UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

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

For the Fiscal Year endedDecember 31, 2004

[ ] 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 |  | (IRS Employer Identification Number)
|incorporation or organization)  |  |                                     

Principal Executive Offices
721 College St. S.E., P.O. Box 3800, Lacey, WA 98509

Registrant's telephone number, including area code (360) 459-1100

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 5(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. 
Yes X No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K [    ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2).

Yes   NoX

There is no active trading market for the Registrant's voting common equity. The Registrant's voting common stock is not listed on any exchange or quoted on Nasdaq. The aggregate market value of the voting common equity
held by non-affiliates as of June 30, 2004 (the last business day of the most recent second quarter), was $66,268,499 (based on the last sale of $15.50 per share on June 30, 2004).

The number of shares of no par value Common Stock outstanding as of March 24, 2005, was 6,520,714.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement (the "Proxy Statement") for use in connection with the Annual Meeting of Shareholders to be held on May 5, 2005, are incorporated by reference into Part III of this Annual Report on Form
10-K.

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|                                           |  | Venture Financial Group, Inc.                                         |  |     
|------------------------------------------ |  | --------------------------------------------------------------------- |  | ----
|                                           |  | FORM 10-K                                                             |  |     
|                                           |  | FOR THE YEAR ENDED DECEMBER 31, 2004                                  |  |     
|                                           |  | TABLE OF CONTENTS                                                     |  |     
|                                          
|                                           |  | PART I                                                                |  |     
|                                          
|ITEM 1.                                    |  | BUSINESS                                                              |  | Page
|General                                    |  | 3                                                                    
|Competition                                |  | 4                                                                    
|Market Area                                |  | 5                                                                    
|Employees                                  |  | 5                                                                    
|Supervision and Regulation                 |  | 5                                                                    
|                                          
|ITEM 2.                                    |  | PROPERTIES                                                            |  | 10  
|                                          
|ITEM 3.                                    |  | LEGAL PROCEEDINGS                                                     |  | 10  
|                                          
|ITEM 4.                                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   |  | 10  
|                                          
|                                           |  | PART II                                                               |  |     
|                                          
|ITEM 5.                                    |  | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |  | 11  
|                                          
|ITEM 6.                                    |  | SELECTED FINANCIAL DATA                                               |  | 13  
|                                          
|ITEM 7.                                    |  | MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION             |  |     
|                                           |  | AND RESULTS OF OPERATIONS                                             |  | 13  
|Forward-Looking Information                |  | 13                                                                   
|Critical Accounting Policies and Estimates |  | 13                                                                   
|Performance Overview                       |  | 14                                                                   
|Results of Operations                      |  | 14                                                                   
|Liquidity and Financial Condition          |  | 17                                                                   
|Capital Resources                          |  | 23                                                                   
|                                          
|ITEM 7A.                                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            |  | 25  
|                                          
|ITEM 8.                                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                           |  | 26  
|Reports of Independent Auditors            |  | 26                                                                   
|Financial Statements                       |  | 28                                                                   
|Notes to Financial Statements              |  | 35                                                                   
|                                          
|ITEM 9.                                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING           |  |     
|                                           |  | AND FINANCIAL DISCLOSURE                                              |  | 68  
|                                          
|ITEM 9A.                                   |  | CONTROLS AND PROCEDURES                                               |  | 68  
|                                          
|ITEM 9B.                                   |  | OTHER INFORMATION                                                     |  | 68  
|                                           |  | PART III                                                              |  |     
|                                          
|ITEM 10.                                   |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH   |  |     
|                                           |  | SECTION 16(a) OF THE EXCHANGE ACT                                     |  | 68  
|                                          
|ITEM 11.                                   |  | EXECUTIVE COMPENSATION                                                |  | 68  
|                                          
|ITEM 12.                                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND   |  |     
|                                           |  | RELATED STOCKHOLDER MATTERS                                           |  | 68  
|                                          
|ITEM 13.                                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                        |  | 69  
|                                          
|ITEM 14                                    |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                |  | 69  
|                                          
|                                           |  | PART IV                                                               |  |     
|                                          
|ITEM 15.                                   |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K      |  | 69  
|Signatures                                 |  | 70                                                                   
|Exhibit Index                              |  | 71                                                                   

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PART I

|ITEM 1 - BUSINESS
|-----------------

General

Venture Financial Group, Inc. ("VFG" or "the Company"), formerly known as First Community Financial Group, was incorporated under the laws of the State of Washington in November 1983 as First Community Bancorp, Inc. and is
a bank holding company. The Company changed its name to First Community Financial Group, Inc. in July 1992 and again in May 2003 to Venture Financial Group, Inc.  In 1984, pursuant to a plan of reorganization, VFG acquired the stock of First
Community Bank of Washington, and in May 2003 the bank changed its name to Venture Bank ("VB" or "Bank"). The Bank, organized in 1979, is a Washington state-chartered banking corporation. The principal offices of VFG and Venture Bank are located in
Lacey, Washington. References to "we", "us", or "our" refer to VFG.

The Company expanded solely through internal growth until 1993 when it began a series of acquisitions to more rapidly expand its market area and to achieve greater economies of scale.

| |  |  | Acquisition                               |  | Year Completed
| |  |  | ----------------------------------------- |  | --------------
| |  |  |                                          
| |  |  | Citizens First Bank                       |  | 1993          
| |  |  | Northwest Community Bank                  |  | 1995          
| |  |  | Prairie Security Bank                     |  | 1997          
| |  |  | Wells Fargo Bank - Four Financial Centers |  | 1997          
| |  |  | Harbor Bank, N.A.                         |  | 2002          

On October 1, 2002, the Company completed the acquisition of Harbor Bank, National Association ("Harbor Bank") pursuant to an Agreement and Plan of Merger under the terms of which Harbor Bank merged with and into the Bank.
Harbor Bank shareholders received $10.75 in cash for each share of Harbor Bank common stock outstanding as of the effective date of the merger. The total estimated value of the acquisition was approximately $7 million. The acquisition was
financed out of existing capital, including the proceeds of a $13 million offering of Junior Subordinated Debentures completed in July 2002. For additional information regarding Junior Subordinated Debentures, see "Item 7-Management's Discussion
& Analysis of Financial Condition and Results of Operations - Liquidity and Financial Condition." The Harbor Bank acquisition added two financial centers in Gig Harbor, Washington.

In addition to growth by acquisition, during the past five years we have opened financial centers in the following areas:

- Hawks Prairie area of Lacey (2000)
- Meridian-Puyallup (2001)
- West Olympia (2001)
- Downtown Tacoma (2001)
- Kent (2004)

In September 2003, the Bank consolidated two Puyallup financial centers into one financial center located in the South Hill area.

In April 2004, the Bank acquired Washington Asset Management Tacoma, LLC, a financial services and wealth management company. The acquired firm was consolidated with the Bank's existing Investment Services Department and
Venture Wealth Management, a wholly owned subsidiary of Venture Bank, was formed. Venture Wealth Management is headquartered in Downtown Tacoma.

In October 2004, the Bank sold seven of its financial centers. These financial centers were located in Grays Harbor (Aberdeen, Elma, Montesano, and Hoquiam), Lewis (Toledo, Winlock) and Thurston (Panorama City) Counties. We
sold $88 million in deposits and $1.8 million in real estate, furniture and fixtures, and recorded a $5.2 million gain on the sale of deposits, and a $200,000 gain on the sale of real estate, furniture and fixtures.

In October 2004, the bank agreed to lease land in Lakewood for a financial center scheduled to open in the third quarter 2005.

In December 2004, the Bank opened its first South King County financial center located in the Kent East Hill area.

The Bank primarily focuses on business and commercial real estate lending, which represent approximately 90% of the Bank's loan profit. The Bank provides a full range of banking services including:

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- savings and checking accounts,
- time deposits,
- consumer installment loans,
- mortgage and commercial lending,
- safe deposit facilities, and
- electronic banking via ATMs, Internet and telephone.

We offer a broad range of investment services to our consumer and commercial customers, including retirement and estate planning, profit sharing plans and the sale of non-deposit investment products, through Venture Wealth
Management.

|Small Loan Segment
|------------------

In April 2001, the Bank entered into a Marketing and Servicing Agreement with Advance America. Advance America is a Delaware company formed in 1997 and is comprised of a group of "parent-subsidiary" companies whose function
is to develop, own, acquire and manage cash advance centers throughout the United States. Under this agreement, the Bank offers short-term consumer loans (commonly known as "payday loans") to customers in the state of Arkansas. Payday loans are
small dollar ($700 or less), short-term unsecured loans that borrowers promise to repay out of their next paycheck. The Bank charges a fixed dollar fee, rather than simple interest. In a typical payday loan transaction, the borrower provides the
Bank with a post-dated check for the loan amount plus the fee. The Bank agrees to defer deposit of the check until the check date, usually two weeks or less. Advance America acts as the Bank's agent in marketing and collecting these loans.

In November 2000, the Bank entered into a Marketing and Servicing Agreement with Advance America to offer short-term loans to customers in the state of Alabama. In 2003 the Alabama legislature passed the Deferred
Presentment Services Act.  The Act created a regulatory framework within which licensed, non-bank lenders could originate small loans in Alabama. Due to these changes in Alabama law, the Bank and Advance America terminated the original Marketing and
Servicing Agreement effective July 11, 2003. The agreement was due to expire on October 31, 2003, and pursuant to the terms of the early termination, Advance America agreed to remit to the Bank a portion of the fees earned for the period from July
11, 2003 through October 31, 2003. We negotiated the termination payments to keep the Bank financially whole as if the Alabama agreement had continued through the original termination date.

The Company has taken steps to forestall any negative effect that may have occurred from these developments, including expansion of core banking operations. Small loan income lost in 2004 from discontinued operation in
Alabama was offset with increased investment and loan interest income.

The agreement with Advance America for Arkansas is immediately terminable if any bank regulatory agency with jurisdiction over the Bank or the Company determines that the Bank's performance of the agreements is unlawful or
an unsafe or unsound practice. On March 2, 2005, the Federal Deposit Insurance Corporation ("FDIC"),our primary regulator, issued revised payday lending guidelines.
Thefull text of such guidelines is available on the FDIC website athttp://www.fdic.gov/. Payday loans
are funded by the Bank in the State of Arkansas for amounts between $100 and $700 and are short-term (30 days or less), unsecured loans, generally with high interest rates, that borrowers promise to repay out of their next paycheck. We have
offered payday loans in Arkansas since April 2001 and we will be affected by the revised guidelines. Financial highlights on this segment of the Company are found in Management's Discussion & Analysis of Financial Condition and Results of
Operations andNote 21-Business Segment Informationto the Company's consolidated financial statements. The federal bank regulators' perspective on payday lending is generally
described below in the section titled, "Business - Supervision and Regulation-Federal and State Regulation of Venture Bank".

|Competition
|-----------

Commercial banking in the state of Washington is highly competitive with respect to providing banking services, including making loans and attracting deposits. The Bank competes with other commercial banks, as well as with
savings and loan associations, savings banks, credit unions, mortgage companies, investment banks, insurance companies, securities brokerages, and other financial institutions. Banking in Washington is significantly affected by several large banking
institutions, including U.S. Bank, Wells Fargo Bank, Bank of America, Key Bank, and Washington Mutual Bank, which together account for a majority of the total commercial and savings bank deposits in Washington. These competitors have significantly
greater financial resources and offer a greater number of financial center locations (with statewide financial center networks), higher lending limits, and a variety of services not offered by the Bank. The Bank has positioned itself successfully as
a local alternative to banking conglomerates that may be perceived by customers or potential customers, as impersonal, out-of-touch with the community, or simply not interested in providing banking services to some of the Bank's target customers.
Over the past few years, numerous "community" banks have been formed or moved into the Bank's market areas and have developed

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a similar focus. This growing number of similar banks and an increased focus by larger institutions on the Bank's market segments in response to declining market perception or market share has led to intensified
competition.

The adoption of the Gramm-Leach-Bliley Act of 1999 intensified competition in the banking industry. The Act eliminated many of the barriers to affiliation among providers of various types of financial services and permits
business combinations among banks, insurance companies, securities and brokerage firms, and other financial service providers. This has led to increased competition in both the market for providing financial services and in the market for
acquisitions in which the Bank also participates. For additional information, see "Business - Supervision and Regulation - Financial Services Modernization." In general, the financial services industry has experienced widespread consolidation over
the last decade. It is anticipated that consolidation among financial institutions in the Company's market area will continue. Other financial institutions, many with substantially greater resources, compete in the acquisition market against the
Bank. Some of these institutions, have greater access to capital markets, larger cash reserves and a more liquid currency. Additionally, the rapid adoption of financial services through the Internet has reduced the barrier to entry by financial
services providers physically located outside the Bank's market area. Although the Bank has been able to compete effectively in the financial services markets to date, there can be no assurance that it will be able to continue to do so in the
future.

The Bank's small loan division offers short-term consumer loans in Arkansas pursuant to an agreement with Advance America.  The Bank believes that the principal competitive factors in the check-cashing industry are
location, customer service, fees, convenience, and range of services offered. The Bank faces intense competition and believes that the short-term consumer loan market is becoming more competitive as the industry matures and consolidates. Some of the
Bank's competitors have larger and more established customer bases and substantially greater financial, marketing, and other resources. There is no assurance that the Bank's small loan division will be able to compete successfully with its
competitors.

|Market Area
|-----------

The Bank engages in general banking business through 14 offices in Thurston, Lewis, Pierce and King Counties, Washington.  All four counties experienced a stable economic environment in 2004. Thurston County's growth,
although minimal, has been spurred by increased government employment and several larger companies moving into the County.

Lewis County has experienced flat growth and derives the majority of its economic livelihood from Thurston County and more specifically the government jobs centered in Olympia.

Pierce County is well diversified with the principal industries being shipping (via the Port of Tacoma), military employment at Fort Lewis and McCord Air Force Base, and forest products.

King County is very well diversified with a strong industrial and service industry base, the Port of Seattle, Seattle-Tacoma International airport, and as the headquarters for Costco, Microsoft, and Starbucks.

|Employees
|---------

VFG and its subsidiaries employed a total of 205 employees, consisting of 175 full time and 30 part time employees at December 31, 2004. A number of benefit programs are available to eligible employees, including group
medical plans, paid sick leave, paid vacation, group life insurance, a 401(k) plan, deferred compensation plans, and a stock incentive plan. Such employees are not represented by a union organization or other collective bargaining group, and
management considers relations with employees to be very good.

|Supervision and Regulation
|--------------------------

The Bank is extensively regulated under federal and state law. These laws and regulations are primarily intended to protect depositors, not shareholders. The discussion below describes and summarizes applicable statutes and
regulations and is qualified in its entirety by reference to the particular statute or regulation. Changes in applicable laws or regulations may have a material effect on the Bank's business and prospects. The Bank's operations may also be affected
by changes in the policies of banking and other government regulators. The nature or extent of the possible future effects on business and earnings of changes in fiscal or monetary policies, or new federal or state laws and regulations cannot
accurately be predicted.

|Significant Changes In Banking Laws And Regulations
|---------------------------------------------------

Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the "Act") to address corporate and accounting fraud. The Act:

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- requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission (the "SEC");
- imposes new disclosure requirements regarding internal controls, off-balance-sheet transactions, and pro forma (non- GAAP) disclosures;
- accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; and
- requires additional disclosures regarding codes of ethics for senior financial officers, shareholder communication procedures, director nomination procedures, and audit
committees.

The Act also requires the SEC to regularly and systematically review corporate filings. To deter wrongdoing, the Act:

- subjects bonuses issued to top executives to disgorgement if a restatement of a company's financial statements was due to corporate misconduct;
- prohibits an officer or director from misleading or coercing an auditor;
- prohibits insider trades during pension fund "blackout periods";
- imposes new criminal penalties for fraud and other wrongful acts; and
- extends the period during which certain securities fraud lawsuits can be brought against a company or its officers.

As an SEC reporting company, we are subject to the Act's requirements. We are in the process of complying with the Act and related rules and regulations issued by the SEC. At the present time the Company anticipates that it
will incur additional expense as a result of the Act, but it is not expected that such compliance will have a material impact on business.

|Federal Bank Holding Company Regulation
|---------------------------------------

General. The Company is a bank holding company as defined in the Bank Holding Company Act of 1956, as amended, and is therefore subject to regulation, supervision and examination by
the Federal Reserve. In general, the Bank Holding Company Act limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to banking. The Company must also file reports and provide
additional information to the Federal Reserve.

Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain
expanded activities deemed financial in nature, such as securities brokerage and insurance underwriting. We have not applied to become a financial holding company.

Holding Company Bank Ownership. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before merging with another
institution or acquiring ownership or control of more than 5% of the voting shares or substantially all of the assets of another bank or bank holding company.

Holding Company Control of Nonbanks. With some exceptions, the Bank Holding Company Act also prohibits a bank holding company from acquiring or retaining direct or indirect ownership
or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or providing services for
its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of
managing or controlling banks.

Transactions with Affiliates. Subsidiary banks of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company
or its subsidiaries, on investments in their securities, and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company's ability to obtain funds from the Bank for its cash needs,
including funds for payment of dividends, interest and operational expenses.

Tie-in Arrangements. The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of
services. For example, with certain exceptions, neither the Company nor its subsidiaries may condition an extension of credit to a customer on either a requirement that the customer obtain additional services provided by the Company or an agreement
by the customer to refrain from obtaining services from a competitor.

Support of Subsidiary Banks. Under Federal Reserve policy, the Company is expected to act as a source of financial and managerial strength to the Bank. This means that the Company is
required to commit, as necessary, resources to support the Bank. Any capital loans a bank holding company makes to its subsidiary banks are subordinate to deposits and to certain other indebtedness of those subsidiary banks.

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|Federal and State Regulation of Venture Bank
|--------------------------------------------

General. The Bank is a Washington chartered commercial bank with deposits insured by the FDIC. As a result, the Bank is subject to supervision and regulation by the Washington
Department of Financial Institutions, Division of Banks and the FDIC. These agencies have the authority to prohibit banks from engaging in what they believe constitute unsafe or unsound banking practices.

Lending Limits. Washington State banking law generally limits the amount of funds that a bank may lend to a single borrower to 20% of the bank's capital and surplus.

Community Reinvestment. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their jurisdiction, the FDIC evaluate the record
of the financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of the institution. These factors are also considered in evaluating
mergers, acquisitions and applications to open a financial center or facility.

Insider Credit Transactions. Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interests of such persons. Extensions of credit must be made on substantially the same terms as comparable transactions with other customers and must not involve more than the normal risk of repayment or present other
unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to insiders. A violation of these restrictions may result in the assessment of substantial civil monetary penalties, the imposition of a cease and
desist order, and other regulatory sanctions.

Regulation of Management. Federal law sets forth circumstances under which officers or directors of a bank may be removed by the institution's federal supervisory agency. Federal law
also prohibits management personnel of a bank from serving as a director or in a management position of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.

Safety and Soundness Standards. Federal law imposes upon banks certain non-capital safety and soundness standards. These standards cover, among other things, internal controls,
information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation and benefits. Additional standards apply to asset quality, earnings and stock valuation. An institution that
fails to meet these standards must develop a plan acceptable to its regulators, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory
sanctions.

Payday Lending. In July 2003 the FDIC issued Guidelines for state chartered, nonmember banks that participate in small loan programs with third party contractors. The Guidelines cover
safety and soundness considerations, including loan concentrations, capital adequacy, allowance for loan and lease losses (ALLL), and loan classification guidelines. Compliance considerations, such as Community Reinvestment Act performance, Truth in
Lending, and consumer privacy are also covered. The Guidelines allow examiners wide discretion to review and, where necessary, criticize a bank's loan program based upon these considerations.

The Office of the Comptroller of the Currency (OCC), the primary federal regulator of national banks, the Office of Thrift Supervision (OTS), the primary regulator of federal savings banks and the Federal Reserve Bank
(FRB), the primary regulator of federal reserve member banks, have increased their scrutiny of banks involved in payday lending. Published regulatory guidance indicates that regulators are concerned about potential risks to banks, including
strategic, reputation, compliance, transaction, and credit risks. Management is expected to measure, monitor and establish controls to manage these risks and to avoid taking risks that threaten the safety and soundness of the Bank. The OCC, OTS, and
FRB, will enforce these expectations through the examination process and have the power to order banks under their jurisdiction to discontinue their participation in payday lending. The OCC and FRB have ordered banks they regulate to discontinue
their payday lending operations. On March 2, 2005, the Federal Deposit Insurance Corporation ("FDIC"), our primary regulator, issued revised payday lending guidelines. The full text of such guidelines is available on the FDIC website athttp://www.fdic.gov/. Payday loans are funded by the Bank in the State of Arkansas for amounts between $100 and $700 and are short-term (30 days or less), unsecured
loans, generally with high interest rates, that borrowers promise to repay out of their next paycheck. We have offered payday loans in Arkansas since April 2001 and we will be affected by the revised guidelines.

Management believes that the Bank has taken appropriate steps to manage and control the risks of its payday lending activities consistent with currently applicable regulatory guidance. However, there can be no assurance
that the Bank's regulators would not seek to restrict or terminate the Bank's participation in payday lending.

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|Interstate Banking and Branching
|--------------------------------

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act) permits nationwide interstate banking and branching under certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal restrictions on interstate banking. Currently, bank holding companies may purchase banks in any state, and states may not prohibit these purchases. Additionally, banks are permitted to merge with banks in other states,
as long as the home state of neither merging bank has opted out under the legislation. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income
area.

FDIC regulations prohibit banks from using their interstate branches primarily for deposit production. The FDIC has implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

Washington enacted "opting in" legislation in accordance with the Interstate Act, allowing banks to engage in interstate merger transactions, subject to certain "aging" requirements. Washington restricts an out-of-state
bank from opening de novo branches. However, once an out-of-state bank has acquired a bank within the state, either through merger or acquisition of all or substantially all of the bank's assets, the out-of-state bank may open additional branches
within the state. We do not have the authority to open de novo branches in any state other than Washington.

|Deposit Insurance
|-----------------

The Bank's deposits are currently insured to a maximum of $100,000 per depositor through the Bank Insurance Fund administered by the FDIC. The Bank is required to pay deposit insurance premiums, which are assessed
semiannually and paid quarterly. The premium amount is based upon a risk classification system established by the FDIC. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower
levels of capital or a higher degree of supervisory concern. The Bank qualifies for the lowest premium level, and currently pays only the statutory minimum rate.

The FDIC is also empowered to make special assessments on insured depository institutions in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.

|Dividends
|---------

Along with the issuance of Junior Subordinated Debentures, dividends paid by the Bank provide substantially all of the Company's cash flow. Under Washington law, and the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA), the Bank is subject to restrictions on the payment of cash dividends to its parent company. A bank may not pay cash dividends if that payment would reduce the amount of its capital below that necessary to meet minimum applicable
regulatory capital requirements. In addition, the amount of the dividend may not be greater than retained earnings.

Regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends that would constitute an unsafe or unsound banking practice. We are not currently subject to any regulatory
restrictions on dividends other than those noted above.

|Capital Adequacy
|----------------

Regulatory Capital Guidelines. Federal and state bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. The
guidelines are "risk-based," meaning that they are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives
for holding liquid assets.

If capital falls below the minimum levels established by these guidelines, a holding company or a bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new
facilities.

Federal regulations establish minimum requirements for the capital adequacy of depository institutions, such as the Bank. Banks with capital ratios below the required minimums are subject to certain administrative actions,
including prompt corrective action, the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing.

Tier I and Tier II Capital. Under the guidelines, an institution's capital is divided into two broad categories, Tier I capital and Tier II capital.  Tier I capital generally consists
of common stockholders' equity, surplus, undivided profits, and Junior

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Subordinated Debentures up to 25% of Tier I capital. Tier II capital generally consists of the allowance for loan losses up to 1.25% of risk weighted assets, hybrid capital instruments, and subordinated debt. The sum of
Tier I capital and Tier II capital represents an institution's total capital. The guidelines require that at least 50% of an institution's total capital consist of Tier I capital.

Risk-based Capital Ratios. The adequacy of an institution's capital is gauged primarily with reference to the institution's risk-weighted assets. The guidelines assign risk weightings
to an institution's assets in an effort to quantify the relative risk of each asset and to determine the minimum capital required to support that risk. An institution's risk-weighted assets are then compared with its Tier I capital and total capital
to arrive at a Tier I risk-based ratio and a total risk-based ratio, respectively. The guidelines provide that an institution must have a minimum Tier I risk-based ratio of 4% and a minimum total risk-based ratio of 8%. Our ratios are 12.24% and
13.49%, respectively.

Leverage Ratio. The guidelines also employ a leverage ratio, which is Tier I capital as a percentage of total average assets, less intangibles. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The minimum leverage ratio is 3%; however, for all but the most highly rated bank holding companies and for bank holding companies seeking
to expand, regulators expect an additional cushion of at least 1% to 2%.  Our ratio is 12.94% .

Prompt Corrective Action. Under the guidelines, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors. The categories range from "well capitalized" to "critically undercapitalized." Institutions that are "undercapitalized" or lower are subject to certain mandatory supervisory
corrective actions. FDICIA requires federal banking regulators to take "prompt corrective action" with respect to a capital-deficient institution, including requiring a capital restoration plan and restricting certain growth activities of the
institution. The Company could be required to guarantee any such capital restoration plan required of the Bank if the Bank became undercapitalized. Under the regulations, the Bank is "well-capitalized."

|Financial Services Modernization
|--------------------------------

Gramm-Leach-Bliley Act of 1999. The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, brought about significant changes to the laws affecting
banks and bank holding companies. The Act:

- repealed restrictions on preventing banks from affiliating with securities firms;
- provided a uniform framework for the activities of banks, savings institutions and their holding companies;
- broadened the activities that may be conducted by national banks and banking subsidiaries of bank holding companies;
- provided an enhanced framework for protecting the privacy of consumer information; and
- addressed a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

Bank holding companies that qualify and elect to become financial holding companies can engage in a wider variety of financial activities than permitted under previous law, particularly with respect to insurance and
securities underwriting activities. In addition, in a change from previous law, bank holding companies will be in a position to be owned, controlled or acquired by any company engaged in financially related activities, so long as the company meets
certain regulatory requirements. The act also permits national banks (and, in states with wildcard statutes, certain state banks), either directly or through operating subsidiaries, to engage in certain non-banking financial activities.

The Company does not believe that the act will negatively affect operations in the short term. However, to the extent the legislation permits banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than currently offered, and these companies may be able to
aggressively compete in the markets the Company currently serves.

|Anti-terrorism Legislation
|--------------------------

USA Patriot Act of 2001. On October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
(USA Patriot Act) of 2001. Among other things, the USA Patriot Act:

- prohibits banks from providing correspondent accounts directly to foreign shell banks;
- imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals;

9

---

- enhances customer identification procedures;
- requires financial institutions to establish an anti-money-laundering compliance program; and
- eliminates civil liability for persons who file suspicious activity reports.

The Act also increases governmental powers to investigate terrorism, including expanded government access to account records. The Department of the Treasury is empowered to administer and make rules to implement the Act.

The USA Patriot Act has required a greater use of resources due to the requirement of an enhanced anti-money laundering program. The Company does not believe the enhanced anti-money laundering program will have a material
adverse effect on business and operations.

|Effects Of Government Monetary Policy
|-------------------------------------

The Bank's earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and combating recession, but its open market operations in U.S. government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and
establishment of reserve requirements against certain deposits, influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary
policies and their impact cannot be predicted with certainty.

|ITEM 2 - PROPERTIES
|-------------------

The Bank owns the property and buildings on which the Kent, Lacey, Yelm, Fircrest, Downtown Tacoma, Gig Harbor Pioneer,  Centralia, and Downtown Olympia financial centers are situated. The Bank also owns the Gig Harbor Loan
Center building as part of its Pioneer location. The Tumwater and Eatonville financial centers are operated in buildings owned by VB that are situated on leased property. The Hawks Prairie, West Olympia, South Hill Puyallup, and Gig Harbor Pt.
Fosdick financial centers are operated in leased space. The aggregate monthly rental on all properties leased by the Bank is approximately $56,000.

The Lacey office is a two story building with a basement and a drive-up, which has approximately 17,500 square feet and is fully utilized as a bank financial center, administrative offices, customer care center and data
processing facility. The South Hill Puyallup, Tumwater, Yelm, Eatonville, West Olympia, Centralia, and Pt. Fosdick financial centers are single story structures with drive-up facilities. The Downtown Olympia, Hawks Prairie, and Downtown Tacoma
financial centers are two story structures with drive-up facilities. The Kent and Pioneer financial centers are single story structures with walk up ATMs. The Fircrest financial center is an office condominium, of which the Bank occupies
approximately one-half the space.

In December 2004, the Bank entered into an agreement, upon satisfaction of certain contingencies, to purchase land in DuPont Washington for $2 million to construct a three story, 50,000 square foot corporate office
building. The purchase of this property was finalized on February 17, 2005. In October 2004 the Bank agreed to lease property for $9,140 per month in Lakewood Washington for a financial service center currently scheduled to open in the third
quarter 2005.

|ITEM 3 - LEGAL PROCEEDINGS
|--------------------------

From time to time in the ordinary course of business, VFG or its subsidiaries may be involved in litigation. At the present time neither VFG nor any of its subsidiaries are involved in any threatened or pending material
litigation.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the year ended December 31, 2004, no matters were submitted to the security holders through the solicitation of proxies or otherwise.

10

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PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

|Market Information
|------------------

No broker makes a market in VFG's common stock, and trading has not been extensive. Trades that have occurred cannot be characterized as amounting to an active market. The stock is traded by individuals on a personal basis
and is not listed on any exchange or traded on the over-the-counter market. The following data includes trades between individual investors. It does not include the exercise of stock options nor does it include shares repurchased by the Company as
discussed below. This information has been adjusted to reflect the three-for-two stock split effective May 16, 2004.

| | Period |  |         |  | # of Shares Traded |  | Price Range    
| | ------ |  | ------- |  | ------------------ |  | ---------------
| |       
| | 2003   |  |         |  |                    |  |                
| | 1st    |  | Quarter |  | 31,500             |  | $9.33 - $23.33 
| | 2nd    |  | Quarter |  | 19,400             |  | $14.00 - $14.67
| | 3rd    |  | Quarter |  | 61,898             |  | $14.00 - $15.33
| | 4th    |  | Quarter |  | 20,004             |  | $14.00 - $15.33
| |       
| | 2004   |  |         |  |                    |  |                
| | 1st    |  | Quarter |  | 42,456             |  | $15.17 - $15.67
| | 2nd    |  | Quarter |  | 49,366             |  | $15.17 - $16.00
| | 3rd    |  | Quarter |  | 50,082             |  | $15.50 - $16.20
| | 4th    |  | Quarter |  | 39,294             |  | $15.95 - $23.00

At December 31, 2004 options for 436,045 shares of VFG common stock were outstanding. See Note 15 of the consolidated financial statements for additional information.

Number of Equity Holders

As of December 31, 2004, there were 1,426 holders of record of VFG's common stock.

|Dividends
|---------

VFG paid cash dividends of $0.047 on February 13 and May 14, and $0.05 on August 16 and $0.06 on November 19, 2004.  VFG paid cash dividends of $0.033 per share on February 12, and May 16, 2003. VFG paid
cash dividends of $0.047 per share on August 8, and November 14, 2003. The amounts reported reflect an adjustment for the May 2004 stock split.

Washington law limits the ability of the Bank to pay dividends to the Company. Under these restrictions, a bank may not declare or pay any dividend in an amount greater than its retained earnings without approval of the
Division of Banks. All of the retained earnings of the Bank are available for the payment of dividends to the Company under these restrictions, subject to the federal capital regulations discussed above. See "Business - Supervision and Regulation -
Dividends".

Purchases of Equity Securities by Venture Financial Group, Inc.

On December 11, 2002, the Board approved a stock repurchase program that allowed for the repurchase of up to 198,000 shares of VFG Common Stock in purchases over a three month period, through open market transactions or
through privately negotiated transactions. No purchases were made under this plan in 2002. As of March 11, 2003 a total of 104,358 shares have been repurchased under this plan for a total of $1,174,792.

On February 19, 2003 the Board approved a stock repurchase program to allow for the repurchase of 131,370 shares of VFG Common Stock in purchases over time in either privately negotiated transactions or through the open
market. On June 18, 2003 this plan was amended and an additional 56,130 shares were added to the plan. On October 15, 2003 this plan was amended again and an additional 225,000 shares were added to this plan bringing the total to 412,500 shares.
Under this plan 266,097 shares were repurchased in 2003 and 146,403 have been repurchased in 2004 for a total of $2,226,290. All shares have been adjusted for the three-for-two stock split effective May 16, 2004.

On June 16, 2004 the Board approved a stock repurchase program to allow for the repurchase of 200,000 shares of VFG Common Stock in purchases over time in either privately negotiated transactions or through the open market.
Under this plan 50,779 shares have been repurchased for a total of $780,424.

11

---

On May 6, 2004, the Board of Directors announced a three-for-two stock split on VFG stock for shareholders of record on May 16, 2004.

The following table sets forth the Company's repurchase of its outstanding common stock during the fourth quarter of the year ended December 31, 2004.

|Period                                                | Total number of  shares
purchased | Average price paid
per share | Total number of 
shares purchased as 
part of publicly announced plans or programs | Maximum number of shares that may yet be purchased
|----------------------------------------------------- | --------------------------------- | ---------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------
|                                                      |                                   |                              |                                                                                    |                                                   
|Month #1 October 1, 2004 through
October 31, 2004     | 1,686                             | $16.00                       | 1,686                                                                              | 161,872                                           
|                                                      |                                   |                              |                                                                                    |                                                   
|Month #2November 1, 2004 throughNovember 30, 2004     | 3,663                             | $15.90                       | 3,663                                                                              | 158,209                                           
|                                                      |                                   |                              |                                                                                    |                                                   
|Month #3  December 1, 2004 
through
December 31, 2004 | 8,988                             | $15.85                       | 8,988                                                                              | 149,221                                           
|                                                      |                                   |                              |                                                                                    |                                                   
|Total                                                 | 14,337                            | $15.88                       | 14,337                                                                             | 149,221                                           
|                                                      |                                   |                              |                                                                                    |                                                   

|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   
|September 16, 2004         | September 22, 2004      | 200,000                | December 31, 2005
|Total                      |                         | 612,500                |                  

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

|                              | Year Ended December 31, 2004
|----------------------------- | ----------------------------
|                              |                             
|                              | Number of Shares to         
|                              | be Issued Upon              
|                              | Exercise of                 
|                              | Outstanding Options,        
|Plan Category                 | Warrants and Rights         
|                              | (a)(1)
(2)                  
|Equity compensation plans     |                             
|approved by security holders  | 436,045 (3)                 
|Equity compensation plans not |                             
|approved by security holders  | 0                           

| | (1) | Consists of shares that are outstanding and shares available for future issuance under the respective plans. The material features of the plans are described below. Share amounts have been adjusted to reflect the
two-for-one stock split effective November 15, 2002.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                          
| | (2) | Includes shares that were assumed through mergers and acquisitions.                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                          
| | (3) | Includes 64,200 shares for Directors and 371,845 shares for Employees.                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                          
| | (4) | Includes 44,250 shares for Directors and 128,220 shares for Employees.                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                          

12

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|ITEM 6 - SELECTED FINANCIAL DATA
|--------------------------------

The selected financial data should be read in conjunction with VFG's consolidated financial statements and the accompanying notes presented in this report. The per share information has been adjusted retroactively for all
stock dividends and splits.

|                                        |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|--------------------------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | -------- |  | ------ |  | - |  | ------ |  | - |  | ------
|($ in thousands, except per share data) |  |          |  | 2004     |  |          |  | 2003     |  |          |  | 2002   |  |   |  | 2001   |  |   |  | 2000  
|                                       
|For the Year                            |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|Net interest income after provision     |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|for credit losses                       |  | $        |  | 24,907   |  | $        |  | 22,861   |  | $        |  | 21,079 |  | $ |  | 17,682 |  | $ |  | 16,604
|Non-interest income                     |  |          |  | 13,569   |  |          |  | 12,560   |  |          |  | 7,865  |  |   |  | 6,324  |  |   |  | 4,975 
|Non-interest expense and taxes          |  |          |  | 26,699   |  |          |  | 26,365   |  |          |  | 22,732 |  |   |  | 19,569 |  |   |  | 17,218
|                                       
|Net income                              |  | $        |  | 11,777   |  | $        |  | 9,056    |  | $        |  | 6,212  |  | $ |  | 4,437  |  | $ |  | 4,361 
|                                       
|Per Common Share                        |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|Basic Earnings Per Share                |  | $        |  | 1.82     |  | $        |  | 1.38     |  | $        |  | .95    |  | $ |  | .68    |  | $ |  | .67   
|                                       
|Stock Dividends declared                |  |          |  | - -      |  |          |  | - -      |  |          |  | - -    |  |   |  | - -    |  |   |  | - -   
|Cash Dividends Paid                     |  | $        |  | .20      |  | $        |  | .16      |  | $        |  | .13    |  | $ |  | .13    |  | $ |  | .13   
|                                       
|Balance Sheet Data:                     |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|Total Assets                            |  | $556,216 |  | $513,900 |  | $474,450 |  | $364,623 |  | $324,235
|Long-term debt                          |  |          |  | 34,589   |  |          |  | 42,000   |  |          |  | 24,000 |  |   |  | 575    |  |   |  | 1,303 
|Shareholders' equity                    |  |          |  | 57,840   |  |          |  | 48,673   |  |          |  | 44,209 |  |   |  | 38,795 |  |   |  | 34,373
|                                        |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       
|                                        |  |          |  |          |  |          |  |          |  |          |  |        |  |   |  |        |  |   |  |       

Net income for the years ended December 31, 2004 and 2003 included extraordinary items as discussed in Item 7 below under the headings "Performance Overview" and "Non-Interest Income."

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company's audited consolidated financial statements and the notes to those statements as of December 31, 2004 and 2003 and for each of the three years in the
period ended December 31, 2004, included in this report.

|Forward-Looking 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 the risks and
uncertainties that may cause actual future results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. VFG does not undertake any
obligation to publicly release any revisions to forward-looking statements contained in this Annual Report, with respect to events or circumstances after the date of this Annual Report, or to reflect the occurrence of unanticipated
events.

Such risks and uncertainties with respect to the Company include, among others, the risk of federal or state regulatory changes regarding payday lending; risks 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; fiscal and monetary policies of
the federal government; changes in government regulations affecting financial institutions and small loan practices, including regulatory fees and capital requirements; changes in prevailing interest rates that could lead to decreased net interest
margin; the integration of acquired businesses; credit risk management and asset/liability management; changes in technology or required investments in technology; and the availability of and costs associated with sources of liquidity.

|Critical Accounting Policies and Estimates
|------------------------------------------

The Company's financial statements are based on the selection and application of significant accounting policies which require management to make significant estimates and assumptions (see Note 1 to the consolidated
financial statements). The Company believes that the allowance for credit losses is one of the more critical judgment areas in the application of its accounting policies that affect financial condition and results of operations. The allowance for
credit losses is more fully described in the

13

---

|Liquidity and Financial Condition section.Performance Overview
|--------------------------------------------------------------

In 2004, the Company earned $11,777,000. This represents the Company's most profitable year to date, surpassing the 2003 record of $9,056,000 by $2,721,000, or 30%. Earnings for 2003 increased by $2,844,000
or 46% over 2002 earnings of $6,212,000. Highlights for 2004 include:

- a $5,462,000 gain on the sale of seven branches
- net interest income before provision for credit losses remains the same from 2003 to 2004 despite the fact that 2003 included $1,500,000 from discontinued operations in
Alabama
- non interest income increases by $1,009,000

On October 8, 2004, the Company sold seven of its branches. Of the seven branches, one was in Thurston County, two were in Lewis County and four were in Grays Harbor County. Deposits transferred totaled $88,000,000. The
Company retained all loans originated through the seven branches. The Company realized a $3,500,000 gain net of tax and previously recorded goodwill with respect to such branches.

The Company continues to move forward with its strategic plan of reallocating resources to the more populated and growing areas in Pierce and King Counties. A financial center was opened in Kent in King County in December
2004, and plans are underway to open another financial center in Lakewood in Pierce County in the third quarter 2005. In addition, existing financial centers are in the process of being remodeled to better suit the company's branding effort. In
December 2004, the Company entered into an agreement, upon satisfaction of certain contingencies, to purchase land in DuPont in Pierce County Washington for $2 million to construct a corporate office. The purchase of this property was finalized
February 17, 2005. Management believes that centralizing administration functions will create long term efficiencies.

Asset growth in 2004 was 8% as total assets have grown to $556,216,000. Total loans have increased $66,000,000 while securities available for sale have decreased $11,500,000 and cash and Federal Funds Sold have
both decreased $5,000,000.  These four fluctuations account for the majority of 2004 net asset growth totaling $42,316,000. Total deposits decreased $55,502,000, or 14.5% to $326,721,000. Federal Funds Purchased, short term
borrowings and long term borrowings increased a total of $86,898,000. Basic earnings per share for 2004 were $1.82 per share compared to $1.38 per share for 2003 and $0.95 for 2002.

The following table sets forth certain operating and capital ratios for the Company at December 31:

|                                       |  | 2004   |  | 2003   |  | 2002   |  | 2001   |  | 2000  
|-------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                                      
|Return on Average Assets               |  | 2.23%  |  | 1.88%  |  | 1.56%  |  | 1.27%  |  | 1.40% 
|Return on Average Equity               |  | 22.99% |  | 19.55% |  | 15.13% |  | 12.12% |  | 13.62%
|Average Equity to Average Assets Ratio |  | 9.95%  |  | 9.67%  |  | 10.28% |  | 10.45% |  | 10.25%
|Dividend Payout Ratio                  |  | 11.25% |  | 11.57% |  | 14.13% |  | 19.70% |  | 19.88%

Return on Average Assets and Return on Average Equity at December 31, 2004 without the $3.5 million net gain on sales of the seven branches would have been 1.56% and 16.32% respectively. Return on average assets and
return on average equity at December 31, 2003 without the $1.4 million net gain on sale of foreclosed real estate would have been 1.59% and 16.55%, respectively.

The Company acquired Harbor Bank, NA on October 1, 2002 in a strategic expansion of its presence in the Pierce County marketplace. The acquisition provides two financial centers and lending opportunities in Gig Harbor. The
Company had been considering expansion into the Gig Harbor area via a de novo financial center, but this acquisition provided an opportunity to acquire significant market share in a single transaction. Total assets, loans, and deposits of Harbor
Bank on the date of acquisition were $81,546,000, $54,761,000 and $74,163,000, respectively. The effect on 2002 net income was not material as the net revenues generated were offset by costs related to the acquisition and integration of
the organizations' personnel and information systems. See Note 2 to the consolidated financial statements for more information on this acquisition. In addition to the growth in the Company's assets and liabilities from this transaction, it also
contributed to a significant increase in the Company's problem loans. For further discussion, please see the discussion on Asset Quality in the Management's Discussion and Analysis of Financial Condition and Results of Operations.

|Results of OperationsNet Interest Income
|----------------------------------------

Net interest income is comprised of the difference between interest income, primarily from loans and investments, and interest

14

---

expense incurred on interest bearing liabilities, primarily from deposits and borrowed funds. Changes in net interest income from year to year are influenced by both the volume of the assets and the liabilities, and the
rates earned and paid, respectively.  Net interest income in 2004 decreased by $56,000 over 2003. Net interest income in 2003 increased by $1,768,000 or 8% over 2002. The Bank discontinued Alabama small loan originations in 2003 and
accordingly, loan interest income for the twelve months ending December 31, 2003 included $1,500,000 in small loan income not included in 2004. Excluding Alabama small loan income from the 2003 numbers, net interest income year-over-year
increased $1,500,000 or 6.1% .

During 2004, our interest margin decreased 63 basis points to 5.28% from 5.91% in 2003. This reduction is partially a result of discontinued small loan production in Alabama. In 2003 the operations in Alabama resulted in
$1,500,000 in interest income. Without this operation the net interest margin in 2003 would have been 5.06% and 4.82% in 2004, a decrease of 24 basis points. This 24 basis point decrease in net interest margin is attributable to the shift in
funding source from deposits to short term borrowings as a result of the transfer of $88,000,000 in deposits in connection with the sale of seven branches previously discussed.

Total interest income earned from loans in 2004 decreased by $560,000, the net effect of an increase of $2,241,000 due to an increase in the average volume of loans during the year, offset by a reduction in the
average yield on loans of $2,801,000, attributable to a decline in the average yield from 8.00% in 2003 to 7.27% in 2004. The reduction in interest yield is due primarily to repricing pressures; however, included in the $2,801,000 of reduced
interest income is $1,500,000 of Alabama loan fees which were included in 2003 but not in 2004. Despite the reduction in average yield, the Bank is able to maintain a relatively high yield due to participation in the small loan program in
Arkansas, which began in April of 2001. These short-term consumer loans carry substantially higher yields than those in the Bank's traditional portfolio, and, because they are a convenience product the price does not rise and fall with changing
interest rates.

Offsetting the decrease in loan interest income was an increase in the interest earned on investment securities, which increased by $1,076,000 over the prior year. The most significant reason for this increase was
additional volume which increased from an average volume of $54,046,000 to $78,870,000 generating an additional $1,015,000 in additional interest earned. The yield on investments increased from 3.92% to 4.05%, generating an additional
$61,000 in interest income.

Interest expense on deposits in 2004 decreased 11.5%, or $528,000 from 2003. The decrease is partially due to the reduction in the rate of interest paid on deposits. The average rate declined on deposits to 1.39% in
2004 from 1.53% in 2003 which resulted in $121,000 of savings on interest expense while reduced volume of average deposits, a decrease of 2.5%, decreased interest expense $407,000. Interest expense on other borrowings increased
$1,056,000. The reduction in average interest rate to 2.69% from 2.84% saved $84,000 in interest expense. However the increased volume of borrowings, primarily the increase in short term borrowings to $123,128,000 from $34,394,000
due to the divestiture of seven branches, increased interest expense by $1,140,000.

|An analysis of the change in net interest income is as follows (dollars in thousands): |  |                            |  |                            |  |                      
|-------------------------------------------------------------------------------------- |  | -------------------------- |  | -------------------------- |  | ---------------------
|                                                                                      
|                                                                                       |  | 2004 compared to 2003      |  |                            |  | 2003 compared to 2002
|                                                                                       |  | Increase (decrease) due to |  | Increase (decrease) due to
|                                                                                       |  | Volume                     |  | Rate                       |  | Net                  
|Interest earned on:                                                                    |  |                            |  |                            |  |                      
|Loans                                                                                  |  | $2,241                     |  | (2,801)                    |  | $(560)               
|Federal funds sold and deposits in banks                                               |  | (53)                       |  | 9                          |  | (44)                 
|Investment securities                                                                  |  | 1,015                      |  | 61                         |  | 1,076                
|Total interest income                                                                  |  | 3,203                      |  | (2,731)                    |  | 472                  
|                                                                                      
|Interest paid on:                                                                      |  |                            |  |                            |  |                      
|Savings, NOW and MMA                                                                   |  | (155)                      |  | (44)                       |  | (199)                
|Time deposits                                                                          |  | 562                        |  | 165                        |  | 727                  
|Other borrowings                                                                       |  | (1,140)                    |  | 84                         |  | (1,056)              
|Total Interest expense                                                                 |  | (733)                      |  | 205                        |  | (528)                
|                                                                                      
|Net interest income                                                                    |  | $2,470                     |  | $(2,526)                   |  | $(56)                

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.

15

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Average consolidated statements of financial position and analysis of net interest spread were as follows(dollars in thousands):

|                                              |  |          |  | 2004      |  |         |  |          |  | 2003      |  |         |  |          |  | 2002      |  |        
|--------------------------------------------- |  | -------- |  | --------- |  | ------- |  | -------- |  | --------- |  | ------- |  | -------- |  | --------- |  | -------
|                                              |  |          |  | Interest  |  |         |  |          |  | Interest  |  |         |  |          |  | Interest  |  |        
|                                              |  | Average  |  | Income    |  | Average |  | Average  |  | Income    |  | Average |  | Average  |  | Income    |  | Average
|                                              |  | Balance  |  | (Expense) |  | Rates   |  | Balance  |  | (Expense) |  | Rates   |  | Balance  |  | (Expense) |  | Rates  
|Earning Assets:                               |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|                                             
|Loans(1)                                      |  | $394,611 |  | $28,608   |  | 7.25%   |  | $364,745 |  | $29,168   |  | 8.00%   |  | $315,595 |  | $28,662   |  | 9.08%  
|Federal funds sold and                        |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|interest bearing deposits in                  |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|banks                                         |  | 2,220    |  | 24        |  | 1.08%   |  | 7,223    |  | 68        |  | 0.94%   |  | 2,954    |  | 50        |  | 1.69%  
|Investment securities                         |  | 78,870   |  | 3,196     |  | 4.05%   |  | 54,046   |  | 2,120     |  | 3.92%   |  | 23,935   |  | 1,262     |  | 5.27%  
|                                             
|Total earning assets and                      |  | 475,701  |  | 31,828    |  |         |  | 426,014  |  | 31,356    |  |         |  | 342,484  |  | 29,974    |  |        
|interest income                               |  |          |  |           |  | 6.69%   |  |          |  |           |  | 7.36%   |  |          |  |           |  | 8.75%  
|Other Assets:                                 |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Cash and due from banks                       |  | 19,613   |  |           |  |         |  | 24,432   |  |           |  |         |  | 28,479   |  |           |  |        
|Bank premises and                             |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|equipment                                     |  | 12,198   |  |           |  |         |  | 11,650   |  |           |  |         |  | 10,438   |  |           |  |        
|Other assets                                  |  | 28,875   |  |           |  |         |  | 28,912   |  |           |  |         |  | 23,349   |  |           |  |        
|Allowance for credit                          |  | (7,506)  |  |           |  |         |  | (8,160)  |  |           |  |         |  | (5,415)  |  |           |  |        
|losses                                        |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Total Assets                                  |  | $528,881 |  |           |  |         |  | $482,848 |  |           |  |         |  | $399,335 |  |           |  |        
|                                             
|Liabilities and                               |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Shareholders' Equity                          |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Interest bearing liabilities:                 |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Deposits:                                     |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Savings, NOW, and Money                       |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Market Deposits                               |  | $185,880 |  | $(1,677)  |  | .90%    |  | $168,616 |  | $(1,478)  |  | 0.88%   |  | $141,734 |  | $(1,695)  |  | 1.20%  
|Time deposits                                 |  | 105,940  |  | (2,386)   |  | 2.25%   |  | 130,894  |  | (3,113)   |  | 2.38%   |  | 133,263  |  | (4,217)   |  | 3.16%  
|                                             
|Total interest bearing                        |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|deposits                                      |  | 291,820  |  | (4,063)   |  | 1.39%   |  | 299,510  |  | (4,591)   |  | 1.53%   |  | 274,997  |  | (5,912)   |  | 2.15%  
|Other borrowings                              |  | 97,373   |  | (2,631)   |  | 2.69%   |  | 54,746   |  | (1,575)   |  | 2.88%   |  | 19,305   |  | (640)     |  | 3.32%  
|                                             
|Total interest bearing                        |  | 389,193  |  | (6,694)   |  |         |  | 354,256  |  | (6,166)   |  |         |  | 294,302  |  | (6,552)   |  |        
|liabilities and interest                      |  |          |  |           |  | 1.72%   |  |          |  |           |  | 1.74%   |  |          |  |           |  | 2.23%  
|expense                                       |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Non-interest bearing                          |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|deposits                                      |  | 85,690   |  |           |  |         |  | 75,953   |  |           |  |         |  | 59,559   |  |           |  |        
|Other liabilities                             |  | 2,767    |  |           |  |         |  | 5,932    |  |           |  |         |  | 4,429    |  |           |  |        
|Shareholders' equity                          |  | 51,231   |  |           |  |         |  | 46,707   |  |           |  |         |  | 41,045   |  |           |  |        
|                                             
|Total liabilities,                            |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|shareholders' equity and net interest incomet |  | $528,881 |  | $25,134   |  |         |  | $482,848 |  | $25,190   |  |         |  | $399,335 |  | $23,422   |  |        
|Net interest income as a                      |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|percentage of average of                      |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|earnings assets:                              |  |          |  |           |  |         |  |          |  |           |  |         |  |          |  |           |  |        
|Interest Income                               |  |          |  | 6.69%     |  |         |  |          |  |           |  | 7.36%   |  |          |  |           |  | 8.75%  
|Interest Expense                              |  |          |  | 1.41%     |  |         |  |          |  |           |  | 1.45%   |  |          |  |           |  | 1.91%  
|Net Interest Income                           |  |          |  | 5.28%     |  |         |  |          |  |           |  | 5.91%   |  |          |  |           |  | 6.84%  

(1) For purposes of these computations, non-accrual loans are included in the average loan balance outstanding. Loan fees and late charges of $1,532,000, $1,033,000, and $727,000, are included in interest income
in 2004, 2003, and 2002, respectively.

|Non-Interest Income
|-------------------

Total non-interest income increased $1,009,000 to $13,569,000, an increase of 8% over 2003. This increase is primarily due to a $5,462,000 gain on sale of seven branches in 2004. 2003 included a $2,100,000
gain on sale of foreclosed real estate and $1,180,000 in small loan miscellaneous income associated with the termination of small loan originations in Alabama. Non-interest income includes service charges on deposit accounts, origination fees
and gains on sale of loans, earnings on bank-owned life insurance, small loan miscellaneous income, and gain on sale of foreclosed real estate. Service charges on deposit accounts increased by $135,000 or 4% over 2003. These revenues increased
in 2003 by $536,000, or 17% over 2002 due to increased number of deposit accounts. Origination fees and gains on sale of loans decreased by $2,055,000, or 61% from 2003 to 2004 and increased $861,000, or 34% from 2002 to 2003. An
increase in interest rates in the last quarter of 2003 had the effect of reducing mortgage financing and refinancing activity that carried over into 2004. Other operating income increased $2,929,000, or 46.5% over 2003. Other operating income
increased by $3,298,000 in 2003 from 2002.

16

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|Non-Interest Expense
|--------------------

Total non-interest expense in 2004 decreased 5% over 2003 and amounted to $21,078,000. Total non-interest expense in 2003 increased 11% over 2002 to total $22,192,000. Salaries and benefits, the largest component of
non-interest expense, in 2004 decreased $1,343,000 or 11% over 2003. This decrease is due to a decrease in salary and benefits from the reduction in mortgage commissions and a reduction in salary expense associated with the branch divestiture.
These expenses for 2003 increased $1,771,000, or 17% over 2002. This increase includes a full year salary for those employees acquired in the Harbor Bank acquisition and also increased commissions related to mortgage originations. Occupancy
costs and equipment expenses increased $87,000 or 2.6% in 2004. These expenses increased 28% in 2003 due primarily to a full years' depreciation related to the Harbor Bank facilities acquired in October 2002. Other expenses in 2004 increased
$143,000, or 2%. This increase is due to a $329,000 write down on foreclosed property offset by $550,000 in expenses realized in 2003 associated with the re-branding of the company. These expenses decreased 7% or $468,000 over 2002
primarily attributed to a reduction in tax expense from a state business tax refund in 2003, offset by an increase in branding expense incurred in 2003.

|Liquidity and Financial Condition
|---------------------------------

Asset growth in 2004 was 8% as total assets have grown to $556,216,000. Loan growth was 18%, or $66,030,000. This growth was offset by a decrease in securities available for sale of $11,587,000, a decrease in
cash and due from banks of $5,252,000 and a decrease in Federal Funds Sold of $5,530,000. Total deposits decreased $55,502,000, or 14.5% to $326,721,000. Short term borrowings increased 258% or $88,734,000 in 2004. Long term debt
decreased $8,000,000.

The principal sources of the Company's cash are dividends from the Bank and, in 2003, the proceeds of a $6 million offering of Junior Subordinated Debentures completed in April. The Bank's ability to pay dividends is
regulated by federal and state law. See "Business - Supervision and Regulation - Dividends."

The Bank's primary sources of funds are customer deposits, maturities of investment securities, loan sales, loan repayments, net income, advances from the Federal Home Loan Bank of Seattle ("FHLB"), the use of the Federal
Funds markets, and long-term borrowings. At December 31, 2004, the Bank's short-term borrowings totaled $128,123,000, including $86,700,000 at the Federal Home Loan Bank.

In June 2002 and April 2003, the Company raised $13,000,000 (VFG Capital Trust I) and $6,000,000 (VFG Capital Trust II), respectively through its participation in pooled Junior Subordinated Debentures offerings. The
floating rate Junior Subordinated Debentures issued by VFG Capital Trust I accrue interest at a variable rate of interest, calculated quarterly, at LIBOR plus 3.65% per annum on the outstanding balance. The stated maturity date of this offering is
July 2032. The floating rate Junior Subordinated Debentures issued by VFG Capital Trust II accrue interest at a variable rate of interest, calculated quarterly, at LIBOR plus 3.25% per annum on the outstanding balance. The stated maturity date of
this offering is October 2033. The majority of these funds were utilized for the purchase of Harbor Bank in 2002, to repurchase Company stock and to pay cash dividends.

Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and unscheduled loan prepayments are not. Deposit inflows and unscheduled loan prepayments are influenced by general interest rate
levels, interest rates available on other investments, competition, economic conditions, and other factors.

Deposits are the primary source of new funds.  Total deposits were $326,721,000 at December 31, 2004, down from $382,223,000 at December 31, 2003. As discussed previously, this decrease is due to the divestiture of
seven branches in October 2004. The bank has attempted to attract deposits in its market areas through competitive pricing and delivery of quality products as well as opening branches in new markets such as south King County.

Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors withdrawing 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 include assets that can be converted to cash with little or no risk of loss. These include overnight investments in federal funds sold and investment
securities available for sale, particularly those of shorter maturity, which are the principal source of asset liquidity. At December 31, 2004 cash, deposits in banks, interest-bearing deposits in banks and securities available for sale totaled
$87,152,000. External sources refer to the ability to attract new liabilities and capital, including increasing savings and demand deposits, federal funds purchased, and the issuance of capital and debt securities. At December 31, 2004,
overnight and federal funds lines of credit totaled $41,100,000.  These credit lines were accessed regularly as a source of funding during 2004 and amounted to $5,575,000 at December 31, 2004.

Management believes the Bank's liquidity position at December 31, 2004, was adequate to meet its short-term funding requirements.

17

---

Management expects to continue relying on customer deposits, maturity of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, Federal Funds markets, advances from FHLB,
and other borrowings to provide liquidity. Management may also consider engaging in further offerings of Junior Subordinated Debentures if the opportunity presents an attractive means of raising funds in the future. Although deposit balances at
times have shown historical growth, such balances may be influenced by changes in the financial services industry, interest rates available on other investments, general economic conditions, competition, customer management of cash resources and
other factors. Borrowings may be used on a short-term and long-term basis to compensate for reductions in other sources of funds. Borrowings may also be used on a long-term basis to support expanded lending activities and to match maturities or
repricing intervals of assets. The sources of such funds will include Federal Funds purchased, reverse repurchase agreements and borrowings from the FHLB.

|Investments
|-----------

In 2004 the Company's securities available for sale and securities held to maturity decreased $12,092,000. This decrease is due to the principal payments on mortgage-backed securities totaling $11,767,000,
securities maturing and called totaling $13,773,000, offset by the purchase of mortgage-backed securities totaling $15,005,000.  Because the available-for-sale portfolio is carried at fair value, its carrying value fluctuates with changes in
market factors, primarily interest rates. The recorded amounts of securities and their fair value at December 31 are found inNote 4-Securities, in the notes to the Company's
consolidated financial statements.

The stated maturities and weighted average yield of debt securities were as follows (dollars in thousands):

|                                                            |  | Held-to-Maturity Securities |  | Available-For-Sale Securities
|----------------------------------------------------------- |  | --------------------------- |  | -----------------------------
|                                                           
|                                                            |  | Amortized                   |  | Fair                         
|                                                            |  | Cost                        |  | Value                        
|                                                           
|Due in one year or less                                     |  | $ - -                       |  | $ - -                        
|Due after one year through five years                       |  | - -                         |  | - -                          
|Due after five years through ten years                      |  | - -                         |  | - -                          
|Due after ten years                                         |  | - -                         |  | - -                          
|No maturity investment                                      |  |                             |  |                              
|Mortgage backed securities                                  |  |                             |  |                              
|                                                            |  | $ - -                       |  | $ - -                        
|                                                            |  |                             |  |                              
|Weighted average yield is reported on tax-equivalent basis. |  |                             |  |                              

There was a gross realized loss on sales of securities available for sale of $21,000 in 2004, and no gains or losses in 2003 or 2002.

|Loans
|-----

Total loans excluding loans held for sale increased by $66,030,000 to $429,523,000 in 2004. The composition of the loan portfolio was as follows at December 31(dollars in
thousands):

|             |  | 2004     |  | 2003    |  | 2002     |  | 2001    |  | 2000    
|------------ |  | -------- |  | ------- |  | -------- |  | ------- |  | --------
|             |  | Amount   |  | Percent |  | Amount   |  | Percent |  | Amount  
|            
|Commercial   |  | $58,556  |  | 13.6%   |  | $52,515  |  | 14.4%   |  | $64,716 
|Real estate  |  |          |  |         |  |          |  |         |  |         
|construction |  | 101,509  |  | 23.7%   |  | 79,788   |  | 22.0%   |  | 70,385  
|Real estate  |  |          |  |         |  |          |  |         |  |         
|Commercial   |  | 260,362  |  | 60.6%   |  | 221,086  |  | 60.8%   |  | 207,346 
|Consumer     |  | 5,275    |  | 1.2%    |  | 6,946    |  | 1.9%    |  | 10,718  
|Small loans  |  | 3,821    |  | .9%     |  | 3,158    |  | .9%     |  | 8,967   
|            
|             |  | $429,523 |  | 100.0%  |  | $363,493 |  | 100.0%  |  | $362,132

The Bank's loan portfolio is concentrated in real estate secured loans which include real estate construction loans and real estate mortgage loans. Real estate mortgage loans primarily consist of commercial loans secured by
real estate. The Bank made 173,796 small loans in 2004, representing $62,766,000 in total advances. Balances include deferred loan fees.

18

---

The following table shows the maturity analysis of commercial, real estate construction, and real estate mortgage loans outstanding as of December 31, 2004(dollars in
thousands):

|                         |  | Within   |  | After One  |  | After   |  |         
|------------------------ |  | -------- |  | ---------- |  | ------- |  | --------
|                         |  | One      |  | But Within |  | Five    |  |         
|                         |  | Year     |  | Five Years |  | Years   |  | Total   
|                        
|Commercial               |  | $39,950  |  | $15,409    |  | $3,197  |  | $58,556 
|Real estate construction |  | 92,110   |  | 6,742      |  | 2,657   |  | 101,509 
|Real estate mortgage     |  | 72,448   |  | 141,955    |  | 45,919  |  | 260,362 
|                        
|                         |  | $204,508 |  | $164,106   |  | $51,773 |  | $420,427

Of the loans maturing after one year, $9,437 have predetermined or fixed interest rates and $206,442 have floating or adjustable interest rates.

|Asset Quality
|-------------

Non-performing assets consist of loans on which interest is no longer accrued, accruing loans past due 90 days or more and foreclosed real estate and other assets. Total non-performing assets amounted to $5,810,000 at
December 31, 2004, an increase of $1,605,000 or 38% from December 31, 2003. Non-accrual loans increased $877,000 during 2004 from the December 31, 2003 balance of $2,204,000. Loans 90 days past due and still accruing interest increased
$2,003,000 during 2004 from a balance of $2,000. Foreclosed real estate decreased $1,278,000 or 64% in 2004 to $718,000. Any anticipated losses on these loans have been adequately reserved for in the allowance for credit losses.

Loans will be placed on non-accrual using the following guidelines: (1) a loan will be placed on nonaccrual when collection of all principal or all interest is deemed unlikely; and (2) a loan will automatically be placed on
nonaccrual when principal or interest is 90 days or more past due unless the loan is both well secured and in the process of being collected. Placing a loan on non-accrual does not diminish the validity of the Company's claims against the
borrower.

|Non-performing assets were as follows at December 31(dollars in thousands): |  |        |  |        |  |        
|--------------------------------------------------------------------------- |  | ------ |  | ------ |  | -------
|                                                                            |  | 2004   |  | 2003   |  | 2002   
|                                                                           
|Non-accrual loans                                                           |  | $3,081 |  | $2,204 |  | $6,543 
|Accruing loans past due 90 days or more                                     |  | 2,005  |  | 2      |  | 1,278  
|Foreclosed real estate                                                      |  | 718    |  | 1,996  |  | 4,899  
|Other assets                                                                |  | 6      |  | 3      |  | 55     
|                                                                            |  | $5,810 |  | $4,205 |  | $12,775

The gross interest income that would have been recorded in 2004 if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of
the period, totaled $100,000. No interest income on these loans was included in net income in 2004.

Applicable regulations require that each insured institution review and classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, regulatory examiners have authority to
identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. Substandard assets have one or more defined weaknesses and are characterized by the
distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset
of the institution is not warranted. When an insured institution classifies problem assets as either substandard or doubtful, it is required to establish general allowances for credit losses in an amount deemed prudent by management. These
allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities and the risks associated with particular problem assets. When an insured institution classifies problem assets as
loss, it charges off the balance of the asset against the allowance for credit losses. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated as special mention. The Bank's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC which can order the establishment of additional
loss allowances.

19

---

The aggregate amounts of the Bank's classified assets (as determined by the Bank), and of the Bank's allowance for credit losses at the dates indicated, were as follows:

|                            |  | At  December 31,
|--------------------------- |  | ----------------
|                            |  |                 
|                            |  | 2004            
|                            |  |                 
|                            |  |                 
|                           
|Doubtful                    |  | $802            
|Substandard                 |  | 10,026          
|Special mention             |  | 17,178          
|Allowance for credit losses |  | 7,189           

The Bank's classified assets increased by $9,292,000 at December 31, 2004. $5,358,000 was in the Special Mention category and $3,839,000 was in the Substandard category. As mentioned previously 2002 classified
asset numbers are primarily a result of the acquisition of the Harbor Bank loan portfolio. These loans were acquired along with the related allowance for credit losses, resulting in a significant increase in the Bank's total allowance for credit
losses.

Substandard loans are classified as those loans that are inadequately protected by the current net worth, and paying capacity of the obligor, or the collateral pledged. Assets classified as substandard have a well-defined
weakness, or weaknesses that jeopardize the repayment of the debt. If the weakness, or weaknesses, are not corrected there is the distinct possibility that some loss will be sustained. At December 31, 2004, substandard loans of $10,026,000
represented an increase of $3,839,000 or 62%, over the December 31, 2003 total. Recent FDIC guidelines, in a change from protocol used on December 31, 2003, require us to classify the Bank's Small Loan portfolio totaling $3,821,333, as
substandard. The balance of the substandard loans on December 31, 2004, of $6,207,000 was comprised of 59 loans, compared to 93 loans at December 31, 2003. One loan accounts for $2,003,733, or 20% of the total, and 32% of the $6,207,000.
That loan is secured by a first mortgage position on a commercial property in Kent, Washington. Management believes the Bank is adequately provisioned against losses that might occur with this loan.

Special mention loans are defined as those credits deemed by management to have potential weakness that deserve management's close attention. If left uncorrected these potential weaknesses may result in the deterioration of
the payment prospects of the loan. Assets in this category are not adversely classified and currently do not expose the Bank to sufficient risk to warrant a substandard classification. There were five relationships in this category as of December
31, 2004 aggregating $11,638,146, or 68% of the total, with no other concentrations. One relationship was for $4,160,000 secured by a first mortgage on commercial property in Chehalis, Washington, a second for $1,070,143 secured by first
mortgage positions on two commercial properties, one located in Vashon Island and the second in Buckley, Washington, a third for $1,688,461 secured by a first mortgage on commercial property in Algona-Pacific, Washington, the fourth for
$2,378,216 secured by a first mortgage on commercial property located in Federal Way, Washington, and the fifth relationship for $2,341,326 secured by a first mortgage on commercial properties and equipment located in Gig Harbor, Washington.
Management believes none of these relationships will result in a loss for the Bank. Each of these loans is current and paying in accordance with the required loan terms.

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

The allowance for credit losses reflects management's current estimate of the amount required to absorb probable losses on existing loans and commitments to extend credit. Loans deemed uncollectible are charged against and
reduce the allowance.  Periodically, the provision for credit losses is charged to current expense. This provision acts to replenish the allowance for credit losses and to maintain the allowance at a level that management deems adequate.

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 for credit losses can be determined only on a judgmental basis, after full review, 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 credit personnel of all loans which are identified as being of less than acceptable
quality;

20

---

- 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.

A formal analysis of the adequacy of the allowance is conducted quarterly and reviewed by the Board of Directors. Based on this analysis, management considers the allowance for credit losses to be adequate.

During a regulatory examination during the fourth quarter of 2004, the Bank's federal regulator, the Federal Deposit Insurance Corporation (FDIC), directed the Bank to charge-off all payday loans that had been outstanding
to borrowers for 60 days from the original loan date. The regulators requested that the Bank 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. The
Company believes that under generally accepted accounting principles, a total loss of all payday loans outstanding for 60 days from the origination date is not probable and the specific allowance allocated to the payday lending portfolio partnered
with the stop-loss gap in the marketing and servicing agreement with the Company's payday lending partner is adequate.  All actual charge-offs and recoveries for December 31, 2003 and September 30, 2004 have been recognized and run through the
allowance for loan losses as of December 31, 2003 and September 30, 2004. As a result of the regulatory charge-off, the Company has a difference between its regulatory accounting principles (RAP) books and its generally accepted accounting
principles (GAAP) books.  The financial entries made for regulatory purposes resulted in a $746 thousand reduction in loan balances with a corresponding reduction in the allowance for loan losses as of December 31, 2003. Additional charge-offs
of $3.1 million and recoveries of $3.1 million were also required for regulatory accounting purposes for the year ended December 31, 2004, as compared to the financial statements presented under GAAP in this Form 10-K.

Periodic provisions for loan losses are made to maintain the allowance for credit losses at an appropriate level. The provisions are based on an analysis of various factors including historical loss experience for the bank
and for the industry as a whole, based on volumes and types of loans, volumes and trends in delinquencies and non-accrual loans, trends in portfolio volume, results of internal and independent external credit reviews, and anticipated economic
conditions. Provisions for loan losses on small loans are made monthly to maintain this segment of the allowance for credit losses at a level sufficient to absorb losses on existing loans. This portion of the allowance is generally maintained 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 on both the Bank's and the industry's
historical loss experience. Losses in the small loan portfolio are limited by agreement to a percentage of revenue earned from the portfolio by the Bank's agent.

21

---

Transactions in the allowance for credit losses for the five years ended December 31, 2004 are as follows(dollars in thousands):

|                                                      |  | 2004    |  | 2003    |  | 2002    |  | 2001    |  |  |  | 2000   
|----------------------------------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  |  |  | -------
|                                                     
|Balance at beginning of year                          |  | $7,589  |  | $7,947  |  | $4,088  |  | $3,503  |  |  |  | $5,825 
|                                                     
|Provision for credit losses                           |  | 227     |  | 2,329   |  | 2,343   |  | 1,716   |  |  |  | (50)   
|                                                     
|Transfer from acquisition of Harbor Bank, N.A.        |  | - -     |  | - -     |  | 3,868   |  | - -     |  |  |  | - -    
|                                                     
|Charge offs:                                          |  |         |  |         |  |         |  |         |  |  |  |        
|                                                     
|Commercial                                            |  | (148)   |  | (668)   |  | (60)    |  | (60)    |  |  |  | (2,217)
|                                                     
|Real Estate Mortgage and Construction                 |  | (536)   |  | (516)   |  | - -     |  | - -     |  |  |  | (77)   
|                                                     
|Small Loans                                           |  | (1,165) |  | (1,882) |  | (2,398) |  | (2,051) |  |  |  | - -    
|                                                     
|Consumer                                              |  | (213)   |  | (824)   |  | (36)    |  | (36)    |  |  |  | (57)   
|                                                     
|                                                     
|                                                      |  | (2,062) |  | (3,890) |  | (3,274) |  | (2,147) |  |  |  | (2,351)
|                                                     
|                                                     
|Recoveries:                                           |  |         |  |         |  |         |  |         |  |  |  |        
|Commercial                                            |  | 263     |  | 123     |  | 12      |  | 12      |  |  |  | 43     
|                                                     
|Real Estate Mortgage and Construction                 |  | 318     |  | 53      |  | 8       |  | 8       |  |  |  | 8      
|                                                     
|Small Loans                                           |  | 737     |  | 935     |  | 862     |  | 983     |  |  |  | - -    
|                                                     
|Consumer                                              |  | 117     |  | 92      |  | 13      |  | 13      |  |  |  | 28     
|                                                     
|                                                      |  | 1,435   |  | 1,203   |  | 922     |  | 1,016   |  |  |  | 79     
|                                                     
|                                                     
|Net charge-offs                                       |  | (627)   |  | (2,687) |  | (2,352) |  | (1,131) |  |  |  | (2,272)
|                                                     
|Balance at end of year                                |  | $7,189  |  | $7,589  |  | $7,947  |  | $4,088  |  |  |  | $3,503 
|Ratio of net charge-offs to average loans outstanding |  | .16%    |  | .74%    |  | .75%    |  | .41%    |  |  |  | .89%   

The Bank charged off $1,165,000 in small loans, and recovered $737,000. The net charge-offs as a percent of total small loan advances for 2004 was .68%.

In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and in October 1996, issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition Disclosures, an amendment to SFAS No. 114". The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair market value of the collateral if the loan is collateral dependent. The Company excludes loans that are currently measured at fair value or at the lower of cost or fair value, and certain large groups of
smaller balance homogeneous loans that are collectively measured for impairment. The following table summarizes the Bank's impaired loans at December 31 (dollars in thousands):

|                                          |  | 2004   |  | 2003   |  | 2002   |  | 2001   |  | 2000
|----------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ----
|Total Impaired Loans                      |  | $3,081 |  | $2,204 |  | $6,543 |  | $1,830 |  | $857
|Total Impaired Loans with Valuation       |  |        |  |        |  |        |  |        |  |     
|Allowance                                 |  | $2,175 |  | $1,938 |  | $5,795 |  | $928   |  | $817
|Allocation of Allowance for Credit Losses |  | $530   |  | $869   |  | $908   |  | $528   |  | $308

No allocation of the allowance for credit losses was considered necessary for the remaining impaired loans. The balance of the allowance for credit losses in excess of these specific reserves is available to absorb losses
from all loans.

It is the Company's policy to charge-off any loan or portion of a loan that is deemed uncollectible in the ordinary course of business. The entire allowance for credit losses is available to absorb such charge-offs. The
Company allocates its allowance for credit losses primarily on the basis of historical data. Based on certain characteristics of the portfolio, losses can be anticipated for major loan categories.

In the following table, the allowance for credit losses at December 31, 2004, 2003, 2002, 2001 and 2000 has been allocated among major loan categories based on a number of factors including quality, volume, economic outlook
and other business considerations(dollars in thousands):

22

---

|                                                                            |  | 2004   |  | 2003   |  | 2002   |  | 2001   |  | 2000  
|--------------------------------------------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                                                                            |  |        |  | % of   |  |        |  | % of   |  |       
|                                                                            |  |        |  | Total  |  |        |  | Total  |  |       
|                                                                            |  | Amount |  | Loans  |  | Amount |  | Loans  |  | Amount
|Commercial                                                                  |  | $2,719 |  | 13.6%  |  | $3,036 |  | 14.4%  |  | $3,705
|Real Estate(1)                                                              |  | 3,987  |  | 84.3%  |  | 4,002  |  | 82.8%  |  | 3,523 
|Consumer                                                                    |  | 83     |  | 1.2%   |  | 310    |  | 1.9%   |  | 301   
|Small Loans                                                                 |  | 400    |  | 0.9%   |  | 241    |  | 0.9%   |  | 418   
|                                                                           
|Total                                                                       |  | $7,189 |  | 100.0% |  | $7,589 |  | 100.0% |  | $7,947
|(1) Real estate includes real estate mortgage and real estate construction. |  |        |  |        |  |        |  |        |  |       

|Deposits
|--------

Total deposits decreased by $55,502,000, or 14.5 % from 2003 to $326,721,000. This is primarily due to the transfer of $88,000,000 in deposits associated with the seven branch divestiture. Demand - noninterest
bearing deposits decreased 11%, or $9,094,000, savings and interest-bearing demand deposits decreased 17%, or 31,392,000, and time deposits decreased 13%, or $15,016,000. The $88,000,000 in deposits transferred due to the branch
divestiture was offset by increased deposits of $32,498,000 in the remaining fourteen branches.

The Bank's average deposits for the year(s) ended December 31 are summarized as follows (dollars in thousands):

|                        |  |          |  | 2004  |  |          |  |          |  | 2003  |  |          |  |          |  | 2002  |  |         
|----------------------- |  | -------- |  | ----- |  | -------- |  | -------- |  | ----- |  | -------- |  | -------- |  | ----- |  | --------
|                        |  |          |  |       |  | Weighted |  |          |  |       |  | Weighted |  |          |  |       |  | Weighted
|                        |  |          |  |       |  | Average  |  |          |  |       |  | Average  |  |          |  |       |  | Average 
|                        |  | Amount   |  | %     |  | Rate     |  | Amount   |  | %     |  | Rate     |  | Amount   |  | %     |  | Rate    
|                       
|Demand Deposits- non-   |  |          |  |       |  |          |  |          |  |       |  |          |  |          |  |       |  |         
|interest bearing        |  | $81,973  |  | 21.9  |  | - -      |  | $75,953  |  | 20.2  |  | - -      |  | $59,559  |  | 17.8  |  | - -     
|Interest bearing demand |  | 153,793  |  | 41.1  |  | 1.11%    |  | 136,073  |  | 36.2  |  | .96%     |  | 110,085  |  | 32.9  |  | 1.31%   
|Savings Accounts        |  | 32,087   |  | 8.6   |  | 0.51%    |  | 32,543   |  | 8.7   |  | .53%     |  | 31,649   |  | 9.5   |  | .79%    
|Other time deposits     |  | 105,940  |  | 28.4  |  | 2.50%    |  | 130,894  |  | 34.9  |  | 2.38%    |  | 133,263  |  | 39.8  |  | 3.16%   
|                       
|TOTAL                   |  | $373,793 |  | 100.0 |  |          |  | $375,463 |  | 100.0 |  |          |  | $334,556 |  | 100.0 |  |         

Time deposits at December 31, 2004 are scheduled to mature as follows (dollars in thousands):

|             |  | Under    |  | $100,000 |  |          |  |       
|------------ |  | -------- |  | -------- |  | -------- |  | ------
|             |  | $100,000 |  | and over |  |          |  | Total 
|            
|0-90 days    |  | $ 7,920  |  | $ 7,592  |  | $        |  | 15,506
|91-180 days  |  | 8,617    |  | 7,747    |  |          |  | 16,364
|181-365 days |  | 22,038   |  | 21,403   |  |          |  | 43,441
|Over 1 year  |  | 13,792   |  | 14,209   |  |          |  | 28,007
|             |  | $52,367  |  | $50,951  |  | $103,318

|Capital Resources
|-----------------

Consolidated capital of VFG increased $9,167,000 during 2004 to $57,840,000. Net earnings of $11,777,000 provided the largest increase to capital while exercising of stock options provided $1,464,000.
Decreases to capital were $3,007,000 in stock repurchased by the Company and cash dividends of $0.20 per share, or $1,325,000. Cash dividends totaling $0.16 were paid in 2003 and $0.13 in 2002.

There are regulatory constraints placed upon capital adequacy, and it is necessary to maintain an appropriate ratio between capital and assets. Regulations require banks and holding companies to maintain a minimum
"leverage" ratio (primary capital ratio) of total assets. For the most highly rated holding companies this ratio must be at least 3%, and for others it must be 4% to 5%. At December 31, 2004, the Company's leverage ratio was 12.94%, compared to
10.70% at year-end 2003. For regulatory purposes, any goodwill and other intangible assets are treated as a reduction of capital. In addition, holding companies are required to meet minimum risk-based capital guidelines under which risk percentages
are assigned to various categories of assets and off-balance-sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common stockholders' equity, less goodwill and other intangible assets, while Tier II capital
includes the allowance for credit

23

---

losses, subject to 1.25% limitation of risk-adjusted assets. The rules require Tier II capital of 4% of risk-adjusted assets and total capital (combined Tier I and Tier II) of 8%. At December 31, 2004, the Tier I capital
ratio was 12.24%, and total capital was 13.49% . The similar ratios at December 31, 2003 were a Tier I capital ratio of 11.20% and a total capital ratio of 13.04% .  For additional information, see "Item 1-Business-Supervision and Regulation-Capital
Adequacy".

|Borrowings
|----------

Information concerning short-term borrowings is summarized as follows(dollars in thousands):

|                                          |  | 2004     |  | 2003    |  | 2002   
|----------------------------------------- |  | -------- |  | ------- |  | -------
|Average balance during the year           |  | $61,588  |  | $23,443 |  | $11,450
|Average interest rate during the year     |  | 1.6%     |  | 1.1%    |  | 1.8%   
|Maximum month-end balance during the year |  | $123,128 |  | $34,394 |  | $27,802
|Weighted average rate at December 31      |  | 2.2%     |  | .9%     |  | .9%    
|Balance at end of year                    |  | $123,128 |  | $34,394 |  | $16,547

Short-term borrowings represent demand notes from the U.S. Treasury, two notes with Citigroup, advances from the FHLB, and repurchase agreements, normally maturing within one year.

Long-term borrowings include junior subordinated debentures, term advances from the FHLB, and one note with Citigroup. The following table shows the long-term borrowing and contractual obligations as of December 31, 2004
(dollars in thousands):

|                               |  |           | Payments Due by Period |                                   | 
|------------------------------ |  | --------- | ---------------------- | --------------------------------- | 
|                              
|                               |  | Less than | After One But Within   | After Three
But Within
Five Years | 
|                               |  |           |                        |                                  
|Contractual Obligations        |  | One Year  | Three Years            |                                   | 
|                              
|Citigroup Note Payable         |  |           |                        | $     - -                         | 
|FHLB Term Advances             |  |           |                        | - -                               | 
|Junior Subordinated Debentures |  |           |                        | - -                               | 
|Operational Leases             |  |           |                        | 695                               | 
|                              
|Total Contractual Obligations  |  |           |                        | $   695                           | 

|Off-Balance Sheet Arrangements
|------------------------------

Information concerning Off-Balance Sheet Arrangements is found inNote 12 - Commitments and Contingent Liabilities,in the Companies consolidated
financial statements.

|Supplementary Quarterly Data (Unaudited)
|----------------------------------------

|(dollars in thousands, except per share |  |        |  |        |  |        |  |               |  |        |  |        |  |        |  |       
|--------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------------- |  | ------ |  | ------ |  | ------ |  | ------
|amounts)                                |  |        |  |        |  |        |  | Quarter Ended |  |        |  |        |  |       
|                                        |  | Dec    |  | Sept   |  | June   |  | March         |  | Dec    |  | Sept   |  | June   |  | March 
|                                        |  | 2004   |  | 2004   |  | 2004   |  | 2004          |  | 2003   |  | 2003   |  | 2003   |  | 2003  
|Interest income                         |  | $8,545 |  | $8,159 |  | $7,563 |  | $7,561        |  | $7,437 |  | $7,519 |  | $8,164 |  | $8,236
|Interest expense                        |  | 2,025  |  | 1,650  |  | 1,522  |  | 1,497         |  | 1,491  |  | 1,507  |  | 1,550  |  | 1,618 
|Net interest income                     |  | 6,520  |  | 6,509  |  | 6,041  |  | 6,064         |  | 5,946  |  | 6,012  |  | 6,614  |  | 6,618 
|                                       
|Provision for credit losses             |  | 330    |  | (282)  |  | (143)  |  | (132)         |  | 476    |  | 654    |  | 622    |  | 577   
|Non-interest income                     |  | 7,679  |  | 2,106  |  | 1,988  |  | 1,796         |  | 2,390  |  | 5,155  |  | 2,449  |  | 2,566 
|Non-interest expense                    |  | 5,687  |  | 5,342  |  | 5,123  |  | 4,926         |  | 4,914  |  | 5,647  |  | 5,651  |  | 5,980 
|Income taxes                            |  | 3,050  |  | 804    |  | 873    |  | 894           |  | 921    |  | 1,571  |  | 836    |  | 845   
|                                       
|Net income                              |  | $5,792 |  | $2,187 |  | $1,890 |  | $1,908        |  | $2,025 |  | $3,295 |  | $1,954 |  | $1,782
|                                       
|Basic earnings per share                |  | $.89   |  | $.34   |  | $.29   |  | $.30          |  | $0.31  |  | $0.51  |  | $0.30  |  | $0.26 
|Diluted earnings per share              |  | $.86   |  | $.33   |  | $.28   |  | $.30          |  | $0.30  |  | $0.48  |  | $0.29  |  | $0.25 

24

---

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's assets and liabilities are managed to maximize long-term shareholder returns by optimizing net interest income within the constraints of maintaining high credit quality, conservative interest rate risk
disciplines and prudent levels of liquidity. The Asset/Liability Committee meets regularly to monitor the composition of the balance sheet, to assess current and projected interest rate trends, and to formulate strategies consistent with established
objectives for liquidity, interest rate risk and capital adequacy.

Interest rate sensitivity is closely related to liquidity, as each is directly affected by the maturity of assets and liabilities. The Company's net interest margin is affected by changes in the level of market interest
rates. Management's objectives are to monitor and control interest rate risk and ensure predictable and consistent growth in net interest income. See "Management's Discussion and Analysis - Liquidity and Financial Condition - Results of Operations -
Net Interest Income".

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. The Bank's 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.

|Interest Rate Gap Analysis                       
|-------------------------------------------------
|December 31, 2004                                
|                                                 
|                                                 
|                                                 
|(dollars in thousands)                           
|Loans                                            
|Securities:                                      
|Available for sale                               
|Held to maturity                                 
|Federal Funds Sold                               
|Interest bearing deposits with banks             
|Total Earning Assets                             
|                                                 
|Deposits:                                        
|Savings, NOW and money market                    
|Time deposits                                    
|Short-term borrowings                            
|Federal Funds Purchased                          
|Long-term debt and junior subordinated debentures
|                                                 
|Total Interest Bearing Liabilities               
|                                                 
|Net Interest Rate Sensitivity Gap                
|Cumulative Interest Rate Sensitivity Gap         
|Cumulative Gap as a Percent of Earning Assets    

As indicated above, the effect of rising interest rates on the Company would be a decrease in the net interest margin, whereas falling interest rates would cause a corresponding increase in the margin. Based on historical
data, however, Management believes the opposite to be true. Based on an interest rate shock analysis, in a rising rate environment, repricing of liabilities will not increase as rapidly as the upward pricing of assets and accordingly, the Company's
net interest margin will increase in a rising rate environment. Rate shock is a process wherein the characteristics of the financial assets of the Company are reviewed in the event they are subjected to an instantaneous and complete adjustment in
the market rate of interest. These results are modeled to determine the effects on interest rate margin for the succeeding twelve months from the repricing of variable rate assets and liabilities where applicable. The level of impact on the various
assets and liabilities are also estimated for their sensitivity to pricing changes of such a market interest rate change.

According to this model and its assumptions, the change in net interest margin in the event market interest rates were to immediately rise or fall by 100 basis points is estimated to be $870,000. This amount represents
approximately 3.1% of the 2004 net interest income.

The Company's 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 the Company's
business.

25

---

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

| | To the Board of Directors and ShareholdersVenture Financial Group, Inc.
| | -----------------------------------------------------------------------

We have audited the accompanying consolidated balance sheets of Venture Financial Group, Inc. and its subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Venture Financial Group, Inc. and its subsidiaries as of December 31, 2004 and
2003, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

26

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

|To the Board of DirectorsVenture Financial Group, Inc.Lacey, Washington
|-----------------------------------------------------------------------

We have audited the accompanying consolidated statements of income, shareholders' equity and cash flows ofVenture Financial Group, Inc. and Subsidiaryfor the year ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results ofVenture Financial Group Inc. and
Subsidiary'soperations and their cash flows for the year ended December 31, 2002 in conformity with U. S. generally accepted accounting principles.

27

---

VENTURE FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands)

---

|                                                                 
|-----------------------------------------------------------------
|ASSETS                                                           
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash and due from banks                                          
|Interest bearing deposits in other banks                         
|Federal funds sold                                               
|Securities available-for-sale                                    
|Investment in trusts                                             
|Securities held-to-maturity (market value: 2003 - $525)          
|Federal Home Loan Bank stock, at cost                            
|Loans held-for-sale                                              
|                                                                 
|                                                                 
|Loans                                                            
|Allowance for credit losses                                      
|                                                                 
|                                                                 
|Net loans                                                        
|                                                                 
|Premises and equipment                                           
|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                                                         
|Demand - noninterest bearing                                     
|Savings and interest-bearing demand                              
|Time                                                             
|                                                                 
|                                                                 
|Total deposits                                                   
|                                                                 
|Federal funds purchased                                          
|Short-term borrowings                                            
|Accrued interest payable                                         
|Long-term debt                                                   
|Junior subordinated debentures                                   
|Other liabilities                                                
|                                                                 
|                                                                 
|Total liabilities                                                
|                                                                 
|SHAREHOLDERS' EQUITY                                             
|Common stock (no par value); 10,000,000 shares authorized, shares
|issued and outstanding: 2004 - 6,527,507;2003 - 6,583,854        
|Additional paid-in capital                                       
|Retained earnings                                                
|Accumulated other comprehensive income                           
|                                                                 
|Total shareholders' equity                                       
|                                                                 
|                                                                 
|Total liabilities and shareholders' equity                       
|                                                                 
|                                                                 
|                                                                 
|See accompanying notes.                                          

28

---

VENTURE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(dollars in thousands, except per share data)

---



|                                               |  | YEAR ENDED DECEMBER 31,
|---------------------------------------------- |  | -----------------------
|                                               |  |                        
|                                               |  | 2004                   
|                                               |  |                        
|INTEREST INCOME                                |  |                        
|Loans                                          |  | $28,608                
|Federal funds sold and deposits in banks       |  | 24                     
|Investment securities                          |  |                        
|Taxable                                        |  | 2,905                  
|Non-taxable                                    |  | 291                    
|                                               |  |                        
|                                              
|Total interest income                          |  | 31,828                 
|                                               |  |                        
|                                              
|INTEREST EXPENSE                               |  |                        
|Deposits                                       |  | 4,063                  
|Short-term borrowings                          |  | 994                    
|Long-term debt                                 |  | 1,637                  
|                                               |  |                        
|                                              
|Total interest expense                         |  | 6,694                  
|                                               |  |                        
|                                              
|Net interest income                            |  | 25,134                 
|PROVISION FOR CREDIT LOSSES                    |  | 227                    
|                                               |  |                        
|                                              
|Net interest income after provision for credit |  | 24,907                 
|losses                                         |  |                        
|                                               |  |                        
|                                              
|NON-INTEREST INCOME                            |  |                        
|Service charges on deposit accounts            |  | 3,803                  
|Origination fees and gain on sales of loans    |  | 1,325                  
|Gain on branch divestiture                     |  | 5,462                  
|Other operating income                         |  | 2,979                  
|                                               |  |                        
|                                              
|Total non-interest income                      |  | 13,569                 
|                                               |  |                        
|NON-INTEREST EXPENSES                          |  |                        
|Salaries and employee benefits                 |  | 10,675                 
|Occupancy                                      |  | 1,627                  
|Equipment                                      |  | 1,834                  
|Amortization of intangible assets              |  | 110                    
|Other                                          |  | 6,832                  
|                                               |  |                        
|Total non-interest expenses                    |  | 21,078                 
|                                               |  |                        
|Income before income taxes                     |  | 17,398                 
|INCOME TAXES                                   |  | 5,621                  
|                                               |  |                        
|                                              
|NET INCOME                                     |  | $11,777                
|                                               |  |                        
|                                              
|EARNINGS PER SHARE                             |  |                        
|Basic                                          |  | $ 1.82                 
|Diluted                                        |  | 1.77                   
|                                              
|                                              
|                                               |  |                        

29

---

VENTURE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(dollars in thousands)

---



|                                                 
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Balance, December 31, 2001                       
|Comprehensive income                             
|Net income                                       
|Other comprehensive income, net of tax           
|Change in fair value of securities               
|available-for-sale net of tax of $113            
|Comprehensive income                             
|2 for 1 stock split                              
|Stock options exercised                          
|Stock repurchased                                
|Cash dividends paid ($.13 per share)             
|Income tax benefit from exercise of stock options
|Net decrease in unearned KSOP shares             
|                                                 
|                                                 
|Balance, December 31, 2002                       
|Comprehensive income                             
|Net income                                       
|Other comprehensive loss, net of tax             
|Change in fair value of securities               
|available-for-sale net of tax benefit of $207    
|Comprehensive income                             
|Stock options exercised                          
|Stock repurchased                                
|Cash dividends paid ($.16 per share)             
|Income tax benefit from exercise of stock options
|Net decrease in unearned KSOP shares             
|                                                 
|                                                 
|Balance, December 31, 2003                       
|                                                 
|                                                 
|                                                 

30

---

VENTURE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(continued)
(dollars in thousands)

---



|                                                    |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|--------------------------------------------------- |  | ------------------------ |  | ------- |  | - |  | ---------- |  | -------- |  | ------------------- |  | --------- |  | --------
|                                                    |  | Shares of                |  |         |  |   |  | Additional |  |          |  | Accumulated Other   |  | Unearned  |  |         
|                                                    |  | Common                   |  | Common  |  |   |  | Paid-in    |  | Retained |  | Comprehensive       |  | KSOP      |  |         
|                                                    |  | Stock                    |  | Stock   |  |   |  | Capital    |  | Earnings |  | Income              |  | Shares    |  | Total   
|                                                    |  |                          |  |         |  |   |  |            |  |          |  |                     |  |          
|                                                   
|Balance, December 31, 2003                          |  | 4,316,163                |  | 5,395   |  |   |  | 19,894     |  | 23,254   |  | 130                 |  |           |  | 48,673  
|                                                   
|Comprehensive income                                |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|Net income                                          |  |                          |  |         |  |   |  |            |  | 11,777   |  |                     |  |           |  | 11,777  
|Other comprehensive income, net of tax              |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|Change in fair value of securities                  |  |                          |  |         |  |   |  |            |  |          |  | 113                 |  |           |  | 113     
|available-for-sale net of tax of $57                |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|                                                   
|Comprehensive income                                |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  | 11,890  
|                                                   
|3 for 2 stock split                                 |  | 2,154,212                |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|Stock options exercised                             |  | 228,775                  |  | 209     |  |   |  | 1,255      |  |          |  |                     |  |           |  | 1,464   
|Stock repurchased                                   |  | (171,643)                |  | (186)   |  |   |  | (2,821)    |  |          |  |                     |  |           |  | (3,007) 
|Cash dividends paid ($.20 per share)                |  |                          |  |         |  |   |  |            |  | (1,325)  |  |                     |  |           |  | (1,325) 
|Income tax benefit from exercise of stock options   |  |                          |  |         |  |   |  | 145        |  |          |  |                     |  |           |  | 145     
|Balance, December 31, 2004                          |  | 6,527,507                |  | $ 5,418 |  | $ |  | 18,473     |  | $ 33,706 |  | $               243 |  | $       - |  | $ 57,840
|                                                   
|Comprehensive Income                                |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|                                                    |  | Years Ended December 31, |  |         |  |   |  |            |  |          |  |                    
|                                                    |  | 2004                     |  | 2003    |  |   |  | 2002       |  |          |  |                     |  |           |  |         
|                                                    |  |                          |  |         |  |   |  |            |  |          |  |                     |  |          
|                                                   
|Net income                                          |  | $ 11,777                 |  | $ 9,056 |  | $ |  | 6,212      |  |          |  |                     |  |           |  |         
|Increase in unrealized gains (losses) on securities |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|available for sale, net of tax expense (benefit)    |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|of $64                                              |  | 127                      |  | (403)   |  |   |  | 221        |  |          |  |                     |  |           |  |         
|Less reclassification adjustment for gains included |  |                          |  |         |  |   |  |            |  |          |  |                     |  |           |  |         
|in net income, net of tax benefit of $(7)           |  | (14)                     |  | -       |  |   |  | -          |  |          |  |                     |  |           |  |         
|                                                   
|Comprehensive Income                                |  | $ 11,890                 |  | $ 8,653 |  | $ |  | 6,433      |  |          |  |                     |  |           |  |         
|                                                    |  |                          |  |         |  |   |  |            |  |          |  |                     |  |          

31

---

VENTURE FINANCIAL GROUP, INC.STATEMENT OF CASH FLOWS(dollars in thousands)

---



|                                                        |  | YEAR ENDED DECEMBER 31,
|------------------------------------------------------- |  | -----------------------
|                                                        |  |                        
|                                                        |  | 2004                   
|                                                        |  |                        
|CASH FLOWS FROM OPERATING ACTIVITIES                    |  |                        
|Net income                                              |  | $11,777                
|Adjustments to reconcile net income to net cash         |  |                        
|from operating activities                               |  |                        
|Provision for credit losses                             |  | 227                    
|Depreciation and amortization                           |  | 1,559                  
|Deferred income taxes (benefit)                         |  | (1,120)                
|Stock dividends received                                |  | (130)                  
|Amortization of other intangible assets                 |  | 110                    
|Origination of loans held-for-sale                      |  | (40,910)               
|Proceeds from sales of loans held-for-sale              |  | 43,255                 
|Origination fees and gain on sale of loans              |  | (1,325)                
|Increase in cash value of life insurance                |  | (318)                  
|Gain on sales of foreclosed real estate                 |  | -                      
|(Increase) decrease in accrued interest receivable      |  | (260)                  
|Increase (decrease) in accrued interest payable         |  | 446                    
|Other                                                   |  | 5,990                  
|                                                        |  |                        
|                                                       
|Net cash from operating activities                      |  | 19,301                 
|                                                        |  |                        
|                                                       
|CASH FLOWS FROM INVESTING ACTIVITIES                    |  |                        
|Purchase of Harbor Bank, net of cash received           |  | -                      
|Net (increase) decrease in interest bearing deposits in |  | 148                    
|banks                                                   |  |                        
|Net decrease in federal funds sold                      |  | 5,530                  
|Activity in securities available-for-sale               |  |                        
|Maturities, prepayments and calls                       |  | 26,586                 
|Purchases                                               |  | (15,005)               
|Activity in securities held-to-maturity                 |  |                        
|Maturities, prepayments and calls                       |  | 504                    
|Proceeds from sale of FHLB stock                        |  | -                      
|Purchase of FHLB stock                                  |  | (2,746)                
|Proceeds from sale of Federal Reserve Stock             |  | -                      
|Net increase in loans                                   |  | (67,045)               
|Purchase of life insurance policies                     |  | -                      
|Proceeds from sales of foreclosed assets                |  | 730                    
|Proceeds from sales of premises and equipment           |  | 3,451                  
|Additions to premises and equipment                     |  | (4,645)                
|                                                        |  |                        
|                                                       
|Net cash from investing activities                      |  | (52,492)               
|                                                        |  |                        

|See accompanying notes.
|-----------------------

32

---

VENTURE FINANCIAL GROUP, INC.
STATEMENT OF CASH FLOWS
(dollars in thousands)

---



|                                                       
|-------------------------------------------------------
|                                                       
|                                                       
|                                                       
|                                                       
|CASH FLOWS FROM OPERATING ACTIVITIES                   
|Net income                                             
|Adjustments to reconcile net income to net cash        
|from operating activities                              
|Provision for credit losses                            
|Depreciation and amortization                          
|Deferred income taxes (benefit)                        
|Stock dividends received                               
|Amortization of other intangible assets                
|Origination of loans held-for-sale                     
|Proceeds from sales of loans held-for-sale             
|Origination fees and gain on sale of loans             
|Increase in cash value of life insurance               
|                                                       
|Gain on sales of foreclosed real estate                
|(Increase) decrease in accrued interest receivable     
|Increase (decrease) in accrued interest payable        
|Other                                                  
|                                                       
|                                                       
|Net cash from operating activities                     
|                                                       
|                                                       
|CASH FLOWS FROM INVESTING ACTIVITIES                   
|Purchase of Harbor Bank, net of cash received          
|Net (increase) decrease in interest bearing deposits in
|banks                                                  
|Net decrease in federal funds sold                     
|Activity in securities available-for-sale              
|Maturities, prepayments and calls                      
|Purchases                                              
|Activity in securities held-to-maturity                
|Maturities, prepayments and calls                      
|Proceeds from sale of FHLB stock                       
|Purchase of FHLB stock                                 
|Proceeds from sale of Federal Reserve Stock            
|Net increase in loans                                  
|Purchase of life insurance policies                    
|Proceeds from sales of foreclosed assets               
|Proceeds from sales of premises and equipment          
|Additions to premises and equipment                    
|                                                       
|                                                       
|Net cash from investing activities                     
|                                                       

|See accompanying notes.
|-----------------------

33

---

VENTURE FINANCIAL GROUP, INC.STATEMENT OF CASH FLOWS (continued)(dollars in thousands)

---



|                                                            |  | YEAR ENDED DECEMBER 31,
|----------------------------------------------------------- |  | -----------------------
|                                                            |  |                        
|                                                            |  | 2004                   
|                                                            |  |                        
|CASH FLOWS FROM FINANCING ACTIVITIES                        |  |                        
|Net decrease in deposits                                    |  | (55,502)               
|Net increase in federal funds purchased                     |  | 5,575                  
|Net increase in short-term borrowings                       |  | 80,734                 
|Proceeds from exercise of stock options                     |  | 1,464                  
|Proceeds from long-term debt                                |  | -                      
|Repayment of long-term debt                                 |  | -                      
|Repurchase of common stock                                  |  | (3,007)                
|Payment of cash dividends                                   |  | (1,325)                
|                                                            |  |                        
|                                                           
|Net cash from financing activities                          |  | 27,939                 
|                                                            |  |                        
|                                                           
|NET INCREASE IN CASH AND DUE FROM BANKS                     |  | (5,252)                
|                                                           
|CASH AND DUE FROM BANKS                                     |  |                        
|Beginning of year                                           |  | 19,048                 
|                                                            |  |                        
|                                                           
|End of year                                                 |  | $13,796                
|                                                            |  |                        
|                                                           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW                       |  |                        
|INFORMATION                                                 |  |                        
|Cash payments for                                           |  |                        
|Interest                                                    |  | $ 6,248                
|Income taxes                                                |  | $ 3,785                
|                                                           
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING              |  |                        
|AND FINANCING ACTIVITIES                                    |  |                        
|Foreclosed real estate acquired in settlement of loans      |  | $ 312                  
|Fair value adjustment of securities available-for-sale, net |  | $ 113                  
|Net decrease in unearned KSOP shares                        |  | $ -                    
|Income tax benefit from exercise of stock options           |  | $ 145                  
|Deconsolidation of trust preferred securities               |  | $ 589                  
|Reclassification of long-term debt to short-term            |  | $ 8,000                
|borrowings                                                  |  |                        

|See accompanying notes.
|-----------------------

34

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies

Nature of operations- Venture Financial Group, Inc. (the Company) provides commercial banking services in Washington State through 14 offices concentrated in and around Thurston,
Pierce, Lewis and King Counties. The Company provides loan and deposit services to customers who are predominately small and middle-market businesses and individuals in Western Washington. The Company also provides real estate mortgage lending
services through its branch network and the sale of non-deposit investment products through Venture Wealth Management. In addition, the Company is engaged in the small loan business in Arkansas, making short-term loans primarily to individuals in
that state.

Principles of consolidation- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, VFG Capital Trust I, VFG Capital Trust II,
Venture Bank (the Bank) and the Bank's wholly-owned subsidiary, Venture Wealth Management. All significant intercompany transactions and balances have been eliminated.

Consolidated financial statement presentation- The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America and practices within the banking industry. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent
assets and liabilities, as of the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly 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.

Certain prior year amounts have been reclassified to conform to the 2004 presentation. The reclassifications had no effect on net income or retained earnings as previously reported. All dollar amounts, except per share
information, are stated in thousands.

Securities available-for-sale- Securities available-for-sale consist of debt securities the Company intends to hold for an indefinite period, but not necessarily to maturity, and
certain equity securities. Such securities may be sold to implement the Company's asset/liability management strategies and in response to changes in interest rates and similar factors. Securities available-for-sale are reported at fair value.
Unrealized gains and losses, net of the related deferred tax effect, are reported as a net amount in a separate component of stockholders' equity entitled "accumulated other comprehensive income (loss)." Realized gains and losses on securities
available-for-sale, determined using the specific identification method, are included in earnings. Accretion of discounts is recognized in interest income over the period to maturity. Amortization of premiums is recognized in interest income over
the period to call date.

Securities held-to-maturity- Debt securities for which the Company has the positive intent and ability to hold-to-maturity are reported at cost, adjusted for amortization of premiums
and accretion of discounts which are recognized in interest income over the period to maturity.

Declines in the fair value of individual securities held-to-maturity and available-for-sale below their cost that are other than temporary result in write-downs of the individual securities to their fair value. Such
write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to

35

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Federal Home Loan Bank Stock- The Bank's investment in Federal Home Loan Bank (FHLB) stock is carried at par value ($100 per share), which reasonably approximates its fair value.
As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specified percentages of its outstanding FHLB advances. The Bank may request redemption at par value of any stock in excess of the
amount the Bank is required to hold. Stock redemptions are at the discretion of the FHLB.

Loans held-for-sale- Mortgage loans originated for sale in the foreseeable future in the secondary market are carried at the lower of aggregate cost or estimated market value. Gains
and losses on sales of loans are recognized at settlement date and are determined by the difference between the sales proceeds and the carrying value of the loans. Loans held-for-sale are sold with the following recourse provisions: the borrower
defaults on the payment or refinances the loan within the investor established timeframes. In these instances, depending upon the investor agreement, the Bank must repurchase the loan and/or refund the service release premium and/or pay a penalty to
the investor. Net unrealized losses are recognized as charges to income. Mortgage loans held for sale are generally sold with the mortgage servicing rights released or sold.

Loans- Loans are stated at the amount of unpaid principal, reduced by deferred loan origination fees and an allowance for credit losses. Interest on loans is accrued daily based on
the principal amount outstanding. Interest on small loans is recognized when the loan is repaid by the borrower. Generally, the accrual of interest on loans is discontinued when, in management's opinion, the borrower may be unable to meet payments
as they become due or when they are past due 90 days as to either principal or interest, unless they are well secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed against current
income. If management determines that the ultimate collectibility of principal is in doubt, cash receipts on nonaccrual loans are applied to reduce the principal balance on a cash-basis method, until the loans qualify for return to accrual status.
Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loan origination and commitment fees and certain direct loan origination costs are
deferred and amortized as an adjustment to the yield of the related loan.

Allowance for credit losses- The allowance for credit losses is maintained at a level considered adequate to provide for probable losses on existing loans based on evaluating known
and inherent risks in the loan portfolio. The allowance is reduced by loans charged off, and increased by provisions charged to earnings and recoveries on loans previously charged off. The allowance is based on management's periodic, systematic
evaluation of factors underlying the quality of the loan portfolio including changes in the size and composition of the loan portfolio, the estimated value of any underlying collateral, actual loan loss experience, current economic conditions, and
detailed analysis of individual loans for which full collectibility may not be assured. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While
management uses the best information available to make its estimates, future adjustments to the allowance may be necessary if there is a significant change in economic conditions.

36

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

When available information confirms that specific loans or portions thereof are uncollectible, these amounts are charged off against the allowance for credit losses. The existence of some or all of the following criteria
will generally confirm that a loss has been incurred: the loan is significantly delinquent and the borrower has not evidenced the ability or intent to bring the loan current; the Bank has no recourse to the borrower, or if it does, the borrower has
insufficient assets to pay the debt; the estimated fair value of the loan collateral is significantly below the current loan balance, and there is little or no near-term prospect for improvement. Losses in the small loan portfolio are limited to a
percentage of revenue earned from the portfolio by the Bank's agent as stated in the Marketing and Servicing agreement.

When management determines that it is probable that a borrower will be unable to repay all amounts due according to the terms of the loan agreement, including scheduled interest payments, the loan is considered impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls are generally not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of shortfall in relation to the principal and interest owed. The amount of impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or, when the primary source of repayment is provided by real estate collateral, at the fair value of the collateral less estimated selling costs. In addition, regulatory
agencies, as an integral part of their examination process, periodically review the Bank's allowance for credit losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the
time of their examinations.

The ultimate recovery of all loans is susceptible to future market factors beyond the Bank's control. These factors may result in losses or recoveries differing significantly from those provided for in the financial
statements.

Transfers of financial assets- Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank
does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and equipment- Premises and equipment are stated at cost less accumulated depreciation, which is computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of the lease or the estimated useful life of the improvement, whichever is less. Gains or losses on dispositions are reflected in earnings.

Goodwill- Goodwill represents costs in excess of net assets acquired, and is evaluated periodically for impairment.

Other intangible assets- Other intangible assets represent the core deposit premium acquired in the purchase of Harbor Bank, NA (see Note 2). The core deposit premium is being
amortized on the straight-line method over seven years.

37

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

Foreclosed real estate- Real estate properties acquired through, or in lieu of, foreclosure are initially recorded at the lower of cost or fair value of the properties less estimated
costs of disposal. Any write-down to fair value at the time of transfer to foreclosed real estate or within a reasonable period thereafter is charged to the allowance for credit losses. 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 operations of properties are charged to operations.

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. The deferred tax provision represents the difference between the net
deferred tax asset/liability at the beginning and end of the year. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

The Company files a consolidated tax return with the Bank. The Bank provides for tax on a separate company basis and remits to the Company amounts due.

38

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

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

At December 31, 2004 the Company has one stock-based employee and director compensation plan. At December 31, 2003, the Company had two stock-based employee and director compensation plans. Both plans are described more
fully in Note 15. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, no stock-based compensation cost is reflected in net income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The
following illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation, to stock-based compensation awards for the effects of all options granted on or after January 1, 1995 for the years ended December 31:

|                                    |  | 2004 |  | 2003   |  | 2002
|----------------------------------- |  | ---- |  | ------ |  | ----
|                                   
|Net income, as reported             |  | $    |  | 11,777 |  | $   
|Less total stock-based compensation |  |      |  |        |  |     
|expense determined under fair value |  |      |  |        |  |     
|method for all qualifying awards    |  |      |  | 203    |  |     
|                                    |  |      |  |        |  |     
|                                   
|Pro forma net income                |  | $    |  | 11,574 |  | $   
|                                    |  |      |  |        |  |     
|                                   
|Earnings per share                  |  |      |  |        |  |     
|Basic                               |  |      |  |        |  |     
|As reported                         |  | $    |  | 1.82   |  | $   
|Pro forma                           |  | $    |  | 1.78   |  | $   
|Diluted                             |  |      |  |        |  |     
|As reported                         |  | $    |  | 1.77   |  | $   
|Pro forma                           |  | $    |  | 1.74   |  | $   

39

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

Fair value of financial instruments- The following methods and assumptions were used by the Company in estimating the fair values of financial instruments:

Cash and due from banks, interest bearing deposits at other financial institutions and federalfunds sold-
The recorded amounts of cash and due from banks, interest bearing deposits at other financial institutions, and federal funds sold approximates their fair value.

Securities available-for-sale and held-to-maturity- Fair values for securities are based on quoted market prices.

Federal Home Loan Bank stock- The carrying value of Federal Home Loan Bank stock approximates its fair value.

Loans- For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on recorded values. Fair values for fixed rate loans are
estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of loans held-for-sale are based on their estimated market prices. Fair
values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits- The fair value of deposits with no stated maturity date is included at the amount payable on demand. The fair value of fixed maturity certificates of deposit is estimated
by discounting future cash flows using rates currently offered by the Bank for deposits of similar remaining maturities.

Federal funds purchased and short-term borrowings- The recorded amounts of federal funds purchased and short-term borrowings maturing within 90 days approximate their fair values.
Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Long-term debt and junior subordinated debentures- The fair values of the Company's long-term, fixed rate debt and junior subordinated debentures are estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The recorded amounts of variable rate debt approximate their fair value.

Accrued interest- The carrying amounts of accrued interest approximate their fair values.

Off-balance sheet instruments- The fair value of commitments to extend credit and standby letters of credit was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the customers. Since the majority of the Bank's off-balance sheet instruments consist of non-fee producing, variable-rate commitments, the Bank
has determined they do not have a distinguishable fair value.

40

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

Cash and cash equivalents- The Company considers all amounts included in the balance sheet caption "Cash and due from banks" to be cash equivalents. Cash and cash equivalents all
have maturities of three months or less. Cash flows from loans, federal funds purchased and sold, deposits and short-term borrowings are reported net.

Earnings per share- Basic earnings per share exclude dilution and are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings
per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options under the Company's stock option plans under the treasury stock method.

Advertising costs- The Company expenses advertising costs as they are incurred (see Note 19).

Comprehensive Income -Comprehensive income includes net income and other comprehensive income which refers to unrealized gains and losses that under accounting principles generally
accepted in the United States of America are excluded from net income.

Financial Instruments- In the ordinary course of business the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Recent accounting pronouncements- On December 16, 2004, The Financial Accounting Standards Board (FASB) issued FASB Statement No, 123 (revised 2004),Share-Based Payment, which is a revision of FASB No. 123,Accounting for Stock Based Compensation.Statement 123(R) supersedes
APB Opinion No. 25,Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,Statement of Cash Flows.Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Pro forma disclosure is  no longer an alternative. Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements
have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005. Statement 123(R) permits public companies to adopt its requirements using the "modified prospective" method which the Company intends to adopt. A "modified prospective"
method in which the compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123
all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have an impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at
this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the
disclosure of pro forma net income and earnings per share as previously disclosed.

41

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---



Note 1 - Organization and Summary of Significant Accounting Policies (continued)

In January 2003, FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities(VIE), as amended and interpreted with an
implementation date of March 31, 2004. Interpretation No. 46 defines a VIE as a corporation, partnership, trust, or other legal structure used for the business purpose that either does not have equity investors with voting rights or has equity
investors that do not provide sufficient financial resources for the entity to support its activities. This interpretation will require a VIE to be consolidated or deconsolidated by a company generally based on the risk of loss of return. The
Company has two VIEs in the form of Trusts set up to issue Trust Preferred Securities and accordingly, the implementation of the Interpretation requires the deconsolidation of the Trusts.

The application of Interpretation No. 46 has been implemented as of December 31, 2004. The implementation did not have a significant impact on the Company's financial position or results of operations.

In May 2003 FASB issued Statement No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. Adoption of the Statement did not result in an impact on the Company's statement of financial position
or results of operations.

42

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 2 - Acquisitions

The Company sold seven of its branches on October 8, 2004. Of the seven branches, one was in Thurston County, two were in Lewis County and four were in Grays Harbor County. Deposits transferred totaled $88 million. The
Company retained all loans originated through the seven branches. The Company realized a $3.5 million gain net of tax and previously recorded goodwill with respect to such branches.

To expand the Company's market presence in Pierce County, on October 1, 2002 the Company purchased all of the common stock of Harbor Bank, N.A. (Harbor), located in Gig Harbor, Washington, for $6,929 in cash. The
Company had been considering a possible branch expansion into Gig Harbor and determined that this acquisition would be more cost effective than de novo branching. After acquisition, Harbor was merged into the Bank. Results of operations of Harbor
are included in the Company's consolidated financial statements from October 1, 2002, the effective date of the merger. Goodwill of approximately $4,693, and core deposit intangible of approximately $775 were recorded as a result of the
acquisition. The goodwill is not being amortized, but is subject to annual impairment tests with the other goodwill recorded in the Company's financial statements. None of the goodwill will be deductible for income tax purposes. The core deposit
intangible is being amortized on a straight-line basis over seven years.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of Harbor at the date of acquisition:

| | Cash and due from banks       |  | $ |  | 2,894 
| | ----------------------------- |  | - |  | ------
| | Federal funds sold            |  |   |  | 14,905
| | Securities available-for-sale |  |   |  | 1,819 
| | Loans                         |  |   |  | 54,761
| | Core deposit intangible       |  |   |  | 775   
| | Goodwill                      |  |   |  | 4,693 
| | Other assets                  |  |   |  | 1,699 
| |                               |  |  
| |                              
| | Total assets acquired         |  |   |  | 81,546
| |                               |  |  
| |                              
| | Total deposits                |  |   |  | 74,163
| | Other liabilities             |  |   |  | 454   
| |                               |  |  
| |                              
| | Total liabilities             |  |   |  | 74,617
| |                               |  |  
| |                              
| | Net assets acquired           |  | $ |  | 6,929 
| |                               |  |  

43

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 3 - Restricted Assets
|--------------------------

Federal Reserve Board regulations require that the Bank maintain reserves in the form of cash on hand and deposit balances with the Federal Reserve Bank. The amount of such balances for the years ended December 31, 2004 and
2003 was $1,400.

44

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 4 - Securities
|-------------------

Securities have been classified according to management's intent. The recorded amounts of securities and
              their fair value at December 31 were as follows:

|                               |  | Amortized 
Cost |  | Gross
Unrealized
Gains |              | Gross
Unrealized
Losses |  | Gross
Unrealized
Losses |      |       |  |    
|------------------------------ |  | --------------- |  | ---------------------- | ------------ | ----------------------- |  | ----------------------- | ---- | ----- |  | ---
|                               |  |                 |  |                        |              |                         |  |                        
|                               |  |                 |  |                        |              |                         |  |                        
|                               |  |                 |  | Less Than              | Greater Than |                         |  |                         | Fair
|Securities Available-for-Sale  |  |                 |  | 12 Months              |              | 12 Months               |  |                         |      | Value
|                               |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|                              
|December 31, 2004              |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|U.S. Government and            |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|agency securities              |  | $               |  | 6,830                  |              | $                       |  | 51                      |      | $     |  | -  
|Corporate securities           |  |                 |  | 3,058                  |              |                         |  | 1                       |      |       |  | 16 
|Mortgage backed securities     |  |                 |  | 54,569                 |              |                         |  | 257                     |      |       |  | 5  
|State and municipal securities |  |                 |  | 5,294                  |              |                         |  | 260                     |      |       |  | -  
|Equity securities              |  |                 |  | 3,173                  |              |                         |  | -                       |      |       |  | 13 
|                               |  |                 |  |                        |              |                         |  |                         |      |      
|                              
|                               |  | $               |  | 72,924                 |              | $                       |  | 569                     |      | $     |  | 34 
|                               |  |                 |  |                        |              |                         |  |                         |      |      
|                              
|December 31, 2003              |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|U.S. Government and            |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|agency securities              |  | $               |  | 18,056                 |              | $                       |  | 148                     |      | $     |  | 109
|Corporate securities           |  |                 |  | 5,124                  |              |                         |  | 21                      |      |       |  | 2  
|Mortgage backed securities     |  |                 |  | 52,884                 |              |                         |  | 90                      |      |       |  | 249
|State and municipal securities |  |                 |  | 5,576                  |              |                         |  | 298                     |      |       |  | 1  
|Equity securities              |  |                 |  | 3,042                  |              |                         |  | -                       |      |       |  | -  
|                               |  |                 |  |                        |              |                         |  |                         |      |      
|                              
|                               |  | $               |  | 84,682                 |              | $                       |  | 557                     |      | $     |  | 361
|                               |  |                 |  |                        |              |                         |  |                         |      |      
|                              
|Securities Held-to-Maturity    |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|December 31, 2003              |  |                 |  |                        |              |                         |  |                         |      |       |  |    
|State and municipal securities |  | $               |  | 505                    |              | $                       |  | 20                      |      | $     |  | -  
|                               |  |                 |  |                        |              |                         |  |                         |      |      

The Company had no securities held-to-maturity as of December 31, 2004.

Certain investment securities shown above currently have fair values less than amortized cost and therefore contain unrealized losses. The Company has evaluated these securities and has determined that the decline in value
is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any company or industry specific event. There are approximately eight investment securities with unrealized losses. The Company
anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment.

45

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 4 - Securities (continued)
|-------------------------------

The contractual maturities of securities available-for-sale at December 31, 2004 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties. Therefore, the mortgage backed securities have been classified separately in the maturity table.

|                                       |  |           |  | Available-for-Sale
|-------------------------------------- |  | --------- |  | ------------------
|                                       |  | Amortized |  | Fair              
|                                       |  |           |  | Cost              
|                                       |  |           |  |                   
|                                      
|Due in one year or less                |  | $         |  | 1,523             
|Due after one year through five years  |  |           |  | 11,676            
|Due after five years through ten years |  |           |  | 1,983             
|No maturity investment                 |  |           |  | 3,173             
|Mortgage backed securities             |  |           |  | 54,569            
|                                       |  |           |  |                   
|                                      
|                                       |  | $         |  | 72,924            
|                                       |  |           |  |                   

Securities recorded at approximately $64,814 at December 31, 2004 and $55,273 at December 31, 2003
           were pledged to secure public deposits and for other purposes required or permitted by law.

|Note 5 - Loans
|--------------

| | Loans at December 31 consist of the following:
| | ----------------------------------------------

|                              |  | 2004      |  |            |  | 2003      |  |           
|----------------------------- |  | --------- |  | ---------- |  | --------- |  | ----------
|                              |  |           |  |           
|                              |  |           |  | Percent of |  |           |  | Percent of
|                              |  | Portfolio |  | Portfolio  |  | Portfolio |  | Portfolio 
|                              |  |           |  |            |  |           |  |           
|                             
|Commercial                    |  | $ 58,699  |  | 13.6       |  | $ 52,613  |  | 14.4      
|Real estate                   |  |           |  |            |  |           |  |           
|Residential 1- 4 family       |  | 9,415     |  | 2.2        |  | 9,545     |  | 2.6       
|Commercial                    |  | 251,465   |  | 58.4       |  | 212,067   |  | 58.2      
|Construction                  |  | 102,042   |  | 23.7       |  | 80,254    |  | 22.0      
|Consumer                      |  | 5,247     |  | 1.2        |  | 6,910     |  | 1.9       
|Small loans                   |  | 3,821     |  | 0.9        |  | 3,158     |  | 0.9       
|                              |  |           |  |            |  |           |  |           
|                             
|Loans, net of unearned income |  | 430,689   |  | 100.0      |  | 364,547   |  | 100.0     
|                             
|Unearned income               |  | (1,166)   |  |            |  | (1,054)   |  |           
|Allowance for credit losses   |  | (7,189)   |  |            |  | (7,589)   |  |           
|                              |  |           |  |            |  |           |  |           
|                             
|Total loans, net              |  | $ 422,334 |  |            |  | $ 355,904 |  |           
|                              |  |           |  |            |  |           |  |           

46

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 5 - Loans (continued)
|--------------------------

Changes in the allowance for credit losses for the years ended December 31 are as follows:

|                                                                    |  |   |  | 2004    |  |   |  | 2003    |  |   |  | 2002   
|------------------------------------------------------------------- |  | - |  | ------- |  | - |  | ------- |  | - |  | -------
|                                                                    |  |   |  |         |  |  
|Balance at beginning of year                                        |  | $ |  | 7,589   |  | $ |  | 7,947   |  | $ |  | 4,088  
|Provision charged (credited) to operations                          |  |   |  | 227     |  |   |  | 2,329   |  |   |  | 2,343  
|Transfer from Harbor Bank                                           |  |   |  | -       |  |   |  | -       |  |   |  | 3,868  
|Charge-offs (community banking)                                     |  |   |  | (897)   |  |   |  | (2,008) |  |   |  | (876)  
|Recoveries (community banking)                                      |  |   |  | 698     |  |   |  | 268     |  |   |  | 60     
|Charge-offs (small loans)                                           |  |   |  | (1,165) |  |   |  | (1,882) |  |   |  | (2,398)
|Recoveries (small loans)                                            |  |   |  | 737     |  |   |  | 935     |  |   |  | 862    
|                                                                    |  |   |  |         |  |  
|Net charge-offs                                                     |  |   |  | (627)   |  |   |  | (2,687) |  |   |  | (2,352)
|                                                                    |  |   |  |         |  |  
|Balance at end of year                                              |  | $ |  | 7,189   |  | $ |  | 7,589   |  | $ |  | 7,947  
|                                                                    |  |   |  |         |  |  
|Ratio of net charge-offs to average loans outstanding               |  |   |  | 0.16%   |  |   |  | 0.74%   |  |   |  | 0.75%  
|Following is a summary of information pertaining to impaired loans: |  |   |  |         |  |  
|                                                                    |  |   |  | 2004    |  |   |  | 2003    |  |   |  | 2002   
|                                                                    |  |   |  |         |  |  
|December 31                                                         |  |   |  |         |  |   |  |         |  |   |  |        
|Impaired loans without a valuation allowance                        |  | $ |  | 906     |  | $ |  | 266     |  | $ |  | 748    
|Impaired loans with a valuation allowance                           |  |   |  | 2,175   |  |   |  | 1,938   |  |   |  | 5,795  
|                                                                    |  |   |  |         |  |  
|Total impaired loans                                                |  | $ |  | 3,081   |  | $ |  | 2,204   |  | $ |  | 6,543  
|                                                                    |  |   |  |         |  |  
|Valuation allowance related to impaired loans                       |  | $ |  | 530     |  | $ |  | 869     |  | $ |  | 908    
|                                                                    |  |   |  |         |  |  
|Years ended December 31                                             |  |   |  |         |  |   |  |         |  |   |  |        
|Average investment in impaired loans                                |  | $ |  | 1,746   |  | $ |  | 3,870   |  | $ |  | 2,925  
|Interest income recognized on a cash                                |  |   |  |         |  |   |  |         |  |   |  |        
|basis on impaired loans                                             |  | $ |  | -       |  | $ |  | -       |  | $ |  | -      

At December 31, 2004, there were no commitments to lend additional funds to borrowers whose loans were impaired. Loans over 90 days past due still accruing interest were $2,004 and $2 at December 31, 2004 and 2003,
respectively.

Certain related parties of the Company, principally Bank directors and their associates, were loan customers of the Bank in the ordinary course of business during 2004 and 2003. Total loans outstanding at December 31, 2004
and 2003 to key officers and directors were $6,745 and $7,923, respectively. During 2004, advances totaled $1,581 and repayments totaled $2,752 on these loans. In the opinion of management, these related party loans were made on
substantially the same terms, including interest rates and collateral requirements, as those terms prevailing at the date these loans were made. During 2004 and 2003, there were no loans to related parties that were considered to be classified or
impaired.

47

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 6 - Premises and Equipment
|-------------------------------

The components of premises and equipment at December 31 are as follows:

|                                               |  |   |  | 2004   |  |   |  | 2003  
|---------------------------------------------- |  | - |  | ------ |  | - |  | ------
|                                               |  |   |  |       
|Land                                           |  | $ |  | 1,336  |  | $ |  | 1,807 
|Buildings and leasehold improvements           |  |   |  | 9,939  |  |   |  | 10,148
|Equipment, furniture and fixtures              |  |   |  | 9,131  |  |   |  | 10,552
|Construction in progress                       |  |   |  | 568    |  |   |  | 17    
|                                               |  |   |  |       
|Total cost                                     |  |   |  | 20,974 |  |   |  | 22,524
|Less accumulated depreciation and amortization |  |   |  | 9,245  |  |   |  | 10,412
|                                               |  |   |  |       
|Premises and equipment                         |  | $ |  | 11,729 |  | $ |  | 12,112
|                                               |  |   |  |       

Depreciation expense was $1,559, $1,479 and $1,149 in 2004, 2003 and 2002, respectively.

The Bank leases premises and equipment under operating leases. Rental expense of leased premises and equipment was $666, $672 and $509 for 2004, 2003 and 2002, respectively, which is included in occupancy
expense. Subsequent to year-end, the Company purchased property in Dupont, Washington for $2 million for future use as corporate headquarters. The transaction closed on February 17, 2005.

Minimum net rental commitments under noncancelable leases having an original or remaining term of more than one year for future years ending December 31 are as follows:

| | YEAR ENDING  |  |        |  |      
| | ------------ |  | ------ |  | -----
| | DECEMBER 31, |  | AMOUNT
| |             
| | 2005         |  | $      |  | 695  
| | 2006         |  |        |  | 624  
| | 2007         |  |        |  | 611  
| | 2008         |  |        |  | 632  
| | 2009         |  |        |  | 694  
| | Thereafter   |  |        |  | 721  
| |              |  |       
| |              |  | $      |  | 3,977
| |              |  |       

48

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|                                                                 
|-----------------------------------------------------------------
|Note 7 - Foreclosed Real Estate                                  
|Foreclosed real estate consisted of the following at December 31:
|                                                                 
|                                                                 
|Real estate acquired through                                     
|foreclosure                                                      
|Allowance for losses                                             
|                                                                 
|Total foreclosed real estate                                     
|                                                                 

Changes in the allowance for losses on foreclosed assets for the years ended December 31 are as follows:

|                                                          |  | 2004         |  |  | 2003         |             | 2002 |    
|--------------------------------------------------------- |  | ------------ |  |  | ------------ | ----------- | ---- | ---
|                                                          |  |              |  |  |              |             |     
|Balance, beginning of year                                |  | $          - |  |  | $      250   |             | $    | 250
|Provision for losses                                      |  | -            |  |  | (250)        |             |      | -  
|                                                          |  |              |  |  |              |             |     
|Balance, end of year                                      |  | $          - |  |  | $          - |             | $    | 250
|                                                          |  |              |  |  |              |             |     
|                                                         
|Note 8 - Deposits                                         |  |              |  |  |              |             |      |    
|The composition of deposits at December 31 is as follows: |  |              |  |  |              |             |      |    
|                                                          |  |              |  |  |              | 2004        |      |    
|                                                          |  |              |  |  |              |             |      |    
|Demand deposits, non-interest bearing                     |  |              |  |  |              | $    72,250 |      |    
|NOW and money market accounts                             |  |              |  |  |              | 128,133     |      |    
|Savings deposits                                          |  |              |  |  |              | 23,020      |      |    
|Time certificates, $100,000 or more                       |  |              |  |  |              | 50,951      |      |    
|Other time certificates                                   |  |              |  |  |              | 52,367      |      |    
|                                                          |  |              |  |  |              |             |      |    
|Total                                                     |  |              |  |  |              | $ 326,721   |      |    
|                                                          |  |              |  |  |              |             |      |    

Scheduled maturities of time deposits for future years ending December 31 are as follows:

| | YEAR ENDING  |  |          
| | ------------ |  | ---------
| | DECEMBER 31, |  | AMOUNT   
| |             
| | 2005         |  | $ 75,311 
| | 2006         |  | 10,987   
| | 2007         |  | 9,377    
| | 2008         |  | 6,855    
| | 2009         |  | 788      
| |              |  |          
| |             
| |              |  | $ 103,318
| |              |  |          

49

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 9 - Federal Funds Purchased and Short-Term Borrowings

Federal funds purchased generally mature within one to four days from the transaction date. The balances at December 31, 2004 represent advances from a line of credit agreement with KeyBank (agreement had a limit of $15
million at December 31, 2004). Federal funds purchased were $5,575,000 as of December 31, 2004. The Company had no federal funds purchased at December 31, 2003.

|Short-term borrowings at December 31 are as follows:       |  |   |  |         |  |   |  |       
|---------------------------------------------------------- |  | - |  | ------- |  | - |  | ------
|                                                          
|                                                           |  |   |  | 2004    |  |   |  | 2003  
|                                                           |  |   |  |        
|Overnight Cash Management Advances with the Federal        |  |   |  |         |  |   |  |       
|Home Loan Bank. The Advances are secured by a              |  |   |  |         |  |   |  |       
|blanket pledge of assets and bears interest at a rate of   |  |   |  |         |  |   |  |       
|2.35% on December 31, 2004.                                |  | $ |  | 6,100   |  | $ |  | -     
|Demand note issued to U.S. Treasury, bearing interest      |  |   |  |         |  |   |  |       
|at the federal funds rate less .25% (2.00% at              |  |   |  |         |  |   |  |       
|December 31, 2004), due on demand, secured by              |  |   |  |         |  |   |  |       
|securities pledged to the Federal Reserve Bank of          |  |   |  |         |  |   |  |       
|San Francisco in the amount of $4,156 in 2003 and          |  |   |  | 2,463   |  |   |  | 1,734 
|$3,729 in 2004.                                            |  |   |  |         |  |   |  |       
|Note payable to Citigroup, maturing August 2005; principal |  |   |  |         |  |   |  |       
|and interest due upon maturity at a rate of 2.15%. The     |  |   |  |         |  |   |  |       
|note is secured by securties pledged to Citigroup in the   |  |   |  |         |  |   |  |       
|amount of $8,000.                                          |  |   |  | 8,000   |  |   |  | -     
|Note payable to Citigroup, maturing May 2005; interest     |  |   |  |         |  |   |  |       
|payable quarterly at a rate of 2.10%. The note is          |  |   |  |         |  |   |  |       
|secured by securties pledged to Citigroup in the           |  |   |  |         |  |   |  |       
|amount of $14,700.                                         |  |   |  | 14,700  |  |   |  | -     
|Note payable to Citigroup, maturing January 2004; interest |  |   |  |         |  |   |  |       
|payable quarterly at a rate of 1.20%. The note is          |  |   |  |         |  |   |  |       
|secured by securties pledged to Citigroup in the           |  |   |  |         |  |   |  |       
|amount of $5,000                                           |  |   |  | -       |  |   |  | 5,000 
|Note payable to Citigroup, maturing March 2004; interest   |  |   |  |         |  |   |  |       
|payable quarterly at a rate of 1.21%. The note is          |  |   |  |         |  |   |  |       
|secured by securties pledged to Citigroup in the           |  |   |  |         |  |   |  |       
|amount of $9,700.                                          |  |   |  | -       |  |   |  | 9,700 
|Short-term borrowings with the FHLB. Borrowings are fully  |  |   |  |         |  |   |  |       
|collateralized by a separate portfolio of securities and   |  |   |  |         |  |   |  |       
|commercial real estate loans pledged to FHLB in the        |  |   |  |         |  |   |  |       
|amount of $105,509. Borrowings mature beginning            |  |   |  |         |  |   |  |       
|in January and ending in April 2005 at a weighted          |  |   |  |         |  |   |  |       
|average interest rate of 2.23%.                            |  |   |  | 80,600  |  |   |  | -     
|Overnight repurchase agreements with customers.            |  |   |  |         |  |   |  |       
|Balances of repurchase agreements fully collateralized     |  |   |  |         |  |   |  |       
|by separate portfolio of securities pledged to Federal     |  |   |  |         |  |   |  |       
|Home Loan Bank of Seattle in the amount of $15,307 and     |  |   |  |         |  |   |  |       
|$18,462, at December 31, 2004 and 2003, respectively.      |  |   |  |         |  |   |  |       
|The weighted average interest rate on                      |  |   |  |         |  |   |  |       
|these agreements was .96% and .65% at December 31,         |  |   |  |         |  |   |  |       
|2004 and 2003, respectively.                               |  |   |  | 11,265  |  |   |  | 17,960
|                                                           |  |   |  |        
|                                                          
|                                                           |  | $ |  | 123,128 |  | $ |  | 34,394
|                                                           |  |   |  |        

50

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|                                                                      
|----------------------------------------------------------------------
|Note 9 - Federal Funds Purchased and Short-Term Borrowings (continued)
|Information concerning short-term borrowings is summarized as follows:
|                                                                      
|                                                                      
|                                                                      
|Average balance during the year                                       
|Average interest rate during the year                                 
|Maximum month-end balance during                                      
|the year                                                              
|Weighted average rate at December 31                                  
|                                                                      
|Note 10 - Long-Term Debt and Junior Subordinated Debentures           
|                                                                      

|Long-term debt at December 31 is as follows:                                                       | 2004         |  | 2003       
|-------------------------------------------------------------------------------------------------- | ------------ |  | -----------
|                                                                                                   |              |  |            
|Term advances from Federal Home Loan Bank of                                                       |              |  |            
|Seattle, maturing December 2007; two advances of                                                   |              |  |            
|$5,000 each, interest-only, monthly payments prior to                                              |              |  |            
|maturity, fixed interest rates on advances are 3.78% and 3.58%.                                    | $    10,000  |  | $    10,000
|                                                                                                  
|Note payable to Citigroup, maturing August 2005; principaland
interest due upon maturity           |              |  |            
|at
 a rate of 2.84%. The
	note is secured by securities pledged to Citigroup in theamount          |              |  |            
|of
 $8,000.  Note payable transferred to short term borrowings in 2004 (see Note 9).               | -            |  | 8,000      
|                                                                                                  
|Note payable to Citigroup, maturing August 2006; interest
due quarterly at a rate of 2.84%. The    |              |  |            
|note issecured by securities pledged to Citigroup in theamount
 of $5,000.                         | 5,000        |  | 5,000      
|                                                                                                   |              |  |            
|Junior subordinated debentures issued April 2003, maturing
 April2033; interest only payments due  |              |  |            
|quarterly at a rate ofLIBOR
 plus 3.25%(5.81% at December 31, 2004).                               | 6,186        |  | 6,000      
|                                                                                                   |              |  |            
|Junior subordinated debentures issued April 2003, maturing
 April2033;
 interest only payments due |              |  |            
|quarterly at a rate ofLIBOR
 plus 3.25%(5.81% at December 31, 2004).                               | 13,403       |  | 13,000     
|                                                                                                   |              |  |            
|                                                                                                   | $     34,589 |  | $   42,000 

51

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 10 - Long-Term Debt and Junior Subordinated Debentures (continued)

Junior subordinated debentures- On July 11, 2002, $13,000 of floating rate capital securities were issued by VFG Capital Trust I (the Trust I). The Trust I is a business trust
organized in 2002, owned 100% by the Company. The proceeds of the offering were invested by the Trust in junior subordinated debentures of the Company. The debentures held by the Trust are the sole assets of the Trust. Distributions on the capital
securities issued by the Trust are payable quarterly at a floating rate, calculated quarterly, of LIBOR plus 3.65% per annum, which is equal to the interest rate being earned by the Trust on the debentures held by the Trust. At the Company's option,
the debentures will not mature earlier than July 7, 2007 and not later than October 7, 2032. After July 7, 2007, the debenture can be redeemed, in whole or in part, at 100% of the principal amount of the debt securities being redeemed plus any
accrued and unpaid interest.

On April 10, 2003, $6,000 of floating rate capital securities were issued by VFG Capital Trust II (the Trust II). The Trust II is a business trust organized in 2003, owned 100% by the Company. The proceeds of the
offering were invested by the Trust in junior subordinated debentures of the Company. The debentures held by the Trust are the sole assets of the Trust. Distributions on the capital securities issued by the Trust are payable quarterly at a floating
rate, calculated quarterly, of LIBOR plus 3.25% per annum, which is equal to the interest rate being earned by the Trust on the debentures held by the Trust. At the Company's option, the debentures will not mature earlier than April 24, 2008 and not
later than October 24, 2033. After April 24, 2008, the debenture can be redeemed, in whole or in part, at 100% of the principal amount of the debt securities being redeemed plus any accrued and unpaid interest.

The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company entered into the agreements which, taken collectively, fully and unconditionally guarantee the
capital securities subject to the terms of each of the guarantees. The Company used the proceeds for general corporate purposes including the acquisition of Harbor Bank and stock repurchases. The capital securities qualify as Tier I capital,
provided they do not exceed 25 percent of total Tier I capital, under the capital guidelines of the Federal Reserve Board.

Scheduled maturities of long-term debt for future years ending December 31 are as follows:

|           |  |   |  | Parent |  | Consolidated
|---------- |  | - |  | ------ |  | ------------
|           |  |   |  |       
|2006       |  | $ |  | -      |  | $           
|2007       |  |   |  | -      |  |             
|2008       |  |   |  |        |  |             
|Thereafter |  |   |  | 19,589 |  |             
|           |  |   |  |       
|           |  | $ |  | 19,589 |  | $           
|           |  |   |  |       

52

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 11 - Income Taxes
|----------------------

Income taxes are comprised of the following for the years ended December 31:

|                   |  |   |  | 2004    |  |   |  | 2003  |  |   |  | 2002 
|------------------ |  | - |  | ------- |  | - |  | ----- |  | - |  | -----
|                   |  |   |  |         |  |  
|Current            |  | $ |  | 6,741   |  | $ |  | 4,673 |  | $ |  | 2,529
|Deferred (benefit) |  |   |  | (1,120) |  |   |  | (500) |  |   |  | 130  
|                   |  |   |  |         |  |  
|                   |  | $ |  | 5,621   |  | $ |  | 4,173 |  | $ |  | 2,659
|                   |  |   |  |         |  |  

The following reconciliation is between the statutory and the effective federal income tax rate for the years ended December 31:

|                           |  | 2004    |  | 2003       |  | 2002   
|-------------------------- |  | ------- |  | ---------- |  | -------
|                           |  |         |  |            |  |        
|                           |  |         |  | Percent of |  |        
|                           |  |         |  | Pretax     |  |        
|                           |  | Amount  |  | Income     |  | Amount 
|                           |  |         |  |            |  |        
|                          
|Income tax based           |  |         |  |            |  |        
|on statutory rate          |  | $ 6,089 |  | 35.0       |  | $ 4,630
|Adjustments resulting from |  |         |  |            |  |        
|Tax-exempt income          |  | (123)   |  | (0.7)      |  | (137)  
|Life insurance income      |  | (111)   |  | (0.6)      |  | (163)  
|Tax credits                |  | (115)   |  | (0.7)      |  | (115)  
|Other                      |  | (119)   |  | (0.6)      |  | (42)   
|                           |  |         |  |            |  |        
|                          
|Total income taxes         |  | $ 5,621 |  | 32.4       |  | $ 4,173
|                           |  |         |  |            |  |        

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31 are:

|                                                 |  |   |  | 2004    |  |   |  | 2003 
|------------------------------------------------ |  | - |  | ------- |  | - |  | -----
|                                                 |  |   |  |        
|Deferred tax assets                              |  |   |  |         |  |   |  |      
|Allowance for credit losses                      |  | $ |  | 1,897   |  | $ |  | 1,974
|Deferred compensation                            |  |   |  | 1,259   |  |   |  | 987  
|                                                
|Total deferred tax assets                        |  | $ |  | 3,156   |  | $ |  | 2,961
|                                                 |  |   |  |        
|                                                
|Deferred tax liabilities                         |  |   |  |         |  |   |  |      
|Deferred income                                  |  | $ |  | 1,002   |  | $ |  | 1,300
|Unrealized gain on securities available-for-sale |  |   |  | 124     |  |   |  | 66   
|Intangibles                                      |  |   |  | 541     |  |   |  | 1,058
|Accumulated depreciation                         |  |   |  | 283     |  |   |  | 370  
|Other deferred tax liabilities                   |  |   |  | 121     |  |   |  | 144  
|                                                 |  |   |  |        
|                                                
|Total deferred tax liabilities                   |  | $ |  | 2,071   |  | $ |  | 2,938
|                                                 |  |   |  |        
|                                                
|Net deferred tax (assets) liabilities            |  | $ |  | (1,085) |  | $ |  | (23) 
|                                                 |  |   |  |        

53

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 12 - Commitments and Contingent Liabilities
|------------------------------------------------

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheets.

The Bank's exposure to credit risk loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Bank's commitments at December 31 is as follows:

|                                   |  |   |  | 2004    |  |   |  | 2003   
|---------------------------------- |  | - |  | ------- |  | - |  | -------
|                                   |  |   |  |        
|Commitments to extend credit       |  |   |  |         |  |   |  |        
|Real estate secured                |  | $ |  | 48,832  |  | $ |  | 36,238 
|Credit card lines                  |  |   |  | 3,207   |  |   |  | 3,083  
|Other                              |  |   |  | 87,007  |  |   |  | 74,610 
|                                   |  |   |  |        
|                                  
|Total commitments to extend credit |  | $ |  | 139,046 |  | $ |  | 113,931
|                                   |  |   |  |        
|                                  
|Standby letters of credit          |  | $ |  | 3,327   |  | $ |  | 3,423  
|                                   |  |   |  |        

Commitments to extend credit are agreements to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements. The Bank's experience has been that approximately 70% of loan commitments are drawn upon by customers. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the party. Collateral held varies, but may include accounts receivable, inventory,
property and equipment, residential real estate, and income-producing commercial properties.

Unfunded commitments under commercial lines-of-credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines-of-credit are
uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above, and is required in instances where the Bank deems
necessary.

Contingencies- Because of the nature of its activities, the Company is subject to various pending and threatened legal actions which arise in the ordinary course of business. In the
opinion of management, liabilities arising from these claims, if any, will not have a material effect on the financial position of the Company.

54

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 12 - Commitments and Contingent Liabilities (continued)

The Company has entered into contracts with certain of its executives and others, which provide for contingent payments subject to future events.

|Note 13 - Significant Concentrations of Credit Risk
|---------------------------------------------------

The Bank has concentrated credit risk exposure, including off-balance-sheet credit risk exposure, related to real estate loans as disclosed in Notes 5 and 12. The ultimate collectibility of a substantial portion of the loan
portfolio is susceptible to changes in economic and market conditions in the region. The Bank generally requires collateral on all real estate lending arrangements and typically maintains loan-to-value ratios of no greater than 80%.

Investments in state and municipal securities generally involve governmental entities within Washington State. Loans are generally limited, by state banking regulation, to 20% of the Bank's stockholder's equity, excluding
accumulated other comprehensive income (loss). The Bank, as a matter of practice, generally does not extend credit to any single borrower or group of related borrowers in excess of $14,800.

The contractual amounts of credit-related financial instruments such as commitments to extend credit, credit-card arrangement, and letters of credit represent the amounts of potential accounting loss should the contract be
fully drawn upon, the customer defaults, and the value of any existing collateral becomes worthless.

|Note 14 - Benefit Plans
|-----------------------

Employee stock ownership plan- The Company has a combined employee stock ownership plan and profit sharing plan with 401(k) provisions (KSOP) which covers substantially all employees
who have completed at least one year of service. The Company accounts for the KSOP in accordance with Statement of Position 93-6,Employers' Accounting for Employee Stock Ownership Plans.

Eligible employees may defer up to 15% of their annual compensation on a pre-tax basis subject to certain IRS limits. The Company contributes to the plan one-half the employees' contributions up to 3% of the employees'
compensation. Profit sharing contributions to the plan may also be made at the discretion of the Board of Directors. Company contributions to this plan totaled $472, $562 and $600 in 2004, 2003 and 2002, respectively. Dividends paid on
allocated shares are distributed to the employee account.

The KSOP allocated shares were 699,157, 690,228, and 659,145 as of December 31, 2004, 2003 and 2002 respectively.

Upon termination from the plan, a participant may choose to have his account distributed in Company stock, to the extent of his investment in stock, or in cash. Certain participants may also be eligible to diversify a
certain percentage of their accounts. A distribution of stock in the event of termination or diversification requires the Company to issue put options to the participant. This permits the participant to sell the stock to the Company at fair value at
any time during the option periods, which can be as long as 18 months. At December 31, 2004, 2003 and 2002, outstanding put options were not material.

Incentive compensation plan- Incentive compensation is awarded to officers and qualified

55

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 14 - Benefit Plans (continued)
|-----------------------------------

employees based on the financial performance of the Company. Awards are payable if the Company and the Bank meet earnings and other performance objectives and are determined as a percentage of their base salary. Awards
under the plan for 2004, 2003 and 2002 totaled $654, $876, and $576, respectively.

Salary continuation plan- The Company provides a Salary Continuation Plan (SCP) covering certain management personnel. The post-retirement benefit provided by the SCP is designed to
supplement a participating officer's retirement benefits received from social security. This plan was established in 2001 and is a successor plan to the Executive Supplemental Income Plan described below. Expenses related to this plan totaled
$851, $496 and $416 in 2004, 2003 and 2002, respectively.

Benefits to employees may be funded by life insurance policies purchased by the Company, which had cash surrender values of $12,403 and $12,128 at December 31, 2004 and 2003, respectively. Liabilities to employees,
which are being accrued under a discounted cash flow method using a discount rate of 7% - 8% over their expected time to retirement, were $2,765 and $1,997 at December 31, 2004 and 2003, respectively.

Executive supplemental income plan- The Company provided an Executive Supplemental Income (ESI) plan covering certain management personnel. This plan has been superceded by the
Salary Continuation Plan. Former employees are currently receiving benefits under this plan. Expenses related to this plan totaled $19, $21 and $23 in 2004, 2003 and 2002, respectively. Liabilities to employees under this plan were
$254 and $278 at December 31, 2004 and 2003, respectively.

Director benefits- In 1992 the Board of Directors approved a plan under which a director may elect to defer director fees until retirement, and to provide a death benefit. Accrued
liabilities to directors at December 31, 2004 and 2003 totaled $323 and $325, respectively. There were no expenses associated with this plan in 2002. Expenses associated with this plan were $20 and $14 in 2004 and 2003,
respectively.

Benefits to directors may be funded by life insurance policies purchased by the Company, which had cash surrender values of $1,028 and $985 at December 31, 2004 and 2003, respectively.

Long-term care plan- In 2003, the Company purchased long-term care insurance on certain management personnel. Benefits under this plan vest over ten years from the agreement date. In
2002, the Company purchased long-term care insurance on certain board members and management personnel. Benefits under this plan vest over ten years from the date of initial service to the Company. Expense associated with these plans was $14 and
$54 in 2004 and 2003, respectively.

|Note 15 - Stock Option Plans
|----------------------------

The Company maintains non-qualified stock option plans for non-employee members of the Board of Directors and incentive stock option plans for key employees. The exercise price of the stock options under the plans is
usually not less than the fair market value of the stock at the date of grant. The Company has the first right of refusal to purchase any shares issued under the plans prior to their sale on the open market.

56

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 15 - Stock Option Plans (continued) | 
|---------------------------------------- | 

The fair value of each option grant is estimated on the date of grant, based on the Black-Scholes option pricing model and using the following weighted average assumptions:

|                        |  | 2004    |  | 2003    |  | 2002   
|----------------------- |  | ------- |  | ------- |  | -------
|                        |  |         |  |         |  |        
|Dividend yield          |  | 1.6%    |  | 1.8%    |  | 1.7%   
|Expected life           |  | 7 years |  | 7 years |  | 8 years
|Risk-free interest rate |  | 3.9%    |  | 3.6%    |  | 5.1%   
|Expected volatility     |  | 19.4%   |  | 22.6%   |  | 19.5%  

The weighted average fair value of options granted during 2004, 2003 and 2002 was $3.70, $3.41 and $2.48, 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 during 2004, 2003 and 2002 are 20% vested on each of the five subsequent anniversaries of the grant date.

Stock option and per share amounts for current and prior periods have been adjusted to reflect the effect of stock splits, and are as follows:

|                                         |  | Employee Options |  | Director Options |  | Total Options |  | Weighted Average Exercise Price
|---------------------------------------- |  | ---------------- |  | ---------------- |  | ------------- |  | -------------------------------
|                                         |  |                  |  |                 
|                                         |  |                  |  |                 
|                                         |  |                  |  |                 
|                                         |  |                  |  |                  |  |               |  |                                
|                                        
|Under option at December 31, 2001        |  | 880,638          |  | 109,800          |  | 990,438       |  | $                              
|Granted                                  |  | 31,500           |  | 42,000           |  | 73,500        |  |                                
|Exercised                                |  | (104,643)        |  | (54,537)         |  | (159,180)     |  |                                
|Forfeited                                |  | (19,608)         |  | (8)              |  | (19,616)      |  |                                
|                                         |  |                  |  |                  |  |               |  |                                
|                                        
|Under option at December 31, 2002        |  | 787,887          |  | 97,256           |  | 885,143       |  | $                              
|Granted                                  |  | 37,500           |  | 13,500           |  | 51,000        |  |                                
|Exercised                                |  | (256,046)        |  | (4,800)          |  | (260,846)     |  |                                
|Forfeited                                |  | (56,652)         |  | -                |  | (56,652)      |  |                                
|                                         |  |                  |  |                  |  |               |  |                                
|                                        
|Under option at December 31, 2003        |  | 512,690          |  | 105,956          |  | 618,646       |  | $                              
|Granted                                  |  | 71,250           |  | 5,250            |  | 76,500        |  |                                
|Exercised                                |  | (206,990)        |  | (43,504)         |  | (250,494)     |  |                                
|Forfeited                                |  | (5,105)          |  | (3,502)          |  | (8,607)       |  |                                
|                                         |  |                  |  |                  |  |               |  |                                
|                                        
|Under option at December 31, 2004        |  | 371,845          |  | 64,200           |  | 436,045       |  | $                              
|                                         |  |                  |  |                  |  |               |  |                                
|                                        
|Options exercisable at December 31, 2004 |  | 243,625          |  | 19,950           |  | 263,575       |  | $                              
|                                         |  |                  |  |                  |  |               |  |                                

57

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 15 - Stock Option Plans (continued)
|----------------------------------------

Options becoming exercisable under both stock option plans in future years ending December 31 are as follows:

2005 - 52,590; 2006 - 42,090; 2007 - 38,340; 2008 - 24,900; and 2009 - 14,550.

Options outstanding at December 31, 2004 were granted under the 1994 director and 1999 employee stock option plans. These plans were superceded in 2004 with the 2004 Stock Incentive Plan and accordingly no further options
will be granted under the 1994 and 1999 plans. Options for 300,000 shares remain available under the 2004 plan at December 31, 2004.

The following summarizes information about stock options outstanding at December 31, 2004:

|               |  | Options Outstanding |  |              |  |          |  | Options Exercisable
|-------------- |  | ------------------- |  | ------------ |  | -------- |  | -------------------
|               |  |                    
|               |  |                     |  | Weighted     |  |          |  |                    
|               |  |                     |  | Average      |  | Weighted |  |                    
|Range of       |  |                     |  | Remaining    |  | Average  |  |                    
|Exercise       |  | Number              |  | Contractual  |  | Exercise |  | Number             
|Prices         |  | Outstanding         |  | Life (Years) |  |          |  | Price              
|               |  |                     |  |              |  |          |  |                    
|              
|Under $7.00    |  | 160,870             |  | 7.13         |  | $        |  | 6.21               
|$7.46 to $8.00 |  | 97,725              |  | 4.59         |  |          |  | 7.58               
|$10.00         |  | 54,000              |  | 4.19         |  |          |  | 10.00              
|$13.67         |  | 50,700              |  | 8.59         |  |          |  | 13.67              
|$15.33         |  | 72,750              |  | 9.30         |  |          |  | 15.33              
|               |  |                     |  |              |  |          |  |                    
|              
|               |  | 436,045             |  |              |  |          |  |                    
|               |  |                     |  |              |  |          |  |                    

58

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 16 - Condensed Financial Information - Parent Company Only |  |   |  |        |  |   |  |       
|--------------------------------------------------------------- |  | - |  | ------ |  | - |  | ------
|                                                               
|Condensed Balance Sheets - December 31                          |  |   |  |        |  |   |  |       
|                                                                |  |   |  | 2004   |  |   |  | 2003  
|                                                                |  |   |  |       
|Assets                                                          |  |   |  |        |  |   |  |       
|Cash                                                            |  | $ |  | 2,549  |  | $ |  | 6,273 
|Investment in the Bank                                          |  |   |  | 74,057 |  |   |  | 61,910
|Other assets                                                    |  |   |  | 1,468  |  |   |  | 798   
|                                                                |  |   |  |       
|Total assets                                                    |  | $ |  | 78,074 |  | $ |  | 68,981
|                                                                |  |   |  |       
|Liabilities and Stockholders' Equity                            |  |   |  |        |  |   |  |       
|                                                               
|Liabilities                                                     |  |   |  |        |  |   |  |       
|Junior subordinated debentures                                  |  | $ |  | 19,589 |  | $ |  | 19,589
|Other liabilities                                               |  |   |  | 645    |  |   |  | 719   
|                                                                |  |   |  |       
|Total liabilities                                               |  |   |  | 20,234 |  |   |  | 20,308
|                                                               
|Shareholders' Equity                                            |  |   |  | 57,840 |  |   |  | 48,673
|                                                                |  |   |  |       
|                                                               
|Total liabilities and shareholders' equity                      |  | $ |  | 78,074 |  | $ |  | 68,981
|                                                                |  |   |  |       

|Condensed Statement of Income -            |  |   |  |         |  |   |  |       |  |   |  |      
|------------------------------------------ |  | - |  | ------- |  | - |  | ----- |  | - |  | -----
|Years Ended December 31                    |  |   |  |         |  |   |  |       |  |   |  |      
|                                           |  |   |  | 2004    |  |   |  | 2003  |  |   |  | 2002 
|                                           |  |   |  |         |  |  
|Operating Income                           |  |   |  |         |  |   |  |       |  |   |  |      
|Dividends from the Bank                    |  | $ |  | -       |  | $ |  | -     |  | $ |  | 1,220
|Interest                                   |  |   |  | 31      |  |   |  | 27    |  |   |  | 7    
|                                           |  |   |  |         |  |  
|Total operating income                     |  |   |  | 31      |  |   |  | 27    |  |   |  | 1,227
|Operating Expenses                         |  |   |  |         |  |   |  |       |  |   |  |      
|Interest                                   |  |   |  | 1,024   |  |   |  | 882   |  |   |  | 409  
|Other                                      |  |   |  | 216     |  |   |  | 128   |  |   |  | 374  
|                                           |  |   |  |         |  |  
|Total operating expenses                   |  |   |  | 1,240   |  |   |  | 1,010 |  |   |  | 783  
|                                           |  |   |  |         |  |  
|Income (loss) before income taxes and      |  |   |  |         |  |   |  |       |  |   |  |      
|equity in undistributed income             |  |   |  |         |  |   |  |       |  |   |  |      
|of the Bank                                |  |   |  | (1,209) |  |   |  | (983) |  |   |  | 444  
|                                          
|Income Tax Benefit                         |  |   |  | (363)   |  |   |  | (379) |  |   |  | (224)
|                                           |  |   |  |         |  |  
|                                          
|Income (loss) before equity in             |  |   |  |         |  |   |  |       |  |   |  |      
|undistributed income of the Bank           |  |   |  | (846)   |  |   |  | (604) |  |   |  | 668  
|                                           |  |   |  |         |  |   |  |       |  |   |  |      
|Equity in Undistributed Income of the Bank |  |   |  | 12,623  |  |   |  | 9,660 |  |   |  | 5,544
|                                           |  |   |  |         |  |  
|Net income                                 |  | $ |  | 11,777  |  | $ |  | 9,056 |  | $ |  | 6,212
|                                           |  |   |  |         |  |  
|                                          
|                                           |  |   |  |         |  |   |  |       |  |   |  |      

59

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 16 - Condensed Financial Information - Parent Company Only (continued)

|Condensed Statement of Cash                |  |   |  |          |  |   |  |         |  |   |  |        
|------------------------------------------ |  | - |  | -------- |  | - |  | ------- |  | - |  | -------
|Flows - Years Ended December 31            |  |   |  |          |  |   |  |         |  |   |  |        
|                                           |  |   |  | 2004     |  |   |  | 2003    |  |   |  | 2002   
|                                           |  |   |  |          |  |  
|Cash Flows from Operating Activities       |  |   |  |          |  |   |  |         |  |   |  |        
|Net income                                 |  | $ |  | 11,777   |  | $ |  | 9,056   |  | $ |  | 6,212  
|Adjustments to reconcile net income to net |  |   |  |          |  |   |  |         |  |   |  |        
|cash from operating activities             |  |   |  |          |  |   |  |         |  |   |  |        
|Equity in undistributed income of          |  |   |  |          |  |   |  |         |  |   |  |        
|the Bank                                   |  |   |  | (12,623) |  |   |  | (9,660) |  |   |  | (5,544)
|Other - net                                |  |   |  | 883      |  |   |  | (143)   |  |   |  | (726)  
|                                           |  |   |  |          |  |  
|                                          
|Net cash from operating activities         |  |   |  | 37       |  |   |  | (747)   |  |   |  | (58)   
|                                           |  |   |  |          |  |  
|                                          
|Cash Flows from Investing Activities       |  |   |  |          |  |   |  |         |  |   |  |        
|Cash investment in (return from) the Bank  |  |   |  | (893)    |  |   |  | 691     |  |   |  | (6,929)
|                                           |  |   |  |          |  |  
|                                          
|Cash Flows from Financing Activities       |  |   |  |          |  |   |  |         |  |   |  |        
|Proceeds from exercise of stock options    |  |   |  | 1,464    |  |   |  | 1,608   |  |   |  | 732    
|Repurchase of common stock                 |  |   |  | (3,007)  |  |   |  | (4,828) |  |   |  | (950)  
|Proceeds from long-term debt               |  |   |  | -        |  |   |  | 6,186   |  |   |  | 14,000 
|Payments on long-term debt                 |  |   |  | -        |  |   |  | (1,000) |  |   |  | (550)  
|Payment of dividends                       |  |   |  | (1,325)  |  |   |  | (1,048) |  |   |  | (878)  
|                                           |  |   |  |          |  |  
|                                          
|Net cash from financing activities         |  |   |  | (2,868)  |  |   |  | 918     |  |   |  | 12,354 
|                                           |  |   |  |          |  |  
|                                          
|Net increase (decrease) in cash            |  |   |  | (3,724)  |  |   |  | 862     |  |   |  | 5,367  
|                                          
|Cash, beginning of year                    |  |   |  | 6,273    |  |   |  | 5,411   |  |   |  | 44     
|                                           |  |   |  |          |  |  
|                                          
|Cash, end of year                          |  | $ |  | 2,549    |  | $ |  | 6,273   |  | $ |  | 5,411  
|                                           |  |   |  |          |  |  

|Note 17 - Regulatory Matters
|----------------------------

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -and possibly
additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines on the regulatory framework for prompt corrective action,
the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and the Bank's
capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier I capital (as defined in the
regulations) to total average assets (as defined), and minimum ratios of Tier I and total capital (as defined) to risk-weighted assets (as defined).

60

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 17 - Regulatory Matters (continued)
|----------------------------------------

As of December 31, 2004, the most recent notification from the Bank's regulator categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's
category.

| | The actual capital amounts and ratios are as follows:
| | -----------------------------------------------------

|                                          |  |          |  |                   |  |                   |  |             |  |            |  |        |  | To Be           
|----------------------------------------- |  | -------- |  | ----------------- |  | ----------------- |  | ----------- |  | ---------- |  | ------ |  | ----------------
|                                          |  |          |  |                   |  |                   |  |             |  |            |  |        |  | Well Capitalized
|                                          |  |          |  |                   |  |                   |  |             |  |            |  |        |  | Under Prompt    
|                                          |  |          |  |                   |  |                   |  | For Capital |  | Corrective
|                                          |  | Actual   |  | Adequacy Purposes |  | Action Provisions
|                                          |  |          |  |                   |  |                  
|                                          |  | Amount   |  | Ratio             |  | Amount            |  |             |  | Ratio      |  | Amount |  |                 
|                                          |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|As of December 31, 2004:                  |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Tier I capital (to average assets):       |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | $ 67,110 |  | 12.94%            |  | $                 |  | 20,745      |  | >          |  | 4.00%  |  | N/A             
|VB                                        |  | 64,327   |  | 11.90%            |  |                   |  | 21,626      |  | >          |  | 4.00%  |  | $ 27,032        
|                                         
|Tier I capital (to risk-weighted assets): |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | 67,110   |  | 12.24%            |  |                   |  | 21,931      |  | >          |  | 4.00%  |  | N/A             
|VB                                        |  | 64,327   |  | 11.76%            |  |                   |  | 21,884      |  | >          |  | 4.00%  |  | 32,827          
|                                         
|Total capital (to risk-weighted assets):  |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | 73,966   |  | 13.49%            |  |                   |  | 43,863      |  | >          |  | 8.00%  |  | N/A             
|VB                                        |  | 71,170   |  | 13.01%            |  |                   |  | 43,769      |  | >          |  | 8.00%  |  | 54,711          
|                                         
|                                         
|As of December 31, 2003:                  |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Tier I capital (to average assets):       |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | $ 53,127 |  | 10.70%            |  | $                 |  | 19,861      |  | >          |  | 4.00%  |  | N/A             
|VB                                        |  | 49,593   |  | 9.98%             |  |                   |  | 19,876      |  | >          |  | 4.00%  |  | $ 24,846        
|                                         
|Tier I capital (to risk-weighted assets): |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | 53,127   |  | 11.20%            |  |                   |  | 18,974      |  | >          |  | 4.00%  |  | N/A             
|VB                                        |  | 49,593   |  | 10.46%            |  |                   |  | 18,965      |  | >          |  | 4.00%  |  | 23,706          
|                                         
|Total capital (to risk-weighted assets):  |  |          |  |                   |  |                   |  |             |  |            |  |        |  |                 
|Consolidated                              |  | 61,898   |  | 13.04%            |  |                   |  | 37,974      |  | >          |  | 8.00%  |  | N/A             
|VB                                        |  | 55,539   |  | 11.72%            |  |                   |  | 37,910      |  | >          |  | 8.00%  |  | 47,388          

Restrictions on retained earnings- The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 2004,
the Bank could pay dividends to its parent of up to $16,459 and still be well capitalized under prompt corrective action provisions.

61

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 18 - Fair Values of Financial Instruments
|----------------------------------------------

The estimated fair values of the Company's financial instruments at December 31 were as follows:

|                                  |  |          |  |          |  | 2004     |  |          |  |   |  |        |  | 2003 |  |       
|--------------------------------- |  | -------- |  | -------- |  | -------- |  | -------- |  | - |  | ------ |  | ---- |  | ------
|                                  |  |          |  |         
|                                  |  | Recorded |  |          |  | Fair     |  | Recorded |  |   |  | Fair  
|                                  |  | Amount   |  |          |  | Value    |  | Amount   |  |   |  | Value 
|                                  |  |          |  |          |  |          |  |          |  |   |  |       
|Financial Assets                  |  |          |  |          |  |          |  |          |  |   |  |        |  |      |  |       
|Cash and due from banks, interest |  |          |  |          |  |          |  |          |  |   |  |        |  |      |  |       
|bearing deposits with banks, and  |  |          |  |          |  |          |  |          |  |   |  |        |  |      |  |       
|federal funds sold                |  | $        |  | 13,861   |  | $        |  | 13,861   |  | $ |  | 24,791 |  | $    |  | 24,791
|Securities available-for-sale     |  | $        |  | 73,291   |  | $        |  | 73,291   |  | $ |  | 84,878 |  | $    |  | 84,878
|Securities held-to-maturity       |  | $        |  | -        |  | $        |  | -        |  | $ |  | 505    |  | $    |  | 525   
|Loans held-for-sale               |  | $        |  | 3,118    |  | $        |  | 3,118    |  | $ |  | 4,138  |  | $    |  | 4,138 
|Loans receivable, net             |  | $422,334 |  | $419,982 |  | $355,904 |  | $355,716
|Accrued interest receivable       |  | $        |  | 2,084    |  | $        |  | 2,084    |  | $ |  | 1,824  |  | $    |  | 1,824 
|                                 
|Financial Liabilities             |  |          |  |          |  |          |  |          |  |   |  |        |  |      |  |       
|Deposits                          |  | $326,721 |  | $327,078 |  | $382,223 |  | $382,927
|Federal funds purchased           |  | $        |  | 5,575    |  | $        |  | 5,575    |  | $ |  | -      |  | $    |  | -     
|Short-term borrowings             |  | $123,128 |  | $123,128 |  | $        |  | 34,394   |  | $ |  | 34,394
|Long-term debt                    |  | $        |  | 15,000   |  | $        |  | 14,824   |  | $ |  | 23,000 |  | $    |  | 23,380
|Junior subordinated debentures    |  | $        |  | 19,589   |  | $        |  | 19,589   |  | $ |  | 19,000 |  | $    |  | 19,000
|Accrued interest payable          |  | $        |  | 620      |  | $        |  | 620      |  | $ |  | 174    |  | $    |  | 174   

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company's financial instruments will change when
interest rate levels change and that change may either be favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a
rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans, and deposits and by
investing in securities with terms that mitigate the Company's overall interest rate risk.

62

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 19 - Other Operating Income and Expenses
|---------------------------------------------

Other operating income and expenses include the following amounts which are in excess of 1% of the total of interest income and non-interest income for the years ended December 31:

|                                         |  |   |  | 2004 |  |   |  | 2003  |  |   |  | 2002
|---------------------------------------- |  | - |  | ---- |  | - |  | ----- |  | - |  | ----
|                                         |  |   |  |      |  |  
|Other operating income                   |  |   |  |      |  |   |  |       |  |   |  |     
|Commission on sale of non-deposit        |  |   |  |      |  |   |  |       |  |   |  |     
|investment products                      |  | $ |  | -    |  | $ |  | 459   |  | $ |  | 524 
|Earnings on bank owned life insurance    |  | $ |  | 622  |  | $ |  | 470   |  | $ |  | 441 
|Gain on sale of foreclosed real estate   |  | $ |  | -    |  | $ |  | 2,373 |  | $ |  | -   
|Small loan miscellaneous income          |  | $ |  | -    |  | $ |  | 1,180 |  | $ |  | -   
|Rent from foreclosed real estate         |  | $ |  | -    |  | $ |  | -     |  | $ |  | 381 
|                                        
|Other operating (income) expense         |  |   |  |      |  |   |  |       |  |   |  |     
|State taxes                              |  | $ |  | 592  |  | $ |  | -     |  | $ |  | 856 
|Advertising and marketing                |  | $ |  | 714  |  | $ |  | 802   |  | $ |  | 569 
|Expenses of salary continuation plan and |  |   |  |      |  |   |  |       |  |   |  |     
|executive supplemental income plan       |  | $ |  | 851  |  | $ |  | -     |  | $ |  | 439 
|Consulting fees                          |  | $ |  | -    |  | $ |  | 486   |  | $ |  | 424 

|Note 20 - Earnings Per Share Disclosures
|----------------------------------------

In May 2004, the Company's Board of Directors approved a 3 for 2 stock split to shareholders of record on May 16, 2004. In November 2002, the Company's Board of Directors approved a 2 for 1 stock split to stockholders of
record on November 15, 2002. The earnings per share, the shares used for purposes of recalculating earnings per share, and the option amounts and prices for the years ended December 31, 2004, 2003 and 2002, have been retroactively adjusted for these
splits as they took place prior to 2004 and 2002, respectively.

63

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

Note 20 - Earnings Per Share Disclosures (continued)

Following is information regarding the calculation of basic and diluted earnings per share for the years indicated:

|                              |  | Net Income  |  | Shares        |  | Per Share
|----------------------------- |  | ----------- |  | ------------- |  | ---------
|                              |  | (Numerator) |  | (Denominator) |  | Amount   
|                              |  |             |  |               |  |          
|Year ended December 31, 2004  |  |             |  |               |  |          
|Basic earnings per share      |  |             |  |               |  |          
|Net income                    |  | $ 11,777    |  | 6,487,613     |  | $ 1.82   
|Effect of dilutive securities |  |             |  |               |  |          
|Options                       |  |             |  | 166,319       |  | (0.05)   
|                              |  |             |  |               |  |          
|                             
|Diluted earnings per share    |  |             |  |               |  |          
|Net income                    |  | $ 11,777    |  | 6,653,932     |  | $ 1.77   
|                              |  |             |  |               |  |          
|                             
|Year ended December 31, 2003  |  |             |  |               |  |          
|Basic earnings per share      |  |             |  |               |  |          
|Net income                    |  | $ 9,056     |  | 6,560,403     |  | $ 1.38   
|Effect of dilutive securities |  |             |  |               |  |          
|Options                       |  |             |  | 294,939       |  | (0.06)   
|                              |  |             |  |               |  |          
|                             
|Diluted earnings per share    |  |             |  |               |  |          
|Net income                    |  | $ 9,056     |  | 6,855,342     |  | $ 1.32   
|                              |  |             |  |               |  |          
|                             
|Year ended December 31, 2002  |  |             |  |               |  |          
|Basic earnings per share      |  |             |  |               |  |          
|Net income                    |  | $ 6,212     |  | 6,569,865     |  | $ 0.95   
|Effect of dilutive securities |  |             |  |               |  |          
|Options                       |  |             |  | 127,490       |  | (0.02)   
|                              |  |             |  |               |  |          
|                             
|Diluted earnings per share    |  |             |  |               |  |          
|Net income                    |  | $ 6,212     |  | 6,697,355     |  | $ 0.93   
|                              |  |             |  |               |  |          

The number of shares shown for "options" is the number of incremental shares that would result from exercise of options and use of the proceeds to repurchase shares at the average market price during the year.

64

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 21 - Business Segment Information
|--------------------------------------

The Company is managed along two major lines of business; community banking, its core business, and the small loan division, which was entered into late in the fourth quarter of 2000. Community banking consists of all
lending, deposit and administrative operations conducted through its 14 offices in Washington State. The small loan division provides small, short-term consumer loans to customers in Arkansas.

Prior to 2001, the Company was managed as a whole, not by discrete operating segments. When the Company began offering small loans, its operating results were segregated in the general ledger system to better manage
financial performance. The financial performance of the business lines is measured by the Company's profitability reporting process, which utilizes various management accounting techniques to more accurately reflect each business line's financial
results. Revenues and expenses are primarily assigned directly to business lines.

The organizational structure of the Company and its business line financial results are not necessarily comparable across companies. As such, the Company's business line performance may not be directly comparable with
similar information from other financial institutions.

Financial highlights by line of business as of and for the years ended December 31, were as follows:

|                                                      |  | Community |  |         |  | Small |  |       |  |      
|----------------------------------------------------- |  | --------- |  | ------- |  | ----- |  | ----- |  | -----
|                                                      |  | Banking   |  |         |  | Loans |  |       |  | Total
|                                                      |  |           |  |         |  |      
|December 31, 2004                                     |  |           |  |         |  |       |  |       |  |      
|Net interest income after provision for credit losses |  | $         |  | 23,167  |  | $     |  | 1,740 |  | $    
|Non-interest income                                   |  |           |  | 13,582  |  |       |  | (13)  |  |      
|Non-interest expense                                  |  |           |  | 20,973  |  |       |  | 105   |  |      
|Income taxes                                          |  |           |  | 5,126   |  |       |  | 495   |  |      
|                                                      |  |           |  |         |  |      
|                                                     
|Net income                                            |  | $         |  | 10,650  |  | $     |  | 1,127 |  | $    
|                                                      |  |           |  |         |  |      
|                                                     
|Total assets                                          |  | $         |  | 549,797 |  | $     |  | 6,419 |  | $    
|                                                      |  |           |  |         |  |      
|                                                     
|Total loans                                           |  | $         |  | 428,820 |  | $     |  | 3,821 |  | $    
|                                                      |  |           |  |         |  |      
|                                                     
|December 31, 2003                                     |  |           |  |         |  |       |  |       |  |      
|Net interest income after provision for credit losses |  | $         |  | 20,058  |  | $     |  | 2,803 |  | $    
|Non-interest income                                   |  |           |  | 11,551  |  |       |  | 1,009 |  |      
|Non-interest expense                                  |  |           |  | 21,848  |  |       |  | 344   |  |      
|Income taxes                                          |  |           |  | 2,994   |  |       |  | 1,179 |  |      
|                                                      |  |           |  |         |  |      
|                                                     
|Net income                                            |  | $         |  | 6,767   |  | $     |  | 2,289 |  | $    
|                                                      |  |           |  |         |  |      
|                                                     
|Total assets                                          |  | $         |  | 506,844 |  | $     |  | 7,056 |  | $    
|                                                      |  |           |  |         |  |      
|                                                     
|Total loans                                           |  | $         |  | 364,473 |  | $     |  | 3,158 |  | $    
|                                                      |  |           |  |         |  |      

65

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|                                                     
|-----------------------------------------------------
|Note 21 - Business Segment Information (continued)   
|                                                     
|December 31, 2002                                    
|Net interest income after provision for credit losses
|Non-interest income                                  
|Non-interest expense                                 
|Income taxes                                         
|                                                     
|                                                     
|Net income                                           
|                                                     
|                                                     
|Total assets                                         
|                                                     
|                                                     
|Total loans                                          
|                                                     

66

---

VENTURE FINANCIAL GROUP, INC.NOTES TO FINANCIAL STATEMENTS

---

|Note 22 - Subsequent Event
|--------------------------

On January 19, 2005, the Company declared a dividend in the amount of $.065 per share to be paid on February 11, 2005 for shareholders of record as of January 31, 2005.

Note 23 - Selected Quarterly Financial Data (Unaudited)

The following selected financial data are presented for the quarters ended (dollars in thousands, except per share amounts):

|                             |  | December 31 |  | September 30 |  | June 30 |  | March 31
|---------------------------- |  | ----------- |  | ------------ |  | ------- |  | --------
|                             |  |             |  |              |  |         |  |         
|Year ended December 31, 2004 |  |             |  |              |  |         |  |         
|Interest and dividend income |  | $           |  | 8,545        |  | $       |  | 8,159   
|Interest expense             |  |             |  | (2,025)      |  |         |  | (1,650) 
|                             |  |             |  |              |  |         |  |         
|                            
|Net interest income          |  |             |  | 6,520        |  |         |  | 6,509   
|                            
|Provision for loan losses    |  |             |  | 330          |  |         |  | (282)   
|Noninterest income           |  |             |  | 7,679        |  |         |  | 2,106   
|Noninterest expenses         |  |             |  | (5,687)      |  |         |  | (5,342) 
|                             |  |             |  |              |  |         |  |         
|                            
|Income before income taxes   |  |             |  | 8,842        |  |         |  | 2,991   
|                            
|Income taxes                 |  |             |  | (3,050)      |  |         |  | (804)   
|                             |  |             |  |              |  |         |  |         
|                            
|Net income                   |  | $           |  | 5,792        |  | $       |  | 2,187   
|                             |  |             |  |              |  |         |  |         
|                            
|Earnings per share           |  |             |  |              |  |         |  |         
|Basic                        |  | $           |  | 0.89         |  | $       |  | 0.34    
|Diluted                      |  | $           |  | 0.86         |  | $       |  | 0.33    
|                            
|Year ended December 31, 2003 |  |             |  |              |  |         |  |         
|Interest and dividend income |  | $           |  | 7,437        |  | $       |  | 7,519   
|Interest expense             |  |             |  | (1,491)      |  |         |  | (1,507) 
|                             |  |             |  |              |  |         |  |         
|                            
|Net interest income          |  |             |  | 5,946        |  |         |  | 6,012   
|                            
|Provision for loan losses    |  |             |  | (476)        |  |         |  | (654)   
|Noninterest income           |  |             |  | 2,390        |  |         |  | 5,155   
|Noninterest expenses         |  |             |  | (4,914)      |  |         |  | (5,647) 
|                             |  |             |  |              |  |         |  |         
|                            
|Income before income taxes   |  |             |  | 2,946        |  |         |  | 4,866   
|                            
|Income taxes                 |  |             |  | (921)        |  |         |  | (1,571) 
|                             |  |             |  |              |  |         |  |         
|                            
|Net income                   |  | $           |  | 2,025        |  | $       |  | 3,295   
|                             |  |             |  |              |  |         |  |         
|                            
|Earnings per share           |  |             |  |              |  |         |  |         
|Basic                        |  | $           |  | 0.31         |  | $       |  | 0.51    
|Diluted                      |  | $           |  | 0.30         |  | $       |  | 0.48    

67

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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in and disagreements with accountants on accounting and financial disclosures.

|ITEM 9A - CONTROLS 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"), is
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, 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 Chief Financial Officer 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 year ended December 31, 2004, 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 also continued to implement suggestions from its internal auditor and independent auditors on ways to strengthen existing controls.

|ITEM 9B - Other Information
|---------------------------

On December 6, 2004, the Company entered into an agreement, upon satisfaction of certain contingencies, to purchase land in the city of DuPont Washington for use in the construction of a new corporate office building. The
agreement was for a purchase price of $2,000,000 and closed on February 17, 2005. The Company expects to start construction on this building in the third quarter of 2005. The building is expected to be completed in the first quarter of
2007.

On October 1, 2004, the Company entered into an agreement to lease office space in Lakewood Washington to be used as a future site of a Financial Center. Rent payments begin 180 days after the commencement of the lease, or
August 1, 2005, at $9,190.42 per month. The estimated cost to remodel this building is $1,320,000. The Financial Center is due to open in the third quarter 2005.



|PART III
|--------

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Incorporated by reference to the sections entitledElection of Directors - Information with Respect to Nominees and Directors Whose Terms Continue, Management, and Section 16(a)
Beneficial Ownership Reporting Compliance,as set forth in the Proxy Statement.

|ITEM 11 - EXECUTIVE COMPENSATION
|--------------------------------

Incorporated by reference to the sections entitledInformation Regarding the Board of Directors and its Committees - Director Compensation and Executive
Compensation, as set forth in the Proxy Statement.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference to the sections entitledElection of Directors - Information with Respect to Nominees and Directors

68

---

Whose Terms Continue, and Security Ownership of
Certain Beneficial Owners and Management, as set forth in the Proxy
Statement

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the section entitledCertain Relationships and Related Transactions, as set forth in the Proxy
Statement.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference to the section entitledIndependent Auditors, as set forth in the Proxy Statement.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

(a)(1)Financial Statements.

Index to Consolidated Financial Report

Report of Moss Adams LLP, Independent Registered Public Accounting Firm Report of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm Consolidated balance sheets as of December 31, 2004 and
2003

Consolidated statements of income for the years ended December 31, 2004, 2003 and 2002

Consolidated statements of shareholders' equity and comprehensive income for the years ended December 31, 2004, 2003 and 2002

Consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

(a)(2)Financial Statement Schedules.

Schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the Consolidated Financial Statements or notes thereto.

(a)(3) The exhibits listed on the Exhibit Index following signature page. Management contracts and compensatory plans are listed as Items 10.1 to 10.4.

|(b) |  | Exhibits.                      |  | See Exhibit Index following signature page
|--- |  | ------------------------------ |  | ------------------------------------------
|(c) |  | Financial Statement Schedules: |  | None                                      

68

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the
22ndday of March, 2005.



| | VENTURE FINANCIAL GROUP, INC.(Registrant)
| | -----------------------------------------

| | By:/s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr.Chief Executive Officer and Chairman of the Board
| | ----------------------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 22ndday of March, 2005.

|Signatures | Title
|---------- | -----

|Chief Executive Officer
|-----------------------

/s/ Ken F. Parsons, Sr.Chief Executive Officer and Chairman of the Board Ken F. Parsons, Sr.

(principal executive officer; principal financial officer; and principal accounting officer)

|Remaining Directors:         |  |         
|---------------------------- |  | --------
|                            
|                            
|/s/ Lowell E.(Sonny) Bridges |  | Director
|Lowell E. (Sonny) Bridges    |  |         
|                            
|/s/ Linda E. Buckner         |  | Director
|Linda E. Buckner             |  |         
|                            
|/s/ E. Paul DeTray           |  | Director
|E. Paul DeTray               |  |         
|                            
|/s/ Jewell C. Manspeaker     |  | Director
|Jewell C. Manspeaker         |  |         
|                            
|/s/ Patrick L. Martin        |  | Director
|Patrick L. Martin            |  |         
|                            
|/s/ A. Richard Panowicz      |  | Director
|A. Richard Panowicz          |  |         
|                            
|/s/ Lawrence J. Schorno      |  | Director
|Lawrence J. Schorno          |  |         





70

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|EXHIBIT INDEX
|-------------
|Exhibit      

|3.1  | (a) Amended and Restated Articles of Incorporation.                                                  
|---- | -----------------------------------------------------------------------------------------------------
|    
|3.2  | (b) Bylaws.                                                                                          
|    
|10.1 | (c) Employment Contract for Ken F. Parsons, Sr.                                                      
|    
|10.2 | (d) Employment Contract for Jon M. Jones.                                                            
|    
|10.3 | (e) Form of Long-Term Care Agreement.                                                                
|    
|10.4 | (f) Executive Supplemental Income Plan.                                                              
|    
|10.5 | (g) 1999 Stock Option and Restricted Award Plan and form of agreements.                              
|    
|10.6 | (h) 1994 Stock Option Plan for Non-employee Directors.                                               
|    
|10.7 | (i) 2004 Stock Option Plan                                                                           
|    
|10.8 | (j) Amended and Restated First Community Financial Group, Inc. Employee Stock Option Plan with 401(k)
|    

| | Provisions.
| | -----------

|10.9  | (k) Employment Contract for Cathy M. Reines.                                                                                          
|----- | --------------------------------------------------------------------------------------------------------------------------------------
|     
|10.10 | Dupont Real Estate Purchase and Sale Agreement                                                                                        
|     
|10.11 | Lakewood Shopping Center Lease Agreement                                                                                              
|     
|21.1  | Subsidiaries of the Registrant.                                                                                                       
|     
|23.1  | Consent of Independent Registered Public Accounting Firm (Moss Adams, LLP).                                                           
|     
|23.2  | Consent of Independent Registered Public Accounting Firm (McGladrey & Pullen LLP).                                                    
|     
|31.1  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.                                         
|     
|31.2  | Certification of acting Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.                                  
|     
|32    | Certification of Chief Executive Officer and acting Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     

|(a) | Incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report on Form 10-K for the fiscal year ending December 31, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Incorporated by reference to Exhibit 3(b) of the Registrant's Annual Report on Form 10-K for the Fiscal year ending December 31, 2001.
|   
|(c) | Incorporated by reference to Exhibit 99.1 of the Registrant's Report on Form 8-K filed on June 8, 2005.                               
|   
|(d) | Incorporated by reference to Exhibit 10 of the Registrant's Quarterly Report on Form 10-Q for the quarter ending September 30, 2001.  
|   
|(e) | Incorporated by reference to Exhibit 3(b) of the Registrant's Annual Report on From 10-K for the fiscal year ending December 31, 2001.
|   
|(f) | Incorporated by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 1992.
|   
|(g) | Incorporated by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-K for the fiscal year ending December 31, 1999.  
|   
|(h) | Incorporated by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 1994.
|   
|(i) | Incorporated by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-KSB for the fiscal year ending December 31, 2004.
|   
|(j) | Incorporated by reference to Exhibit 3(b) of the Registrant's Annual Report on form 10-K for the fiscal year ending December 31, 2001.
|   
|(k) | Incorporated by reference to Exhibit 10.8 of the Registrant's Annual Report on form 10-K for the Fiscal year ending December 31, 2004.
|   

71

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{THIS PAGE INTENTIONALY LEFT BLANK}

72

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|Exhibit 10.10
|-------------

DUPONT REAL ESTATE PURCHASE AND SALE AGREEMENT

This Real Estate Purchase and Sale Agreement ("Agreement") is dated for reference purposes December 6, 2004, and is made by and between DuPont Station Partners, LLC, a Washington limited liability
company ("Seller"), and Venture Bank ("Buyer").

Seller acquired several lots in DuPont Station South, which is a District in Northwest Landing Commercial Property, from The Quadrant Corporation, a Washington corporation ("Quadrant"), pursuant to
that certain Real Estate Purchase and Sale Agreement mutually accepted on January 9, 2004, as amended (the "Quadrant Agreement"). Seller is adjusting the boundaries of certain of those lots to establish the Property as a separate legal lot and tax
parcel, and is continuing to improve and hold the balance of the lots for investment purposes. Certain terms and conditions of the Quadrant Agreement will bind Buyer upon closing of its purchase of the Property. As a result, they are specifically
incorporated into this Agreement and made binding upon Buyer as provided in more detail below.

NOW, THEREFORE, the parties agree as follows:

1Purchase and Sale. Buyer shall purchase and Seller shall sell the Property under the terms and subject to
the conditions set forth in this Agreement.  The Property is described on attached Exhibit A1-3. The Property is part of DuPont Station South, which is a district of a commercial development named Northwest Landing Commercial Property.

2Boundary Line Adjustment. Seller has submitted an application to adjust the boundaries of lots owned by
Seller to establish the Property as a separate legal lot and tax parcel (the "BLA").  Seller will use commercial resources and act with diligence to obtain approval of the BLA. Buyer will fully cooperate with Seller provided Buyer will not be
required to incur any out-of-pocket expenses in doing so, unless Seller has agreed to reimburse Buyer for those expenses. Seller's and Buyer's obligations under this Agreement are conditioned upon Seller obtaining approval of the BLA prior to
Closing. If Seller is not able to obtain approval of the BLA, Seller shall reimburse Buyer for those architectural fees incurred by Buyer up to a maximum amount of $10,000. Similarly, if Buyer elects to terminate this Agreement for any reason,
Buyer will reimburse Seller for those costs and expenses incurred by Seller in its efforts to obtain the BLA whether or not completed, and if desired by the Seller, the cost of restoring the original boundaries of those lots which comprise the
Property, up to a maximum amount of $5,000.

---

3Purchase Price and Earnest Money. The purchase price is $2,000,000. Buyer will pay the purchase in cash
at closing. Buyer will deposit $100,000 as earnest money (the "Earnest Money") with Land America/Transnation Title Insurance Company (who may be referred to herein as Closing Agent" or "Title Company") within two (2) business days of the mutual
execution of this Agreement, and Closing Agent will deposit the Earnest Money into an interest bearing account. Interest will accrue for the benefit of Buyer, and will be added to the Earnest Money (i.e., the party entitled to the Earnest Money will
also receive the interest).

4Like Kind Exchange. If either Buyer or Seller intend for this transaction to be part of a Section 1031
like-kind exchange, then the other party will cooperate in the completion of the exchange so long as the cooperating party incurs no additional liability in doing so, and so long as any expenses (including attorneys' fees and costs) incurred by the
cooperating party that are related only to the exchange are paid or reimbursed to the cooperating party at or prior to closing.

5Inspection and Feasibility Contingency. As used in this Agreement, the "Initial Contingency Removal Date" is
the date Seller delivers to the Buyer those written approvals from Quadrant referenced below. Buyer's obligations under this Agreement are conditioned upon Seller providing to Buyer, on or before the Initial Contingency Removal Date, written
approval from Quadrant for the following:

aSignage for the building to be constructed by Buyer on the Property as depicted on attached Exhibits B 1-4; and

bSatellite dishes on the roof of Buyer's building primarily for security communication requirements, subject to the approval of the City of
DuPont, and subject to Quadrant's approval of the design, which approval by Quadrant will not be unreasonably withheld.

Upon the mutual execution of this Agreement, one-half ($50,000) of the Earnest Money will be nonrefundable except where this Agreement provides that the entire Earnest Money (less up to $5,000
pursuant to Section 2)will be refunded to Buyer.

Buyer's obligations under the Agreement are conditioned upon Buyer and Seller approving the Reciprocal Easement Agreement (REA) attached to this Agreement as Exhibit C1-9 (the "REA") on or before
twenty-one days from the execution of this Agreement (the "Final Contingency Removal Date"). Buyer will provide written response to the REA within seven (7) days from the execution of this Agreement.  On the Final Contingency Removal Date, if Buyer
approves the Reciprocal Easement Agreement, the remaining $50,000 of the earnest money will be nonrefundable except where this Agreement provides that the Earnest Money (less up to $5,000 pursuant to Section 2) will be refunded to Buyer.
This Agreement will

---

terminate if the REA is not approved by Buyer and Seller by the Final Contingency Removal Date.  Buyer and Seller, by written agreement, can extend the Final Contingency Removal Date. The entire Earnest Money will be credited
against the purchase price at closing.

If Buyer terminates the Agreement prior to Seller delivering the written approvals from Quadrant for the two items referenced in subparagraphs (a) and (b) above, then Closing Agent will refund the
entire Earnest Money to Buyer, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above.  If Buyer terminates this Agreement after Seller delivers the written approvals and prior to the Final Contingency
Removal Date, then Closing Agent will refund one-half of the Earnest Money to Buyer, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above, and will deliver the other half to Seller.  If Buyer terminates
this Agreement after the Final Contingency Removal Date, or if Buyer fails to close without legal excuse, then Closing Agent will deliver the entire Earnest Money to Seller.

Prior to executing this Agreement, Buyer has inspected and satisfied itself with all other aspects of the Property. In this regard, Seller provided to Buyer prior to the execution of this Agreement
all documents available to Seller relating to the ownership or development of the Property including a Phase I Environmental Report provided by Quadrant, all covenants, conditions and restrictions ("CC&Rs"), reciprocal easement agreements,
common area maintenance agreements, and any studies, surveys, or reports which Seller has received from Quadrant or which Seller has prepared on its own behalf ("Due Diligence Documents"). If Seller delivers any Due Diligence Documents to Buyer
after the Final Contingency Removal Date, then, within ten (10) days of Buyer's receipt of the same, Buyer will notify Seller of those changes to the new Due Diligence Documents which are reasonably necessary to accommodate Buyer's intended use.
Seller will respond in writing to Buyer's notice within the following ten (10) days stating whether or not Seller will be able to accomplish those changes by closing.  If Seller is not able to accomplish those changes by Closing, Buyer may terminate
this Agreement by a further written notice to Seller delivered within five (5) days of receipt of Seller's notice. Upon a timely termination by Buyer, Closing Agent will refund the entire Earnest Money to Buyer less up to $5,000 to reimburse
Seller for BLA as provided in Section 2 above. Buyer acknowledges that Seller has the obligation under the Quadrant Agreement to cooperate with Quadrant in establishing CC&Rs, reciprocal easement agreements, and common area maintenance
agreements, and that doing so will not be a breach of Seller's obligations under this Agreement, unless contrary to any provision herein unless contrary to any provision herein.

Prior to the execution of the Agreement, Seller has allowed Buyer and its agents to enter onto the Property and to conduct those inspections and studies as

---

Buyer deemed necessary and appropriate, at Buyer's sole cost and expense. Buyer and its agents will continue to have access to the Property through closing. Buyer will defend, indemnify and hold Seller harmless from any claim,
loss, or liability in connection with any entry onto the Property, any claim for lien or damage, or any activities on the Property, in each case by Buyer or its agents, employees, consultants and contractors. Buyer will keep the Property free from
any liens arising through activities on the Property by Buyer, its agents, employees, consultants and contractors, and will return the Property to its original condition in the event Buyer does not complete its purchase of the Property.  The
foregoing indemnification obligation will survive closing and any termination of this Agreement.  As a continuing condition of Buyer's right of entry, Buyer will (i) give advance notice of such entry and the proposed activity to Seller, and (ii)
provide Seller with proof of insurance coverage acceptable to Seller.

Upon an termination of this Agreement other than as consequence of Seller's default, Buyer will provide to Seller copies of all written studies, reports, drawings, plans, and other documents prepared
for Buyer by third parties prior to closing with respect to utility location and civil work. Buyer will not thereby be warranting and will not be responsible for, the accuracy, completeness, fitness, or usability of such reports or the conclusions
or recommendations stated therein.

6Title Insurance. Buyer and Seller have approved the condition of title as shown on the Pro Forma Policy
amended October 14, 2004 attached hereto as Exhibit D1-8, except that Exception 12 shall be removed and shown as a note in Exception 5. If Seller or Title Company give Buyer notice that they are not able to provide the Pro Forma Policy at Closing or
are not able to convey title in condition required by this Agreement due to additional title matters shown on any supplemental title report or otherwise, then Buyer will have five (5) days after receiving Seller's notice to either accept or reject
those title matters in Buyer's discretion. If Seller and Buyer are not able to resolve any objectionable title matters within the following five (5) days, then this Agreement will terminate and Closing Agent will refund the entire Earnest Money to
Buyer, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above. Those title matters shown on the attached Pro Forma Policy and those shown on any supplemental report issued after the date of this Agreement
and if the same are approved by Buyer, may be referred to herein as the "Permitted Exceptions." Buyer's obligation to purchase the Property is conditioned upon Title Company issuing to Buyer at closing an owner's policy of title insurance in the
same form as the Pro Forma policy, amended to include any additional Permitted Exceptions. If this condition is not satisfied, Buyer may elect to either waive its objection and close the purchase of the property, or terminate the Agreement and
receive a full refund of the earnest money, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above. Seller will pay the premium attributable to standard coverage and Buyer will pay any increased

---

costs attributable to extended coverage and any additional endorsements requested by Buyer, and the cost of any survey required by Title Company.

7Reciprocal Easement Agreement. The REA attached as Exhibit C which is subject to Buyer's approval as noted
in Section 5, addresses a number of matters including the following:

| | a | Covenants regarding height restrictions;                                                             
| | - | -----------------------------------------------------------------------------------------------------
| |  
| | b | The responsibility of Buyer and Seller for the cost of waterlines,
sewer lines and storm water lines;
| |  

cDevelopment of a plan for the installation of utilities serving the Property and those lots in DuPont Station South currently owned or being
purchased by Seller other than the Property (referred to herein as the "Seller Lots");

dThe Seller Lots will not have any reciprocal parking rights in Buyer's Exclusive Parking Area as shown on attached Exhibit E; and

e. The Seller Lots will not have the right to place any additional garbage or trash dumpsters on the Property, and the only dumpsters on the Property are those serving Buyer or its tenants. Buyer will
have until the Final Contingency Removal Date to approve the Reciprocal Easement Agreement as provided in the introductory paragraph above. Failure to approve the REA coupled with timely notice to Seller (pursuant to the paragraphs above) shall
entitle Buyer to a full refund of all earnest money, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above.

8Cross-Parking Covenants. Seller and Quadrant interpret the applicable covenants for the Property to allow
cross-parking only for customers while transacting business within DuPont Station South. Sound Transit has purchased a lot adjacent to the Property in DuPont Station South for use as a commuter parking lot.  If Sound Transit asserts cross-parking
rights on the Property, Seller will amend the applicable covenants to confirm that there are not cross-parking on the Property in favor of Sound Transit commuters. Buyer will vote in favor of that amendment if one is necessary. Buyer acknowledges
that Buyer will need to complete its building on the Property before the amendment may be approved to provide Seller and Buyer the votes necessary to pass the amendment.

9.Use as a Bank Facility.Excluding City codes and requirements, Seller hereby consents and agrees that Buyer may operate a banking
institution on the Property and that to the best of Seller's knowledge there are no restrictions of record limiting Buyers use of the property as a banking facility, provided, however, Buyer recognizes that banking is a regulated activity in the
State of Washington and that buyer must have all proper approvals from the State of Washington and that the zoning of the Property is governed by the City of

---

|DuPont.
|-------

10.Seller' Approval of Site Plan and Building Plans. Prior to the execution of this Agreement, Seller has approved Buyer's preliminary site
plan and schematic design for those improvements Buyer intends to construct on the Property, a copy of which is attached as Exhibit F (the "Preliminary Plan"). Buyer will obtain Seller approval of all material changes to the Preliminary Plan (e.g.,
changes to the amount and layout of parking, increases to the amount of retail space, and significant changes to the exterior appearance of the improvements), which approval will not be unreasonably withheld or delayed. Buyer will obtain all
governmental approvals necessary to construct improvements on the Property pursuant to the Preliminary Plan, as it may be amended. Buyer acknowledges that those permits and approvals for its intended improvements might not be issued prior to the
Final Contingency Removal Date.

11.Closing Date. Subject to all contingencies herein, closing will occur at the offices of Closing Agent on February 22, 2005.  Buyer will
be entitled to possession at closing. Time is of the essence in the performance of this Agreement.  Buyer's obligations to close the purchase of the Property remains conditioned upon Seller completing the Boundary Line Adjustment (referred to as the
"BLA" in Section 2 above) with the city of Dupont to establish the property identified in Section 1 above as a separate legal lot. The site plan for the BLA is attached hereto as Exhibit A. Failure of Seller to complete the BLA as provided on or
before date of closing, will entitle the Buyer to a full refund of all earnest money paid, less up to $5,000 to reimburse Seller for the cost of the BLA as provided in Section 2 above.

12.Actions to be Taken at Closing and Pro-rations. At closing, Buyer and Seller will execute and deliver all documents required to be
executed, delivered or recorded in connection with the sale of the Property including a statutory warranty deed subject only to the Permitted Exceptions, FIRPTA affidavit, real estate excise tax, affidavit, escrow instructions, LPO disclosures, and
Closing Agent's preliminary settlement statements.  Seller will pay the real estate excise tax, one-half of the escrow fees charged by Closing Agent, and that portion of the premium for the owner's coverage title policy attributable to standard
coverage. Buyer will pay the cost of recording the deed, one half of the escrow fees charged by Closing Agent, and the excess costs attributable to extended coverage for the owner title policy including any additional endorsements requested by
Buyer, and the cost of any survey required by Title Company. Real estate taxes and assessments payable during 2005, and any assessments, maintenance charges or other fees payable under the CC&Rs, reciprocal easements agreements, or common area
maintenance agreements for DuPont Station South or Northwest Landing Commercial Property payable during 2005 will be prorated as of the date of closing. Each party will pay their own attorneys' fees. Any other closing costs will be allocated between
parties in the manner customary for closings in Pierce County, Washington.  Closing Agent will record the REA

---

immediately following the statutory warranty deed and prior to recording any other documents including financing documents, and the recording fees for the REA will be allocated equally between Buyer and Seller. Closing will be
deemed to have occurred when all documents are recorded and the purchase price is available to Seller.  Any assessments, maintenance charges or other fees payable under the CC&Rs, reciprocal easements agreements, or common area maintenance
agreements for DuPont Station South or Northwest Landing Commercial Property payable during 2005 will be prorated as of the day of closing. Buyer will be provided copies of all documents, invoices, etc. relative to these pro rated costs.

13.Seller's Representations and Warranties. Seller represents and warrants to Buyer that each of the following is true as of the date of
this Agreement and, except as may be disclosed by Seller, will be true as of the date of closing:

aSeller is authorized to enter into this Agreement to sell the Property, and to perform its obligations under this Agreement;

bSeller is not aware of any material misstatements or material omissions in the Due Diligence Materials;

cSeller has received no notice of pending or threatened litigation which would adversely effect the Property or Buyer's ownership thereof
after closing;

dThere are no covenants, conditions, restrictions, or contractual obligations of Seller which will adversely effect Buyer's ownership of the
Property after closing or prevent Seller from performing its obligations under the Agreement except as disclosed to Buyer including in the Pro Forma Title Policy or the Due Diligence Materials;

eSeller has received no notice of pending condemnation or similar proceedings effecting the Property, and except as otherwise disclosed to
Buyer including in the Pro Forma Title Policy or the Due Diligence Materials, the Property is not within the boundaries of any planned or authorized local improvement district;

fSeller or Quadrant has paid, except to the extent prorated at closing, all local, state and federal taxes applicable to the period prior to
closing which, if not paid, would constitute a lien on the Property, or for which Buyer may be held liable after closing;

gNeither Seller nor Quadrant has received any notices of violation of building, zoning or land use codes applicable to the Property;
and

hSeller is not aware of any concealed material defects in the Property.

---

Seller makes no representations or warranties regarding the Property other than those specified in this Agreement. Buyer takes the Property "AS-IS," and Buyer will otherwise rely on its own
pre-closing inspections and investigations.

14.Hazardous Substances. Except as disclosed to or known by Buyer prior to the Final Contingency Removal Date, Seller represents and
warrants to Buyer that:  (i) Seller is not aware of any Hazardous Substances (as defined below) currently located in, on, or under the Property in a manner or quantity that presently violates any Environmental Law (as defined below); (ii) Seller is
not aware of any underground storage tanks located on the Property; and (iii) Seller is not aware of any pending or threatened investigation or remedial action by any governmental agency regarding the release of Hazardous Substances or the violation
of any Environmental Law at the Property. As used herein, the term "Hazardous Substances" shall mean any substance or material now or hereafter defined or regulated as a hazardous substance, hazardous waste, toxic substance, pollutant, or
contaminant under any federal, state or local law, regulation, or ordinance governing any substance that could cause actual or suspected harm to human health or the environment ("Environmental Law"). The term "Hazardous Substance" specifically
includes but is not limited to petroleum, petroleum bi-products, and asbestos.

15.Notices. All notices required or permitted under this Agreement shall be in writing and will be effective (a) when personally delivered,
(b) when transmitted by facsimile provided electronic confirmation is received by the sending party, or (c) on the third day after being deposited in the United States First-Class Mail, postage prepaid, in each case addressed as follows:

If to Seller:                 DuPont Station Partners, LLC

|                 |  | Michael N. Rabstoff, Managing Member
|---------------- |  | ------------------------------------
|                 |  | 1145 Broadway Plaza, Suite 1300     
|Tacoma, WA 98402
|                 |  | Fax No. (253) 284-2845              
|                
|With a copy to:  |  | Kerry S. Bucklin                    
|                 |  | Short Cressman & Burgess PLLC       
|                 |  | 999 Third Avenue, Suite 3000        
|                 |  | Seattle, WA 98104-4088              
|                 |  | Fax No. (206) 340-8856              

|If to Buyer: |  | Ken F. Parsons, Sr.   
|------------ |  | ----------------------
|             |  | Venture Bank          
|             |  | 721 College Street    
|             |  | P.O. Box 3800         
|             |  | Lacey, WA 98509       
|             |  | Fax No. (360) 412-2120
|             |  |                       

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16.Assignment. Buyer may not assign this Agreement without Seller's written approval. Seller will not withhold its approval to a transfer by
Buyer to an entity which is owned and controlled by Buyer or which is under common ownership and control with Buyer. This Agreement shall not be assignable by operation of law.

17.Default. Seller's sole remedy in the event of Buyer's default will be limited to forfeiture of the Earnest Money. Buyer's sole remedy in
the event of Seller's default will be limited to a refund of the Earnest Money and bringing suit to specifically enforce this Agreement. In addition, the prevailing party in any suit concerning this Agreement is entitled to its reasonable attorneys'
fees and expenses.  In the event of trial, the amount of the attorneys' fees and expenses will be fixed by the court. The venue for any such suit will be in Pierce County, Washington.

18.Quadrant Agreement.  Upon closing, Buyer will be bound by the obligations of Seller under the Quadrant Agreement with regard to the
Property to the extent those obligations survive Seller's purchase from Quadrant. Those obligations under the Quadrant Agreement which may survive closing of Seller's purchase include the following referenced sections of the Quadrant Agreement:
Section 11.2 (Configuration of Second Closing Lots), Section 11.3 (New Construction Committee), Section 11.4 (Communication About Governmental Approvals), Section 18 (Signage), Section 19 (Performance of Construction Activities), Section 20
(Archeological Requirements), and Section 23 (Use Restrictions).

19.Miscellaneous. This Agreement with all attachments and documents referenced herein state the entire understanding of Seller and Buyer
regarding the purchase and sale of the Property. There are no verbal or written agreements which modify or affect this Agreement. This Agreement may be signed in counterpart, each signed counterpart will be deemed an original, and all counterparts
together shall constitute one and the same agreement.  Facsimile transmission of any signed, original document, and retransmission of any signed facsimile transmission, will be the same as delivery of an original. At the request of either party, or
Closing Agent, the parties will confirm facsimile transmitted signatures by signing and delivering an original document.

20.No Merger. The terms of this Agreement will not merge in the deed or other conveyance instrument transferring the Property from Seller to
Buyer. The terms of this Agreement shall survive closing.

21. Acceptance. Upon the execution of this Agreement by Seller, it will constitute an offer to sell the Property and will remain open for acceptance until

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December 10, 2004, unless sooner withdrawn.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date stated above.



| | BUYER:Venture Bank                          
| | --------------------------------------------
| | By:/s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr
| | Chairman and Chief Executive Officer        
| |                                             
| | SELLER:                                     
| | DuPont Station Partners, LLC,               
| | a Washington limited liability company      
| |                                             

| | By:/s/ Michael R. RabstoffMichael R. Rabstoff,Managing Member
| | -------------------------------------------------------------

---

Exhibit 10.11



SHOPPING CENTER LEASE

THIS SHOPPING CENTER LEASE ("Lease") is entered as of the 1st day ofOctober,2004, by and between the Parties, who are LAKHA LAKEWOOD PROPERTIES,
L.L.C., a Washington limited liability company, ("Landlord"), as Landlord, andVenture Bank(referred to herein as "Tenant"), as Tenant, for the Leased Premises described
below, on the following terms, conditions and provisions, each and all of which are hereby agreed upon and mutually accepted by the Parties on and as of the date stated above.

|1.                      |  | DEFINITIONS AND BASIC PROVISIONS:The following terms when used in this Lease have
|----------------------- |  | ---------------------------------------------------------------------------------
|the following meanings: |  |                                                                                  
|                       
|(a)                     |  | Landlord:                                                                        
|company                 |  |                                                                                  
|                       
|(b)                     |  | Landlord's Address:                                                              
|98015.                  |  | Phone (425) 462-2505 Facsimile: (425) 462-5186                                   

|(c) | Tenant:
Venture Bank                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(d) | Tenant's Address:                     
Tenant's Address for Notices: 721 College Street S.E., P.O. Box 3800, Lacey, Washington 98509
                                                              ph. (360) 459-1100 Fax (360) 458-0137
|   

|(e) |  | Tenant's Trade Name:             Venture Bank                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------
|(f) |  | Shopping Center:Lakewood Colonial Shopping Center East, Lakewood, Washington [legally 
described on Exhibit A].

(g)Leased Premises:5927 Mt. Tacoma Drive S.W., Lakewood, Washington 98499, consisting of approximately 4,795
square feet of rentable area located in the Shopping Center and described on the site plan of the Shopping Center attached asExhibit A. The Gross Rentable Area of the Leased
Premises is 4,795 squarefeet.

|(h) | Lease Commencement Date: the date of delivery of possession space to Tenant.         
|--- | -------------------------------------------------------------------------------------
|   
|(i) | Rent Commencement Date: The date, which is one-hundred, eighty (180) days after Lease
|   

Commencement Date.Tenant to deposit with Landlord on the date of Lease signing an amount equal to $9,190.42 to be applied to the first
month's rent due hereunder.

(j)Tenant's Responsibility to Pay Utility Charge, Common Area Maintenance and Real Estate Taxes Begins:the date Tenant takes possession of the premises and receives all permits ,if required, for tenant's scope of work.

|(k)                                                        | Termination Date: November 1st, 2024, subject to renewal options [Exhibit I].           
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------
|                                                          
|(l)                                                        | Lease Term:That period commencing 12:01 a.m. Pacific Time on the Lease Commencement Date
|and ending 5:00 p.m. Pacific Time on the Termination Date.

|(m) |  | Base Rent: |  | Months |  | 1 |  | through |  | 6 - $ - 0 -                                   
|--- |  | ---------- |  | ------ |  | - |  | ------- |  | ----------------------------------------------
|    |  |            |  | Months |  | 7 |  | through |  | 12 - $55,142.52 (payable monthly at $9,190.42)

---

|    |  | (a) Price Index: For purposes of calculating cost of living adjustments of                                                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | Base Rent, "Price Index" shall mean the Consumer Price Index - All                                                                                      
|    |  | Urban Consumers-All Items, (1967=100) for the smallest geographical                                                                                     
|    |  | area containing the Premises, published by the United States                                                                                            
|    |  | Department of Labor, Bureau of Labor Statistics. If the                                                                                                 
|    |  | aforementioned CPI Index is discontinued, the parties shall select                                                                                      
|    |  | another similar index which reflects consumer prices and if the parties                                                                                 
|    |  | can not agree on another index, it shall be selected by binding                                                                                         
|    |  | arbitration pursuant to the terms of this Lease; provided that the                                                                                      
|    |  | Tenant shall continue to pay an amount equal to the Base Rent payable                                                                                   
|    |  | for the last month before the Rent Adjustment Date until the adjusted                                                                                   
|    |  | Base Rent can be determined.                                                                                                                            
|   
|    |  | (b) Effective the first day of the first month immediately following each                                                                               
|    |  | anniversary of the Lease Commencement Date, the Base Rent payable under the                                                                             
|    |  | Lease shall be increased by the percentage of increase, if any, in the Price Index                                                                      
|    |  | over the preceding twelve (12) month period ("Rent Adjustment Period"), measured                                                                        
|    |  | by the percentage difference between the Price Index most recently published in the                                                                     
|    |  | calendar month immediately preceding the Rent Adjustment Date, and (i) for the                                                                          
|    |  | first Rent Adjustment Period, the Price Index most recently published in the                                                                            
|    |  | calendar month immediately preceding the Rent Commencement Date, or (ii) for                                                                            
|    |  | each subsequent Rent Adjustment Period, the Price Index most recently published                                                                         
|    |  | in the calendar month immediately preceding the prior anniversary of the Rent                                                                           
|    |  | Commencement Date. In no event, however, shall the Base Rent be less than the                                                                           
|    |  | sum or sums paid in the immediately preceding period or less than an increase of                                                                        
|    |  | three percent (3%) over the amount paid or greater than an increase of five percent                                                                     
|    |  | (5%) over the amount paid in the immediately preceding period. The Base Rent as                                                                         
|    |  | adjusted shall be the Rent due until the next Rent Adjustment Date and shall be the                                                                     
|    |  | basis upon which the next Rent Adjustment shall be made.                                                                                                
|   
|(n) |  | Additional Rent:Tenant's proportionate share of real estate taxes, insurance costs, and common 
 area maintenance expenses, as provided in Section 5(c).

|(o)                             | Percentage Rent: N/A                                                                  
|------------------------------- | --------------------------------------------------------------------------------------
|                               
|(p)                             | Security Deposit:As defined and set forth in Section 4. The Security Deposit amount is
|$12,000.00 due on lease signing

(q)Permitted Use:Tenant shall use the Leased Premises solely for the following Permitted Use: Banking with
drive thru, ATM's and related financial services and customer services provided by Tenant for the direct benefit of its customers such as complementary refreshments (coffee, cookies, etc., in the bank lobby and not offered for sale to the general
public), insurance, and promotional outings or trips (including travel-related service attendant to such promotions, not as general travel agency).

(r)Common Areas:All areas within the exterior boundaries of the Shopping Center (exclusive of building pad
and/or footprint sites reserved for future buildings and the like included within the Shopping Center, if any, after the commencement of construction of leasehold improvements thereon) which are now or hereafter made available for general use,
convenience and benefit of Landlord, Tenant, and other tenants and persons entitled to occupy space in the Shopping Center, including, but not be limited to, parking areas, driveways, trash collection and dumpster areas, open or enclosed malls,
sidewalks, landscaped and planted areas, monument signs and roofs.

---

(s)Tenant's Proportionate Share:The Gross Rentable Area of the Leased Premises divided by the gross rentable
area of the Shopping Center, which is 39,616 square feet.Provided,if any tenant or tenants in the Shopping Center have obtained written approval from Landlord to pay their
taxes directly, to carry their own insurance, to provide their own garbage collection, to have separately metered water and sewer, or to have any of the other expenses in connection with the Shopping Center billed separately to them and paid by
them, then the square footage of the space leased or rented by such tenant or tenants shall not be deemed a part of the gross rentable area of the Shopping Center for the purposes of calculating Tenant's Proportionate Share with respect to the
expense or expenses which such tenants shall so pay directly.Further provided,however, that Tenant shall not pay any such items directly or receive credit therefore except as
agreed to in writing by Landlord.

(t)Lease Year:The period from January 1 through December 31 of each year in which this Lease is in effect. The
first Lease Year shall be the calendar year in which the Lease Commencement Date occurs, and the final or last Lease Year shall be the calendar year in which the Termination Date occurs (or in which the Lease is terminated if that occurs prior to
the stated Termination Date).

(u)Exhibits:The following Exhibits are made a part of this Lease and their terms and contents are hereby
incorporated into and made a part of this Lease:

A: Legal Description of Shopping Center

B: Site Plan of Shopping Center 
(for illustrative purposes only, not a binding representation)

C: Description of Landlord's and Tenant's Work.

D: Demising Plan of Premises E: Guaranty of LeaseF: Sign Criteria G: Shopping Center Rules

H: Percentage Rent Addendum (if applicable)I: Renewal Option

(v)Addendum:If the box below is marked, there is an Addendum to this
Lease (other than those included among the above-listed Exhibits), a true and complete copy of which should be attached to the original of this Lease, the terms of which are included and incorporated into this Lease by reference, and all references
to this Lease shall include the Addendum.  If there is an Addendum, the terms of the Addendum shall control in the event of a conflict between the terms of this Lease and of the Addendum.

| | An Addendum is included and made a part of this Lease.
| | ------------------------------------------------------



(w)Leasing Agent(s):Landlord was represented in the negotiation of this Lease by West Coast Commercial Realty.
Tenant was not represented by a leasing agent. Each party represents to the other that it has not contracted with or retained any other real estate or leasing agent for purposes of procuring, negotiating or entering into this Lease, and each party
agrees to indemnify and hold the other harmless from all commissions, fees, compensation and other demands as may be made by any other agent, not identified in this Section, claiming to have entered into a contract or having received a promise of
compensation from the party who shall indemnify the other.

2.ACCEPTANCE OF THE LEASED PREMISES:Subject to the covenants and conditions herein provided,
Landlord leases to Tenant, and Tenant leases from Landlord the Leased Premises.TENANT REPRESENTS THAT TENANT HAS INSPECTED THE LEASED PREMISES PRIOR TO EXECUTION OF THIS LEASE AND ACCEPTS THE LEASED PREMISES
IN THEIR PRESENT CONDITION, "AS IS" AND "WHERE IS,"and that Landlord is not required to provide, make, or undertake any tenant improvements or other improvements to the Leased Premises, nor contribute to the
cost

---

thereof. Landlord makes no representations or warranties with respect to the Leased Premises except as expressly stated in this Lease. Tenant has fully inspected the Leased Premises and is fully satisfied therewith in their
present condition. Tenant hereby expressly acknowledges that Landlord makes no representation as to the identity, nature, or type of tenants that may operate in the Shopping Center. The fact that this property is referred to as a "shopping center"
does not mean or require, expressly or impliedly, that the only tenants that shall operate or lease space in the shopping center shall be retail tenants or businesses providing any particular type of product or service. Landlord specifically
disclaims any representation, express or implied, that may be made by any agent or representative of Landlord or Tenant expressing the opinion, belief or other statement representing or implying that the Shopping Center or any portion of it shall be
occupied by any particular type or types of businesses. Tenant acknowledges Landlord shall remain free to select such tenants as Landlord shall, in its sole discretion, determine suitable for Landlord's purposes in its ownership and operation of the
Shopping Center.

|3. | TERM OF LEASE:This Lease shall be for the Lease Term set forth in Paragraph 1(l).
|-- | ---------------------------------------------------------------------------------
|  
|4. | SECURITY DEPOSIT.                                                                
|  

(a)Amount and Disposition of Security Deposit.Upon mutual execution of this Lease, Tenant shall deposit with Landlord the sum ofTWELVE THOUSAND AND NO/100 DOLLARS ($12,000.00)(the "Security Deposit") to
be held by Landlord as security for Tenant's full, faithful and prompt performance of every term, covenant, condition, obligation, duty, undertaking and agreement of this Lease and the full, timely and complete payment of Base Rent, Additional Rent,
Percentage Rent (if applicable) and all other amounts and charges due and coming due under the terms of the Lease. Tenant, its successors and assigns shall have no right, title or interest in and to the Security Deposit except for the right of
return thereof following the expiration of the Lease Term, subject to Tenant's full, faithful and prompt performance of every term, covenant, condition, obligation, duty, undertaking and agreement of this Lease and the full, timely and complete
payment of all sums due hereunder. Tenant shall not use or apply the Security Deposit to any sum owed hereunder without Landlord's prior written consent. Landlord shall not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created between Landlord and Tenant with respect to the Security Deposit. No interest shall accrue to Tenant on the Security Deposit or any part thereof.

(b)Application of the Security Deposit. If Tenant shall breach or default with respect to any term, covenant,
condition, obligation, duty, undertaking or agreement hereof, Landlord, in its discretion, may, (but shall not be required to) apply all or any part of the Security Deposit to the payment of any Base Rent, Percentage Rent, Additional Rent, or other
sums due pursuant to the terms hereof and not paid by Tenant, or to cure any Tenant's default hereunder. The application by Landlord of any portion of the security deposit as full or part payment of a sum payable by Tenant, shall not be deemed a
cure of Tenant's default unless or until Tenant fully repays the portion of the security deposit applied by Landlord to pay the defaulted sums as required by Section 4(c) hereof. The use, application or retention of all or any portion of the
Security Deposit by Landlord shall not be deemed a waiver of any of Landlord's rights to proceed against Tenant for default or breach under any of the terms, covenants, conditions, obligations, duties, undertakings or agreements hereof or construed
as a payment of liquidated damages charged for any such default, including the right of Landlord so to proceed after termination of the Lease.

(c)Redeposit of Funds. In the event Landlord uses all or any portion of the Security Deposit, within ten (10)
days of demand by Landlord, Tenant shall deposit with Landlord such amount as was utilized by Landlord so that the full amount of the Security Deposit as specified in Section 4(a)shall be available to Landlord at all times during the Lease Term or any Renewal Term.

---

(d)Return of Security Deposit. If, following termination of this Lease and Tenant's vacation and return to
Landlord of the Leased Premises and all keys thereto, Landlord reasonably determines Tenant has fully complied with all covenants, conditions, obligations, duties, undertakings and agreements hereof, Landlord shall return the balance (if any) of the
Security Deposit (without interest) to Tenant within sixty (60) days after the end of the Lease Term. If Tenant fails to perform its obligations upon termination of this Lease, Landlord shall have the right, but not the obligation, to take such
actions as necessary to fulfill Tenant's obligations on termination and to apply so much or all of the Security Deposit to the costs thereof and thereafter deliver to Tenant any unused portion of the Security Deposit.

|5.RENT:
|-------

(a)Base Rent.Tenant shall pay to Landlord the Base Rent in monthly installments, in U.S. money, in the amount
specified in Paragraph 1(m) without demand, deduction, offset or abatement. Base Rent for the seventh month of the Lease Term shall be paid upon completion of mutual execution of this Lease. If the Rent Commencement Date is other than on the first
day of the month and prior to the 15th day of the month, the amount paid on execution of this Lease shall be the pro-rated portion of Base Rent due for that first, partial month of the Lease Term. If the Rent Commencement Date is on the 15th day or
later, upon execution of this Lease, Tenant shall pay Base Rent pro-rated for that first partial month and, in addition, for the first full month of the Lease Term. Base Rent shall thereafter be due on the first day of each month of the Lease Term.
All payments under this Lease shall be paid to Landlord at Landlord's Address stated in Section 1 unless Landlord otherwise designates in writing. For the purposes of this Lease, all references to Rent, Base Rent, Additional Rent, and/or Percentage
Rent shall be deemed to be rent.

|(b) | Percentage Rent. - N/A                                                                    
|--- | ------------------------------------------------------------------------------------------
|   
|(c) | Additional Rent/Adjustments.In addition to Base Rent, as Additional Rent hereunder, Tenant
|   

shall pay to Landlord on the first day of each month, Tenant's Proportionate Share of "Adjustments," consisting of all Real Estate Taxes, Insurance Costs, and Common Area Maintenance Expenses, as those terms are defined
below (collectively referred to herein as Adjustments), together with a sum for administering the accounting, bookkeeping and collection of the expenses in connection with the Common Areas in an amount equal to fifteen percent (15%) of the total of
Tenant's Proportionate Share of the aforementioned Adjustments for each calendar month.

|(i)  | Real Estate Taxes.The term "Real Estate Taxes" shall include all real property taxes and assessments, whether special or general and including any road improvement districts, water
improvement district, if any, and any other utility installation hookup, tie in or similar charges or assessments that are levied upon and/or assessed against the Premises or the Shopping Center and/or payable during or with respect to the Lease
Term.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     | Provided, notwithstanding anything to the contrary, as used herein, Real Estate Taxes shall not include (i) penalties and interest resulting from Landlord's delinquency in the payment thereof; (ii) any succession, transfer,
or gift tax levied against Landlord; and (iii) any real estate transfer tax, mortgage lien tax, documentary stamp tax, or recording fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(ii) | Insurance Costs.The term "Insurance Costs" as used herein means all premiums and all other costs incurred by Landlord to procure and maintain policies of insurance providing coverage
on or with respect to the Shopping Center or any portion thereof for those purposes deemed in Landlord's judgment to be necessary and prudent to be insured and in those amounts Landlord deems in its judgment to be reasonable and prudent, including,
but not limited to, policies insuring against loss or liability caused by or arising from fire, wind, earthquake, riots, public disturbances, and other casualties; loss of rents and income; general and commercial liability; "all risk" coverages; and
endorsements and other forms of insurance in such coverages and amounts as Landlord deems in its business judgment necessary or prudent or as required by Landlord's lender.Provided,nothing in this
|    

---

|      | subsection shall require or constitute a representation that Landlord has or will procure, maintain or keep in force any of such coverages. [except that Landlord agrees to maintain fire and casualty insurance in an amount
sufficient, in Landlord's reasonable judgment, to replace the buildings and improvements comprising the Shopping Center and commercial liability insurance in an amount not less than five million dollars ($5,000,000) combined single
limit].                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(iii) | Common Area Maintenance Expenses.Landlord shall keep or cause to be kept the Common Areas in a neat, clean, and orderly condition, properly lighted and landscaped, and shall repair
any damage to the facilities thereof, and all expenses relating to or incurred in connection with the Common Areas shall be charged and prorated in the manner stated in this subsection. "Common Area Maintenance Expenses" as used herein shall be
construed to include, but not be limited to, all costs and amounts incurred or expended in connection with upkeep, maintenance, repair, improvement and management of the Common Areas(which management fee shall not
exceed four percent (4%) of the base rent), including, but not limited to, all general maintenance and repairs, relocation of facilities, resurfacing, patching, painting, striping, re-striping, cleaning, snow
removal, sweeping and janitorial services, maintenance and repair of sidewalks and curbs and Shopping Center signs; landscaping, irrigation or sprinkling systems, planters, tree maintenance and removal; Shopping Center lighting and other utilities;
directional signs and other markers and bumpers; all roof repairs and maintenance including but not limited to patching, resurfacing and preventative maintenance; painting or renovation of the exterior portion of all or any part of the buildings,
structures and improvements constructed on the Shopping Center; maintenance and repair of any fire protection systems, lighting systems, storm drainage systems and any other utility systems; all costs incurred and expenditures made for repairs or
modifications to the Shopping Center and/or its improvements and/or for repair or installation of equipment for energy or safety purposes; personnel to implement such services including, if Landlord deems necessary, the cost of any maintenance
supervisor and/or the cost of security guards; all costs and expenses pertaining to a security alarm system for the tenants and/or Shopping Center; promotional and advertising expenses and legal counsel charges relating to the Shopping Center as a
whole (not relating solely to any specific tenant lease or space); reasonable reserves for future maintenance and repair work and reasonable reserves for replacement of existing capital improvements in the Common Areas which Tenant hereby authorizes
Landlord to use as Landlord reasonably deems necessary; personal property taxes on the improvements located on the Common Areas; public liability and property damage insurance covering the Common Areas in amounts as reasonably determined by
Landlord; and the property management fee paid by Landlord to the property manager for the Shopping Center.
|     
|      | Landlord may cause any or all of said services to be provided by an unaffiliated independent contractor or contractors. Should Landlord acquire or make available land not shown as part of the Shopping Center onExhibits A and/or Band make the same available for parking or other Common Area purposes, then said expenses in connection with the Common Areas shall also include all of the
aforementioned expenses incurred and paid in connection with said additional land.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     
|(iv)  | Notwithstanding anything herein contained, the common area maintenance, real estate taxes and insurance charges for the 2005 calendar year (1/1/-5 through 12/31/05) will remain fixed at $5.13 per square foot per year
(Exhibit J). This Additional Rent / Adjustment charge will not be reconciled at the end of the calendar year, but will remain fixed for this twelve (12) month period. Commencing with the 2006 calendar year, Tenant's Additional Rent / Adjustments
will be calculated and reconciled pursuant to these lease original provisions, unmodified by this 5 (c) (iv) provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     

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(d)Statement of Adjustments. On or before the beginning of each Lease Year during the Lease Term (or as soon
thereafter as practicable), Landlord shall endeavor to deliver to Tenant a Statement of Adjustments (or Statement of Additional Rent), based upon Tenant's Proportionate Share of the amounts estimated by Landlord or Landlord's agent to fall due
during that ensuing Lease Year for the Adjustments for the Shopping Center. The estimate shall be based upon the amount of the prior year's Adjustments, anticipated and/or known cost increases or decreases, budgeted and projected expenditures, and
such other factors as Landlord in its discretion takes into account. Tenant shall pay to Landlord, on the same day of each month as Base Rent is due, without adjustment, offset or abatement, one-twelfth of Tenant's Proportionate Share of said
amounts for that Lease Year. Tenant shall pay said amount in twelve equal monthly installments irrespective of the specific time of the Lease Year when said expenditures are anticipated to be or actually are paid or incurred. If the Rent
Commencement Date falls on a date other than the first day of the Lease Year, prior to the Rent Commencement Date, Landlord shall deliver to Tenant a Statement of Adjustments calculated upon Tenant's Proportionate Share of the estimated Adjustments
for the Lease Year then in effect, pro-rated as of the Rent Commencement Date. Said pro-ration shall be based on the number of days remaining in the Lease Year divided by 360, irrespective of the dates on which any of said expenses have actually
been or will be incurred. If Landlord fails to provide a Statement of Adjustments prior to the first day of a Lease Year, Tenant shall continue paying the same amount of Additional Rent as paid during the then-ending Lease Year and shall continue
paying at said rate until Tenant receives a Statement of Adjustments for the Lease Year then in effect. By March 31st of each year Landlord shall endeavor to give Tenant a statement showing the actual total amounts incurred and paid for Adjustments
during the immediately preceding Lease Year and Tenant's Proportionate Share thereof. If the total amount of Additional Rent paid by Tenant during said immediately preceding Lease Year is less than Tenant's actual Proportionate Share of the amount
actually paid for such Adjustments, then Tenant shall pay the difference in a lump sum not later than thirty (30) days from the date of delivery of the statement to Tenant. If the statement of actual Adjustments shows that the amount of Additional
Rent paid by Tenant during the immediately-preceding Lease Year exceeds Tenant's Proportionate Share of the actual amounts incurred for Adjustments, then Tenant shall be entitled to a credit in the amount of said difference, which credit shall be
applied in a lump sum to the amount due as Additional Rent on the first of the month immediately following the date the statement is delivered to Tenant (and to the following months if the amount of credit exceeds one month's installment of
Additional Rent for the Lease Year then in effect). If the Lease is terminated prior to the end of a Lease Year, the determination of actual amounts paid and payment of additional amounts by Tenant or reimbursement of excess amounts paid by Tenant
shall take place on or about March 31 of the following Lease Year as herein provided. Any amount overpaid by Tenant shall be reimbursed by Landlord to Tenant by direct payment made within thirty (30) days of the date of delivery of the statement to
Tenant, less any amounts then remaining owing by Tenant to Landlord. Any additional amount owing by Tenant to Landlord shall be billed to Tenant and paid by Tenant to Landlord within thirty (30) days of the date of Tenant's receipt of a statement
therefore. So long as Tenant is not in default of this Lease, Tenant shall have the right, upon thirty (30) days written request, to review Landlord's records concerning Real Estate Taxes, Insurance and Common Area Maintenance Charges (collectively
"Additional Rent") for the immediately prior calendar year, which request must be delivered within sixty (60) days after the annual statement of such charges is delivered to Tenant; provided, however, Tenant shall have no right to review Additional
Rent more than one time during a calendar year. Such review shall occur during regular business hours at the location where Landlord maintains such records, and shall include a review of all applicable records, including invoices, ledgers, receipts,
and all other financial and accounting records pertaining to the payment by Landlord and the calculation of Tenant's share of Additional Rent. If Tenant questions any Expenses or Tax, Landlord shall provide reasonably satisfactory evidence of the
validity of Landlord's calculation (which evidence may be in summ
ary statement (as opposed to the original invoice)) or adjust the item. Disputes which cannot be resolved within sixty (60) days of the review of Landlord's records by Tenant shall be resolved by anationallyrecognized accounting firm agreed upon by Landlord and Tenant (the "CPA"), which CPA shall not then be employed by either party. If such audit discloses that Tenant has underpaid
Tenant's share of Additional Rent, Tenant shall promptly pay Landlord the difference. If such audit discloses that Tenant has overpaid Tenant's share of Additional Rent, Landlord shall give Tenant credit on Additional Rent with respect to such
amount, or if the Lease is at the end of the Term, refund such amount to Tenant.

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Tenant shall pay all costs and expenses of the audit by the CPA unless the audit shows Landlord overstated Additional Rent by ten percent (10.00%) or more, in which event the costs of such audit shall be paid by
Landlord.

6.LATE CHARGES AND NSF CHARGES:Tenant acknowledges that the late payment of amounts due
hereunder will cause Landlord to incur additional expenses, including additional property management and administrative costs, legal and accounting costs, additional interest on sums Landlord may borrow for its own financing, possible charges by
Landlord's lender if rents are not paid and received, and other amounts and the loss of use of funds, the full total of which losses may not be capable of exact ascertainment.  Consequently, Tenant agrees that, in addition to all other remedies
provided herein, and not in place thereof, if any portion of any installment, payment or amount due as Base Rent, Percentage Rent or Additional Rent, or any other charge or amount due hereunder from Tenant is not received by Landlord on the date it
is due according to the terms of this Lease, there shall be due thereon, without the requirement of any additional notice, a Late Charge in the amount of ten percent (10%) of the total of the amount then due. If Base Rent is not paid when due for
consecutive months, said Late Charge shall apply on the accumulated amount then due and remaining unpaid on the first of each month when Base Rent, Percentage Rent (if any) and Additional Rent are due. Failure to pay the Late Charge, with or without
demand therefore, shall constitute a Default under this Lease irrespective of whether the past due Base Rent or other amounts have been paid.  Any waiver by Landlord of this Late Charge or any failure by Landlord to insist upon payment of the Late
Charge for any late payment of any amount due under this Lease, whether for Base Rent, Additional Rent, or any other amounts due hereunder, shall not constitute a modification of this Lease or a waiver of Landlord's right to receive the Late Charge
in the event of any other late payment under this Lease. In the event Tenant delivers a check to Landlord for Base Rent, Additional Rent, or any other amount due from Tenant to Landlord hereunder and such check is dishonored by Tenant's bank for
insufficient funds or any other reason, including checks returned marked "NSF," in addition to a late charge which may apply if the amount represented by such check becomes past due as a result of such dishonor, Tenant shall also be required to pay
to Landlord an NSF Fee of Twenty-Five Dollars ($25.00) for each such dishonored or returned check, and, in addition, any replacement check given by Tenant for such amount(s) shall be by cashier's or certified check or money order and the same
must be delivered by Tenant to Landlord not later than three (3) calendar days after the date on which Landlord gives Tenant notice of the returned, dishonored or "NSF" check. If Tenant delivers two (2) checks to Landlord in any calendar year that
are so dishonored or returned or marked "NSF" or three (3) such checks during the Lease Term, then Landlord shall have the right at any time thereafter, by written notice to Tenant, to demand all subsequent payments due from Tenant to Landlord under
this Lease be made by cashier's or certified check, money order, or wired funds, the costs of which shall be borne by Tenant. The imposition by Landlord and/or the payment by Tenant of any late charges or NSF charges shall not waive or cure Tenant's
default herein arising from any other failure by Tenant to pay or perform.

|7.REPORT OF GROSS SALES.(a)Intentionally omitted.8.USE OF LEASED PREMISES:
|--------------------------------------------------------------------------

(a)Tenant shall use the Leased Premises during the Lease Term (and during any hold-over period, if applicable) only for the purpose or purposes
expressly stated in Section 1(q), providing such use is permitted by and in accordance with applicable law and with the provisions, conditions and requirements of this Lease.  Tenant shall be responsible at its own expense to ascertain that such use
is permitted by law and Tenant shall be responsible at its own expense to acquire all licenses, permits and other governmental and other approvals necessary to such use, and Tenant acknowledges that neither Landlord nor any agent, employee,
representative, contractor or other person who may be claimed to have acted for Landlord has given any representation, assurance, statement or other matter to Tenant to the effect that such use is or will be permitted or that the Leased Premises or
the Shopping Center is or will be or will remain suitable for such

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use. Such use is herein referred to as "Permitted Use." Tenant shall not use or occupy nor permit others to use or occupy the Leased Premises for any other purpose. Tenant acknowledges that Landlord may presently or in the
future lease spaces in the Shopping Center to other tenants whose use of their premises may require that no other tenant in the Shopping Center engage in similar or competing uses. Accordingly, for this and other reasons, Tenant acknowledges that it
shall not expand upon the Permitted Use or make use of the Leased Premises for any other use or purpose without Landlord's express written, advance consent, which consent may not be unreasonably withheld. For example, by way of illustration and not
by way of limitation, if the Permitted Use is for operation of a retail establishment selling or offering a particular type of products (i.e.,a restaurant offering a
particular type of ethnic or cultural food, a specialty clothing or sporting goods or furniture store offering a particular category or type of those products), Tenant shall not expand its use to offer menu items or products going beyond that type
specifically described in Section 1(q).  This provision and the description of the Permitted Use stated in Section 1(q) shall not be amended except in a writing signed by Landlord. Landlord's failure to insist upon immediate cessation or termination
of any use of the Leased Premises that is contrary to or in excess of the Permitted Use, whether or not Landlord shall have notice or knowledge thereof, shall not constitute nor be construed or interpreted as a modification or amendment of this
provision or this Lease nor a waiver of the right of Landlord or Landlord's successor or assignee to require at any time thereafter compliance with this provision and prompt or immediate cessation or termination of any use that is contrary to or in
excess of the Permitted Use.

(b)Tenant shall conform to all present and future applicable laws and regulations of any governmental authority affecting the Leased Premises and the
use thereof during the Lease Term and shall make all necessary modifications and additions to the Leased Premises at its own expense and shall at its own expense undertake or refrain from all actions as necessary to comply with all applicable laws.
Landlord represents that, to the best of Landlord's knowledge, the subject building containing the Leased Premises is in compliance with applicable ADA and IBC requirements, to the extent that Landlord has received no notice to the contrary. Tenant
shall be responsible to keep itself informed as to all such laws and regulations and the lack of notice or knowledge thereof shall not excuse Tenant's non-compliance therewith. Tenant shall indemnify, defend and hold harmless Landlord and Landlord's
officers, agents, members, employees, assigns, successors and mortgagees, from all claims, demands, actions, fines, judgments, assessments, attorney's fees, costs and losses of any nature and kind arising from Tenant's breach of this
provision.

(c)Tenant shall refrain from any activity that would reasonably be considered to be offensive to Landlord, to other tenants in the Shopping Center and
their invitees, or to owners, occupants or users of adjoining properties, or which would tend to create a nuisance or damage the reputation of the Shopping Center. Without limiting the generality of the foregoing, Tenant shall not permit any
objectionable noise, vibration or odor to escape or be emitted from the Leased Premises; place any boxes, cartons, rubbish, merchandise or other personal property in the walkways or other Common Areas; or place or permit any loudspeaker or sound
amplifier or other devices similar to any of the foregoing at any place in or out of the Leased Premises where the same may be heard outside of the Leased Premises.

(d)Tenant shall not load the floors or other structural components of the Leased Premises beyond the point considered safe by a competent engineer or
architect selected by Landlord nor use the electrical, plumbing or other mechanical systems of the Leased Premises in excess of their safe and/or stated capacities.

(e)Except as in accordance with Section 15, Tenant shall not place, maintain or attach any sign, display, insignia, decoration, lettering, awning,
canopy, advertising or promotion matter or material, antenna, or aerial or other device to the exterior walls, windows, doors or roof of the Leased Premises without the prior written consent of Landlord, which consent shall not be unreasonably
withheld by Landlord. Landlord need not consent to any sign or other attachment that fails to conform to the general design concept of the Shopping Center as established by Landlord from time to time. Notwithstanding Landlord's consent to any signs
and other attachments, Tenant shall at Tenant's sole expense remove all such signs or other attachments upon termination of the Lease and repair any damage to the Leased Premises caused thereby.

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(f)Tenant shall keep the Leased Premises open for business and cause Tenant's business to be conducted therein continuously during the term of this
Lease during those days and hours as is customary for businesses of like character, except to the extent that the use of the Leased Premises is interrupted or prevented by causes beyond Tenant's reasonable control. If Tenant sells goods to the
public, Tenant shall at all times carry a full and complete stock of seasonable merchandise offered for sale at competitive prices and shall maintain adequate personnel and adequate trade fixtures for the efficient service of its customers, and in
general will employ its best judgment, efforts and abilities to so operate the business conducted by it from the Leased Premises in a manner calculated to produce the maximum volume of sales and transactions obtainable. If Tenant ceases to operate
its business in the Leased Premises for a period exceeding forty-five (45) days, except in the case of Eminent Domain and Damage and Destruction, such cessation shall constitute a Default under this Lease and Landlord, at Landlord's option, in
addition to all other remedies for Default, may terminate this Lease.

(g)Tenant shall not conduct nor permit to be conducted any sale by auction on any part of the Leased Premises, whether voluntary, involuntary, pursuant
to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceedings. Tenant shall not permit the use of any part of the Leased Premises for a secondhand store, the sale of used merchandise, distress or fire
sale, rummage sales, bankruptcy or going-out-of-business sale, liquidation sale, or the like. Except as may be permitted by Landlord in writing, Tenant shall not permit any coin-operated vending, novelty or game machines or equipment on the Leased
Premises.

(h)Tenant shall not commit or suffer any waste of the Leased Premises or the improvements thereon or any part thereof, and Tenant shall keep the Leased
Premises in a neat, clean, sanitary and orderly condition.

(i)Tenant shall comply, and cause Tenant's employees, agents, contractors, invitees and customers to comply, with reasonable rules promulgated by
Landlord from time to time and communicated to Tenant in writing respecting the use of the Leased Premises and the Common Areas, including, but not limited to, the Shopping Center Rules set forth onExhibit
Ghereto. Such rules may include the regulation of parking, and Tenant and its employees shall park their cars and trucks only in areas designated by Landlord from time to time for that purpose. Without limiting
the generality of the foregoing, such rules may establish hours during which the Common Areas shall be open for use, may regulate the receiving and delivery of goods and merchandise to the Leased Premises, and may regulate the removal of garbage and
refuse from the Leased Premises.

(j)Tenant shall not, without Landlord's prior written consent, keep anything within the Leased Premises or use the Leased Premises or Common Areas for
any purpose which increases the insurance premium cost or invalidates any insurance policy carried on the Leased Premises or on other parts of the Shopping Center. If Landlord should consent to such use and occupancy by Tenant, Tenant shall pay on
demand as additional rent the additional insurance premiums resulting from such use and occupancy, including, but not limited to, "Dram Shop" type insurance coverage if a permitted Use provided for under this Lease includes the right of Tenant to
sell or provide alcoholic beverages to the public. All property kept, stored, or maintained within the Leased Premises by Tenant or Tenant's employees, contractors, agents, guests or invitees shall be at Tenant's sole risk unless damage is caused by
the Landlord's negligence or intentional act.

9.USE OF COMMON AREAS:Subject to the provisions of this Lease, Tenant, its employees, agents,
customers and invitees shall have the non-exclusive right to use jointly with others the Common Areas as defined in this Lease. However, the Common Areas shall at all times be subject to the exclusive control, custody and management of Landlord and
parts thereof may be closed at such time or times as may be determined advisable by Landlord. Except as expressly permitted by Landlord in writing, Tenant shall not place tables, chairs, merchandise, goods or other articles, equipment or property in
the Common Areas except for purposes of ingress, egress or access across the Common Areas. Landlord reserves the right to

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make changes in the Common Areas and in the site plan of the Shopping Center from time to time, including but not limited to changes, additions or deletions with respect to the shape, size and location of buildings and
other improvements, parking areas and layout, roads, drives and walkways, landscaped areas, the directory sign and other equipment and improvements situated in the Common Areas, providing that such changes will not substantially and adversely affect
the access, visibility or parking for the Leased Premises. Landlord reserves the right (i) to erect promotional and other displays within the Common Areas as Landlord may from time to time deem desirable; (ii) to allow the sale of merchandise
(including, without limitation, Christmas tree sales) from the Common Areas; (iii) to use the roof of the building of which the Leased Premises are a part, and the air space above such building; and (iv) to use any portion of the parking area in the
Shopping Center.

|10.REPAIRS AND MAINTENANCE:
|---------------------------

(a)Landlord shall use its reasonable, good-faith efforts to keep and maintain in good order, condition and repair, the roof, foundation, exterior walls
(except plate glass windows, doors and other exterior openings for which Tenant shall be responsible), the walkways and the parking lot situated on the Shopping Center, all at the sole cost of Landlord, which may be reimbursed to Landlord in
accordance with Section

5. Repairs shall be done in a manner that minimizes the impact to Tenant's business.

(b)Tenant shall keep and maintain the Leased Premises in good order and in a neat and clean condition.  Tenant shall promptly remove anything that
creates an immediate public liability (e.g., broken glass, ice, slippery materials, etc.) that may be located on the walkways, sidewalks, alleyways and other access ways to the exterior of and adjacent to the Leased Premises. Except as otherwise
specifically provided herein, Tenant shall repair, maintain and replace all elements of the Leased Premises, including, without limitation, interior walls; floors; ceilings; windows and framing (including front glass and door and all framing
thereof); and the air conditioning, heating, ventilation, electrical and plumbing systems. If there is an HVAC system serving the Leased Premises (whether alone or in combination with one or more other spaces in the Shopping Center), Landlord will
contract for preventive maintenance, inspections, filter changes and similar routine service, and Tenant shall pay its proportionate share of such cost in the manner prescribed in Section 5(c).  Any repairs required for such system over and above
normal, routine maintenance, shall be billed directly to and paid by Tenant directly to such service and repair provider (in proportion to the amount of gross rentable area served by said system or unit). Tenant shall provide necessary janitorial
services inside the Leased Premises. If any damage to the Leased Premises or building(s) or other parts of the Shopping Center results from the negligence of Tenant or Tenant's agents, employees or invitees, Tenant shall promptly, at Tenant's
expense, repair the same. If any damage to the Leased Premises is caused by the negligence or willful actions of Landlord or any contractor hired by Landlord, then Landlord shall promptly, at Landlord's expense, cause the same to be repaired.Provided,no repair work to any portion of the Shopping Center outside of the Leased Premises shall be commenced without Landlord's advance written consent, and Landlord at its
option reserves the right to make or contract for the necessary repairs thereto for damages caused by Tenant or persons for whom Tenant is responsible, without waiving Landlord's right to reimbursement for all such costs from Tenant. Any repair work
to the Leased Premises shall be treated the same as alterations and improvements and undertaken in accordance with Section 13 of this Lease. If Tenant shall fail to cause such repairs to be made promptly upon notice thereof and Landlord's consent
thereto, then Landlord shall have the right, but not the obligation, to undertake such repairs and to charge Tenant for the full costs incurred by Landlord for such repairs and replacements plus an additional charge of twenty percent (20%) of the
total repair and replacement costs so incurred, to offset the administrative costs incurred by Landlord for having to undertake such repairs and replacements.

(c)Upon termination of this Lease, Tenant shall immediately surrender to Landlord the Leased Premises and all fixtures therein and components thereof
(excluding Tenant=s removable trade fixtures, including all drive up equipment, teller stations, safe deposit boxes, modular vault, safes, security equipment, and related
furnishings and equipment) and shall deliver and/or provide to Landlord or Landlord's agent all keys, pass cards, security codes and other means of access to the Leased Premises and to all portions of the

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Leased Premises. As of the close of business on the Termination Date, Tenant shall have removed at its own expense all furniture, inventory, supplies, records, non-fixture equipment, records, files, and all other personal
property of Tenant in or on the Leased Premises and shall deliver and surrender the Leased Premises to Landlord free of the foregoing, broom clean, and in the same condition as when all of the Tenant Improvements described onExhibit Cand all other subsequently-approved alterations and improvements were completed, except for normal wear and tear. All equipment, goods, materials, records, files, inventory, furniture,
machinery, appliances, and other personal property of any nature or kind remaining on or in the Leased Premises or elsewhere in the Shopping Center after the Termination Date shall be deemed to have been abandoned by Tenant, and Landlord shall be
free to retain or dispose of the same in any manner as Landlord determines in Landlord's sole discretion, and Tenant hereby agrees that Tenant shall have no further rights therein and no claim against Landlord for any loss or damage to the foregoing
or to any proceeds or rents from the use, sale or other disposition of the same. Tenant shall reimburse Landlord for all costs incurred by Landlord to remove, store, sell, dispose of and otherwise deal with any such property left on or in the
Premises or the Shopping Center by Tenant following the Termination Date, further including all lost rentals and other lost income as Landlord may sustain as a result of Tenant's failure to remove the same from the Leased Premises and/or the
Shopping Center as of the Termination Date.

|11.UTILITIES:
|-------------

(a)Tenant shall pay before delinquency, at its sole cost, all charges for water, gas, hear, electricity, power, telephone service, sewer service
charges, and all other such services and utilities used in, upon or about the Leased Premises from and after the Lease Commencement Date (unless otherwise stated herein) and the cost of installing meters to monitor such services.Provided,if any such services or utilities are billed to Landlord and/or are not separately metered to the Leased Premises, the amount thereof shall be pro-rated and Tenant shall pay to
Landlord upon demand an amount equal to that proportion of the total charges therefore which the number of square feet of gross floor area of the Leased Premises bears to the total number of square feet of gross floor area leased and occupied in the
area covered by such combined charges.Further provided,if Landlord determines based upon a good faith review of uses that Tenant's use of any of said utilities or services
is materially in excess of that normally used by the other tenants and/or occupants of the area covered by such utilities or services, then Tenant shall pay that proportion of such charges in a weighted ratio that more fairly and accurately
represents the amount of Tenant's actual use thereof.

(b)In no event shall Landlord be liable nor shall rent abate for an interruption or failure in the supply of utilities to the Leased Premises or
Shopping Center, unless such interruption in the supply of utilities to the Leased Premises or Shopping Center is directly caused by the intentional or willful action of Landlord or of a contractor or employee hired directly by Landlord, is not
caused in part by the act or omission of Tenant or any contractor or employee of Tenant, and causes Tenant's business to be closed for a continuous period of seven (7) business days or longer, in which event Tenant's payment of Base Rent shall be
abated for a period proportionate to the number of days of such closure of Tenant's business.

|12.TAXES AND ASSESSMENTS:
|-------------------------

(a)Subject to the reimbursement provisions of Section 5, Landlord shall pay, before the same become delinquent, all general and special taxes against
the Leased Premises, including ad valorem and property taxes, and other taxes, assessments or other governmental charges lawfully assessed upon the Shopping Center. Tenant shall pay all taxes or fees imposed on Tenant's property, including, but not
limited to, Tenant's furnishings, fixtures and equipment, and any fees or other taxes lawfully imposed upon Tenant's operations upon the Leased Premises.

(b)Tenant shall pay all taxes imposed upon the sums payable by it hereunder, whether such taxes are denominated as rent tax, gross receipts tax, sales
tax, transaction privilege tax, transportation tax or otherwise. Tenant shall further pay for all personal property taxes, any taxes assessed against Tenant's personal property, and any taxes required to be paid by Tenant relating to Tenant's use of
the Leased

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Premises therein. In the event any or all of Tenant's leasehold improvements, equipment, furniture, fixtures or other personal property shall be assessed and taxed with or as part of the real property, Tenant shall pay to
Landlord Tenant's share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property.

(c)Tenant shall be liable for, and shall pay throughout the Lease Term, all license and excise fees and occupation taxes covering the business
conducted on, in or from the Leased Premises. If any governmental authority or unit under any present or future law in effect at any time during the Lease Term shall in any manner levy a tax, fee, assessment or governmental charge on rents payable
under this Lease or rents accruing from use of the Leased Premises or a tax, levy or assessment in any form against Landlord because of or measured by income derived from leasing or rental of the Leased Premises, such tax shall be paid by Tenant,
either directly or through reimbursement to Landlord, and upon Tenant's failure to pay the same, Landlord shall have the same remedies as upon Tenant's failure to pay Base Rent or Additional Rent.Provided,nothing in the foregoing is intended to require Tenant to be liable to pay any portion of federal income taxes charged to Landlord under the Internal Revenue Code of 1986, as
amended.

13.ALTERATIONS AND IMPROVEMENTS:Tenant shall not make any alterations, additions or improvements
to the Leased Premises without first obtaining, in each instance, the written consent of Landlord, which consent will not be unreasonably withheld. However, as a condition of such consent, Tenant shall provide the following to Landlord prior to the
commencement of any alterations, additions or improvements to the Leased Premises:

(a)A written description of the work to be done, including copies of all blue prints, plans, specifications, design drawings, schematics and
construction drawings that have been prepared for any material changes or additions to the Leased Premises;

(b)Identity of the prime contractor and of all subcontractors performing more than twenty percent of such work, giving the name, address, and
contractor registration number of each such contractor and subcontractor;

(c)Signed, complete copies of all contracts, purchase orders or other agreements by which the work is to be constructed or performed, including all
attachments, exhibits and amendments to said contracts. Landlord shall have the right, in Landlord's absolute discretion, to withhold consent to any of the proposed work if any of the foregoing is not provided or if, in Landlord's sole judgment, the
work will adversely affect the Shopping Center or any tenant therein or the Leased Premises, including, but not limited to, the releasing ability thereof. In addition, and as a condition of Landlord's continuing consent, Tenant shall promptly
provide Landlord with true and complete copies of all change orders and modifications to any contract, purchase order, work order or agreement by which the work is being performed. Tenant and its contractor and subcontractors and employees shallnotmake any penetrations into the roof or exterior walls of the building or structures in which the Leased Premises are located nor excavations into the parking lot,
sidewalks, landscaping or any other portions of the grounds of the Shopping Center without Landlord's express written consent thereto, and if the construction work requires such penetrations or excavations, such requirements shall be expressly
called out and identified by Tenant to Landlord at the time Landlord's consent is requested, and no such penetrations or excavations shall be made by Tenant or any contractor or employee working directly or indirectly for Tenant without an express,
written consent given by Landlord specifically acknowledging that such work may proceed. All work performed by or for Tenant under this subsection shall be lien-free, and Tenant shall immediately cause the removal of any liens recorded against the
Property or Leased Premises by any person, contractor, supplier or provider with respect to any work provided pursuant to this subsection, and failure to do so shall constitute a Default under this Lease. At Landlord's option, any work performed on,
in, around or with respect to the Leased Premises by Tenant or by any employee, contractor or supplier of Tenant not in compliance with this subsection shall immediately be removed and the Leased Premises immediately restored to their immediately
previous condition at Tenant's sole expense and at no cost or expense to Landlord. Landlord's consent to the performance of any

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work pursuant to this subsection shall not in any way, expressly or impliedly, constitute a representation or warranty by Landlord that the work is in accordance with applicable laws, including, but not limited to, laws
pertaining to land use, zoning, building codes, Americans with Disabilities Act, or local ordinances or regulations. Landlord shall have no obligation to research or ascertain the same, and if any of the foregoing is violated by the work, Tenant
shall be solely responsible, at its sole cost and at no cost to Landlord or to any successor, assign or mortgagee of Landlord, to take or refrain from all actions, including further modifications if required, as necessary to conform therewith.
Notwithstanding the foregoing, Landlord agrees not unreasonably to withhold consent to interior, non-structural alterations which in the aggregate cost less than $5,000.00 and to upgrades in the drive-in banking facilities and exterior ATMs
(providing with respect to ATM's that Landlord's advance consent shall be obtained as to the placement and location of the same except as to ATM's affixed to the existing building. Landlord may withhold its consent, in its sole and absolute
discretion, to any other alterations. In the absence of a written agreement to the contrary, all alterations, additions and improvements to the Leased Premises made by Tenant (excluding Tenant=s removable trade fixtures, including all drive up equipment, teller stations, safe deposit boxes, modular vault, safes, night depositories, ATMS's, and security equipment, and related furnishings and equipment) shall at once become the
property of Landlord. Those removable trade fixtures referred to herein which do not become the property of Landlord shall be removed by Tenant at termination of this Lease (on any basis for termination), failing which the same shall become the
property of Landlord as provided in Section 10, however, any required removal not so performed by tenant shall be completed by Landlord the cost of which shall be paid from security deposit funds held by Landlord.

14.TENANT'S FIXTURES:Tenant may place or install in the Leased Premises Tenant's trade fixtures
including all drive up equipment, teller stations, safe deposit boxes, modular vault, night depositories, ATM's, and security equipment, and related furnishings and equipment, including but not limited to counters, shelving, display cases, office
furniture and movable safes, draperies, rugs, heating and cooling equipment (other than the air conditioning and heating system installed as part of the construction of the building), and the same shall remain the property of Tenant at all times,
and so long as Tenant is not in default hereunder and no event has occurred that, with the passage of time, would be a default, Tenant may remove same from the Leased Premises at any time during the term of this Lease and shall do so upon the
termination of this Lease and shall at Tenant's own cost and expense repair any and all damage to the Leased Premises resulting from or caused by such removal. If Tenant fails to remove such fixtures upon termination of this Lease, at
Landlord=s sole option, Landlord may either retain and take ownership of said fixtures and the same shall be deemed abandoned and surrendered by Tenant to Landlord, or have the
same removed and disposed of in any manner deemed by Landlord to be advisable or appropriate and charge the cost of such removal and disposal and repair of any damage to the Leased Premises from such removal to Tenant with interest from the date of
expenditure of such costs at the rate of twelve percent (12%) per annum (and/or apply any unused portion of the Security Deposit to such costs).Provided,other than removable
track lighting, lighting fixtures installed in the Leased Premises, whether installed by Tenant or otherwise, shall, for purposes of this Section, be deemed part of the real property and shall not be removed upon termination of this Lease.

15.SIGNS:All signs must be approved in writing by Landlord prior to fabrication and
installation, which approval shall not be unreasonably withheld, and must comply with the sign criteria attached asExhibit F. Tenant shall have the right, at Tenant's expense,
to place and maintain a fascia sign on the exterior face of the Leased Premises for the purpose of advertising Tenant's business, providing all such signs shall be considered fixtures and shall be in keeping with the quality and character of the
Shopping Center and shall be removed at Tenant's expense, upon termination of this Lease as provided in Section 14.  The signs shall conform to graphics that are standard throughout the Shopping Center or that may be required by Landlord, and Tenant
shall comply with any future renovation of the Shopping Center by repairing or replacing its signs to comply with new criteria at Tenant's sole cost and expense. No trailer or

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portable signs are allowed except with Landlord's advance written consent, which may be withheld at Landlord's discretion.

16.LANDLORD'S ACCESS:Landlord and Landlord's contractors, agents and representatives shall have
the right to enter the Leased Premises with reasonable advance notice and to the extent necessary for the purpose of exhibiting or inspecting the Leased Premises, or making repairs, alterations or additions to the Leased Premises or the building of
which the Leased Premises are a part. If Landlord shall be required to incur the expense of a locksmith or other specialist to obtain unfettered access to the Leased Premises or any portion thereof, Tenant shall promptly reimburse Landlord for all
expenses related thereto. In performing such maintenance, repairs, alternations, or additions, Landlord shall take all reasonable steps to minimize the adverse effect on Tenant's business.Provided,this provision shall not apply to nor require Landlord access to any safe, locked files, or similar locking cabinet or storage unit in which Tenant maintains money, valuables or proprietary or confidential
records.

17.DAMAGE OR DESTRUCTION OF LEASED PREMISES:

(a)If the Leased Premises or the Shopping Center shall be partially damaged by fire or other cause covered by insurance maintained by Landlord, and if
Section 17(b) below does not apply, Landlord shall proceed promptly to have the same repaired and/or replaced,, and this Lease shall remain in full force and effect during the period required for such repairs and replacements, except that the Base
Rent, until such repair and/or replacement work has been completed, shall be reduced by an amount proportionate to the effect upon Tenant's access to and use of premises of the damage and repair/replacement work.Provided,if the damage is due to the fault or neglect of Tenant or any employee, agent, contractor or invitee of Tenant or of any subtenant of Tenant, there shall be no reduction or abatement of
Base Rent or other amounts due from Tenant hereunder.  Tenant shall in any event be responsible, at its sole cost and with whatever insurance proceeds as may be available to Tenant through its own insurance, to repair or replace any of Tenant's
fixtures, equipment, inventory, supplies, furnishings, personal property and leasehold improvements as may be damaged or destroyed as a result of such occurrence, unless damage was occasioned by Landlord's negligence or intentional
wrongdoing.

(b)If the Leased Premises or the Shopping Center are damaged to the extent of greater than thirty-five percent (35%) of their replacement cost by any
cause, Landlord may elect to terminate this Lease as of the date of damage or destruction by notice given to Tenant in writing not more than forty-five (45) days following the date of damage. In such event, all rights and obligations of the parties
shall cease as of the date of termination. In the absence of an election to terminate, Landlord shall proceed, to restore the Leased Premises and/or the Shopping Center to substantially the same form as prior to the damage or destruction, so as to
provide Tenant usable space reasonably equivalent in quantity and character to that before the damage or destruction. Work shall be commenced as soon as reasonably possible, and thereafter proceed without interruption, except for work stoppages on
account of matters beyond the reasonable control of Landlord. In no event shall Landlord be responsible for Tenant's loss of fixtures, equipment or potential profits.

|18.INSURANCE:
|-------------

(a)Landlord shall carry such insurance coverages upon the Shopping Center as Landlord shall from time to time determines in its reasonable discretion,
including those required to be carried pursuant to Section 5(c)(ii) hereof, and any or all types of coverages referred to in Section 5(c)(ii) of this Lease, subject to reimbursement of the costs therefore as provided in Section 5 hereof.

(b)Commencing and effective on or prior to the day Tenant first is given the right to enter and occupy the Leased Premises for any reason, Tenant shall
have procured and shall maintain, at Tenant's sole expense, throughout the term of this Lease, a policy or policies of insurance, at Tenant's sole cost and expense, insuring Landlord as well as Tenant from all claims, demands or actions arising out
of Tenant's use and

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occupancy of the Leased Premises, the property damage insurance limitations of liability, and the public liability insurance to have a combined single limit of liability for bodily injury and property damage of not less
than $2,000,000.00, and such policies or duly executed certificates of insurance shall be delivered to Landlord. Landlord and its property management company (or manager) shall be named as loss payee and additional insureds and shall be
furnished with a certificate of such insurance which shall bear an endorsement that the same shall not be canceled except upon not less than thirty (30) days prior written notice to Landlord. Landlord shall have the right to deny Tenant access to
the Leased Premises until the foregoing conditions have been satisfied, but the same shall not delay or postpone the Lease Commencement Date or Rent Commencement Date hereunder. Tenant shall be responsible to maintain all insurance required for the
conduct of Tenant's business and for the protection, repair and/or replacement of Tenant's property and Tenant's interest in the Leased Premises, including, without limitation, fire and extended coverage, theft, liability, plate glass breakage, and
all insurance covering Tenant's stock of goods, trade fixtures, and all other contents of the Leased Premises in an amount equal to not less than 100% of the full replacement value thereof. Tenant shall carry such policies with commercially
responsible carriers licensed to issue such policies within the State in which the Leased Premises are located.

(c)If either Landlord or Tenant is paid any proceeds under any policy of insurance naming such party as an insured on a account of any loss or damage,
then the party receiving the proceeds hereby releases the other party hereto to and only to the extent of the amount of such proceeds, from any and all liability for such loss or damage, notwithstanding that such loss, damage or liability may be
based upon or rise out of a negligent or intentionally tortuous act or omission of the other party, its agents, officers or employees. Such release shall be effective, however, only as to a loss or damage occurring while the applicable policy of
insurance of the releasing party provides that such release shall not impair the effectiveness of such policy or the insured's ability to recover thereunder. Landlord and Tenant shall each provide the other with proof of the right to waive the
subrogated interests of their insurers.

|19.INDEMNITY:
|-------------

(a)Tenant shall indemnify and hold Landlord harmless for, from and against all fines, suits, claims, demands and actions to the extent resulting from
any breach, violation or non-performance of any covenants or conditions hereof by Tenant or by Tenant's contractors, agents, employees or invitees. Tenant shall further indemnify and hold Landlord harmless for, from, and against all damages to the
Shopping Center to the extent occasioned by the default, neglect or omission of Tenant, or Tenant's contractors, agents, employees or invitees, or by reason of any of Tenant's business activities on the Leased Premises.

(b)Landlord shall indemnify and hold Tenant harmless for, from and against all fines, suits, claims, demands and actions to the extent resulting from
any breach, violation or non-performance of any covenants or conditions hereof by Landlord or by Landlord's contractors, agents, employees or invitees. Landlord shall further indemnify and hold Tenant harmless for, from, and against all damages to
the Shopping Center, persons or property occasioned by the default, neglect or omission of Landlord, or Landlord's contractors, agents, employees or invitees, or by reason of any of Landlord's business activities on the Leased Premises.

(c)Landlord shall not be liable to Tenant or to Tenant's contractors, agents, employees, patrons or visitors for any damage to persons or property
caused by any act, omission or neglect of Tenant, Tenant's contractors, agents or employees or any other tenant of the Shopping Center, and Tenant agrees to indemnify and hold harmless Landlord for, from and against all claims from any such damage.
Tenant shall not be liable to Landlord or to Landlord's contractors, agents, employees, patrons or visitors for any damage to persons or property to the extent caused by any act, omission or neglect of Landlord.  Landlord's contractors, agents or
employees or any other Tenant of the Shopping Center, and Landlord agrees to indemnify and hold harmless Tenant for, from and against all claims from any such damage to the extent caused by Landlord or Landlord's employee or agents.

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20.LANDLORD'S NON-LIABILITY:Landlord shall not be responsible or liable for, and Tenant releases
Landlord from any liability for, any loss or damage to any property or person on the Leased Premises or the Shopping Center occasioned by or occurring as a result of criminal conduct by any person not acting in such conduct pursuant to Landlord's
express direction, theft, fire, acts of God, public enemy, injunction, riot, insurrection, court order, requisition or order of governmental authority or any other matter beyond Landlord's control.

|21.SUBLETTING OR ASSIGNMENT:
|----------------------------

(a)Tenant shall not assign this Lease, in whole or in part, or sublet the Leased Premises or any part thereof, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.  In the event of any subletting or assignment, Tenant shall remain primarily liable to Landlord as principal and not as surety.Any such assignment or
sublease shall not be for purposes of making a profit on the subleasing or assigning of this Lease, and Tenant shall promptly turn over to Landlord all rent and other charges received from any such assignee or sublessee in excess of the amount equal
to Base Rent, Additional Rent and any other amounts payable by Tenant to Landlord hereunder, whether in the form of a lump-sum payment or monthly rental or other amounts.Tenant's Security Deposit obligations
hereunder shall not be affected by any such assignment or sublease. Landlord shall have no obligation, express or implied, to consent to any such assignment or sublease, and in determining whether to grant consent to Tenant's sublease or assignment
request, Landlord may consider any reasonable factor, including, but not limited to, the following:

|(i)   | business reputation of the proposed subtenant/assignee must be in accordance with generally acceptable commercial standards;                    
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|(ii)  | use of the Leased Premises by the proposed subtenant/assignee must be similar to the use permitted by this Lease;                               
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|(iii) | percentage rents of the proposed subtenant/assignee, or the prospect of percentage rents, must be at least equal to that of the existing Tenant;
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|(iv)  | managerial and operational skills of the proposed subtenant/assignee must be at least equal to the same as those of the existing Tenant;        
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|(v)   | use of the Leased Premises by the proposed subtenant/assignee will not violate or create any potential violation of any laws; and               
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|(vi)  | use of the Leased Premises will not violate any other agreements affecting the Leased Premises, Landlord or other tenants.                      
|     

(b)If Landlord consents to any assignment or sublease pursuant to the above, Tenant shall continue to pay Base Rent and additional rent through the
lease term to Landlord:

(c)Prior to the taking of occupancy of the Leased Premises or any portion thereof by such assignee or sublessee (or within not more than ten days after
receipt of Landlord=s statement therefore, if such statement is not provided prior to such taking of occupancy), Tenant shall pay to Landlord the amount equal to the amount of all
costs reasonably incurred by Landlord to investigate and determine whether to consent to any such proposed assignment or sublease, including, but not limited to, the costs incurred by Landlord for credit investigation, review of financial
information pertaining to said proposed assignee or sublessee, review and/or preparation of documents necessary to such assignment or sublease or consent thereto, and any such other costs incurred by Landlord in response to Tenant's request for
consent to assignment or sublease.

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Tenant shall be obligated to reimburse Landlord for all reasonable costs so incurred irrespective of whether Landlord consents to such proposed assignment or sublease.Provided,Tenant's obligation to reimburse Landlord for such costs shall not exceed $1,500.00 unless Landlord advises Tenant in writing, prior to incurring costs in excess of said amount, that
the amount of costs Landlord will incur will exceed said amount, in which event, Landlord's notice shall apprise Tenant of the reason such costs shall exceed said limit and shall provide a reasonable estimate and a maximum of the costs Landlord
expects so to incur. On receipt of such notice, Tenant may withdraw the request for such consent, and the amount Tenant is obligated Landlord shall not, in the event of such withdrawal, exceed $1,000.

(d)In the alternative to consenting to a proposed assignment or sublease as provided above, Landlord shall have the right to recapture that portion of
the Leased Premises that is the subject of the proposed assignment or sublease. To exercise such right of recapture, Landlord shall give written notice to Tenant within twenty (20) days after the date of Landlord's receipt of written notice of
Tenant's proposed assignment and sublease along with a true and complete copy of all documents containing all of the terms of agreement between Tenant and its proposed assignee or sublessee, including, but not limited to, the actual or proposed
assignment agreement and/or sublease. Said twenty-day period shall not commence to run until Landlord has received such written notice and all such documentation. If Landlord provides Tenant Landlord's written notice of recapture, the proposed
assignment or sublease shall not become effective, and this Lease shall terminate as to that portion of the Leased Premises affected by the proposed assignment or sublease. The effective date of termination shall, in that event, be the date proposed
as the effective date of the proposed assignment or sublease, and if there is no effective date therein provided, then the recapture as to the affected portion of the Leased Premises shall be effective on the last day of the month in which
Landlord's notice of recapture is given (provided,if the notice of recapture is given later than the 25th day of the month, then such recapture shall, at Landlord's option, be
effective the last day of the next-following month). Landlord's recapture of the Leased Premises or applicable portion thereof shall not relieve Tenant from any liabilities or obligations incurred prior to and as of the effective date of recapture
and termination, including, but not limited to, Tenant's repair and maintenance obligations and obligations to pay Base Rent, Percentage Rent (if applicable), and Additional Rent through the effective date of recapture/termination, and the
provisions of this Lease governing termination of this Lease shall apply. Landlord shall have no obligation to recapture the Leased Premises. If Landlord shall not have given written notice of recapture within the time period provided in this
Section, then the provisions of this Subsection shall not apply. The right of recapture shall apply to each proposed assignment and sublease proposed by Tenant, and if the terms of a proposed assignment or sublease shall materially change following
the initial notice thereof provided by Tenant to Landlord, or if Tenant shall propose an assignment or sublease to a different proposed assignee or sublessee or affecting a different or additional portion of the Leased Premises, then Tenant shall
provide Landlord written notice of the change and copies of all documents containing the revised or additional terms of such proposed assignment or sublease, or shall provide a writing to Landlord setting forth all of said terms if such terms or any
of them are not otherwise stated in writing, and Landlord shall have an additional period of twenty (20) days from the date of Landlord's receipt thereof to exercise the right of recapture described in this Subsection.

22.ASSIGNMENT OF LANDLORD'S INTEREST:Landlord shall have the right to assign or transfer, in
whole or in part, all of Landlord's rights and obligations under this Lease and in the Leased Premises, subject to this Lease. The completion of the sale, assignment, conveyance or transfer by Landlord of Landlord's ownership or interest in the
Shopping Center shall be deemed to be an automatic assignment and transfer of all of Landlord's right, title and obligations under this Lease, except to the extent as may be set forth in a writing between Landlord and its transferee. Tenant hereby
agrees that, upon Tenant's receipt of written notification from Landlord of Landlord's sale, assignment or transfer of the Shopping Center, Tenant shall attorn to and recognize, as Tenant's landlord under this Lease for the unexpired balance (and
any extensions and renewals) of the term of this Lease, the person or entity to whom Landlord has sold, assigned, transferred and/or conveyed Landlord's interest in the Shopping Center, and Landlord shall have no further duties, obligations or
liabilities to Tenant under this Lease (except as may be set forth in any writing between Landlord and such transferee, purchase, assignee or successor).

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23.ESTOPPEL CERTIFICATE:Tenant shall from time to time, within ten (10) days of written request
therefore, submit to Landlord, or to any person designated by Landlord, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, identifying the same by the date thereof and
specifying the nature thereof), that to the knowledge of Tenant no uncured default exists (or if such uncured default does exist, specifying the same), the dates to which the rental and other sums and charges payable herein have been paid, and that
Tenant has no claims against Landlord and no defenses or offsets to rental except for the continuing obligations under this Lease (or if Tenant has any such claims, defenses or offsets, specifying the same). The estoppel certificate shall be in such
form as Landlord may request or such form as any lender, financial institution or prospective purchaser may require of Landlord. Tenant's failure to deliver such statement within the time provided herein shall be conclusive upon Tenant that this
Lease is in full force and effect, without modification except to the extent represented by Landlord, that there are no uncured defaults in Landlord's performance under this Lease, and that not more than one month's Rent has been paid in advance and
shall also constitute Tenant's irrevocable authorization to Landlord to execute an Estoppel Certificate on Tenant's behalf setting forth the above statements as true. This provision shall apply equally to Landlord, who agrees to deliver to Tenant a
signed Estoppel Certificate setting forth the same information as stated above (to the extent true) within ten (10) days of Landlord's receipt of Tenant's written request therefore, failing which the statements contained in the immediately-preceding
sentence shall be deemed conclusively to be represented and agreed to by Landlord. Notwithstanding the foregoing, Tenant's failure to deliver said statement within the aforesaid ten days of request shall constitute Tenant's Default.

24.LANDLORD'S MORTGAGES/SUBORDINATION AND ATTORNMENT AND MORTGAGEE'S PROTECTION AND RIGHTS TO RECEIVE NOTICE:

(a)This Lease is and shall always be subject to any mortgages (which term shall include deeds of trust, ground leases and other financing devices) now
or hereafter existing against the Leased Premises or the Shopping Center, and Tenant shall, within ten (10) calendar days after being requested to do so, execute and deliver any instrument deemed necessary to effect or confirm the subordination of
this Lease to any such mortgage, including, but not limited to, a "Subordination, Non-Disturbance and Attornment Agreement," in recordable form, duly acknowledged, in such form as may be required by Landlord's existing or prospective lender or
mortgagee, which document shall be in the form typically required by such lender or mortgagee of other tenants of a nature similar to Tenant, and the failure or refusal of Tenant to do so within twenty one (21) calendar days after requested to do so
shall constitute a default herein.Provided,Tenant's obligation to sign such document shall be conditioned upon such document expressly stating that so long as Tenant is not
in default of the terms and conditions of this Lease, Tenant's right to quiet enjoyment of the Leased Premises and rights under this Lease shall not be terminated during the Lease Term, notwithstanding foreclosure of the mortgage, deed of trust
and/or security interest held by the mortgagee requesting Tenant's signature on such document.

(b)Tenant further agrees to give any mortgagee(s) and/or deed of trust holder(s) or beneficiary(ies), by registered mail or such other means of
delivery as may be reasonable, a copy of any notice of default which Tenant may deliver to Landlord, providing Tenant has been given by Landlord or by said mortgagee, deed of trust holder or beneficiary an address and instructions for delivery of
such notices. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the mortgagee(s) and/or deed of trust holder(s) or beneficiary(ies) shall have an additional thirty (30)
days within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be reasonable and necessary if, within said thirty (30) day period, such mortgagee(s) or deed of trust holder(s) or
beneficiary(ies) shall have commenced and be diligently pursuing the actions necessary to cure such default, in which event, Tenant agrees this Lease shall not be terminated on the basis of such default.

(c)Notwithstanding any other provision of this Lease, this Lease and any amendment hereto, shall be subject to and conditioned upon the approval of
this Lease by the holder of any recorded mortgage existing

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on the Property at the time of execution of this Lease (or at the time of any amendment with respect to mortgagee's approval of an amendment).

25.EVENTS OF DEFAULT AND REMEDIES:

(a)Tenant's Default.The occurrence of any one or more of the following shall constitute a material default and
breach of this Lease by Tenant:

|(i)   | Failure to Pay Rent. Tenant's failure to make any payment of Base Rent, Additional Rent, late charge, assignment consent charge, or any other sums due hereunder and payable by Tenant
hereunder, as and when due and failure to make such payment in full within five (5) calendar days after written notice to Tenant to pay rent sent by Landlord or Landlord's agent or attorney; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|(ii)  | Failure to Perform. Tenant's failure to observe or perform any of the terms, covenants, conditions, obligations, duties, undertakings and agreements of this Lease to be observed or
performed by Tenant, and failure to cure the same within twenty (20) calendar days written notice to Tenant thereof from Landlord or Landlord's agent (provided,if the subject
of the default is such that the same can be cured but is not reasonably capable of full cure within said twenty days, Tenant shall not be in default providing, within twenty days of such notice, Tenant has commenced all actions reasonably necessary
for such cure and continuously and diligently pursues such actions to complete cure, and further provided that, in such event such cure must be capable of completion within sixty days and must in fact be fully completed not later than sixty days
following delivery to Tenant of such notice); or 
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|(iii) | Creditor Assignment, Bankruptcy, Receivership. The occurrence of any of the following: (a) the making by Tenant of any general assignment or general arrangement for the benefit of
creditors; or (b) the filing of a petition by or against Tenant under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or of any state thereof, unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days of filing; or (c) the appointment of a trustee or a receiver to take possession of substantially all of Tenant's assets located at the Leased Premises or of Tenant's
interest in this Lease, where such appointment or seizure is not discharged in thirty (30) days after appointment of such trustee or receiver; or (d) Tenant becoming insolvent; or (e) Tenant making any transfer in fraud of creditors.
|     
|(iv)  | Assignment without Approval. Tenant assigning, conveying, transferring or subletting all or any interest under this Lease or in the Leased Premises without Landlord's prior written
consent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     
|(v)   | Failure to Operate. Tenant's failure to remain open and to operate and conduct its business in or from the Leased Premises as described in Section 8(f). Said failure shall constitute
an Event of Default hereunder without the requirement of Landlord's first providing a notice of default or demand to cure. Tenant shall cure said default and resume full operation and conduct of business in accordance with the provisions of this
Lease within five (5) calendar days after delivery to Tenant or posting upon the Premises of a written notice from Landlord requiring such resumption, and upon Tenant's failure to do so, Landlord may exercise any or all of Landlord's remedies
hereunder for default without further notice, including, but not limited to, termination of this Lease.                                                                                                                             
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|(vi)  | Abandonment of the Leased Premises. Tenant's abandonment or termination of occupancy of the Leased Premises by Tenant for a period of ten (10) calendar days or failure for
such                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     

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period of time to conduct Tenant's normal business in or from the Leased Premises in accordance with the use(s) permitted herein (except where such cessation is caused by or related to a casualty,force majeure,insured loss, remodeling or repairs approved by Landlord, or event beyond Tenant's control and not otherwise amounting to or resulting from a breach of this Lease by Tenant).

(b)Remedies in Default.In the event of any such default or breach by Tenant, Landlord may at any time after
any applicable cure period, with or without notice or demand and without limiting Landlord in the exercise of a right or remedy which Landlord may have by reason of such default or breach:

|(i)  | Terminate the Lease. Terminate Tenant's right to possession of the Leased Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Leased Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages suffered including but not limited to all reasonable past due Base Rent, and other sums and charges due and coming due
hereunder, the expenses of re-letting the Leased Premises, including leasing commission paid, and all necessary repair, renovation and alteration of the Leased Premises, reasonable attorneys' fees, the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid Base Rent, and other sums due hereunder for the balance of the Lease Term after the time of such award exceeds the amount of such loss for the same period that Landlord proves could be
reasonably avoided (the "worth at the time of award" shall be determined by discounting such excess amount by the discount rate of the Federal Reserve Bank of San Francisco plus one percent (1%)); and that portion of any leasing commission paid by
Landlord and applicable to the unexpired Lease Term of this Lease; or
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|(ii) | Continue the Lease. Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant has vacated or abandoned the Leased
Premises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
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|     | In such event Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the Base Rent, and other sums due hereunder, damages from Tenant's default or
breach, and any other sums or payments as that may become due hereunder, and to specifically enforce Tenant's obligations hereunder and obtain injunctive relief from further defaults and breaches, providing Landlord takes such actions as are
reasonable during such period to re-let the Leased Premises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
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Landlord may sue periodically to recover damages as they accrue throughout the term of this Lease and no action for accrued damages shall be a bar to a later action for damages subsequently accruing. To avoid a multiplicity
of actions, Landlord may obtain a decree requiring Tenant to pay the damages recoverable by Landlord as they accrue. Alternatively, Landlord may elect any one action to recover accrued damages plus damages attributable to the remaining term of this
Lease equal to the difference between the rental under this Lease and the reasonable rental value of the Leased Premises for the remainder of the term, discounted to the time of the judgment at the rate of six percent (6%) per annum; or

(c)Re-letting.Landlord may re-let the Leased Premises or any part thereof for such term or terms (which may be
greater or less than the period which would otherwise have constituted the balance of the term of this Lease) and on such conditions (which may include concessions or free rent and alterations of the Leased Premises) as Landlord, in its reasonable
discretion, may determine and may collect and receive the rents therefore. Landlord shall in no way be responsible or liable for any failure to re-let the Leased Premises or any part thereof, or for any failure to collect any rent due upon any such
re-letting Providing Landlord has undertaken reasonable efforts to re-let the Leased Premises. Landlord may alter, refurbish or otherwise change the character or use of the Leased Premises in connection with such re-letting. No such re-letting by
Landlord following an event of default by Tenant shall be construed as an acceptance of the surrender of the Leased Premises. If rent received upon such re-letting exceeds the rent received under this

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Lease, Tenant shall have no claim to the excess but amounts received upon re-letting shall reduce Tenant's payments due under this lease.

(d)Other Remedies.Landlord may pursue any other remedy now or hereafter available to Landlord under the laws
or judicial decisions of the State of Washington, including, but not limited to, the right to recover all amounts due from Tenant hereunder which would have been received by Landlord but for Tenant's default, the cost of recovering possession of the
Leased Premises, costs and expenses of re-letting or attempting to re-let, including renovation and alteration of the Leased Premises, reasonable attorneys' fees, any leasing commission actually paid to re-let the Leased Premises, and the portion of
the leasing commission paid by Landlord incident to this Lease, prorated over the Lease Term to the unexpired term of this Lease. All unpaid rental and other charges for the period prior to re-entry, plus interest at the rate of eighteen percent
(18%) per annum (but not in excess of the highest rate allowed by law) from the date such amount was due.

(e)Cumulative Remedies.Landlord's remedies hereunder are cumulative and Landlord's exercise of any right or
remedy due to a default or breach by Tenant shall not be deemed a waiver of, or to alter, affect or prejudice any right or remedy which Landlord may have under this Lease or by law. Neither the acceptance of rent, nor any other act or omission of
Landlord at any time or times after the happening of any event authorizing the termination or forfeiture of this Lease, shall operate as a waiver of any past or future violation, breach or failure to keep or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its right to terminate or forfeit this Lease, upon the written notice provided for herein, at any time that cause for termination or forfeiture may exist, or be construed so as at any time to stop Landlord
from promptly exercising any other option, right or remedy that it may have under any term or provision of this Lease, at law or in equity. In addition to the other remedies in this Lease provided, Landlord shall be entitled to restrain by
injunction the violation or attempted violation of any of the covenants, agreement or conditions of this Lease. In no event shall any election by Landlord hereunder, including but not limited to the forfeiture of the security deposit, or any entry
by Landlord, with or without notice, be deemed to terminate this Lease or to relieve Tenant of its duties and obligations arising under the terms, covenants, agreements or conditions of this Lease, unless Landlord specifically elects to relieve
Tenant.

(f)Legal Expenses.If either party is required to bring or maintain any action (including assertion of any
counterclaim or cross claim, or claim in a proceeding in bankruptcy, receivership or any other proceeding instituted by a party hereto or by others), or otherwise refers this Lease to an attorney for the enforcement of any of the covenants, terms or
conditions of this Lease, the substantially prevailing party, or the non-breaching party if no action is filed or no decision rendered regarding the merits of the action, shall, in addition to all other remedies provided herein, receive from the
other party all the costs (including reasonable attorneys' fees) incurred in the enforcement of the terms, covenants, conditions, obligations, duties, undertakings and agreements of this Lease (whether or not an action is instituted) and including
any such costs and fees incurred by the substantially prevailing party on any appeal.

(g)Notices of Default.In the event that Landlord is required to provide Tenant with any notice of default
relative to any default by Tenant under the terms of this Lease, Tenant shall be required as a condition to the cure of such default to pay to Landlord the sum of $250.00 for the preparation of the notice of default and all costs of service
thereof upon Tenant. The payment of the sums specified in this paragraph shall be a condition to the cure of any default by Tenant and such sums shall be in addition to any late charges, interest or other sums payable pursuant to the terms of this
Lease.

(h)Default By Landlord.Landlord shall not be in breach or default under this Lease unless Landlord fails to
perform obligations required of Landlord within a reasonable time, but in no event shall such time be less than thirty (30) business days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust covering the
Leased Premises whose name and address shall have theretofore been furnished to Tenant in writing. The notice shall specify in detail the nature and extent of the duty or

---

obligation of Landlord that Tenant asserts is in default. Notwithstanding the foregoing, if the nature of Landlord's obligation is such that more than thirty (30) business days are required for performance, then Landlord
shall not be in breach or default if Landlord commences performance within such thirty (30) business day period and thereafter diligently prosecutes the same to completion. Tenant further agrees not to invoke any of its remedies under this Lease
until said thirty (30) business days have elapsed. In no event shall Tenant have the right to withhold rent or other sums due hereunder as a result of Landlord's breach or default

26.WAIVER:All remedies given to Landlord and Tenant herein, including those not set forth but
provided by law, shall be cumulative, and the exercise of one or more of such remedies by Landlord and Tenant shall not exclude the exercise of any other remedy. Any waiver by Landlord or Tenant, express or implied, of any breach of any term,
covenant or condition hereof, shall not be deemed a waiver of such term, condition or covenant for any subsequent breach of any other term, covenant or condition and consent or approval shall not be deemed to waive or render unnecessary consent to
or approval of any subsequent similar act. Acceptance of rent by Landlord from Tenant or any assignee, subtenant or other successor in interest of Tenant, or the payment or tender of any rent to Landlord, with or without notice, shall not be
construed as a waiver of any breach of any term, condition or covenant of this Lease. The failure of Landlord or Tenant to declare any default upon the occurrence thereof, or any delay by Landlord or Tenant in taking action with respect thereto
shall not waive such default, but Landlord and Tenant shall have the right to declare such default at any time and to take such action as may be authorized herein to the extent herein provided.

27.BANKRUPTCY:If Tenant becomes a Debtor under Chapter 7 of the Bankruptcy Code ("Code") or a
petition for reorganization or adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the Code, or a proceeding is filed under Chapter 7 of the Code and is transferred to Chapters 11 or 13 of the Code, the Trustee or Tenant, as
Debtor and as Debtor-In-Possession, may not elect to assume this Lease unless, at the time of such assumption, the Trustee or Tenant has cured all defaults under the Lease and paid all sums due and owing under the Lease or provided Landlord with
"Adequate Assurance" (as defined below) that: (i) within ten (10) days from the date of such assumption, the Trustee or Tenant will completely pay all sums due and owing under this Lease and compensate Landlord for any actual pecuniary loss
resulting from any existing default or breach of this Lease, including without limitation, Landlord's reasonable costs, expenses, accrued interest, and attorneys' fees incurred as a result of the default or breach; (ii) within twenty (20) days from
the date of such assumption, the Trustee or Tenant will cure all non-monetary defaults and breaches under this Lease; and (iii) the assumption will be subject to all of the provisions of this Lease. For purposes of this Section, Landlord and Tenant
acknowledge that, in the context of a bankruptcy proceeding involving Tenant, at a minimum, "Adequate Assurance" shall mean: (a) the Trustee or Tenant has and will continue to have sufficient unencumbered assets after the payment of all secured
obligations and administrative expenses to assure Landlord that the Trustee or Tenant will have sufficient funds to fulfill the obligations of Tenant under this Lease, and to keep the Leased Premises fully stocked with merchandise and properly
staffed with sufficient employees to conduct a fully-operational, actively promoted business in the Leased Premises; (b) the Bankruptcy Court shall have entered an Order segregating sufficient cash payable to Landlord and/or the Trustee or Landlord
shall have granted a valid and perfected first lien and security interest and/or mortgage in property of Trustee or Tenant acceptable as to value and kind to Landlord, to secure to Landlord the obligation of the Trustee or Tenant to cure the
monetary and/or non-monetary defaults and breaches under this Lease within the time periods set forth above; and (c) the Trustee or Tenant, at the very minimum, shall deposit a sum equal to two (2) month's Base Rent, Percentage Rent to be held by
Landlord (without any allowance for interest thereon) to secure Tenant's future performance under the Lease.  If the Trustee or Tenant has assumed the Lease pursuant to the provisions of this Section for the purpose of assigning Tenant's interest
hereunder to any other person or entity, such interest may be assigned only after the Trustee, Tenant or the proposed assignee have complied with all of the terms, covenants, conditions, obligations, duties, undertakings and agreements of this
Lease, including, without limitation, those with respect to Base Rent, Percentage Rent, and other sums due hereunder, and the use of the Leased Premises by the proposed assignee shall be only as permitted in this Lease; Landlord and Tenant
acknowledge that the

---

terms, covenants, conditions, obligations, duties, undertakings and agreements of this Lease are commercially reasonable in the context of a bankruptcy proceeding of Tenant. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Code shall be deemed without further act or deed to have assumed all of the terms, covenants, conditions, obligations, duties, undertakings and agreements of this Lease on and after the date of such
assignment. Any such assignee shall upon request execute and deliver to Landlord an instrument confirming such assignment. Upon the filing of a petition by or against Tenant under the Code, Tenant, as Debtor and as Debtor-In-Possession, and any
Trustee who may be appointed agree to adequately protect Landlord as follows: (i) to perform each and every obligation of Tenant under this Lease until such time as this Lease is either rejected or assumed by Order of the Bankruptcy Court; (ii) to
pay all monetary obligations required under this Lease, including without limitation, the payment of Base Rent, Percentage Rent, and other sums due hereunder, which is considered reasonable compensation for the use and occupancy of the Leased
Premises; (iii) provide Landlord a minimum of fifteen (15) days prior written notice, unless a shorter period is agreed to in writing by the parties, of any proceeding relating to any assumption of this Lease or any intent to abandon the Leased
Premises, which abandonment shall be deemed a rejection of this Lease; and (iv) to perform to the benefit of Landlord otherwise required under the Code. The failure of Tenant to comply with the above shall result in an automatic rejection of this
Lease.

|28.EMINENT DOMAIN:
|------------------

(a)If a portion of the Leased Premises is condemned (which term shall include a conveyance given under the threat of condemnation) and neither Section
28(b) nor Section 28(c) below applies, this Lease shall continue in effect. Landlord shall be entitled to all the proceeds of condemnation, and Tenant shall have no claim against Landlord or the condemning authority as a result of condemnation.
Landlord shall proceed as soon as reasonably possible to make such repairs and alterations to the Leased Premises as are necessary to restore the remainder of the Leased Premises to a condition as comparative as reasonably practical to that existing
at the time of condemnation. Base Rent shall be abated to the extent that the Leased Premises are untenantable during the period of alteration and repair. After the date on which title vests in the condemning authority, Base Rent shall be reduced
commensurably with the reduction in value of the Leased Premises as an economic unit on account of the partial taking.

(b)If any substantial part of the Shopping Center or any substantial part of the building in which the Leased Premises are located is condemned, this
Lease shall, at the option of Landlord, terminate as of the date title vests in the condemning authority. In such event, all rights and obligations of the parties shall cease as of the date of termination. Landlord shall be entitled to all of the
proceeds of condemnation, and Tenant shall have no claim against Landlord or the condemning authority as a result of the condemnation.

(c)If all of the Leased Premises or a portion sufficient to render the remaining Leased Premises reasonably unsuitable for Tenant's use is condemned,
this Lease shall terminate as of the date title vests in the condemning authority. In such event, all rights and obligations of the parties shall cease as of the date of termination. Landlord shall be entitled to all of the proceeds of condemnation,
and Tenant shall have no claim against Landlord or the condemning authority as a result of the condemnation.

(d)Notwithstanding the foregoing, Tenant reserves any right it may have against the condemnor in any condemnation action for its personal property and
for moving expenses.

29.QUIET ENJOYMENT:If Tenant shall perform all of the covenants and agreements required to be
performed by Tenant in this Lease, Tenant shall, subject to the terms of this Lease, any mortgage presently or hereafter existing on the Shopping Center, any other leases now in effect covering other portions of the Shopping Center, and any other
restrictions, conditions, covenants, reservations, easements and other encumbrances of public record in the Office of the County Recorder in the county in which the Shopping Center is located, have peaceable and quiet enjoyment and possession of the
Leased Premises. Landlord

---

reserves the right to create such other commercially reasonable restrictions, conditions, covenants and easements as Landlord may deem necessary and appropriate.

30.NOTICES:Whenever this Lease requires notice to be given to a party, the requirement of such
notice shall mean notice given in writing and delivered to the other party at its address shown in Section 1 hereof. Notices shall be considered to have been given to and received by Landlord or Tenant, as the case may be when delivered, mailed or
faxed to that party at the address or facsimile number indicated in Section 1(b) or 1(d), respectively, on the date of delivery if hand delivered or delivered by messenger or commercial courier service; on the date of facsimile transmission if faxed
during normal business hours and if a transmittal sheet is retained and a true copy of such document is also sent via first class mail on the date of such transmission, or on the first business day after facsimile transmission if not so sent during
normal business hours; or on the third business day after the date of sending if sent via first class or certified mail, return receipt requested, postage pre-paid. A party may change its address or facsimile number from time to time and shall give
notice of such change to the other party in the same manner as provided in this Section.  Where is Lease calls for the giving of notice for matters arising hereunder by Landlord to Tenant, a copy of such notice shall also be given to Tenant's
attorneys: Foster Pepper & Shefelman, LLP, 101 S.W. Main Street, 15thFloor, Portland, Oregon 97204 [Facsimile Number: (503) 221-1501], Attn: Ken Roberts.

31.PROVISIONS BINDING UPON SUCCESSORS AND ASSIGNS:The terms and provisions of this Lease shall
be binding upon and shall inure to the benefit of the parties hereto, their heirs, successors and assignees, respectively, subject to other provisions in the Lease limiting assignment.

32.AMENDMENT:This Lease contains the entire agreement between the parties and may not be
altered, changed or amended except by an instrument in writing, signed by the parties hereto.  It is understood that there are no oral agreements between the parties hereto affecting this Lease and that this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, advertising, agreements and understandings, if any, between the parties or their agents or by or through any broker with respect to this Lease and the subject matter thereof.

33.SEVERABILITY:If any provision of this Lease shall be declared in contravention of law or void
as against public policy, such provision shall be considered severable, and the remaining provisions hereof shall continue in full force and effect.

|34.SURRENDER AT EXPIRATION:
|---------------------------

(a)Upon expiration of the lease term or earlier termination on account of default, recapture (if as to the entire Leased Premises) or other reason for
termination as provided herein, Tenant shall deliver within twenty-four (24) hours of the termination date all keys to Landlord and surrender the Leased Premises in the same condition as upon delivery of the Leased Premises to Tenant, broom clean
and with all facade signs removed, subject to and in accordance with all of the terms and conditions of this Lease.

(b)Tenant shall not hold over after the expiration of the lease term. If Tenant remains in possession of the Leased Premises after the expiration of
the lease term, such holding over on the part of Tenant will not renew or extend this Lease, and Tenant shall be deemed to be occupying and using the Leased Premises as a Tenant at the sufferance of Landlord, subject to all the conditions,
provisions and obligations of this Lease insofar as the same are applicable to a tenancy at sufferance; provided, however, Tenant covenants and agrees to pay to Landlord monthly as rent for the Leased Premises and as liquidated damages for such
holding over a sum equal to one hundred twenty-five percent (125%) of the total rental due or paid by Tenant for the last month of the lease term for each and every month, or part thereof, that Tenant shall hold over together with all other changes
due hereunder.

---

35.HAZARDOUS SUBSTANCES:The term "Hazardous Substances", as used in this Lease, shall include,
without limitation, flammables, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related
materials, petroleum and petroleum products, and substances declared to be hazardous or toxic under any law or regulation now or hereafter enacted or promulgated by any governmental authority. Tenant shall not cause or knowlingly permit to occur:
(a) Any violation of any state, city, or local law, ordinance, or regulation now or hereafter enacted, related to environmental conditions on, under, or about the Leased Premises, or arising from Tenant's use or occupancy of the Leased Premises,
including, but not limited to, soil and ground water conditions; or (b) The use, generation, release, manufacture, refining, production, processing, storage, or disposal of any Hazardous Substance on, under, or about the Leased Premises, or the
transportation to or from the Leased Premises of any Hazardous Substance. Tenant shall, at Tenant's own expense, comply with all laws regulating the use, generation, storage, transportation, or disposal of Hazardous Substances ("Laws"). Tenant
shall, at Tenant's own expense, make all submissions to, provide all information required by, and comply with all requirements of all governmental authorities (the "Authorities") under the Laws. Should any Authority or any third party lawfully
demand that a cleanup plan be prepared and that a clean-up be undertaken because of any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the Term of this Lease upon, in, at or from the Leased Premises caused or
permitted to occur by Tenant or by any employee, agent, contractor, licensee, or invitee of Tenant or by any other person or entity for whose actions Tenant is responsible, or which arises at any time from Tenant's use or occupancy of the Leased
Premises, then Tenant shall, at Tenant's own expense, prepare and submit the required plans and all related bonds and other financial assurances; and Tenant shall carry out all such cleanup plans. Tenant shall indemnify, defend, and hold harmless
Landlord, the manager of the property, and their respective officers, directors, beneficiaries, shareholders, partners, agents, and employees from all fines, suits, procedures, claims, and actions of every kind, and all costs associated therewith
(including attorneys and consultants fees) arising out of or in any way connected with any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the Term of this Lease upon, in, at or from the Leased Premises caused
or permitted to occur by Tenant or by any employee, agent, contractor, licensee, or invitee of Tenant or by any other person or entity for whose actions Tenant is responsible, or which arises at any time from Tenant's use or occupancy of the Leased
Premises, or from Tenant's failure to provide all information, make all submissions, and take all steps required by all Authorities under the Laws and all other environmental laws, Landlord shall indemnify, defend, and hold harmless Tenant, the
manager of the property, and their respective officers, directors, beneficiaries, shareholders, partners, agents, and employees from all fines, suits, procedures, claims, and actions of every kind, and all costs associated therewith (including
attorneys and consultants fees) arising out of or in any way connected with any deposit, spill, discharge, or other release of Hazardous Substance that were pre-existing on the subject property. Tenant's obligations and liabilities under this
paragraph shall survive the expiration of this Lease.

|36.ADDITIONAL PROVISIONS:
|-------------------------

(a)The laws of the State of Washington shall govern the interpretation, validity, performance and enforcement of this Lease, and the parties hereby
submit and consent to the jurisdiction and venue of the Superior Court of the State of Washington in and for Pierce County.

(b)Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, Landlord or Tenant shall not be liable or responsible
for, and there shall be excluded from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the reasonable control of Landlord or Tenant.

(c)With respect to terminology in this Lease, each number (singular or plural) shall include all numbers, and each gender (male, female or neuter)
shall include all genders.

---

(d)In any circumstances where Landlord enters the Leased Premises, no such entry shall constitute an eviction or disturbance of Tenant's use and
possession of the Leased Premises, or a breach by Landlord of any of its obligations herein, or render Landlord liable for damages for loss of business or otherwise, or entitle Tenant any right to setoff or recoupment or other remedy. All of the
aforesaid provisions shall be applicable notwithstanding that Landlord may elect to take building materials in, to or upon the Leased Premises that may be required or utilized in connection with such entry by Landlord.

(e)In all instances where Tenant or Landlord are required herein to pay any sum or do any act at a particular indicated time or within an indicated
period, it is understood that time is of the essence.

(f)If, during the term of this Lease, the rentable square footage of all buildings situated in the Shopping Center (and on other property that may be
acquired by Landlord for expansion purposes) is either increased or decreased, then Tenant's Proportionate Share shall be re-determined as follows: The applicable percentage shall be the amount that the square footage of the Leased Premises bears to
the then total square footage of all buildings situated in the Shopping Center (and on any such adjacent property). If any tenant of the Shopping Center pays real property taxes or assessments directly to any taxing authority or carries its own
insurance, as may be provided in that tenant's lease, that tenant's square footage shall not be deemed a part of the total square footage for purposes of computing Tenant's Proportionate Share hereunder.

(g) To the extent permitted by law, neither this Lease nor any sublease shall be considered as an asset of a debtor-in possession, or an asset in bankruptcy, insolvency, receivership or other judicial
proceedings.

(h) During the period of ninety (90) days prior to the date for the termination of this Lease, or at any other time during the Lease Term if Tenant shall abandon or surrender the Leased Premises prior to termination of this
Lease, Landlord may post on the Leased Premises or the windows thereof reasonably-sized signs notifying the public that the Leased Premises are "for lease" and Landlord may show the Leased Premises to prospective tenant's or buyers and take similar
actions to re-let the Leased Premises, without waiver or release of or other effect upon Landlord's rights or Tenant's obligations hereunder.

(i) If suit or action is instituted in connection with any controversy arising out of this Lease, the substantially prevailing party shall be entitled to recover in addition to costs such sums as the trial court may adjudge
reasonable as attorneys' fees.

(h) Non-Recording/Memorandum of Lease.This Lease shall not be filed for record or recorded in any public record except as may be required by Federal Securities Law. At the request of
either party made during or prior to the Lease Term, that party and the other party hereto shall execute a memorandum of lease in recordable form that shall provide public notice of the existence of this Lease, which memorandum shall be prepared and
recorded at the expense of the requesting party

(i) Entire Agreement.This Lease and its exhibits and any signed addendum hereto constitute the sole and entire agreement, contract, understanding and arrangement of the parties with
respect to the subject matter hereof or relating in any way to the Property, the Shopping Center, the Leased Premises or any other subject that is referred to in this Lease, and there is no other consideration or inducement to any party to enter
into this Lease other than as recited herein. To the extent any person or entity, whether or not a party hereto, may claim, assert or allege at any time that any written or oral promise, representation, agreement, contract, undertaking, statement,
assurance or other such matter, express or implied, entered into, made or existing as of the date hereof, has been made or relied upon or forms part of or modifies, replaces, supersedes, qualifies or otherwise affects any term of this Lease or
constitutes an additional agreement, promise, contract or understanding, such other matter shall be null and void and of no force or effect, the parties and each person signing this Lease for a party hereby acknowledging and agreeing that the sole
and only agreement of the parties with respect hereto is fully set forth in this Lease and not elsewhere.

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IN WITNESS WHEREOF, the parties hereto have executed this lease, consisting of Sections 1 through 36 and Exhibits A through I, effective as of the day and year first written
above.

|LANDLORD:                               |  | TENANT:     
|--------------------------------------- |  | ------------
|                                       
|LAKHA PROPERTIES-LAKEWOOD, L.L.C.,      |  | VENTURE BANK
|A Washington limited liability company, |  |             

|By its Managing Member, ASL Properties - Kent, Inc., |  |                        
|---------------------------------------------------- |  | -----------------------
|A Washington corporation                             |  |                        
|                                                     |  | By:/s/ Jon M. Jones    
|                                                     |  | Jon M. Jones, President
|                                                    
|By:/s/Amin S. Lakha                                  |  | Date: October 14, 2004 
|Amin S. Lakha                                        |  |                        
|President, ASL Properties - Kent, Inc.               |  |                        

---

Exhibit 21.1

|
|



|VENTURE FINANCIAL GROUP, INC.Subsidiaries Owned at December 31, 2004
|--------------------------------------------------------------------

|Name of Subsidiary                              |  | Trade Name |  | State of Incorporation
|----------------------------------------------- |  | ---------- |  | ----------------------
|Venture Bank                                    |  | Same       |  | Washington            
|First Community Financial Group Capital Trust I |  | Same       |  | Washington            
|First Community Financial Group Capital Trust   |  | Same       |  | Washington            
|II                                              |  |            |  |                       

---

EXHIBIT 23.1

|
|

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this Annual Report on Form 10-K of Venture Financial Group, Inc. for the year ended December 31, 2004 and to the incorporation by reference of the previously filed registration statement number
333-84748 of First Community Financial Group, Inc, on Form S-8 of our report dated February 22, 2005, with respect to the consolidated statements of financial condition of Venture Financial Group, Inc. and subsidiaries as of December 31, 2004 and
2003, and the related consolidated statements of income, shareholders' equity and cash flows for the years ended December 31, 2004 and 2003.

|/s/ Moss Adams LLPEverett, WashingtonMarch 23, 2005
|---------------------------------------------------

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EXHIBIT 23.2

|
|

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-84748 on Form S-8 of our report dated January 10, 2003, included in this Annual Report on Form 10-K of Venture Financial Group, Inc. for the year ended
December 31, 2002.

|/s/ McGladrey & Pullen, LLPTacoma, WashingtonMarch 23, 2005
|-----------------------------------------------------------

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Exhibit 31.1

|
|



|CERTIFICATIONS
|--------------

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

|1. | I have reviewed this annual report on Form 10-K of Venture Financial Group, Inc.;                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
|  
|3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|  
|4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                
|  
|   | a)                                                                                                                                                                                                                                                                                                                      
|  
|   | b)                                                                                                                                                                                                                                                                                                                      
|  
|   | c)                                                                                                                                                                                                                                                                                                                      
|  

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

|Date: March 22, 2005
|--------------------

| | /s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr.Chief Executive Officer and Chairman of the Board(principal executive officer)
| | ------------------------------------------------------------------------------------------------------------------------

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EXHIBIT 31.2

|
|



|CERTIFICATIONS
|--------------

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

|1. | I have reviewed this annual report on Form 10-K of Venture Financial Group, Inc.;                                                                                                                                                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
|  
|3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;                   
|  
|4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                
|  
|   | a)                                                                                                                                                                                                                                                                                                                      
|  
|   | b)                                                                                                                                                                                                                                                                                                                      
|  
|   | c)                                                                                                                                                                                                                                                                                                                      
|  

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

|Date: March 22, 2005
|--------------------

| | /s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr.Chief Executive Officer and Chairman of the Board(principal financial officer; and principle accountingofficer)
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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EXHIBIT 32

|
|

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER AND PRINCIPAL ACCOUNTING OFFICER

This certification is given by the undersigned Chief Executive Officer and acting Chief Financial Officer of Venture Financial Group, Inc. (the "Registrant") pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Each
of the undersigned hereby certifies, with respect to the Registrant's annual report of Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), that:

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

/s/ Ken F. Parsons, Sr.Ken F. Parsons, Sr.

President, Chief Executive Officer, and Chairman of the Board

(principal executive officer; principal financial officer; and principal accounting officer)

|March 22, 2005
|--------------

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