Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES    X   NO        

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

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):
Yes       NO   X   

        As of March 5, 2004, there were outstanding 8,442,840 shares of the Registrant's common stock, which are listed on the Nasdaq National Market System under the symbol "RPFG." Based on the closing price for the common stock on March 5, 2004, the aggregate value of the common stock outstanding held by nonaffiliates of the Registrant was $118,803,937 (7,204,605 shares at $16.49 per share). For purposes of this calculation, common stock held by executive officers and directors of the Registrant and the unallocated shares held by the Rainier Pacific 401(k) Employee Stock Ownership Plan and Trust are considered nonaffiliates.

        1. Portions of Registrant's Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders (Part III).

<PAGE>

Item 1. Business

General

        Rainier Pacific Financial Group, Inc. ("Rainier Pacific Financial Group" or the "Company"), a Washington corporation, was organized on May 23, 2003 for the purpose of becoming the holding company for Rainier Pacific Savings Bank ("Rainier Pacific Bank" or the "Bank") upon the Bank's conversion from a Washington-chartered mutual to a Washington-chartered stock savings bank ("Conversion"). The Conversion was completed on October 20, 2003 through the sale and issuance of 8,442,840 shares of common stock by the Company. At December 31, 2003, we had total assets of $685.3 million, total deposits of $315.4 million and total shareholders' equity of $114.6 million. The Company's business activities generally are limited to passive investment activities and oversight of our investment in the Bank. Accordingly, the information set forth in this report, including consolidated financial statements and related data, relates primarily to the Bank and its subsidiary.

        The Bank is a well-established financial institution with a 70 year history of meeting the financial needs of its customers, who are primarily located in our local market of Pierce County, Washington. We offer consumers a broad array of deposit and loan services through Rainier Pacific Bank and offer automobile and homeowner's insurance, financial planning, and non-federally insured mutual fund and investment services through our wholly-owned subsidiary, Support Systems, Inc. We also provide a limited offering of deposit and loan services to small businesses within our local community to accommodate our existing customers. Our deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable legal limits under the Bank Insurance Fund. Our primary regulators are the Washington Department of Financial Institutions and the FDIC.

        We began operations as a credit union in 1932 when we were formed as Tacoma Teachers Credit Union to serve the financial needs of Tacoma School District employees. In 1973, the Credit Union's name was changed to Educational Employees Credit Union, and we expanded our field of membership to encompass all employees in the field of education within the greater Tacoma and Pierce County area. The membership base was further expanded in 1988 by a merger with Health Care Credit Union which extended membership eligibility to all health care employees in Pierce County.

        During 1993, 1994 and 1995, we obtained approval from the State of Washington's Department of Financial Institutions to extend credit union membership eligibility to all residents and employees of businesses in most communities in the Tacoma-Pierce County and City of Federal Way geographical market. On October 16, 1995, we changed our name to Rainier Pacific, A Community Credit Union to reflect our change from an employer-based credit union to an inclusive community-based financial services provider.

        On January 1, 2001, we converted from a credit union to a state-chartered mutual savings bank. The savings bank charter afforded us the opportunity to expand our offering of residential mortgage loans, multi-family and commercial real estate loans, residential construction and land loans, and the ability to offer small business banking services. Since that time, we have significantly increased our originations of multi-family and commercial real estate loans.

        On October 20, 2003 we completed our conversion from a state chartered mutual savings bank to a state chartered stock savings bank. In connection with the conversion, the Company sold 7,935,000 shares of its common stock and received $77.4 million in net proceeds after deducting expenses, and issued an additional 507,840 shares to the Rainier Pacific Foundation.

Available Information

        The Company posts its annual report, Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases on its investors relations page at www.rainierpac.com. These reports are posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission ("SEC"). All

1

<PAGE>

SEC filings of the Company are also available free of charge at the SEC's website, www.sec.gov or by calling the SEC at 1-800-SEC-0330.

Market Area

        We focus our efforts on serving residents and businesses in Pierce County and the City of Federal Way. Pierce County is the second most populous metropolitan area in Washington State, covering 1,794 square miles, with approximately 746,000 residents and a median household income of approximately $48,400 and average household income of $60,400. The City of Federal Way is located in South King County, just north of the Pierce County border, with a population of approximately 84,000 and a median household income of approximately $52,900.

        Our local economy possesses a blend of regional, national and international economic factors. In recent years, however, the local economy and Washington State have encountered a significant slowing of economic growth. The unemployment rates in the Pierce County market averaged just below 7.7% in 2003 and was among the highest in the country. Although Pierce County is expected to benefit from the recent national economic recovery, the local and state economy is anticipated to recover more slowly than the general U.S. economy. During the past decade, the local economy has transitioned from an economy dependent upon aerospace, manufacturing, and natural resources, to one that is more focused on the service industry and international trade. The professional and technical service sectors today represent approximately 30% of the jobs in Pierce County, up from 15% ten years ago. Pierce County's unemployment rate, although high compared to national averages, has not risen significantly from its historical norms. The local economy is expected to benefit as the national economy strengthens and import/export activity improves, and as growth in the high technology and health care sectors accelerate. The Port of Tacoma is rapidly growing in container shipping capacity and continues to benefit from increased international trade activity as the global economy rebounds. The presence of Fort Lewis Army Base and McChord Air Force Base, with potential growth in the number of civilians and military employees, will provide stability for our local economy in future years. Population growth has averaged 2.3% per year during the past decade according to the Tacoma-Pierce County Chamber of Commerce.

        The City of Tacoma is experiencing strong revitalization of its downtown central business district with the addition of the International Museum of Glass, the new Tacoma Art Museum, a new convention center, a new hotel, new residential housing and the expansion of the University of Washington Tacoma Campus.

Delivery Methods

        We provide a high level of convenient access for our customers in a variety of ways, having adopted an integrated "bricks, clicks and mortar" delivery systems strategy. Unlike many organizations that intentionally try to migrate customer transactions to automated channels, our strategy focuses on giving consumers integrated, yet flexible, options and choices as to how they wish to transact business with us. Therefore, we focus upon developing each of the three delivery systems of our "bricks, clicks, and mortar" strategy.

        The "bricks" element of our strategy relates specifically to the branch facilities where in-person interactions occur. As a local financial institution, we are committed to providing a network of branch offices that enables consumers to access services in person, within 15 minutes from essentially anywhere in Pierce County or the City of Federal Way.

        The core components of the "clicks" element of our delivery channel strategy relates to internet banking and automated teller machines. We have expanded our on-line banking capabilities to enable customers to perform essentially any type of transaction that can be conducted in a branch setting, such as review account balances, make transfers, apply for a mortgage or consumer loan, and even pay bills. To accommodate 24 hour, seven day a week availability to cash, we have expanded our network over the past several years to include 19 automated teller machines throughout Pierce County and the City of Federal Way.

2

<PAGE>

        The "mortar" element of our "bricks, clicks and mortar" strategy is our Call Center. The Call Center completes what we need to provide an integrated delivery solution for our customers. We continue to focus on improving the speed in which all telephone calls are answered, the level of customer service provided, and the ability to handle virtually all of our customers' banking requests over the phone. In addition to the employee staffed Call Center that is available to customers during the week from 7:00 a.m. to 7:00 p.m. weekdays, and 9:00 a.m. to 1:00 p.m. on Saturdays, we also provide 24-hour, seven day a week telephone banking through an automated voice response system.

        Our three-pronged delivery channel strategy allows customers to decide how they want to access our services through an appropriate blend of high-touch and high-tech service.

Lending Activities

        General. We focus our lending activities primarily on the generation of consumer loans, loans secured by first mortgages on owner-occupied one- to four-family residences, multi-family and commercial real estate loans, and real-estate construction and land loans. We offer a wide variety of consumer secured and unsecured loan products, including direct and indirect auto loans, deposit secured loans, unsecured personal loans and VISA lines of credit, and home equity loans and lines of credit. We began offering multi-family and commercial real estate loans in November 1995 and focus on originating multi-family and commercial real estate loans on properties located in the Puget Sound region of Western Washington. In 2002, we hired an experienced construction loan specialist and began offering construction loans on residential properties and to local builders in September 2002. With the challenges of a slow local economy, we have continued to focus on originating and retaining a large portion of our loans that are secured or collateralized by real estate or other forms of collateral, including automobiles. As of December 31, 2003, the net loan portfolio totaled $439.3 million and represented 64.1% of our total assets. As of December 31, 2003, our total loan portfolio was comprised of: 28.2% one- to four-family home loans, 21.2% commercial real estate loans, 19.5% multi-family real estate loans, 14.4% secured consumer loans, 7.5% unsecured consumer loans (including our VISA credit card portfolio), 7.0% home equity loans and 1.9% in construction and 0.3% in commercial business loans.

        Our loan policy limits the maximum amount of loans that we can lend to any one borrower to 15% of Rainier Pacific Bank's capital. Our five largest aggregate borrowers as of December 31, 2003 all had borrowing relationships that included multi-family or commercial real estate loans. Our largest single borrower relationship was to a family partnership with four loans totaling $6.0 million, secured by four multi-family properties. The second largest borrower was a family trust with a loan of $5.9 million, secured by a commercial real estate property. The third largest borrowing relationship was a real estate loan to a limited liability corporation in the amount of $5.6 million, secured by a multi-family property. The fourth largest borrowing relationship was with another limited liability corporation in the amount of $5.5 million on a retail shopping center development. The fifth largest loan was to another separate limited liability company in the amount of $5.1 million on a mixed use multi-family residential retail shopping center development. All of the loans mentioned above have personal guarantees in place as an additional source of repayment including those made to partnerships and corporations. At December 31, 2003, we also had a single credit outstanding associated with the sale of our administrative office building in Fife in 1999. The $8.1 million sales price of our administrative office building was financed by us in the amount of a $6.2 million loan, of which the remaining outstanding balance at December 31, 2003 was $5.8 million. All of the properties securing the aforementioned loans were in the Puget Sound region. All of these loans were performing according to their terms at December 31, 2003.

        We plan to continue to originate consumer and real estate related loans primarily within the geographic markets we serve. In addition, we are planning to expand our limited small business lending, which involves greater risks of default and delinquency than other types of lending we are currently engaged in. In February 2004, we hired an experienced business banking executive to lead our business banking expansion.

3

<PAGE>

        Loan Portfolio Analysis. The following table sets forth the composition of Rainier Pacific Bank's loan portfolio by type of loan at the dates indicated.

4

<PAGE>

        The following table shows the composition of Rainier Pacific Bank's loan portfolio by fixed- and adjustable-rate loans at the dates indicated.

6

<PAGE>

        Residential One- to Four-Family Lending. As of December 31, 2003, $126.2 million, or 28.2%, of our total loan portfolio consisted of permanent loans secured by one- to four-family residences.

        We have engaged in one- to four-family residential mortgage lending for the past 15 years. Except for our seven and ten-year fixed-rate mortgage loans and our special community development loans, residential first mortgages are generally originated in accordance with guidelines established by Freddie Mac and Fannie Mae. All of our one- to four-family residential mortgage loans, whether fixed or adjustable, require both monthly principal and interest payments and have no prepayment penalties.

        Traditionally, we have originated a significantly greater number of fixed-rate rather than adjustable-rate mortgages in our residential lending program. We originated $98.6 million of fixed-rate one- to four-family residential loans and an additional $8.1 million of adjustable rate one- to four- family residential loans during fiscal 2003. In fiscal 2002, we originated $100.8 million in one- to four-family residential loans, of which $96.6 million was in fixed-rate mortgages and $4.2 million was in adjustable-rate mortgage loans. Most of our residential loan originations are in connection with the refinance of an existing loan rather than the purchase of a home. Residential mortgage loans are primarily made on owner-occupied properties within the Pierce and South King County markets. As of December 31, 2003, $114.2 million, or 90.5%, of our one- to four-family residential mortgage loan portfolio were comprised of fixed-rate loans, and $71.9 million, or 62.9%, of the fixed rate one- to four-family residential mortgage portfolio was comprised of loans with contractual maturities of 15 years or less.

        As of December 31, 2003, we had $12.0 million, or 9.5%, of our one- to four-family loans in adjustable-rate mortgages. The adjustable-rate mortgage products generally are retained in the loan portfolio, although the majority of the loans are underwritten to be saleable in the secondary market. The adjustable-rate mortgage products adjust annually after an initial fixed interest rate period ranging from one to ten years. Contractual annual adjustments generally are limited to increases or decreases of no more than 2%, subject to a maximum increase of no more than 6% from the rate offered at the time of origination. At the time of rate adjustment, the loan rate is usually modified to reflect the average yield on U.S. Treasury securities adjusted to a constant maturity of one year Treasury securities plus a margin of 2.5% to 2.875%. Borrower demand for adjustable-rate mortgage loans versus fixed-rate mortgage loans is primarily related to the interest rate environment and the anticipated changes in the interest rate over time, as well as the fees being charged on mortgage products within the market.

        We have offered a fixed-rate ten-year term mortgage loan program since 1993 and introduced a seven year fixed-rate program in November 2003 on owner-occupied one- to four-family residential properties. These loans are written consistent with secondary market standards and have an average loan balance of $53,800 with an average loan-to-value ratio of 35%. As of December 31, 2003, we had $18.0 million, or 14.3%, of the one- to four-family residential loan portfolio in seven and ten-year mortgage products. We also offer special community development loans to low to moderate income borrowers at a loan-to-value ratio of up to 100%. As of December 31, 2003, we had $1.0 million in special community development loans in our residential loan portfolio. All loans under these special loan programs are performing in accordance with the terms of the loan as of December 31, 2003.

        We also originate a limited number of jumbo fixed- and adjustable-rate loans that we retain for our portfolio. Jumbo loans have balances that are greater than $322,700. The jumbo loan portfolio, comprised of four loans, totaled $1.4 million as of December 31, 2003. The loans in this portfolio have been priced at rates 0.375% higher than the standard secondary market rates on conventional loans. As of December 31, 2003, all loans in the jumbo loan portfolio were performing in accordance to their terms.

        Our fixed-rate, single family residential mortgage loans are normally originated with 15 to 30 year terms, although such loans typically remain outstanding for substantially shorter periods, particularly in the declining interest rate environment since 2001. In addition, substantially all residential mortgage loans in our loan portfolio contain due-on-sale clauses providing that we declare the unpaid amount due and payable upon the sale of the property securing the loan. Typically, we enforce these due-on-sale clauses to the extent permitted by law and as a standard course of business. The average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

7

<PAGE>

        Our lending policies generally limit the maximum loan-to-value ratio on mortgage loans secured by owner-occupied properties to 95% of the lesser of the appraised value or the purchase price. We usually obtain private mortgage insurance on the portion of the principal amount that exceeds 80% of the appraised value of the secured property. The maximum loan-to-value ratio on mortgage loans secured by non-owner occupied properties is generally 70% on purchases and up to 80% on no cash out refinances for loans originated for sale in the secondary market to Freddie Mac. Properties securing our one- to four-family loans are appraised by independent fee appraisers approved by us. We require the borrowers to obtain title, hazard, and, if necessary, flood insurance. We generally do not require earthquake insurance because of competitive market factors.

        Residential mortgage loans up to $500,000 are approved by residential loan underwriters, and loans from $500,000 up to $750,000 are approved by the President or the Chief Lending Officer. The management loan committee approves loans to one borrower or a group of related borrowers up to $4.0 million in the aggregate, and individual residential loans of $750,000 to $1.0 million. Loans over these amounts or outside our general underwriting guidelines must be approved by the loan and investment committee comprised of members of our board of directors.

        Multi-Family and Commercial Real Estate Lending. We have originated multi-family and commercial real estate loans since November 1995. Loans are underwritten by designated lending staff or loan committee depending on the size of the loan. As of December 31, 2003, $182.0 million, or 40.7%, of our total loan portfolio was secured by multi-family and commercial real estate property.

        We actively pursue multi-family and commercial real estate loans. These loans generally are priced at a higher rate of interest than one- to four-family residential loans. Typically, these loans have higher loan balances, are more difficult to evaluate and monitor, and involve a greater degree of risk than one- to four-family residential loans. Often payments on loans secured by multi-family or commercial properties are dependent on the successful operation and management of the property; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. We generally require and obtain loan guarantees from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, we generally require and obtain personal guarantees from the corporate principals based upon a review of their personal financial statements and individual credit reports. The multi-family and commercial real estate loan portfolio is relatively unseasoned and contains a higher risk of default and loss than single-family residential loans, particularly in light of the weakness of the local economy.

        The average size loan in our multi-family and commercial real estate loan portfolios was $1.3 million as of December 31, 2003. As of that date, $87.1 million, or 19.5%, of our total loan portfolio was secured by multi-family dwellings located primarily in our market area. We target individual multi-family and commercial real estate loans between $500,000 and $4.0 million; however, we can by policy originate loans to one borrower up to 15% of the Bank's capital. The largest multi-family loan as of December 31, 2003 was a 76 unit residential apartment building with an outstanding principal balance at December 31, 2003 of $5.6 million located in King County. This loan is performing according to the loan terms, as were all multi-family and commercial real estate loans as of December 31, 2003.

        Multi-family and commercial real estate loans up to $500,000 can be approved by the Real Estate Loan Manager, Chief Lending Officer or President. Loans up to $750,000 can be approved by the combined authority of any two of these three individuals. Our management loan committee is authorized to approve loans to one borrower or a group of related borrowers of up to $4.0 million in the aggregate, with no single loan over $3.0 million. Loans over these amounts or outside our general underwriting guidelines must be approved by the loan and investment committee comprised of members of the board of directors.

        We offer both fixed- and adjustable-rate loans on multi-family and commercial real estate loans. Loans originated on a fixed-rate basis generally are originated at fixed terms up to ten years, with amortization terms up to 30 years. Interest rates on fixed-rate loans are generally established utilizing the Federal Home Loan Bank of Seattle's amortizing or fixed advance rate for an equivalent period plus a margin ranging from 2.00% to 2.50%,

8

<PAGE>

depending upon the prepayment penalty option selected by the borrower. We have established floor rates on these loans, although from time-to-time we may offer promotional rates below the established floor rates. As of December 31, 2003, we had $30.6 million in multi-family loans and $81.4 million in commercial real estate loans (including two participation loans) in our fixed-rate products.

        Adjustable-rate multi-family and commercial real estate loans are originated with variable rates that generally adjust after an initial period ranging from three to five years. Contractual annual adjustments generally have a 1.5% maximum annual rate increase and are subject to a lifetime cap rate of 13%. These loans generally have been originated with a rate floor of 5% to 7%. Adjustable-rate multi-family and commercial real estate loans are generally priced utilizing the 11^th District Cost of Funds Index plus a margin of 3.125% to 3.375%, with principal and interest payments fully amortizing over terms up to 30 years. These loans generally have a prepayment penalty. As of December 31, 2003, we had $56.5 million in adjustable-rate multi-family loans and $13.5 million in adjustable-rate commercial real estate loans. Both adjustable-rate mortgages and fixed-rate mortgages generally allow provisions for assumption of a loan by another borrower subject to lender approval and a 1% assumption fee.

        The maximum loan-to-value ratio for multi-family loans is generally 80% on purchases and 75% on refinances. The maximum loan-to-value ratio for commercial real estate loans is generally 75% for both purchases and refinances. We require appraisals of all properties securing multi-family and commercial real estate loans. Appraisals are performed by independent appraisers designated by us. We require our multi-family and commercial real estate loan borrowers with outstanding balances in excess of $250,000 to submit annual financial statements and rent rolls on the subject property. We also inspect the subject property at least every two years if the loan balance exceeds $500,000. We generally require a minimum pro forma debt coverage ratio of 1.20 times for loans secured by multi-family and commercial properties.

        We originate commercial real estate loans including office and medical buildings, retail shopping centers, mini-storage facilities, industrial use buildings, and warehouses primarily located in our market area. Commercial real estate loans totaled $94.9 million, or 21.2% of our total loan portfolio as of December 31, 2003. As of December 31, 2003, the largest single commercial real estate loan on one property had an outstanding balance of $5.9 million and is secured by an industrial park located in Pierce County.

        Real Estate Construction Lending. As of December 31, 2003, real estate construction loans represented $8.4 million, or approximately 1.9% of our total loan portfolio. This program was fully implemented in September 2002, and we plan, subject to market conditions, to increase this activity and to focus our efforts in the following areas: residential (custom) construction all-in-one, residential speculative construction, single-family land acquisition and development, and lot inventory loans. The residential (custom) construction all-in-one loans are priced in alignment with the terms and conditions available in the secondary markets for this product and are being underwritten to be saleable in the secondary market upon completion. Other construction loan programs will be originated with terms up to 18 months, with a variable interest rate tied to the prime rate as published in The Wall Street Journal, plus a margin ranging from 0.75% to 2.0%, with a loan-to-value ratio of no more than 80% of the appraised estimated value of the property at completion. We have not made commercial or multi-family construction loans in the past, however, we may make these types of loans in the future, on a limited basis, primarily as an accommodation to our existing customers.

        Although construction lending affords us the opportunity to achieve higher interest rates and fees with shorter terms to maturity than one- to four-family mortgage lending, construction lending is considered to involve a higher degree of risk than one- to four-family mortgage lending. It is more difficult to evaluate construction loans than permanent loans. At the time the loan is made, the value of the collateral securing the loan must be estimated based on the projected selling price at the time the residence is completed, typically six to 12 months later, and on estimated building and other costs (including interest costs). Changes in the demand for new housing in the area and higher than anticipated building costs may cause actual results to vary significantly from those estimated. Accordingly, we may be confronted, at the time the residence is completed, with a loan balance exceeding the value of the collateral. Because construction loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more difficult and costly to monitor. Increases in market rates

9

<PAGE>

of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand for new housing. The fact that homes under construction are often difficult to sell and typically must be completed in order to be successfully sold also complicates the process of working out problem construction loans. This may require us to advance additional funds and/or contract with another builder to complete the residence. Furthermore, in the case of speculative construction loans, there is the added risk associated with identifying an end-purchaser for the finished home.

        We attempt to minimize the foregoing risks by, among other things, limiting our construction lending to residential properties primarily in our local market area, and limiting our speculative loans to a small number of experienced local builders.

        Consumer Lending. As a former credit union, we have traditionally focused on consumer lending. Our consumer installment loans, such as auto, boats, recreational, home equity and personal loans, are generally offered on a fixed-rate basis, while our VISA, unsecured personal lines of credit, and home equity lines of credit are principally offered on a variable rate basis. Our consumer lending programs do not specifically target borrowers with lower credit scores, however, they do allow for the underwriting of loans to individuals with negative credit information under certain defined guidelines. Management routinely monitors all loan programs and underwriting is adjusted when there is evidence of deterioration in individual consumer lending portfolios. Our installment loans are offered using a risk-based pricing model based upon the credit worthiness of the customer and the available collateral. Interest rates are offered on a multi-tiered basis, with the best "A" credits receiving the lowest loan rates. Loans made to borrowers with lower credit scores have a higher likelihood of becoming delinquent or defaulting on their loans, and therefore generally receive a higher interest rate. As of December 31, 2003, our consumer loans, which includes our home equity line/loan portfolio, totaled $129.9 million, or 29.0%, of our total loan portfolio.

        As of December 31, 2003, the largest component of the consumer portfolio was our auto loan portfolio totaling $59.8 million, or 13.4%, of our total loan portfolio. We offer direct auto loans to our customers through our branch network, which as of December 31, 2003 comprised $11.8 million, or 19.6%, of the auto loan portfolio. We have also offered indirect loans since 1994 and at December 31, 2003 these loans originated through our indirect dealer program were $48.1 million or 10.7% of our total loan portfolio. These loans consist primarily of indirect auto loans and to a much lesser extent include indirect loans on recreational vehicles and boats. The majority of these loans are originated through approximately 25 dealers located in our market area. The loan portfolio is primarily comprised of loans with terms up to seven years.

        The interest rate charged to an indirect loan borrower is generally one to two percentage points higher than the "buy rate" or the rate we earn. The difference between the two rates is referred to as the "spread." At loan inception, we pay the dollar value of the spread over the contractual term of the loan to the auto dealer in accordance with the established loan programs. Dealers are required to reimburse the amount paid on any loan to them in its entirety if the loan pays off or the vehicle is repossessed within 90 days from the date of funding. Dealers are billed monthly for any interest spread repayments and are given ten days after billing to reimburse us. In the event we are not reimbursed within ten days the amount owed to us is deducted from the next spread payments to the dealer.

        Borrowers may be more likely to become delinquent on an automobile loan than on a residential mortgage loan secured by their primary residence. Moreover, automobiles depreciate rapidly and in the event of default, principal loss as a percent of the loan balance depends upon the mileage and condition of the vehicle at the time of repossession, over which we have no control.

        The second largest component of our consumer loan portfolio is the home equity loan portfolio, which as of December 31, 2003 totaled $31.5 million, or 7.0%, of our total loan portfolio, and includes both adjustable-rate lines of credit and fixed-rate loan products. These loans are generally made on owner-occupied properties. The loan-to-value ratio typically is 90% or less, when taking into account both the first and the second mortgage loans, although it can be as high as 110% in some cases. The home equity loans typically carry fixed interest rates with a fixed payment over a term up to 15 years. Home equity lines of credit allow for a ten year draw period, which is

10

<PAGE>

renewable, and the interest rate is tied to prime rate as published in The Wall Street Journal, plus a margin. All of the Bank's home equity lines of credit have floor rates of 5% or higher.

        The VISA credit card portfolio is the third largest component of our consumer loan portfolio totaling $22.8 million, or 5.1%, of our total loan portfolio as of December 31, 2003. We have been offering credit cards for more than 20 years and offer over ten credit card products, the majority of which are on an adjustable-rate basis, with the interest rate tied to prime rate as published in The Wall Street Journal, plus a margin. Interest rates and credit limits are determined based upon product type and credit-worthiness of the borrower. We use credit bureau scores, in addition to other criteria such as income, in our underwriting decision process on these loans.

        Consumer loans entail greater risk than do one- to four-family residential loans, particularly in the case of unsecured or loans secured by assets that decline in value over time. Therefore, interest rates on these loans are generally higher than residential real estate loans. In the event of default on a secured consumer loan, any repossessed collateral may not provide an adequate source of repayment of the outstanding balance as a result of the assets' decline in value over time, damage or loss. Often, the remaining deficiency balance does not warrant further substantial collection efforts against the borrower beyond sending the account to an outside collection agency, as these borrowers often file bankruptcy once the collateral has been repossessed. Consumer loan collections are dependent on the borrower's financial stability, and may be adversely impacted by job loss, divorce, personal bankruptcy, or medical issues. Various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

        Commercial Business Lending. At December 31, 2003, we had $1.2 million, or 0.3%, of our total loan portfolio in commercial business loans. We intend to continue increasing our commercial lending activities to take advantage of local lending opportunities in extending credit to small and medium sized businesses, to provide for potentially higher asset yields and to position Rainier Pacific Bank as a more full-service financial institution. Our ability to originate commercial business loans will be determined by market conditions and our ability to hire qualified commercial lending personnel. There can be no assurance that we will be successful in these efforts.

        Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential, commercial and multi-family real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans often have equipment, inventory, accounts receivable or other business assets as collateral, the liquidation of collateral in the event of a borrower default is often not a sufficient source of repayment because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

11

<PAGE>

12

<PAGE>

        The following table sets forth the dollar amount of all loans due after December 31, 2003, which have fixed interest rates and have floating or adjustable interest rates.

        Loan Solicitation and Processing. The majority of the consumer and residential mortgage loan originations are generated through our retail branch network and our indirect dealer program. Loans may also be originated through our Internet and Call Center channels. We originate multi-family and commercial real estate loans using an income property loan officer employed by us. In addition, approximately one-half of our multi-family and commercial real estate loans have been originated by an outside broker and underwritten by us within our policies and guidelines. Construction loans are primarily generated by a construction loan officer who works for us. Business loans have been made on an accommodative basis to current customers, generally originated by our personal bankers, and approved by designated underwriters for this type of business.

        Upon receipt of a loan application from a prospective borrower, we obtain a credit report and other data to verify specific information relating to the loan applicant's employment, income, and credit standing. All real estate loans requiring an appraisal are done by an independent third-party fee appraiser. All appraisers are approved by us, and their credentials are reviewed annually, as is the quality of their appraisals.

        We use a multi-tier lending matrix depending on the type and size of the consumer credit to be approved. We also allow for automated approvals, individual lending authorities, joint lending authorities, a management loan committee approval, and a loan and investment committee (consisting of board members) approval.

        We require title insurance on all real estate loans, fire and casualty on all secured loans in excess of $2,500, and on the VISA and home equity lines of credit where the property serves as collateral.

        Loan Originations, Servicing, Purchases and Sales. Home equity lines of credit and loans, as well as our consumer loans, are originated through an in-house system and are underwritten through either an automated

13

<PAGE>

decision matrix or by designated underwriting staff dependent upon size of the loan. These loans are also serviced on the in-house loan processing system.

        One- to four-family home loans are generally originated in accordance with the guidelines established by Freddie Mac and Fannie Mae, with the exception of seven and ten-year fixed-rate mortgage loans and our special community development loans. We originate residential first mortgages and service them using an in-house mortgage system. We utilize the Freddie Mac Loan Prospector Automated Loan System to underwrite approximately 95% of our residential first mortgage loans (excluding our seven and ten-year loans and community development loans). The remaining loans are underwritten by designated real estate loan underwriters internally in accordance with standards as provided by our asset liability management committee.

        We actively sell residential first mortgage loans to the secondary market. Our primary secondary market relationship has been with Freddie Mac. We also maintain secondary market relationships with Fannie Mae, and since 2002, the Federal Home Loan Bank of Seattle. We generally retain the servicing on all loans sold into the secondary market. All loans are sold at 100% of the loan and are non-recourse to us, with the exception of loans sold to the Federal Home Loan Bank of Seattle. Loans sold to the Federal Home Loan Bank of Seattle require a loan reserve account of 40 to 45 basis points to be established to offset any future charge-offs if they occur. There is no additional recourse on loans sold to the Federal Home Loan Bank of Seattle other than the reserve account. If the loans sold to the Federal Home Loan Bank of Seattle perform satisfactorily over a period of time, the funds in the loan reserve account will be paid to us. Because all of the loan sales to the Federal Home Loan Bank of Seattle have occurred in the past year, as of December 31, 2003, no portion of the loan reserve account has been used to offset loan losses or has been repaid to us based upon satisfactory loan repayments. As of December 31, 2003, our loan servicing portfolio was $76.9 million.

        We have originated multi-family and commercial real estate loans since November 1995. Loans are underwritten by designated lending staff or the respective loan committee depending on the size of the loan, and are serviced on an in-house real estate loan servicing system.

        We have purchased two participation loans in the last five years, both of which were underwritten to our policy and guidelines prior to purchase. These commercial real estate loan participations totaled $4.0 million and were purchased in December 2001. As of December 31, 2003, the balance on the participation loans totaled $3.9 million. Both loans were performing within the contracted terms and were current as of December 31, 2003.

        One- to four-family construction real estate loans are underwritten by designated lending staff or our loan committee, depending on the size of the loan and are serviced on our in-house loan servicing system. Loan documents have been provided by a third-party provider specializing in commercial and construction lending documentation.

14

<PAGE>

        The following table shows total loans originated, purchased, sold and repaid during the periods indicated.

15

<PAGE>

        Loan Origination and Other Fees. In some instances, we receive loan origination fees on real estate related products. Loan fees generally represent a percentage of the principal amount of the loan and are paid by the borrower. The amount of fees we charge to the borrower on one- to four-family residential loans and on multi-family and commercial real estate loans can range up to 2.00%. In addition, single-family home loan borrowers may have to pay additional secondary market delivery fees on the loan based upon the borrower's credit-worthiness and/or collateral loan-to-value ratio, which are determined when the loan is underwritten by the Loan Prospector System through Freddie Mac. Accounting standards require that certain fees received, net of certain origination costs, be deferred and amortized over the contractual life of the loan. Net deferred fees or costs associated with loans that are prepaid or sold are recognized as income at the time of prepayment. We had $34,000 of net deferred loan fees as of December 31, 2003, principally relating to deferred loan fees associated with real estate loans and deferred origination costs associated with indirect auto loans.

        One- to four-family loans are generally originated without a prepayment penalty. The majority of multi-family and commercial real estate loans, however, have prepayment penalties associated with the loans. We offer two types of prepayment penalty options depending upon the loan type and rate selected by the borrower. The majority of the recent multi-family and commercial real estate loan originations have a 3%, 2%, 1% prepayment penalty (3% in year one, 2% in years two and three, 1% in years four and five). Loans are also originated with a yield maintenance formula, which is available to borrowers at a slightly lower loan interest rate than the fixed prepayment penalty option.

        In addition, some consumer line of credit products, such as VISA credit cards, home equity lines of credit, and personal lines of credit, are assessed an annual fee or an early-closure fee depending upon product type and customer relationship. Annual fees for these lines of credit can range up to $75, while early-closure fees range up to $300.

Asset Quality

        As of December 31, 2003, we had $3.3 million, or 0.74%, of total loans 30 days or more delinquent.

        Our delinquency ratio contains three primary loan categories: consumer loans, real estate loans and commercial/business loans. Consumer loan portfolios traditionally experience the highest delinquency within our total loan portfolio. As of December 31, 2003, the consumer loan portfolio had $2.9 million of delinquent loans that were 30 days or more delinquent, or 2.93% of the $98.3 million consumer loan portfolio. For delinquency reporting purposes, the consumer loan portfolio includes new and used direct auto loans, indirect auto loans, VISA loans, and other secured and unsecured loans. We do not include home equity loans or lines of credit in our consumer loan portfolio calculation; these loans are included in the real estate loan delinquency calculation. As of December 31, 2003, the real estate loan portfolio had $438,000 of loans that were 30 days or more delinquent, or 0.13% of the $348.1 million real estate secured loan portfolio. For delinquency reporting purposes, the real estate loan delinquencies include single-family loans, multi-family and commercial real estate loans, construction loans, and home equity lines/loans. The $438,000 in delinquent real estate secured loan balances are contained in the one- to four-family residential and the home equity loan/line portfolios. There were no multi-family, commercial real estate, land, residential construction or commercial business loans delinquent as of December 31, 2003. However, the portfolio of multi-family and commercial real estate loans has grown rapidly since year end 2000, increasing from $27.4 million to $182.0 million as of December 31, 2003, and in the event of a single loan becoming delinquent can significantly affect the Bank's delinquency ratio.

        We generally assess late fees or penalty charges on delinquent loans of 5% of the monthly payment. Substantially all fixed- and adjustable-rate mortgage loans are due on the first day of the month; however, the borrower is given a 15 day grace period to make the loan payment. When a mortgage loan payment is delinquent beyond the 15 day grace period, we handle the collection of the loan in accordance with the secondary market established collection procedures.

16

<PAGE>

        We generally send delinquent consumer loan borrowers three consecutive written notices when the loan becomes 10, 20, and 30 days past due. Late charges are incurred when the loan becomes ten to 15 days past due depending upon the loan product, except for VISA loans which will incur the late charges on the statement cycle date. Our collection department actively attempts to collect on delinquent loans when they become 30 days past due. If the loan is not brought current, we continually try to contact the borrower both by telephone and in writing until the account is brought current. When the loan is 60 days past due, collectors will attempt to interview the borrower to determine the cause of the delinquency, and to obtain a mutually satisfactory arrangement to bring the loan current.

        If the borrower is chronically delinquent and all reasonable means of obtaining payments have been exercised, we will seek to recover the collateral securing the loan according to the terms of the security instrument and applicable law. In the event of an unsecured loan, we will either seek legal action against the borrower or refer the loan to an outside collection agency. The following table shows our delinquent loans by the type of loan and number of days delinquent as of December 31, 2003:

        When a loan becomes 90 days delinquent, we generally place the loan on non-accrual status. As of December 31, 2003, non-accrual loans and loans 90 days or more past due as a percentage of total loans was 0.11%, and as a percentage of total assets it was 0.07%. Non-performing assets as a percentage of total assets were 0.13% as of December 31, 2003.

17

<PAGE>

        Non-performing Assets. The following table sets forth information with respect to our non-performing assets and restructured loans within the meaning of Statement of Financial Accounting Standards No. 15 for the periods indicated. During the periods presented there were no accruing loans which are contractually past due 90 days or more.

18

<PAGE>

        Real Estate Owned and Other Repossessed Assets. Real estate acquired by us as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When the property is acquired, it is recorded at the lower of its cost, which is the unpaid principal balance of the related loan plus foreclosure costs, or the fair market value of the property less selling costs. Other repossessed collateral, including autos, are also recorded at the lower of cost (i.e., the unpaid principal balance plus repossession costs) or fair market value. As of December 31, 2003, we had two residential real estate owned properties totaling $332,000 and repossessed assets from other secured loans of $98,000.

        Restructured Loans. According to generally accepted accounting principles, we are required to account for certain loan modifications or restructuring as a "troubled debt restructuring." In general, the modification or restructuring of a debt is considered a troubled debt restructuring if we, for economic or legal reasons related to the borrower's financial difficulties, grant a concession to the borrowers that we would not otherwise consider. We had no restructured loans as of December 31, 2003.

        Classified Assets. Federal regulations provide for the classification of lower quality loans and other assets, such as debt and equity securities, as substandard, doubtful or loss. An asset is considered substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

        When we classify problem assets as either substandard or doubtful, we may establish a specific allowance in an amount we deem prudent and approved by the asset liability management committee to address the risk specifically or we may allow the loss to be addressed in the general allowance. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been specifically allocated to particular problem assets. When an insured institution classifies problem assets as a loss, it is required to charge off such assets in the period in which they are deemed uncollectible. Assets which do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated as special mention. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the FDIC and the Washington Department of Financial Institutions, which can order the establishment of additional loss allowances.

        In connection with the filing of periodic reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets, as of December 31, 2003, we had classified $295,000 of our loans as substandard, $180,000 as doubtful, and no loan amounts were classified as a loss. In addition, we held $98,000 in repossessed vehicles and two single-family houses in the amount $332,000. The total classified assets of $905,000 represented 0.8% of total equity and 0.13% of total assets as of December 31, 2003. Our allowance for loan losses of $8.2 million at December 31, 2003 adequately covers the potential losses from the classified loans, and no material losses are anticipated on the repossessed vehicles and houses.

19

<PAGE>

        The aggregate amounts of Rainier Pacific Bank's classified assets at the dates indicated (as determined by Rainier Pacific Bank), were as follows:

        Allowance for Loan Losses. We have established a methodology for the determination of provisions for loan losses that takes into consideration the need for an adequate allowance for loan losses. When originating loans, we recognize that losses will be incurred and that the risk of loss varies with the type of loan being made, the creditworthiness of the borrower, economic conditions and in the case of a secured loan, the quality of the collateral.

        Management recognizes that loan losses occur over the life of a loan and that losses will occur in the future on loans that are currently performing and unimpaired. Management also recognizes that certain loans in the portfolio may be impaired even though the performance of the loan indicates otherwise. In addition, management believes that deteriorating economic conditions and changing business cycles in our market area can result in weakened loan performance and increased losses across the loan portfolio. Management further believes that significant new growth in loan portfolios, new loan products, and the refinancing of existing loans can result in completely new portfolios of unseasoned loans that may not perform in a historical or projected manner.

        Our asset liability management committee, primarily consisting of senior management, reviews the adequacy of the allowance quarterly. Our methodology for analyzing the allowance for loan losses consists of three parts: formula, specific and general allowance elements. The formula element is determined by applying an estimated loss percentage to various types of homogenous loan pools. The loss percentages are generally based on various historical measures such as past loss experience, past due ratios, collection activity, changes in performing and nonperforming loans and the risk characteristics of the loans. A specific element is created when the collectibility of a specific large loan, usually commercial, is in doubt and a loss is probable. The general element is established to ensure the adequacy of the allowance in situations where there are risk factors that management believes are not addressed in the formula or specific element of the allowance, or are not yet apparent. Information considered for the general element include area vacancy rates, real estate valuations, seasoning of loan portfolios, employment data, and other local and regional economic data. With the current weakness in the local and state economy and the relatively large size of Rainier Pacific Bank's unseasoned multi-family and commercial real estate portfolio, our asset and liability management committee has elected to increase the general element of its allowance in recent years. Our loan and investment committee, consisting of board members, also reviews the analysis of the allowance quarterly.

        The provision for loan losses was $4.5 million for the year ended December 31, 2003, compared to $3.5 million for the same period a year ago. The allowance for loan losses was $8.2 million, or 1.84% of total loans at December 31, 2003 compared to $6.1 million, or 1.66% of total loans at December 31, 2002. We increased the provision as a result of higher charge-offs, weakening economic conditions and continued strong loan growth creating a higher percentage of unseasoned loans in the portfolio. In 2003, net charge-offs were $2.3 million, or 0.57% of average total loans as compared to $2.2 million, or 0.65% of average total loans in 2002. Net charge-offs increased $151,000 on consumer loans even though consumer loans decreased $11.5 million in 2003. The weak local economy and an increase in bankruptcies resulted in the higher charge-offs and decreased balances in consumer loans. The real estate portfolio, including single family, multi-family, and commercial, have experienced minimal charge-offs as a result of the limited seasoning of a majority of this portfolio and the collateral backing the loans. For the years ended December 31, 2001 and 2000, the provision for loan losses was $4.4 million and $1.7 million,

20

<PAGE>

respectively. In 2000, the provision was only $1.7 million, as low charge-off levels and strong recoveries resulted in a net charge-off ratio of 0.51%. We became a mutual savings bank in 2001, which resulted in very strong growth in real estate lending, and in particular, multi-family and non-residential commercial lending. Additionally, the weakening economy was evidenced by high unemployment, particularly in our market area. Charge-offs nearly doubled from 2000 levels, leading to a charge-off ratio of 0.90% in 2001. By 2002, both the local and national economies had seriously deteriorated, and unemployment in our market area increased. Even though charge-offs were down in 2002, to 0.65% of loans, loan growth remained strong as we continued to add unseasoned loans to our portfolio. The county, regional and state economy continue to be weak and lags the national economy. In December 2003, Washington state had the fourth highest unemployment rate in the nation at 7.3% with the Tacoma area unemployment rate improving, remained relatively high at 6.9%. With a high unemployment rate and state job growth for 2004 projected at only 1.6%, the state and local economy are expected to continue to lag the national economy and recover slowly. Management will continue to review the adequacy of the allowance for loan losses and make adjustments to the provision for loan losses based on loan growth, portfolio composition, charge-offs and economic conditions.

21

<PAGE>

        Management believes that it uses the best information available to determine the allowance for loan losses. However, unforeseen market conditions could result in adjustments to the allowance for loan losses and net income could be significantly affected, if circumstances differ substantially from the assumptions used in determining the allowance.

22

<PAGE>

        The following table sets forth an analysis of our allowance for loan losses at the dates and for the periods indicated.

        Our lending limits increased upon converting to a mutual savings bank from a credit union on January 1, 2001. We held, at December 31, 2003, $182.0 million of multi-family and commercial real estate loans as compared to $27.4 million at December 31, 2000, when we were a credit union. We have not historically experienced any losses in these portfolios or in the construction loan portfolio. However, management believes that the significant loan growth in the multi-family and commercial real estate loan portfolios, the nature of construction lending, and the unseasoned nature of these portfolios could result in higher losses than our historical experience.

        At December 31, 2003, our loan portfolio of $447.6 million consisted of $308.2 million of real estate loans (68.8%), $129.9 million of consumer loans, includes home equity, (29.0%), $8.4 million of real estate construction loans (1.9%), and $1.2 million of commercial loans (0.3%). While the sizeable consumer loan portfolio contributes favorably to our profitability, it also accounts for substantially all of our charge-offs and a significant portion of the allocated allowance. The consumer loan portfolio can result in our charge-offs fluctuating year to year depending on changes in the consumer loan portfolio, loan quality, and the economic environment.

Investment Activities

        General. Under Washington law, savings banks are permitted to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, banker's acceptances, repurchase agreements, federal funds, commercial paper, investment grade corporate debt securities, and obligations of states and their political sub-divisions.

        The loan and investment committee, consisting of board members, has the authority and responsibility to administer our investment policy, monitor portfolio strategies, and recommend appropriate changes to policy and strategies to the board. On a monthly basis, our management reports to the board a summary of investment holdings with respective market values, and all purchases and sales of investment securities. The Chief Financial Officer has the primary responsibility for the management of the investment portfolio. The Chief Financial Officer considers various factors when making decisions, including the marketability, maturity and tax consequences of proposed investments. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

24

<PAGE>

        At December 31, 2003, our investment portfolio totaled $193.9 million and consisted principally of mortgage-backed securities, U.S. agency obligations, trust preferred securities, corporate debt obligations and municipal bonds. From time to time, investment levels may increase or decrease depending upon yields available on investment alternatives and management's projected demand for funds for loan originations, deposits and other activities.

        Mortgage-Backed Securities. Our mortgage-backed securities had a fair value of $100.0 million and a $100.5 million amortized cost at December 31, 2003. The mortgage-backed securities were comprised of Freddie Mac, Fannie Mae, and Ginnie Mae mortgage-backed securities. At December 31, 2003, the portfolio had a weighted-average-coupon rate of 5.04% and an estimated weighted-average-yield of 4.33%. These securities had an estimated average maturity of 16 years and an estimated average life of 4.4 years at December 31, 2003.

        U.S. Agency Obligations. Our portfolio of U.S. agency obligations had a fair value of $38.4 million and a $38.5 million amortized cost at December 31, 2003. At December 31, 2003, the portfolio had a weighted-average-coupon of 2.79% and a weighted-average-yield of 2.78%. There were $7.8 million of U.S. agency obligations in the portfolio with one-time call provisions. The longest term call provision was on a bond with an amortized cost of $5.2 million, a one-time call of 1.1 years, and a final maturity of 3.1 years.

        Trust Preferred Securities. Our trust preferred investments had a fair value of $24.7 million and a $25.0 million amortized cost at December 31, 2003. At December 31, 2003, the portfolio had a weighted-average-coupon of 4.83% and a weighted-average-yield of 4.83%. The portfolio consists entirely of bank trust preferred securities and are rated "A-2" by Moody's or "A" by Standard and Poor's. These securities have a fixed interest rate for a three to five year period and then adjust to a floating three-month libor rate plus a specified spread. These securities can be called in part or in whole after five years, have an expected life of ten years, and a final maturity of 30 years.

        Corporate Bonds. Our corporate bond portfolio had a fair value of $17.6 million and a $17.5 million amortized cost at December 31, 2003. The corporate bond portfolio was comprised of short- to intermediate-term fixed-rate securities from issuers rated "A2" by Moody's or "A" by Standard and Poor's, or better. At December 31, 2003, the portfolio had a weighted-average-coupon rate of 6.31% and a weighted-average-yield of 3.90%. The longest term bond had an amortized cost of $1.8 million and a maturity of 4.7 years.

        Municipal Bonds. Our tax exempt municipal bond portfolio had a fair value of $12.4 million and a $12.8 million amortized cost at December 31, 2003. The municipal bond portfolio was comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and revenue bonds (i.e., backed by revenues from the specific project being financed) issued by various municipal corporations. At December 31, 2003, the portfolio had a weighted-average-coupon rate of 4.02% and a weighted-average-yield of 4.07%.

        Federal Home Loan Bank Stock. As a member of the Federal Home Loan Bank of Seattle, we are required to own capital stock in the Federal Home Loan Bank of Seattle. The amount of stock we hold is based on percentages specified by the Federal Home Loan Bank of Seattle on our outstanding advances and the requirements of their Mortgage Purchase Program. The redemption of any excess stock we hold is at the discretion of the Federal Home Loan Bank of Seattle. The carrying value of Federal Home Loan Bank of Seattle stock totaled $11.4 million and had a weighted-average-yield of 5.00% at December 31, 2003. The yield on the Federal Home Loan Bank of Seattle stock is produced by stock dividends, that are subject to the discretion of the board of directors of the Federal Home Loan Bank of Seattle.

25

<PAGE>

        The following table sets forth the composition of Rainier Pacific Bank's investment securities portfolio at the dates indicated. The amortized cost of the available for sale investments and mortgage-backed securities is their net book value before the mark-to-market fair value adjustment. Rainier Pacific Bank's investment in Federal Home Loan Bank of Seattle stock is presented for reference purposes.

26

<PAGE>

        The table below sets forth information regarding the amortized cost, weighted average yields, and maturities or periods to repricing of Rainier Pacific Bank's investment portfolio at December 31, 2003. Rainier Pacific Bank's investment in Federal Home Loan Bank of Seattle stock is presented for reference purposes.