President’s Message

Dear Shareholders and Friends,

We have completed the first nine months of 2010, and I am excited to share the progress and growth of the bank with you.

We continue to be profitable:

Thurston First Bank has now recorded its eighth consecutive profitable quarter as of September 30, 2010. Because of our focus on the bank's diversified loan portfolio and knowing who our borrowers are, we have not experienced the losses seen at some other banks. At the same time, local deposits continue to grow each month as more accounts are being opened and existing account holders now consider Thurston First Bank to be their primary bank. This is confirmation that our business model is working; even with a poor economy.

Loan demand is strong:

Loan demand is robust, unlike the frequent media headlines. We have developed an effective marketing plan that is causing businesses to view us as the preferred option to the poor service levels and borrowing challenges seen at other banks. One client who recently moved to Thurston First Bank from a national bank said, "Where have you been all of my life! I love the Mobile Branch and the excellent customer service."

Profits are up 159%:

As of September 30, 2010, YTD pre tax profit was $337,665; up from the same period in 2009 of $130,147 or a 159% increase. Pre tax - pre loan loss provision income was $1,204,665 YTD compared to $1,040,147 in 2009 or a 16% increase. The fact that these numbers are increasing in a near zero interest rate environment tells me that the earnings potential will dramatically increase when interest rates begin to rise and allocations to the loan loss provision begin to drop. This is also a measure of the banks "earnings power" when the economy stabilizes.

The loan portfolio is performing well:

The quality of the loan portfolio remains good. We only have one loan past due over 90 days in the amount of $46,364. We have two borrowers on non accrual and one property in foreclosure that has a pending sale to pay off prior to year end. 26% of the total loan portfolio is in US Government guaranteed loans.

We need more capital to grow the bank and increase profits:

Our continuing challenge remains to be capital for two reasons. First, our loan demand far outstrips our ability to take on the businesses that are wanting to bank with us. Second, the regulatory environment has expectations of ever higher capital to be maintained at all banks. The institutional capital markets are virtually closed to banks of our size. Because of that, I am talking with new investors and existing shareholders to raise capital in smaller increments. An investment in the bank, in its current stage of development, carries a different type of risk than the founding capital. The start up capital did not have established management, systems, and a profitable track record. This round of investment has the benefit of a proven working business model that can deploy the capital in the form of loans to businesses with a minimal increase in overhead expense. This creates an immediate increase in profits, which is typical of a follow-up round of capital.

If you have any questions about the bank, please give me a call on my direct line 360.528.4101.

Sincerely,
James H. Haley
President and CEO