Rainier Pacific Finl : Rainier Pacific Financial Group, Inc. Reports Fourth Quarter and Annual Earnings

Rainier Pacific Financial Group, Inc. (the ?Company?) (NASDAQ: RPFG) announced today its fourth quarter and annual results for the periods ending December 31, 2006. Net income for the quarter ended December 31, 2006 was $874,000, or $0.15 per diluted share, compared to net income of $680,000, or $0.11 per diluted share, for the same period in 2005. For the year ended December 31, 2006, the Company's net income was $3.0 million, or $0.50 per diluted share, compared to $2.7 million, or $0.43 per diluted share, for the same period in 2005.

The Company's revenue (i.e., net interest income before provisions for loan losses plus non-interest income) for the quarter and year ended December 31, 2006 was $8.5 million and $33.9 million, respectively, compared to $7.9 million and $31.7 million for the respective periods ended December 31, 2005. Net interest income before the provision for loan losses for the quarter ended December 31, 2006 was $6.2 million, compared to $6.1 million for the same period a year ago. The slight increase in net interest income was due to an increase in interest-earning assets, partially offset by a lower net interest margin. For the year ended December 31, 2006, net interest income was $25.0 million, compared to $24.4 million in the previous fiscal year. For the quarter ended December 31, 2006, the Company's net interest margin was 2.92%, compared to 2.96% for the quarter ended September 30, 2006, and 3.06% for the quarter ended December 31, 2005. The yield on the Company's interest-earning assets was 6.63% for the quarter ended December 31, 2006, compared to 6.60% and 5.93% for the quarters ended September 30, 2006 and December 31, 2005, respectively. For the quarter ended December 31, 2006, the Company's cost of interest-bearing liabilities was 4.10%, compared to 4.01% and 3.17% for the quarters ended September 30, 2006 and December 31, 2005, respectively, as a result of higher short-term market rates and strong competition for deposit funds.

Non-interest income was $2.3 million for the quarter ended December 31, 2006, compared to $1.8 million for the same quarter in 2005. Non-interest income was $8.9 million for the year ended December 31, 2006, a $1.6 million increase or 21.9% higher than the $7.3 million for the year ended December 31, 2005. The increase in non-interest income for the quarter and year was primarily the result of additional revenue generated by the two insurance agency businesses that were acquired by the Company on January 3, 2006. Insurance service fee income increased $341,000 to $499,000 in the fourth quarter of 2006, compared to $158,000 for the same quarter in 2005, and increased by $1.5 million to $2.1 million for the year ended December 31, 2006 compared to $597,000 for the year ended December 31, 2005.

The Company's provision for loan losses was $150,000 for the quarter ended December 31, 2006, unchanged from the provision made for the quarters ended September 30, 2006 and December 31, 2005. For the fiscal year ended December 31, 2006, the provision for loan losses was $600,000, compared to $750,000 for fiscal year 2005, as loan quality remained very good throughout fiscal 2006.

Non-interest expense was $7.0 million for the quarter ended December 31, 2006, compared to $6.7 million for the same quarter in 2005. For the year ended December 31, 2006, non-interest expense was $28.7 million, an increase of 6.7% from $26.9 million for the year ended December 31, 2005. The $1.8 million increase in non-interest expense was primarily attributable to increased compensation and benefits costs associated with the employees hired in connection with the two insurance agency acquisitions, the expensing of previously granted stock options to employees and directors, as well as additional operating costs related to the July opening of the Bank's fourteenth full-service branch in the Federal Way Crossings retail center.

At December 31, 2006, the Company's total assets were $902.7 million, reflecting an increase of $31.9 million, or 3.7%, from $870.8 million at December 31, 2005. Total shareholders' equity at December 31, 2006 was $87.8 million, compared to $84.7 million at December 31, 2005.

The Company's book value and tangible book value per share as of December 31, 2006 were $14.33 and $13.79 per share, respectively, based upon 6,129,511 outstanding shares of common stock. The number of outstanding shares includes 157,597 restricted shares granted to participants under the Company's 2004 Management Recognition Plan that have not yet vested and excludes 458,159 of unallocated shares held by the Rainier Pacific 401(k) Employee Stock Ownership Plan.

In the fourth quarter ended December 31, 2006, the Company purchased and retired 30,000 shares of its outstanding shares of common stock at an average price of $18.55 per share. During the year ended December 31, 2006, the Company repurchased and retired 100,477 shares of its common stock at an average price of $16.92. At December 31, 2006, the Company had the authority to purchase an additional 240,620 shares of common stock under its currently approved stock repurchase program.

Total loans increased to $639.4 million at December 31, 2006, up $10.7 million, or 1.7%, and $56.5 million, or 9.7%, from $628.7 million at September 30, 2006 and $582.9 million at December 31, 2005, respectively. For the quarter ended December 31, 2006, the yield on loans was 7.19%, compared to 7.22% and 6.72% for the quarters ended September 30, 2006 and December 31, 2005, respectively. At December 31, 2006, the loan portfolio consisted of 30.6% commercial real estate loans, 25.5% multi-family real estate loans, 12.8% single-family real estate loans, 12.5% real estate construction loans, 9.9% consumer loans, 6.7% home equity loans, and 2.0% commercial business loans.

The Company sold $7.6 million of single-family fixed-rate real estate loans and generated net gains of $203,000 during the quarter ended December 31, 2006, compared to $1.2 million and net gains of $56,000 during the same period in 2005. For the year, the Company sold $19.6 million of single-family loans, compared to $34.2 million during the same period in 2005. The loan sales during the year ended December 31, 2006 generated net gains of $278,000, compared to $494,000 generated on loan sales for the year ended December 31, 2005. The portfolio of loans serviced for others was $110.3 million at December 31, 2006, compared to $106.7 million at December 31, 2005. The lower loan sales and gains in 2006 were due to a decline in single-family real estate loan originations compared to 2005.

Total loan originations during the quarter ended December 31, 2006 were $52.4 million, compared to $70.8 million for the same period in 2005 and also for the quarter ended September 30, 2006. The Company continued to focus on generating multi-family real estate, commercial real estate, and real estate construction loans; and originated $37.5 million of new loans in these categories during the fourth quarter of 2006, compared to $55.2 million for the same period one year ago. Total loan originations for the year ended December 31, 2006 were $227.3 million, compared to the $248.8 million of loan originations during the prior year. During the year ended December 31, 2006, the Company originated a total of $159.7 million in multi-family real estate, commercial real estate, and real estate construction loans, compared to $177.0 million during the prior year.

The loan portfolio credit quality remained good during the fourth quarter. Net charge-offs were $282,000 for the quarter ended December 31, 2006, compared to $145,000 for the quarter ended September 30, 2006 and $282,000 for the quarter ended December 31, 2005. Net charge-offs for the year ended December 31, 2006 were $914,000, compared to $1.1 million for the year ended December 31, 2005. Loans more than 30 days delinquent as a percentage of total loans were 0.28% at December 31, 2006, compared to 0.24% at September 30, 2006 and 0.28% at December 31, 2005. Non-performing loans (i.e., loans 90 days or more past due or non-accrual loans) were $241,000, or 0.04% of total loans, at December 31, 2006; compared to $194,000, or 0.03% of total loans, at September 30, 2006; and $114,000, or 0.02% of total loans, at December 31, 2005. Non-performing assets were $274,000, or 0.03% of total assets, at December 31, 2006; compared to $202,000, or 0.02% of total assets, at September 30, 2006; and $141,000, or 0.02% of total assets, at December 31, 2005. The allowance for loan losses totaled $8.3 million at December 31, 2006, representing an allowance to total loans ratio of 1.30%, compared to $8.4 million, or 1.34%, at September 30, 2006, and $8.6 million, or 1.47%, at December 31, 2005.

The Company's investment securities portfolio at December 31, 2006 was $197.8 million (excluding $13.7 million in Federal Home Loan Bank of Seattle stock holdings), a decrease of $5.6 million compared to $203.4 million at September 30, 2006, and was lower than the $225.7 million portfolio at December 31, 2005. The decrease in the investment securities portfolio during the quarter was primarily attributed to maturing securities and repayment of mortgage-backed-securities. These maturities and repayments have been primarily used to fund new loan originations.

Total deposits were $457.4 million at December 31, 2006, compared to $458.5 million at September 30, 2006, and were $19.4 million higher than the $438.0 million at December 31, 2005. Core deposits (comprised of checking, savings, money market, and individual retirement accounts) totaled $220.4 million, or 48.2% of total deposits, as of December 31, 2006. Brokered deposit balances were $50.9 million at December 31, 2006, compared to $44.4 million at September 30, 2006 and $52.2 million at December 31, 2005. For the quarter ended December 31, 2006, the average cost of deposits was 3.80%, compared to 3.67% for the quarter ended September 30, 2006, and 2.65% for the quarter ended December 31, 2005. The increased cost of deposits was the result of rising short-term interest rates and enhanced competition for deposits in our local market.

?Despite a challenging competitive and interest rate environment, we made good progress during the year to reposition the Bank's loan portfolio mix with a focus on continuing to grow construction, commercial real estate, and home equity loan portfolios. Additionally, we successfully increased the Bank's level of recurring non-interest income as one of our primary operating strategies. In 2007, we anticipate the interest rate environment to continue to challenge the Bank's net interest margin. However, our focus on improving operating efficiencies and growing the core business is expected to result in improved profitability in the coming year,? said John A. Hall, President and CEO.

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

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

Forward-looking statements:

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, potential future credit experience, and statements regarding the Company's mission and vision. These forward-looking statements are based upon current management expectations and may, therefore, involve risks and uncertainties. The Company's actual results, performance, or achievements may differ materially from those suggested, expressed, or implied by forward-looking statements as a result of a wide variety or range of factors including, but not limited to, interest rate fluctuations; economic conditions in the Company's primary market area; demand for residential, commercial real estate, consumer, and other types of loans; success of new products; competitive conditions between banks and non-bank financial service providers; regulatory and accounting changes; technological factors affecting operations; pricing of products and services; and other risks detailed in the Company's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Accordingly, these factors should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company undertakes no responsibility to update or revise any forward-looking statement.