SOURCE: Rainier Pacific Financial Group

Rainier Pacific Financial Group

November 09, 2009 13:40 ET

Rainier Pacific Financial Group, Inc. Reports Third Quarter Results

TACOMA, WA--(Marketwire - November 9, 2009) - Rainier Pacific Financial Group, Inc. (the "Company") (NASDAQ: RPFG), the holding company for Rainier Pacific Bank (the "Bank"), announced today its third quarter results for the period ended September 30, 2009. The Company recognized a net loss of $35.0 million, or $5.82 per basic and diluted share, for the quarter ended September 30, 2009, compared to a net loss of $3.0 million, or $0.49 per basic and diluted share, for the same period in 2008. The loss for the third quarter of 2009 was primarily attributable to non-cash pre-tax other-than-temporary impairment ("OTTI") charges of $22.1 million relating to the Company's investment in pooled trust preferred collateralized debt obligation ("trust preferred CDO") securities, a $5.7 million provision for loan losses, and a $16.7 million charge against earnings to establish a valuation allowance for deferred tax assets.

For the nine months ended September 30, 2009, the Company recognized a net loss of $43.3 million, or $7.23 per basic and diluted share, compared to a net loss of $489,000, or $0.08 per diluted share, for the same nine month period in 2008. The loss for the nine month period of 2009 was primarily attributable to non-cash pre-tax OTTI charges of $32.3 million relating to the Company's trust preferred CDO securities and provisions for loan losses of $12.0 million.

"Despite the further deterioration in the credit quality and valuation of the trust preferred CDO securities, Rainier Pacific Bank's core business operations remained relatively stable during the quarter. We are extremely disappointed with the continued increases in the level of banks and insurance companies that are deferring their payments on their trust preferred securities, and the need to replenish the Bank's allowance for loan losses in light of the continued weakness in the local real estate market," said John A. Hall, President and CEO. "While this operating environment remains challenging, we remain committed to working diligently to re-capitalize the Bank while continuing to meet the needs of our customers."

As a result of the third quarter loss, at September 30, 2009, the Company's capital levels have been materially reduced and have resulted in both the Company and Bank to be considered "significantly undercapitalized" by regulatory definition. The Bank's regulatory capital ratios are as follows as of September 30, 2009: a Tier I leverage ratio of 3.04% (compared to an "adequately capitalized" threshold of 4.00%); a Tier I risk-based capital ratio of 2.71% (compared to an "adequately capitalized" threshold of 4.00%); and a total risk-based capital ratio of 3.79% (compared to an "adequately capitalized" threshold of 8.00%).

The trust preferred CDO securities held by the Company have experienced considerable stress due to the effects of the continued financial and economic crisis, resulting in a number of the bank and insurance company issuers of the underlying collateral opting to defer their quarterly payments. Furthermore, the trust preferred CDO securities continue to be substantially illiquid, and their evaluation for impairment and the determination of fair value remains highly complex. As of September 30, 2009, 14 of the 15 trust preferred CDO securities held by the Company, with an aggregate par value of $99.2 million, were determined to involve OTTI, compared to seven of the securities with an aggregate par value of $34.1 million that were determined to involve OTTI as of June 30, 2009. Of the 14 trust preferred CDO securities that involved OTTI at September 30, 2009, 11 incurred credit loss impairment charges during the third quarter. As part of the evaluation, the Company completes an analysis of projected cash flows for each trust preferred CDO security, which incorporates both known and projected defaults and payment deferrals on the underlying debt obligations of the trust preferred CDO securities to determine each security's net present value. The net present values were calculated in a manner consistent with the methodology used in the June 30, 2009 evaluation; although, the cash flow projections supporting the net present value calculations for the current period were negatively impacted by further increases in the cumulative level of actual and projected payment deferrals by the bank and insurance company issuers of the underlying debt obligations. Accordingly, the lower net present values, when compared to the securities' amortized costs, resulted in additional impairment charges. The 11 securities determined to have incurred a credit loss during the quarter resulted in total non-cash pre-tax impairment charges of $22.1 million for the quarter ended September 30, 2009, compared to three securities that incurred $1.8 million in impairment charges for the quarter ended June 30, 2009. To determine the fair value of the trust preferred CDO securities, the Company considered indications of value using both a "market approach" and "present value techniques" available under generally accepted accounting principles. Based upon management's quarterly evaluation, management determined that the 15 trust preferred CDO securities held by the Company had an aggregate fair value of $23.4 million, compared to an aggregate fair value of $36.3 million at June 30, 2009.

The effects of the trust preferred CDO securities on the Company's earnings and capital position continue to be influenced by external market conditions and other factors outside of the Company's control, including but not limited to: specific issuer credit deterioration, deferral and default rates of specific issuer financial institutions, failure or government seizure of the underlying financial institution or insurance company issuers, rating agency actions, regulatory actions, and the prices at which observable market transactions in these types of securities occur. While management closely monitors the performance of the trust preferred CDO securities and does not intend to sell these securities prior to their recovery in value, the current market environment significantly limits the Company's ability to mitigate its exposure to future impairment conditions and valuation changes in these securities. Accordingly, if the previously described market conditions deteriorate further or other detrimental factors occur, it is likely that the Company would then determine that additional impairment charges on its holdings of trust preferred CDO securities portfolio would be recognized, and such charges would correspondingly have a further material adverse affect on the Company's earnings, shareholders' equity, and regulatory capital.

At September 30, 2009, the Company had $37.8 million in income tax assets, which are comprised of tax affected cumulative temporary differences (inclusive of both current and deferred portions) related to unrealized valuation losses on the trust preferred CDO securities ($16.5 million), OTTI credit losses recognized ($12.5 million), provisions for loan losses ($3.3 million), and other miscellaneous items ($5.5 million). The Company considered all of the available positive and negative evidence in its quarterly evaluation of the net deferred tax assets, including the tax carry-back and carry-forward benefits. Based upon its analysis, the Company concluded that it is more likely than not that a significant portion of the net deferred tax assets may not be available as a benefit in future periods; and therefore, recognized a $16.7 million valuation allowance against the net deferred tax assets. Accordingly, the only remaining income tax assets as of September 30, 2009 are the $16.5 million for unrealized valuation losses on the trust preferred CDO securities and $4.6 million in tax carry-back benefits.

The Company's net interest income for the quarter ended September 30, 2009 was $5.0 million, compared to $6.2 million for the same period in 2008. The decrease in net interest income was due to a $69.3 million reduction in average interest-bearing assets, and a reduction in net interest margin. The Company's net interest margin was 2.75% for the quarter ended September 30, 2009, compared to 2.73% and 3.06% for the quarters ended June 30, 2009 and September 30, 2008, respectively. The yield on the Company's interest-earning assets decreased to 5.34% for the quarter ended September 30, 2009, compared to 5.54% and 6.15% for the quarters ended June 30, 2009 and September 30, 2008, respectively. The Company's cost of interest-bearing liabilities also decreased to 2.65% for the quarter ended September 30, 2009, compared to 2.86% and 3.34% for the quarters ended June 30, 2009 and September 30, 2008, respectively. The decline in asset yields for the third quarter of 2009 related primarily to the loss of relatively higher loan yields that were being earned on the VISA credit card portfolio that was sold in February 2009, the increased level of non-performing assets, lower yields on trust preferred CDO securities, the higher level of low-rate interest-bearing deposits currently being maintained by the Company to provide a sufficient level of liquidity, and the general decline in market interest rates. The decline in the cost of interest-bearing liabilities relates primarily to reductions in the rates of interest paid on retail customer deposits during the quarter, and the removal of relatively higher cost brokered deposits during the nine months ended September 30, 2009.

Non-interest income for the quarter ended September 30, 2009 was $2.5 million, essentially unchanged compared to the same period in 2008. Gains on the sale of loans were $431,000 in the current quarter, compared to $190,000 for the quarter ended September 30, 2008, which more than offset lower loan service fees of $169,000 for the quarter ended September 30, 2009, compared to $310,000 for the same period in 2008.

Non-interest expenses were $7.5 million for the quarter ended September 30, 2009, compared to $7.0 million incurred during the same quarter in 2008. The increase was primarily attributable to $796,000 in Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums and assessments, compared to $81,000 for the same quarter a year ago, and higher legal and professional expenses related primarily to third-party consultant costs required to evaluate the Company's trust preferred CDO securities. These increased expenses were partially offset by a $325,000 decrease in compensation and benefits costs that is primarily a result of a reduction of 26 full-time equivalent employees since the beginning of 2009, the elimination of equity-based compensation for executive officers and board members, and lower employee incentive and retirement compensation.

Total loans were $584.1 million at September 30, 2009, compared to $615.8 million at June 30, 2009 and $672.3 million at December 31, 2008. The decrease in the loan portfolio resulted primarily from the Company's continued focus on lowering its asset base by restricting new loan originations for its portfolio. During the quarter ended September 30, 2009, the most significant contributing factors to the decreased size of the loan portfolio were the reduction of $13.1 million in the land development and construction loan portfolio, the sale of $19.1 million in single-family mortgage loans, and the prepayment of $8.2 million in multi-family and commercial real estate loans. For the quarter ended September 30, 2009, the yield on loans was 6.11%, compared to 6.07% and 6.39% for the quarters ended June 30, 2009 and September 30, 2008, respectively. Total loan originations were $21.8 million during the quarter ended September 30, 2009, compared to $36.4 million for both quarters ended June 30, 2009 and September 30, 2008. At September 30, 2009, the loan portfolio consisted of 43.0% commercial real estate loans, 23.1% multi-family real estate loans, 9.2% land development and real estate construction loans, 8.2% one- to four-family real estate loans, 7.8% commercial business loans, 6.2% home equity loans, and 2.5% consumer loans (excluding home equity loans).

During the three months ended September 30, 2009, the Company sold $17.7 million of fixed-rate single-family residential loans, compared to $11.8 million of fixed-rate single-family residential loans during the same period in 2008. At September 30, 2009, the portfolio of loans serviced for others increased to $188.0 million, compared to $179.9 million and $135.5 million at June 30, 2009 and September 30, 2008, respectively.

Net loan charge-offs were $7.7 million for the quarter ended September 30, 2009, compared to $737,000 for the quarter ended June 30, 2009 and $328,000 for the quarter ended September 30, 2008. Of the $7.7 million in charge-offs, $7.1 million was concentrated in two residential builder relationships and was deemed necessary due to updated appraisal information indicating lower values for these collateral-dependent loan relationships. The ratio of loans more than 30 days delinquent as a percentage of total loans decreased to 3.75% at September 30, 2009, compared to 5.49% at June 30, 2009, and 3.92% at September 30, 2008. During the quarter, non-performing assets (inclusive of loans, other real estate owned, and other repossessed assets) decreased to $33.8 million, or 4.42% of total assets at September 30, 2009; compared to $39.9 million, or 4.85% of total assets at June 30, 2009; and $31.9 million, or 3.79% of total assets at September 30, 2008. As of September 30, 2009, $31.2 million, or 92.3%, of the $33.8 million in non-performing assets were concentrated in six residential builder relationships. The $31.2 million in non-performing assets to these builders was comprised of $17.7 million in real estate construction loans (of which $15.4 million are land development loans on properties located in the Pierce and South King Counties), $701,000 in commercial business loans, and $12.8 million in real estate owned (located in Pierce and North Thurston Counties).

Upon completing its quarterly evaluation of the allowance for loan losses, the Company increased its provisions for loan losses to $5.7 million for the quarter ended September 30, 2009, compared to provisions for loan losses of $4.0 million and $6.0 million for the quarters ended June 30, 2009 and September 30, 2008, respectively. The allowance for loan losses was $9.7 million, or 1.66% of total loans at September 30, 2009; compared to $11.7 million, or 1.90% of total loans at June 30, 2009; and $13.9 million, or 2.10% of total loans at September 30, 2008.

Total deposits were $466.3 million at September 30, 2009, compared to $489.0 million at June 30, 2009 and $464.1 million at September 30, 2008, as the Bank continued to reduce its portfolio of brokered deposits. At September 30, 2009, brokered deposits were $19.0 million, or 4.1% of total deposits, compared to $31.0 million, or 6.3% of total deposits at June 30, 2009, and $64.7 million, or 13.9% of total deposits at September 30, 2008. Total retail deposits (which excludes all brokered deposits) decreased by $10.7 million during the quarter to $447.3 million at September 30, 2009, compared to $458.0 million at June 30, 2009. For the quarter ended September 30, 2009, the average cost of interest-bearing deposits decreased to 1.49%, compared to 1.84% for the quarter ended June 30, 2009 and 2.56% for the quarter ended September 30, 2008. The decline in the cost of interest-bearing deposits related primarily to lower market interest rates.

The investment securities portfolio at September 30, 2009 (excluding $13.7 million in Federal Home Loan Bank of Seattle stock holdings recorded at cost) totaled $51.0 million, compared to $65.4 million at June 30, 2009 and $102.5 million at September 30, 2008. The investment securities portfolio contains $23.4 million of trust preferred CDO securities recorded at their fair value (representing $108.8 million in par value and $71.9 million in amortized cost), $18.2 million of mortgage-backed securities, and $9.4 million of municipal bonds recorded at amortized cost.

The Company's total shareholders' equity declined to $12.8 million at September 30, 2009, compared to $41.9 million at June 30, 2009 and $57.5 million at September 30, 2008. The decline in shareholders' equity during the third quarter was a result of the $35.0 million net loss for the quarter, partially offset by a lower tax affected unrealized valuation loss on the trust preferred CDO securities held by the Company in the amount of $5.9 million. Accordingly, the Company's capital ratio (i.e., shareholders' equity divided by total assets) decreased to 1.68% at September 30, 2009, compared to 5.11% and 6.84% at June 30, 2009 and September 30, 2008, respectively. The tangible common equity-to-assets ratio decreased to 1.31% at September 30, 2009, compared to 4.75% at June 30, 2009 and 6.46% at September 30, 2008. The Company's book value and tangible book value per share as of September 30, 2009 also decreased to $2.13 and $1.66 per share, respectively.

As previously reported, Rainier Pacific Bank is currently operating under a Supervisory Prompt Corrective Action Directive from the FDIC, and has also consented to the issuance of an Order to Cease and Desist that became effective September 30, 2009. Among other things, these regulatory enforcement actions require the Bank to increase its Tier 1 capital ratio to at least 10.0%, or to find a suitable buyer for the Bank, to implement accurate and realistic modeling to determine the valuation of its trust preferred CDO securities portfolio, to develop a plan to increase the Bank's liquidity position, and other requirements. As a "significantly undercapitalized" institution, the Bank is also subject to mandatory and discretionary restrictions. In light of these current regulatory enforcement actions, the Company and Bank continue to work closely with its federal and state banking regulators to improve and capital adequacy and asset quality, while maintaining sufficient liquidity. In addition, the Company continues to work diligently to secure a capital infusion or to find a suitable buyer for the Bank. However, there can be no assurances that the Company will be successful in its efforts to recapitalize or sell the Bank, and therefore its inability to do so would likely raise substantial doubt about the Company's ability to continue as a going concern.

Rainier Pacific Financial Group, Inc. is the bank holding company for Rainier Pacific Bank, a Tacoma, Washington-based state-chartered savings bank operating 14 full-service locations in the Tacoma-Pierce County and City of Federal Way market areas.

For additional information, visit Rainier Pacific's website at www.rainierpac.com.

Forward-looking statements:

Certain matters discussed in this press release may contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of words such as "believe," "expect," "anticipate," "should," "planned," "estimated," and "potential." These forward-looking statements are based on the Company's expectations and are subject to risks and uncertainties that cannot be predicted or quantified and are beyond the Company's control, including the potential that (1) the Company may not be able to continue as a going concern, and (2) because of our significantly undercapitalized status, our regulators may initiate additional enforcement actions against us. The Company's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets in the Company's loan portfolio, result in the Company's allowance for loan losses not being adequate to cover actual losses, and require the Company to materially increase its reserves; changes in general economic conditions, either nationally or in the Company's market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, net interest margin, and funding sources; deposit flows; fluctuations in the demand for loans, the number of unsold homes and other properties, and fluctuations in real estate values in the Company's market areas; adverse changes in the securities markets, including changes in the ability of the issuers of trust preferred CDO securities the Company owns to repay their obligations; changes as a result of examinations of the Company by the Federal Reserve Board and its bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks, or other regulatory authorities, or as a result of agreements with these regulators, including the possibility that any such regulatory authority may, among other things, require the Company to increase its reserve for loan losses, write-down assets, change its regulatory capital position, or affect its ability to borrow funds or maintain or increase deposits, which could adversely affect the Company's liquidity and earnings; the Company's ability to control operating costs and expenses; the use of estimates in determining fair value of certain of the Company's assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on the Company's balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect the Company's work force and potential associated charges; computer systems on which the Company depends could fail or experience a security breach, or the implementation of new technologies may not be successful; the Company's ability to retain key members of its senior management team; costs and effects of litigation, including settlements and judgments; the Company's ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing, and savings habits; legislative or regulatory changes that adversely affect the Company's business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; inability of key third-party providers to perform their obligations to the Company; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations; pricing, products, and services; time to lease excess space in Company-owned buildings; future actions of Nasdaq and the future listing of the Company's securities; and other risks detailed in the Company's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. Any of the forward-looking statements that the Company makes in this press release and in the other public statements may turn out to be wrong because of inaccurate assumptions the Company might make, the factors illustrated above, or other factors that the Company cannot foresee. Because of these and other uncertainties, the Company's actual future results may be materially different from those expressed in any forward-looking statements made by or on the Company's behalf. Therefore, these factors should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no responsibility to update or revise any forward-looking statement.

           Rainier Pacific Financial Group, Inc. & Subsidiary
                 Consolidated Statements of Condition
                         (Dollars in Thousands)

                              ASSETS

                               At September 30, At June 30, At December 31,
                                    2009           2009          2008
                                -------------  ------------  -------------

  Cash and cash equivalents     $       8,156  $      8,758  $       8,811
  Interest-bearing deposits
   with banks                          41,035        47,666         29,425
  Securities available-for-sale        23,396        36,280         14,895
  Securities held-to-maturity
   (fair value at September 30,
   2009: $28,744; at June 30,
   2009: $29,774; at December
   31, 2008: $34,162)                  27,631        29,167         33,984
  Federal Home Loan Bank of
   Seattle ("FHLB") stock,
   at cost                             13,712        13,712         13,712

  Loans held-for-sale                   1,389             -          1,505
  Loans                               582,697       615,833        670,776
    Less: allowance for loan
     losses                            (9,684)      (11,719)       (13,329)
                                -------------  ------------  -------------
       Loans, net                     574,402       604,114        658,952

  Premises and equipment, net          32,621        33,298         33,770
  Accrued interest receivable           2,857         3,071          3,535
  Real estate owned                    12,890         8,077          6,796
  Income tax assets, net of
   valuation allowance                 21,071        31,330         37,551
  Other assets                          6,383         5,918          5,802
                                -------------  ------------  -------------

       TOTAL ASSETS             $     764,154  $    821,391  $     847,233
                                =============  ============  =============

                   LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
  Deposits
    Non-interest bearing        $      45,107  $     43,447  $      40,331
    Interest-bearing                  421,217       445,512        478,908
                                -------------  ------------  -------------
       Total deposits                 466,324       488,959        519,239

  Borrowed funds                      279,337       281,421        291,217
  Corporate drafts payable                 97         1,498          1,554
  Accrued compensation and
   benefits                             1,697         1,163          1,745
  Other liabilities                     3,852         6,409          4,184
                                -------------  ------------  -------------

       TOTAL LIABILITIES              751,307       779,450        817,939
                                -------------  ------------  -------------

SHAREHOLDERS' EQUITY:
  Common stock, no par value:
   49,000,000 shares
   authorized; 6,294,898 shares
   issued and 6,022,386 shares
   outstanding at Sept. 30,
   2009; 6,294,898 shares
   issued and 6,005,312 shares
   outstanding at June 30,
   2009; and 6,295,298 shares
   issued and 5,968,393 shares
   outstanding at Dec. 31, 2008        51,046        51,163         51,303
  Unearned Employee Stock
   Ownership Plan ("ESOP") shares      (2,714)       (2,884)        (3,224)
  Accumulated other
   comprehensive income/(loss)
   ("OCI/(loss)"), net of tax         (31,980)      (37,843)       (47,206)
  Retained earnings
   (accumulated deficit)               (3,505)       31,505         28,421
                                -------------  ------------  -------------

       TOTAL SHAREHOLDERS'
        EQUITY                         12,847        41,941         29,294
                                -------------  ------------  -------------

       TOTAL LIABILITIES AND
        SHAREHOLDERS' EQUITY    $     764,154  $    821,391  $     847,233
                                =============  ============  =============



           Rainier Pacific Financial Group, Inc. & Subsidiary
                 Consolidated Statements of Operations
             (Dollars in Thousands, except per share data)



                       Three Months Ended            Nine Months Ended
                           September 30,               September 30,
                    -------------------------   --------------------------
                        2009          2008          2009           2008
                    -----------   -----------   ------------   -----------
INTEREST INCOME
  Loans             $     9,291   $    10,666   $     29,067   $    33,134
  Securities
   available-for-
   sale                     217         1,304          1,646         4,437
  Securities
   held-to-maturity         301           398            984         1,269
  Interest-bearing
   deposits                  34             -             85            33
  FHLB dividends              -            48              -           130
                    -----------   -----------   ------------   -----------
   Total interest
    income                9,843        12,416         31,782        39,003
                    -----------   -----------   ------------   -----------
INTEREST EXPENSE
  Deposits                1,656         2,735          6,363         9,301
  Borrowed funds          3,156         3,527          9,614        10,567
                    -----------   -----------   ------------   -----------
    Total interest
     expense              4,812         6,262         15,977        19,868
                    -----------   -----------   ------------   -----------
    Net interest
     income               5,031         6,154         15,805        19,135
PROVISION FOR LOAN
 LOSSES                   5,700         6,000         12,000         6,700
                    -----------   -----------   ------------   -----------
    Net interest
     income (loss)
     after
     provision for
     loan losses           (669)          154          3,805        12,435
                    -----------   -----------   ------------   -----------

NON-INTEREST INCOME
  Deposit service
   fees                     948           958          2,614         2,705
  Loan service fees         169           310            614           912
  Insurance service
   fees                     566           598          1,656         1,677
  Investment
   service fees             120           147            470           432
  Real estate lease
   income                   183           270            617           778
  Gain on sale of
   securities, net            -             1              -            12
  Gain on sale of
   loans, net               431           190          4,866           875
  Gain (loss) on
   sale of other
   real estate
   owned                     33           (32)            23           (25)
  Loss on sale of
   premises and
   equipment, net             -             -             (3)           (1)
  Other operating
   income                    46            37            130           536
                    -----------   -----------   ------------   -----------
   Total
    non-interest
    income                2,496         2,479         10,987         7,901
                    -----------   -----------   ------------   -----------
NON-INTEREST
 EXPENSE
  Compensation and
   benefits               3,719         4,044         10,985        12,146
  Office operations       1,039           990          2,922         2,882
  Occupancy                 654           572          1,922         1,802
  Loan servicing             57           127            311           359
  Outside and
   professional
   services                 442           283          1,191           979
  Marketing                 235           260            766           762
  Federal deposit
   insurance
   premiums and
   assessments              796            81          2,551           211
  Other operating
   expenses                 604           665          2,058         1,739
                    -----------   -----------   ------------   -----------
   Total
    non-interest
    expense               7,546         7,022         22,706        20,880
                    -----------   -----------   ------------   -----------
OTHER-THAN-TEMPORARY
 IMPAIRMENT ON
 SECURITIES
  Total
   other-than-
   temporary
   impairment
   losses               (53,835)            -        (57,303)            -
  Portion of losses
   recognized in
   OCI/(loss)            31,783             -         24,960             -
                    -----------   -----------   ------------   -----------
   Net impairment
    losses              (22,052)            -        (32,343)            -

LOSS BEFORE
 PROVISION
 (BENEFIT) FOR
 FEDERAL INCOME TAX     (27,771)       (4,389)       (40,257)         (544)

PROVISION (BENEFIT)
 FOR FEDERAL INCOME
 TAX                      7,239        (1,439)         3,066           (55)
                    -----------   -----------   ------------   -----------

NET LOSS            $   (35,010)  $    (2,950)  $    (43,323)  $      (489)
                    ===========   ===========   ============   ===========
EARNINGS (LOSS) PER
 COMMON SHARE
  Basic             $     (5.82)  $     (0.49)  $      (7.23)  $     (0.08)
  Diluted           $     (5.82)  $     (0.49)  $      (7.23)  $     (0.08)
  Weighted average
   shares
   outstanding -
   Basic            6,011,065(1)  5,998,207(2)   5,992,934(1)  5,989,822(2)
  Weighted average
   shares
   outstanding -
   Diluted            6,011,065     5,998,207      5,992,934     5,989,822


(1) Weighted average shares outstanding - Basic includes 268,273 vested
    and ratably earned shares of the 269,340 restricted shares granted and
    issued under the 2004 Management Recognition Plan ("MRP"), net of
    forfeited shares.
(2) Weighted average shares outstanding - Basic includes 277,513 vested and
    ratably earned shares of the 326,100 restricted shares granted and
    issued under the MRP, net of forfeited share.



           Rainier Pacific Financial Group, Inc. & Subsidiary
                   Selected Information and Ratios
                       (Dollars in Thousands)


                                       Three Months Ended
                       ---------------------------------------------------
                       September 30,   June 30,     March 31,  December 31,
                           2009          2009         2009         2008
                       ------------   ----------   ----------   ----------
INTEREST INCOME
  Loans                $      9,291   $    9,534   $   10,242   $   10,794
  Securities
   available-for-sale           217          595          834        1,325
  Securities
   held-to-maturity             301          330          353          381
  Interest-bearing
   deposits                      34           32           19            3
                       ------------   ----------   ----------   ----------
    Total interest
     income                   9,843       10,491       11,448       12,503
                       ------------   ----------   ----------   ----------
INTEREST EXPENSE
  Deposits                    1,656        2,075        2,632        2,934
  Borrowed funds              3,156        3,232        3,226        3,377
                       ------------   ----------   ----------   ----------
    Total interest
     expense                  4,812        5,307        5,858        6,311
                       ------------   ----------   ----------   ----------
    Net interest
     income                   5,301        5,184        5,590        6,192
PROVISION FOR LOAN
 LOSSES                       5,700        4,000        2,300          300
                       ------------   ----------   ----------   ----------
  Net interest income
   (loss) after
   provision for loan
   loss                        (669)       1,184        3,290        5,892
                       ------------   ----------   ----------   ----------
NON-INTEREST INCOME
  Deposit service fees          948          868          798          873
  Loan service fees             169          214          231          289
  Insurance service
   fees                         566          503          587          537
  Investment service
   fees                         120          175          175          238
  Real estate lease
   income                       183          177          257          406
  Gain on sale of
   securities, net                -            -            -           28
  Gain on sale of
   loans, net                   431          874        3,561          303
  Gain (loss) on sale
   of other real
   estate owned                  33           (8)          (2)           4
  Gain (loss) on sale
   of premises and
   equipment, net                 -           (2)          (1)          (1)
  Other operating
   income                        46           40           44           32
                       ------------   ----------   ----------   ----------
    Total non-interest
     income                   2,496        2,841        5,650        2,709
                       ------------   ----------   ----------   ----------
NON-INTEREST EXPENSE
  Compensation and
   benefits                   3,719        3,641        3,625        4,722
  Office operations           1,039          927          956          924
  Occupancy                     654          630          638          658
  Loan servicing                 57          119          135          140
  Outside and
   professional
   services                     442          264          485          414
  Marketing                     235          274          257          543
  Federal deposit
   insurance premiums
   and assessments              796        1,261          494           89
  Other operating
   expenses                     604          655          799          447
                       ------------   ----------   ----------   ----------
    Total non-interest
     expense                  7,546        7,771        7,389        7,937
                       ------------   ----------   ----------   ----------
OTHER-THAN-TEMPORARY
 IMPAIRMENT ON
 SECURITIES
  Total
   other-than-temporary
   impairment losses        (53,835)      (2,035)      (1,433)     (21,706)
  Portion of losses
   (gains) recognized
   in OCI/(loss)             31,783          227       (7,050)           -
                       ------------   ----------   ----------   ----------
   Net impairment
    losses                  (22,052)      (1,808)      (8,483)     (21,706)
LOSS BEFORE PROVISION
 (BENEFIT) FOR FEDERAL
 INCOME TAX                 (27,771)      (5,554)      (6,932)     (21,042)
PROVISION (BENEFIT)
 FOR FEDERAL INCOME
 TAX                          7,239       (1,854)      (2,319)      (6,916)
                       ------------   ----------   ----------   ----------
NET LOSS               $    (35,010)  $   (3,700)  $   (4,613)  $  (14,126)
                       ============   ==========   ==========   ==========
EARNINGS (LOSS) PER
 COMMON SHARE
  Basic                $      (5.82)  $    (0.62)  $    (0.77)  $    (2.36)
  Diluted              $      (5.82)  $    (0.62)  $    (0.77)  $    (2.36)
  Weighted average
   shares outstanding
   - Basic              6,011,065(1) 5,993,150(2) 5,974,588(3) 5,991,574(4)
  Weighted average
   shares outstanding
   - Diluted              6,011,065    5,993,150    5,974,588    5,991,574



(1) Weighted average shares outstanding - Basic includes 268,273 vested and
    ratably earned shares of the 269,340 restricted shares granted and
    issued under the MRP, net of forfeited shares.
(2) Weighted average shares outstanding - Basic includes 268,173 vested and
    ratably earned shares of the 269,340 restricted shares granted and
    issued under the MRP, net of forfeited shares.
(3) Weighted average shares outstanding - Basic includes 266,644 vested and
    ratably earned shares of the 269,340 restricted shares granted and
    issued under the MRP, net of forfeited shares.
(4) Weighted average shares outstanding - Basic includes 265,202 vested and
    ratably earned shares of the 269,740 restricted shares granted and
    issued under the MRP, net of forfeited shares.



           Rainier Pacific Financial Group, Inc. & Subsidiary
                   Selected Information and Ratios
                      (Dollars in Thousands)


                                               As of
                         -------------------------------------------------
                         September                     December  September
                            30,    June 30,  March 31,    31,       30,
                           2009      2009      2009      2008      2008
                         --------  --------  --------  --------  ---------
Loan portfolio
 composition:
  Real estate:
   One- to four-family
    residential (1)      $ 47,841  $ 52,463  $ 58,516  $ 56,325  $  65,997
   Five or more family
    residential           135,023   141,794   149,562   148,949    141,449
   Commercial             251,003   253,981   256,985   253,801    248,243
                         --------  --------  --------  --------  ---------
    Total real estate     433,867   448,238   465,063   459,075    455,689
  Real estate
   construction:
   One- to four-family
    residential            41,956    55,529    59,263    71,424     79,120
   Five or more family
    residential               496       495       491       483        471
   Commercial              11,484    11,004     9,602     9,953      5,991
                         --------  --------  --------  --------  ---------
    Total real estate
     construction          53,936    67,028    69,356    81,860     85,582
  Consumer:
   Automobile               7,491     8,645    10,127    11,818     13,409
   Home equity             36,085    38,143    40,843    42,442     42,660
   Credit cards                 -         -         -    23,192     22,793
   Other                    7,401     7,384     7,547     8,132      8,123
                         --------  --------  --------  --------  ---------
    Total consumer         50,977    54,172    58,517    85,584     86,985
  Commercial business      45,306    46,395    47,333    45,762     35,991
                         --------  --------  --------  --------  ---------
    Subtotal              584,086   615,833   640,269   672,281    664,247
Less: Allowance for loan
 losses                    (9,684)  (11,719)   (8,456)  (13,329)   (13,943)
                         --------  --------  --------  --------  ---------
  Total loans, net       $574,402  $604,114  $631,813  $658,952  $ 650,304
                         ========  ========  ========  ========  =========
Sold loans, serviced for
 others                  $187,977  $179,943  $163,657  $148,493  $ 135,496
                         ========  ========  ========  ========  =========

Non-performing assets:
  Loans 90 days or
   more past due or
   non-accrual loans (2):
    Real estate          $  1,604  $      -  $      -  $      -  $       -
    Real estate
     construction          18,155    29,265    17,490    24,042     31,243
    Consumer                  229       225       244       488        242
    Commercial business       872     2,300     1,596        14        288
  Repossessed assets            2        10        25        38          -
  Other real estate
   owned                   12,890     8,077     6,087     6,796        103
                         --------  --------  --------  --------  ---------
   Total non-performing
    assets (3)           $ 33,752  $ 39,877  $ 25,442  $ 31,378  $  31,876
                         ========  ========  ========  ========  =========

Loans greater than 30
 days delinquent (2)     $ 21,931  $ 33,780  $ 20,027  $ 26,863  $  26,049
Loans greater than 30
 days delinquent as a
 pct. of loans               3.75%     5.49%     3.13%     4.00%      3.92%
Non-performing loans as
 a pct. of loans             3.57%     5.16%     3.02%     3.65%      4.78%
Non-performing assets as
 a pct. of assets (3)        4.42%     4.85%     2.96%     3.70%      3.79%
Allowance for loan loss
 as a pct. of
 non-performing loans       46.42%    36.86%    43.75%    54.31%     43.88%
Allowance for loan loss
 as a pct. of total
 loans                       1.66%     1.90%     1.32%     1.98%      2.10%
Core deposits (all
 deposits, excluding
 CDs)                    $256,827  $272,108  $268,663  $256,689  $ 247,990
Retail CDs                190,499   185,869   169,146   175,108    151,355
Brokered CDs               18,998    30,982    70,800    87,442     64,711
                         ========  ========  ========  ========  =========
   Total deposits        $466,324  $488,959  $508,609  $519,239  $ 464,056
                         ========  ========  ========  ========  =========

Loans/Deposits             125.25%   125.95%   125.89%   129.47%    143.14%
Equity/Assets                1.68%     5.11%     4.56%     3.46%      6.84%
Tangible Equity/Assets       1.31%     4.75%     4.21%     3.09%      6.46%



(1) Includes loans held-for-sale.
(2) The Company may classify selected loans as non-accrual although the
    contractual payments on the loans are not past due, based upon other
    factors or characteristics known to the Company relating to the loan or
    the borrower.  Therefore, the amount of loans reported as "90 days or
    more past due or non-accrual loans" may exceed the amount of loans
    reported as "greater than 30 days delinquent."
(3) Excludes seven trust preferred CDO securities in an amount of $14.4
    million (at fair value) as of September 30, 2009, and one such security
    in an amount of $846,000 (at fair value) as of June 30, 2009 that are
    being treated by the Company as "non-accrual."  Due to the rights
    granted to the issuers of the debt collateralizing the security, that
    allow the issuers to contractually defer interest payments for up to 20
    consecutive quarters, the security is not deemed to be "non-performing"
    under its original terms.  However, if these securities were deemed
    "non-performing assets," the non-performing assets as a percentage of
    assets reported for September 30, 2009 and June 30, 2009 would be 6.29%
    and 4.96%, respectively.



           Rainier Pacific Financial Group, Inc. & Subsidiary
                    Selected Information and Ratios
                       (Dollars in Thousands)



                                Three Months Ended     Nine Months Ended
                                   September 30,         September 30,
                               --------------------  --------------------
                                 2009       2008       2009       2008
                               ---------  ---------  ---------  ---------

Loan growth (decline)              (5.16%)     0.04%    (13.12%)     4.28%
Deposit growth (decline)           (4.63%)     0.07%    (10.19%)     0.56%
Equity growth (decline)           (69.37%)   (23.88%)   (56.14%)   (33.76%)
Asset growth (decline)             (6.97%)    (3.44%)    (9.81%)    (4.35%)

Loans originated               $  21,797  $  36,390  $ 111,475  $ 182,911
Loans sold                     $  17,697  $  11,765  $ 106,891  $  48,221
Loans charged-off, net         $   7,735  $     328  $  15,645  $     836

Increase in non-interest income     0.69%      2.78%     39.06%     12.90%
Increase (decrease) in
 non-interest expense               7.46%     (4.45%)     8.75%     (3.15%)
Net charge-offs to average
 loans                              5.10%      0.20%      3.31%      0.17%
Efficiency ratio                  100.25%     81.34%     84.75%     77.23%
Return on assets                  (17.33%)    (1.37%)    (6.95%)    (0.08%)
Return on equity                 (396.12%)   (17.05%)  (160.36%)    (0.83%)

Interest-earning assets:
   Yield on loans                   6.11%      6.39%      6.15%      6.77%
   Yield on investments             3.14%      5.41%      5.35%      5.25%
   Yield on FHLB stock                 -       1.40%         -       1.27%
                               ---------  ---------  ---------  ---------
       Yield on interest-earning
        assets                      5.34%      6.15%      5.60%      6.40%
                               ---------  ---------  ---------  ---------

Interest-bearing liabilities:
   Cost of deposits                 1.49%      2.56%      1.86%      2.95%
   Cost of borrowed funds           4.46%      4.37%      4.45%      4.38%
                               ---------  ---------  ---------  ---------
       Cost of interest-bearing
        liabilities                 2.65%      3.34%      2.87%      3.57%
                               ---------  ---------  ---------  ---------
            Net interest rate
             spread                 2.69%      2.81%      2.73%      2.83%
                               =========  =========  =========  =========

Net interest margin                 2.75%      3.06%      2.78%      3.14%

Net interest margin-quarter
 ended 06/30/09                     2.73%
Net interest margin-quarter
 ended 03/31/09                     2.85%
Net interest margin-quarter
 ended 12/31/2008                   3.14%
Net interest margin-quarter
 ended 09/30/2008                   3.06%


                                      As of
        ------------------------------------------------------------------
       September 30,    June 30,     March 31,   December 31, September 30,
            2009          2009         2009          2008         2008
        -----------   -----------   -----------   ----------  ------------
Shares
 outst-
 anding
 at end
 of
 period 6,023,453(1)  6,006,479(2)  5,989,505(3) 5,972,931(4)  6,054,391(5)
Book
 value
 per
 share  $      2.13   $      6.98   $      6.54   $     4.90  $       9.50
Tangible
 book
 value
 per
 share  $      1.66   $      6.49   $      6.03   $     4.38  $       8.97


(1) Shares outstanding represent 6,294,898 shares issued (including 1,067
    unvested restricted shares granted under the MRP), less 271,445
    unallocated shares under the ESOP.
(2) Shares outstanding represent 6,294,898 shares issued (including 1,167
    unvested restricted shares granted under the MRP), less 288,419
    unallocated shares under the ESOP.
(3) Shares outstanding represent 6,294,898 shares issued (including 2,696
    unvested restricted shares granted under the MRP), less 305,393
    unallocated shares under the ESOP.
(4) Shares outstanding represent 6,295,298 shares issued (including 4,538
    unvested restricted shares granted under the MRP), less 322,367
    unallocated shares under the ESOP.
(5) Shares outstanding represent 6,399,390 shares issued (including 48,587
    unvested restricted shares granted under the MRP), less 339,341
    unallocated shares under the ESOP.