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

FORM 10-Q
(mark one)

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

For the quarterly period ended March 31, 2005

OR

[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number 0-24024

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:             X Yes __No

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

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, adjustments considered necessary for a fair presentation (consisting of normally recurring accruals) have been included. The interim condensed consolidated financial statements should be read in conjunction with the December 31, 2004 consolidated financial statements, including notes thereto, included in the Company's 2004 Annual Report to Shareholders. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results anticipated for the year ending December 31, 2005.

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

Stock Based Compensation

The Company accounts for stock-based awards to employees and directors using the intrinsic value method, in accordance with APB No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized in the 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 March 31, 2005 the Company has one stock-based employee and director compensation plan. At March 31, 2004, the Company had two stock-based employee and director compensation plans. 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 periods ended March 31:

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2.         Basic and Diluted Earnings per Share 

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

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3.        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) permits public companies to adopt its requirements using the "modified prospective" method which the Company intends to adopt. Under the "modified prospective" method, 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. The Securities and Exchange Committee (SEC) recently announced the adoption of a new rule that amends the compliance dates for Statement 123(R) for public companies. Under the Statement as issued by the FASB, fair-value accounting would have been mandatory for the first interim or annual reporting period beginning after June 15, 2005, for public companies that are not small business issuers; all other companies, including all nonpublic companies, were to begin using the new rules for reporting periods after December 15, 2005. The SEC's new rule allows public companies to implement Statement 123(R) at the beginning of their next fiscal year, instead of the next reporting period, after June 15 or December 15, 2005, as applicable. The SEC's new rule does not change the accounting required by Statement 123(R); only the compliance deadlines have been altered. With the recent extension, the Company expects to adopt Statement 123 (R) on January 1, 2006.

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.

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.

4.        Purchase of Redmond National Bank

On April 22, 2005 Venture Financial Group, Inc. and Washington Commercial Bancorp (WCB) announced the signing of a definitive agreement for the merger of WCB, the Redmond-based parent company of Redmond National Bank, with and into Venture Financial Group, Inc. Simultaneously, Redmond National Bank will merge into Venture Bank. The stock and cash transaction is currently valued at approximately $25 million.

Redmond National Bank operates two branches in Redmond with approximately $100 million in total assets. Upon completion of the merger, these branches will operate under the Venture Bank name. An expected benefit of the

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transaction will be the return of James F. Arneson to Venture Bank. Mr. Arneson served as an officer of Venture Bank for ten years prior to accepting the position of President and CEO of WCB and Redmond National Bank.

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

The following discussion contains a review of the Company's and its subsidiaries operating results and financial condition for the first three months of and period ended March 31, 2005. When warranted, comparisons are made to the same period in 2004, and to the previous year ended December 31, 2004. The discussion should be read in conjunction with the financial statements (unaudited) and related notes contained elsewhere in this report. The reader is assumed to have access to the Company's Form 10-K for the year ended December 31, 2004, which contains additional statistics and explanations. All dollars in tables, except per share data, are expressed in thousands.

Forward-Looking Information

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

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

Financial Condition

General

The Company's consolidated assets at March 31, 2005 totaling $578,181,000 represents a 3.95% increase from December 31, 2004 assets totaling $556,216,000. The increase is represented by a $3,491,000 decrease in securities available for sale, offset by increases in cash and due from banks of $2,027,000, a $1,956,000 increase in loans held for sale, an increase of $18,210,000 in gross loans and a $2,375,000 increase in premises and equipment. Other assets were largely unchanged.

Loans and loans held for sale

Loans increased $18,210,000 or 4.24% as of March 31, 2005 compared to December 31, 2004. This increase can be attributed to an improved regional economy and increased demand for commercial loans. Loans held for sale increased $1,956,000 to $5,074,000 as of March 31, 2005. This increase is due to stable long term rates and improved local economy.

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The total non-performing loans, defined as those loans on non-accrual and accruing loans over 90-days past due, decreased since December 31, 2004 by $85,000 as shown in the following table of non-performing assets (dollars in thousands):

The percentage of non-performing loans to total loans decreased to 1.12% on March 31, 2005 from 1.18% on December 31, 2004. Non-accrual loans increased $1,915,000 during the first three months of 2005, while accruing loans past due 90 days or more decreased $2,000,000 and foreclosed real estate decreased $379,000 during the same period. The increase in non-accrual loans was attributed to a $2,000,000 commercial real estate loan moving to non-accrual status from past due status as collection measures continue. Any potential loss relating to this loan is adequately reserved for pursuant to the bank's normal loan loss reserve methodology. The bank anticipates a judicial foreclosure on the underlying real estate as well as pursuing the guarantors on the loan which should result in no to minimal loss. During the quarter, the bank received $600,000 on the sale of foreclosed property, resulting in a $300,000 gain on sale, and a $300,000 reduction in foreclosed real estate for the quarter.

Allowance for Credit Losses

The allowance for credit losses reflects management's current estimate of the amount required to absorb losses on existing loans and commitments to extend credit. Determination of the appropriate level of the allowance is based on an analysis of various factors including historical loss experience based on volumes and types of loans; volumes and trends in delinquencies and non-accrual loans; trends in portfolio volume; results of internal credit reviews; and economic conditions. All commercial and real estate loans in the portfolio are assigned a grade indicating credit quality by the originating loan officer at the time of loan origination. These grades are reviewed at regular intervals and, if performance concerns arise on an individual loan, the grade is lowered to the appropriate level. Management reviews the composite changes in loan grades within the portfolio in its assessment of the adequacy of the allowance. If a loan becomes impaired, the Company's loss exposure on that loan is measured based on expected cash flows or collateral values, and if necessary, a portion of the allowance for credit losses is allocated to that loan. After reviewing the composition of the loan portfolio at March 31, 2005, the levels of classified loans, losses experienced during the period, and the changes in the economy, management has determined the allowance for credit losses to be adequate to cover the loss exposure in the loan portfolio at that date. An analysis of the adequacy of the allowance is subject to quarterly review by the Board of Directors. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments of information available at the time of their examination.

The allowance for credit losses was essentially unchanged at $7,167,000 on March 31, 2005 compared to the December 31, 2004 level of $7,189,000. The ratio of the allowance for credit losses to loans was1.60% on March 31, 2005, compared to 1.67% on December 31, 2004. The allowance for credit losses to nonperforming loans was

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143.31% on March 31, 2005, compared to 141.35% on December 31, 2004. Management believes the allowance is at an appropriate level. Management anticipates additional provisions for the general loan portfolio during 2005 as the loan portfolio grows and as we evaluate the risks of the portfolio throughout the remainder of the year. Management will continue to provide a reserve for its small loan portfolio.

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 12/31/03, 9/30/04 and 12/31/04. The Company believes that under generally accepted accounting principles, a total loss of all loans outstanding for 60 days from 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 partner is adequate. All actual charge-offs and recoveries for 12/31/03, 9/30/04 and 12/31/04 have been recognized and run through the allowance for loan losses. 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 $619 thousand reduction in loan balances as of March 31, 2005 with a corresponding reduction in the allowance for loan losses. Additional charge-offs of $619,000 and recoveries of $782,000 were also required for regulatory accounting purposes for the quarter ended March 31, 2005 as compared to the financial statement presented under GAAP in this Form 10-Q.

Investment Portfolio

Securities available for sale decreased $3,491,000, or 4.76% during the first three months of 2005 to a total of $69,800,000. The decrease in securities available for sale is primarily attributed to principal reductions on mortgage backed securities and agency securities called. These securities were not replaced as the funds generated from this reduction in investments were used to fund loan growth. Securities are typically purchased from time to time as either collateral for various operational purposes or for additional income in times of excess liquidity.

Deposits and Borrowings

Total deposits increased $32,773,000, or 10.03% in the three months ended March 31, 2005 to $359,494,000. Savings and interest-bearing deposit accounts and non-interest bearing demand experienced a significant increase of $14,561,000 or 6.52% for the three month period, while time deposits increased an additional $18,212,000 or 17.63% . These increases can be attributed to the success of special promotions and marketing efforts over the last several months as well as the effectiveness of our re-branding efforts especially in our new and refurbished financial centers. These re-branding efforts will continue throughout this year as we continue to meet our schedule for remodeling the bank's existing financial centers. Short term borrowings and fed funds purchased decreased by $9,634,000 or 7.49% . The decrease was offset by the increase in deposits. The Company's intention is to reduce the short term debt that was incurred following the divestiture of seven branches in October 2004 as deposits continue to grow. Long term borrowings experienced no significant change.

Liquidity

Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Liquidity is generated from both internal and external sources. Internal sources are those assets that can be converted to cash with little or no risk of loss and are the principal source of asset liquidity. These include overnight investments in interest bearing deposits in banks, federal funds sold and investment securities, particularly those of shorter maturity. At March 31, 2005, cash, deposits in banks, federal funds sold, securities available for sale and Investments in Trusts totaled $86,275,000. External sources refer to the ability to access new borrowings and capital. These include increasing savings and demand deposits, federal funds purchased borrowings, and the issuance of capital and debt securities. At March 31, 2005, borrowing lines of credit totaled $41,000,000. These credit facilities are being used regularly as a source of funds. At March 31, 2005, $10,000,000 was borrowed against these lines of credit in the form of long term advances.

Net cash flows from operations and investing activities decreased liquidity while net cash flows from financing activities contributed to liquidity. Net cash from operating activities for the three months ended March 31, 2005 indicated a decrease in liquidity or use of funds of $1,398,000 compared to an increase of $3,911,000 or addition to liquidity for the three months ended March 31, 2004. The majority of the cash used from operating activities for the first three months of 2005 was from the company's mortgage loan operations and related to the timing of originations and sale of loans. Origination of loans held for sale exceeded proceeds from the sale of those loans for the three months ended March 31, 2005 by $1,545,000. This is an indication of the improvement in the mortgage loan market for the quarter as the Company originated loans at a faster rate than they could sell them due to the lag in the time of closing a mortgage loan and the subsequent packaging of mortgage loans for sale to the secondary market. Cash flow from investing activities decreased cash by $23,759,000 for the three months ended March 31, 2005 compared

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to contributing $1,497,000 for the same period in 2004. The majority of the cash used from investing activities during the first quarter of 2005 was from an increase in loans of $18,675,000. Cash flow from financing activities contributed cash of $27,184,000 as of March 31, 2005 compared to a use of $4,526,000 during the same period in 2004. The majority of the cash contributed was from an increase in deposits in the amount of $32,773,000.

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 were 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, 146,403 were repurchased in 2004 and 14,337 share were repurchased in the first quarter of 2005 for a total of $3,278,975. All share amounts 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.

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.

Management believes the Bank's liquidity position at March 31, 2005, was adequate to meet its short term funding requirements.

Capital

Consolidated capital of the Company increased $182,000 during the first three months of 2005. The net income of $2,033,000 for the first three months and its corresponding increase to retained earnings was the primary component of this increase along with the exercising of stock options, which added $269,000. These increases were offset by decreases in the market value of securities available for sale of $641,000 on an after-tax basis, quarterly cash dividends paid to shareholders totaling $426,000 and stock repurchases of $1,053,000.

There are regulatory constraints placed upon capital adequacy, and it is necessary to maintain an appropriate ratio between capital and assets. Regulations require banks and holding companies to maintain a minimum "leverage" ratio (primary capital ratio) of total assets. For the most highly rated holding companies this ratio must be at least 3%, and for others it must be 4 to 5%. At March 31, 2005, the Company's leverage ratio was 11.95%, compared to 12.94% at year-end 2004. In addition, banks and holding companies are required to meet minimum risk-based capital guidelines under which risk percentages are assigned to various categories of assets and off-balance-sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common stockholders' equity, less goodwill, while total capital includes the allowance for possible credit losses, subject to 1.25% limitation of risk-adjusted assets. The rules require Tier I capital of 4% of risk-adjusted assets and total capital of 8%. At March 31, 2005, the Company's Tier I capital ratio was 11.34%, and total capital was 12.47% . At December 31, 2004 the Company's Tier I capital ratio was 12.24% and the total capital ratio was 13.49% .

Results of Operations

General

Net income for the three months ended March 31, 2005 increased 6.55% to $2,033,000, compared to $1,908,000 for the same period in 2004. The increase in net income is primarily attributed to an increase in net interest income and a $300,000 gain on the sale of foreclosed property, which was partially offset by an increase in non-interest expense.

Interest income for the three months ended March 31, 2005 increased $1,225,000 or 16.20%, from the same period in the prior year. Increased volume in loans provided an additional $1,344,000 of interest income for the first three months, which was partially offset by a $119,000 reduction in interest income due to the reduced earnings on investments due to reduced volumes. Average earning assets for the first three months of 2005 were $54,475,000

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or 11.95% higher than in the same period of 2004. The average rate earned on assets increased to 7.00% in the first three months of 2005 from 6.72% for the same period in 2004, an increase of 28 basis points.

Total interest expense for the three months ended March 31, 2005 increased $826,000, or 55.18%, from the comparable period in the prior year. Although the average balance of total interest bearing deposits decreased to $267,568,000 for the three months ended March 31, 2005 from the average balance of $296,716,000 for the same period in 2004, the average interest paid on the deposits increased 41 basis points, to 1.76% in the first three months of 2005 from 1.35% in the first three months of 2004. The decrease in deposit balances are attributed to the carry over of the October 2004 branch divestiture which included $96,000,000 in deposits. The balance of the increase in interest expense was a result of a $92,701,000 increase in the average balance of borrowings over the same period, increasing from an average balance of $62,886,000 in 2004 to $155,587,000 in 2005. The increase is attributed to the increased borrowings in the fourth quarter 2004 carried over to the first quarter 2005, which were utilized to partially fund the bank's continuing operations following the October 2004 branch divesture, as well as to fund the Company's loan growth.

Net interest income increased $399,000, an increase of 6.58% for the three months ended March 31, 2005 over the same period for 2004. This increase was the direct result of growth of the loan portfolio, offset somewhat by overall higher costs of funding the portfolio.

Net interest margin, defined as net interest income as a percentage of average earning assets, decreased by 14 basis points to 5.00% from 5.14% in the first three months of 2005 compared to the same period in 2004

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The yield and cost of funds for earning assets and interest bearing liabilities were as follows as of and for the three months ended March 31 (dollars in thousands):

An analysis of the change in net interest income is as follows for the three months ended March 31 (dollars in thousands):

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.

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Non-interest income for the three months ended March 31, 2005 was $2,050,000, or a 14.14% increase over the same period for 2004. This increase can be primarily attributed to a $300,000 recovery on a loan previously charged off.

Non-interest expense for the three months ended March 31, 2005 increased by $405,000 or 8.22% over the same period in 2004. Part of the increase was due to an increase in salaries and employee benefits for the quarter ended March 31, 2005 which increased $101,000 or 3.50% compared to the same quarter in 2004. This increase in expense is primarily attributed to $158,000 in additional payroll expenses associated with the recent exit of the bank's President and the Company's Chief Financial Officer offset by a reduction in other employee compensation. Other expenses for the quarter ended March 31, 2005 increased $272,000 or 22.91% compared to the same period in 2004. The other expense increase can be primarily attributed to $176,000 in expense on a new marketing campaign and mailings intended to attract new customers and deposits. The increase in deposits mentioned previously can be attributed to the success of these efforts. Additionally, the Company spent approximately $30,000 for the quarter to continue the process to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The Company will continue to have additional ongoing expense associated with Sarbanes-Oxley compliance efforts.

Business Segment Reporting

The Company is managed along two major lines of business; community banking, its core business, and the small loan division, which began operations in the fourth quarter of 2000. Community banking consists of all lending, deposit and administrative operations conducted through 14 offices in Washington. 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.

Selected comparative financial information for community banking and the small loan division, which are included in the overall financial results, as of and for the three months ended March 31, are as follows (dollars in thousands):

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Regulatory Developments

Two legislative and regulatory developments impacted or may impact the operations and earnings generated by the small loan division.

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

On March 2, 2005, the FDIC issued revised payday lending guidelines. The full text of such guidelines is available on the FDIC website at http://www.fdic.gov/ . The effective date for compliance with this regulation is March 1, 2005 and includes limiting customers to 90 days of payday loans in a rolling 12 month calendar and offering or referring the customer to an alternative longer term credit product. At this time, the impact on earnings of compliance with this regulation cannot be determined. Management will continue to monitor the situation.

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

Item 3        Quantitative and Qualitative Disclosure about Market Risk

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

Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. At March 31, 2005, based on the measures used to monitor and manage interest rate risk, there has not been a material change in the Company's interest rate risk since December 31, 2004. For additional information, refer to the Company's annual report on Form 10-K for the year ended December 31, 2004.

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Management of the Company, including the Chief Executive Officer who is also performing the functions of the principal financial officer and principal accounting officer, have conducted an evaluation of the Company's disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934 as of March 31, 2005. Based on that evaluation, the Chief Executive Officer has concluded that, as of the evaluation date, the Company's disclosure controls and procedures were effective in ensuring that all material information relating to the Company required to be filed in this quarterly report has been made known to him in a timely manner.

There have been no significant changes to the Company's internal controls over financial reporting or in other factors that have or are likely to materially affect those controls.

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Venture Financial Group, Inc.

PART II - OTHER INFORMATION

Item 1     Legal Proceedings

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

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds 

(c)          Issuer Purchases of Equity Securities

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Item 6        Exhibits and Reports on Form 8-K 

Venture Financial Group, Inc.

SIGNATURES

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

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EXHIBIT 3.1

SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

VENTURE FINANCIAL GROUP, INC.

* * * * *

ARTICLE I
Name

        The name of the corporation shall be VENTURE FINANCIAL GROUP, INC.

ARTICLE II
Duration

        The corporation's period of duration shall be perpetual.

ARTICLE III
Purposes

        Section 3.1 To engage in business as a bank holding company.

        Section 3.2 To carry on any lawful business whatsoever in connection with the foregoing for which corporations may be incorporated under the Washington Business Corporation Act, including any amendments thereto or successor statutes that may hereinafter be enacted.

ARTICLE IV
Capital

     The aggregate number of shares that the Corporation shall have authority to issue is 30,200,000 shares, 30,000,000 of which shall be common shares with no par value per share, and 200,000 shares of preferred stock with no par value per share. The preferred stock will have such rights and preferences as may be determined by resolution of the Board of Directors.

ARTICLE V
No Pre-Emptive Rights

     No shareholder shall have the pre-emptive right to acquire unissued shares of the corporation, or securities convertible into shares of any class whatsoever, whether now or hereafter authorized, and whether issued for cash, property, services or otherwise.

ARTICLE VI
No Cumulative Voting

     Each shareholder entitled to vote at any election for directors shall have the right to vote, in person or by proxy, the number of shares owned by him/her for as many persons as there are directors to be elected and for whose election he/she has a right to vote, and no shareholder shall be entitled to cumulate his/her votes.

ARTICLE VII
Power to Amend Bylaws

     The Board of Directors shall have full power to adopt, alter, amend or repeal the Bylaws or adopt new Bylaws. Nothing herein, however, shall deny the concurrent power of the shareholders to adopt, alter, amend or repeal the Bylaws.

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EXHIBIT 3.1

ARTICLE VIII
Right to Amend

     The corporation reserves the right to amend, alter, change or repeal any provision of its Articles of Incorporation to the extent permitted by the laws of the State of Washington. All rights of shareholders are granted subject to this reservation.

ARTICLE IX
Registered Office and Agent

     The address of the initial registered office of the corporation is 721 College Street S.E., P.O. Box 3800, Lacey, Washington 98509-3800. The name of its initial registered agent at that address is Ken F. Parsons.

ARTICLE X
Contracts

     The corporation may enter into a contract and otherwise transact business as vendor, purchaser or otherwise, with its directors, officers and shareholders, and with corporations, associations, firms and entities in which they are or may become interested as directors, officers, shareholders, members or otherwise, as freely as though such adverse interest did not exist, even though the vote, action or presence of such director, officer or shareholder may be necessary to obligate the corporation upon such contract or transaction; and in the absence of fraud, no such contract or transaction shall be avoided and no such director, officer or shareholder shall be held liable to account to the corporation, by reason of such adverse interest or any fiduciary relationship to the corporation arising out of such office or stock ownership, for any profit or benefit realized by him/her through any such contract or transaction; provided that the nature of the interest of such director, officer or shareholder though not necessarily the details or extent thereof, be disclosed or known to the Board of Directors or shareholders of the corporation, at the meeting thereof at which such contract or transaction is authorized or confirmed. A general notice that a director, officer or shareholder of the corporation is interested in any corporation, association, firm or entity shall be sufficient disclosure as to such director, officer or shareholder with respect to all contracts and transactions with that corporation, association, firm or entity.

ARTICLE XI
Capital Surplus

     The corporation may use its unreserved and unrestricted capital surplus to purchase its own shares and may, from time to time, distribute to shareholders, cash or property out of its capital surplus.

ARTICLE XII
Board Nominations

     Nominations for election to the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of stock of the corporation entitled to vote for the election of directors. Nominations, other than those made by the Board of Directors, shall be made in writing and shall be delivered or mailed, U.S. mail, postage prepaid, to the Chairman of the corporation not less than fourteen (14) days nor more than fifty (50) days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than twenty-one (21) days' notice of the meeting is given to shareholders, such nomination shall be delivered or mailed, U.S. mail, postage prepaid, to the Chairman of the corporation not later than the close of business on the seventh (7th) day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder:

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EXHIBIT 3.1

Nominations not made in accordance herewith may, in his/her discretion, be disregarded by the Chairman of the meeting, and upon his/her instructions, the vote teller may disregard all votes cast for such nominee.

ARTICLE XIII
Indemnification and Director Liability

     Section 13.1 Definitions. As used in this Article:

     (a) The term "Egregious Conduct" by a person shall mean acts or omissions that involve intentional misconduct or a knowing violation of law, conduct violating Section 23B.08.310 of the Revised Code of Washington, as amended, or participation in any transaction from which the person will personally receive a benefit in money, property, or services to which the person is not legally entitled.

     (b) The term "Finally Adjudged" shall mean stated in a judgment based upon clear and convincing evidence by a court having jurisdiction, from which there is no further right to appeal.

     (c) The term "Director" shall mean any person who is a director of the corporation and any person who, while a director of the corporation, is serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and "conduct as a Director" shall include conduct while a Director is acting in any of such capacities.

     (d) The term "Officer-Director" shall mean any person who is simultaneously both an officer and director of the corporation and any person who, while simultaneously both an officer and director of the corporation, is serving at the request of the corporation as a director, officer, manager, partner, trustee, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and "conduct as an Officer-Director" shall include conduct while such a person is acting as an officer of the corporation or in any of such other capacities.

     (e) The term "Subsidiary Corporation" shall mean any corporation or limited liability company at least eighty percent of the voting interests of which is held beneficially by this corporation.

     (f) The term "Subsidiary Outside Director" shall mean any person who, while not principally employed by this corporation or any Subsidiary Corporation, is a director or manager of a Subsidiary Corporation and any such person who, while a director or manager of a Subsidiary Corporation, is serving at the request of such corporation as a director, officer, manager, partner, trustee, employee, or agent of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of such corporation or of any employer in which it has an ownership interest; and "conduct as a Subsidiary Outside Director" shall include conduct while such a person is acting in any of such capacities.

     Section 13.2 Liability of Directors. No Director, Officer-Director, former Director or former Officer-Director shall be personally liable to the corporation or its shareholders for monetary damages for conduct as a Director or Officer-Director occurring after the effective date of this Article unless the conduct is Finally Adjudged to have been Egregious Conduct.

     Section 13.3 Liability of Subsidiary Outside Directors. No Subsidiary Outside Director or former Subsidiary Outside Director shall be personally liable in any action brought directly by this corporation as a shareholder of the Subsidiary Corporation or derivatively on behalf of the Subsidiary Corporation (or by any shareholder of this corporation double-derivatively on behalf of this corporation and the Subsidiary Corporation) for monetary damages for conduct as a Subsidiary Outside Director occurring after the effective date of this Article unless the conduct is Finally Adjudged to have been Egregious Conduct.

     Section 13.4 Mandatory Indemnification of Directors. Subject to Sections 13.7 and 13.8 of this Article, the corporation shall indemnify any person who is, or is threatened to be made, a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal, and whether by or in the right of the corporation or its shareholders or by any other party, by reason of the fact that the person is or was

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EXHIBIT 3.1

a Director, Officer-Director, or Subsidiary Outside Director against judgments, penalties or penalty taxes, fines, settlements (even if paid or payable to the corporation or its shareholders or to a Subsidiary Corporation) and reasonable expenses, including attorneys' fees, actually incurred in connection with such action, suit or proceeding unless the liability and expenses were on account of conduct Finally Adjudged to be Egregious Conduct.

     Section 13.5 Advancing Expenses. Except as prohibited by Sections 13.7 and 13.8 of this Article, the reasonable expenses, including attorneys' fees, of a Director, Officer-Director, Subsidiary Outside Director, or person formerly serving in any such capacities, incurred in connection with an action, suit or proceeding in which the individual is entitled to indemnification under Section 13.4 shall be paid or reimbursed by the corporation, upon request of such person, in advance of the final disposition of such action, suit or proceeding upon receipt by the corporation of a written, unsecured promise by the person to repay such amount if it shall be Finally Adjudged that the person is not eligible for indemnification. All expenses incurred by such person in connection with such action, suit or proceeding shall be considered reasonable unless Finally Adjudged to be unreasonable.

     Section 13.6 Procedure. Except as required by Sections 13.7 and 13.8 of this Article, no action by the Board of Directors, the shareholders, independent counsel, or any other person or persons shall be necessary or appropriate to the determination of the corporation's indemnification obligation under this Article in any specific case, to the determination of the reasonableness of any expenses incurred by a person entitled to indemnification under this Article, nor to the authorization of indemnification in any specific case.

     Section 13.7 Exception for Internal Claims. Notwithstanding anything else in these Articles, the corporation shall not be obligated to indemnify any person for any expenses, including attorneys' fees, incurred to assert any claim against the corporation (except a claim to enforce rights to indemnification) or any person related to or associated with it, including any person who would be entitled hereby to indemnification in connection with the claim.

     Section 13.8 Exception for Regulatory Claims.

     (a) Regulatory Proceedings Generally. Notwithstanding anything else in these Articles, indemnification of any Director, Officer-Director or Subsidiary Outside Director, or any person formerly serving in any such capacities, and advancement of expenses in connection with either an administrative proceeding or a civil action instituted by a federal banking agency ("Regulatory Proceedings") shall be governed by this Section.

     (b) Banking Regulations Defined. The term "Banking Regulations" shall mean any state or federal laws or regulations applicable to the corporation, or any formal policies adopted by a regulatory agency having jurisdiction over the corporation.

     (c) Indemnification in Regulatory Proceedings. The corporation shall provide indemnification and advancement of expenses in connection with Regulatory Proceedings to the extent permitted, and in the manner prescribed by Banking Regulations. Insurance and other means to ensure payment of costs and expenses in Regulatory Proceedings may be obtained or provided to the extent permitted and in the manner prescribed by Banking Regulations.

     (d) Federal Deposit Insurance Corporation. Notwithstanding anything else in these Articles, the Articles are subject to the requirements and limitations set forth in state and federal laws, rules, regulations, and orders regarding indemnification and prepayment of legal expenses and liabilities, including Section 18(k) of the Federal Deposit Insurance Act, as amended, and Part 359 of the Federal Deposit Insurance Corporation's Rules and Regulations or any successor regulations. To the extent of any conflict between state and federal law regarding the interpretation and scope of the Articles, federal law shall supercede and control.

     Section 13.9 Enforcement of Rights. The corporation shall indemnify any person granted indemnification rights under this Article against any reasonable expenses incurred by the person to enforce such rights.

     Section 13.10 Set-off of Claims. Any person granted indemnification rights herein may directly assert such rights in set-off of any claim raised against the person by or in the right of the corporation and shall be entitled to have the same tribunal which adjudicates the corporation's claim adjudicate the person's entitlement to indemnification by the corporation.

     Section 13.11 Continuation of Rights. The indemnification rights provided in this Article shall continue as to a person who has ceased to be a Director, Officer-Director, or Subsidiary Outside Director and shall inure to the benefit of the heirs, executors, and administrators of such person.

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EXHIBIT 3.1

     Section 13.12 Effect of Amendment or Repeal. Any amendment or repeal of this Article shall not adversely affect any right or protection of a Director, Officer-Director, or Subsidiary Outside Director or person formerly serving in any of such capacities existing at the time of such amendment or repeal with respect to acts or omissions occurring prior to such amendment or repeal.

     Section 13.13 Severability of Provisions. Each of the substantive provisions of this Article is separate and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions.

     Section 13.14 Application to Officers, Employees and Agents. By resolution, the Board of Directors may extend the provisions of this Article 13 to any officers, employees or agents of the corporation.

ARTICLE XIV
Directors

     The board of directors shall be divided into three classes: Class 1, Class 2, and Class 3, which shall be nearly equal in number as possible. Each director shall serve for a term ending on the date of the third annual meeting of the shareholders following the annual meeting at which such director was elected; provided, however, that each initial director in Class 1 shall hold office until the annual meeting of shareholders in 1988, each initial director in Class 2 shall hold office until the annual meeting of shareholders in 1989; and each initial director in Class 3 shall hold office until the annual meeting of shareholders in 1990.

ARTICLE XV
Incorporator

     The name and address of the incorporator is George W. Bowen, 3033 Carpenter Loop S.E., Lacey, Washington 98503.

ARTICLE XVI
Evaluating Offers

     The Board of Directors of the corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the corporation, (b) merge or consolidate the corporation with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its stockholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the community, employees, customers, and other constituents of the corporation and its subsidiary.

ARTICLE XVII
Fair Price Provision

     Section 17.1 In addition to the requirements of any applicable statute, and notwithstanding any other provisions of any other articles of these Articles of Incorporation, the affirmative vote of not less than 90% of the total shares which are entitled to be voted in an election of directors shall be required for the approval of any Business Combination (as defined below).

     Section 17.2 The approval requirements of Section 17.1 shall not apply if either:

     (a) The Business Combination is approved by at least 66 2/3% of the Directors of the Corporation;

or

     (b) Both of the following conditions are satisfied:

                (i) The cash or fair market value of the property, securities or other consideration to be received per share in the Business Combination by holders of the common stock of the corporation is not less than the highest price per share (including brokerage commissions, soliciting dealers' fees and dealer-management compensation) paid by such offeror in acquiring any of its holdings of the corporation's common stock; and

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EXHIBIT 3.1

                (ii) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, whether or not the corporation is then subject to such requirements, shall be mailed to the stockholders of the corporation for the purpose of soliciting stockholder approval of such Business Combination.

     Section 17.3 For the purposes of this Article 17

     (a) The term "Business Combination" shall mean (i) any merger or consolidation of the corporation, (ii) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any Substantial Part (as defined below) of the assets of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, (iii) any merger or consolidation with or into a corporation or its subsidiary, (iv) the issuance of any securities of the corporation or a subsidiary of the corporation to any person or entity, or (v) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination;

     (b) The term "Substantial Part" shall mean more than 10% of the total assets of the corporation in question, as of the end of its most recent fiscal year prior to the time determination is being made;

     (c) Without limitation, any shares of common stock of the corporation which any person has the right to acquire at any time pursuant to any agreement, or upon exercise of conversion right, warrants or options, or otherwise, shall be deemed outstanding and beneficially owned by such person for purposes of this Article 17; and

     (d) For the purposes of Section 17.2(b)(i) of this Article, the phrase "other consideration to be received" shall include, without limitation, common stock of the corporation retained by its existing stockholders in the event of a Business Combination in which the corporation is the surviving corporation

     Section 17.4 For the purposes of this Article 17, a majority of the Directors shall have the power and duty to determine on the basis of information known to them (a) whether a proposed transaction is subject to the provisions of this Article 17, (b) the amount of shares of the corporation Beneficially Owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) such other matters as to which a determination may be required by the provisions of this Article 17.

     Section 17.5 The provisions set forth in this Article 17 may not be repealed or amended in any respect or in any manner including any merger or consolidation of the corporation with any other corporation unless the surviving corporation's Articles of Incorporation contain an article to the same effect as this Article 17, except by the affirmative vote of the holders of not less than 90% of the outstanding shares of common stock of the corporation.

ARTICLE XVIII
Special Meeting of Shareholders

     Special meetings of the shareholders may be called at any time by the President, a majority of the Board of Directors, or by shareholders owning in the aggregate not less than fifty percent (50%) of the shares entitled to vote at the special meeting.

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EXHIBIT 31.1

CERTIFICATION UNDER SECTION 302
OF SARBANES-OXLEY ACT OF 2002

27

EXHIBIT 31.2

CERTIFICATION UNDER SECTION 302
OF SARBANES-OXLEY ACT OF 2002

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EXHIBIT 32

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

This certification is furnished 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 quarterly report of Form 10-Q for the period ended March 31, 2005 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)

May 14, 2005

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