 119,730  |   |  | 143,160 |   |  | $ |  | 4.74      
|Granted                       |  | -        |   |  | -        |   |  | -       |   |  |   |  | -         
|Vested                        |  | -        |   |  | -        |   |  | -       |   |  |   |  | -         
|Forfeited                     |  | -        |   |  | -        |   |  | -       |   |  |   |  | -         
|                              |  |         
|                             
|Non-vested at March 31, 2007  |  | 23,430   |   |  | 119,730  |   |  | 143,160 |   |  | $ |  | 4.74      
|Granted                       |  | 14,000   |   |  | 73,800   |   |  | 87,800  |   |  | $ |  | 6.62      
|Vested                        |  | (9,870   | ) |  | (30,650  | ) |  | (40,520 | ) |  | $ |  | 4.24      
|Forfeited                     |  | -        |   |  | -        |   |  | -       |   |  |   |  | -         
|                             
|Non-vested at June 30, 2007   |  | 27,560   |   |  | 162,880  |   |  | 190,440 |   |  | $ |  | 5.71      
|                              |  |         

As of June 30, 2007 there was $765,535 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized using graded vesting over a five year vesting period which accelerates the expense to a weighted average period of under 2 years. The Company has granted awards with graded vesting; the awards vest 20% at the end of each year over five years. The Company has elected to treat each vesting tranche as a separate award with compensation cost for each award recognized over its vesting period. This approach results in a greater amount of compensation cost recognized in the earlier periods of the grant with a declining amount recognized in later periods. The total grant date fair value of shares vested during the quarter ended June 30, 2007 was $171,805.

Compensation expense for restricted stock is measured based upon the number of shares granted and the stock price at the grant date. Compensation expense is recognized in earnings over the required service period. Accordingly, compensation expense has been recognized in the condensed consolidated financial statements for employee and director stock arrangements in each quarter of 2007. Compensation expense is measured at the grant date of the award at fair value and adjusted to reflect actual forfeitures and the outcome of certain conditions.



|3. Pension and Other Postretirement Benefit Plans
|-------------------------------------------------

Effective January 1, 2005 we replaced the Companys Salary Continuation Plans and adopted the Supplemental Executive Retirement Plan (SERP), which is a defined benefit pension plan. The SERP is a master nonqualified retirement plan covering a select group of employees. On an annual or more frequent basis, the SERP is analyzed on an actuarial basis to determine the necessary amounts to expense to cover the plan obligations. Prior to 2005 the liability to individual employees was based on their individual agreements and now is accounted for on a group basis. The SERP has no assets.

9

---

Net periodic expense for the SERP for the three months and six months ending June 30, 2007, is as follows:

| |  |  |                                              |  |   |  | For the three months |  |   |  | For the six months 
| |  |  | -------------------------------------------- |  | - |  | -------------------- |  | - |  | -------------------
| |  |  |                                              |  |   |  | ended June 30, 2007  |  |   |  | ended June 30, 2007
| |  |  | Service cost                                 |  | $ |  | 120,749              |  | $ |  | 241,498            
| |  |  | Interest cost                                |  |   |  | 71,150               |  |   |  | 142,300            
| |  |  | Expected return on plan assets               |  |   |  | -                    |  |   |  | -                  
| |  |  | Amortization of Net Obligation at Transition |  |   |  | -                    |  |   |  | -                  
| |  |  | Amortization of Prior Service Cost           |  |   |  | -                    |  |   |  | -                  
| |  |  | Recognized Net Actuarial (Gain)/Loss         |  |   |  | -                    |  |   |  | -                  
| |  |  | Net Periodic Benefit Cost                    |  | $ |  | 191,899              |  | $ |  | 383,798            
| |  | 
|
|
|
|

4 .  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 assume all dilutive stock options and restricted stock outstanding are issued such that their dilutive effect is maximized. Unallocated shares of the ESOP are excluded from the weighted average common shares outstanding to the extent they have not been legally released. The restricted share awards are excluded from the weighted average common shares outstanding in the calculation of basic earnings per share to the extent they have not been vested or earned.

|                        |  |   |                                       |       |  |   | Three Months Ended June 30, |       |  |   | Six Months Ended June 30,
|----------------------- |  | - | ------------------------------------- | ----- |  | - | --------------------------- | ----- |  | - | -------------------------
|                        |  |   |                                       |       |  |   | 2007                        |       |  |   | 2006                     
|Basic EPS computation   |  | $ |                                       | 3,170 |  | $ |                             | 2,629 |  | $ |                          
|                        |  |   | Numerator - Net Income (in thousands) |       |  |   |                             |       |  |   |                          
|                        |  |   | Denominator - Weighted Average        |       |  |   | 7,150,658                   |       |  |   | 7,196,060                
|                        |  |   | common shares outstanding             |       |  |   |                             |       |  |   |                          
|Basic EPS               |  | $ |                                       | .44   |  | $ |                             | .37   |  | $ |                          
|                       
|                        |  |   |                                       |       |  |   | Three Months Ended June 30, |       |  |   | Six Months Ended June 30,
|                        |  |   |                                       |       |  |   | 2007                        |       |  |   | 2006                     
|Diluted EPS computation |  | $ |                                       | 3,170 |  | $ |                             | 2,629 |  | $ |                          
|                        |  |   | Numerator - Net Income (in thousands) |       |  |   |                             |       |  |   |                          
|                        |  |   | Denominator - Weighted average        |       |  |   | 7,150,658                   |       |  |   | 7,196,060                
|                        |  |   | common shares outstanding             |       |  |   |                             |       |  |   |                          
|                        |  |   | Effect of dilutive stock options      |       |  |   | 120,716                     |       |  |   | 110,482                  
|                        |  |   | Weighted average common shares        |       |  |   | 7,271,374                   |       |  |   | 7,306,542                
|                        |  |   | and common stock equivalents          |       |  |   |                             |       |  |   |                          
|Diluted EPS             |  | $ |                                       | .44   |  | $ |                             | .36   |  | $ |                          
|                       
|                        |  |   |                                       |       |  |   |                             |       |  |   |                          

5. Cash Dividends

VFG paid a cash dividend of $0.08 per share on May 11, 2007. The Company declared a cash dividend of $0.085 per share to be paid on August 10, 2007.

6. Purchase of Washington Asset Management Tacoma, LLC

On March 8, 2004 Venture Wealth Management, a wholly owned subsidiary of Venture Bank, purchased Washington Asset Management Tacoma, LLC (WAM). The purchase price was approximately $200,000. $126,000 was paid in cash at closing and the balance was scheduled to be paid in VFG common stock in three equal annual installments. The final payment was made in March 2007.



|7. Recent Accounting Pronouncements
|-----------------------------------

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments ("SFAS 155") -an amendment to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS

10

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140"). SFAS 155 provides the framework for fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation as well as establishes a requirement to evaluate interests in securitized financial assets to identify interests. SFAS 155 further amends SFAS 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The SFAS 155 guidance also clarifies which interest-only strips and principal-only strips are not subject to the requirement of SFAS 133 and which concentrations of credit risk in the form of subordination are not embedded derivatives. This statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. SFAS 155 is not expected to have a material impact on our consolidated financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets ("SFAS 156") - an amendment of SFAS 140. SFAS 156 requires the recognition of a servicing asset or servicing liability under certain circumstances when an obligation to service a financial asset by entering into a servicing contract. SFAS 156 also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value utilizing the amortization method or fair market value method. SFAS 156 is effective for an entity's first fiscal year that begins after September 15, 2006. SFAS 156 is not expected to have a material impact on our consolidated financial statements.

The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. FIN 48 is an interpretation of SFAS No. 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 provides guidance on de-recognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to uncertainty in income taxes. As a result of the implementation of FIN 48, the Company recognized no material adjustments in the liability for unrecognized income tax benefits, all of which would affect the Company's effective income tax rate if recognized.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which is effective for the Company on January 1, 2008. SFAS No. 157 established a framework for measuring fair value, while expanding fair value measurement disclosures. SFAS No. 157 established a fair value hierarchy that distinguishes between valuations obtained from sources independent of the Company and those from the Company's own unobservable inputs that are not corroborated by observable market data. SFAS No. 157 also expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The disclosures focus on the inputs used to measure fair value and for recurring fair value measurements using significant unobservable inputs, and the effect of the measurements on earnings for the period.

In February 2007, the FASB issued SFAS No. 159. SFAS No. 159 provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities, with changes in fair value recognized in earnings as they occur. SFAS No. 159 permits the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.



|8. Fair Value
|-------------

Effective January 1, 2007, the Company early adopted SFAS 157 and SFAS 159. Without early adoption, the Company would be required to adopt SFAS 157 effective January 1, 2008. Both standards address aspects of the expanding application of fair value accounting.

Early adoption provided a one-time opportunity to treat the economic impact of moving to fair value treatment as a cumulative effect to capital rather than to the income statement. The Company will either be refinancing or prepaying all of its junior subordinated debentures issuances by December 31, 2008. Because the Company anticipates fair valuing the reissued debentures on an item-by-item basis, the Company decided to take advantage of the one-time opportunity made available under the standard with early adoption. As a result of the early adoption of SFAS 159 the Company recorded a cumulative effect adjustment of $428,000 net of tax as a decrease to the opening balance of retained earnings as of January 1, 2007. The fair value option of the junior subordinated debentures accounted for $222,000 of the $428,000 change and the write off of the prepaid fees associated with the junior subordinated debentures to retained earnings accounted for remaining $206,000. In the first six months of 2007 the Company recognized other operating income totaling $194,000 associated with the change in fair value of the junior subordinated debentures.



|Fair Value Measurements (SFAS 157)
|----------------------------------

SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 requires fair value measurement disclosure of all assets and liabilities. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available.

11

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The valuation techniques used in SFAS 157 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:



|Liabilities measured at fair value on a recurring basis as of June 30, 2007. |  |                   |                   |          
|---------------------------------------------------------------------------- |  | ----------------- | ----------------- | ---------
|                                                                            
|                                                                            
|                                                                             |  |                   |                   |          
|                                                                             |  | Quote Prices in   | Significant Other |          
|                                                                             |  | Active Markets fo | Observable        |          
|                                                                             |  | Identical Assets  | Inputs            |          
|(dollars in thousands)                                                       |  | (Level 1)         | (Level
		2)       |          
|                                                                             |  |                   |                   | (Level 3)
|                                                                             |  |                  
|Financial Liabilities                                                        |  |                   |                   |          
|                                                                            
|Junior subordinated debentures at fair                                       |  |                   |                   |          
|value                                                                        |  | 22,829            |                   |          

Effective January 1, 2007, the Company elected early adoption of SFAS No. 159 for a certain eligible financial instrument. Detailed below is the December 31, 2006 carrying values prior to adoption, the transition adjustment booked to opening retained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption). For those items that were selected for fair value option accounting and that had an impact on retained earnings.

|                                             |  |   |  | December 31, 2006        |  | Cumulative-effect |  |   |  |     |  |   |  | January 1, 2007
|-------------------------------------------- |  | - |  | ------------------------ |  | ----------------- |  | - |  | --- |  | - |  | ---------------
|                                             |  |   |  | (Carrying value prior to |  | Adjustment to     |  |   |  |     |  |   |  | (Carrying value
|(dollars in thousands)                       |  |   |  | adoption)                |  | January 1, 2007   |  |   |  |     |  |   |  | after adoption)
|                                             |  |   |  |                          |  | Retained Earnings |  |   |  |     |  |   |  |                
|                                             |  |   |  |                          |  | (gain) loss       |  |   |  |     |  |   |  |                
|                                             |  |  
|Liabilities                                  |  |   |  |                          |  |                   |  |   |  |     |  |   |  |                
|FCFG Capital Trust I1                        |  | $ |  | 13,403                   |  |                   |  | $ |  | 137 |  | $ |  | 13,540         
|FCFG Capital Trust II1                       |  |   |  | 6,186                    |  |                   |  |   |  | 131 |  |   |  | 6,317          
|WCB Capital Trust2                           |  |   |  | 3,093                    |  |                   |  |   |  | 73  |  |   |  | 3,166          
|                                            
|Pre-tax cumulative effect of adopting fair   |  |   |  |                          |  |                   |  |   |  |     |  |   |  |                
|value accounting                             |  | $ |  | 22,682                   |  |                   |  | $ |  | 341 |  | $ |  | 23,023         
|After-tax cumulative effect of adopting fair |  |   |  |                          |  |                   |  |   |  |     |  |   |  |                
|value accounting                             |  |   |  |                          |  |                   |  | $ |  | 222 |  |   |  |                

The following table presents gains and (losses) due to changes in fair value for items measured at fair value pursuant to election of the fair value option for the six months ended June 30, 2007.

|(dollars in thousands) |  |   |  | Carrying Value of |  |   |  | Fair Value        |   |  |   |  | Carrying Value   |  |   |  | Other non- |   |  |   |  | Total changes in |  
|---------------------- |  | - |  | ----------------- |  | - |  | ----------------- | - |  | - |  | ---------------- |  | - |  | ---------- | - |  | - |  | ---------------- | -
|                       |  |   |  | Instrument at     |  |   |  | Measurements at   |   |  |   |  | of Instrument at |  |   |  | interest   |   |  |   |  | fair value       |  
|                       |  |   |  | January 1, 2007   |  |   |  | June 30, 2007     |   |  |   |  | June 30, 2007    |  |   |  | (income)   |   |  |   |  | included in      |  
|                       |  |   |  |                   |  |   |  | using significant |   |  |   |  | (After Adoption  |  |   |  | expense    |   |  |   |  | current period   |  
|                       |  |   |  |                   |  |   |  | other observable  |   |  |   |  | of SFAS No. 159  |  |   |  |            |   |  |   |  | earnings         |  
|                       |  |   |  |                   |  |   |  | inputs (Level 2)  |   |  |   |  |                  |  |   |  |            |   |  |   |  |                  |  
|                       |  |  
|Liabilities            |  |   |  |                   |  |   |  |                   |   |  |   |  |                  |  |   |  |            |   |  |   |  |                  |  
|                      
|FCFG Capital Trust I1  |  | $ |  | 13,540            |  | $ |  | (132              | ) |  | $ |  | 13,408           |  | $ |  | (132       | ) |  | $ |  | (132             | )
|FCFG Capital Trust II1 |  |   |  | 6,317             |  |   |  | (46               | ) |  |   |  | 6,271            |  |   |  | (46        | ) |  |   |  | (46              | )
|WCB Capital Trust2     |  |   |  | 3,166             |  |   |  | (16               | ) |  |   |  | 3,150            |  |   |  | (16        | ) |  |   |  | (16              | )
|                      
|Total                  |  | $ |  | 23,023            |  | $ |  | (194              | ) |  | $ |  | 22,829           |  | $ |  | (194       | ) |  | $ |  | (194             | )

(1) FCFG stands for First Community Financial Group, the name of the holding company prior to the re-branding of the Company and the change of the name to Venture Financial Group, Inc.

(2) WCB stands for Washington Commercial Bancorp, the parent company of Redmond National Bank, acquired by Venture Financial Group, Inc.

12

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2006.



|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. Any statements that expressly or implicitly predict future results, performance, or events should be considered forward-looking. Forward-looking statements are subject to 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.

Risks and uncertainties with respect to the Company include, among others, those set forth in Item 1A of our Annual Report on Form 10-K filed with the SEC and updated as appropriate and 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; 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. Our actual results may differ materially from those anticipated in forward-looking statements as a result of such risk factors.

Summary of Critical Accounting Estimates and Accounting Policies

Our accounting policies are integral to understanding our financial results. Our most critical accounting estimates and policies require management to make subjective, complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. Management has identified several accounting estimates and policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements. These estimates and policies relate to items such as the methodology for the determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, income taxes, the impairment of investments, share-based compensation, employers accounting for defined benefit pension and other post-retirement plans, and fair value measurements. Our significant accounting policies are set forth in Note 1 to our Audited Consolidated Financial Statements for the year ended December 31, 2006.

Allowance for Credit Losses. The allowance for credit losses, or the Allowance, is established through a provision for loan losses charged against earnings. The Allowance is maintained at the amount management believes will be adequate to absorb known and inherent losses in the loan portfolio. The appropriate balance of the Allowance is determined by applying estimated loss factors to the credit exposure from outstanding loans. Estimated loss factors are based on subjective measurements including managements assessment of the internal risk classifications, changes in the nature of the loan portfolio, industry concentrations, and the impact of current local, regional and national economic factors on the quality of the loan portfolio. Changes in these estimates and assumptions are possible and may have a material impact on our consolidated financial statements, results of operation, or liquidity.

For additional information regarding the Allowance, its relation to the provision for loan losses, and the risk related to asset quality, see Note 5 to our audited Consolidated Financial Statements for the year ended December 31, 2006, and Managements Discussion and Analysis of Financial Condition  Allowance for Credit Losses.

Foreclosed Assets. Assets acquired through, or in lieu of, foreclosure are initially recorded at the lower of cost or fair value, less estimated costs of disposal. Any write-down to fair value at the time of transfer or within a reasonable period thereafter is charged to the Allowance. Properties are evaluated regularly to ensure that the recorded amounts are supported by their current fair values, and that valuation allowances to reduce the recorded amounts to fair value, less estimated costs to dispose, are recorded as necessary. Any subsequent reductions in carrying values, and revenue and expense from the operation of properties, are charged to operations.

For additional information regarding foreclosed assets, see Note 7 to our audited Consolidated Financial Statements for the year ended December 31, 2006.

Income Taxes.Deferred tax assets and liabilities result from differences between financial statement recorded amounts and the tax bases of assets and liabilities, and are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled under the liability method.

13

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The accounting for uncertainty in income taxes requires recognition and measurement of uncertain tax positions using a more-likely-than-not approach. This approach was effective beginning January 1, 2007.

For additional information regarding income taxes, see Note 11 to our audited Consolidated Financial Statements for the year ended December 31, 2006 and Note 1--Recent Accounting Pronouncements.

Securities Available-for-Sale.Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that
available-for-sale securities be carried at fair value. We believe this requires a critical accounting estimate in that the fair market value of a security is based on quoted market prices or if quoted market prices are not available,
fair values are extrapolated from the quoted prices of similar instruments. Management utilizes the services of a third-party vendor to assist with the determination of estimated fair values. Adjustments to the available-for-sale securities fair
value impact the consolidated financial statements by increasing or decreasing assets and stockholders equity.

For additional information regarding the available-for-sale securities, see Note 4 to our audited Consolidated Financial Statements for the year ended December 31, 2006, and Managements Discussion and
Analysis of Financial Condition  Investments.

Share-Based Compensation. Prior to January 1, 2006, the Company accounted for stock-based awards to employees and directors using the intrinsic value method.  Accordingly,
no compensation expense was recognized in the consolidated financial statements when the grant price was equal to the market price on the date of grant. Effective January 1, 2006, the Company adopted SFAS No. 123(R) and began expensing share-based
awards under the fair value method. SFAS No. 123R requires that management make assumptions about employee turnover that are utilized to measure compensation expense recorded in the financial statements. The fair value of stock options granted is
estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions such as expected volatility, expected dividends, expected terms, and risk-free rate. For additional
information regarding Stock Based Compensation, see Note 15 to our audited Consolidated Financial Statements for the year ended December 31, 2006.

Benefit Plans.We have a nonqualified retirement plan covering a select group of employees, which is called the supplemental executive retirement plan (SERP). The SERP is
available to key employees designated by our Board of Directors. In accounting for the plan, we must determine the obligation associated with the plan benefits. In estimating the annual SERP expense we must make assumptions and estimates based upon
our judgment and also on information we receive from an independent third party actuary. The actuarial assumptions and estimates are reviewed at least annually for any adjustments that may be required.

For additional information regarding Benefit Plans, see Note 14 to our audited Consolidated Financial Statements for the year ended December 31, 2006.

Fair Value. In February 2007, the FASB issued SFAS No. 159. We early adopted SFAS No. 157 and No. 159 effective January 1, 2007 with respect to our junior subordinated
debentures.  The fair value standards are required to be adopted January 1, 2008. Both standards address aspects of the expanding application of fair value accounting.

SFAS No. 157 establishes a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring
the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will
have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree
of judgment utilized in measuring fair value. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics
specific to the transaction. We use a discounted cash flow model to determine the fair value of the junior subordinated debentures using market discount rate assumptions.

SFAS No. 159 provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities, with changes in
fair value recognized in earnings as they occur. SFAS No. 159 permits the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting
for that instrument.

For additional information regarding fair value and the level of pricing transparency associated with financial instruments carried at fair value, see Note 8 to our unaudited Condensed Consolidated Financial Statements
for the quarter ended June 30, 2007.

14

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|Results of Operations
|---------------------

Our results of operations depend primarily on net interest income, which is the difference between interest income, primarily from loans and investments, and interest expense from interest bearing liabilities, predominately deposits and borrowed funds. Changes in net interest income are influenced by the volume of assets and liabilities and the rates earned and paid respectively. Other factors that determine the level of net income include fee income, non-interest expense, the level of non-performing loans and other non-earning assets, and the amount of non-interest bearing liabilities supporting earning assets. Non-interest income includes service charges and other deposit related fees, origination fees and net gains and losses on the sale of loans and securities and income from bank owned life insurance. Non-interest expense consists primarily of employee compensation and benefits, occupancy and equipment and their related depreciation expense, and other operating expenses.

The following discussion of our results of operations compares the three months ended June 30, 2007 to the three months ended June 30, 2006, and followed by a comparison of the six months ended June 30, 2007 to the six months ended June 30, 2006.

Comparison of three months ended June 30, 2007 and 2006

|                                                      |  |   |  | For the three months ended June 30, |  |       |  |        | 
|----------------------------------------------------- |  | - |  | ----------------------------------- |  | ----- |  | ------ | 
|(dollars in thousands except per share data)          |  |   |  |                                     |  |       |  |        | 
|                                                      |  |  
|                                                      |  |   |  |                                     |  |       |  |        | 
|                                                      |  |   |  | 2007                                |  |       |  |        | 
|                                                      |  |  
|Interest income                                       |  | $ |  | 19,700                              |  | $     |  | 15,504 | 
|Interest expense                                      |  |   |  |                                     |  | 9,907 |  |        | 
|                                                      |  |  
|Net interest income                                   |  |   |  |                                     |  | 9,793 |  |        | 
|Provision for credit losses                           |  |   |  |                                     |  | 375   |  |        | 
|                                                      |  |  
|Net interest income after provision for credit losses |  |   |  |                                     |  | 9,418 |  |        | 
|Non-interest income                                   |  |   |  |                                     |  | 2,262 |  |        | 
|Non-interest expense                                  |  |   |  |                                     |  | 7,233 |  |        | 
|                                                      |  |  
|Income before provision for income taxes              |  |   |  |                                     |  | 4,447 |  |        | 
|Provision for income taxes                            |  |   |  |                                     |  | 1,277 |  |        | 
|                                                      |  |  
|Net income                                            |  | $ |  | 3,170                               |  | $     |  | 2,629  | 
|                                                      |  |  
|Earnings per sharebasic                              |  | $ |  | 0.44                                |  | $     |  | 0.37   | 
|                                                      |  |  
|Earnings per sharediluted                            |  | $ |  | 0.44                                |  | $     |  | 0.36   | 
|                                                      |  |  

The 20.6% increase in net income for the three months ended June 30, 2007 compared to the three months ended June 30, 2006 is attributable primarily to an increase in net interest income of $1.3 million, partially offset by an increase in non-interest expense of $674 thousand. The increase in net interest income was the result of an increase in the volume of interest-earning assets, primarily loans and securities at a greater yield than the cost of funding such assets.

Net Interest Income and Net Interest Margin.Net interest income increased for the period by 15.3% or $1.3 million from $8.5 million for the quarter ended June 30, 2006 compared to $9.8 million for the quarter ended June 30, 2007.

The average pre-tax yield on interest-earning assets increased to 8.13% in the second quarter of 2007 from 7.81% for the same period in 2006, an increase of 32 basis points. The increase in the average rate earned on our interest-earning assets resulted in part from the higher average Fed Funds rate and Prime rate for that period giving us the ability to price loans higher. Loan yields including interest and fees increased 50 basis points from 8.43% to 8.93% for the three months ended June 30, 2006 to the three months ended June 30, 2007, respectively. Yields on securities improved from 5.03% at June 30, 2006 to 5.61% at June 30, 2007, an increase of 58 basis points, partially due to purchasing higher yielding assets.

The cost of our average interest-bearing liabilities increased to 4.64% for the second quarter of 2007 from 4.10% in the same period in 2006, an increase of 54 basis points. The majority of our deposits are short-term and re-price within a 12-month period. A significant amount of our deposits re-priced higher than the increase in Fed Funds between the two periods. In addition to broad increases in the average rates paid on deposit balances, the increase was also the result of a change in our mix of deposits to higher-cost time deposits and money market accounts.

Over the past year, we have funded our incremental earning asset growth with public fund deposits (primarily money market), brokered CDs, retail CDs, and retail money market specials. As of June 30, 2007, public fund deposits were $166.8 million, or 19.9% of our total deposits of $838.5 million, compared to $95.1 million, or 13.4% of our total deposits of $711.7 million at June 30, 2006. Wholesale CDs were $137.3 million, or 16.4% of our deposits at June 30, 2007,

15

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compared to $97.8 million, or 13.7% of our deposits at June 30, 2006. Our borrowings
and repurchase agreements increased $60.3 million from $67.9 million at June 30, 2006 to $128.2 million at June 30, 2007.

Our average rate on interest-bearing deposits increased from 3.74% for the three months ended June 30, 2006 to 4.45% for the same period in 2007. Our average rate on total deposits (including non-interest bearing deposits) increased to 3.88% for the three months ended June 30, 2007 from 3.14% for the three months ended June 30, 2006.

Our net interest margin for the three months ended June 30, 2007 was 4.04% down from 4.26% for the three months ended June 30, 2006, due in part to funding earning asset growth with higher cost deposits and in part to an increase of securities in our asset mix. Net income increased during the second quarter of 2007 because of the higher volume of earning assets even with the reduced margin. Strategically, management uses balance sheet leverage to maximize net income.

The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost of funds for the periods presented. Average balances are derived from daily balances, and non-accrual loans are included as interest earning assets for purposes of this table.

|                                                                                                         |  |   |  |           |   |  |    |  |           |   |  |  |  | Three months ended |   |  |   |  |         |   |  |    |  |           |  
|-------------------------------------------------------------------------------------------------------- |  | - |  | --------- | - |  | -- |  | --------- | - |  |  |  | ------------------ | - |  | - |  | ------- | - |  | -- |  | --------- | -
|                                                                                                         |  |   |  |           |   |  |    |  |           |   |  |  |  | June 30,           |   |  |   |  |         |   |  |    |  |           |  
|                                                                                                         |  |  
|                                                                                                         |  |   |  |           |   |  |    |  | 2007      |   |  |  |  |                    |   |  |   |  |         |   |  |    |  | 2006      |  
|                                                                                                         |  |  
|                                                                                                         |  |   |  |           |   |  |    |  | Interest  |   |  |  |  |                    |   |  |   |  |         |   |  |    |  | Interest  |  
|                                                                                                         |  |   |  | Average   |   |  |    |  | Income    |   |  |  |  | Average            |   |  |   |  | Average |   |  |    |  | Income    |  
|(dollars in thousands)                                                                                   |  |   |  | Balance   |   |  |    |  | (Expense) |   |  |  |  | Rates(3)           |   |  |   |  | Balance |   |  |    |  | (Expense) |  
|                                                                                                         |  |  
|Assets                                                                                                   |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Earning Assets:                                                                                          |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Loans (Interest and fees)(1)                                                                             |  | $ |  | 738,306   |   |  | $  |  | 16,442    |   |  |  |  | 8.93               | % |  | $ |  | 650,086 |   |  | $  |  | 13,662    |  
|Federal funds sold                                                                                       |  |   |  | 2,315     |   |  |    |  | 32        |   |  |  |  | 5.54               | % |  |   |  | 9,212   |   |  |    |  | 120       |  
|Investment securities(2)                                                                                 |  |   |  | 230,837   |   |  |    |  | 3,226     |   |  |  |  | 5.61               | % |  |   |  | 137,205 |   |  |    |  | 1722      |  
|                                                                                                         |  |  
|Total earning assets and interest income                                                                 |  |   |  | 971,458   |   |  |    |  | 19,700    |   |  |  |  | 8.13               | % |  |   |  | 796,503 |   |  |    |  | 15,504    |  
|Other assets:                                                                                            |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Cash and due from banks                                                                                  |  |   |  | 15,147    |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 15,544  |   |  |    |  |           |  
|Bank premises and equipment                                                                              |  |   |  | 31,226    |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 21,490  |   |  |    |  |           |  
|Other assets                                                                                             |  |   |  | 48,301    |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 49,163  |   |  |    |  |           |  
|Allowance for credit losses                                                                              |  |   |  | (9,424    | ) |  |    |  |           |   |  |  |  |                    |   |  |   |  | (8,682  | ) |  |    |  |           |  
|                                                                                                         |  |   |  |           |   |  |    | 
|Total assets                                                                                             |  | $ |  | 1,056,708 |   |  |    |  |           |   |  |  |  |                    |   |  | $ |  | 874,018 |   |  |    |  |           |  
|                                                                                                         |  |   |  |           |   |  |    | 
|                                                                                                        
|Liabilities and Shareholders Equity                                                                      |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Interest bearing liabilities:                                                                            |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Deposits:                                                                                                |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|Savings, NOW, MMDA                                                                                       |  | $ |  | 346,755   |   |  | ($ |  | 3,375     | ) |  |  |  | 3.90               | % |  | $ |  | 201,230 |   |  | ($ |  | 1,163     | )
|Time deposits                                                                                            |  |   |  | 370,129   |   |  |    |  | (4,585    | ) |  |  |  | 4.97               | % |  |   |  | 332,837 |   |  |    |  | (3,815    | )
|                                                                                                         |  |  
|Total interest bearing deposits                                                                          |  |   |  | 716,884   |   |  |    |  | (7,960    | ) |  |  |  | 4.45               | % |  |   |  | 534,067 |   |  |    |  | (4,978    | )
|Other borrowings                                                                                         |  |   |  | 140,053   |   |  |    |  | (1,947    | ) |  |  |  | 5.58               | % |  |   |  | 153,367 |   |  |    |  | (2,057    | )
|                                                                                                         |  |  
|Total interest bearing liabilities and interest expense                                                  |  |   |  | 856,937   |   |  |    |  | (9,907    | ) |  |  |  | 4.64               | % |  |   |  | 687,434 |   |  |    |  | (7,035    | )
|                                                                                                        
|Non interest bearing liabilities                                                                         |  |   |  | 104,958   |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 102,391 |   |  |    |  |           |  
|Other liabilities                                                                                        |  |   |  | 8,387     |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 6,746   |   |  |    |  |           |  
|Shareholders equity                                                                                      |  |   |  | 86,426    |   |  |    |  |           |   |  |  |  |                    |   |  |   |  | 77,447  |   |  |    |  |           |  
|                                                                                                         |  |   |  |           |   |  |    | 
|Total liabilities and shareholders equity                                                                |  | $ |  | 1,056,708 |   |  |    |  |           |   |  |  |  |                    |   |  | $ |  | 874,018 |   |  |    |  |           |  
|                                                                                                         |  |   |  |           |   |  |    |  |           |  
|                                                                                                        
|                                                                                                         |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |          
|Net interest income                                                                                      |  |   |  |           |   |  | $  |  | 9,793     |   |  |  |  |                    |   |  |   |  |         |   |  | $  |  | 8,469     |  
|                                                                                                         |  |   |  |           |   |  |    | 
|Net interest margin as a percent of average earning assets                                               |  |   |  |           |   |  |    |  |           |   |  |  |  | 4.04               | % |  |   |  |         |   |  |    |  |           |  
|                                                                                                         |  |   |  |           |   |  |    | 
|                                                                                                        
|(1) Average loan balance includes non-accrual loans. Loan fees and late charges of $935 thousand         |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   | 
|and $726 thousand are included in interest for the three months ended                                    |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|June 30, 2007 and 2006, respectively.                                                                    |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  
|                                                                                                        
|(2) The yield on investment securities is calculated using historical cost basis. The yield on assets is |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   | 
|calculated on a pre-tax, book value basis which does not consider the effect of tax exempt securities.   |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   | 
|(3) Annualized                                                                                           |  |   |  |           |   |  |    |  |           |   |  |  |  |                    |   |  |   |  |         |   |  |    |  |           |  

16

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An analysis of the change in net interest income is set forth on the following table. Changes due to both rate and volume are allocated in proportion to the relationship of the absolute dollar amounts of the change in each. Balances of non-accrual loans, if any, and related income recognized have been included for purposes of this table.

|                                         |  |   |  | Three months ended June 30, 2007            
|---------------------------------------- |  | - |  | --------------------------------------------
|(dollars in thousands)                   |  |   |  | Compared to three months ended June 30, 2006
|Interest earned on:                      |  |   |  | Total Change                                
|Loans                                    |  | $ |  | 2,780                                       
|Federal Funds sold and deposits in banks |  |   |  | (88                                         
|Investment Securities                    |  |   |  | 1,504                                       
|Total interest income                    |  |   |  | 4,196                                       
|                                        
|Interest paid on:                        |  |   |  |                                             
|Savings, NOW, MMDA                       |  |   |  | 2,212                                       
|Time Deposits                            |  |   |  | 770                                         
|Other Borrowings                         |  |   |  | (110                                        
|Total interest expense                   |  |   |  | 2,872                                       
|                                        
|Net Interest income                      |  | $ |  | 1,324                                       

Provision for Loan Losses.The provision for loan losses is a charge against earnings in that period. The provision is the amount required to maintain the allowance for credit losses at a level that, in managements judgment, is adequate to absorb estimated loan losses inherent in the loan portfolio.

The provision for loan losses for the three months ended June 30, 2007 was $375 thousand compared to $150 thousand for the three months ended June 30, 2006. Net charge-offs for the second quarter of 2007 totaled $555 thousand compared to $745 thousand in recoveries for the same period in 2006. The increase in net charge-offs was primarily due to one commercial loan to an individual who declared bankruptcy. Upon learning of the individuals plan to declare bankruptcy we placed the loan on non-accrual status and upon filing of the bankruptcy charged off the loan pursuant to the bank policy. We do not anticipate any recovery.

We have not identified any other significant potential problem loans that were not classified as non-performing but for which known information about the borrowers financial condition caused management to have concern about the ability of the borrower to comply with the repayment terms of their loans.

The increase in provision expense during the second quarter primarily reflects the growth of our loan portfolio, our assessment of the potential impact on our region of the national economic trends, and our concentration in real estate lending. Each of these components influences our assessment of the adequacy of the Allowance, and we elected to increase the provision to ensure we are adequately reserved to account for these factors.

Non-Interest Income.The following table presents, for the periods indicated, the major categories of non-interest income.

|                                            |  |   |  |       |   |  |   |  | Three Months Ended June 30, |  |   |  |            |  
|------------------------------------------- |  | - |  | ----- | - |  | - |  | --------------------------- |  | - |  | ---------- | -
|                                            |  |  
|                                            |  |   |  |       |   |  |   |  |                             |  |   |  | Increase/  |  
|(dollars in thousands)                      |  |   |  | 2007  |   |  |   |  | 2006                        |  |   |  | (Decrease) |  
|                                            |  |  
|Non-Interest Income                         |  |   |  |       |   |  |   |  |                             |  |   |  |            |  
|Service charges on deposit accounts         |  | $ |  | 1,009 |   |  | $ |  | 1,039                       |  | $ |  | (30        | )
|Origination fees and gain on sales of loans |  |   |  | 463   |   |  |   |  | 440                         |  |   |  | 23         |  
|Net gain (loss) on sale of securities       |  |   |  | (139  | ) |  |   |  | 27                          |  |   |  | (166       | )
|Income from bank owned life insurance       |  |   |  | 170   |   |  |   |  | 186                         |  |   |  | (16        | )
|Gross income from Venture Wealth Management |  |   |  | 118   |   |  |   |  | 181                         |  |   |  | (63        | )
|Other non-interest income                   |  |   |  | 641   |   |  |   |  | 410                         |  |   |  | 231        |  
|                                            |  |  
|Total non-interest income                   |  | $ |  | 2,262 |   |  | $ |  | 2,283                       |  | $ |  | (21        | )
|                                            |  |  

Although total non-interest income remained relatively stable for the three months ended June 30, 2007 compared to the same period in 2006, some of the components of non-interest income experienced some change. We recognized a net realized loss on sale of securities available for sale of $139 compared to a net realized gain of $27 thousand in the same period in 2006. This was partially offset by a net increase in other non-interest income of $231 thousand. The increase in other non-interest income was primarily due to income of $108 thousand associated with the second quarter change in fair value of junior subordinated debentures, $75 thousand insurance reimbursement of legal fees and $60 thousand for a semi-annual installment fee under the merchant service agreement with a third party vendor. Service charges on deposit accounts and residential mortgage volume remained relatively stable for the second quarter of 2007 as compared to the second quarter of 2006. Income from Venture Wealth Management declined primarily due to the departure of a sales employee who was replaced after the end of the second quarter.

17

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Non-Interest Expense.The following table presents, for the periods indicated, the major categories of non-interest expense:

|                                       |  |   |  | Three Months Ended June 30,
|-------------------------------------- |  | - |  | ---------------------------
|                                       |  |  
|                                       |  |   |  |                            
|(dollars in thousands)                 |  |   |  | 2007                       
|                                       |  |  
|Non-Interest Expense                   |  |   |  |                            
|Salaries and employee benefits         |  | $ |  | 3,720                      
|Occupancy and equipment                |  |   |  | 1,284                      
|Advertising / public relations         |  |   |  | 802                        
|Amortization of intangible assets      |  |   |  | 71                         
|Office supplies, telephone and postage |  |   |  | 253                        
|Director fees                          |  |   |  | 51                         
|Expense from foreclosed assets         |  |   |  | 2                          
|Washington State excise tax            |  |   |  | 381                        
|Other non-interest expense             |  |   |  | 669                        
|                                       |  |  
|Total non-interest expense             |  | $ |  | 7,233                      
|                                       |  |  

Total non-interest expense increased 9.1% or $600 thousand to $7.2 million for the three months ended June 30, 2007 compared to $6.6 million for the same period in 2006. The change is primarily due to increased salaries and benefits of $279 thousand. This was largely due to adding employees to accommodate growth. The number of full time equivalent employees increased to 250 at June 30, 2007 compared to 223 at June 30, 2006. Occupancy and equipment expenses increased $245 thousand due to the move into new administrative offices and adding two financial centers. Washington State excise tax increased by $161 thousand due to the increase in interest income. Other non-interest expense decreased $169 thousand primarily to the decrease in professional fees and overdraft protection fee vendor expense offset by an increase in operational losses.

Provision for Income Taxes. We recorded tax provisions of $1.3 million for the three months ended June 30, 2007 compared to $1.4 million for the three months ended June 30, 2006. Our effective tax rate was approximately 28.7% for the three months ended June 30, 2007 and approximately 34.9% for three months ended June 30, 2006. The effective tax rate in 2007, has been lower than our historical effective tax rate primarily due to an overall increase in permanent tax differences and an adjustment to reflect the re-evaluation of our taxes payable. We expect our effective tax rate to range between 30% and 34% for the remainder of 2007 depending on our mix of assets.

.

Comparison of the Six Months Ended June 30, 2007 and 2006

|                                                      |  |   |  | For the six months ended June 30, |  |   |  |       
|----------------------------------------------------- |  | - |  | --------------------------------- |  | - |  | ------
|                                                      |  |   |  | Increase /                       
|(dollars in thousands except per share data)          |  |   |  | 2007                              |  |   |  | 2006  
|                                                      |  |  
|                                                     
|Interest income                                       |  | $ |  | 38,138                            |  | $ |  | 28,449
|Interest expense                                      |  |   |  | 18,837                            |  |   |  | 12,164
|                                                      |  |  
|Net interest income                                   |  |   |  | 19,301                            |  |   |  | 16,285
|Provision for credit losses                           |  |   |  | 750                               |  |   |  | 300   
|                                                      |  |  
|Net interest income after provision for credit losses |  |   |  | 18,551                            |  |   |  | 15,985
|Non-interest income                                   |  |   |  | 4,830                             |  |   |  | 4,250 
|Non-interest expense                                  |  |   |  | 14,307                            |  |   |  | 12,652
|                                                      |  |  
|Income before provision for income taxes              |  |   |  | 9,074                             |  |   |  | 7,583 
|Provision for income taxes                            |  |   |  | 2,710                             |  |   |  | 2,640 
|                                                      |  |  
|Net income                                            |  | $ |  | 6,364                             |  | $ |  | 4,943 
|                                                      |  |  
|Earnings per share--basic                             |  | $ |  | 0.89                              |  | $ |  | 0.69  
|                                                      |  |  
|Earnings per share--diluted                           |  | $ |  | 0.88                              |  | $ |  | 0.67  
|                                                      |  |  

Our net income grew by 30.6% or $1.5 million to $6.4 million for the six months ended June 30, 2007 as compared to $4.9 million for the six months ended June 30, 2006. In the 2007 six month period, net income increased primarily due to growth in our loan and investment portfolios. Our return on average equity was 14.82% and return on average assets was 1.24% for the six months ended June 30, 2007 compared to 12.82% and 1.21%, respectively, for the six months ended June 30, 2006.

18

---

Net Interest Income and Net Interest Margin.Net interest income for the six months ended June 30, 2007 increased over the six months ended June 30, 2006 by $3.0 million
or 18.4% to $19.3 million from $16.3 million. During the first half of 2006, the Federal Reserve increased its targeted federal funds rate by 125 basis points to 5.25%, where it remained through the first half of 2007. The prime rate, as
published inThe Wall Street Journal, is based on a survey of what the 30 largest banks charge their customers. In recent years, the prime rate has moved in lockstep
at a 300 basis point margin above the federal funds rate. The published prime rate is used as a base index on many of our loans. As rates increased in the first half of 2006 our net interest margin declined due to the fact that rates on deposits and
borrowings increased at a much faster pace than loans. During the first half of 2007 competition for loans limited the increase in yield, while at the same time competition for deposits increased those rates. The net effect was a continued decrease
in net interest margins.

For the six months ended June 30, 2007 net interest margin decreased to 4.14% as compared to 4.41% for the same period in 2006. The 27 basis point decrease in net interest margin was the result of: (1) a higher cost of
funding from the increase in deposit rates due to competition and the use of more wholesale funds such as brokered deposits and (2) a larger percent of assets held in securities, which generally carry lower yields than our loans.

The largest component of interest income is interest earned on loans. Total interest income earned from loans for the six months ended June 30, 2007 increased by $6.6 million compared to the same period in 2006.
The average balance of our loan portfolio increased by $99.2 million; from $633.1 million at June 30, 2006 to $732.3 million at June 30, 2007, resulting in an increase of $4.3 million in our interest income. The yield on our loans
increased by 69 basis points for the six months ended June 30, 2007 compared to the same period in 2006, resulting in an increase of $2.3 million in interest income.

Interest earned on federal funds sold and interest bearing deposits in other banks decreased by $97 thousand in the first six months of 2007 over the prior year. The most significant reason for this decrease was
the change in average volume from $6.5 million to $2.4 million, generating a decrease in interest income in the amount of $96 thousand. We shifted the funds to higher yielding assets. The yield on federal funds sold decreased for the
same period from 4.65% to 4.61% resulting in a decrease in interest income of $1 thousand. Interest earned on investments increased by $3.2 million in the first six months of 2007 over the prior year primarily due to an increase in volume of
debt securities which went from an average balance of $104.3 million at June 30, 2006 to $205.9 million at June 30, 2007, providing an increase in interest income of $2.8 million for the six months ended June 30, 2007 compared to the six
months ended June 30, 2006. The yield on investments increased from 4.82% to 5.60% providing an increase of $459 thousand in interest income from June 30, 2006 compared to June 30, 2007.

Interest expense on deposits increased by $6.8 million for the first six months in 2007 compared to the first six months in 2006, from $8.1 million to $14.9 million. This increase was partially due to the
increase in the average balance of our interest bearing deposits from $477.3 million at June 30, 2006 to $686.2 million at June 30, 2007, resulting in an increase of $3.6 million in interest expense. The average rate on deposits
increased to 4.39% for the first six months in 2007 from 3.44% in the first six months of 2006 which resulted in an increase of $3.2 million in interest expense.

Over the past year, we have funded our incremental earning asset growth with public fund deposits (primarily money market), brokered CDs, retail CDs, and retail money market specials. As of June 30, 2007, public fund
deposits were $166.8 million, or 19.9% of our total deposits of $838.5 million, compared to $95.1 million, or 13.4% of our total deposits of $711.7 million at June 30, 2006. Wholesale CDs were $137.3 million, or 16.4% of our
deposits at June 30, 2007, compared to $97.8 million, or 13.7% of our deposits at June 30, 2006. Our borrowings
and repurchase agreements increased $60.3 million from $67.9 million at June 30, 2006 to $128.2 million at June 30, 2007.

Interest expense on other borrowings had a modest decrease of $138 thousand for the first six months in 2007 compared to the first six months in 2006, due to a decrease in volume.

19

---

Average consolidated statements of financial position and analysis of net interest spread were as follows:

|                                                           |  |   |  |           |   |  |    |  |           |   |  |  |  | Six months ended |   |  |   |  |         |   |  |    |  |           |  
|---------------------------------------------------------- |  | - |  | --------- | - |  | -- |  | --------- | - |  |  |  | ---------------- | - |  | - |  | ------- | - |  | -- |  | --------- | -
|                                                           |  |   |  |           |   |  |    |  |           |   |  |  |  | June 30,         |   |  |   |  |         |   |  |    |  |           |  
|                                                           |  |  
|                                                           |  |   |  |           |   |  |    |  | 2007      |   |  |  |  |                  |   |  |   |  |         |   |  |    |  | 2006      |  
|                                                           |  |  
|                                                           |  |   |  |           |   |  |    |  | Interest  |   |  |  |  |                  |   |  |   |  |         |   |  |    |  | Interest  |  
|                                                           |  |   |  | Average   |   |  |    |  | Income    |   |  |  |  | Average          |   |  |   |  | Average |   |  |    |  | Income    |  
|(dollars in thousands)                                     |  |   |  | Balance   |   |  |    |  | (Expense) |   |  |  |  | Rates(3)         |   |  |   |  | Balance |   |  |    |  | (Expense) |  
|                                                           |  |  
|Assets                                                     |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Earning Assets:                                            |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Loans (Interest and fees)(1)                               |  | $ |  | 732,290   |   |  | $  |  | 32,367    |   |  |  |  | 8.91             | % |  | $ |  | 633,080 |   |  | $  |  | 25,806    |  
|Federal funds sold                                         |  |   |  | 2,360     |   |  |    |  | 54        |   |  |  |  | 4.61             | % |  |   |  | 6,546   |   |  |    |  | 151       |  
|Investment securities(2)                                   |  |   |  | 205,870   |   |  |    |  | 5,717     |   |  |  |  | 5.60             | % |  |   |  | 104,257 |   |  |    |  | 2492      |  
|                                                           |  |  
|Total earning assets and interest income                   |  |   |  | 940,520   |   |  |    |  | 38,138    |   |  |  |  | 8.18             | % |  |   |  | 743,883 |   |  |    |  | 28,449    |  
|Other assets:                                              |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Cash and due from banks                                    |  |   |  | 14,511    |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 14,905  |   |  |    |  |           |  
|Bank premises and equipment                                |  |   |  | 30,525    |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 20,607  |   |  |    |  |           |  
|Other assets                                               |  |   |  | 52,747    |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 48,868  |   |  |    |  |           |  
|Allowance for credit losses                                |  |   |  | (9,286    | ) |  |    |  |           |   |  |  |  |                  |   |  |   |  | (8,656  | ) |  |    |  |           |  
|                                                           |  |   |  |           |   |  |    | 
|Total assets                                               |  | $ |  | 1,029,017 |   |  |    |  |           |   |  |  |  |                  |   |  | $ |  | 819,607 |   |  |    |  |           |  
|                                                           |  |   |  |           |   |  |    | 
|                                                          
|Liabilities and Shareholders Equity                        |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Interest bearing liabilities:                              |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Deposits:                                                  |  |   |  |           |   |  |    |  |           |   |  |  |  |                  |   |  |   |  |         |   |  |    |  |           |  
|Savings, NOW, MMDA                                         |  | $ |  | 331,345   |   |  | ($ |  | 6,233     | ) |  |  |  | 3.79             | % |  | $ |  | 192,223 |   |  | ($ |  | 1,892     | )
|Time deposits                                              |  |   |  | 354,872   |   |  |    |  | (8,714    | ) |  |  |  | 4.95             | % |  |   |  | 285,087 |   |  |    |  | (6,244    | )
|                                                           |  |  
|Total interest bearing deposits                            |  |   |  | 686,217   |   |  |    |  | (14,947   | ) |  |  |  | 4.39             | % |  |   |  | 477,310 |   |  |    |  | (8,136    | )
|Other borrowings                                           |  |   |  | 143,334   |   |  |    |  | (3,890    | ) |  |  |  | 5.47             | % |  |   |  | 158,139 |   |  |    |  | (4,028    | )
|                                                           |  |  
|Total interest bearing liabilities and interest expense    |  |   |  | 829,551   |   |  |    |  | (18,837   | ) |  |  |  | 4.58             | % |  |   |  | 635,449 |   |  |    |  | (12,164   | )
|                                                          
|Non interest bearing liabilities                           |  |   |  | 104,117   |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 100,038 |   |  |    |  |           |  
|Other liabilities                                          |  |   |  | 9,459     |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 6,979   |   |  |    |  |           |  
|Shareholders equity                                        |  |   |  | 85,890    |   |  |    |  |           |   |  |  |  |                  |   |  |   |  | 77,141  |   |  |    |  |           |  
|                                                           |  |   |  |           |   |  |    | 
|Total liabilities and shareholders equity                  |  | $ |  | 1,029,017 |   |  |    |  |           |   |  |  |  |                  |   |  | $ |  | 819,607 |   |  |    |  |           |  
|                                                           |  |   |  |           |   |  |    | 
|                                                          
|Net interest income                                        |  |   |  |           |   |  | $  |  | 19,301    |   |  |  |  |                  |   |  |   |  |         |   |  | $  |  | 16,285    |  
|                                                           |  |   |  |           |   |  |    | 
|Net interest margin as a percent of average earning assets |  |   |  |           |   |  |    |  |           |   |  |  |  | 4.14             | % |  |   |  |         |   |  |    |  |           |  
|                                                           |  |   |  |           |   |  |    | 

(1) Average loan balance includes non-accrual loans. Loan fees and late charges of $1,826 thousand and $1,295 thousand are included in interest for the six months ended June 30, 2007 and 2006, respectively.

(2) The yield on investment securities is calculated using historical cost basis. The yield on assets is calculated on a pre-tax, book value basis which does not consider the effect of tax exempt securities.



|(3) Annualized
|--------------

|                                         |  |   |  | For the six months ended June 30, 2007    
|---------------------------------------- |  | - |  | ------------------------------------------
|(dollars in thousands)                   |  |   |  | compared to six months ended June 30, 2006
|                                        
|Interest earned on:                      |  |   |  | Total Change                              
|Loans                                    |  | $ |  | 6,561                                     
|Federal Funds sold and deposits in banks |  |   |  | (97                                       
|Investment Securities                    |  |   |  | 3,225                                     
|Total interest income                    |  |   |  | 9,689                                     
|                                         |  |  
|                                        
|Interest paid on:                        |  |   |  |                                           
|Savings, NOW, MMDA                       |  |   |  | 4,341                                     
|Time Deposits                            |  |   |  | 2,470                                     
|Other Borrowings                         |  |   |  | (138                                      
|Total interest expense                   |  |   |  | 6,673                                     
|                                         |  |  
|                                        
|Net Interest income                      |  | $ |  | 3,016                                     
|                                         |  |  

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.

20

---

Provision for Loan Losses.The provision for loan losses is a charge against earnings in that period. The provision is the amount required to maintain the allowance for credit losses at a level that, in managements judgment, is adequate to absorb estimated loan losses inherent in the loan portfolio.

The provision for loan losses for the six months ended June 30, 2007 was $750 thousand compared to $300 thousand for the six months ended June 30, 2006. Net charge-offs for the first and second quarters of 2007 totaled $600 thousand compared to $624 thousand in net charge-offs for the same periods in 2006.

The increase in provision expense during the second quarter primarily reflects the growth of our loan portfolio, our assessment of the potential impact on our region of the national economic trends, and our concentration in real estate lending. Each of these components influences our assessment of the adequacy of the Allowance, and we elected to increase the Provision to ensure we are adequately reserved to account for these factors.

Non-Interest Income.The following table presents, for the periods indicated, the major categories of non-interest

|income. |  |                                             |  |            |  |                               |  |   |  |       |  |            |  |     |  
|------- |  | ------------------------------------------- |  | ---------- |  | ----------------------------- |  | - |  | ----- |  | ---------- |  | --- | -
|        |  |                                             |  |            |  | For the six months ended June |  |   |  |       | 
|        |  |                                             |  |            |  | 30,                           |  |   |  |       | 
|        |  |                                             |  | Increase /
|        |  |                                             |  |            |  |                               |  |   |  |       |  | (Decrease)
|        |  | (dollars in thousands)                      |  |            |  | 2007                          |  |   |  | 2006  |  |            |  |     |  
|        |  |                                            
|        |  | Non-Interest Income                         |  |            |  |                               |  |   |  |       |  |            |  |     |  
|       
|        |  | Service charges on deposit accounts         |  | $          |  | 1,955                         |  | $ |  | 1,979 |  | $          |  | (24 | )
|        |  | Origination fees and gain on sales of loans |  |            |  | 865                           |  |   |  | 882   |  |            |  | (17 | )
|        |  | Net gain on sale of securities              |  |            |  | 139                           |  |   |  | 27    |  |            |  | 112 |  
|        |  | Income from bank owned life insurance       |  |            |  | 515                           |  |   |  | 319   |  |            |  | 196 |  
|        |  | Gross income from Venture Wealth Management |  |            |  | 327                           |  |   |  | 332   |  |            |  | (5  | )
|        |  | Other non-interest income                   |  |            |  | 1,029                         |  |   |  | 711   |  |            |  | 318 |  
|        |  |                                            
|       
|        |  | Total non-interest income                   |  | $          |  | 4,830                         |  | $ |  | 4,250 |  | $          |  | 580 |  
|        |  |                                            

Total non-interest income increased $500 thousand or 11.6% to $4.8 million for the six months ended June 30, 2007 compared to $4.3 million for the six months ended June 30, 2006. The increase was primarily due to a $139 thousand gain on sale of securities for the six months ended June 30, 2007 compared to the $27 thousand gain on sale of securities for the same period in 2006. An increase in income of bank owned life insurance in the amount of $196 thousand also contributed to the increase as well as an increase of $318 thousand of other non-interest income. The increase in other non-interest income was primarily due to income of $194 thousand associated with the change in fair value of junior subordinated debentures for the six months ended June 30, 2007, $75 thousand insurance reimbursement of legal fees and $60 thousand for a semi-annual installment fee under the merchant service agreement with a third party vendor.

Non-Interest Expense. The following table presents, for the periods indicated, the major categories of non-interest

|expense. |  |                                        |  |            |  |                                   |  |   |  |        |  |            |  |       |  
|-------- |  | -------------------------------------- |  | ---------- |  | --------------------------------- |  | - |  | ------ |  | ---------- |  | ----- | -
|         |  |                                        |  |            |  |                                   |  |   |  |        |  |            |  |       |  
|         |  |                                        |  |            |  | For the six months ended June 30, |  |   |  |        | 
|         |  |                                        |  | Increase /
|         |  | (dollars in thousands)                 |  |            |  | 2007                              |  |   |  | 2006   |  | (Decrease)
|         |  |                                       
|         |  | Non-Interest Expense                   |  |            |  |                                   |  |   |  |        |  |            |  |       |  
|         |  | Salaries and employee benefits         |  | $          |  | 7,794                             |  | $ |  | 6,840  |  | $          |  | 954   |  
|         |  | Occupancy and equipment                |  |            |  | 2,292                             |  |   |  | 2,092  |  |            |  | 200   |  
|         |  | Advertising / public relations         |  |            |  | 1,064                             |  |   |  | 903    |  |            |  | 161   |  
|         |  | Amortization of intangible assets      |  |            |  | 143                               |  |   |  | 143    |  |            |  | - -   |  
|         |  | Office supplies, telephone and postage |  |            |  | 481                               |  |   |  | 398    |  |            |  | 83    |  
|         |  | Director fees                          |  |            |  | 87                                |  |   |  | 86     |  |            |  | 1     |  
|         |  | Expense from foreclosed assets         |  |            |  | 12                                |  |   |  | 31     |  |            |  | (19   | )
|         |  | Washington State excise tax            |  |            |  | 683                               |  |   |  | 442    |  |            |  | 241   |  
|         |  | Other non-interest expense             |  |            |  | 1,751                             |  |   |  | 1,717  |  |            |  | 34    |  
|         |  |                                       
|         |  | Total non-interest expense             |  | $          |  | 14,307                            |  | $ |  | 12,652 |  | $          |  | 1,655 |  
|         |  |                                       

Total non-interest expense increased 12.6% or $1.6 million to $14.3 million for the six months ended June 30, 2007 compared to $12.7 million for the six months ended June 30, 2006. Salaries and benefits represent the largest component of non-interest expense, which increased $954 thousand, or 13.9%, primarily due to internal growth. The

21

---

number of full time equivalent employees increased to 250 as of June 30, 2007 compared to 223 at June 30 2006. Occupancy costs and equipment expenses increased $200 thousand or 9.6% for the six months ended June 30, 2007 from the six months ended June 30, 2006 due to the building and relocation of the administrative offices and the addition of two new financial centers as well as increased real estate property taxes and depreciation expense. Other non-interest expense did not change significantly for the six months ended June 30, 2007 from the same period in 2006. It is comprised mainly of legal, accounting, consulting, ATM processing fees, and insurance expense.

Provision for Income Taxes. We recorded tax provisions of $2.7 million for the six months ended June 30, 2007 compared to $2.6 million for the six months ended June 30, 2006. Our effective tax rate was approximately 29.9% for the six months ended June 30, 2007 and approximately 34.8% for the six months ended June 30, 2006. The effective tax rate in 2007, has been lower than our historical effective tax rate primarily due to an overall increase in permanent tax differences and an adjustment to reflect the re-evaluation of our taxes payable. We expect our effective tax rate to range between 30% and 34% for the remainder of 2007 depending on our mix of assets.



|Financial Condition
|-------------------

Our total consolidated assets at June 30, 2007 were $1.1 billion and $978.1 million at December 31, 2006. Total deposits at June 30, 2007 were $838.5 million and $771.3 million at December 31, 2006.

Loans

Total loans and loans held for sale at June 30, 2007 and December 31, 2006 were $747.0 million and $716.1 million respectively, an increase of $30.9 million or 4.3% . Our loan growth has been focused in commercial real estate and real estate construction lending.

The following table sets forth the relative composition of our loan portfolio at the end of the periods indicated:

|                                    |  |   |  | June 30, |  |      |   | December 31,
|----------------------------------- |  | - |  | -------- |  | ---- | - | ------------
|(dollars in thousands)              |  |   |  | 2007     |  |      |   | 2006        
|                                    |  |  
|Commercial                          |  | $ |  | 87,730   |  | 11.7 | % |             
|Real Estate                         |  |   |  |          |  |      |   |             
|Residential 1-4                     |  |   |  | 34,159   |  | 4.6  | % |             
|Commercial                          |  |   |  | 269,389  |  | 36.1 | % |             
|Construction                        |  |   |  | 344,676  |  | 46.1 | % |             
|Consumer                            |  |   |  | 6,287    |  | 0.8  | % |             
|Small Loans                         |  |   |  | --       |  | 0.0  | % |             
|                                    |  |  
|Total Loans                         |  |   |  | 742,241  |  | 99.4 | % |             
|Loans Held for Sale                 |  |   |  | 4,802    |  | 0.6  | % |             
|                                    |  |  
|Total Loans and Loans Held for Sale |  | $ |  | 747,043  |  | 100  | % |             
|                                    |  |  

The following tables show the amounts of loans as of June 30, 2007 and December 31, 2006. Of the loans maturing after one year, as of June 30, 2007, $89.7 million had fixed interest rates and $245.5 million had adjustable interest rates, and as of December 31, 2006, $68 million had predetermined or fixed interest rates and $264 million had floating or adjustable interest rates. As of June 30, 2007, 76.9% of our floating rate loans were tied to the prime rate.

|As of June 30, 2007:   |  |   |  |         |  |   |  |            |  |   |  |         |  |   |  |        
|---------------------- |  | - |  | ------- |  | - |  | ---------- |  | - |  | ------- |  | - |  | -------
|                      
|(dollars in thousands) |  |   |  |         |  |   |  | Maturity   |  |   |  |         |  |   |  |        
|                       |  |   |  | Within  |  |   |  | After One  |  |   |  | After   |  |   |  |        
|                       |  |   |  | One     |  |   |  | But Within |  |   |  | Five    |  |   |  | Total  
|                       |  |   |  | Year    |  |   |  | Five Years |  |   |  | Years   |  |   |  |        
|                      
|Commercial             |  | $ |  | 64,237  |  | $ |  | 17,348     |  | $ |  | 6,145   |  | $ |  | 87,730 
|Real Estate            |  |   |  |         |  |   |  |            |  |   |  |         |  |   |  |        
|Residential 1-4        |  |   |  | 15,185  |  |   |  | 4,086      |  |   |  | 14,887  |  |   |  | 34,158 
|Commercial             |  |   |  | 58,236  |  |   |  | 61,582     |  |   |  | 149,569 |  |   |  | 269,387
|Construction           |  |   |  | 273,954 |  |   |  | 60,892     |  |   |  | 9,832   |  |   |  | 344,678
|Consumer and other     |  |   |  | 1,211   |  |   |  | 1,135      |  |   |  | 3,942   |  |   |  | 6,288  
|                       |  |  
|Total                  |  | $ |  | 412,823 |  | $ |  | 145,043    |  | $ |  | 184,375 |  | $ |  | 742,241

22

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|As of December 31, 2006: |  |   |  |         |  |   |  |            |  |   |  |         |  |   |  |        
|------------------------ |  | - |  | ------- |  | - |  | ---------- |  | - |  | ------- |  | - |  | -------
|                        
|                        
|                        
|(dollars in thousands)   |  |   |  |         |  |   |  | Maturity   |  |   |  |         |  |   |  |        
|                        
|                         |  |   |  | Within  |  |   |  | After One  |  |   |  | After   |  |   |  |        
|                         |  |   |  | One     |  |   |  | But Within |  |   |  | Five    |  |   |  | Total  
|                         |  |   |  | Year    |  |   |  | Five Years |  |   |  | Years   |  |   |  |        
|                        
|Commercial               |  | $ |  | 52,568  |  | $ |  | 13,182     |  | $ |  | 9,267   |  | $ |  | 75,017 
|Real Estate              |  |   |  |         |  |   |  |            |  |   |  |         |  |   |  |        
|Residential 1-4          |  |   |  | 22,046  |  |   |  | 6,448      |  |   |  | 11,877  |  |   |  | 40,371 
|Commercial               |  |   |  | 71,155  |  |   |  | 53,191     |  |   |  | 152,291 |  |   |  | 276,637
|Construction             |  |   |  | 259,814 |  |   |  | 41,913     |  |   |  | 3,879   |  |   |  | 305,606
|Consumer and other       |  |   |  | 8,288   |  |   |  | 2,040      |  |   |  | 3,494   |  |   |  | 13,822 
|                         |  |  
|Total                    |  | $ |  | 413,871 |  | $ |  | 116,774    |  | $ |  | 180,808 |  | $ |  | 711,453

Concentrations. As of June 30, 2007, in managements judgment, a concentration of loans existed in real estate related loans. At June 30, 2007, our portfolio was centered in real estate loans with construction loans at 46.1% of the portfolio, commercial real estate loans at 36.1% and residential 1-4 family units at 4.6% . Although management believes the loans within the real estate related concentration have no more than the normal risk of collectibility, a substantial decline in the performances of the economy, in general, or a decline in real estate values in our market areas, in particular, could have an adverse impact on collectibility, increase the level of real estate related non-performing loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Asset Quality.Generally, loans are placed on non-accrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan when management believes collection of interest is unlikely after considering economic and business conditions and collection efforts.

The following table summarizes our non-performing assets, which consist of loans on which interest is no longer accrued, accruing loans past due 90 days or more, foreclosed real estate and other assets.

|                                               |  |   |  | June 30, |   |  |   |  | December 31, |  
|---------------------------------------------- |  | - |  | -------- | - |  | - |  | ------------ | -
|(dollars in thousands)                         |  |   |  | 2007     |   |  |   |  | 2006         |  
|                                               |  |  
|Non-accrual loans                              |  | $ |  | 674      |   |  | $ |  | 691          |  
|Accruing loans past due 90 days or more        |  |   |  | - -      |   |  |   |  | - -          |  
|Total non-performing loans (NPLs)              |  |   |  | 674      |   |  |   |  | 691          |  
|Foreclosed real estate                         |  |   |  | 68       |   |  |   |  | 34           |  
|Other assets                                   |  |   |  | - -      |   |  |   |  | - -          |  
|                                               |  |  
|Total non-performing assets (NPAs)             |  | $ |  | 742      |   |  | $ |  | 725          |  
|                                               |  |  
|Selected ratios                                |  |   |  |          |   |  |   |  |              |  
|NPLs to total loans                            |  |   |  | 0.09     | % |  |   |  | 0.10         | %
|NPAs to total loans and foreclosed real estate |  |   |  | 0.10     | % |  |   |  | 0.10         | %
|NPAs to total assets                           |  |   |  | 0.07     | % |  |   |  | 0.07         | %

Impaired and Non-accrual Loans.These loans generally are loans for which it is probable that we will not be able to collect all amounts due according to the original contractual terms of the loan agreement. We typically classify these loans as Substandard, Doubtful, or Loss. Impaired loans, specifically Substandard or Doubtful loans, may not be on non-accrual status as we continue to accrue interest if borrowers continue to make payments. The category impaired loan is broader than the category non-accrual loan, although the two categories overlap. Non-accrual loans are those loans on which the accrual of interest is discontinued when collectibility of principal and interest is uncertain or payments of principal or interest have become contractually past due 90 days. Management may choose to categorize a loan as impaired, i.e. Substandard, Doubtful or Loss, due to payment delinquency or uncertain collectibility, and will closely monitorthe loan to ensure performance and collection of amounts due in accordance with the original contractual terms of the loan.

23

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The following table summarizes our non-accrual loans at the periods indicated. Non-accrual loans with valuation allowance refers to the portion of our total non-accrual loans that have been identified as having loss exposure and have a specific amount set aside for them in the Allowance. We refer to the specific amount set aside for these loans as the allocation of the Allowance.

|(dollars in thousands)                     |  |   |  |             |  |   |  |                
|------------------------------------------ |  | - |  | ----------- |  | - |  | ---------------
|                                           |  |   |  | At June 30, |  |   |  | At December 31,
|                                           |  |   |  | 2007        |  |   |  | 2006           
|Total non-accrual loans                    |  | $ |  | 674         |  | $ |  | 691            
|Non-accrual loans with valuation allowance |  | $ |  | 447         |  | $ |  | 365            
|Allocation of allowance for credit losses  |  | $ |  | 213         |  | $ |  | 116            

Gross interest income of $35 thousand would have been recorded for the six months ended June 30, 2007 if the non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination. Interest income on these loans was not included in net income in 2007.

As of June 30, 2007, we had no loans not disclosed as non-accrual loans as to which we had serious doubts about the ability of the borrower to comply with the loan repayment terms and which may result in disclosure of these loans as non-accrual loans.

Foreclosed Real Estate.As of June 30, 2007, we held two foreclosed properties, represented by two single family residential building lots. The carrying value of the properties aggregated $68 thousand. As of December 31, 2006, we held one foreclosed property carried at $34 thousand. Valuation occurs when a property is foreclosed upon, and annually thereafter. We typically use the lesser of an appraised value or tax assessed value to establish the carrying values. For the properties noted, we have used assessed value due to the relative amounts involved. The change over the two periods reflected a second property being foreclosed upon, with the December 31, 2006 property included in the June 30, 2007 balance.



|Allowance for Credit Losses
|---------------------------

We must maintain an adequate allowance for credit losses, the Allowance, based on a comprehensive methodology that assesses the estimated losses inherent in our loan portfolio. The Allowance reflects our current estimate of the amount required to absorb probable losses on existing loans and commitments to extend credit. There is no precise method of predicting specific credit losses or amounts that ultimately may be charged off on segments of the loan portfolio. The determination that a loan may become uncollectible, in whole or in part, is a matter of judgment. Similarly, the adequacy of the Allowance is determined based on managements judgment, and on the 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.

Management conducts a full review of the Allowance on a regular basis, including:

- consideration of economic conditions and the effect on particular industries and specific borrowers;
- a review of borrowers financial data, together with industry data, the competitive situation, the borrowers management capabilities and other factors;
- a continuing evaluation of the loan portfolio, including monitoring by lending officers and staff, of all loans which are identified as being of less than acceptable quality;
- an in-depth appraisal, on a monthly basis, of all loans judged to present a possibility of loss (if, as a result of such monthly appraisals, the loan is judged to be not fully collectible, the carrying value of the loan is reduced to that portion considered collectible); and
- an evaluation of the underlying collateral for secured lending, including the use of independent appraisals of real estate properties securing loans.

Our quarterly analysis of the adequacy of the Allowance is reviewed by our Board of Directors. We consider the Allowance to be adequate to cover estimated loan losses relating to the loans outstanding as of each reporting period.

Losses on loans are charged against and reduce the Allowance in the period in which such loans, in our opinion, become uncollectible. Recoveries during the period are credited to the Allowance. Periodically, a provision for credit losses is charged to current income. This provision acts to replenish the Allowance and to maintain the Allowance at a level that management deems adequate.

24

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Specific Allocations.All classified loans are evaluated for potential loss exposure. If a loan is classified, our loss exposure on that loan is measured based on expected cash flows or collateral values, and if necessary, a specific portion of the Allowance for credit losses is allocated to that loan.

General Allowances.Each loan officer recommends grades for each loan in their assigned portfolio, beginning at loan inception, and annually thereafter when financial statements of the borrower are received and reviewed. All loan grades require the approval of the manager of Credit Administration and the Chief Lending Officer. Grading changes may also occur if, for example, a loan is delinquent or the collateral deteriorates. Grades range from excellent loans graded a 1, to loss loans graded a 7.

We perform a portfolio segmentation based on risk grading. The loss factors for each risk grade are determined by management based on managements assessment of the overall credit quality at quarter end, taking into account various qualitative and quantitative factors such as trends of past due and non-accrual loans, asset classifications, collateral value, loan grades, historical loss experience and economic conditions The following table sets forth activity in the allowance for credit losses for the periods indicated:

|(dollars in thousands)                                  |  |   |  | Six Months |    |  |   |  | Year Ended   |   
|------------------------------------------------------- |  | - |  | ---------- | -- |  | - |  | ------------ | --
|                                                        |  |   |  | Ended      |    |  |   |  | December 31, |   
|                                                        |  |   |  | June 30,   |    |  |   |  |              |   
|                                                        |  |   |  | 2007       |    |  |   |  | 2006         |   
|                                                       
|Balance at beginning of period                          |  | $ |  | 8,917      |    |  | $ |  | 8,434        |   
|                                                       
|Provision for credit losses                             |  |   |  | 750        |    |  |   |  | 1,075        |   
|                                                       
|                                                       
|Charge-offs:                                            |  |   |  |            |    |  |   |  |              |   
|                                                       
|Commercial                                              |  |   |  | (565       | )  |  |   |  | (804         | ) 
|                                                       
|Real Estate Mortgage and Construction                   |  |   |  | (44        | )  |  |   |  | -            |   
|                                                        |  |  
|Consumer                                                |  |   |  | (5         | )  |  |   |  | (49          | ) 
|                                                        |  |  
|Total charge-offs                                       |  |   |  | (614       | )  |  |   |  | (853         | ) 
|                                                        |  |  
|                                                       
|Recoveries:                                             |  |   |  |            |    |  |   |  |              |   
|                                                       
|Commercial                                              |  |   |  | 2          |    |  |   |  | 128          |   
|                                                       
|Real Estate Mortgage and Construction                   |  |   |  | 10         |    |  |   |  | -            |   
|                                                        |  |  
|Consumer                                                |  |   |  | 2          |    |  |   |  | 133          |   
|                                                        |  |  
|Total recoveries                                        |  |   |  | 14         |    |  |   |  | 261          |   
|                                                        | 
|                                                       
|Net (charge-offs) / recoveries                          |  |   |  | (600       | )  |  |   |  | (592         | ) 
|                                                       
|Balance at end of period                                |  | $ |  | 9,067      |    |  | $ |  | 8,917        |   
|                                                       
|Gross loans                                             |  | $ |  | 747,043    |    |  | $ |  | 716,095      |   
|                                                       
|Average loans                                           |  | $ |  | 732,290    |    |  | $ |  | 668,443      |   
|                                                       
|Non-performing loans                                    |  | $ |  | 674        |    |  | $ |  | 691          |   
|                                                       
|                                                       
|Selected ratios:                                        |  |   |  |            |    |  |   |  |              |   
|                                                        |  |  
|                                                       
|Net (charge-offs) / recoveries to average loans         |  |   |  | (0.08      | )% |  |   |  | (0.09        | )%
|                                                        |  |  
|Provision for credit losses to average loans            |  |   |  | 0.10       | %  |  |   |  | 0.16         | % 
|                                                       
|Allowance for credit losses to loans outstanding at end |  |   |  |            |    |  |   |  |              |   
|                                                        |  |  
|of period                                               |  |   |  | 1.21       | %  |  |   |  | 1.25         | % 
|                                                        |  |  
|Allowance for credit losses to non-performing loans     |  |   |  | 1345       | %  |  |   |  | 1290         | % 
|                                                       

We allocate the Allowance by assigning general percentages to our major loan categories (construction, commercial real estate, residential real estate, C&I and consumer), and assign specific percentages to each category of loans rated from 4 through 7. We also make specific allocations on individual loans when factors are present requiring a greater reserve, typically the result of reviews of updated appraisals, or other collateral analysis.

25

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The following table indicates managements allocation of the allowance for credit losses among major loan categories:

|                       |  |   |  | June 30, |  |  |  |       | December 31, | 
|---------------------- |  | - |  | -------- |  |  |  | ----- | ------------ | 
|(dollars in thousands) |  |   |  | 2007     |  |  |  |       | 2006        
|                       |  |   |  | Amount   |  |  |  | % of  |              | 
|                       |  |   |  |          |  |  |  | Total |              | 
|                       |  |   |  |          |  |  |  | Loans |              | 
|                      
|Commercial             |  | $ |  | 1,775    |  |  |  | 19.6  | %            | 
|Real Estate            |  |   |  |          |  |  |  |       |              | 
|Commercial             |  |   |  | 4,325    |  |  |  | 47.7  | %            | 
|Construction           |  |   |  | 2,225    |  |  |  | 24.6  | %            | 
|Residential            |  |   |  | 687      |  |  |  | 7.5   | %            | 
|Consumer               |  |   |  | 55       |  |  |  | 0.6   | %            | 
|Small Loans            |  |   |  | --       |  |  |  | --    |              | 
|                       |  |  
|                      
|Total                  |  | $ |  | 9,067    |  |  |  | 100.0 | %            | 
|                       |  |  

We consider many factors to determine the amount and allocation of the Allowance, centered on overall portfolio performance by loan category/type, local and national economic trends, and assessments of categories of collateral. These statistics are measured against our current allocation and our historical loss record for the previous five-year period to aid in assessing the adequacy of the Allowance.

For commercial banks, the commercial loans that are not secured by real estate generally represent the highest risk category. The commercial portfolio made up approximately 11.7% of our total loans as of June 30, 2007. While the majority of our historical loan charge-offs have occurred in the commercial portfolio, we believe the Allowance allocation is adequate.

Our commercial real estate loans are a mixture of new and seasoned properties, retail, office, warehouse, and some industrial properties. Loans on properties are generally underwritten at a loan-to-value ratio of less than 80% with a minimum debt coverage ratio of 1.20:1. Our grading system allows our loan portfolio, including real estate, to be ranked across three pass risk grades. Generally, the real estate loan portfolio is rated as a Grade 3, reflective of the overall quality of the existing portfolio, notwithstanding the various risks inherent in the real estate portfolio, such as large size and complexity of individual credits, and overall concentration of credit risk.

Our construction portfolio reflects some borrower concentration risk, and also carries the enhanced risks generally encountered with construction loans. We also finance contractors who construct homes or commercial properties that are not pre-sold. These construction loans are generally more risky than permanent mortgage loans because they are dependent upon the borrowers ability to complete the construction on time and within budget and then to generate cash to service the loan by selling or leasing the project. The value of the collateral depends on project completion when market conditions may have changed. For these reasons, a higher allocation is sometimes justified in this loan category.

We have been engaged in an ongoing and active initiative to ensure we are compliant with both the spirit and letter of the new commercial real estate guidelines promulgated by the regulatory agencies. Our framework for such evolution is multi-faceted and robust in scope, and we believe our systems and methodologies subscribe to the precepts of the guidelines at all levels. Our practices include active and ongoing senior management involvement, including informed oversight by the Board of Directors.

Small Loans.Beginning July 1, 2005 we exited our payday lending relationship. Provisions for loan losses on small loans were made monthly. We allocated a portion of the Allowance at a level sufficient to cover all small loans that have defaulted, as well as an amount sufficient to absorb the anticipated losses on two small loan operating cycles (approximately one month in duration), based both our historical loss experience and that of the industry. Losses in the small loan portfolio were limited by agreement to a percentage of revenue earned from the portfolio by Venture Banks agent.

During a regulatory examination during the fourth quarter of 2004, the FDIC directed us to charge-off all payday loans that had been outstanding to borrowers for 60 days from the original loan date. The FDIC requested that we charge-off the principal balance of loans meeting the above criteria for the periods of December 31, 2003, September 30, 2004 and December 31, 2004. We believed that under generally accepted accounting principles, and based on our actual experience, a total loss of all payday loans outstanding for 60 days from the origination date was not probable, and the specific Allowance allocated to the payday lending portfolio, together with the stop-loss provisions in the marketing and servicing agreement with our payday lending partner, was adequate. All actual charge-offs and recoveries for December 31, 2003 and September 30, 2004 were recognized and run through the Allowance as of December 31, 2003 and September 30, 2004. As a result of the regulatory charge-off, we had a difference between our regulatory accounting principles (RAP) financials and our generally accepted accounting principles (GAAP) financials.

26

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The financial entries made for regulatory purposes resulted in a $746 thousand reduction in loan balances with a corresponding reduction in the Allowance as of December 31, 2003. Additional charge-offs of $1.2 million and recoveries of $501 thousand were required for regulatory accounting purposes for the year ended December 31, 2004, and additional charge-offs of $311 thousand and recoveries of $35 thousand were required through June 30, 2005, as compared to the financial statements presented under GAAP.

Investment Portfolio

The carrying value of our investment securities at June 30, 2007 totaled $236.6 million compared to $162.4 million at December 31, 2006. We purchased $133.8 million in securities in the first two quarters, which was offset by maturities, principal pay downs, and sales totaling $51.9 million. We adjusted the portfolio mix during the six months ended June 30, 2007 to include additional mortgage-backed, corporate and equity securities. The risk weighting of securities are considered in purchase decisions to maximize the utilization of capital.

The recorded amounts of investment securities held by us and their fair value at the dates indicated are set forth in the following table:

|                                       |  |   |  |           |  |   |  |            |  |   |  | Gross      |  |   |  |            |  | Gross        |  |         |  |        
|-------------------------------------- |  | - |  | --------- |  | - |  | ---------- |  | - |  | ---------- |  | - |  | ---------- |  | ------------ |  | ------- |  | -------
|                                       |  |   |  |           |  |   |  |            |  |   |  | Unrealized |  |   |  | Unrealized |  |              |  |        
|(dollars in thousands)                 |  |   |  |           |  |   |  | Gross      |  |   |  | Losses     |  |   |  |            |  | Losses       |  |         |  |        
|                                       |  |   |  | Amortized |  |   |  | Unrealized |  |   |  | Less Than  |  |   |  |            |  | Greater Than |  |         |  | Fair   
|                                       |  |   |  | Cost      |  |   |  | Gains      |  |   |  | 12 Months  |  |   |  |            |  | 12 Months    |  |         |  | Value  
|                                       |  |  
|                                      
|Securities Available-for-sale          |  |   |  |           |  |   |  |            |  |   |  |            |  |   |  |            |  |              |  |         |  |        
|June 30, 2007                          |  |   |  |           |  |   |  |            |  |   |  |            |  |   |  |            |  |              |  |         |  |        
|U. S. Government and agency securities |  | $ |  | -         |  | $ |  | -          |  | $ |  | -          |  | $ |  | -          |  | $            |  | -      
|Mortgage-backed securities             |  |   |  | 166,743   |  |   |  | 1          |  |   |  |            |  | - |  |            |  | 5,032        |  |         |  | 161,712
|Municipal securities                   |  |   |  | 13,144    |  |   |  | 17         |  |   |  |            |  | - |  |            |  | 397          |  |         |  | 12,764 
|Corporate Securities                   |  |   |  | 32,000    |  |   |  | -          |  |   |  |            |  | - |  |            |  | -            |  |         |  | 32,000 
|Equity securities                      |  |   |  | 21,987    |  |   |  | -          |  |   |  |            |  | - |  |            |  | 1,903        |  |         |  | 20,084 
|                                       |  |  
|                                       |  | $ |  | 233,874   |  | $ |  | 18         |  | $ |  | -          |  | $ |  | 7,332      |  | $            |  | 226,560
|                                      
|Securities Held-to-maturity            |  |   |  |           |  |   |  |            |  |   |  |            |  |   |  |            |  |              |  |         |  |        
|June 30, 2007                          |  |   |  |           |  |   |  |            |  |   |  |            |  |   |  |            |  |              |  |         |  |        
|Corporate Securities                   |  | $ |  | 10,000    |  | $ |  | -          |  | $ |  | -          |  | $ |  | 141        |  | $            |  | 9,859  
|                                       |  |  
|                                      
|                                      
|                                      
|December 31, 2006                      |  |   |  |           |  |   |  |            |  |   |  |            |  |   |  |            |  |              |  |         |  |        
|U.S. Government and agency securities  |  | $ |  | 3,974     |  | $ |  | 15         |  | $ |  | 2          |  | $ |  | 20         |  | $            |  | 3,967  
|Mortgage backed securities             |  |   |  | 127,790   |  |   |  | 1,145      |  |   |  |            |  | - |  |            |  | 909          |  |         |  | 128,026
|Municipal securities                   |  |   |  | 29,631    |  |   |  | 796        |  |   |  |            |  | - |  |            |  | 10           |  |         |  | 30,417 
|Equity securities                      |  |   |  | 37        |  |   |  | -          |  |   |  |            |  | - |  |            |  | -            |  |         |  | 37     
|                                       |  |  
|                                       |  | $ |  | 161,432   |  | $ |  | 1,956      |  | $ |  | 2          |  | $ |  | 939        |  | $            |  | 162,447
|                                       |  |  

The following tables show the stated maturities and weighted average yields of investment securities held by us at June 30, 2007 and December 31, 2006:

|                                                                |  |   |  |                             |  |   |  |       |                               | June 30, 2007 |   |  |   |  |           |  |   |  |        
|--------------------------------------------------------------- |  | - |  | --------------------------- |  | - |  | ----- | ----------------------------- | ------------- | - |  | - |  | --------- |  | - |  | -------
|(dollars in thousands)                                          |  |   |  | Held-to-Maturity Securities |  |   |  |       | Available-For-Sale Securities |              
|                                                                |  |   |  |                             |  |   |  |       |                               | Weighted      |   |  |   |  |           |  |   |  |        
|                                                                |  |   |  | Amortized                   |  |   |  | Fair  |                               | Average       |   |  |   |  | Amortized |  |   |  | Fair   
|                                                                |  |   |  | Cost                        |  |   |  | Value |                               | Yield         |   |  |   |  | Cost      |  |   |  | Value  
|                                                               
|Due in one year or less                                         |  | $ |  | -                           |  | $ |  | -     |                               | -%            |   |  | $ |  | 85        |  | $ |  | 85     
|Due after one year through five                                 |  |   |  |                             |  |   |  |       |                               |               |   |  |   |  |           |  |   |  |        
|years                                                           |  |   |  | -                           |  |   |  | -     |                               | -%            |   |  |   |  | 798       |  |   |  | 802    
|Due after five years through ten                                |  |   |  |                             |  |   |  |       |                               |               |   |  |   |  |           |  |   |  |        
|years                                                           |  |   |  | -                           |  |   |  | -     |                               | -%            |   |  |   |  | 439       |  |   |  | 445    
|Due after ten years                                             |  |   |  | 10,000                      |  |   |  | 9,859 |                               | 9.99          | % |  |   |  | 43,822    |  |   |  | 43,432 
|No maturity investment                                          |  |   |  | -                           |  |   |  | -     |                               | -%            |   |  |   |  | 21,987    |  |   |  | 20,084 
|Mortgage backed securities                                      |  |   |  | -                           |  |   |  | -     |                               | -%            |   |  |   |  | 166,743   |  |   |  | 161,712
|                                                                |  |   |  |                             |  |   |  |      
|                                                               
|Total                                                           |  | $ |  | 10,000                      |  | $ |  | 9,859 |                               |               |   |  | $ |  | 233,874   |  | $ |  | 226,560
|                                                                |  |   |  |                             |  |   |  |      
|(1) Weighted average yield is reported on tax-equivalent basis. |  |   |  |                             |  |   |  |       |                               |               |   |  |   |  |           | 

27

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|                                                                |  |                             |  |                 |  | December 31, 2006             |  |   |  |           |  |   |  |            | 
|--------------------------------------------------------------- |  | --------------------------- |  | --------------- |  | ----------------------------- |  | - |  | --------- |  | - |  | ---------- | 
|(dollars in thousands)                                          |  | Held-to-Maturity Securities |  |                 |  | Available-For-Sale Securities | 
|                                                                |  |                             |  |                 |  | Weighted                      |  |   |  |           |  |   |  |            | 
|                                                                |  | Amortized                   |  | Fair            |  | Average                       |  |   |  | Amortized |  |   |  | Fair Value | 
|                                                                |  | Cost                        |  | Value           |  | Yield                         |  |   |  | Cost      |  |   |  |            | 
|                                                               
|Due in one year or less                                         |  | $                -          |  | $             - |  | -%                            |  | $ |  | 1,085     |  | $ |  | 1,084      | 
|Due after one year through five years                           |  | -                           |  | -               |  | -%                            |  |   |  | 1,796     |  |   |  | 1,786      | 
|Due after five years through ten years                          |  | -                           |  | -               |  | -%                            |  |   |  | 2,404     |  |   |  | 2,440      | 
|Due after ten years                                             |  | -                           |  | -               |  | -%                            |  |   |  | 28,320    |  |   |  | 29,074     | 
|No maturity investment                                          |  | -                           |  | -               |  | -%                            |  |   |  | 37        |  |   |  | 37         | 
|Mortgage backed securities                                      |  | -                           |  | -               |  | -%                            |  |   |  | 127,790   |  |   |  | 128,026    | 
|                                                                |  |                             |  |                 |  |                               |  |  
|                                                               
|Total                                                           |  | $               -           |  | $             - |  |                               |  | $ |  | 161,432   |  | $ |  | 162,447    | 
|                                                                |  |                             |  |                 |  |                               |  |  
|(1) Weighted average yield is reported on tax-equivalent basis. |  |                             |  |                 |  |                               |  |   |  |           |  |   |  |            | 

Deposits

Total deposits were $838.5 million at June 30, 2007 compared to $771.3 million at December 31, 2006. During 2007 and 2006 we looked to the wholesale funding market to augment traditional sources of asset funding. We increased brokered deposits by $48.0 million during the first six months of 2007. As part of our strategy, in 2006 and 2007 we also expanded our market share of deposits of public funds, which represented 19.9% of our total deposits at June 30, 2007 up from 13.4% at June 30, 2006. Interest-bearing deposits are comprised of money market accounts or MMDA, interest-bearing checking accounts, or NOW, savings accounts, time deposits of under $100,000 and time deposits of $100,000 or more.

The following table presents average balances not total balances as discussed above. Our average balances of deposits and average interest rates paid for the periods indicated are summarized in the following table.

|                       |  |   |  |         |  | June 30,   |   |  |          |   |  |   |  |         |  | December 31, |   |  |          |  
|---------------------- |  | - |  | ------- |  | ---------- | - |  | -------- | - |  | - |  | ------- |  | ------------ | - |  | -------- | -
|                       |  |   |  |         |  | 2007       |   |  |          |   |  |   |  |         |  | 2006         |   |  |          |  
|                       |  |  
|                       |  |   |  |         |  |            |   |  | Weighted |   |  |   |  |         |  |              |   |  | Weighted |  
|                       |  |   |  | Average |  |            |   |  | Average  |   |  |   |  | Average |  | % of         |   |  | Average  |  
|(dollars in thousands) |  |   |  | Balance |  | % of Total |   |  | Rate     |   |  |   |  | Balance |  | Total        |   |  | Rate     |  
|                       |  |  
|                      
|Non-interest checking  |  | $ |  | 104,117 |  | 13.2       |   |  | -        |   |  | $ |  | 103,058 |  | 15.6         |   |  | -        |  
|NOW and MMDA           |  |   |  | 308,367 |  | 39.0       |   |  | 4.18     | % |  |   |  | 214,246 |  | 32.4         |   |  | 3.88     | %
|Savings accounts       |  |   |  | 22,978  |  | 2.9        |   |  | 0.51     | % |  |   |  | 25,015  |  | 3.8          |   |  | 0.54     | %
|Time deposits          |  |   |  | 354,872 |  | 44.9       |   |  | 4.95     | % |  |   |  | 318,054 |  | 48.2         |   |  | 4.81     | %
|                       |  |   |  |         |  |            |   |  |          |  
|Total                  |  | $ |  | 790,334 |  | 100.0      | % |  |          |   |  | $ |  | 660,373 |  | 100.0        | % |  |          |  
|                       |  |   |  |         |  |            |   |  |          |  

|The following table shows the maturities of our time deposits: |  |   |  |         |  |   |  |              
|-------------------------------------------------------------- |  | - |  | ------- |  | - |  | -------------
|                                                              
|                                                               |  |   |  |         |  |   |  | June 30, 2007
|(dollars in thousands)                                         |  |   |  | Under   |  |   |  | $100,000     
|                                                               |  | $ |  | 100,000 |  |   |  | and over     
|0-90 days                                                      |  | $ |  | 43,240  |  | $ |  | 81,687       
|91-180 days                                                    |  |   |  | 19,352  |  |   |  | 40,433       
|181-365 days                                                   |  |   |  | 61,296  |  |   |  | 84,497       
|Over 1 year                                                    |  |   |  | 14,363  |  |   |  | 34,491       
|                                                               |  |  
|                                                               |  | $ |  | 138,251 |  | $ |  | 241,108      
|                                                               |  |  

Borrowings

Short term borrowings and repurchase
agreements increased $61.1 million, or 91.1%, to $128.2 million in the six months ended June 30, 2007. Short-term borrowings represent Federal Funds Purchased, borrowings from the U.S. Treasury, repurchase agreements with Citigroup, advances from the FHLB, and customer repurchase agreements, normally maturing within one year.

28

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The following table sets forth information concerning short-term borrowings at the periods indicated:

|                                          |  |   |  | June 30, 2007 |   |  |   |  | December 31, 2006 |  
|----------------------------------------- |  | - |  | ------------- | - |  | - |  | ----------------- | -
|Average balance during period             |  | $ |  | 120,524       |   |  | $ |  | 82,815            |  
|Average interest rate during period       |  |   |  | 4.83          | % |  |   |  | 4.39              | %
|Maximum month-end balance during the year |  |   |  | 128,220       |   |  |   |  | 118,010           |  
|Weighted average rate at period end       |  |   |  | 4.79          | % |  |   |  | 4.78              | %
|Balance at period end                     |  | $ |  | 128,220       |   |  | $ |  | 53,070            |  

Contractual Obligations and Off-Balance Sheet Arrangements

The following tables show contractual obligations as of June 30, 2007 and December 31, 2006:

|                                                 |  |   |  |           |  |   |  |             |  |   |  | June 30, 2007          |  |   |  |           |  |   |  |        
|------------------------------------------------ |  | - |  | --------- |  | - |  | ----------- |  | - |  | ---------------------- |  | - |  | --------- |  | - |  | -------
|(dollars in thousands)                           |  |   |  |           |  |   |  |             |  |   |  | Payments Due by Period |  |   |  |           |  |   |  |        
|                                                 |  |   |  |           |  |   |  | After One   |  |   |  | After Three            |  |   |  | More Than |  |   |  |        
|                                                 |  |   |  |           |  |   |  | But Within  |  |   |  | But Within             |  |   |  | Five      |  |   |  |        
|Contractual Obligations                          |  |   |  | Less Than |  |   |  | Three Years |  |   |  | Five Years             |  |   |  | Years     |  |   |  |        
|                                                 |  |   |  | One Year  |  |   |  |             |  |   |  |                        |  |   |  |           |  |   |  | Total  
|Demand Note
		issued to US Treasury              |  | $ |  | 16,289    |  | $ |  | -           |  | $ |  | -                      |  | $ |  | -         |  | $ |  | 16,289 
|FHLB overnight
		borrowings                      |  |   |  | 13,050    |  |   |  | -           |  |   |  | -                      |  |   |  | -         |  |   |  | 13,050 
|Citigroup Repurchase Agreements                  |  |   |  | 14,000    |  |   |  | -           |  |   |  | -                      |  |   |  | -         |  |   |  | 14,000 
|FHLB Term Advances                               |  |   |  | 65,000    |  |   |  | -           |  |   |  | -                      |  |   |  | -         |  |   |  | 65,000 
|Overnight repurchase
		agreements with customers |  |   |  | 19,881    |  |   |  | -           |  |   |  | -                      |  |   |  | -         |  |   |  | 19,881 
|Junior subordinated debentures (at fair value)   |  |   |  | -         |  |   |  | -           |  |   |  | -                      |  |   |  | 22,829    |  |   |  | 22,829 
|Premise leases                                   |  |   |  | 767       |  |   |  | 1,275       |  |   |  | 1,328                  |  |   |  | 6,786     |  |   |  | 10,156 
|                                                 |  |  
|Total contractual obligations                    |  | $ |  | 128,987   |  | $ |  | 1,275       |  | $ |  | 1,328                  |  | $ |  | 29,615    |  | $ |  | 161,205
|                                                 |  |  

|                                                 |  |   |  |           |  |   |  |             |  |   |  | December 31, 2006      |  |   |  |           |  |   |  |        
|------------------------------------------------ |  | - |  | --------- |  | - |  | ----------- |  | - |  | ---------------------- |  | - |  | --------- |  | - |  | -------
|(dollars in thousands)                           |  |   |  |           |  |   |  |             |  |   |  | Payments Due by Period |  |   |  |           |  |   |  |        
|                                                 |  |   |  |           |  |   |  | After One   |  |   |  | After Three            |  |   |  | More Than |  |   |  |        
|                                                 |  |   |  |           |  |   |  | But Within  |  |   |  | But Within             |  |   |  | Five      |  |   |  |        
|Contractual Obligations                          |  |   |  | Less Than |  |   |  | Three Years |  |   |  | Five Years             |  |   |  | Years     |  |   |  |        
|                                                 |  |   |  | One Year  |  |   |  |             |  |   |  |                        |  |   |  |           |  |   |  | Total  
|Demand Note issued to US
		Treasury              |  | $ |  | 3,529     |  | $ |  | -           |  | $ |  | -                      |  | $ |  | -         |  | $ |  | 3,529  
|Citigroup Repurchase Agreements                  |  |   |  | -         |  |   |  | 14,000      |  |   |  | -                      |  |   |  | -         |  |   |  | 14,000 
|FHLB Term Advances                               |  |   |  | 30,000    |  |   |  | 20,000      |  |   |  | -                      |  |   |  | -         |  |   |  | 50,000 
|Overnight repurchase
		agreements with customers |  |   |  | 19,541    |  |   |  | -           |  |   |  | -                      |  |   |  | -         |  |   |  | 19,541 
|Junior Subordinated Debentures                   |  |   |  | -         |  |   |  | -           |  |   |  | -                      |  |   |  | 22,682    |  |   |  | 22,682 
|Premise Leases                                   |  |   |  | 765       |  |   |  | 1,291       |  |   |  | 1,304                  |  |   |  | 7,127     |  |   |  | 10,487 
|                                                 |  |  
|Total
		contractual obligations                  |  | $ |  | 53,835    |  | $ |  | 35,291      |  | $ |  | 1,304                  |  | $ |  | 29,809    |  | $ |  | 120,239
|                                                 |  |  

We are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These instruments include unfunded commitments to extend credit and standby letters of credit. The following table summarizes our commitments at the periods indicated:

|(dollars in thousands)                |  |   |  | June 30, 2007 |  |   |  | December 31,
|------------------------------------- |  | - |  | ------------- |  | - |  | ------------
|                                      |  |   |  |               |  |   |  | 2006        
|                                      |  |  
|Unfunded commitments to extend credit |  |   |  |               |  |   |  |             
|Real estate secured                   |  | $ |  | 167,107       |  | $ |  | 161,245     
|Credit card lines                     |  |   |  | 3,104         |  |   |  | 3,059       
|Other                                 |  |   |  | 61,716        |  |   |  | 70,356      
|                                      |  |  
|Total commitments to extend credit    |  | $ |  | 231,927       |  | $ |  | 234,660     
|                                      |  |  
|                                     
|Standby letters of credit             |  | $ |  | 663           |  | $ |  | 799         
|                                      |  |  

29

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|Capital
|-------

Current risk-based regulatory capital standards generally require banks and bank holding companies to maintain a minimum ratio of core or Tier I capital (consisting principally of common equity) to risk-weighted assets of at least 4%, a ratio of Tier I capital to adjusted total assets (leverage ratio) of at least 4% and a ratio of total capital (which includes Tier I capital plus certain forms of subordinated debt, a portion of the allowance for credit losses and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and certain government obligations to 100% for some types of loans, and adding the products together.

|                              |  | Regulatory Requirements   |   |  |                             |   |  |              |  
|----------------------------- |  | ------------------------- | - |  | --------------------------- | - |  | ------------ | -
|                              |  | (Greater than or equal to |   |  |                             |   |  |              |  
|                              |  | stated percentage)        |   |  | Actual at June 30, 2007     |  
|                              |  |                          
|                             
|                              |  | Adequately                |   |  |                             |   |  |              |  
|                              |  | Capitalized               |   |  | Well Capitalized            |   |  | Venture Bank |  
|                              |  |                          
|                             
|Tier 1 leverage capital ratio |  | 4.00                      | % |  | 5.00                        | % |  | 8.41         | %
|Tier 1 risk-based capital     |  | 4.00                      | % |  | 6.00                        | % |  | 9.16         | %
|Total risk-based capital      |  | 8.00                      | % |  | 10.00                       | % |  | 10.15        | %
|                              |  | Regulatory Requirements   |   |  |                             |   |  |              |  
|                              |  | (Greater than or equal to |   |  |                             |   |  |              |  
|                              |  | stated percentage)        |   |  | Actual at December 31, 2006 |  
|                              |  |                          
|                             
|                              |  | Adequately                |   |  |                             |   |  |              |  
|                              |  | Capitalized               |   |  | Well Capitalized            |   |  | Venture Bank |  
|                              |  |                          
|                             
|Tier 1 leverage capital ratio |  | 4.00                      | % |  | 5.00                        | % |  | 9.32         | %
|Tier 1 risk-based capital     |  | 4.00                      | % |  | 6.00                        | % |  | 10.15        | %
|Total risk-based capital      |  | 8.00                      | % |  | 10.00                       | % |  | 11.27        | %

We were well capitalized at both Venture Bank and the holding company at June 30, 2007 and December 31, 2006 for federal regulatory purposes.

In order to manage our capital position more efficiently, we have formed statutory trusts for the sole purpose of issuing trust preferred securities. We had junior subordinated debentures with a fair value of $22.8 million at June 30, 2007 and carrying value of $22.6 million at December 31, 2006. At June 30, 2007, 100% of the total issued amount, had interest rates that were adjustable on a quarterly basis based on a spread over LIBOR. Increases in short-term market interest rates during 2006 have resulted in increased interest expense for junior subordinated debentures. Although any additional increases in short-term market interest rates will increase the interest expense for junior subordinated debentures, we believe that the near term refinance of these obligations will serve to mitigate the impact to net interest income on a consolidated basis. In July 2007, we called $13.4 million of junior subordinated debentures originally issued by FCFG Capital Trust I in 2002. We immediately replaced these with a new issuance in the same amount by VFG Capital Trust I. Our capital did not change as a result of this transaction. We paid quarterly interest payments at the 3-month LIBOR rate plus 365 basis points on the FCFG Capital Trust I issuance. The rate on the new issuance is the 3-Month LIBOR rate plus 145 basis points, which re-prices quarterly, and will provide a significant savings. The stated maturity date of this issuance is September 2037, and the debentures may be prepaid without penalty beginning September 2012.

In April 2003, we raised $6.2 million (FCFG Capital Trust II) through a participation in a pooled junior subordinated debentures offering. The floating rate junior subordinated debentures issued by FCFG Capital Trust II accrue interest at a variable rate of interest, calculated quarterly, at LIBOR plus 325 basis points per annum on the outstanding balance. The stated maturity date of this issuance is October 2033, and the debentures may be prepaid without penalty beginning April 2008. The majority of these funds were utilized for the purchase of Harbor Bank in 2002 and to repurchase our common stock. In December 2003, Washington Commercial Bancorp raised $3.1 million (Washington Commercial Statutory Trust I) through its participation in a pooled junior subordinated debentures offering. The floating rate junior subordinated debentures issued by Washington Commercial Statutory Trust I accrue interest at a variable rate of interest, calculated quarterly at LIBOR plus 285 basis points per annum on the outstanding balance. The stated maturity date of this issuance is December 2033, and these debentures may be prepaid without penalty beginning December 2008. We acquired the Washington Commercial Bancorp junior subordinated debentures upon completion of our merger.

30

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On March 5, 2005 the Federal Reserve adopted regulations that mandate the maximum amount of junior subordinated debentures that may be included in our Tier 1 Capital calculation. Our capital ratios are calculated in
accordance with this regulation and the entire issued amount of junior subordinated debentures qualified as Tier 1 Capital for regulatory capital purposes.  We retain the ability to issue additional junior subordinated debentures and have such
securities qualify as Tier 1 Capital under the new rules.

Liquidity

Liquidity 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.  Internal sources include overnight investments in interest
bearing deposits in banks, federal funds sold and all or a portion of available for sale investment securities.

We have a formal liquidity policy, and in the opinion of management, our liquid assets are considered adequate to meet our anticipated cash flow needs for loan funding and deposit withdrawals.

At June 30, 2007, cash, deposits in banks, federal funds sold and all securities available for sale totaled $255.8 million of which $138.3 million was pledged. External sources refer to the ability to access
new deposits, new borrowings and capital and include increasing savings and demand deposits, certificates of deposit, federal funds purchased, repurchase agreements, short and long term debt, and the issuance of capital and debt securities. At June
30, 2007 short and long term borrowing lines of credit totaled $231.7 million. These credit facilities are being used regularly as a source of funds. At June 30, 2007, $78.1 million was borrowed against these lines of credit in the form of
short and long term debt.

We will manage our liquidity by changing the relative distribution of our asset portfolios, i.e., reducing investment or loan volumes, or selling or encumbering assets. Further, we will increase liquidity by soliciting
higher levels of deposit accounts through promotional activities or borrowing from our correspondent banks as well as the Federal Home Loan Bank, or other borrowing sources. At the current time, our long-term liquidity needs primarily relate to
funds required to support loan originations and commitments and deposit withdrawals. All of these needs can currently be met by cash flows from investment payments and maturities, and investment sales if the need arises. Another attractive source of
liquidity if necessary to fund our future growth could be the issuance of additional trust preferred securities.

Our primary investing activities are the origination of real estate, commercial and consumer loans and purchase of securities. Increases in gross loans including loans held for sale for the six months ended June 30,
2007 and for the year ended December 31, 2006 were $30.9 million and $113.8 million. Investment securities were $236.6 million at June 30, 2007 and $162.4 million at December 31, 2006. At June 30, 2007 we had outstanding loan
commitments of $231.9 million and outstanding letters of credit of $0.7 million. We anticipate that we will have sufficient funds available to meet current loan commitments.

Net cash provided by financing activities has been impacted significantly by increases in deposit levels. During the six months ended June 30, 2007 and for the year ended December 31, 2006 deposits increased by
$67.2 million and $257.2 million.

Management believes that the Company's liquidity position at June 30, 2007 was adequate to fund ongoing operations.

Item 3Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily
from interest rate risk inherent in our lending, investment, and deposit taking activities. To that end, management actively monitors and manages our interest rate risk exposure. We do not have any market risk sensitive instruments entered into for
trading purposes. We manage our interest rate sensitivity by managing the re-pricing opportunities on our earning assets and those on our funding liabilities on an overall bank basis.

Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within our guidelines
of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits, and managing the deployment of our securities, are used to reduce mismatches in interest rate re-pricing opportunities of portfolio
assets and their funding sources.

Interest Rate Risk.Interest rate risk is the current and prospective risk to earnings or capital arising from movements in interest rates. Changes in interest rates affect
income earned from assets and the cost of funding those assets. We structure our balance sheet in such a manner that earnings will be relatively stable regardless of current or prospective movements in interest rates. We monitor interest rate risk
by analyzing the potential impact on the economic value of equity and net interest income from potential changes in interest rates, and consider the impact of alternative strategies or changes in balance sheet structure.

31

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Our exposure to interest rate risk is reviewed on at least a quarterly basis by our Board Asset Liability Committee, or Board ALCO, which is comprised of three independent directors. Our Chief Financial Officer works closely with the Board ALCO Committee. Our Chief Financial Officer develops and implements policies and procedures that translate the Boards goals, objectives, and risk limits, and chairs the Management ALCO committee, which meets to assist in formulating and implementing operating strategies to execute the Board ALCO policies. On a day-to-day basis, the monitoring of interest rate risk and management of our balance sheet to stay within Board policy limits is the responsibility of our Chief Financial Officer and Treasury staff. The Management ALCO committee members represent various areas of our operations and participate in product creation, product pricing, and implementation of asset/liability strategies.

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. Interest Rate Gap Analysis is limited in its usefulness as it does not reflect the changes in the values of the assets held and what they could be sold for at a gain or loss at various repricing terms depending on the changes to market rates. At June 30, 2007, 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 by balance sheet management since December 31, 2006. The Company continues to remain neutral to slightly liability sensitive. For additional information, refer to the Companys Annual Report on Form 10-K for the year ended December 31, 2006. Interest rate sensitivity is measured as the difference between the volume of assets and liabilities, known as an interest sensitivity gap, at a point in time that are subject to repricing at various time horizons. The table below sets forth the interest sensitivity gaps for assets and liabilities repricing within one year, between one to five years and after five years.



|Interest Rate Gap AnalysisJune 30, 2007
|---------------------------------------

|                                          |  |   |  |               |   |  |   |  |          |    |  |   |  | After one  |    |  |   |  |            |   |  |   |  |           |  
|----------------------------------------- |  | - |  | ------------- | - |  | - |  | -------- | -- |  | - |  | ---------- | -- |  | - |  | ---------- | - |  | - |  | --------- | -
|                                          |  |   |  | Balance Sheet |   |  |   |  | Within   |    |  |   |  | but within |    |  |   |  | After five |   |  |   |  |           |  
|                                          |  |   |  | 06/30/07      |   |  |   |  | One Year |    |  |   |  | five years |    |  |   |  | years      |   |  |   |  | Total     |  
|                                          |  |  
|Gross loans                               |  | $ |  | 747,043       |   |  | $ |  | 485,900  |    |  | $ |  | 217,474    |    |  | $ |  | 43,669     |   |  | $ |  | 747,043   |  
|Securities:                               |  |   |  |               |   |  |   |  |          |    |  |   |  |            |    |  |   |  |            |   |  |   |  |           |  
|Available for sale                        |  |   |  | 227,242       |   |  |   |  | 20,851   |    |  |   |  | 802        |    |  |   |  | 205,589    |   |  |   |  | 227,242   |  
|Held to maturity                          |  |   |  | 10,000        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | 10,000     |   |  |   |  | 10,000    |  
|Fed Funds Sold                            |  |   |  | - -           |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | - -       |  
|Interest bearing deposits with banks      |  |   |  | 962           |   |  |   |  | 962      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 962       |  
|                                          |  |  
|Total earning assets                      |  | $ |  | 985,247       |   |  | $ |  | 507,713  |    |  | $ |  | 218,276    |    |  | $ |  | 259,258    |   |  | $ |  | 985,247   |  
|Other Assets                              |  |   |  |               |   |  |   |  |          |    |  |   |  |            |    |  |   |  |            |   |  |   |  |           |  
|Cash and due from Banks                   |  |   |  | 18,373        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 18,373    |  
|Bank premises and equipment               |  |   |  | 31,176        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 31,176    |  
|Other assets                              |  |   |  | 58,303        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 58,303    |  
|Allowance for credit losses               |  |   |  | (9,067        | ) |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | (9,067    | )
|                                          |  |  
|Total Assets                              |  | $ |  | 1,084,032     |   |  | $ |  | 507,713  |    |  | $ |  | 218,276    |    |  | $ |  | 259,117    |   |  | $ |  | 1,084,032 |  
|Deposits:                                 |  |   |  |               |   |  |   |  |          |    |  |   |  |            |    |  |   |  |            |   |  |   |  |           |  
|Savings, NOW, MMDA                        |  | $ |  | 356,331       |   |  | $ |  | 356,331  |    |  | $ |  | - -        |    |  | $ |  | - -        |   |  | $ |  | 356,331   |  
|Time deposits                             |  |   |  | 379,359       |   |  |   |  | 330,505  |    |  |   |  | 48,854     |    |  |   |  | - -        |   |  |   |  | 379,359   |  
|Fed Funds Purchased                       |  |   |  | - -           |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | - -       |  
|Repurchase Agreements                     |  |   |  | 33,881        |   |  |   |  | 33,881   |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 33,881    |  
|Short term borrowings                     |  |   |  | 94,339        |   |  |   |  | 94,339   |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 94,339    |  
|Long term debt                            |  |   |  | 22,829        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | 22,829     |   |  |   |  | 22,829    |  
|                                          |  |  
|Total interest bearing liabilities        |  | $ |  | 886,739       |   |  | $ |  | 815,056  |    |  | $ |  | 48,854     |    |  | $ |  | 22,829     |   |  | $ |  | 886,739   |  
|Other Liabilities                         |  |   |  |               |   |  |   |  |          |    |  |   |  |            |    |  |   |  |            |   |  |   |  |           |  
|Non-interest bearing deposits             |  |   |  | 102,815       |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 102,815   |  
|Other liabilities                         |  |   |  | 9,713         |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 9,713     |  
|Shareholders equity                       |  |   |  | 84,765        |   |  |   |  | - -      |    |  |   |  | - -        |    |  |   |  | - -        |   |  |   |  | 84,765    |  
|                                          |  |  
|Total liabilities and shareholders equity |  | $ |  | 1,084,032     |   |  | $ |  | 815,056  |    |  | $ |  | 48,854     |    |  | $ |  | 22,829     |   |  | $ |  | 1,084,032 |  
|Net interest rate sensitivity gap         |  | $ |  | 98,508        |   |  | $ |  | (307,343 | )  |  | $ |  | 169,422    |    |  | $ |  | 236,429    |   |  | $ |  | 98,508    |  
|Cumulative Interest Rate Sensitivity Gap  |  |   |  |               |   |  | $ |  | (307,343 | )  |  | $ |  | (137,921   | )  |  | $ |  | 98,508     |   |  |   |  |           |  
|Cumulative Gap as a percent               |  |   |  |               |   |  |   |  | (31.20   | )% |  |   |  | (14.00     | )% |  |   |  | 9.98       | % |  |   |  |           |  

32

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Management considers any asset or liability that matures, or is subject to repricing within one year to be interest sensitive, although continual monitoring is performed for other time intervals as well. The difference between interest sensitive assets and liabilities for a defined period of time is known as the interest sensitivity gap, and may be either positive or negative. If positive, more assets reprice before liabilities. If negative, the reverse is true. A static gap analysis as presented below provides a general measure of interest rate risk but does not address complexities such as prepayment risk, interest rate floors and ceilings imposed on financial instruments, interest rate dynamics and customers' response to interest rate changes. Our static interest sensitivity gap is negative within one year. However, this assumes that general market interest rate changes affect the repricing of assets and liabilities in equal magnitudes.

At June 30, 2007, we had $507.7 million in assets and $815.1 million in liabilities re-pricing within one year. This means that $307.3 million more of our interest rate sensitive liabilities than our interest rate sensitive assets will change to the then current rate (changes occur due to the instruments being at a variable rate or because the maturity of the instrument requires its replacement at the then current rate). The ratio of interest-earning assets to interest-bearing liabilities maturing or re-pricing within one year at June 30, 2007 is 31.2% . This analysis indicates that at June 30, 2007, if interest rates were to increase, the gap would result in a lower net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its supporting liability can vary significantly while the timing of re-pricing of both the asset and its supporting liability can remain the same, thus impacting net interest income. This characteristic is referred to as basis risk, and generally relates to the re-pricing characteristics of short-term funding sources such as certificates of deposit.

Gap analysis has certain limitations. Measuring the volume of re-pricing or maturing assets and liabilities does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis does not account for rate caps on products; dynamic changes such as increasing prepayment speeds as interest rates decrease, basis risk, embedded options or the benefit of no-rate funding sources. The relation between product rate re-pricing and market rate changes (basis risk) is not the same for all products. The majority of interest-earning assets generally re-price along with a movement in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in market rates. Products categorized as non-rate sensitive, such as our non-interest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Management uses income simulation, net interest income rate shocks and market value of portfolio equity as its primary interest rate risk management tools.

Our market risk is impacted by changes in interest rates. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of our business.



|Item 4Controls and ProceduresEvaluation of Disclosure Controls and Procedures
|-----------------------------------------------------------------------------

The Companys disclosure controls and procedures are designed to ensure that information VFG must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act), are recorded, processed, summarized, and reported on a timely basis. The Company carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that VFGs disclosure controls and procedures are effective in bringing to their attention, on a timely basis, information required to be disclosed by VFG reports that it files or submits under the Exchange Act. Also, since the date of their evaluation, there have not been any significant changes in VFG s internal controls or in other factors that could significantly affect those controls, including any corrective actions with regard to significant deficiencies and material weaknesses.



|Changes in Internal Controls
|----------------------------

In the second quarter ended June 30, 2007, the Company did not make any significant change in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls. The Company continued to implement suggestions from its internal auditor and independent auditors on ways to strengthen existing controls.

33

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Venture Financial Group, Inc.

PART II - OTHER INFORMATION**Item 1 Legal Proceedings**

Due to the nature of banking, we are 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 1A Risk Factors

There are no material changes to the Companys risk factors from what was previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2006.

|Item 2                          |  | Unregistered Sales of Equity Securities and Use of Proceeds |  |  |  |                        |  |  
|------------------------------- |  | ----------------------------------------------------------- |  |  |  | ---------------------- |  | -
|                               
|(c)                             |  | Issuer Purchases of Equity Securities                       |  |  |  |                        |  |  
|                               
|                                |  |                                                             |  |  |  |                        |  |  
|                                |  |                                                             |  |  |  |                        |  |  
|                                |  |                                                             |  |  |  |                        |  |  
|                                |  |                                                             |  |  |  | Total number of shares |  |  
|                                |  | Period                                                      |  |  |  | purchased              |  |  
|                               
|                               
|Month #1                        |  |                                                             |  |  |  |                        |  |  
|April 1, 2007 through April 30, |  |                                                             |  |  |  |                        |  |  
|2007                            |  |                                                             |  |  |  | 15,695                 |  | $
|                               
|Month #2                        |  |                                                             |  |  |  |                        |  |  
|May 1, 2007 through May 31,     |  |                                                             |  |  |  |                        |  |  
|2007                            |  |                                                             |  |  |  | 2,250                  |  | $
|                               
|Month #3                        |  |                                                             |  |  |  |                        |  |  
|June 1, 2007 through June       |  |                                                             |  |  |  |                        |  |  
|30, 2007                        |  |                                                             |  |  |  | - -                    |  |  
|                               
|                               
|                               
|Total                           |  |                                                             |  |  |  | 17,945                 |  | $

|Date repurchase authorized                                                    |  | Date publicly announced |  | # of shares authorized |  | Expiration Date  
|----------------------------------------------------------------------------- |  | ----------------------- |  | ---------------------- |  | -----------------
|                                                                             
|February 19, 2003                                                             |  | March 5, 2003           |  | 131,370                |  | August 19, 2004  
|September 18, 2003                                                            |  | September 24, 2003      |  | 56,130                 |  | December 18, 2004
|October 15, 2003                                                              |  | October 17, 2003        |  | 225,000                |  | April 15, 2005   
|June 16, 2004                                                                 |  | June 22, 2004           |  | 200,000                |  | December 31, 2005
|November 15, 2005                                                             |  | February 27, 2006       |  | 200,000                |  | May 15, 2007     
|                                                                             
|Total                                                                         |  |                         |  | 812,500                |  |                  
|                                                                             
|Share counts reflect a three-for-two stock dividend declared on May 16, 2004. |  |                        
|                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                   |  |                        

(a)      The Company held its annual meeting of shareholders on May 3, 2007.

(b)      At the annual meeting three directors were elected at the meeting-- Keith W. Brewe, A. Richard Panowicz, and Larry J. Schorno. The following directors terms of office continued following the meeting: Jewell C. Manspeaker, Patrick L. Martin, Ken F. Parsons, Sr., James F. Arneson, Lowell (Sonny) E. Bridges and Linda E. Buckner.

(c)      The only matter voted upon at the annual meeting was the election of three directors to three year terms. The following table indicates the votes for and votes withheld for each of the three nominees:

| |  |                     |  | VOTES FOR |  | VOTES WITHHELD
| |  | ------------------- |  | --------- |  | --------------
| |  | Keith W. Brewe      |  | 5,648,532 |  | 129,571       
| |  | A. Richard Panowicz |  | 5,651,753 |  | 126,350       
| |  | Larry J. Schorno    |  | 5,666,195 |  | 111,908       

34

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Item 6 Exhibits

The following is a list of exhibits to this Form 10-Q and constitutes the EXHIBIT INDEX:

|3.1  | Second Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2005; SEC Accession No. 0000896595-05-000206, filed May 16, 2005,  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|3.2  | Amended Bylaws (incorporated by reference to Exhibit 3.2 of the Registrants Current Report on Form 8-K filed June 25, 2007, SEC Accession No. 0000896595-07-000295)                                                                                 
|    
|10.1 | Third Amendment to Venture Financial Group, Inc. Employment Agreement with Ken F. Parsons, Sr. (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed June 25, 2007, SEC Accession No. 0000896595-07-000295)
|    
|31.1 | Certifications of the Chief Executive Officer.                                                                                                                                                                                                       
|    
|31.2 | Certifications of the Chief Financial Officer.                                                                                                                                                                                                       
|    
|32   | Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of Sarbanes-Oxley Act of 2002.                                                                                                                                
|    

35

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| | 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.
|--------------------- |  | -----------------------------
|                      |  |                              
|Date: August 14, 2007 |  | By:                          
|                      |  |                              
|                      |  |                              
|                      |  |                              
|                     
|                      |  | By:                          
|                      |  |                              
|                      |  |                              

36

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