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.

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

        The aggregate market value of the Common Stock outstanding held by nonaffiliates of the Registrant based on the closing sales price of the Registrant's Common Stock as quoted on the Nasdaq Stock Market on June 30, 2004 was $124,000,403 (7,588,764 shares at $16.34 per share). For purposes of this calculation, common stock held only by executive officers and directors of the Registrant is considered to be held by affiliates.

        1. Portions of Registrant's Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders (Part III).

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

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        Residential One- to Four-Family Lending. As of December 31, 2004, $97.8 million, or 19.4% of our total loan portfolio consisted of permanent loans secured by one- to four-family residences.

        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 $41.9 million of fixed-rate one- to four-family residential loans and an additional $5.0 million of adjustable-rate one- to four-family residential loans during fiscal 2004. 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, 2004, $83.7 million, or 85.9%, of our one- to four-family residential mortgage loan portfolio was comprised of fixed-rate loans, and $41.9 million, or 50.1%, 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, 2004, we had $13.7 million, or 14.1% 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 initial interest rate. 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 fixed-rate seven-year 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 $55,000 with an average loan-to-value ratio of less than 35%. As of December 31, 2004, we had $17.0 million, or 20.3% of the fixed 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, 2004, we had $1.3 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, 2004.

        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 $359,650 The jumbo loan portfolio, comprised of three loans, totaled $1.5 million as of December 31, 2004. The loans in this portfolio have been generally priced at rates 0.375% higher than the standard secondary market rates on conventional loans. As of December 31, 2004, 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 these 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.

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        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 $5.0 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, 2004, $270.9 million, or 53.9% 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 higher 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. A significant portion of 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 recent 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, 2004. All of these loans are secured by properties located in the Puget Sound region of Western Washington. As of that date, $126.2 million, or 25.1% 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 $5.0 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, 2004 was a 109 unit residential apartment building with an outstanding principal balance at December 31, 2004 of $5.2 million located in Pierce County, Washington. This loan is performing according to the loan terms, as were all multi-family and commercial real estate loans as of December 31, 2004.

        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 $5.0 million in the aggregate, with no single loan over $5.0 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

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Seattle's amortizing or fixed advance rate for an equivalent period plus a margin ranging from 2.00% to 2.50%, 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, 2004, we had $32.2 million in multi-family loans and $88.0 million in commercial real estate loans (including three participation loans) in our fixed-rate portfolio.

        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, 2004, we had $94.0 million in adjustable-rate multi-family loans and $56.7 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 $144.7 million, or 28.8% of our total loan portfolio as of December 31, 2004. As of December 31, 2004, the largest single commercial real estate loan on one property had an outstanding balance of $10.0 million and is secured by an industrial park located in Thurston County, Washington.

        Real Estate Construction Lending. As of December 31, 2004, real estate construction loans represented $16.2 million, or 3.2% 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 accordance with the terms and conditions available in the secondary market 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 estimated appraised value of the property at completion.

        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. 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 of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchasers' borrowing costs, thereby reducing the overall demand

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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. 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 creditworthiness 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, 2004, our consumer loans, which includes our home equity line/loan portfolio, totaled $115.6 million, or 23.0% of our total loan portfolio.

        As of December 31, 2004, the largest component of the consumer portfolio was our auto loan portfolio totaling $52.6 million, or 10.5% of our total loan portfolio. We offer direct auto loans to our customers through our branch network, which as of December 31, 2004 comprised $8.3 million, or 15.8% of the auto loan portfolio. We have also offered indirect loans since 1994 and at December 31, 2004 these loans originated through our indirect dealer program were $44.3 million, or 8.8% 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, or in some cases, we pay flat origination fees to dealers on loans without a rate spread. 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 or origination fee 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 several factors, such as 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, 2004 totaled $28.8 million, or 5.7% 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

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renewable, and the interest rate is tied to the 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 $22.4 million, or 4.5% of our total loan portfolio as of December 31, 2004. 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 creditworthiness 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 depend 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, 2004, we had $2.8 million, or 0.6% of our total loan portfolio in commercial business loans. We intend to increase 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. In 2004, we hired an experienced banking executive with more than 20 years of commercial banking experience to lead our business banking program and plan to hire additional experienced commercial banking personnel in 2005. Our ability to originate commercial business loans will be determined by market conditions and our ability to hire additional 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.

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        Loan Maturity and Repricing. The following table sets forth certain information at December 31, 2004 regarding the dollar amount of loans maturing in Rainier Pacific Bank's portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

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        The following table sets forth the dollar amount of all loans due one year or more after December 31, 2004, 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 generated by a construction loan officer who works for us. Business loans have been generally originated by our personal bankers, and approved by designated underwriters for this type of business. An experienced commercial banking executive was hired in 2004 and will be hiring additional experienced commercial bankers in 2005 to expand our business banking efforts.

        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 home equity lines of credit where the property serves as collateral.

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        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 decision matrix or by designated underwriting staff dependent upon the size of the loan. These loans are also serviced on an in-house loan servicing 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 internally by designated real estate loan underwriters 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 two years, as of December 31, 2004, 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, 2004, our portfolio of mortgage loans serviced for others was $99.4 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 three purchased participation loans, all of which were underwritten to our policy and guidelines prior to purchase. As of December 31, 2004, the balance on the participation loans totaled $10.8 million. All three of these loans were performing within the contracted terms and were current as of December 31, 2004.

        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.

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

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        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%, but are generally 1.00% or lower. In addition, single-family home loan borrowers may have to pay additional secondary market delivery fees on the loan based upon the borrower's creditworthiness 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 $254,000 of net deferred loan fees as of December 31, 2004, 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 interest rate on the loan than the 3%, 2% and 1% 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, 2004, we had $2.0 million, or 0.40% 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, 2004, the consumer loan portfolio had $1.8 million of loans that were 30 days or more delinquent, or 2.00% of the $86.8 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, 2004, the real estate loan portfolio had $271,000 of loans that were 30 days or more delinquent, or 0.07% of the $413.3 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 $271,000 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, 2004. However, the portfolio of multi-family and commercial real estate and construction loans has grown rapidly since year end 2000, increasing from $27.4 million to $287.1 million as of December 31, 2004, and 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.

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        When a loan becomes 90 days delinquent, we generally place the loan on non-accrual status. As of December 31, 2004, non-accrual loans and loans 90 days or more past due as a percentage of total loans was 0.06%, and as a percentage of total assets it was 0.04%. Non-performing assets as a percentage of total assets were 0.05% as of December 31, 2004.

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        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 were contractually past due 90 days or more.

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        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, 2004, we had repossessed assets from secured consumer loans of $53,750 and no residential real estate owned properties.

        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, 2004.

        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 certain loan types of 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, 2004, we had classified $150,000 of our loans as substandard, $153,000 as doubtful, and no loan amounts were classified as a loss. There was one loan classified as special mention in the amount of $816,000 on a commercial real estate loan. This loan has performed according to its loan terms and no loss is anticipated, yet has been classified because the underlying property is currently experiencing a higher level of vacancy and consequently has a lower then desired debt coverage ratio. In addition, we held $54,000 in repossessed vehicles classified as substandard. The total classified assets of $1,173,000 represented 1.19% of total equity and 0.16% of total assets as of December 31, 2004. Our allowance for loan losses of $9.0 million at December 31, 2004 adequately covers the potential losses from the classified loans, and no material losses are anticipated on the repossessed vehicles and houses.

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        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 ultimately 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 is in doubt and a loss is probable. The general element is established to ensure the adequacy of the allowance in situations where management believes that estimation risk exists or when 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. Our loan and investment committee, consisting of board members, also reviews the analysis of the allowance quarterly.

        The provision for loan losses was $2.7 million for the year ended December 31, 2004, compared to $4.5 million for the same period a year ago. The allowance for loan losses was $9.0 million, or 1.79% of total loans at December 31, 2004, compared to $8.2 million, or 1.84% of total loans at December 31, 2003. We reduced the provision as a result of lower charge-offs, improving economic conditions, lower delinquencies, and fewer non-performing loans. In 2004, net charge-offs were $2.0 million, or 0.41% of average total loans as compared to $2.3 million, or 0.57% of average total loans in 2003. For the years ended December 31, 2002 and 2001, the provision for loan losses was $3.5 million and $4.4 million, respectively. 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. During that period, 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 deteriorated further, and unemployment in our market area increased. Even though weaker economic conditions existed during 2002, charge-offs declined to 0.65% of loans, loan growth remained strong as we continued to add unseasoned multi-family and commercial real estate loans to our portfolio.

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In 2003, the economy continued to deteriorate with Washington State having the fourth highest unemployment rate in the nation at 7.3% with the Tacoma area unemployment rate although improving, remained relatively high at 6.9%. In 2004, the state and local economy improved along with the national economy, with unemployment rates declining to 5.7% by December 2004. Improving economic conditions accompanied by lower net charge-offs enabled reduced provisions for loan losses in 2004. Management will continue to review the adequacy of the allowance for loan losses and make adjustments to the provision for loan losses accordingly, based on loan growth, portfolio composition, charge-offs delinquencies and economic conditions.

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        The following table summarizes the distribution of the allowance for loan losses by loan category.

        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.

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

        We held, at December 31, 2004, $270.9 million of multi-family and commercial real estate loans and $16.2 million in construction loans as compared to $27.4 million of multi-family and commercial real estate loans and no construction loans at December 31, 2000, when we were a credit union. We have not historically experienced any losses in these portfolios. 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 somewhat unseasoned nature of these portfolios could result in higher losses than our historical experience.

        At December 31, 2004, our gross loan portfolio of $503.0 million consisted of $368.4 million of real estate loans (73.2%), $115.6 million of consumer loans, including home equity (23.0%), $16.2 million of real estate construction loans (3.2%), and $2.8 million of commercial loans (0.6%). 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 significant fluctuations in year to year charge-offs 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 securities, and obligations of states and their political subdivisions.

        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 and management. On a monthly basis, 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.

        The general objectives of the investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low, and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk.

        At December 31, 2004, our investment portfolio totaled $191.0 million and consisted principally of mortgage-backed securities, U.S. agency obligations, trust preferred securities, corporate bonds and municipal bonds. From time to time, investment levels may increase or decrease depending upon yields available on

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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 $106.7 million and a $107.4 million amortized cost at December 31, 2004. The mortgage-backed securities were comprised of Freddie Mac, Fannie Mae, and Ginnie Mae mortgage-backed securities. At December 31, 2004, the portfolio had a weighted-average-coupon rate of 4.78% and an estimated weighted-average-yield of 3.61%. These securities had an estimated average term to reprice or maturity of 3.1 years and an estimated average life of 3.8 years at December 31, 2004.

        U.S. Agency Obligations. Our portfolio of U.S. agency obligations had a fair value of $25.3 million and a $25.8 million amortized cost at December 31, 2004. At December 31, 2004, the portfolio had a weighted-average-coupon rate of 2.24% and a weighted-average-yield of 2.24%. There were $25.6 million of U.S. agency obligations in the portfolio with one-time call provisions. As of December 31, 2004 all securities were past their call date and had an estimated average life of 2.0 years.

        Trust Preferred Securities. Our trust preferred investments had a fair value of $38.7 million and a $39.0 million amortized cost at December 31, 2004. At December 31, 2004, the portfolio had a weighted-average-coupon rate of 4.90% and a weighted-average-yield of 4.90%. 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 margin. 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. The trust preferred securities had an estimated average term to reprice of 2.7 years.

        Corporate Bonds. Our corporate bond portfolio had a fair value of $7.0 million and a $7.1 million amortized cost at December 31, 2004. The corporate bond portfolio was comprised of short- to intermediate-term fixed-rate bonds from issuers rated "A2/A3" by Moody's or "A" by Standard and Poor's, or better. At December 31, 2004, the portfolio had a weighted-average-coupon rate of 6.42% and a weighted-average-yield of 3.37%. The longest term bond had an amortized cost of $5.6 million and a maturity of 3.5 years. Corporate bonds have an estimated average term to maturity of 3.5 years.

        Municipal Bonds. Our tax exempt municipal bond portfolio had a fair value of $12.6 million and a $12.8 million amortized cost at December 31, 2004. 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, 2004, the portfolio had a weighted-average-coupon rate of 4.01% and a weighted-average-yield of 4.06%. Municipal bonds have an estimated weighted average life of 8.0 years.

        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 $13.4 million and produced a weighted-average-yield of 2.81% for the year ended December 31, 2004. The yield on the Federal Home Loan Bank of Seattle stock is paid through stock dividends, that are subject to the discretion of the board of directors of the Federal Home Loan Bank of Seattle, and was negatively affected by the Federal Home Loan Bank of Seattle's suspension of dividends on its common stock during the fourth quarter of 2004. The Federal Home Loan Bank of Seattle announced its intention to resume the payment of dividends to its shareholders in the first quarter of 2005 at a rate of 1.63%, a more modest level than that paid in 2004. Stock ownership in the Federal Home Loan Bank of Seattle is expected to remain stable or increase in response to the Bank's borrowing needs.

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        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.

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        The table below sets forth certain information regarding the amortized cost, weighted average yields, and maturities or periods to repricing of Rainier Pacific Bank's investment and mortgage-backed securities at December 31, 2004. The Bank's investment in Federal Home Loan Bank of Seattle stock is presented for reference purposes.

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    The following table sets forth certain information with respects to each security which had an aggregate book value in excess of 10% of Rainier Pacific Bank's equity at the date indicated.