Rainier Pacific Financial Group, Inc. (the "Company") (NASDAQ:RPFG) today announced its second quarter results. Net income for the quarter ended June 30, 2006 was $693,000, or $0.12 per diluted share, compared to net income of $635,000, or $0.10 per diluted share, for the same period in 2005. For the six months ended June 30, 2006, the Company's net income was $1.3 million, or $0.23 per diluted share, compared to net income of $1.4 million, or $0.22 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 ended June 30, 2006 was $8.3 million, compared to $7.7 million for the same period a year ago. Net interest income before the provision for loan losses for the quarter ended June 30, 2006 was $6.1 million, compared to $6.0 million for the same period a year ago, although the Company's net interest margin narrowed during the quarter in connection with higher cost of funds resulting from higher short-term interest rates and the effects of a continued flat yield curve. For the quarter ended June 30, 2006, the Company's net interest margin was 2.87%, compared to 3.03% for the quarter ended March 31, 2006, and 3.33% for the quarter ended June 30, 2005. For the quarter ended June 30, 2006, the yield on the Company's interest-earning assets was 6.22%, compared to 6.07% and 5.75% for the quarters ended March 31, 2006 and June 30, 2005, respectively. For the quarter ended June 30, 2006, the Company's cost of interest-bearing liabilities was 3.69%, compared to 3.36% and 2.73% for the quarters ended March 31, 2006 and June 30, 2005, respectively.

Non-interest income was $2.2 million for the quarter ended June 30, 2006, compared to $1.7 million for the same quarter in 2005. Insurance service fee income increased to $518,000 in the second quarter of 2006, compared to $133,000 for the same quarter in 2005. This increase, and a significant portion of the increase in non-interest income during the quarter, was the result of additional revenue generated by the two insurance agency businesses acquired by the Company on January 3, 2006. Also contributing to the increase in non-interest income was an increase in real estate lease income, which increased to $281,000 during the quarter, compared to $119,000 for the same quarter in 2005. The increase in real estate lease income was attributable to the Bank's corporate offices that were fully leased.

The Company's provision for loan losses was $150,000 for the quarter ended June 30, 2006, unchanged from the provision made for the quarters ended March 31, 2006 and June 30, 2005.

Non-interest expense was $7.1 million for the quarter ended June 30, 2006, compared to $6.6 million for the same quarter in 2005. The increase in non-interest expense was primarily attributable to increased compensation and benefits costs associated with the employees hired in connection with the insurance agency acquisition and the expensing of previously granted stock options to employees and directors. On January 1, 2006, the Company implemented Financial Accounting Standards Board Statement No. 123 (Revised 2004) "Share Based Payment" ("Statement 123(R)"), which requires all share-based payments, including grants of stock options, to be recognized as compensation expense in the Company's Statement of Income. The implementation of Statement 123(R) resulted in additional non-cash compensation expenses of $139,000 in the second quarter of 2006, compared to no such expenses for the same quarter in 2005.

At June 30, 2006, the Company's total assets were $919.2 million, reflecting an increase of $48.4 million, or 5.6%, from $870.8 million at December 31, 2005. Total shareholders' equity at June 30, 2006 was $85.3 million, compared to $84.7 million at December 31, 2005.

The Company's book value and tangible book value per share as of June 30, 2006 were $13.89 and $13.34 per share, respectively, based upon 6,136,763 outstanding shares of common stock. The number of outstanding shares includes 190,570 restricted shares granted to participants under the Company's 2004 Management Recognition Plan that have not yet vested and excludes 492,107 of unallocated shares held by the Rainier Pacific 401(k) Employee Stock Ownership Plan.

During the second quarter ended June 30, 2006, the Company purchased and retired 500 shares of its outstanding shares of common stock at an average price of $17.70 per share. At June 30, 2006, the Company had the authority to purchase an additional 280,620 shares of common stock under its current approved stock repurchase program.

Total loans increased to $608.4 million at June 30, 2006, up $12.7 million, or 2.1%, and $25.5 million, or 4.4%, from $595.7 million at March 31, 2006 and $582.9 million at December 31, 2005, respectively. For the quarter ended June 30, 2006, the yield on loans was 6.92%, compared to 6.79% and 6.63% for the quarters ended March 31, 2006 and June 30, 2005, respectively. At June 30, 2006, the loan portfolio consisted of 29.6% commercial real estate loans, 27.2% multi-family real estate loans, 14.1% single-family real estate loans, 10.6% consumer loans, 10.3% real estate construction loans, 6.1% home equity loans, and 2.1% commercial business loans.

The Company sold $2.6 million of single-family fixed-rate real estate loans during the quarter ended June 30, 2006, compared to $3.4 million during the same period in 2005. The loan sales during the second quarter of 2006 generated net gains of $46,000, compared to $109,000 generated on loan sales during the same quarter in 2005. During the six months ended June 30, 2006, the Company sold $7.0 million of single-family loans, compared to $19.6 million during the same period in 2005. The loan sales during the first six months of 2006 generated net gains of $52,000, compared to $316,000 generated on loan sales during the same period in 2005. The portfolio of loans serviced for others was $106.4 million at June 30, 2006, compared to $103.9 million for the same period in 2005.

Total loan originations during the quarter ended June 30, 2006 were $58.0 million, compared to $57.8 million for the same period in 2005 and $46.0 million for the quarter ended March 31, 2006. The Company continued to focus on generating multi-family, commercial real estate, and real estate construction loans; and originated $39.4 million of new loans in these categories during the second quarter of 2006, compared to $38.1 million for the same period one year ago.

The credit quality indicators of the loan portfolio remained stable during the second quarter of 2006. Net charge-offs were $227,000 during the quarter ended June 30, 2006, compared to $260,000 for the quarter ended March 31, 2006 and $378,000 for the quarter ended June 30, 2005. Loans more than 30 days delinquent as a percentage of total loans were 0.21% at June 30, 2006, unchanged compared to 0.21% at March 31, 2006 and less than the 0.28% at December 31, 2005. Non-performing loans (i.e., loans 90 days or more past due or non-accrual loans) were $98,000, or 0.02% of total loans, at June 30, 2006; compared to $121,000, or 0.02% of total loans, at March 31, 2006; and $114,000, or 0.02% of total loans, at December 31, 2005. Non-performing assets were $98,000, or 0.01% of total assets, at June 30, 2006; compared to $150,000, or 0.02% of total assets, at March 31, 2006; and $141,000, or 0.02% of total assets, at December 31, 2005. The allowance for loan losses totaled $8.4 million at June 30, 2006, representing an allowance to total loans ratio of 1.38%, compared to $8.5 million, or 1.42%, at March 31, 2006, and $8.6 million, or 1.47%, at December 31, 2005.

The Company's investment securities portfolio at June 30, 2006 was $226.1 million (excluding $13.7 million in Federal Home Loan Bank of Seattle stock holdings), representing a decrease of $4.2 million compared to the $230.3 million portfolio at March 31, 2006, and relatively unchanged compared to the $225.7 million portfolio at December 31, 2005.

Total deposits were $449.4 million at June 30, 2006, relatively unchanged compared to $449.3 million at March 31, 2006, and were $11.4 million higher than the $438.0 million at December 31, 2005. During the quarter, core deposits (comprised of checking, savings, money market, and individual retirement accounts) increased $2.3 million and totaled $205.6 million, or 45.7% of total deposits, as of June 30, 2006. Brokered deposit balances were $46.4 million at June 30, 2006, compared to $45.5 million at March 31, 2006 and $52.2 million at December 31, 2005. The average cost of deposits was 3.26% for the quarter ended June 30, 2006, up 32 basis points compared to the 2.94% for the quarter ended March 31, 2006, and up 134 basis points compared to the 1.92% for the quarter ended June 30, 2005.

"The impact of rising short-term rates and the flat yield curve, as well as intense local competition for both deposits and loans, continued to place pressure on our interest rate margins during the second quarter. With the expectation that short-term rates are near the top of this cycle, we expect our net interest margin to stabilize later in the year. Looking forward, we anticipate the size of our investment portfolio to gradually decline as we replace maturing securities with higher yielding loans. We will also remain focused on growing our retail deposit base to enable us to rely less on wholesale funding sources to supplement our asset growth during the second half of the 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. The Bank opened a new full-service location in the Federal Way Crossings development in the City of Federal Way on July 17, 2006 and now has 14 branch offices 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. -0- *T Rainier Pacific Financial Group, Inc. & Subsidiary Consolidated Statements of Condition (Dollars in Thousands) At June 30, At March 31, At December 31, 2006 2006 2005 ----------- ------------- --------------- ASSETS Cash and cash equivalents $ 7,980 $ 8,962 $ 9,955 Interest-bearing deposits with banks 22,816 2,993 3,836 Securities available-for- sale 149,320 151,384 144,212 Securities held-to-maturity (fair value of $74,252 at June 30, 2006; $76,643 at March 31, 2006; and $79,885 at December 31, 2005) 76,800 78,953 81,497 Federal Home Loan Bank ("FHLB") stock, at cost 13,712 13,712 13,712 Loans 608,414 595,695 582,894 Less: allowance for loan losses (8,410) (8,487) (8,597) ---------- ------------ ------------ Loans, net 600,004 587,208 574,297 Premises and equipment, net 35,173 34,899 34,307 Accrued interest receivable 3,941 3,865 3,861 Other assets 9,481 8,978 5,166 ---------- ------------ ------------ TOTAL ASSETS $ 919,227 $ 890,954 $ 870,843 ========== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits Non-interest bearing $ 32,449 $ 32,843 $ 31,065 Interest-bearing 416,982 416,416 406,965 ---------- ------------ ------------ Total Deposits 449,431 449,259 438,030 Borrowed funds 373,415 348,336 340,240 Corporate drafts payable 3,985 2,734 2,977 Accrued compensation and benefits 2,090 1,185 1,958 Other liabilities 5,040 4,955 2,928 ---------- ------------ ------------ TOTAL LIABILITIES 833,961 806,469 786,133 ---------- ------------ ------------ SHAREHOLDERS' EQUITY: Common stock, no par value: 49,000,000 shares authorized; 6,628,870 shares issued and 5,946,193 outstanding at June 30, 2006; 6,630,870 shares issued and 5,913,937 outstanding at March 31, 2006; and 6,690,847 shares issued and 5,940,502 shares outstanding at December 31, 2005 49,603 49,132 49,598 Unearned Employee Stock Ownership Plan ("ESOP") shares (4,921) (5,091) (5,261) Accumulated other comprehensive loss, net of tax (1,768) (1,613) (1,441) Retained earnings 42,352 42,057 41,814 ---------- ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 85,266 84,485 84,710 ---------- ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 919,227 $ 890,954 $ 870,843 ========== ============ ============ Rainier Pacific Financial Group, Inc. & Subsidiary Consolidated Statements of Income (Dollars in Thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ INTEREST INCOME Loans $ 10,414 $ 8,364 $ 20,407 $ 16,537 Securities available- for-sale 2,005 1,129 3,930 2,145 Securities held-to- maturity 723 812 1,465 1,654 Interest- bearing deposits 52 5 116 9 FHLB stock dividends - - - 54 ------------ ------------ ------------ ------------ Total interest income 13,194 10,310 25,918 20,399 ------------ ------------ ------------ ------------ INTEREST EXPENSE Deposits 3,277 1,599 6,276 2,856 Borrowed funds 3,821 2,723 7,146 5,193 ------------ ------------ ------------ ------------ Total interest expense 7,098 4,322 13,422 8,049 ------------ ------------ ------------ ------------ Net interest income 6,096 5,988 12,496 12,350 PROVISION FOR LOAN LOSSES 150 150 300 450 ------------ ------------ ------------ ------------ Net interest income after provision for loan loss 5,946 5,838 12,196 11,900 ------------ ------------ ------------ ------------ NON-INTEREST INCOME Deposit service fees 897 971 1,701 1,845 Loan service fees 290 238 550 456 Insurance service fees 518 133 1,034 300 Investment service fees 163 124 284 256 Real estate lease income 281 119 564 184 Gain (loss) on sale of securities, net - (2) - (2) Gain on sale of loans, net 46 109 52 316 Gain on sale of premises and equipment, net - (2) - 286 Other operating income 27 1 57 20 ------------ ------------ ------------ ------------ Total non- interest income 2,222 1,691 4,242 3,661 ------------ ------------ ------------ ------------ NON-INTEREST EXPENSE Compensation and benefits 4,034 3,604 8,064 7,171 Office operations 1,308 1,312 2,606 2,752 Occupancy 635 472 1,275 960 Loan servicing 144 132 261 236 Outside and professional services 237 403 656 705 Marketing 222 238 451 563 Other operating expenses 523 408 1,071 1,055 ------------ ------------ ------------ ------------ Total non- interest expense 7,103 6,569 14,384 13,442 ------------ ------------ ------------ ------------ INCOME BEFORE PROVISION FOR FEDERAL INCOME TAX 1,065 960 2,054 2,119 PROVISION FOR FEDERAL INCOME TAX 372 325 719 719 ------------ ------------ ------------ ------------ NET INCOME $ 693 $ 635 $ 1,335 $ 1,400 ============ ============ ============ ============ EARNINGS PER COMMON SHARE Basic $ 0.12 $ 0.10 $ 0.23 $ 0.22 Diluted $ 0.12 $ 0.10 $ 0.23 $ 0.22 Weighted average shares outstanding - Basic 5,924,609(1) 6,148,455(2) 5,927,839(1) 6,294,499(2) Weighted average shares outstanding - Diluted 5,935,785(1) 6,150,112(2) 5,930,684(1) 6,316,767(2) (1) Weighted average shares outstanding (both Basic and Diluted) include 133,430 shares of the 324,000 restricted shares (net of forfeited shares) granted and issued under the 2004 Management Recognition Plan ("MRP"). (2) Weighted average shares outstanding (both Basic and Diluted) include 67,335 shares of the 328,300 restricted shares (net of forfeited shares) granted and issued under the MRP. Rainier Pacific Financial Group, Inc. & Subsidiary Consolidated Statements of Income (Dollars in Thousands, except per share data) Three Months Ended ----------------------------- June 30, 2006 March 31, 2006 -------------- -------------- INTEREST INCOME Loans $ 10,414 $ 9,993 Securities available-for-sale 2,005 1,925 Securities held-to-maturity 723 742 Interest-bearing deposits 52 64 FHLB stock dividends - - ------------- ------------ Total interest income 13,194 12,724 ------------- ------------ INTEREST EXPENSE Deposits 3,277 2,999 Borrowed funds 3,821 3,325 ------------- ------------ Total interest expense 7,098 6,324 ------------- ------------ Net interest income 6,096 6,400 PROVISION FOR LOAN LOSSES 150 150 ------------- ------------ Net interest income after provision for loan loss 5,946 6,250 ------------- ------------ NON-INTEREST INCOME Deposit service fees 897 804 Loan service fees 290 260 Insurance service fees 518 516 Investment service fees 163 121 Real estate lease income 281 283 Gain (loss) on sale of securities, net - - Gain on sale of loans, net 46 6 Gain on sale of premises and equipment, net - - Other operating income 27 30 ------------- ------------ Total non-interest income 2,222 2,020 ------------- ------------ NON-INTEREST EXPENSE Compensation and benefits 4,034 4,030 Office operations 1,308 1,298 Occupancy 635 640 Loan servicing 144 117 Outside and professional services 237 419 Marketing 222 229 Other operating expenses 523 548 ------------- ------------ Total non-interest expense 7,103 7,281 ------------- ------------ INCOME BEFORE PROVISION FOR FEDERAL INCOME TAX 1,065 989 PROVISION FOR FEDERAL INCOME TAX 372 347 ------------- ------------ NET INCOME $ 693 $ 642 ============= ============ EARNINGS PER COMMON SHARE Basic $ 0.12 $ 0.11 Diluted $ 0.12 $ 0.11 Weighted average shares outstanding - Basic 5,924,609(1) 5,931,068(2) Weighted average shares outstanding - Diluted 5,935,785(1) 5,931,068(2) (1) Weighted average shares outstanding (both Basic and Diluted) include 133,430 shares of the 324,000 restricted shares (net of forfeited shares) granted and issued under the MRP. (2) Weighted average shares outstanding (both Basic and Diluted) include 117,648 shares of the 325,500 restricted shares (net of forfeited shares) granted and issued under the MRP. Rainier Pacific Financial Group, Inc. & Subsidiary Selected Information and Ratios (Dollars in Thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Loan growth 2.14% 3.58% 4.38% 2.64% Deposit growth 0.04% 3.33% 2.60% 8.38% Equity growth (decline) 0.92% 1.07% 0.66% (10.46%) Asset growth 3.17% 1.76% 5.56% 2.35% Net interest margin 2.87% 3.33% 2.94% 3.47% Increase in non-interest income 31.40% 0.59% 15.87% 7.30% Increase (decrease) in non-interest expense 8.13% (7.91%) 7.01% (4.12%) Net charge- offs to average loans 0.15% 0.30% 0.16% 0.25% Efficiency ratio 85.39% 85.54% 85.94% 83.95% Return on assets 0.31% 0.33% 0.30% 0.37% Return on equity 3.26% 2.88% 3.14% 3.08% Yield on loans 6.92% 6.63% 6.86% 6.59% Yield on investments 4.77% 3.92% 4.67% 3.89% Yield on FHLB stock 0.00% 0.00% 0.00% 0.80% Cost of deposits 3.26% 1.92% 3.10% 1.76% Cost of borrowed funds 4.16% 3.62% 4.01% 3.49% Yield on interest- earning assets 6.22% 5.75% 6.14% 5.74% Cost of interest- bearing liabilities 3.69% 2.73% 3.53% 2.59% ------------ ------------ ------------ ------------ Net interest spread 2.53% 3.02% 2.61% 3.15% ============ ============ ============ ============ Loans originated $ 58,001 $ 57,830 $ 104,040 $ 100,496 Loans sold $ 2,600 $ 3,411 $ 7,017 $ 19,582 Loans charged- off, net $ 227 $ 378 $ 487 $ 633 Shares outstanding at end of period 6,136,763(1) 6,428,762(2) 6,136,763(1) 6,428,762(2) Book value per share $ 13.89 $ 13.76 $ 13.89 $ 13.76 Tangible book value per share $ 13.34 $ 13.73 $ 13.34 $ 13.73 Net interest margin-quarter ended 06/30/2006 2.87% Net interest margin-quarter ended 03/31/2006 3.03% Net interest margin- quarter ended 12/31/2005 3.06% Net interest margin- quarter ended 09/30/2005 3.22% Net interest margin- quarter ended 06/30/2005 3.33% (1) Shares outstanding at the end of the period shown represent all 6,628,870 shares issued (including a total of 190,570 unvested restricted shares, net of forfeitures, granted under the MRP), less 492,107 unallocated shares under the ESOP. (2) Shares outstanding at the end of the period shown represent all 6,988,766 shares issued (including a total of 262,240 unvested restricted shares, net of forfeitures, granted under the MRP), less 560,004 unallocated shares under the ESOP. Rainier Pacific Financial Group, Inc. & Subsidiary Selected Information and Ratios (Dollars in Thousands) As of As of As of June 30, March 31, December 31, ---------- ---------- ------------- 2006 2006 2005 --------- --------- ----------- Loans/Deposits 135.37% 132.60% 133.07% Equity/Assets 9.28% 9.48% 9.73% Non-performing assets: Loans 90 days or more past due $ 98 $ 121 $ 114 Repossessed assets - 29 27 Other real estate owned - - - --------- --------- ----------- Total non-performing assets $ 98 $ 150 $ 141 ========= ========= =========== Loans greater than 30 days delinquent $ 1,268 $ 1,251 $ 1,624 Loans greater than 30 days delinquent as a percentage of loans 0.21% 0.21% 0.28% Non-performing loans as a percentage of loans 0.02% 0.02% 0.02% Non-performing assets as a percentage of assets 0.01% 0.02% 0.02% Allowance for loan loss as a percentage of non-performing loans 8,581.63% 7,014.05% 7,541.23% Allowance for loan loss as a percentage of non-performing assets 8,581.63% 5,658.00% 6,097.16% Allowance for loan loss as a percentage of total loans 1.38% 1.42% 1.47% Loan portfolio composition: Real estate: One- to four-family residential $ 85,878 $ 84,951 $ 84,903 Five or more family residential 165,344 162,957 158,997 Commercial 180,390 176,647 166,242 --------- --------- ----------- Total real estate 431,612 424,555 410,142 Real estate construction: One- to four-family residential 57,624 52,791 53,247 Five or more family residential 4,927 4,863 4,859 Commercial - 2,778 2,795 --------- --------- ----------- Total real estate construction 62,551 60,432 60,901 Consumer: Automobile 34,374 37,080 39,429 Home equity 36,978 34,433 31,948 Credit cards 21,566 20,621 22,054 Other 8,587 8,768 9,196 --------- --------- ----------- Total consumer 101,505 100,902 102,627 Commercial/Business 12,746 9,806 9,224 --------- --------- ----------- Subtotal 608,414 595,695 582,894 Less: Allowance for loan losses (8,410) (8,487) (8,597) --------- --------- ----------- Total loans, net $ 600,004 $ 587,208 $ 574,297 ========= ========= =========== Sold loans, serviced for others $ 106,360 $ 107,028 $ 106,723 ========= ========= =========== Core deposits (all deposits, excluding CDs) $ 205,593 $ 203,278 $ 194,043 Non-core deposits (CDs) 243,838 245,981 243,987 --------- --------- ----------- Total deposits $ 449,431 $ 449,259 $ 438,030 ========= ========= =========== *T