Exhibit 13

Fidelity Bankshares, Inc.

and Subsidiaries

Consolidated Financial Statements

Table of Contents



|                                                                                                                |  |    
|--------------------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                                                         |  | F-2
|                                                                                                                | 
|Consolidated Statements of Financial Position at
December 31, 2004 and 2005                                     |  | F-3
|                                                                                                                | 
|Consolidated Statements of Operations for the years
ended December 31, 2003, 2004 and 2005                      |  | F-4
|                                                                                                                | 
|Consolidated Statements of Comprehensive Operations for
the years ended December 31, 2003, 2004 and 2005        |  | F-5
|                                                                                                                | 
|Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2003, 2004 and 2005 |  | F-5
|                                                                                                                | 
|Consolidated Statements of Cash Flows for the years
ended December 31, 2003, 2004 and 2005                      |  | F-6
|                                                                                                                | 
|Notes to Consolidated Financial Statements                                                                      |  | F-7



F-1



---

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Fidelity Bankshares, Inc.

West Palm Beach, Florida

We have audited the accompanying consolidated statements of financial position of Fidelity Bankshares, Inc. and subsidiaries (the Company) as of
December 31, 2004 and 2005, and the related consolidated statements of operations, comprehensive operations, changes in stockholders equity and cash flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and
2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal
control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 14, 2006 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.





|                          
|--------------------------
|                          
|/s/  Deloitte & Touche LLP
|                          

Certified Public Accountants

West Palm Beach, Florida

March 14, 2006



F-2



---

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AT DECEMBER 31, 2004 AND 2005



|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | --------- | - | ---- | - | --------- | -
|                                                                                                                                                       |  | 2004                              |           |   | 2005 |  
|                                                                                                                                                       |  | (In Thousands, except share data) |          
|ASSETS                                                                                                                                                 |  |                                   |           |   |      |   |           |  
|CASH AND CASH EQUIVALENTS:                                                                                                                             |  |                                   |           |   |      |   |           |  
|Cash and amounts due from depository institutions                                                                                                      |  | $                                 | 108,327   |   |      | $ | 150,657   |  
|Interest-earning deposits                                                                                                                              |  |                                   | 41,082    |   |      |   | 39,283    |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|Total cash and cash equivalents                                                                                                                        |  |                                   | 149,409   |   |      |   | 189,940   |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|SECURITIES AVAILABLE FOR SALE (At fair value):                                                                                                         |  |                                   |           |   |      |   |           |  
|Municipal bonds and United States government and agency securities                                                                                     |  |                                   | 65,156    |   |      |   | 54,136    |  
|Mortgage-backed securities                                                                                                                             |  |                                   | 440,473   |   |      |   | 356,337   |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|Total securities available for sale                                                                                                                    |  |                                   | 505,629   |   |      |   | 410,473   |  
|SECURITIES HELD TO MATURITY (At cost):                                                                                                                 |  |                                   |           |   |      |   |           |  
|Mortgage-backed securities (fair value - $90,048 and $241,463 at December 31, 2004 and 2005, respectively)                                             |  |                                   | 89,167    |   |      |   | 242,497   |  
|LOANS RECEIVABLE, Net of allowance for loan losses  $13,628 and $16,171 at December 31, 2004 and 2005, respectively                                   |  |                                   | 2,556,700 |   |      |   | 3,036,710 |  
|OFFICE PROPERTIES AND EQUIPMENT, Net                                                                                                                   |  |                                   | 83,439    |   |      |   | 91,164    |  
|FEDERAL HOME LOAN BANK STOCK, (At cost)                                                                                                                |  |                                   | 17,399    |   |      |   | 11,398    |  
|FORECLOSED ASSETS, Net                                                                                                                                 |  |                                   |          |   |      |   | 1,793     |  
|ACCRUED INTEREST RECEIVABLE                                                                                                                            |  |                                   | 12,379    |   |      |   | 16,273    |  
|DEFERRED INCOME TAX ASSET                                                                                                                              |  |                                   | 7,883     |   |      |   | 11,933    |  
|GOODWILL                                                                                                                                               |  |                                   | 2,171     |   |      |   | 14,256    |  
|CORE DEPOSIT INTANGIBLES                                                                                                                               |  |                                   |          |   |      |   | 6,528     |  
|OTHER ASSETS                                                                                                                                           |  |                                   | 46,363    |   |      |   | 49,646    |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|TOTAL ASSETS                                                                                                                                           |  | $                                 | 3,470,539 |   |      | $ | 4,082,611 |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                   |  |                                   |           |   |      |   |           |  
|LIABILITIES                                                                                                                                            |  |                                   |           |   |      |   |           |  
|DEPOSITS                                                                                                                                               |  | $                                 | 2,814,670 |   |      | $ | 3,540,874 |  
|OTHER BORROWED FUNDS                                                                                                                                   |  |                                   | 46,097    |   |      |   | 54,113    |  
|ADVANCES FROM FEDERAL HOME LOAN BANK                                                                                                                   |  |                                   | 250,855   |   |      |   | 92,364    |  
|ADVANCES BY BORROWERS FOR TAXES AND INSURANCE                                                                                                          |  |                                   | 3,166     |   |      |   | 1,461     |  
|JUNIOR SUBORDINATED DEBENTURES                                                                                                                         |  |                                   | 53,608    |   |      |   | 53,608    |  
|OTHER LIABILITIES                                                                                                                                      |  |                                   | 50,860    |   |      |   | 55,423    |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|TOTAL LIABILITIES                                                                                                                                      |  |                                   | 3,219,256 |   |      |   | 3,797,843 |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)                                                                                                       |  |                                   |           |   |      |   |           |  
|                                                                                                                                                       |  |                                  
|STOCKHOLDERS EQUITY                                                                                                                                   |  |                                   |           |   |      |   |           |  
|PREFERRED STOCK, 2,000,000 shares authorized, none issued                                                                                              |  |                                   |          |   |      |   |          |  
|COMMON STOCK ($.10 par value) 30,000,000 authorized shares: outstanding 24,425,050 and 25,114,716 at December 31, 2004 and 2005,
respectively (Note 1) |  |                                   | 2,442     |   |      |   | 2,511     |  
|ADDITIONAL PAID IN CAPITAL                                                                                                                             |  |                                   | 152,398   |   |      |   | 167,197   |  
|RETAINED EARNINGS  substantially restricted                                                                                                           |  |                                   | 105,556   |   |      |   | 129,842   |  
|TREASURY STOCK  at cost 441,082 and 416,799 shares at December 31, 2004 and 2005, respectively                                                        |  |                                   | (1,756    | ) |      |   | (1,794    | )
|COMMON STOCK ALLOCATED TO:                                                                                                                             |  |                                   |           |   |      |   |           |  
|Employee stock ownership plan                                                                                                                          |  |                                   | (3,909    | ) |      |   | (3,561    | )
|Recognition and retention plan                                                                                                                         |  |                                   | (3,045    | ) |      |   | (1,785    | )
|ACCUMULATED OTHER COMPREHENSIVE LOSS (Net of applicable income taxes)                                                                                  |  |                                   | (403      | ) |      |   | (7,642    | )
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                             |  |                                   | 251,283   |   |      |   | 284,768   |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                             |  | $                                 | 3,470,539 |   |      | $ | 4,082,611 |  
|                                                                                                                                                       |  |                                   |           |   |      |   |           |  

See Notes to Consolidated Financial Statements.



F-3



---

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005



|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                          |  | 2003                                  |         |   | 2004 |   |         | 2005 | 
|                                                          |  | (In Thousands, except per share data) |        
|Interest income:                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Loans                                                     |  | $                                     | 128,230 |   |      | $ | 141,916 |      |  | $ | 171,959 |  
|Investment securities                                     |  |                                       | 1,236   |   |      |   | 3,219   |      |  |   | 2,008   |  
|Other investments                                         |  |                                       | 1,632   |   |      |   | 1,416   |      |  |   | 1,604   |  
|Mortgage-backed securities                                |  |                                       | 12,585  |   |      |   | 18,113  |      |  |   | 30,980  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total interest income                                     |  |                                       | 143,683 |   |      |   | 164,664 |      |  |   | 206,551 |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Interest expense:                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Deposits                                                  |  |                                       | 38,605  |   |      |   | 39,676  |      |  |   | 61,807  |  
|Advances from Federal Home Loan Bank and other borrowings |  |                                       | 18,559  |   |      |   | 20,188  |      |  |   | 14,404  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total interest expense                                    |  |                                       | 57,164  |   |      |   | 59,864  |      |  |   | 76,211  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Net interest income                                       |  |                                       | 86,519  |   |      |   | 104,800 |      |  |   | 130,340 |  
|                                                          |  |                                       |        
|Provision for loan losses                                 |  |                                       | 3,122   |   |      |   | 2,736   |      |  |   | 1,877   |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Net interest income after provision for loan losses       |  |                                       | 83,397  |   |      |   | 102,064 |      |  |   | 128,463 |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Other income:                                             |  |                                       |         |   |      |   |         |      |  |   |         |  
|Service charges on deposit accounts                       |  |                                       | 10,082  |   |      |   | 11,048  |      |  |   | 11,309  |  
|Fees for other banking services                           |  |                                       | 6,912   |   |      |   | 8,126   |      |  |   | 9,381   |  
|Net gain on sale of loans                                 |  |                                       | 4,159   |   |      |   | 619     |      |  |   | 728     |  
|Net gain (loss) on sale of securities                     |  |                                       | (2,364  | ) |      |   | 407     |      |  |   |        |  
|Miscellaneous                                             |  |                                       | 851     |   |      |   | 1,943   |      |  |   | 1,935   |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total other income                                        |  |                                       | 19,640  |   |      |   | 22,143  |      |  |   | 23,353  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Operating expense:                                        |  |                                       |         |   |      |   |         |      |  |   |         |  
|Employee compensation and benefits                        |  |                                       | 43,481  |   |      |   | 49,117  |      |  |   | 56,936  |  
|Occupancy and equipment                                   |  |                                       | 14,476  |   |      |   | 16,612  |      |  |   | 20,847  |  
|Marketing                                                 |  |                                       | 2,130   |   |      |   | 2,294   |      |  |   | 2,898   |  
|Miscellaneous                                             |  |                                       | 13,550  |   |      |   | 18,597  |      |  |   | 19,378  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total operating expense                                   |  |                                       | 73,637  |   |      |   | 86,620  |      |  |   | 100,059 |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Income before provision for income taxes                  |  |                                       | 29,400  |   |      |   | 37,587  |      |  |   | 51,757  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Provision (benefit) for income taxes:                     |  |                                       |         |   |      |   |         |      |  |   |         |  
|Current                                                   |  |                                       | 12,813  |   |      |   | 16,456  |      |  |   | 21,642  |  
|Deferred                                                  |  |                                       | (1,334  | ) |      |   | (1,766  | )    |  |   | (1,967  | )
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Total provision for income taxes                          |  |                                       | 11,479  |   |      |   | 14,690  |      |  |   | 19,675  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Net income                                                |  | $                                     | 17,921  |   |      | $ | 22,897  |      |  | $ | 32,082  |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Earnings per share (Notes 1 and 19):                      |  |                                       |         |   |      |   |         |      |  |   |         |  
|Basic                                                     |  | $                                     | 0.82    |   |      | $ | 1.04    |      |  | $ | 1.32    |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Diluted                                                   |  | $                                     | 0.81    |   |      | $ | 1.01    |      |  | $ | 1.28    |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  
|Dividends declared per share                              |  | $                                     | 0.27    |   |      | $ | 0.28    |      |  | $ | 0.32    |  
|                                                          |  |                                       |         |   |      |   |         |      |  |   |         |  

See Notes to Consolidated Financial Statements.



F-4



---

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005



|                                                                      |  |                |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                      |  | 2003           |        |   | 2004 |   |        | 2005 | 
|                                                                      |  | (In Thousands) |       
|Net Income                                                            |  | $              | 17,921 |   |      | $ | 22,897 |      |  | $ | 32,082 |  
|Other comprehensive income (loss), net of tax:                        |  |                |        |   |      |   |        |      |  |   |        |  
|Unrealized gains (losses) on assets available for sale:               |  |                |        |   |      |   |        |      |  |   |        |  
|Unrealized holding gains (losses) arising during period               |  |                | (418   | ) |      |   | 2,854  |      |  |   | (7,331 | )
|Reclassification adjustment for (gains) losses realized in net income |  |                | 1,442  |   |      |   | (248   | )    |  |   |       |  
|Minimum pension liability adjustment                                  |  |                | (206   | ) |      |   | (292   | )    |  |   | 92     |  
|                                                                      |  |                |        |   |      |   |        |      |  |   |        |  
|Subtotal                                                              |  |                | 818    |   |      |   | 2,314  |      |  |   | (7,239 | )
|                                                                      |  |                |        |   |      |   |        |      |  |   |        |  
|Comprehensive income                                                  |  | $              | 18,739 |   |      | $ | 25,211 |      |  | $ | 24,843 |  
|                                                                      |  |                |        |   |      |   |        |      |  |   |        |  

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005



|                                                                                                  |  |                |       |   |                          |   |         |                                          |  |   |                |   |  |                               |         |   |                                |   |        |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | -------------- | ----- | - | ------------------------ | - | ------- | ---------------------------------------- |  | - | -------------- | - |  | ----------------------------- | ------- | - | ------------------------------ | - | ------ | ------------------------------------------ |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                                                  |  | CommonStock    |       |   | AdditionalPaid InCapital |   |         | RetainedEarnings-SubstantiallyRestricted |  |   | Treasury Stock |   |  | Employee Stock Ownership Plan |         |   | Recognition and Retention Plan |   |        | AccumulatedOtherComprehensiveIncome (Loss) |  |   | Total  |  
|                                                                                                  |  | (In Thousands) |      
|Balance - December 31, 2002                                                                       |  | $              | 1,587 |   |                          | $ | 125,648 |                                          |  | $ | 77,687         |   |  | $                             | (21,705 | ) |                                | $ | (4,609 | )                                          |  | $ | (5,986 | ) |  | $ | (3,535 | ) |  | $ | 169,087 |  
|Net income for the year                                                                           |  |                |      |   |                          |   |        |                                          |  |   | 17,921         |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 17,921  |  
|Stock options exercised and related tax benefit                                                   |  |                | 11    |   |                          |   | 525     |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 536     |  
|Purchase of treasury stock                                                                        |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               | (176    | ) |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (176    | )
|Common stock retired                                                                              |  |                | (103  | ) |                          |   | (20,339 | )                                        |  |   |               |   |  |                               | 20,133  |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (309    | )
|Reclassification of common stock held by deferred compensation plan                               |  |                |      |   |                          |   | 46      |                                          |  |   |               |   |  |                               | (46     | ) |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Recognition of unrealized increase in fair value of assets available for sale net of income taxes |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | 1,024  |   |  |   | 1,024   |  
|Minimum pension liability adjustment                                                              |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | (206   | ) |  |   | (206    | )
|Allocation and issuance of common stock for Recognition and Retention Plan                        |  |                | 7     |   |                          |   | (7      | )                                        |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Amortization of deferred compensation - Employee Stock Ownership Plan                             |  |                |      |   |                          |   | 519     |                                          |  |   |               |   |  |                               |        |   |                                |   | 352    |                                            |  |   |       |   |  |   |       |   |  |   | 871     |  
|Recognition and Retention Plan                                                                    |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   | 1,576  |   |  |   |       |   |  |   | 1,576   |  
|Cash dividends declared ($0.27 per share)                                                         |  |                |      |   |                          |   |        |                                          |  |   | (5,815         | ) |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (5,815  | )
|                                                                                                  |  |                |       |   |                          |   |         |                                          |  |   |                |   |  |                               |         |   |                                |   |        |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Balance - December 31, 2003                                                                       |  |                | 1,502 |   |                          |   | 106,392 |                                          |  |   | 89,793         |   |  |                               | (1,794  | ) |                                |   | (4,257 | )                                          |  |   | (4,410 | ) |  |   | (2,717 | ) |  |   | 184,509 |  
|Net income for the year                                                                           |  |                |      |   |                          |   |        |                                          |  |   | 22,897         |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 22,897  |  
|Stock options exercised and related tax benefit                                                   |  |                | 9     |   |                          |   | 2,157   |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 2,166   |  
|Sale of common stock                                                                              |  |                | 115   |   |                          |   | 43,714  |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 43,829  |  
|Common stock retired                                                                              |  |                | (4    | ) |                          |   | (1,523  | )                                        |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (1,527  | )
|Reclassification of common stock held by deferred compensation plan                               |  |                |      |   |                          |   | (38     | )                                        |  |   |               |   |  |                               | 38      |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Recognition of unrealized increase in fair value of assets available for sale net of income taxes |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | 2,606  |   |  |   | 2,606   |  
|Minimum pension liability adjustment                                                              |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | (292   | ) |  |   | (292    | )
|Allocation and issuance of common stock for Recognition and Retention Plan                        |  |                | 6     |   |                          |   | 329     |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 335     |  
|Amortization of deferred compensation - Employee Stock Ownership Plan                             |  |                |      |   |                          |   | 971     |                                          |  |   |               |   |  |                               |        |   |                                |   | 348    |                                            |  |   |       |   |  |   |       |   |  |   | 1,319   |  
|Recognition and Retention Plan                                                                    |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   | 1,365  |   |  |   |       |   |  |   | 1,365   |  
|Tax benefit of distributions from deferred compensation plans                                     |  |                |      |   |                          |   | 396     |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 396     |  
|3 for 2 common stock split                                                                        |  |                | 814   |   |                          |   |        |                                          |  |   | (814           | ) |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Cash dividends declared ($0.28 per share)                                                         |  |                |      |   |                          |   |        |                                          |  |   | (6,320         | ) |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (6,320  | )
|                                                                                                  |  |                |       |   |                          |   |         |                                          |  |   |                |   |  |                               |         |   |                                |   |        |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Balance - December 31, 2004                                                                       |  |                | 2,442 |   |                          |   | 152,398 |                                          |  |   | 105,556        |   |  |                               | (1,756  | ) |                                |   | (3,909 | )                                          |  |   | (3,045 | ) |  |   | (403   | ) |  |   | 251,283 |  
|Net income for the year                                                                           |  |                |      |   |                          |   |        |                                          |  |   | 32,082         |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 32,082  |  
|Stock options exercised and related tax benefit                                                   |  |                | 11    |   |                          |   | 1,493   |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 1,504   |  
|Common stock retired                                                                              |  |                | (5    | ) |                          |   | (1,387  | )                                        |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (1,392  | )
|Issuance of common stock for acquisition                                                          |  |                | 53    |   |                          |   | 12,805  |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 12,858  |  
|Reclassification of common stock held by deferred compensation plan                               |  |                |      |   |                          |   | 38      |                                          |  |   |               |   |  |                               | (38     | ) |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Recognition of unrealized decrease in fair value of assets available for sale net of income taxes |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | (7,331 | ) |  |   | (7,331  | )
|Minimum pension liability adjustment                                                              |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   | 92     |   |  |   | 92      |  
|Allocation and issuance of common stock for Recognition and Retention Plan                        |  |                | 10    |   |                          |   | (10     | )                                        |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   |        |  
|Amortization of deferred compensation - Employee Stock Ownership Plan                             |  |                |      |   |                          |   | 1,122   |                                          |  |   |               |   |  |                               |        |   |                                |   | 348    |                                            |  |   |       |   |  |   |       |   |  |   | 1,470   |  
|Recognition and Retention Plan                                                                    |  |                |      |   |                          |   |        |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   | 1,260  |   |  |   |       |   |  |   | 1,260   |  
|Tax benefit of distributions from deferred compensation plans                                     |  |                |      |   |                          |   | 738     |                                          |  |   |               |   |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | 738     |  
|Cash dividends declared ($0.32 per share)                                                         |  |                |      |   |                          |   |        |                                          |  |   | (7,796         | ) |  |                               |        |   |                                |   |       |                                            |  |   |       |   |  |   |       |   |  |   | (7,796  | )
|                                                                                                  |  |                |       |   |                          |   |         |                                          |  |   |                |   |  |                               |         |   |                                |   |        |                                            |  |   |        |   |  |   |        |   |  |   |         |  
|Balance - December 31, 2005                                                                       |  | $              | 2,511 |   |                          | $ | 167,197 |                                          |  | $ | 129,842        |   |  | $                             | (1,794  | ) |                                | $ | (3,561 | )                                          |  | $ | (1,785 | ) |  | $ | (7,642 | ) |  | $ | 284,768 |  
|                                                                                                  |  |                |       |   |                          |   |         |                                          |  |   |                |   |  |                               |         |   |                                |   |        |                                            |  |   |        |   |  |   |        |   |  |   |         |  

See Notes to Consolidated Financial Statements.



F-5



---

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005



|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                               |  | 2003           |          |   | 2004 |   |          | 2005 | 
|                                                                                               |  | (In Thousands) |         
|CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:                                                    |  |                |          |   |      |   |          |      |  |   |          |  
|Net Income                                                                                     |  | $              | 17,921   |   |      | $ | 22,897   |      |  | $ | 32,082   |  
|Adjustments to reconcile net income to net cash provided by operating activities:              |  |                |          |   |      |   |          |      |  |   |          |  
|Depreciation                                                                                   |  |                | 4,203    |   |      |   | 6,006    |      |  |   | 7,085    |  
|Amortization of core deposit intangibles                                                       |  |                |         |   |      |   |         |      |  |   | 570      |  
|ESOP and recognition and retention plan expense                                                |  |                | 2,447    |   |      |   | 2,685    |      |  |   | 2,730    |  
|Accretion of discounts, amortization of premiums and other deferred yield items                |  |                | (1,027   | ) |      |   | (4,281   | )    |  |   | (7,020   | )
|Provision for loan losses                                                                      |  |                | 3,122    |   |      |   | 2,736    |      |  |   | 1,877    |  
|Provisions for losses and net (gains) losses on sales of foreclosed assets                     |  |                | (33      | ) |      |   | (12      | )    |  |   | (130     | )
|Net (gain) loss on sale of:                                                                    |  |                |          |   |      |   |          |      |  |   |          |  
|Loans                                                                                          |  |                | (4,159   | ) |      |   | (619     | )    |  |   | (728     | )
|Securities available for sale                                                                  |  |                | 2,364    |   |      |   | (407     | )    |  |   |         |  
|Office properties and equipment                                                                |  |                | 177      |   |      |   | (302     | )    |  |   | 48       |  
|Increase in accrued interest receivable                                                        |  |                | (1,429   | ) |      |   | (1,252   | )    |  |   | (3,395   | )
|Increase in other assets                                                                       |  |                | (5,278   | ) |      |   | (96      | )    |  |   | (1,511   | )
|Increase in deferred income taxes                                                              |  |                | (1,334   | ) |      |   | (1,766   | )    |  |   | (1,967   | )
|Increase (decrease) in other liabilities                                                       |  |                | (776     | ) |      |   | 8,379    |      |  |   | 4,064    |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                      |  |                | 16,198   |   |      |   | 33,968   |      |  |   | 33,705   |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|CASH FLOW FROM (FOR) INVESTING ACTIVITIES:                                                     |  |                |          |   |      |   |          |      |  |   |          |  
|Loan originations, net of principal payments on loans                                          |  |                | (409,276 | ) |      |   | (446,092 | )    |  |   | (586,708 | )
|Principal payments received on mortgage-backed securities                                      |  |                | 281,571  |   |      |   | 169,982  |      |  |   | 128,480  |  
|Purchases of:                                                                                  |  |                |          |   |      |   |          |      |  |   |          |  
|Loans                                                                                          |  |                | (40,854  | ) |      |   | (38,137  | )    |  |   | (39,893  | )
|Mortgage-backed securities available for sale                                                  |  |                | (693,042 | ) |      |   | (355,069 | )    |  |   | (6,947   | )
|Federal Home Loan Bank stock                                                                   |  |                | (1,390   | ) |      |   | (21,769  | )    |  |   | (18,062  | )
|Municipal bonds and United States government and agency securities available for sale          |  |                | (162,516 | ) |      |   | (59,755  | )    |  |   |         |  
|Office properties and equipment                                                                |  |                | (8,617   | ) |      |   | (17,429  | )    |  |   | (11,235  | )
|Proceeds from sales of:                                                                        |  |                |          |   |      |   |          |      |  |   |          |  
|Loans                                                                                          |  |                | 199,472  |   |      |   | 33,498   |      |  |   | 43,170   |  
|Federal Home Loan Bank stock                                                                   |  |                | 987      |   |      |   | 17,692   |      |  |   | 24,631   |  
|Corporate debt securities                                                                      |  |                | 38,264   |   |      |   |         |      |  |   |         |  
|Municipal bonds and United States government and agency securities available for sale          |  |                |         |   |      |   | 114,879  |      |  |   | 24,667   |  
|Foreclosed assets acquired in settlement of loans                                              |  |                | 895      |   |      |   | 77       |      |  |   | 160      |  
|Mortgage-backed securities available for sale                                                  |  |                | 43,483   |   |      |   | 221,632  |      |  |   | 8,459    |  
|Office properties and equipment                                                                |  |                | 550      |   |      |   | 502      |      |  |   |         |  
|Proceeds from maturities of municipal bonds and United States government and agency securities |  |                | 129,140  |   |      |   | 145      |      |  |   | 10,170   |  
|Net cash received from acquisition                                                             |  |                |         |   |      |   |         |      |  |   | 6,577    |  
|Other                                                                                          |  |                | (689     | ) |      |   | 937      |      |  |   | 788      |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|Net cash used for investing activities                                                         |  |                | (622,022 | ) |      |   | (378,907 | )    |  |   | (415,743 | )
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|CASH FLOW FROM (FOR) FINANCING ACTIVITIES:                                                     |  |                |          |   |      |   |          |      |  |   |          |  
|Proceeds from the sale of common stock, net of issuance costs                                  |  |                | 309      |   |      |   | 44,034   |      |  |   | 307      |  
|Purchase of treasury stock                                                                     |  |                | (176     | ) |      |   |         |      |  |   |         |  
|Issuance of junior subordinated debentures net of issuance costs                               |  |                | 21,450   |   |      |   | 29,822   |      |  |   |         |  
|Pay off junior subordinated debentures                                                         |  |                |         |   |      |   | (28,750  | )    |  |   |         |  
|Cash dividends paid                                                                            |  |                | (5,792   | ) |      |   | (5,866   | )    |  |   | (7,744   | )
|Net increase (decrease) in:                                                                    |  |                |          |   |      |   |          |      |  |   |          |  
|NOW accounts, demand deposits and savings accounts                                             |  |                | 643,636  |   |      |   | 407,798  |      |  |   | 339,522  |  
|Certificates of deposit                                                                        |  |                | (81,876  | ) |      |   | (53,229  | )    |  |   | 249,192  |  
|Advances from Federal Home Loan Bank                                                           |  |                | 11,190   |   |      |   | (13,706  | )    |  |   | (165,004 | )
|Other borrowed funds                                                                           |  |                | (2,327   | ) |      |   | 4,008    |      |  |   | 8,016    |  
|Advances by borrowers for taxes and insurance                                                  |  |                | (369     | ) |      |   | 350      |      |  |   | (1,720   | )
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                                      |  |                | 586,045  |   |      |   | 384,461  |      |  |   | 422,569  |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                           |  |                | (19,779  | ) |      |   | 39,522   |      |  |   | 40,531   |  
|CASH AND CASH EQUIVALENTS, Beginning of year                                                   |  |                | 129,666  |   |      |   | 109,887  |      |  |   | 149,409  |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, End of year                                                         |  | $              | 109,887  |   |      | $ | 149,409  |      |  | $ | 189,940  |  
|                                                                                               |  |                |          |   |      |   |          |      |  |   |          |  

See Notes to Consolidated Financial Statements.



F-6



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fidelity Bankshares, Inc. (the Company) is the parent of
Fidelity Federal Bank & Trust (the Bank), a wholly-owned subsidiary of the Company.

The Banks
operations are primarily concentrated in Palm Beach, Martin and St. Lucie counties in Southeast Florida.

The accounting and reporting policies of the
Company and its subsidiaries conform, in all material respects, to accounting principles generally accepted in the United States of America (generally accepted accounting principles). The following summarizes the more significant of
these policies:

Principles of Consolidation  The consolidated financial statements include the accounts of the Company, the Bank and the
Banks wholly-owned subsidiaries, Fidelity Realty and Appraisal Services, Inc. (FRAS) and Florida Consolidated Agency, Inc. (Fidelity Insurance). All significant intercompany balances and transactions have been
eliminated. Neither the Bank nor its subsidiaries are or have been involved in any joint ventures during any periods presented.

FRAS, principally,
performs appraisals for and sells real estate owned by the Bank. Fidelity Insurance, an insurance agency, sells a full line of insurance products.

Use
of Estimates in the Preparation of Financial Statements  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Cash Equivalents For presentation purposes in both the consolidated statements of financial
position and cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.Net cash flows are reported for customer loan and deposit transactions,
advances from the Federal Home Loan Bank and other borrowings.

Securities  Debt securities that management has the positive intent and
ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as
available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive operations.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments
are anticipated.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating
other than temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Companys ability and
intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Gains and losses on the sale of securities are
recorded on the trade date and are determined using the specific identification method.

Transfers of Financial Assets Transfers of financial
assets, which for the Company are primarily mortgage loans, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed surrendered when (1) the assets have been isolated from the
Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the assets
through an agreement to repurchase them before maturity.



F-7



---

Upon completion of a transfer of assets that satisfies the conditions described above to be accounted for as a sale, the
Company:



| | a. | Derecognizes all assets sold;
| | -- | -----------------------------



| | b. | Recognizes all assets obtained and liabilities incurred in consideration as proceeds of the sale;
| | -- | -------------------------------------------------------------------------------------------------



| | c. | Initially measures, at fair value, assets obtained and liabilities incurred in a sale; and
| | -- | ------------------------------------------------------------------------------------------



| | d. | Recognizes any gain or loss on the sale.
| | -- | ----------------------------------------

Upon completion of a transfer
of assets, such as the securitization of loans and retention of the securities representing the Companys continuing interest in such loans as assets Held to Maturity, the Company applies steps a., b., and c., above. However, no gain is
recognized, as the transaction does not meet the requirements for sale treatment. To the extent that the fair values of the assets retained are less than the costs of the assets transferred, at the date of transfer, the carrying values of the
retained assets are reduced to fair value by a corresponding charge against income.

Interest Rate Risk The Bank is engaged principally in
providing first mortgage loans (both adjustable rate and fixed rate mortgage loans) to customers (See Note 5 for the composition of the mortgage loan portfolio). Mortgage loans and investment securities are funded primarily with short-term
liabilities which have interest rates that vary with market rates over time. Net interest income and the market value of net interest-earning assets will fluctuate based on changes in interest rates and changes in the levels of interest-sensitive
assets and liabilities. The actual duration of interest-earning assets and interest-bearing liabilities may differ significantly from the stated duration as a result of prepayment, early withdrawals, and similar factors.

Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined
by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans The Company grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout Florida. The ability of the
Companys debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has
the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized
as an adjustment of the related loan yield using the interest method.

The accrual of interest on mortgage loans is discontinued at the time the loan is 90
days past due. The accrual of interest on consumer and commercial business loans is discontinued at the time the loan is 60 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on non-accrual or
charged-off at an earlier date if collection of principal or interest is considered doubtful.

Allowance for Loan Losses  The Company
maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable estimated losses inherent in the loan portfolio. The allowance is increased by the
provision for loan losses, which is charged against current period operating results and decreased by the amount of charge-offs, net of recoveries. Loan losses are charged off against the allowance when management believes the uncollectibility of a
loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Companys methodology for assessing the appropriateness of the allowance consists of several key elements, which include a formula allowance and specific
allowances.

The formula allowance is calculated by applying loss factors to outstanding loans based on an internal risk grade of such loans or pools of
loans. Loss factors are based on the Companys historical loss experience adjusted for other significant factors such as economic conditions that, in managements judgment, affect the collectibility of the portfolio as of the evaluation
date. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance.



F-8



---

Specific allowances are established in cases where management has identified significant conditions or circumstances
related to a loan that management believes indicate the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance.

The allowance also incorporates the results of measuring impaired loans. A loan is considered impaired when management determines that it is probable that the Company will be unable to collect all amounts due
according to the original contractual terms of the loan agreement. Impairment is measured by the difference between the recorded investment in the loan (including accrued interest, net deferred loan fees or costs and unamortized premium or discount)
and the estimated present value of total expected future cash flows, discounted at the loans effective rate, or the fair value of the collateral, if the loan is collateral dependent. Impairment is recognized by establishing a specific loan
loss allowance for the impaired loan.

Uncollected Interest  The Bank reverses all accrued interest against interest income when a loan is
more than 90 or 60 days delinquent depending on the type of loan and ceases accruing interest thereafter. Such interest ultimately collected is credited to income in the period of recovery.

Foreclosed Assets  Properties acquired through foreclosure, or a deed in lieu of foreclosure are carried at the lower of fair value less estimated costs to
sell, or cost. If the fair value less the estimated cost to sell an individual property declines below the cost of such property, a provision for losses is charged to operations.

Subsequent costs relating to the improvement of property are capitalized in amounts not to exceed the propertys fair value. Costs relating to holding the property are charged to expense when incurred.

At December 31, 2004 the Company owned no foreclosed assets. At December 31, 2005 the Company owned $1.8 million in foreclosed assets.

Office Properties and Equipment  Office properties and equipment are carried at cost less accumulated depreciation. Land is carried at cost.
Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from three to forty years for buildings and improvements and three to ten years for furniture and equipment.

Goodwill  Goodwill resulting from acquisitions is subject to annual impairment testing. Based on the current year analysis, no impairment in the carrying
value of goodwill was noted.

Core Deposit Intangibles  Core deposit intangibles arise as the result of bank acquisitions. They are initially
measured at fair value and then are amortized on a straight line basis over their estimated useful live.

Servicing assets  Servicing assets
represent the allocated value of retained servicing rights on loans sold. Servicing assets are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the assets, using
groupings of the underlying loans as to interest rates, loan type and investor. Fair value is determined using prices for similar assets with similar characteristics, when available or based on discounted cash flows using market based assumptions.
Any impairment is reported as a valuation allowance and charged to expense. If the impairment is later determined to no longer exist, a reduction of the allowance will be made and recorded as an increase to income.

Long-Lived Assets Long-lived assets, such as office, properties and equipment, to be held and used by the Company are reviewed to determine whether any
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on impairment indicators such as the nature of the assets, the
future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If impairment indicators are present or other factors exist that indicate the
carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of an undiscounted cash flows analysis of assets at the lowest level for which identifiable cash flows exist. If
impairment has occurred, the Company recognizes a loss for the



F-9



---

difference between the carrying amount and the estimated fair value of the asset. The fair value of the asset is measured
using quoted market prices or, in the absence of quoted fair market prices, fair value is based on a discounted cash flow analysis.

Loan Origination
Fees and Costs  Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. Deferred loan fees and costs are amortized to income over the contractual life of
the loans using the interest method.

Commitment Fees  Non-refundable fees received for commitments to make or purchase loans in the future,
net of direct costs of underwriting the commitments, are deferred and, if the commitment is exercised, recognized over the life of the loan as an adjustment of yield. If the commitment expires unexercised, income is recognized upon expiration of the
commitment.

Pension and Retirement Plans The Companys policy is to fund pension and retirement plan costs as they accrue based on
actuarial assumptions. Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. Deferred compensation and supplemental retirement plan expense allocates the
benefits over years of service. 401(k) plan expense is the amount of employer matching contributions.

Income Taxes The Company and its
subsidiaries file consolidated federal and state income tax returns (See Note 13). Deferred income taxes are provided on items recognized for financial reporting purposes in periods different than such items are recognized for income tax purposes.
Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or
refundable for the period adjusted for the change during the period in deferred tax assets and liabilities.

Stock Option Plans At
December 31, 2005, the Company has one stock-based compensation plan, which is described more fully in Note 15. The Company accounts for this plan using the intrinsic value method. Accordingly, no stock-based employee compensation cost relative
to stock options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. On December 29, 2005 the Benefits Committee of the Board
of Directors of the Company approved the accelerated vesting and exercisability of all granted but unvested and unexercisable stock options under this plan that were held by directors, officers or employees on December 30, 2005. As a result,
all previously unvested options became fully vested on December 30, 2005. The acceleration of the vesting of these options resulted in a $24,000 charge to the 2005 consolidated statement of operations. The acceleration also resulted in the
reduction of pre-tax pro forma income for the year 2005 of $1.6 million as shown in the disclosure below and the exclusion of such amounts from compensation expense in future years. The primary purpose of the accelerated vesting was to eliminate
future compensation expense the Company would have otherwise recognized in its consolidated statement of operations with respect to these accelerated options upon the adoption of SFAS No. 123 (R), Share-Based Payment.



F-10



---

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value
recognition method to stock-based employee compensation, including the effect of the accelerated vesting explained above.



|                                                                                                                       |  |                          |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                       |  | Years Ended December 31, |       
|                                                                                                                       |  | 2003                     |        |   | 2004 |   |        | 2005 | 
|Net Income, as reported                                                                                                |  | $                        | 17,921 |   |      | $ | 22,897 |      |  | $ | 32,082 |  
|Add: Total stock-based employee compensation expense included in reported net earnings, net of related tax effects     |  |                          | 961    |   |      |   | 833    |      |  |   | 781    |  
|Deduct: Total stock-based employee compensation for all awards using the fair value method, net of related tax effects |  |                          | (1,482 | ) |      |   | (1,504 | )    |  |   | (2,527 | )
|                                                                                                                       |  |                          |        |   |      |   |        |      |  |   |        |  
|Pro forma net income                                                                                                   |  | $                        | 17,400 |   |      | $ | 22,226 |      |  | $ | 30,336 |  
|                                                                                                                       |  |                          |        |   |      |   |        |      |  |   |        |  
|Earnings per share:                                                                                                    |  |                          |        |   |      |   |        |      |  |   |        |  
|Basic - as reported                                                                                                    |  | $                        | 0.82   |   |      | $ | 1.04   |      |  | $ | 1.32   |  
|Basic - pro forma                                                                                                      |  | $                        | 0.80   |   |      | $ | 1.01   |      |  | $ | 1.25   |  
|                                                                                                                       |  |                          |       
|Diluted - as reported                                                                                                  |  | $                        | 0.81   |   |      | $ | 1.01   |      |  | $ | 1.28   |  
|Diluted - pro forma                                                                                                    |  | $                        | 0.79   |   |      | $ | 0.98   |      |  | $ | 1.21   |  

The weighted-average number of shares used to calculate pro-forma basic and diluted earnings per share for the
year ended December 31, 2003 was retroactively adjusted to reflect the 3 for 2 stock split in 2004.

The pro forma disclosures amortize to
expense the estimated compensation costs for the Companys stock options granted over the options vesting period. The Companys pro forma weighted average fair value options granted, with related assumptions are reflected below:



|                                                         |  |              |       |   |      |   |       |      |  |   |       |  
|-------------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                         |  | December 31, |      
|                                                         |  | 2003         |       |   | 2004 |   |       | 2005 | 
|Pro forma weighted average fair value of options granted |  | $            | 6.73  |   |      | $ | 6.48  |      |  | $ | 7.59  |  
|Risk-free interest rate                                  |  |              | 3.46  | % |      |   | 2.84  | %    |  |   | 3.88  | %
|Expected life (years)                                    |  |              | 5.00  |   |      |   | 5.00  |      |  |   | 5.00  |  
|Expected volatility                                      |  |              | 28.61 |   |      |   | 28.37 |      |  |   | 27.45 |  
|Annual dividend yield                                    |  |              | 1.57  | % |      |   | 1.16  | %    |  |   | 1.18  | %

Earnings Per Common Share  Basic earnings per common share is computed by dividing income available
to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average unallocated ESOP shares of common stock.

The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued.

Stock Splits  During 2004, the Company announced a 3 for 2 common stock
split in the form of a stock dividend paid on January 15, 2005 to stockholders of record on December 31, 2004. All share and per share data has been restated to give retroactive effect to this stock split.

Segment Reporting  The Companys derives all of its income from one line of business, banking-related activities. Accordingly, no segment information
is presented.



F-11



---

Recent Accounting Pronouncements Affecting the Company 

In December 2004, the FASB issued FAS 123 (revised 2004), Share-Based Payment. Under this promulgation, companies are required to reflect costs associated with employee
stock options in their income statements at fair value. The statement becomes effective for interim or annual periods beginning after January 1, 2006. The Company will begin reflecting stock option costs under the fair value method commencing
in the quarter beginning January 1, 2006 as required. At December 30, 2005 all options previously granted by the Company were fully vested, therefore the Company expects any effect on net income for the year 2006, relating to options
granted prior to January 1, 2006 to be minimal.

In December 2005, the FASB issued FASB Staff Position (FSP) SOP 94-6-1, Terms of Loan
Products That May Give Rise to a Concentration of Credit Risk. The guidance requires the disclosure of concentrations of loans with certain features that may increase the creditors exposure to risk of nonpayment. These loans are often referred
to as non-traditional loans and include features such as high LTV ratios, terms that permit payments smaller than the interest accruals and loans where the borrower is subject to significant payment increases over the life of the loan.
The Banks management has evaluated the impact of this FSP and has concluded that their disclosures are consistent with the objectives of the FSP.

Reclassifications  Certain amounts in the consolidated financial statements have been reclassified to be consistent with the current years presentation.

2. MUNICIPAL BONDS AND UNITED STATES GOVERNMENT AND AGENCY SECURITIES AVAILABLE FOR SALE

Municipal Bonds and United
States Government and Agency securities available for sale are summarized as follows:



|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|---------------------------------------------- |  | ---------------------- | ------ | - | -------------------- | - | --------------------- |  | - | -------------------- | - |  | - | ------
|                                               |  | AmortizedCost          |        |   | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Estimated Fair Value
|                                               |  | (Dollars in Thousands)
|December 31, 2004:                             |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Municipal bonds                                |  | $                      | 355    |   |                      | $ | 9                     |  | $ |                     |   |  | $ | 364   
|United States government and agency securities |  |                        | 65,689 |   |                      |   |                      |  |   | (897                 | ) |  |   | 64,792
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Total                                          |  | $                      | 66,044 |   |                      | $ | 9                     |  | $ | (897                 | ) |  | $ | 65,156
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Weighted average interest rate                 |  |                        | 3.56   | % |                      |   |                       |  |   |                      |   |  |   |       
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|December 31, 2005:                             |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Municipal bonds                                |  | $                      | 235    |   |                      | $ | 1                     |  | $ |                     |   |  | $ | 236   
|United States government and agency securities |  |                        | 55,203 |   |                      |   |                      |  |   | (1,303               | ) |  |   | 53,900
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Total                                          |  | $                      | 55,438 |   |                      | $ | 1                     |  | $ | (1,303               | ) |  | $ | 54,136
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       
|Weighted average interest rate                 |  |                        | 3.35   | % |                      |   |                       |  |   |                      |   |  |   |       
|                                               |  |                        |        |   |                      |   |                       |  |   |                      |   |  |   |       

The following table sets forth the contractual maturity of the Companys municipal bonds and United States
government and agency securities available for sale at December 31, 2004 and 2005.



|                              |  |                   |        |                      |   |                |  |                      |        |  |   |       
|----------------------------- |  | ----------------- | ------ | -------------------- | - | -------------- |  | -------------------- | ------ |  | - | ------
|                              |  | December 31, 2004 |        | December 31, 2005   
|                              |  | Amortized Cost    |        | Estimated Fair Value |   | Amortized Cost |  | Estimated Fair Value
|                              |  | (In Thousands)   
|Due in one year or less       |  | $                 | 10,300 |                      | $ | 10,376         |  | $                    | 25,255 |  | $ | 25,126
|Due in one year to five years |  |                   | 55,744 |                      |   | 54,780         |  |                      | 30,183 |  |   | 29,010
|                              |  |                   |        |                      |   |                |  |                      |        |  |   |       
|Total                         |  | $                 | 66,044 |                      | $ | 65,156         |  | $                    | 55,438 |  | $ | 54,136
|                              |  |                   |        |                      |   |                |  |                      |        |  |   |       

The Bank had total Government and Agency securities available for sale pledged at December 31, 2004 and
2005 of $ 48.8 million and $ 5.0 million, respectively. The securities pledged at December 31, 2005 include $ 2.9 million pledged as collateral for Treasury Tax and Loan (TT&L) accounts held for the benefit of the
federal government and $ 2.1 million pledged as collateral for trust accounts.



F-12



---

There were no sales of municipal bonds or United States government and agency securities during the year ended
December 31, 2003. Sales of United States government and agency securities for the year ended December 31, 2004, resulted in proceeds of $ 114.9 million, gross realized gains of $ 249,000 and gross realized losses of $ 397,000. Sales
of United States government and agency securities for the year ended December 31, 2005, resulted in proceeds of $ 24.7 million, with no realized gains or losses. The securities sold in 2005 were acquired as part of the acquisition of First
Community Bancorp Inc. (See Note 8) and were originally recorded at fair value and sold shortly after closing.

Municipal bonds and United States
government and agency securities available for sale with unrealized losses at year end 2005 based on the length of time the securities have been in a continuous unrealized loss position are as follows.



|                    |  |                   |   |           |       |                |  |   |           |   |                |   |        |  |   |        |  
|------------------- |  | ----------------- | - | --------- | ----- | -------------- |  | - | --------- | - | -------------- | - | ------ |  | - | ------ | -
|Less than 12 Months |  | 12 Months or More |   |           | Total |               
|FairValue           |  | UnrealizedLoss    |   | FairValue |       | UnrealizedLoss |  |   | FairValue |   | UnrealizedLoss |  
|$                  |  | $                 |  |           | $     | 53,900         |  | $ | (1,303    | ) |                | $ | 53,900 |  | $ | (1,303 | )
|                    |  |                   |   |           |       |                |  |   |           |   |                |   |        |  |   |        |  

At December 31, 2004 the Company held no material securities in an unrealized loss position for 12 months or
more.

Unrealized losses shown above have not been recognized into income because of the securities high quality credit rating, management has the intent
and ability to hold the securities for the foreseeable future and the decline in value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

3. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

Mortgage-backed
securities available for sale at December 31, 2004 and 2005 are summarized as follows:



|                      |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|--------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | - | -------------------- | - |  | - | -------
|                      |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Estimated Fair Value
|                      |  | (In Thousands)
|December 31, 2004:    |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|FHLMC-fixed rate      |  | $              | 62,710  |                        | $ | 489                     |  | $ | (48                  | ) |  | $ | 63,151 
|FNMA-fixed rate       |  |                | 193,334 |                        |   | 3,434                   |  |   | (26                  | ) |  |   | 196,742
|GNMA-fixed rate       |  |                | 29,892  |                        |   |                        |  |   | (90                  | ) |  |   | 29,802 
|FHLMC CMO-fixed rate  |  |                | 54,092  |                        |   |                        |  |   | (260                 | ) |  |   | 53,832 
|FNMA CMO-fixed rate   |  |                | 4,318   |                        |   | 49                      |  |   |                     |   |  |   | 4,367  
|FHLMC-adjustable rate |  |                | 25,412  |                        |   |                        |  |   | (147                 | ) |  |   | 25,265 
|FNMA-adjustable rate  |  |                | 67,293  |                        |   | 180                     |  |   | (159                 | ) |  |   | 67,314 
|                      |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                 |  | $              | 437,051 |                        | $ | 4,152                   |  | $ | (730                 | ) |  | $ | 440,473
|                      |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|December 31, 2005:    |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|FHLMC-fixed rate      |  | $              | 53,381  |                        | $ |                        |  | $ | (1,378               | ) |  | $ | 52,003 
|FNMA-fixed rate       |  |                | 169,721 |                        |   |                        |  |   | (2,479               | ) |  |   | 167,242
|GNMA-fixed rate       |  |                | 25,382  |                        |   |                        |  |   | (743                 | ) |  |   | 24,639 
|FHLMC CMO-fixed rate  |  |                | 43,291  |                        |   |                        |  |   | (1,479               | ) |  |   | 41,812 
|FNMA CMO-fixed rate   |  |                | 63      |                        |   |                        |  |   |                     |   |  |   | 63     
|FHLMC-adjustable rate |  |                | 19,897  |                        |   |                        |  |   | (655                 | ) |  |   | 19,242 
|FNMA-adjustable rate  |  |                | 52,629  |                        |   |                        |  |   | (1,293               | ) |  |   | 51,336 
|                      |  |                |         |                        |   |                         |  |   |                      |   |  |   |        
|Total                 |  | $              | 364,364 |                        | $ |                        |  | $ | (8,027               | ) |  | $ | 356,337
|                      |  |                |         |                        |   |                         |  |   |                      |   |  |   |        

Sales of mortgage-backed securities classified as available for sale for the year ended December 31, 2003
were $ 43.4 million, resulting in proceeds of $ 43.5 million, gross realized gains of $ 110,000 and no gross realized losses. Sales of mortgage-backed securities available for sale during the year ended December 31, 2004, resulted in
proceeds of $ 221.6 million, gross realized gains of $ 1.2 million and gross realized losses of $ 656,000. Sales of mortgage-backed securities



F-13



---

available for sale during the year ended December 31, 2005, resulted in proceeds of $ 8.5 million, with no
realized gains or losses. The securities sold in 2005 were acquired as part of the acquisition of First Community Bancorp Inc. (See Note 8) and were originally recorded at fair value and sold shortly after closing.

The Bank had total mortgage-backed securities available for sale pledged at December 31, 2004 and 2005 of $ 325.6 million and $ 195.4 million,
respectively. Of the $ 195.4 million of securities pledged at December 31, 2005, $ 92.1 million was pledged for customer accounts that exceeded $ 100,000, $72.8 million was pledged to the State of Florida as collateral for
certificates of deposit and $ 30.5 million was pledged as collateral for other borrowed funds.

Mortgage-backed securities available for sale with
unrealized losses at year end 2005 based on the length of time the securities have been in a continuous unrealized loss position are as follows



|                    |         |                |                   |        |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  
|------------------- | ------- | -------------- | ----------------- | ------ | ---------- | ----- | -------------- | ------- |  | ---------- | ------ | -------------- |  | - | ------- |  | - | ------ | -
|Less than 12 Months |         |                | 12 Months or More |        |            | Total |               
|Fair Value          |         | UnrealizedLoss |                   |        | Fair Value |       | UnrealizedLoss |         |  | Fair Value |        | UnrealizedLoss | 
|$                   | 240,242 |                | $                 | (4,079 | )          |       | $              | 116,095 |  | $          | (3,948 | )              |  | $ | 356,337 |  | $ | (8,027 | )
|                    |         |                |                   |        |            |       |                |         |  |            |        |                |  |   |         |  |   |        |  

At December 31, 2004 the Company held no material securities in an
unrealized loss position for 12 months or more.

Unrealized losses shown above have not been recognized into income because of the securities high quality
credit rating, management has the intent and ability to hold the securities for the foreseeable future and the decline in value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

During
2004 and 2005, the Bank securitized certain of its one- to four-family mortgage loans, receiving mortgage-backed securities secured by these loans. Mortgage-backed securities held to maturity at December 31, 2004 and 2005 are summarized as
follows:



|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|------------------------------ |  | ---------------------- | ------- | - | -------------------- | - | --------------------- |  | - | -------------------- | - |  | - | -------
|                               |  | AmortizedCost          |         |   | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Estimated Fair Value
|                               |  | (Dollars in Thousands)
|December 31, 2004:             |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|FHLMC-fixed rate               |  | $                      | 89,167  |   |                      | $ | 881                   |  | $ |                     |   |  | $ | 90,048 
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|Total                          |  | $                      | 89,167  |   |                      | $ | 881                   |  | $ |                     |   |  | $ | 90,048 
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|Weighted average interest rate |  |                        | 4.64    | % |                      |   |                       |  |   |                      |   |  |   |        
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|December 31, 2005:             |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|FHLMC-fixed rate               |  | $                      | 242,497 |   |                      | $ | 902                   |  | $ | (1,936               | ) |  | $ | 241,463
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|Total                          |  | $                      | 242,497 |   |                      | $ | 902                   |  | $ | (1,936               | ) |  | $ | 241,463
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        
|Weighted average interest rate |  |                        | 5.13    | % |                      |   |                       |  |   |                      |   |  |   |        
|                               |  |                        |         |   |                      |   |                       |  |   |                      |   |  |   |        

Since the Bank retained all interest in the loans securitized, no portion of this securitization was accounted for
as a sale. As a result of this transaction, the Bank received securities representing its interests in the loans transferred and contractual servicing rights related to these loans. The book value of these loans was allocated to the securities and
to the servicing rights based on relative fair value, as determined by quoted prices for such assets on the date each transfer was effected.

The Bank had
total mortgage-backed securities held to maturity pledged at December 31, 2005 of $ 206.4 million. The securities pledged at December 31, 2005 include $ 182.8 million pledged for customer accounts that exceeded $ 100,000 and $
23.6 million pledged as collateral for other borrowed funds. There were no mortgage-backed securities held to maturity pledged at December 31, 2004.



F-14



---

Mortgage-backed securities held to maturity with unrealized losses at year end 2005 based on the length of time the
securities have been in a continuous unrealized loss position are as follows:



|                    |  |                |                   |   |           |   |                |  |            |   |                |   |         |  |   |        |  
|------------------- |  | -------------- | ----------------- | - | --------- | - | -------------- |  | ---------- | - | -------------- | - | ------- |  | - | ------ | -
|Less than 12 Months |  |                | 12 Months or More |   | Total     |  
|FairValue           |  | UnrealizedLoss |                   |   | FairValue |   | UnrealizedLoss |  | Fair Value |   | UnrealizedLoss |  
|$118,278            |  | $              | (1,936            | ) |           | $ |               |  | $          |  |                | $ | 118,278 |  | $ | (1,936 | )
|                    |  |                |                   |   |           |   |                |  |            |   |                |   |         |  |   |        |  

At December 31, 2004 the Company held no securities in an unrealized loss position for 12 months or more.

Unrealized losses shown above have not been recognized into income because of the securities high quality credit rating, management has the intent and
ability to hold the securities for the foreseeable future and the decline in value is largely due to changes in interest rates. The fair value is expected to recover as the securities approach maturity.

5. LOANS RECEIVABLE

Loans receivable at December 31, 2004 and
2005 consist of the following:



|                                                                 |  |                |           |      |   |          
|---------------------------------------------------------------- |  | -------------- | --------- | ---- | - | ---------
|                                                                 |  | 2004           |           | 2005
|                                                                 |  | (In Thousands)
|One-to-four single family, residential real estate mortgages     |  | $              | 1,023,448 |      | $ | 1,061,487
|Commercial and multi-family real estate mortgages                |  |                | 831,165   |      |   | 1,082,719
|Real estate construction-primarily residential                   |  |                | 308,044   |      |   | 390,751  
|Land loans-primarily residential                                 |  |                | 57,661    |      |   | 71,502   
|                                                                 |  |                |           |      |   |          
|Total mortgage loans                                             |  |                | 2,220,318 |      |   | 2,606,459
|Consumer loans                                                   |  |                | 231,333   |      |   | 295,622  
|Commercial business loans                                        |  |                | 121,331   |      |   | 153,916  
|                                                                 |  |                |           |      |   |          
|Total loans, net of loans in process                             |  |                | 2,572,982 |      |   | 3,055,997
|Less:                                                            |  |                |           |      |   |          
|Unearned discounts, premiums and deferred loan fees (costs), net |  |                | 2,654     |      |   | 3,116    
|Allowance for loan losses                                        |  |                | 13,628    |      |   | 16,171   
|                                                                 |  |                |           |      |   |          
|Loans receivable-net                                             |  | $              | 2,556,700 |      | $ | 3,036,710
|                                                                 |  |                |           |      |   |          

The amount of loans on which the Bank has ceased accruing interest or does not charge interest aggregated to
approximately $ 6,226,000 and $ 7,012,000, net of specific valuation allowances of $ 207,000 and $ 334,000, at December 31, 2004 and 2005, respectively. The amount of interest not accrued relating to non accrual loans
was approximately $ 352,000, $ 434,000 and $ 221,000 at December 31, 2003, 2004 and 2005, respectively. The allowance for loan losses is maintained at a level that represents managements best estimate of losses in
the loan portfolio at the balance sheet date that were both probable and reasonably estimable.

An analysis of the changes
in the allowance for loan losses is as follows:



|                               |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | 2003           |        |   | 2004 |   |        | 2005 | 
|                               |  | (In Thousands) |       
|Balance at beginning of period |  | $              | 8,318  |   |      | $ | 11,119 |      |  | $ | 13,628 |  
|Current provision              |  |                | 3,122  |   |      |   | 2,736  |      |  |   | 1,877  |  
|Effect of acquisition          |  |                |       |   |      |   |       |      |  |   | 995    |  
|Charge-offs                    |  |                | (322   | ) |      |   | (252   | )    |  |   | (330   | )
|Recoveries                     |  |                | 1      |   |      |   | 25     |      |  |   | 1      |  
|                               |  |                |        |   |      |   |        |      |  |   |        |  
|Ending balance                 |  | $              | 11,119 |   |      | $ | 13,628 |      |  | $ | 16,171 |  
|                               |  |                |        |   |      |   |        |      |  |   |        |  

The Bank originates both adjustable and fixed rate mortgage loans. At December 31, 2004 and 2005, the Bank
had $ 226.1 million and $ 845,000 in loans held for sale, respectively. Of the $ 226.1 million in loans held for sale as of December 31, 2004, $ 224.8 million related to the securitization of one- to four-family mortgage loans
where the Bank retained the resulting mortgage-backed securities.



F-15



---

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan agreement. An analysis of the recorded investment in impaired loans owned by the Bank at December 31, 2003, 2004 and 2005 and the related allowance for those loans
is as follows:



|                                                |  |                |        |                   |   |              |  |                   |        |              |   |                   |  |   |       |  |   |    
|----------------------------------------------- |  | -------------- | ------ | ----------------- | - | ------------ |  | ----------------- | ------ | ------------ | - | ----------------- |  | - | ----- |  | - | ---
|                                                |  | 2003           |        | 2004              |   | 2005        
|                                                |  | (In Thousands)
|                                                |  | Loan Balance   |        | Related Allowance |   | Loan Balance |  | Related Allowance |        | Loan Balance |   | Related Allowance
|Impaired loan balances and related allowances:  |  |                |        |                   |   |              |  |                   |        |              |   |                   |  |   |       |  |   |    
|Loans with related allowance for loan losses    |  | $              | 3,508  |                   | $ | 598          |  | $                 | 1,650  |              | $ | 487               |  | $ | 627   |  | $ | 334
|Loans without related allowance for loan losses |  |                | 9,162  |                   |   |             |  |                   | 8,172  |              |   |                  |  |   | 6,818 |  |   |   
|                                                |  |                |        |                   |   |              |  |                   |        |              |   |                   |  |   |       |  |   |    
|                                                |  | $              | 12,670 |                   | $ | 598          |  | $                 | 9,822  |              | $ | 487               |  | $ | 7,445 |  | $ | 334
|                                                |  |                |        |                   |   |              |  |                   |        |              |   |                   |  |   |       |  |   |    
|Average balance of impaired loans               |  | $              | 10,532 |                   |   |              |  | $                 | 11,246 |              |   |                   |  | $ | 8,634 |  |   |    
|                                                |  |                |        |                   |   |              |  |                   |        |              |   |                   |  |   |       |  |   |    

No interest income was recorded on impaired loans during the impairment periods shown.

The Banks policy on interest income on impaired loans is to reverse all accrued interest against interest income if a loan becomes more than 60 or 90 days
delinquent, depending on the type of loan, and cease accruing interest thereafter. Any interest ultimately collected is credited to income in the period of recovery.

At December 31, 2005, the composition and maturity or repricing of the loan portfolio, net of the undisbursed portion of loans in process is presented below:

Fixed Rate



|                  |  |                |        
|----------------- |  | -------------- | -------
|Term of Maturity  |  | Book Valsue   
|                  |  | (In Thousands)
|1 year or less    |  | $              | 77,257 
|1 year-3 years    |  |                | 102,057
|3 years-5 years   |  |                | 90,589 
|5 years-10 years  |  |                | 210,013
|10 years-20 years |  |                | 254,400
|Over 20 years     |  |                | 139,969
|                  |  |                |        
|Total             |  | $              | 874,285
|                  |  |                |        

Adjustable Rate



|                        |  |                |          
|----------------------- |  | -------------- | ---------
|Term to Rate Adjustment |  | Book Value    
|                        |  | (In Thousands)
|1 year or less          |  | $              | 1,559,902
|1 year-3 years          |  |                | 142,052  
|3 years-5 years         |  |                | 477,758  
|5 years-10 years        |  |                |         
|10 years-20 years       |  |                |         
|Over 20 years           |  |                |         
|                        |  |                |          
|Total                   |  | $              | 2,181,712
|                        |  |                |          



F-16



---

Commercial Real Estate Lending  The Bank originates and purchases commercial real estate loans, which are
considered by management to be of somewhat greater risk of uncollectibility due to the dependency on income production or future development of the real estate. Accordingly, Bank management establishes greater provisions for probable but not yet
identified losses on these loans than on less risky residential mortgage loans. The composition of commercial real estate loans and its primary collateral, net of loans in process, are approximately as follows:



|                            |  |                |         |      |   |          
|--------------------------- |  | -------------- | ------- | ---- | - | ---------
|                            |  | 2004           |         | 2005
|                            |  | (In Thousands)
|Office buildings            |  | $              | 265,117 |      | $ | 353,892  
|Retail buildings            |  |                | 124,871 |      |   | 174,748  
|Warehouses                  |  |                | 57,860  |      |   | 57,438   
|Multi family                |  |                | 116,142 |      |   | 113,892  
|Hotels and motels           |  |                | 2,175   |      |   | 3,195    
|Land                        |  |                | 117,880 |      |   | 224,528  
|Other property improvements |  |                | 147,120 |      |   | 155,026  
|                            |  |                |         |      |   |          
|Total                       |  | $              | 831,165 |      | $ | 1,082,719
|                            |  |                |         |      |   |          

Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), a federally
chartered savings and loan associations aggregate non-residential real estate loans may not exceed 400% of its capital as determined under the capital standards provisions of FIRREA. The Bank is federally chartered and subject to this
limitation. FIRREA does not require divestiture of any loan that was lawful when it was originated. At December 31, 2005 the Bank estimates that, while complying with this limitation, it could disburse an additional $ 273.6 million of
commercial real estate loans.

Loans to One Borrower Limitation Federal savings banks are subject to the same loans-to-one borrower limits as
those applicable to national banks, which under current regulations restrict loans-to-one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired
capital and unimpaired surplus if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate). This 15% limitation results in a dollar limitation of approximately $ 49.0 million
at December 31, 2005. At December 31, 2005, the Bank was in compliance with the loans to one borrower limitation under currently existing regulations.

Servicing Assets-Mortgage and commercial business loans serviced for others are not included in the accompanying consolidated statements of financial position. The unpaid balances of these loans at
December 31, 2004 and 2005 were $ 252.8 million and $ 407.0 million, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing were $ 575,000 and $ 1.1 million at
December 31, 2004 and 2005, respectively. The balance of deferred servicing assets relating to serviced loans were $ 2.1 million and $ 3.6 million at December 31, 2004 and 2005, respectively. The fair value of these rights
at December 31, 2004 and 2005 exceeded carrying value.

Related Party Loans - The Bank offers loans to its employees, including Directors and
Senior Management at prevailing market interest rates. These loans are made in the ordinary course of business and on substantially the same terms and collateral requirements as those of comparable transactions prevailing at the time.

The loans to Directors, Executive Officers, and associates of such persons amounted to $ 3.3 million and $ 8.1 million at December 31, 2004 and 2005,
respectively, which did not exceed 5% of stockholders equity.

Collateral for Advances from the Federal Home Loan Bank The terms of a
security agreement with the FHLB include a blanket floating lien that requires the Bank to maintain qualifying first mortgage loans as pledged collateral in an amount equal to the advances, when discounted at 80% of the unpaid principal balances of
the qualifying first mortgage loans.



F-17



---

6. OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment at December 31, 2004 and 2005 are summarized as follows:



|                                      |  |                |         |      |   |        
|------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                      |  | 2004           |         | 2005
|                                      |  | (In Thousands)
|Land                                  |  | $              | 26,491  |      | $ | 29,636 
|Buildings                             |  |                | 42,514  |      |   | 44,874 
|Leasehold improvements                |  |                | 8,377   |      |   | 11,548 
|Furniture and equipment               |  |                | 27,819  |      |   | 31,688 
|Software                              |  |                | 7,964   |      |   | 7,442  
|                                      |  |                |         |      |   |        
|Total                                 |  |                | 113,165 |      |   | 125,188
|Less accumulated depreciation         |  |                | 29,726  |      |   | 34,024 
|                                      |  |                |         |      |   |        
|Office properties and equipment  net |  | $              | 83,439  |      | $ | 91,164 
|                                      |  |                |         |      |   |        

7. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at December 31, 2004 and 2005 consists of the following:



|                                              |  |                |        |      |   |       
|--------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                              |  | 2004           |        | 2005
|                                              |  | (In Thousands)
|Loans                                         |  | $              | 9,524  |      | $ | 13,160
|Investments                                   |  |                | 900    |      |   | 726   
|Mortgage-backed and corporate debt securities |  |                | 1,955  |      |   | 2,387 
|                                              |  |                |        |      |   |       
|Accrued interest receivable                   |  | $              | 12,379 |      | $ | 16,273
|                                              |  |                |        |      |   |       

8. ACQUISITION OF FIRST COMMUNITY BANCORP, INC.

On April 1, 2005, the Company acquired 100 percent of the outstanding common stock of First Community Bancorp, Inc. The results of First Communitys operations
have been included in the Companys consolidated financial statements since that date.

The aggregate purchase price was $27.9 million, consisting of
$15.0 million in cash and 525,036 shares of the Companys common stock, valued at $12.9 million. The value of the Companys common stock was determined by the average of closing prices for the three day period before and the three day
period subsequent to the date on which the terms of the acquisition were agreed to and announced.



F-18



---

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.



|                                          |  |                |        
|----------------------------------------- |  | -------------- | -------
|                                          |  | Fair Value    
|                                          |  | (In Thousands)
|Assets:                                   |  |                |        
|Cash and cash equivalents                 |  | $              | 21,668 
|Investment securities                     |  |                | 33,176 
|Loans receivable-net                      |  |                | 95,547 
|Office properties and equipment           |  |                | 4,057  
|FHLB stock                                |  |                | 568    
|Goodwill                                  |  |                | 12,085 
|Core deposit intangibles                  |  |                | 7,098  
|Other assets                              |  |                | 891    
|                                          |  |                |        
|Total assets                              |  | $              | 175,090
|                                          |  |                |        
|Liabilities:                              |  |                |        
|Deposits                                  |  | $              | 137,490
|Borrowings from the FHLB                  |  |                | 6,513  
|Deferred tax liabilities                  |  |                | 2,343  
|Other liabilities                         |  |                | 795    
|                                          |  |                |        
|Total liabilities                         |  |                | 147,141
|Net assets acquired                       |  |                | 27,949 
|                                          |  |                |        
|Total liabilities and net assets acquired |  | $              | 175,090
|                                          |  |                |        

AICPA Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer. prohibits carrying over or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that show evidence of deterioration of credit quality. This SOP requires loans within its scope
(that is, loans with evidence of credit deterioration since origination) to be recorded at their expected cash flows. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the
loans yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment. None of the loans acquired in the First Community Bancorp acquisition were subject to the scope of SOP 03-3.



F-19



---

The following pro forma consolidated financial information presents the combined results of operations of the Company and
First Community Bancorp as if the acquisition had occurred as of the beginning of 2004 and 2005.



|                                                    |  |                                            |         |      |   |        
|--------------------------------------------------- |  | ------------------------------------------ | ------- | ---- | - | -------
|                                                    |  | Pro Forma For the Years Ended December 31,
|                                                    |  | 2004                                       |         | 2005
|Net interest income                                 |  | $                                          | 110,527 |      | $ | 131,920
|Provision for loan losses                           |  |                                            | 2,836   |      |   | 1,877  
|                                                    |  |                                            |         |      |   |        
|Net interest income after provision for loan losses |  |                                            | 107,691 |      |   | 130,043
|Total other income                                  |  |                                            | 23,573  |      |   | 23,690 
|Total operating expense                             |  |                                            | 91,987  |      |   | 101,662
|                                                    |  |                                            |         |      |   |        
|Income before provision for income taxes            |  |                                            | 39,277  |      |   | 52,071 
|Provision for income taxes                          |  |                                            | 15,332  |      |   | 19,794 
|                                                    |  |                                            |         |      |   |        
|Net income                                          |  | $                                          | 23,945  |      | $ | 32,277 
|                                                    |  |                                            |         |      |   |        
|Earnings per share:                                 |  |                                            |         |      |   |        
|Basic                                               |  | $                                          | 1.06    |      | $ | 1.32   
|                                                    |  |                                            |         |      |   |        
|Diluted                                             |  | $                                          | 1.03    |      | $ | 1.28   
|                                                    |  |                                            |         |      |   |        

9. GOODWILL AND CORE DEPOSIT INTANGIBLES

The following summarizes the balances of goodwill and deposit intangibles at December 31, 2004 and 2005.



|                                                   |  |                  |       |                  |   |        |  
|-------------------------------------------------- |  | ---------------- | ----- | ---------------- | - | ------ | -
|                                                   |  | December 31,2004 |       | December 31,2005 |  
|                                                   |  | (In Thousands)   |      
|Goodwill:                                          |  |                  |       |                  |   |        |  
|Bank Boynton                                       |  | $                | 1,767 |                  | $ | 1,767  |  
|Dunn & Noel insurance company                      |  |                  | 404   |                  |   | 404    |  
|First Community Bancorp (See Note 8)               |  |                  |      |                  |   | 12,085 |  
|                                                   |  |                  |       |                  |   |        |  
|Total Goodwill                                     |  |                  | 2,171 |                  |   | 14,256 |  
|                                                   |  |                  |       |                  |   |        |  
|Deposit intangibles:                               |  |                  |       |                  |   |        |  
|Core deposit intangibles, amortized over 9.3 years |  |                  |       |                  |   | 7,098  |  
|Accumulated amortization                           |  |                  |      |                  |   | (570   | )
|                                                   |  |                  |       |                  |   |        |  
|Core deposit intangibles, net                      |  |                  |      |                  |   | 6,528  |  
|                                                   |  |                  |       |                  |   |        |  

There was no impairment of goodwill during the years ended December 31, 2004 and 2005.

Amortization expense of core deposit intangibles for the year ending December 31, 2005 was $570,000. Amortization expense is expected to be $760,000 for each of the
five years thereafter.



F-20



---

10. DEPOSITS

The
weighted-average interest rates on deposits at December 31, 2004 and 2005 were 1.53% and 2.63%, respectively. Deposit accounts, by type and range of rates at December 31, 2004 and 2005 consist of the following:



|                                                                                                    |  |                |           |      |   |          
|--------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ---- | - | ---------
|Account Type and Rate                                                                               |  | 2004           |           | 2005
|                                                                                                    |  | (In Thousands)
|Non-interest-bearing checking accounts                                                              |  | $              | 386,790   |      | $ | 485,425  
|Interest-bearing checking and funds transfer accounts 2004 and 2005, 1.13 % and 2.31%, respectively |  |                | 689,533   |      |   | 820,588  
|Passbook and statement accounts 2004 and 2005, 1.78 % and 3.02%, respectively                       |  |                | 770,124   |      |   | 825,117  
|Variable-rate money market accounts 2004 and 2005, 1.69 % and 3.25%, respectively                   |  |                | 335,573   |      |   | 507,664  
|                                                                                                    |  |                |           |      |   |          
|Total non-certificate accounts                                                                      |  |                | 2,182,020 |      |   | 2,638,794
|                                                                                                    |  |                |           |      |   |          
|Certificates:                                                                                       |  |                |           |      |   |          
|0.00% - 1.00%                                                                                       |  |                | 39,562    |      |   | 25,789   
|1.01% - 2.00%                                                                                       |  |                | 141,203   |      |   | 37,801   
|2.01% - 3.00%                                                                                       |  |                | 263,888   |      |   | 115,725  
|3.01% - 4.00%                                                                                       |  |                | 110,897   |      |   | 405,159  
|4.01% - 5.00%                                                                                       |  |                | 72,468    |      |   | 316,160  
|5.01% - 6.00%                                                                                       |  |                | 2,194     |      |   | 1,240    
|6.01% - 7.00%                                                                                       |  |                | 2,438     |      |   | 206      
|                                                                                                    |  |                |           |      |   |          
|Total certificates                                                                                  |  |                | 632,650   |      |   | 902,080  
|                                                                                                    |  |                |           |      |   |          
|Total                                                                                               |  | $              | 2,814,670 |      | $ | 3,540,874
|                                                                                                    |  |                |           |      |   |          

Individual non-certificate accounts greater than $ 100,000 at December 31, 2004 and 2005 aggregated
approximately $ 1.3 billion and $ 1.7 billion, respectively. Individual certificates of deposit greater than $ 100,000 at December 31, 2004 and 2005 aggregated approximately $ 219.3 million and $ 375.5
million, respectively. Deposit balances up to $ 100,000 are FDIC insured.

Interest on deposit accounts, presented in the consolidated statements of
operations, is net of interest forfeited by depositors on early withdrawal of certificate accounts of approximately $ 112,000, $ 98,000 and $ 166,000 for the years ended December 31, 2003, 2004 and 2005, respectively.

Scheduled maturities of certificate accounts are as follows:



|                 |  |                        |         |         |        |   |        |   |         |  |        |  
|---------------- |  | ---------------------- | ------- | ------- | ------ | - | ------ | - | ------- |  | ------ | -
|                 |  | December 31,           |        
|                 |  | 2004                   |         |         | 2005   |  
|                 |  | Amount                 |         | Percent |        |   | Amount |   | Percent | 
|                 |  | (Dollars in Thousands) |        
|Maturity         |  |                        |         |        
|                 |  |                        |         |        
|Less than 1 year |  | $                      | 422,159 |         | 66.73  | % |        | $ | 771,071 |  | 85.48  | %
|1 year-2 years   |  |                        | 98,482  |         | 15.57  | % |        |   | 105,218 |  | 11.66  | %
|2 years-3 years  |  |                        | 88,849  |         | 14.04  | % |        |   | 18,122  |  | 2.01   | %
|3 years-4 years  |  |                        | 16,498  |         | 2.61   | % |        |   | 5,772   |  | 0.64   | %
|4 years-5 years  |  |                        | 6,662   |         | 1.05   | % |        |   | 1,897   |  | 0.21   | %
|                 |  |                        |         |         |        |   |        |   |         |  |        |  
|Total            |  | $                      | 632,650 |         | 100.00 | % |        | $ | 902,080 |  | 100.00 | %
|                 |  |                        |         |         |        |   |        |   |         |  |        |  

Under FIRREA, any insured depository institution that does not meet its applicable minimum capital requirements
may not accept brokered deposits. This prohibition includes renewals and rollovers of existing brokered deposits and deposit solicitations at higher than prevailing interest rates paid by institutions in the Banks normal market area. Even
though the Bank meets all of the applicable minimum capital requirements at December 31, 2005, the Bank had no brokered deposits.



F-21



---

Interest expense on deposits consists of the following during the years ended December 31, 2003, 2004 and 2005:



|                                   |  |                |        |      |   |        |  |   |       
|---------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                   |  | 2003           |        | 2004 |   | 2005  
|                                   |  | (In Thousands)
|Passbook accounts                  |  | $              | 9,643  |      | $ | 11,860 |  | $ | 18,271
|Interest-bearing checking accounts |  |                | 5,553  |      |   | 6,667  |  |   | 11,494
|Money market accounts              |  |                | 4,006  |      |   | 5,176  |  |   | 10,524
|Certificate accounts               |  |                | 19,403 |      |   | 15,973 |  |   | 21,518
|                                   |  |                |        |      |   |        |  |   |       
|Total                              |  | $              | 38,605 |      | $ | 39,676 |  | $ | 61,807
|                                   |  |                |        |      |   |        |  |   |       

11. ADVANCES FROM FEDERAL HOME LOAN BANK

The Bank had outstanding advances from the FHLB of $ 250.9 million with interest rates ranging from 1.00% to 7.01% and $ 92.3 million with interest rates ranging from 1.00% to 5.66% at
December 31, 2004 and 2005 respectively. All of the advances shown had fixed interest rates and, depending on market rates, may have substantial prepayment penalties. The advances at the dates specified are repayable as follows:



|                          |  |                      |         |                      |   |       
|------------------------- |  | -------------------- | ------- | -------------------- | - | ------
|Years Ending December 31, |  | At December 31, 2004 |         | At December 31, 2005
|                          |  | (In Thousands)      
|2005                      |  | $                    | 163,582 |                      |   |      
|2006                      |  |                      | 13,582  |                      | $ | 13,572
|2007                      |  |                      | 13,582  |                      |   | 13,572
|2008                      |  |                      | 58,999  |                      |   | 58,988
|2009                      |  |                      | 904     |                      |   | 893   
|2010                      |  |                      |        |                      |   |      
|Thereafter                |  |                      | 206     |                      |   | 5,339 
|                          |  |                      |         |                      |   |       
|Total                     |  | $                    | 250,855 |                      | $ | 92,364
|                          |  |                      |         |                      |   |       

The Bank has a collateral agreement with the FHLB which includes a blanket floating lien that requires the Bank to
maintain qualifying first mortgage loans as pledged collateral in an amount equal to the advances when discounted at 80% of the unpaid principal balances of the qualifying first mortgage loans.

As of December 31, 2005, the Banks maximum borrowing capacity at the FHLB was approximately $ 1.1 billion, leaving $ 969.1 million as additional
borrowing capacity.

12. JUNIOR SUBORDINATED DEBENTURES

In January, 1998 the Company issued $ 29.6 million of Junior Subordinated Debentures out of a grantor trust, Fidelity Capital Trust I, a Delaware statutory trust, which was created by the Company for this sole purpose. These
securities were fully redeemed and liquidated on November 24, 2004 with proceeds from an issue of trust preferred securities from Fidelity Capital Trust III.

In December 2003 the Company issued $ 22.7 million of Junior Subordinated Debentures as part of a pooled trust preferred stock offering out of a grantor trust, Fidelity Capital Trust II, a Delaware statutory business trust, which
was created by the Company for this sole purpose. As its only asset, the trust owns $22.7 million of the Companys Junior Subordinated Debentures due January 23, 2034, purchased with the proceeds from issuance of mandatorily
redeemable



F-22



---

preferred securities. These securities pay interest at a floating rate of 285 basis points above the three month LIBOR
rate and averaged 4.40% and 6.26% for the years ended December 31, 2004 and 2005, respectively. The junior subordinated debentures are scheduled to mature on January 23, 2034, at which time the trust preferred securities will be redeemed.
As a result of the above, the Preferred Securities of the trust are considered fully and unconditionally guaranteed by the Company.

In October 2004 the
Company issued $ 30.9 million of Junior Subordinated Debentures as part of a pooled trust preferred stock offering out of a grantor trust, Fidelity Capital Trust III, a Delaware statutory business trust, which was created by the Company for
this sole purpose. As its only asset, the trust owns $ 30.9 million of the Companys Junior Subordinated Debentures due November 23, 2034, purchased with the proceeds from issuance of mandatorily redeemable preferred securities. These
securities pay interest at a floating rate of 197 basis points above the three month LIBOR rate and averaged 4.05% and 5.30% for the years ended December 31, 2004 and 2005, respectively. The junior subordinated debentures are scheduled to
mature on November 23, 2034 at which time the trust preferred securities will be redeemed. As a result of the above, the Preferred Securities of the trust are considered fully and unconditionally guaranteed by the Company. The Company used
proceeds from this issue to fully redeem all securities issued under Fidelity Capital Trust I, terminating that Trusts existence.

Distributions on
the preferred securities of both Trust II and Trust III are cumulative and are payable at the same rate as the Companys junior subordinated debentures described above. The Companys junior subordinated debentures, due January 23,
2034, are redeemable in whole or in part at the Companys discretion at 100% of principal amount commencing January 23, 2009. The Companys junior subordinated debentures, due November 23, 2034, are redeemable in whole or in
part at the Companys discretion at 100% of principal amount commencing November 23, 2009. The preferred securities issued by both trusts are subject to mandatory redemption, in whole or in part as applicable, upon the repayment of
the junior subordinated debentures. The proceeds from the securities, to the extent invested in common stock of the Bank, are considered to be Tier 1 capital for regulatory purposes. The Company has invested a combined total of $45 million in the
common stock of the Bank from the funds raised from both issuances.

13. INCOME TAXES

The components of the provisions for income taxes for the years ended December 31, 2003, 2004 and 2005 are as follows:



|                             |  |                |        |   |      |   |        |      |  |   |        |  
|---------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                             |  | 2003           |        |   | 2004 |   |        | 2005 | 
|                             |  | (In Thousands) |       
|Current  federal            |  | $              | 11,006 |   |      | $ | 14,126 |      |  | $ | 18,480 |  
|Current  state              |  |                | 1,807  |   |      |   | 2,330  |      |  |   | 3,162  |  
|                             |  |                |        |   |      |   |        |      |  |   |        |  
|Total current                |  |                | 12,813 |   |      |   | 16,456 |      |  |   | 21,642 |  
|Deferred  federal and state |  |                | (1,334 | ) |      |   | (1,766 | )    |  |   | (1,967 | )
|                             |  |                |        |   |      |   |        |      |  |   |        |  
|Total                        |  | $              | 11,479 |   |      | $ | 14,690 |      |  | $ | 19,675 |  
|                             |  |                |        |   |      |   |        |      |  |   |        |  

The Companys provision for income taxes differs from the amounts determined by applying the statutory
federal income tax rate to income before income taxes for the following reasons:



|                                                       |  |                          |        |   |      |      |   |        |   |        |   |  |      |        |  |   |        |   |  |      |  
|------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | ---- | - | ------ | - | ------ | - |  | ---- | ------ |  | - | ------ | - |  | ---- | -
|                                                       |  | Years Ended December 31, |       
|                                                       |  | 2003                     |        |   | 2004 |      |   | 2005   |  
|                                                       |  | Amount                   |        |   | %    |      |   | Amount |   |        | % |  |      | Amount |  |   | %      |  
|                                                       |  | (Dollars in Thousands)   |       
|Tax at federal tax rate                                |  | $                        | 10,290 |   |      | 35.0 | % |        | $ | 13,155 |   |  | 35.0 | %      |  | $ | 18,115 |   |  | 35.0 | %
|State income taxes, net of federal income tax benefits |  |                          | 1,050  |   |      | 3.6  |   |        |   | 1,350  |   |  | 3.6  |        |  |   | 1,872  |   |  | 3.6  |  
|Employee stock ownership plan                          |  |                          | 183    |   |      | 0.6  |   |        |   | 340    |   |  | 0.9  |        |  |   | 393    |   |  | 0.8  |  
|Other                                                  |  |                          | (44    | ) |      | (0.2 | ) |        |   | (155   | ) |  | (0.5 | )      |  |   | (705   | ) |  | (1.4 | )
|                                                       |  |                          |        |   |      |      |   |        |   |        |   |  |      |        |  |   |        |   |  |      |  
|Total provision and effective tax rate                 |  | $                        | 11,479 |   |      | 39.0 | % |        | $ | 14,690 |   |  | 39.0 | %      |  | $ | 19,675 |   |  | 38.0 | %
|                                                       |  |                          |        |   |      |      |   |        |   |        |   |  |      |        |  |   |        |   |  |      |  



F-23



---

The tax effect of temporary differences which give rise to deferred tax assets and deferred tax liabilities are presented
below:



|                                                  |  |                |        |      |   |       
|------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                  |  | December 31,  
|                                                  |  | 2004           |        | 2005
|                                                  |  | (In Thousands)
|Deferred tax liabilities:                         |  |                |        |      |   |       
|Depreciation                                      |  | $              | 1,982  |      | $ | 3,248 
|Unamortized intangible assets                     |  |                |       |      |   | 2,464 
|Loan fee income and capitalized costs             |  |                | 3,330  |      |   | 1,711 
|FHLB stock dividends                              |  |                | 221    |      |   | 58    
|Unrealized appreciation in securities             |  |                | 988    |      |   |      
|Deferred state taxes                              |  |                | 379    |      |   | 361   
|                                                  |  |                |        |      |   |       
|Gross deferred tax liabilities                    |  |                | 6,900  |      |   | 7,842 
|                                                  |  |                |        |      |   |       
|Deferred tax assets:                              |  |                |        |      |   |       
|Excess of tax bad debt reserve over book reserve  |  |                | 5,519  |      |   | 6,661 
|Executive death benefit                           |  |                | 172    |      |   |      
|Unamortized intangible assets                     |  |                | 182    |      |   |      
|Retirement plan                                   |  |                | 5,575  |      |   | 6,419 
|Deferred compensation                             |  |                | 1,502  |      |   | 1,397 
|Unrealized depreciation in securities             |  |                |       |      |   | 3,545 
|Other accruals                                    |  |                | 385    |      |   | 491   
|Minimum pension liability adjustment              |  |                | 1,246  |      |   | 1,138 
|Other                                             |  |                | 202    |      |   | 124   
|                                                  |  |                |        |      |   |       
|Gross deferred tax assets                         |  |                | 14,783 |      |   | 19,775
|Less valuation allowances for deferred tax assets |  |                |       |      |   |      
|                                                  |  |                |        |      |   |       
|Gross deferred tax assets                         |  |                | 14,783 |      |   | 19,775
|                                                  |  |                |        |      |   |       
|Net deferred tax assets                           |  | $              | 7,883  |      | $ | 11,933
|                                                  |  |                |        |      |   |       

During 1996, a law was enacted that repealed Section 593 of the Internal Revenue Code for taxable years
beginning after December 31, 1995. Section 593 allowed thrift institutions, including the Bank, to use the percentage-of-taxable income bad debt accounting method, if more favorable than the specific charge-off method, for federal income
tax purposes. The excess reserves (deduction based on the percentage-of-taxable income less the deduction based on the specific charge-off method) accumulated post-1987 are required to be recaptured ratably over a six year period beginning in 1996.
Such amounts were fully recaptured as of December 31, 2003. The same legislation allowed thrift institutions to convert to commercial bank charter, diversify their lending, or be merged into a commercial bank without having to recapture the
pre-1988 tax bad debt reserve. However, the reserve would have to be recaptured if the institution redeems its own stock, pays dividends or distributions in excess of earnings and profits or fails to qualify as a bank for federal income tax
purposes. The Company intends to meet all requirements that prevent it from recapturing the pre-1988 reserves. The unrecorded potential liability related to this reserve is $2.9 million.

14. PENSION AND EMPLOYEE BENEFIT PLANS

Savings  401K Plan  Effective January 1, 1988, the
Board of Directors approved a 401(k) deferred savings plan for all Bank employees who are 21 years of age with one or more years of service. The 401(k) deferred savings plan allows qualified employees to save from 1% to 25% of their income.
Presently, one-half of an employees contribution is matched by the Bank, up to 6% of the employees salary. The Banks matching percentage will be determined annually by the Board of Directors after taking into consideration such
factors as profit performance and ability to meet capital requirements. The Banks contribution to the plan totaled $ 632,000, $ 709,000 and $ 813,000 for the years ended December 31, 2003, 2004 and 2005, respectively.

The Banks employees hired after December 31, 2000 participate in a qualified defined contribution plan in addition to the Banks Savings
Plan 401(k). The Bank provides these employees with an additional pension account within the 401(k) plan. To be eligible for participation, an employee must be 21 years of age. Fidelity Federal will contribute 3% of the employees base salary
to the pension account for each year that the employee works 1,000 hours. If the employee has



F-24



---

completed at least seven years of service, the contribution percentage will increase to 4% annually and after 14 years of
service the percentage will increase to 5% annually. The Banks contribution to the plan totaled $111,000 and $121,000 for the years ended December 31, 2004 and 2005, respectively

Pension Plan  The Banks employees hired prior to January 1, 2001 participate in the Banks qualified defined benefit pension plan covering
substantially all of these employees. The plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Bank and compensation rates during those years. The Banks policy is to fund the
qualified retirement plan in an amount that falls between the minimum contribution required by the Employee Retirement Income Security Act and the maximum tax deductible contribution. Plan assets consist primarily of common stock, U.S. Government
obligations and certificates of deposit.

Components of the Banks Pension Plan are as follows:



|                                                    |  |                |         |   |      |   |        |  
|--------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------ | -
|                                                    |  | 2004           |         |   | 2005 |  
|                                                    |  | (In Thousands) |        
|CHANGE IN BENEFIT OBLIGATIONS                       |  |                |         |   |      |   |        |  
|Benefit obligation, beginning of period             |  | $              | 27,005  |   |      | $ | 27,652 |  
|Service cost                                        |  |                | 2,222   |   |      |   | 2,385  |  
|Interest cost                                       |  |                | 1,586   |   |      |   | 1,628  |  
|Amendments                                          |  |                |        |   |      |   | 198    |  
|Actuarial loss                                      |  |                | 1,514   |   |      |   | 1,319  |  
|Benefit paid                                        |  |                | (4,675  | ) |      |   | (2,127 | )
|                                                    |  |                |         |   |      |   |        |  
|Benefit obligation, end of period                   |  | $              | 27,652  |   |      | $ | 31,055 |  
|                                                    |  |                |         |   |      |   |        |  
|CHANGE IN PLAN ASSETS                               |  |                |         |   |      |   |        |  
|Fair value of plan assets, beginning of period      |  | $              | 17,233  |   |      | $ | 17,518 |  
|Actual return on plan assets                        |  |                | 1,692   |   |      |   | 1,379  |  
|Employers contribution                             |  |                | 3,296   |   |      |   | 4,745  |  
|Benefits paid                                       |  |                | (4,675  | ) |      |   | (2,127 | )
|Administrative expenses                             |  |                | (28     | ) |      |   | (32    | )
|                                                    |  |                |         |   |      |   |        |  
|Fair value of plan assets, end of period            |  | $              | 17,518  |   |      | $ | 21,483 |  
|                                                    |  |                |         |   |      |   |        |  
|ASSET CATEGORY                                      |  |                |         |   |      |   |        |  
|Equity securities                                   |  |                | 72      | % |      |   | 71     | %
|Debt securities                                     |  |                | 9       |   |      |   | 10     |  
|Cash and cash equivalents                           |  |                | 19      |   |      |   | 19     |  
|                                                    |  |                |         |   |      |   |        |  
|Total                                               |  |                | 100     | % |      |   | 100    | %
|                                                    |  |                |         |   |      |   |        |  
|FUNDED STATUS                                       |  |                |         |   |      |   |        |  
|Funded status                                       |  | $              | (10,134 | ) |      | $ | (9,572 | )
|Unrecognized net actuarial loss                     |  |                | 11,507  |   |      |   | 12,037 |  
|Unrecognized prior service cost                     |  |                | 178     |   |      |   | 326    |  
|                                                    |  |                |         |   |      |   |        |  
|Net amount recognized-prepaid pension cost          |  | $              | 1,551   |   |      | $ | 2,791  |  
|                                                    |  |                |         |   |      |   |        |  
|Adjustment required to recognize minimum liability: |  |                |         |   |      |   |        |  
|Additional minimum liability                        |  | $              | 2,231   |   |      | $ |       |  
|Intangible asset                                    |  |                | 178     |   |      |   |       |  
|                                                    |  |                |         |   |      |   |        |  
|Accumulated other comprehensive income              |  |                | 2,053   |   |      |   |       |  
|                                                    |  |                |         |   |      |   |        |  
|ACCUMULATED BENEFIT OBLIGATION                      |  | $              | 18,198  |   |      | $ | 20,816 |  
|                                                    |  |                |         |   |      |   |        |  



F-25



---

Components of net periodic benefit cost are as follows:



|                                         |  |                                  |        |   |      |   |        |      |  |   |        |  
|---------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | For the Years Ended December 31, |       
|                                         |  | 2003                             |        |   | 2004 |   |        | 2005 | 
|                                         |  | (In Thousands)                   |       
|Service cost                             |  | $                                | 1,859  |   |      | $ | 2,222  |      |  | $ | 2,385  |  
|Interest cost                            |  |                                  | 1,375  |   |      |   | 1,586  |      |  |   | 1,628  |  
|Return on assets                         |  |                                  | (1,206 | ) |      |   | (1,558 | )    |  |   | (1,531 | )
|Amortization of prior service cost       |  |                                  | 5      |   |      |   | 5      |      |  |   | 50     |  
|Recognition of net actuarial (gain) loss |  |                                  | 890    |   |      |   | 823    |      |  |   | 973    |  
|                                         |  |                                  |        |   |      |   |        |      |  |   |        |  
|Net periodic benefit cost                |  | $                                | 2,923  |   |      | $ | 3,078  |      |  | $ | 3,505  |  
|                                         |  |                                  |        |   |      |   |        |      |  |   |        |  

For the years ended December 31, 2003, 2004 and 2005, pension expense amounts were based upon actuarial
computations.

The Bank funded $ 2,581,000, $ 3,296,000 and $ 4,745,000 as required for the 2003, 2004 and 2005 plan years, and expects to make a
contribution for the 2006 plan year of approximately $ 3,512,000.

The Company, in cooperation with its actuaries and asset managers, determines the
discount rate to be used which includes reviewing the rates used on high quality fixed-income investments such as Moodys Aa long-bond index. The annual increase in future compensation levels is a composite rate which reflects anticipated
inflation, merit increases and promotions for the group of covered participants. The long term rate of return used is a composite rate which is derived as the sum of the estimated percentages invested in each principal asset class included in the
portfolio multiplied by their expected rates of return.

The assumptions used in computing the present value of the projected benefit obligation and the
net periodic pension expense are as follows:



|                                                                                   |  |              |   |  |      |   |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | - |  | ---- | - |  | ---- | -
|                                                                                   |  | December 31, |  
|                                                                                   |  | 2003         |   |  | 2004 |   |  | 2005 |  
|Discount rate in determining benefit obligation                                    |  | 6.00         | % |  | 5.75 | % |  | 5.75 | %
|Rate of increase in future compensation levels for determining benefit obligations |  | 4.25         | % |  | 4.25 | % |  | 4.25 | %
|Expected return on plan assets                                                     |  | 9.00         | % |  | 9.00 | % |  | 8.50 | %

Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:



|                          |  |                |       
|------------------------- |  | -------------- | ------
|Years Ending December 31, |  | Amount        
|                          |  | (In Thousands)
|2006                      |  | $              | 1,713 
|2007                      |  |                | 1,678 
|2008                      |  |                | 2,403 
|2009                      |  |                | 3,842 
|2010                      |  |                | 2,724 
|2011-2015                 |  |                | 18,487
|                          |  |                |       
|Total                     |  | $              | 30,847
|                          |  |                |       

At December 31, 2004, the Bank had a minimum pension liability of $2.2 million. At December 31, 2005,
the Bank had no minimum pension liability. A minimum pension liability is prescribed when the accumulated benefit obligation in the plan exceeds the fair value of the underlying pension plan assets and accrued pension liabilities. The adjustment is
reflected in other comprehensive income and other long-term liabilities, as appropriate.



F-26



---

The Company has a pension committee whose responsibility is to monitor the managing of plan assets in accordance with the
plans established investment policy. The purpose of the investment policy is to provide guidelines for asset allocation, set policies for selection of appropriate investment funds and to guide the committee in its fiduciary duties. The overall
objective of the investment policy is to ensure the plan has the ability to pay all benefit and expense obligations when due, to maximize return on assets within reasonable and prudent levels of risk and to control the costs of administering the
plan and managing plan assets. The plans targeted asset allocation is to maintain approximately 70% of its assets in equity securities with the remaining 30% in fixed income or debt securities. At December 31, 2004 and 2005 the plan had
no investment in the common stock of the Company.

Retirement Plans for Officers and Directors-Non-Qualified  During 1989, the Bank
established non-qualified defined benefit plans for certain officers and directors. The directors plan became effective on January 1, 1991. For the years ended December 31, 2003, 2004 and 2005, the net periodic benefit cost for
the Supplemental Executive Retirement Plan for Officers totaled $ 1.6 million, $ 1.9 million and $2.6 million, respectively. The projected benefit obligation as of December 31, 2004 and 2005, was estimated at $ 20.5 million and
$26.3 million respectively. For 2003, 2004 and 2005, respectively, the discount rates used to measure the projected benefit obligation were 6.00%, 5.75% and 5.75%. The rate of increase in future compensation levels in 2003, 2004 and 2005 was 4.25%.

For the years ended December 31, 2003, 2004 and 2005, the net periodic benefit cost for the Retirement Plan for the Directors totaled
$ 90,000, $ 91,000 and $108,000, respectively. The projected benefit obligation for the Retirement Plan for Directors as of December 31, 2004 and 2005 was estimated at $ 1.7 million and $1.9 million, respectively. For 2003, 2004
and 2005, the discount rates used to measure that projected benefit obligation were 6.00%, 5.75% and 5.75%, respectively. For the years ended December 31, 2003, 2004 and 2005, no rate of increase in future compensation levels for the Retirement
Plan for Directors was assumed.

Components of net periodic benefit cost for both the Supplemental Executive Retirement Plan for Officers and the
Retirement Plan for the Directors combined are as follows:



|                                         |  |                                 |       |      |   |       |      |  |   |       |  
|---------------------------------------- |  | ------------------------------- | ----- | ---- | - | ----- | ---- |  | - | ----- | -
|                                         |  | For the Years EndedDecember 31, |      
|                                         |  | 2003                            |       | 2004 |   |       | 2005 | 
|                                         |  | (In Thousands)                  |      
|Service cost                             |  | $                               | 559   |      | $ | 666   |      |  | $ | 803   |  
|Interest cost                            |  |                                 | 959   |      |   | 1,036 |      |  |   | 1,266 |  
|Amortization of prior service cost       |  |                                 | 47    |      |   | (15   | )    |  |   | (15   | )
|Recognition of net actuarial (gain) loss |  |                                 | 96    |      |   | 317   |      |  |   | 681   |  
|                                         |  |                                 |       |      |   |       |      |  |   |       |  
|Net periodic benefit cost                |  | $                               | 1,661 |      | $ | 2,004 |      |  | $ | 2,735 |  
|                                         |  |                                 |       |      |   |       |      |  |   |       |  

Incentive Program  The Bank also has a Senior Management Performance Incentive Award Program
(SMPIAP) to provide incentive earnings for those executives as a percentage of annual income. A designated percentage of income at December 31 of each year is used to determine the award fund contribution. This percentage will be
determined annually by the Board of Directors after taking into consideration such factors as profit performance and ability to meet capital requirements. Awards amounting to $ 1,230,000, $ 1,691,000 and $ 2,286,000 were made during the years
2003, 2004 and 2005, respectively, for distribution in subsequent years. The assets of the SMPIAP are held in a Rabbi trust for the benefit of senior management. The SMPIAP participants may elect to invest their awards in either Company stock or
other third party investment options. The assets of the Rabbi trust are included in the accompanying financial statements and are accounted as follows: (1) Assets, other than Company stock, (primarily trading securities) are included in other
assets at fair value ($ 1.5 million at December 31, 2005) with the corresponding obligation to the employees of a like amount included in other liabilities. Changes in the fair value of the assets and changes in the amount of the liability
are included in earnings; and (2) Company stock (416,799 shares at December 31, 2005) is carried at cost ($ 1.8 million at December 31, 2005) and included in treasury stock with the corresponding obligation to the
employees (which can only be settled through delivery of the shares) of a like amount included in additional paid-in capital.



F-27



---

Employee Stock Ownership Plan  On January 7, 1994, in connection with the Banks Plan of
Reorganization into a Mutual Holding Company, the Bank adopted a tax qualified Employee Stock Ownership Plan (ESOP) for all eligible employees. The ESOP purchased 770,331 shares of the Banks stock at the date of the Reorganization.
The funds used to purchase the shares were borrowed from a third party lender. Effective June 30, 1997, the loan was purchased and was held by Fidelity Bankshares, Inc. As of December 31, 2000, the loan had been paid in full and all
of the 770,331 shares had been allocated to employees individual ESOP accounts.

In connection with the Banks second step mutual-to-stock conversion
of its Mutual Holding Company parent on May 15, 2001, the ESOP purchased an additional 782,637 shares of the Banks stock. The funds used to purchase the shares were borrowed from Fidelity Bankshares, Inc. and therefore have been
eliminated in consolidation. Beginning March 31, 2002, the Bank began contributing to the ESOP sufficient funds to pay the principal and interest on the loan over 15 years.

Under the ESOP, benefits generally become 100% vested after five years of credited service. However, contributions to the ESOP and shares allocated among participants proportional to repayment of the ESOP loan will be
allocated among participants on the basis of compensation in the year of allocation, subject to regulatory maximum limitations. The Bank recognized $ 871,000, $ 1,320,000 and $ 1,470,000 by a charge against income in 2003, 2004 and 2005,
respectively, under this plan.

Bank Recognition and Retention Plan  On May 21, 2002, the Company adopted and the stockholders approved
the 2002 Recognition and Retention Plan to encourage key employees and Directors to remain with the Bank. Under the 2002 plan, the Company reserved and granted 521,757 shares of common stock to key employees and outside directors. These granted
shares will vest and be allocated to the affected employees and directors ratably over five years, subject to various conditions requiring their acceleration. The Bank recognized expense of $1,576,000, $1,365,000 and $1,260,000 in 2003, 2004 and
2005 respectively under the plan.

15. STOCK OPTION PLANS

On May 21, 2002, the Company adopted and stockholders approved the 2002 Incentive Stock Benefit Plan. Under the 2002 plan, the Company has reserved 1,304,391 shares of common stock, of which all but 3,175 options have been granted. The
term of the stock option awards is ten years from the date of grant. On December 29, 2005 the Benefits Committee of the Board of Directors of the Company approved the accelerated vesting and exercisability of all unvested and unexercisable
stock options granted as part of the Plan held by directors, officers or employees on December 30, 2005. As a result, all previously unvested options became fully vested on December 30, 2005.

The following table summarizes the status of all Company stock option plans for the three years ended December 31, 2003, 2004 and 2005.



|                            |  |                               |   |  |                                 |       |                 |   |            |  
|--------------------------- |  | ----------------------------- | - |  | ------------------------------- | ----- | --------------- | - | ---------- | -
|                            |  | Options Price                 |  
|                            |  | Number of Options Outstanding |   |  | Weighted Average Exercise Price |       | Aggregate Price |  
|Options Outstanding         |  |                               |   |  |                                 |       |                 |   |            |  
|Balance  December 31, 2002 |  | 1,449,469                     |   |  |                                 | 11.96 |                 |   | 17,332,343 |  
|Granted                     |  | 7,776                         |   |  |                                 | 16.93 |                 |   | 131,648    |  
|Exercised                   |  | (170,528                      | ) |  |                                 | 3.15  |                 |   | (537,163   | )
|Forfeited                   |  | (2,700                        | ) |  |                                 | 13.15 |                 |   | (36,477    | )
|                            |  |                               |   |  |                                 |       |                 |   |            |  
|Balance  December 31, 2003 |  | 1,284,017                     |   |  |                                 | 13.15 |                 |   | 16,890,351 |  
|Granted                     |  | 44,476                        |   |  |                                 | 23.85 |                 |   | 1,060,773  |  
|Exercised                   |  | (135,684                      | ) |  |                                 | 10.00 |                 |   | (1,356,747 | )
|Forfeited                   |  | (1,890                        | ) |  |                                 | 13.51 |                 |   | (25,534    | )
|                            |  |                               |   |  |                                 |       |                 |   |            |  
|Balance  December 31, 2004 |  | 1,190,919                     |   |  |                                 | 13.91 |                 |   | 16,568,843 |  
|Granted                     |  | 110,399                       |   |  |                                 | 27.34 |                 |   | 3,018,170  |  
|Exercised                   |  | (106,571                      | ) |  |                                 | 13.51 |                 |   | (1,439,774 | )
|Forfeited                   |  | (5,870                        | ) |  |                                 | 14.72 |                 |   | (86,384    | )
|                            |  |                               |   |  |                                 |       |                 |   |            |  
|Balance  December 31, 2005 |  | 1,188,877                     |   |  | $                               | 15.91 |                 | $ | 18,060,855 |  
|                            |  |                               |   |  |                                 |       |                 |   |            |  



F-28



---

The range of exercise prices for options outstanding at December 31, 2005 was $ 13.51 to $ 33.33. The range of
exercise prices for options is due to changes in the price of the Companys stock over the period of the grants. At December 31, 2005 all outstanding options were exercisable.

The following summarizes information about options outstanding and exercisable at December 31, 2005.



|                          |  |                                     |  |                                              |  |                                  |      
|------------------------- |  | ----------------------------------- |  | -------------------------------------------- |  | -------------------------------- | -----
|                          |  | Outstanding and Exercisable Options
|                          |  | Number of Shares                    |  | Weighted- Average Remaining Contractual Life |  | Weighted- Average Exercise Price
|Range of exercise prices: |  |                                     |  |                                              |  |                                  |      
|$13.51                    |  | 1,028,742                           |  | 6.4                                          |  | $                                | 13.51
|$16.93                    |  | 5,760                               |  | 6.4                                          |  |                                  | 16.93
|$22.38                    |  | 13,292                              |  | 6.4                                          |  |                                  | 22.38
|$23.13                    |  | 11,388                              |  | 6.4                                          |  |                                  | 23.13
|$24.71                    |  | 6,000                               |  | 6.4                                          |  |                                  | 24.71
|$24.75                    |  | 10,917                              |  | 6.4                                          |  |                                  | 24.75
|$24.90                    |  | 8,030                               |  | 6.4                                          |  |                                  | 24.90
|$25.12                    |  | 27,868                              |  | 6.4                                          |  |                                  | 25.12
|$25.30                    |  | 3,951                               |  | 6.4                                          |  |                                  | 25.30
|$25.59                    |  | 7,815                               |  | 6.4                                          |  |                                  | 25.59
|$27.67                    |  | 50,250                              |  | 6.4                                          |  |                                  | 25.67
|$33.33                    |  | 14,864                              |  | 5.7                                          |  |                                  | 33.33
|                          |  |                                     |  |                                              |  |                                  |      
|                          |  | 1,188,877                           |  | 6.4                                          |  | $                                | 15.19
|                          |  |                                     |  |                                              |  |                                  |      

These options will expire if not exercised by May 2012. The prices for the options exercisable at
December 31, 2005 ranged from $ 13.51 to $ 33.33.

As discussed in Note 1, the Company discloses the pro forma effect on net income and earnings per
share had the options granted been accounted for at fair value. The fair value of options granted have been estimated at the date of grant using the Black-Scholes option-pricing model.

16. REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision (OTS). Failure to meet minimum capital requirements can initiate certain mandatory and possible discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk-weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Tangible capital of
not less than 1.5% of adjusted total assets, Total capital to risk-weighted assets of not less than 8%, Tier I capital of not less than 3.0% of adjusted total assets, and Tier I capital to risk-weighted assets of 4.0% (as defined in the
regulations). At December 31, 2004 and 2005, the Bank met all capital adequacy requirements to which it was subject.



F-29



---

The most recent notification from the OTS categorized the Bank as Well Capitalized under the framework for
prompt corrective action. To be considered well capitalized under Prompt Corrective Action Provisions, the Bank must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have changed the Banks categorization. The Banks actual capital amounts and ratios are presented in the following table:



|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|------------------------------------------------------------------------------------------------- |  | ---------------------- | - |  | ----------------------------------- | --------- | ---------------------------------------------------------------------- | ----- | --- | - | ------ | - | ------- |  | ---- | ------ |  | - | -------
|                                                                                                  |  | Actual                 |   |  | Minimum forCapital AdequacyPurposes |           | To be ConsideredWell Capitalizedfor Prompt CorrectiveAction Provisions
|                                                                                                  |  | Ratio                  |   |  | Amount                              |           |                                                                        | Ratio |     |   | Amount |   | Ratio   |  |      | Amount
|                                                                                                  |  | (Dollars in Thousands)
|As of December 31, 2004 Stockholders Equity and ratio to total assets                            |  | 8.3                    | % |  | $                                   | 286,594   |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Unrealized decrease in market value of assets available for sale (net of applicable income taxes) |  |                        |   |  |                                     | (1,546    | )                                                                      |       |     |   |        |   |         |  |      |        |  |   |        
|Goodwill and other intangible assets                                                              |  |                        |   |  |                                     | (2,930    | )                                                                      |       |     |   |        |   |         |  |      |        |  |   |        
|Disallowed servicing assets                                                                       |  |                        |   |  |                                     | (213      | )                                                                      |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tangible capital and ratio to adjusted total assets                                               |  | 8.1                    | % |  | $                                   | 281,905   |                                                                        |       | 1.5 | % |        | $ | 51,966  |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tier I (core) capital and ratio to adjusted total assets                                          |  | 8.1                    | % |  | $                                   | 281,905   |                                                                        |       | 3.0 | % |        | $ | 103,932 |  | 5.0  | %      |  | $ | 173,220
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tier I (core) capital and ratio to risk-weighted total assets                                     |  | 11.3                   | % |  | $                                   | 281,905   |                                                                        |       | 4.0 | % |        | $ | 99,862  |  | 6.0  | %      |  | $ | 149,793
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Allowable Tier 2 capital:                                                                         |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|General loan valuation allowances                                                                 |  |                        |   |  |                                     | 12,639    |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Total risk-based capital and ratio to risk-weighted total assets                                  |  | 11.8                   | % |  | $                                   | 294,544   |                                                                        |       | 8.0 | % |        | $ | 199,725 |  | 10.0 | %      |  | $ | 249,656
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Total assets                                                                                      |  |                        |   |  | $                                   | 3,470,068 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Adjusted total assets                                                                             |  |                        |   |  | $                                   | 3,464,391 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Risk-weighted assets                                                                              |  |                        |   |  | $                                   | 2,496,558 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|As of December 31, 2005 Stockholders Equity and ratio to total assets                            |  | 8.0                    | % |  | $                                   | 326,560   |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Unrealized decrease in market value of assets available for sale (net of applicable income taxes) |  |                        |   |  |                                     | 5,785     |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Goodwill and other intangible assets                                                              |  |                        |   |  |                                     | (21,365   | )                                                                      |       |     |   |        |   |         |  |      |        |  |   |        
|Disallowed servicing assets                                                                       |  |                        |   |  |                                     | (364      | )                                                                      |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tangible capital and ratio to adjusted total assets                                               |  | 7.6                    | % |  | $                                   | 310,616   |                                                                        |       | 1.5 | % |        | $ | 61,055  |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tier I (core) capital and ratio to adjusted total assets                                          |  | 7.6                    | % |  | $                                   | 310,616   |                                                                        |       | 3.0 | % |        | $ | 122,109 |  | 5.0  | %      |  | $ | 203,516
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Tier I (core) capital and ratio to risk-weighted total assets                                     |  | 10.8                   | % |  | $                                   | 310,616   |                                                                        |       | 4.0 | % |        | $ | 115,552 |  | 6.0  | %      |  | $ | 173,328
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Allowable Tier 2 capital:                                                                         |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|General loan valuation allowances                                                                 |  |                        |   |  |                                     | 15,380    |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Total risk-based capital and ratio to risk-weighted total assets                                  |  | 11.3                   | % |  | $                                   | 325,996   |                                                                        |       | 8.0 | % |        | $ | 231,104 |  | 10.0 | %      |  | $ | 288,880
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Total assets                                                                                      |  |                        |   |  | $                                   | 4,082,716 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Adjusted total assets                                                                             |  |                        |   |  | $                                   | 4,070,316 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|Risk-weighted assets                                                                              |  |                        |   |  | $                                   | 2,888,804 |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        
|                                                                                                  |  |                        |   |  |                                     |           |                                                                        |       |     |   |        |   |         |  |      |        |  |   |        

At periodic intervals, both the OTS and the FDIC routinely examine the Companys and the Banks
financial statements as part of their legally proscribed oversight of the savings and loan industry. Based on these examinations, the regulators can direct that the financial statements be adjusted in accordance with their findings.



F-30



---

During the year ended December 31, 2005, an OTS examination resulted in no significant adjustments to the
consolidated financial statements.

17. COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, the Bank makes commitments to extend credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the
contract. The interest rates on both fixed and variable rate mortgage loans are generally based on the market rates in effect on the date the loan application is taken. Commitments generally have fixed expiration dates of no longer than 60 days
and other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates
each customers creditworthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on managements credit evaluation of the customer. Collateral held varies but may include
single-family homes, marketable securities and income-producing residential and commercial properties. Credit losses may occur when one of the parties fails to perform in accordance with the terms of the contract. The Banks exposure to credit
risk is represented by the contractual amount of the commitments to extend credit. Allowances for incurred losses on commitments to extend credit are based on managements best estimate of probable losses that have been incurred as of the
consolidated statement of financial position date. If an allowance is deemed necessary, management would record such in other liabilities. At December 31, 2004 and 2005, the Bank provided no such allowances for losses on commitments to extend
credit. At December 31, 2005, the Bank had commitments to extend credit for or purchase loans of $ 290.7 million ($ 85.2 million in fixed rate commitments with interest rates ranging from predominantly 4.99% to 8.50%,
and the balance of commitments in either variable rate or for which rates had not yet been set). In addition, the Bank also had undisbursed loan proceeds on closed loans of $569.1 million and undisbursed revolving lines of credit of $266.8 million
at December 31, 2005. The Bank also has a pre-approval program which commits dollar amounts to potential loan customers based on their credit history. This program, however, does not commit to locked in rates. No fees are received in
connection with such commitments. The Bank also issues standby letters of credit which are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit
is essentiality the same as that involved in extending loan facilities to customers. At December 31, 2004 and 2005, standby letters of credit amounted to $14.6 million and $15.8 million, respectively.

The Bank leases various properties for periods ranging from one to fifty-one years. Rent expense for the years ended December 31, 2003, 2004 and 2005, was
approximately $ 1,525,000, $ 1,696,000 and $ 2,033,000, respectively. At December 31, 2005, future minimum lease payments under these operating leases are as follows:



|                          |  |                |       
|------------------------- |  | -------------- | ------
|Years Ending December 31, |  | Amount        
|                          |  | (In Thousands)
|2006                      |  | $              | 2,806 
|2007                      |  |                | 2,536 
|2008                      |  |                | 2,424 
|2009                      |  |                | 1,989 
|2010                      |  |                | 1,815 
|Thereafter                |  |                | 16,965
|                          |  |                |       
|Total                     |  | $              | 28,535
|                          |  |                |       

The Bank has entered into a three year employment agreement with its Chief Executive Officer. This agreement,
among other matters, would provide for severance payments of up to three years salary in the event of termination for reasons other than cause. In addition, the Bank has entered into severance agreements with four of its executive officers. The
severance agreements would provide for payments of up to three years salary for these executives, but only in the event of change of control of the Bank.

In December 2002, the Board of Directors of the Company adopted a plan for certain executives, under which the Company has agreed to reimburse them for any excise taxes which may be imposed on them under the federal tax code in connection
with payments made following a change in control.



F-31



---

The Company is subject to various claims, legal actions and complaints arising in the ordinary course of business. In the
Companys opinion, the disposition of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

18. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS



|                                                                              |  |                                  |        |      |   |        |  |   |        
|----------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- | - | ------ |  | - | -------
|                                                                              |  | For the Years Ended December 31,
|                                                                              |  | 2003                             |        | 2004 |   | 2005  
|                                                                              |  | (In Thousands)                  
|Supplemental Disclosure of Cash Flow Information:                             |  |                                  |        |      |   |        |  |   |        
|Cash paid for income taxes                                                    |  | $                                | 13,748 |      | $ | 13,440 |  | $ | 18,095 
|                                                                              |  |                                  |        |      |   |        |  |   |        
|Cash paid for interest on deposits and other borrowings                       |  | $                                | 56,961 |      | $ | 59,311 |  | $ | 77,533 
|                                                                              |  |                                  |        |      |   |        |  |   |        
|Supplemental Schedule of Noncash Investing and Financing Activities:          |  |                                  |        |      |   |        |  |   |        
|Property acquired in settlement of loans                                      |  | $                                | 870    |      | $ | 84     |  | $ | 1,893  
|                                                                              |  |                                  |        |      |   |        |  |   |        
|Mortgage-backed securities retained from the securitization of mortgage loans |  | $                                |       |      | $ | 89,167 |  | $ | 200,562
|                                                                              |  |                                  |        |      |   |        |  |   |        
|Issuance of common stock for acquisitions                                     |  | $                                |       |      | $ |       |  | $ | 12,858 
|                                                                              |  |                                  |        |      |   |        |  |   |        

19. EARNINGS PER SHARE

The weighted-average number of shares used to calculate basic and diluted earnings per share for the years ended December 31, 2003, 2004 and 2005, retroactively adjusted to reflect the 3 for 2 stock split in 2004, are as follows:



|                           |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|-------------------------- |  | ------------------------------------ | ---------- | ------------------------------------ | ---------- | ------------------------------------ | - | ---------- |  | ---------- | ---------- | ---------------- | ---------- | ---------- | - | ---------- |  | ---------------- | ---------- |  | ---------- |  | - | ----
|                           |  | For the Year Ended December 31, 2003 |            | For the Year Ended December 31, 2004 |            | For the Year Ended December 31, 2005
|                           |  | Income (1)                           |            | Shares (2)                           |            | Per-Share Amount                     |   | Income (1) |  | Shares (2) |            | Per-Share Amount |            | Income (1) |   | Shares (2) |  | Per-Share Amount
|Net income                 |  | $                                    | 17,921,000 |                                      |            |                                      |   |            |  | $          | 22,897,000 |                  |            |            |   |            |  | $                | 32,082,000 |  |            |  |   |     
|Basic EPS: Mortgage loans  |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|Net income                 |  | $                                    | 17,921,000 |                                      | 21,747,880 |                                      | $ | 0.82       |  | $          | 22,897,000 |                  | 22,068,136 |            | $ | 1.04       |  | $                | 32,082,000 |  | 24,344,880 |  | $ | 1.32
|                           |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|Effect of diluted shares : |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|Common stock options       |  |                                      |            |                                      | 315,441    |                                      |   |            |  |            |            |                  | 680,417    |            |   |            |  |                  |            |  | 667,648    |  |   |     
|                           |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|Diluted EPS:               |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     
|Net income                 |  | $                                    | 17,921,000 |                                      | 22,063,321 |                                      | $ | 0.81       |  | $          | 22,897,000 |                  | 22,748,552 |            | $ | 1.01       |  | $                | 32,082,000 |  | 25,012,528 |  | $ | 1.28
|                           |  |                                      |            |                                      |            |                                      |   |            |  |            |            |                  |            |            |   |            |  |                  |            |  |            |  |   |     

---

|(1) | Numerator
|--- | ---------

|(2) | Denominator
|--- | -----------

Stock options for 5,184, 13,197 and 14,864 shares of common
stock were not considered in computing diluted earnings per share for 2003, 2004 and 2005 because they were antidilutive.

20. ACCUMULATED OTHER
COMPREHENSIVE LOSS

An analysis of the components of Accumulated Other Comprehensive Loss for the years ended December 31, 2003, 2004 and
2005, net of related tax effects, is as follows:



|                                                     |  |                |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                     |  | December 31,   |       
|                                                     |  | 2003           |        |   | 2004 |   |        | 2005 | 
|                                                     |  | (In Thousands) |       
|Unrealized gain (loss) on assets available for sale: |  | $              | (1,060 | ) |      | $ | 1,546  |      |  | $ | (5,785 | )
|Minimum pension liability                            |  |                | (1,657 | ) |      |   | (1,949 | )    |  |   | (1,857 | )
|                                                     |  |                |        |   |      |   |        |      |  |   |        |  
|Ending balance                                       |  | $              | (2,717 | ) |      | $ | (403   | )    |  | $ | (7,642 | )
|                                                     |  |                |        |   |      |   |        |      |  |   |        |  



F-32



---

An analysis of the related tax effects allocated to Other Comprehensive Income (Loss) is as follows:



|                                                                      |  |                   |       |   |                     |   |      |                   |  |   |                  |   |  |                     |       |   |                  |   |        |                  |  |   |                     |   |  |                  |         |   |  |   |       |   |  |   |        |  
|--------------------------------------------------------------------- |  | ----------------- | ----- | - | ------------------- | - | ---- | ----------------- |  | - | ---------------- | - |  | ------------------- | ----- | - | ---------------- | - | ------ | ---------------- |  | - | ------------------- | - |  | ---------------- | ------- | - |  | - | ----- | - |  | - | ------ | -
|                                                                      |  | December 31, 2003 |       |   | December 31, 2004   |   |      | December 31, 2005 | 
|                                                                      |  | Before-taxAmount  |       |   | Tax(Expense)Benefit |   |      | Net-of-TaxAmount  |  |   | Before-taxAmount |   |  | Tax(Expense)Benefit |       |   | Net-of-TaxAmount |   |        | Before-taxAmount |  |   | Tax(Expense)Benefit |   |  | Net-of-TaxAmount |        
|                                                                      |  | (In Thousands)    |      
|Unrealized gain (loss) on assets available for sale:                  |  |                   |       |   |                     |   |      |                   |  |   |                  |   |  |                     |       |   |                  |   |        |                  |  |   |                     |   |  |                  |         |   |  |   |       |   |  |   |        |  
|Unrealized holding gains (losses) arising during period               |  | $                 | (685  | ) |                     | $ | 267  |                   |  | $ | (418             | ) |  | $                   | 4,679 |   |                  | $ | (1,825 | )                |  | $ | 2,854               |   |  | $                | (11,864 | ) |  | $ | 4,533 |   |  | $ | (7,331 | )
|Reclassification adjustment for (gains) losses realized in net income |  |                   | 2,364 |   |                     |   | (922 | )                 |  |   | 1,442            |   |  |                     | (407  | ) |                  |   | 159    |                  |  |   | (248                | ) |  |                  |        |   |  |   |      |   |  |   |       |  
|Minimum pension liability adjustment                                  |  |                   | (339  | ) |                     |   | 133  |                   |  |   | (206             | ) |  |                     | (478  | ) |                  |   | 186    |                  |  |   | (292                | ) |  |                  | 148     |   |  |   | (56   | ) |  |   | 92     |  
|                                                                      |  |                   |       |   |                     |   |      |                   |  |   |                  |   |  |                     |       |   |                  |   |        |                  |  |   |                     |   |  |                  |         |   |  |   |       |   |  |   |        |  
|Other comprehensive income (loss)                                     |  | $                 | 1,340 |   |                     | $ | (522 | )                 |  | $ | 818              |   |  | $                   | 3,794 |   |                  | $ | (1,480 | )                |  | $ | 2,314               |   |  | $                | (11,716 | ) |  | $ | 4,477 |   |  | $ | (7,239 | )
|                                                                      |  |                   |       |   |                     |   |      |                   |  |   |                  |   |  |                     |       |   |                  |   |        |                  |  |   |                     |   |  |                  |         |   |  |   |       |   |  |   |        |  

21. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments  The fair value of the Companys financial instruments at December 31, 2004 and 2005 is as follows:



|                                                  |  |                   |           |                   |   |                 |  |            |           |  |   |          
|------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | --------------- |  | ---------- | --------- |  | - | ---------
|                                                  |  | December 31, 2004 |           | December 31, 2005
|                                                  |  | Carrying Amount   |           | Fair Value        |   | Carrying Amount |  | Fair Value
|                                                  |  | (In Thousands)   
|Assets:                                           |  |                   |           |                   |   |                 |  |            |           |  |   |          
|Cash and amounts due from depository institutions |  | $                 | 108,327   |                   | $ | 108,327         |  | $          | 150,657   |  | $ | 150,657  
|Interest-bearing deposits                         |  |                   | 41,082    |                   |   | 41,082          |  |            | 39,283    |  |   | 39,283   
|Securities available for sale                     |  |                   | 505,629   |                   |   | 505,629         |  |            | 410,473   |  |   | 410,473  
|Securities held to maturity                       |  |                   | 89,167    |                   |   | 90,048          |  |            | 242,497   |  |   | 241,463  
|Loans receivable (net)                            |  |                   | 2,556,700 |                   |   | 2,583,625       |  |            | 3,036,710 |  |   | 2,986,661
|Federal Home Loan Bank stock                      |  |                   | 17,399    |                   |   | 17,399          |  |            | 11,398    |  |   | 11,398   
|Liabilities:                                      |  |                   |           |                   |   |                 |  |            |           |  |   |          
|Deposits                                          |  |                   | 2,814,670 |                   |   | 2,813,426       |  |            | 3,540,874 |  |   | 3,535,464
|Other borrowed funds                              |  |                   | 46,097    |                   |   | 46,087          |  |            | 54,113    |  |   | 54,101   
|Advances from the Federal Home Loan Bank          |  |                   | 250,855   |                   |   | 256,386         |  |            | 92,364    |  |   | 92,610   
|Junior Subordinated Debentures                    |  |                   | 53,608    |                   |   | 50,411          |  |            | 53,608    |  |   | 53,004   

The following methods and assumptions were used to estimate fair value of each major class of financial instrument
at December 31, 2004 and 2005.

Cash and Amounts due from Depository Institutions and Interest-Bearing Deposits - The carrying amount of
these assets is a reasonable estimate of their fair value.

Securities Available for Sale and Held to Maturity- The fair value of these securities
are based on quoted market prices.

Loans Receivable - The fair value of fixed and variable rate loans is estimated by discounting the future cash
flows of the loans using the current rates at which similar loans would be made to borrowers with similar credit rating for the same remaining maturities.

Federal Home Loan Bank Stock  The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal Home Loan Bank.

Deposits - The fair value of demand deposits, savings accounts and money market accounts are equal to the amount payable on demand at the reporting date. The fair
values of fixed maturity certificate accounts are estimated by discounting the future cash flows of the certificates using the current rates for advances from the Federal Home Loan Bank with similar maturities.



F-33



---

Other Borrowed Funds - Fair value is estimated using rates currently offered for advances from the Federal Home
Loan Bank with similar maturities.

Advances from the Federal Home Loan Bank - The fair value of these advances is estimated by discounting the
future cash flows of these advances using the current rates at which similar term advances could be obtained.

Junior Subordinated Debentures - The
fair values of the debentures are estimated by discounting the future cash flows of the debentures using the current rates for advances from the Federal Home Loan Bank with similar maturities.

Commitments to Extend Credit and Standby Letters of Credit - The fair value of these commitments is insignificant.

Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts which the Bank could realize in a current transaction.



F-34



---

22. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS

The following condensed statements of financial position as of December 31, 2004, and 2005 and the condensed statements of operations and statements of cash
flows for each of the three years ended December 31, 2005 should be read in conjunction with the consolidated financial statements and related notes.



|                                              |  |                |         |      |   |        
|--------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                              |  | December 31,  
|                                              |  | 2004           |         | 2005
|                                              |  | (In Thousands)
|STATEMENTS OF FINANCIAL CONDITION             |  |                |         |      |   |        
|Assets:                                       |  |                |         |      |   |        
|Cash and cash equivalents                     |  | $              | 13,132  |      | $ | 8,016  
|ESOP loan receivable                          |  |                | 4,174   |      |   | 3,826  
|Investment in and advances to Bank subsidiary |  |                | 286,594 |      |   | 326,560
|Other assets                                  |  |                | 3,796   |      |   | 2,666  
|                                              |  |                |         |      |   |        
|Total assets                                  |  | $              | 307,696 |      | $ | 341,068
|                                              |  |                |         |      |   |        
|Liabilities                                   |  | $              | 56,413  |      | $ | 56,300 
|Stockholders equity                          |  |                | 251,283 |      |   | 284,768
|                                              |  |                |         |      |   |        
|Total liabilities and stockholders equity    |  | $              | 307,696 |      | $ | 341,068
|                                              |  |                |         |      |   |        



|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                   |  | Years Ended December 31, |        
|                                                                                                                   |  | 2003                     |         |   | 2004 |   |         | 2005 | 
|                                                                                                                   |  | (In Thousands)           |        
|STATEMENTS OF OPERATIONS                                                                                           |  |                          |         |   |      |   |         |      |  |   |         |  
|Income                                                                                                             |  | $                        | 243     |   |      | $ | 415     |      |  | $ | 633     |  
|Expenses                                                                                                           |  |                          | 3,584   |   |      |   | 5,834   |      |  |   | 4,248   |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Loss before income taxes and equity in earnings of Bank                                                            |  |                          | (3,341  | ) |      |   | (5,419  | )    |  |   | (3,615  | )
|Income tax benefit                                                                                                 |  |                          | 1,303   |   |      |   | 2,064   |      |  |   | 1,374   |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Loss before equity in earnings of subsidiaries                                                                     |  |                          | (2,038  | ) |      |   | (3,355  | )    |  |   | (2,241  | )
|Equity in earnings of subsidiaries                                                                                 |  |                          | 19,959  |   |      |   | 26,252  |      |  |   | 34,323  |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                         |  | $                        | 17,921  |   |      | $ | 22,897  |      |  | $ | 32,082  |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|STATEMENTS OF CASH FLOWS                                                                                           |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash flow from (for) operating activities:                                                                         |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                         |  | $                        | 17,921  |   |      | $ | 22,897  |      |  | $ | 32,082  |  
|Adjustments to reconcile net income to net cash used for operating activities - Equity in earnings of subsidiaries |  |                          | (19,959 | ) |      |   | (26,252 | )    |  |   | (34,323 | )
|Other                                                                                                              |  |                          | 2,569   |   |      |   | 3,042   |      |  |   | 966     |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash (used for) provided by operating activities                                                               |  |                          | 531     |   |      |   | (313    | )    |  |   | (1,275  | )
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash flow from (for) investing activities:                                                                         |  |                          |         |   |      |   |         |      |  |   |         |  
|Dividends received from subsidiaries                                                                               |  |                          | 7,750   |   |      |   |        |      |  |   |        |  
|Principal payments on ESOP loan                                                                                    |  |                          | 348     |   |      |   | 348     |      |  |   | 348     |  
|Investment in subsidiaries                                                                                         |  |                          | (20,000 | ) |      |   | (37,500 | )    |  |   |        |  
|Other                                                                                                              |  |                          | (101    | ) |      |   | 2,306   |      |  |   | 3,248   |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash (used for) provided by investing activities                                                               |  |                          | (9,557  | ) |      |   | (34,846 | )    |  |   | 3,596   |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash flow from (for) financing activities:                                                                         |  |                          |         |   |      |   |         |      |  |   |         |  
|Proceeds from the sale of stock                                                                                    |  |                          | 309     |   |      |   | 44,034  |      |  |   | 307     |  
|Purchase of treasury stock                                                                                         |  |                          | (176    | ) |      |   |        |      |  |   |        |  
|Proceeds from the issuance of trust preferred securities, net                                                      |  |                          | 21,450  |   |      |   | 29,822  |      |  |   |        |  
|Pay off Trust Preferred Securities                                                                                 |  |                          |        |   |      |   | (28,750 | )    |  |   |        |  
|Cash dividends paid                                                                                                |  |                          | (5,792  | ) |      |   | (5,866  | )    |  |   | (7,744  | )
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used for) financing activities                                                               |  |                          | 15,791  |   |      |   | 39,240  |      |  |   | (7,437  | )
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                               |  |                          | 4,319   |   |      |   | 4,081   |      |  |   | (5,116  | )
|Cash and cash equivalents, Beginning of year                                                                       |  |                          | 4,732   |   |      |   | 9,051   |      |  |   | 13,132  |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents, End of year                                                                             |  | $                        | 9,051   |   |      | $ | 13,132  |      |  | $ | 8,016   |  
|                                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  



F-35



---

23. QUARTERLY FINANCIAL DATA (UNAUDITED)



|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|----------------------------- |  | --------------------------------- | ------ | -------------- | - | ------------- |  | -------------- | ------ |  | - | ------
|                              |  | First Quarter                     |        | Second Quarter |   | Third Quarter |  | Fourth Quarter
|                              |  | (In Thousands, except share data)
|Year ended December 31, 2004: |  |                                   |        |                |   |               |  |                |        |  |   |       
|Interest income               |  | $                                 | 38,062 |                | $ | 39,091        |  | $              | 42,986 |  | $ | 44,525
|Interest expense              |  |                                   | 14,149 |                |   | 14,506        |  |                | 15,246 |  |   | 15,963
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Net interest income           |  |                                   | 23,913 |                |   | 24,585        |  |                | 27,740 |  |   | 28,562
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Provision for loan losses     |  |                                   | 596    |                |   | 794           |  |                | 783    |  |   | 562   
|Non-interest income           |  |                                   | 5,787  |                |   | 6,224         |  |                | 5,571  |  |   | 4,561 
|Non-interest expenses         |  |                                   | 19,790 |                |   | 20,614        |  |                | 22,403 |  |   | 23,813
|Income taxes                  |  |                                   | 3,627  |                |   | 3,713         |  |                | 3,943  |  |   | 3,408 
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Net Income                    |  | $                                 | 5,687  |                | $ | 5,688         |  | $              | 6,182  |  | $ | 5,340 
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Earnings per share            |  |                                   |        |                |   |               |  |                |        |  |   |       
|Basic                         |  | $                                 | 0.26   |                | $ | 0.26          |  | $              | 0.28   |  | $ | 0.24  
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Diluted                       |  | $                                 | 0.25   |                | $ | 0.25          |  | $              | 0.27   |  | $ | 0.23  
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       



|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|----------------------------- |  | --------------------------------- | ------ | -------------- | - | ------------- |  | -------------- | ------ |  | - | ------
|                              |  | First Quarter                     |        | Second Quarter |   | Third Quarter |  | Fourth Quarter
|                              |  | (In Thousands, except share data)
|Year ended December 31, 2005: |  |                                   |        |                |   |               |  |                |        |  |   |       
|Interest income               |  | $                                 | 45,324 |                | $ | 50,076        |  | $              | 53,983 |  | $ | 57,168
|Interest expense              |  |                                   | 15,251 |                |   | 17,344        |  |                | 20,311 |  |   | 23,305
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Net interest income           |  |                                   | 30,073 |                |   | 32,732        |  |                | 33,672 |  |   | 33,863
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Provision for loan losses     |  |                                   | 572    |                |   | 422           |  |                | 304    |  |   | 579   
|Non-interest income           |  |                                   | 5,473  |                |   | 5,719         |  |                | 6,057  |  |   | 6,104 
|Non-interest expenses         |  |                                   | 23,936 |                |   | 24,095        |  |                | 26,114 |  |   | 25,914
|Income taxes                  |  |                                   | 4,222  |                |   | 5,287         |  |                | 5,052  |  |   | 5,114 
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Net Income                    |  | $                                 | 6,816  |                | $ | 8,647         |  | $              | 8,259  |  | $ | 8,360 
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Earnings per share            |  |                                   |        |                |   |               |  |                |        |  |   |       
|Basic                         |  | $                                 | 0.29   |                | $ | 0.35          |  | $              | 0..34  |  | $ | 0.34  
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       
|Diluted                       |  | $                                 | 0.28   |                | $ | 0.35          |  | $              | 0.33   |  | $ | 0.33  
|                              |  |                                   |        |                |   |               |  |                |        |  |   |       

Due to rounding, the sum of each quarterly earnings per share may not agree with the annual earnings per share as
shown on the Consolidated Statements of Operations.



F-36