| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2010 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM ______________TO_________________ |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| Washington                                                     |   | 91-1661954                        |
|----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (IRS Employer Identification No.) |
|                                                           |   |                              |
| 2828 Colby Avenue                                              |   |                              |
| Everett, Washington                                            |   | 98201                             |
| (Address of principal executive offices)                       |   | (Zip Code)                        |
|                                                           |   |                              |
| (425) 339-5500                                                 |
| (Registrant's telephone number, including area code)           |

| Class                         |   | Outstanding as of August 12, 2010 |
|-------------------------------|--------|-----------------------------------|
| Common Stock ($.01 par value) |   | 12,271,529                        |

----

|                                  | PAGE                                                                                                |
|---------------------------------------|-----------------------------------------------------------------------------------------------------|
| PART I — Financial Information: |                                                                                                |
| Item 1                                | — Financial Statements:                                                                       |   |
|                                  | — Consolidated Balance Sheets                                                                 | 3 |
|                                  | — Consolidated Statements of Operations                                                       | 4 |
|                                  | — Consolidated Statements of Stockholders’ Equity                                       | 5 |
|                                  | — Consolidated Statements of Comprehensive Loss                                               | 6 |
|                                  | — Consolidated Statements of Cash Flows                                                       | 7 |
|                                  | — Notes to Consolidated Financial Statements                                                  | 9 |
|                                  |                                                                                                |   |
| Item 2                           | — Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31  |
|                                  |                                                                                                |   |
| Item 3                                | — Quantitative and Qualitative Disclosures about Market Risk                                  | 60 |
|                                  |                                                                                                |   |
| Item 4                                | — Controls and Procedures                                                                     | 62 |
|                                  |                                                                                                |   |
| PART II — Other Information:    |                                                                                                |
| Item 1                                | — Legal Proceedings                                                                           | 62 |
| Item 1A                               | — Risk Factors                                                                                | 62 |
| Item 2                                | — Unregistered Sales of Equity Securities and Use of Proceeds                                 | 64 |
| Item 3                                | — Defaults Upon Senior Securities                                                             | 65 |
| Item 4                                | — (Removed & Reserved)                                                                    | 65 |
| Item 5                                | — Other Information                                                                           | 65 |
| Item 6                                | — Exhibits                                                                                    | 65 |
|                                  | — Signatures                                                                                  | 66 |

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| (Dollars in thousands, except share and per share amounts)                                                                                                                                                                   |   | June 30,2010 |      |   | December 31,2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------|------------------|--------|
| Assets                                                                                                                                                                                                                       |   |         |      |
| Cash on hand and in banks                                                                                                                                                                                                    |   | $            | 4,464     |   |             | $      | 4,008 |   |
| Interest-earning deposits in other institutions                                                                                                                                                                              |   |         | 157,127   |   |             |   | 141,587 |   |
| Securities available-for-sale, fair value                                                                                                                                                                                    |   |         | 303,064   |   |             |   | 227,805 |   |
| Securities held-to-maturity, amortized cost                                                                                                                                                                                  |   |         | 21,849    |   |             |   | 36,177 |   |
| Federal Home Loan Bank (FHLB) stock                                                                                                                                                                                          |   |         | 11,920    |   |             |   | 11,920 |   |
| Loans, net                                                                                                                                                                                                                   |   |         | 1,077,582 |   |             |   | 1,173,213 |   |
| Goodwill                                                                                                                                                                                                                     |   |         | -         |   |             |   | 12,885 |   |
| Premises and equipment, net                                                                                                                                                                                                  |   |         | 13,932    |   |             |   | 14,526 |   |
| Cash surrender value of bank-owned life insurance (BOLI)                                                                                                                                                                     |   |         | 25,012    |   |             |   | 24,522 |   |
| Real estate owned (REO), net                                                                                                                                                                                                 |   |         | 40,463    |   |             |   | 18,842 |   |
| Prepaid FDIC insurance premiums                                                                                                                                                                                              |   |         | 5,009     |   |             |   | 6,859 |   |
| Federal income tax receivable                                                                                                                                                                                                |   |         | -         |   |             |   | 12,538 |   |
| Accrued interest receivable and other assets                                                                                                                                                                                 |   |         | 18,111    |   |             |   | 19,746 |   |
| Total assets                                                                                                                                                                                                                 |   | $            | 1,678,533 |   |             | $      | 1,704,628 |   |
|                                                                                                                                                                                                                         |   |         |      |   |             |   |   |   |
| Liabilities                                                                                                                                                                                                                  |   |         |      |   |             |   |   |   |
| Deposits                                                                                                                                                                                                                     |   | $            | 1,182,955 |   |             | $      | 1,139,774 |   |
| FHLB advances                                                                                                                                                                                                                |   |         | 239,000   |   |             |   | 239,000 |   |
| Securities sold under agreements to repurchase                                                                                                                                                                               |   |         | 145,420   |   |             |   | 145,410 |   |
| Junior subordinated debentures                                                                                                                                                                                               |   |         | 15,465    |   |             |   | 15,465 |   |
| Junior subordinated debentures, fair value                                                                                                                                                                                   |   |         | 3,341     |   |             |   | 3,341 |   |
| Federal Reserve Bank (FRB) Term Auction Facility (TAF) borrowing                                                                                                                                                             |   |         | -         |   |             |   | 20,000 |   |
| Accrued interest payable, expenses and other liabilities                                                                                                                                                                     |   |         | 8,573     |   |             |   | 7,188 |   |
| Total liabilities                                                                                                                                                                                                            |   |         | 1,594,754 |   |             |   | 1,570,178 |   |
|                                                                                                                                                                                                                         |   |         |      |   |             |   |   |   |
| Commitments and contingencies (Note 14)                                                                                                                                                                                      |   |         |      |   |             |   |   |   |
|                                                                                                                                                                                                                         |   |         |      |   |             |   |   |   |
| Stockholders’ equity                                                                                                                                                                                                   |   |         |      |   |             |   |   |   |
| Preferred stock, no par value, authorized 38,970 shares;Series A (liquidation preference $1,000 per share); issued and outstanding 38,970 shares at June 30, 2010 and December 31, 2009                                      |   |         | 37,262    |   |             |   | 37,038 |   |
| Preferred stock, $.01 par value, authorized 500,000 shares; no shares issued or outstanding                                                                                                                                  |   |         | -         |   |             |   | - |   |
| Common stock, $.01 par value, authorized 65,000,000 shares at June 30, 2010 and 25,000,000 shares at December 31, 2009; issued and outstanding 12,271,529 shares at June 30, 2010 and 12,146,080 shares at December 31, 2009 |   |         | 123       |   |             |   | 121 |   |
| Additional paid-in capital                                                                                                                                                                                                   |   |         | 43,907    |   |             |   | 43,649 |   |
| (Accumulated deficit) retained earnings                                                                                                                                                                                      |   |         | (2,740    | )      |             |   | 54,797 |   |
| Accumulated other comprehensive income (loss), net of tax at December 31, 2009                                                                                                                                               |   |         | 5,227     |   |             |   | (1,155 | ) |
| Total stockholders’ equity                                                                                                                                                                                             |   |         | 83,779    |   |             |   | 134,450 |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                             |   | $            | 1,678,533 |   |             | $      | 1,704,628 |   |

----

|                                                            |   | Three Months EndedJune 30, |    |   | Six Months EndedJune 30, |   |
|-----------------------------------------------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
| (Dollars in thousands, except share and per share amounts)      |   | 2010                       |    |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Interest income                                                 |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Loans, including fees                                           |   | $                          | 15,981  |   |                     | $      | 17,333 |   |   | $ | 32,147 |   |   | $ | 35,548 |   |
| Securities available-for-sale                                   |   |                       | 2,293   |   |                     |   | 2,198 |   |   |   | 4,765 |   |   |   | 4,074 |   |
| Securities held-to-maturity                                     |   |                       | 274     |   |                     |   | 674 |   |   |   | 691 |   |   |   | 1,984 |   |
| Interest-earning deposits                                       |   |                       | 79      |   |                     |   | 10 |   |   |   | 155 |   |   |   | 20 |   |
| Total interest income                                           |   |                       | 18,627  |   |                     |   | 20,215 |   |   |   | 37,758 |   |   |   | 41,626 |   |
| Interest expense                                                |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                        |   |                       | 3,914   |   |                     |   | 3,979 |   |   |   | 8,164 |   |   |   | 8,935 |   |
| FHLB advances                                                   |   |                       | 2,594   |   |                     |   | 2,684 |   |   |   | 5,159 |   |   |   | 5,340 |   |
| Securities sold under agreements to repurchase                  |   |                       | 2,148   |   |                     |   | 2,160 |   |   |   | 4,280 |   |   |   | 4,261 |   |
| Junior subordinated debentures                                  |   |                       | 506     |   |                     |   | 530 |   |   |   | 1,001 |   |   |   | 1,060 |   |
| FRB TAF borrowings                                              |   |                       | -       |   |                     |   | 39 |   |   |   | 2 |   |   |   | 87 |   |
| Total interest expense                                          |   |                       | 9,162   |   |                     |   | 9,392 |   |   |   | 18,606 |   |   |   | 19,683 |   |
| Net interest income                                             |   |                       | 9,465   |   |                     |   | 10,823 |   |   |   | 19,152 |   |   |   | 21,943 |   |
| Provision for loan losses                                       |   |                       | 11,725  |   |                     |   | 18,300 |   |   |   | 43,015 |   |   |   | 32,175 |   |
| Net interest loss after provision for loan losses               |   |                       | (2,260  | )      |                     |   | (7,477 | ) |   |   | (23,863 | ) |   |   | (10,232 | ) |
| Other income                                                    |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Checking service fees                                           |   |                       | 1,414   |   |                     |   | 1,270 |   |   |   | 2,677 |   |   |   | 2,382 |   |
| Other service fees                                              |   |                       | 247     |   |                     |   | 286 |   |   |   | 480 |   |   |   | 535 |   |
| Increase in cash surrender value of BOLI, net                   |   |                       | 253     |   |                     |   | 191 |   |   |   | 490 |   |   |   | 414 |   |
| Gain on sales/calls of securities available-for-sale, net       |   |                       | 1,764   |   |                     |   | 198 |   |   |   | 1,789 |   |   |   | 198 |   |
| Gain on calls of securities held-to-maturity, net               |   |                       | -       |   |                     |   | 28 |   |   |   | 3 |   |   |   | 146 |   |
| Gain on sale of loans                                           |   |                       | 11      |   |                     |   | 98 |   |   |   | 37 |   |   |   | 138 |   |
| Gain on fair value of financial instruments, net                |   |                       | -       |   |                     |   | 12 |   |   |   | - |   |   |   | 1,802 |   |
| Other                                                           |   |                       | 149     |   |                     |   | 120 |   |   |   | 273 |   |   |   | 236 |   |
| Total other income                                              |   |                       | 3,838   |   |                     |   | 2,203 |   |   |   | 5,749 |   |   |   | 5,851 |   |
| Other expense                                                   |   |                       |    |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                  |   |                       | 3,393   |   |                     |   | 3,587 |   |   |   | 7,075 |   |   |   | 7,195 |   |
| Occupancy                                                       |   |                       | 1,015   |   |                     |   | 1,062 |   |   |   | 2,029 |   |   |   | 2,112 |   |
| FDIC insurance premiums                                         |   |                       | 1,106   |   |                     |   | 1,241 |   |   |   | 1,960 |   |   |   | 1,632 |   |
| Legal                                                           |   |                       | 585     |   |                     |   | 162 |   |   |   | 746 |   |   |   | 246 |   |
| Other insurance premiums                                        |   |                       | 376     |   |                     |   | 63 |   |   |   | 753 |   |   |   | 126 |   |
| REO and real estate in acquisition (REA)                        |   |                       | 333     |   |                     |   | 356 |   |   |   | 629 |   |   |   | 365 |   |
| Writedown/loss on sales of REO                                  |   |                       | 3,595   |   |                     |   | 1,225 |   |   |   | 4,292 |   |   |   | 1,279 |   |
| Other                                                           |   |                       | 2,462   |   |                     |   | 2,282 |   |   |   | 4,618 |   |   |   | 4,775 |   |
| Other-than-temporary impairment (OTTI)                          |   |                       | -       |   |                     |   | - |   |   |   | - |   |   |   | 858 |   |
| Goodwill impairment                                             |   |                       | 12,885  |   |                     |   | 11,700 |   |   |   | 12,885 |   |   |   | 11,700 |   |
| Total other expenses                                            |   |                       | 25,750  |   |                     |   | 21,678 |   |   |   | 34,987 |   |   |   | 30,288 |   |
|   Loss before (benefit) provision for federal income taxes |   |                       | (24,172 | )      |                     |   | (26,952 | ) |   |   | (53,101 | ) |   |   | (34,669 | ) |
| (Benefit) provision for federal income taxes                    |   |                       | -       |   |                     |   | (5,552 | ) |   |   | 3,211 |   |   |   | (8,452 | ) |
| Net loss                                                        |   |                       | (24,172 | )      |                     |   | (21,400 | ) |   |   | (56,312 | ) |   |   | (26,217 | ) |
|   Dividends on preferred stock                             |   |                       | 503     |   |                     |   | 487 |   |   |   | 1,002 |   |   |   | 969 |   |
|   Accretion of issuance discount on preferred stock        |   |                       | 112     |   |                     |   | 105 |   |   |   | 223 |   |   |   | 210 |   |
| Net loss attributable to common stockholders                    |   | $                          | (24,787 | )      |                     | $      | (21,992 | ) |   | $ | (57,537 | ) |   | $ | (27,396 | ) |

----

|                                                       |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
| (Dollars in thousands, except share and per share amounts) |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Net loss per common share, basic                           |   | $                          | (2.02      | )      |                     | $      | (1.82 | ) |   | $ | (4.71 | ) |   | $ | (2.26 | ) |
| Weighted average number of shares outstanding, basic       |   |                       | 12,246,529 |   |                     |   | 12,110,434 |   |   |   | 12,210,751 |   |   |   | 12,104,805 |   |
| Net loss per common share, diluted                         |   | $                          | (2.02      | )      |                     | $      | (1.82 | ) |   | $ | (4.71 | ) |   | $ | (2.26 | ) |
| Weighted average number of shares outstanding, diluted     |   |                       | 12,246,529 |   |                     |   | 12,110,434 |   |   |   | 12,210,751 |   |   |   | 12,104,805 |   |
| Dividends declared per share                               |   | $                          | 0.000      |   |                     | $      | 0.000 |   |   | $ | 0.000 |   |   | $ | 0.010 |   |

|                                                               |   |      |      |   |         |   |       |              |   |   |             |   |   | (Accumulated       |    |   | Accumulated              |   |    |   |   |
|--------------------------------------------------------------------|--------|-----------|-----------|--------|--------------|--------|------------|-------------------|--------|--------|------------------|--------|--------|--------------------|---------|--------|--------------------------|--------|---------|--------|--------|
| (Dollars in thousands, except share and per share amounts)         |   | Preferred |      |   | Common Stock |   |       | AdditionalPaid-in |   |   | Deficit)Retained |   |   | OtherComprehensive |    |   | TotalStockholders’ |   |
|                                                               |   | Stock     |      |   | Shares       |   |       | Amount            |   |   | Capital          |   |   | Earnings           |    |   | Income (Loss)            |   |    | Equity |   |
| Balances at December 31, 2008                                      |   | $         | 36,616    |   |         |   | 12,071,032 |              |   | $      | 121              |   |   | $                  | 43,293  |   |                     | $      | 80,752  |   |   | $ | (660 | ) |   | $ | 160,122 |   |
| Dividends declared -                                               |   |      |      |   |         |   |       |              |   |   |             |   |   |               |    |   |                     |   |    |   |   |   |   |   |   |   |   |   |
| Common stock ($0.01 per share)                                     |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (122    | )      |   |   | - |   |   |   | (122 | ) |
| Preferred stock ($49.86 per share)                                 |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (1,943  | )      |   |   | - |   |   |   | (1,943 | ) |
| Stock award plan                                                   |   |      | -         |   |         |   | 75,048     |              |   |   | -                |   |   |               | 209     |   |                     |   | -       |   |   |   | - |   |   |   | 209 |   |
| Tax benefit from stock-based compensation                     |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | 4       |   |                     |   | -       |   |   |   | - |   |   |   | 4 |   |
| Stock-based compensation                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | 143     |   |                     |   | -       |   |   |   | - |   |   |   | 143 |   |
| Net loss                                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (23,468 | )      |   |   | - |   |   |   | (23,468 | ) |
| Accretion of discount on preferred stock                           |   |      | 422       |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (422    | )      |   |   | - |   |   |   | - |   |
| Other comprehensive loss, net oftax benefit of $(266)              |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | -       |   |   |   | (495 | ) |   |   | (495 | ) |
| Balances at December 31, 2009                                      |   | $         | 37,038    |   |         |   | 12,146,080 |              |   | $      | 121              |   |   | $                  | 43,649  |   |                     | $      | 54,797  |   |   | $ | (1,155 | ) |   | $ | 134,450 |   |
| Dividends declared -                                               |   |      |      |   |         |   |       |              |   |   |             |   |   |               |    |   |                     |   |    |   |   |   |   |   |   |   |   |   |
| Preferred stock ($12.80 per share)                                 |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (499    | )      |   |   | - |   |   |   | (499 | ) |
| Stock award plan                                                   |   |      | -         |   |         |   | 25,449     |              |   |   | 1                |   |   |               | 54      |   |                     |   | -       |   |   |   | - |   |   |   | 55 |   |
| Stock-based compensation                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | 16      |   |                     |   | -       |   |   |   | - |   |   |   | 16 |   |
| Net loss                                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (32,139 | )      |   |   | - |   |   |   | (32,139 | ) |
| Accretion of discount on preferred stock                           |   |      |  112 |   |         |   |  -    |              |   |   |  -          |   |   |               |  - |   |                     |   | (112    | )      |   |   |  - |   |   |   |  - |   |
| Other comprehensive income, netof  tax expense of $1,276 |   |      | -         |   |         |   |  -    |              |   |   |  -          |   |   |               |  - |   |                     |   |  - |   |   |   |  2,370 |   |   |   |  2,370 |   |
| Balances at March 31, 2010                                         |   | $         | 37,150    |   |         |   | 12,171,529 |              |   | $      | 122              |   |   | $                  | 43,719  |   |                     | $      | 22,047  |   |   | $ | 1,215 |   |   | $ | 104,253 |   |
| Dividends declared -                                               |   |      |      |   |         |   |       |              |   |   |             |   |   |               |    |   |                     |   |    |   |   |   |   |   |   |   |   |   |
| Preferred stock ($12.91 per share)                                 |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (503    | )      |   |   | - |   |   |   | (503 | ) |
| Sale of common stock                                               |   |      | -         |   |         |   | 100,000    |              |   |   | 1                |   |   |               | 174     |   |                     |   | -       |   |   |   | - |   |   |   | 175 |   |
| Stock-based compensation                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | 14      |   |                     |   | -       |   |   |   | - |   |   |   | 14 |   |
| Net loss                                                           |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | (24,172 | )      |   |   | - |   |   |   | (24,172 | ) |
| Accretion of discount on preferred stock                           |   |      |  112 |   |         |   |  -    |              |   |   |  -          |   |   |               |  - |   |                     |   | (112    | )      |   |   |  - |   |   |   |  - |   |
| Other comprehensive income                                         |   |      | -         |   |         |   | -          |              |   |   | -                |   |   |               | -       |   |                     |   | -       |   |   |   | 4,012 |   |   |   | 4,012 |   |
| Balances at June 30, 2010                                          |   | $         | 37,262    |   |         |   | 12,271,529 |              |   | $      | 123              |   |   | $                  | 43,907  |   |                     | $      | (2,740  | )      |   | $ | 5,227 |   |   | $ | 83,779 |   |

----

|                                                                                                                                                                                                                                                               |   | Three Months Ended |    |   | Six Months Ended |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|------------------|--------|
|                                                                                                                                                                                                                                                               |   | June 30,           |    |   | June 30,         |   |
| (Dollars in thousands)                                                                                                                                                                                                                                             |   | 2010               |    |   | 2009             |   |   | 2010 |   |   | 2009 |   |
| Net loss                                                                                                                                                                                                                                                           |   | $                  | (24,172 | )      |             | $      | (21,400 | ) |   | $ | (56,312 | ) |   | $ | (26,217 | ) |
|                                                                                                                                                                                                                                                               |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized gain (loss) on securities available-for-sale, net of tax provision (benefit) of $0 and $(1,139) for the three months ended June 30, 2010, and 2009, respectively, and $1,267 and $(456) for the six months ended June 30, 2010, and 2009, respectively. |   |               | 2,866   |   |             |   | (2,114 | ) |   |   | 5,220 |   |   |   | (848 | ) |
|                                                                                                                                                                                                                                                               |   |               |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Reclassification adjustment for gains on securities included in net loss, net of tax provision of $0 and $69 for the three months ended June 30, 2010, and 2009, respectively, and $627 and $69 for the six months ended June 30, 2010, and 2009, respectively.    |   |               | 1,146   |   |             |   | 129 |   |   |   | 1,162 |   |   |   | 129 |   |
| Comprehensive loss                                                                                                                                                                                                                                                 |   | $                  | (20,160 | )      |             | $      | (23,385 | ) |   | $ | (49,930 | ) |   | $ | (26,936 | ) |

----

|                                                                            |   | Six Months EndedJune 30, |     |
|---------------------------------------------------------------------------------|--------|--------------------------|----------|
| (Dollars in thousands)                                                          |   | 2010                     |     |   | 2009 |   |
| Cash flows from operating activities:                                           |   |                     |     |   |   |   |
| Net loss                                                                        |   | $                        | (56,312  | ) |   | $ | (26,217 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: |   |                     |     |   |   |   |   |   |
| Depreciation and amortization of premises and equipment                         |   |                     | 1,028    |   |   |   | 1,135 |   |
| Provision for losses on loans                                                   |   |                     | 43,015   |   |   |   | 32,175 |   |
| REO writedowns                                                                  |   |                     | 4,361    |   |   |   | 1,122 |   |
| Goodwill impairment                                                             |   |                     | 12,885   |   |   |   | 11,700 |   |
| Increase in cash surrender value of BOLI                                        |   |                     | (490     | ) |   |   | (414 | ) |
| Amortization of retained servicing rights                                       |   |                     | 11       |   |   |   | 15 |   |
| Amortization of core deposit intangible                                         |   |                     | 70       |   |   |   | 70 |   |
| Net change in deferred tax asset                                                |   |                     | (6,268   | ) |   |   | 3,049 |   |
| Deferred loan fees, net of amortization                                         |   |                     | 681      |   |   |   | (142 | ) |
| Gain on sale of loans                                                           |   |                     | (37      | ) |   |   | (138 | ) |
| Stock award plan compensation                                                   |   |                     | 8        |   |   |   | (4 | ) |
| Stock-based compensation                                                        |   |                     | 30       |   |   |   | 87 |   |
| Excess tax benefit from stock-based payments                                    |   |                     | -        |   |   |   | (4 | ) |
| Net change in fair value of financial instruments                               |   |                     | -        |   |   |   | (1,802 | ) |
| Net gain on sales/calls of securities available-for-sale                        |   |                     | (1,789   | ) |   |   | (198 | ) |
| Net gain on calls of securities held-to-maturity                                |   |                     | (3       | ) |   |   | (146 | ) |
| Net (gain) loss on sales of REO                                                 |   |                     | (69      | ) |   |   | 157 |   |
| Other-than-temporary impairment on investments                                  |   |                     | -        |   |   |   | 858 |   |
| Net change in accrued interest receivable and other assets                      |   |                     | 20,934   |   |   |   | (12,335 | ) |
| Net change in accrued interest payable, expenses and other liabilities          |   |                     | 477      |   |   |   | (568 | ) |
| Net cash provided by operating activities                                       |   |                     | 18,532   |   |   |   | 8,400 |   |
|                                                                            |   |                     |     |   |   |   |   |   |
| Cash flows from investing activities:                                           |   |                     |     |   |   |   |   |   |
| Loans originated net of principal repayments, net                               |   |                     | 15,500   |   |   |   | (1,266 | ) |
| Purchases of securities available-for-sale                                      |   |                     | (215,943 | ) |   |   | (223,788 | ) |
| Proceeds from sales/calls of securities available-for-sale                      |   |                     | 141,426  |   |   |   | 108,140 |   |
| Principal repayments on securities available-for-sale                           |   |                     | 8,706    |   |   |   | 9,636 |   |
| Purchases of securities held-to-maturity                                        |   |                     | (7,663   | ) |   |   | - |   |
| Proceeds from calls of securities held-to-maturity                              |   |                     | 20,000   |   |   |   | 79,600 |   |
| Principal repayments on securities held-to-maturity                             |   |                     | 1,994    |   |   |   | 2,897 |   |
| Purchases of premises and equipment                                             |   |                     | (434     | ) |   |   | (993 | ) |
| Proceeds from sales/retirements of premises and equipment                       |   |                     | -        |   |   |   | 2 |   |
| Proceeds from sales/retirements of REO                                          |   |                     | 14,613   |   |   |   | 1,686 |   |
| REO capital improvements                                                        |   |                     | (4,062   | ) |   |   | (7 | ) |
| Change in Community Reinvestment Act (CRA) investment                           |   |                     | (23      | ) |   |   | (585 | ) |
| Net cash used in investing activities                                           |   |                     | (25,886  | ) |   |   | (24,678 | ) |
|                                                                            |   |                     |     |   |   |   |   |   |
| Subtotal, carried forward                                                       |   | $                        | (7,354   | ) |   | $ | (16,278 | ) |

----

|                                                                                    |   | Six Months EndedJune 30, |    |
|-----------------------------------------------------------------------------------------|--------|--------------------------|---------|
| (Dollars in thousands)                                                                  |   | 2010                     |    |   | 2009 |   |
| Subtotal, brought forward                                                               |   | $                        | (7,354  | ) |   | $ | (16,278 | ) |
|                                                                                    |   |                     |    |   |   |   |   |   |
| Cash flows from financing activities:                                                   |   |                     |    |   |   |   |   |   |
| Proceeds from issuance of common stock                                                  |   |                     | 47      |   |   |   | 136 |   |
| Sale of common stock                                                                    |   |                     | 175     |   |   |   | - |   |
| Dividends paid on common stock                                                          |   |                     | -       |   |   |   | (664 | ) |
| Dividends paid on preferred stock                                                       |   |                     | -       |   |   |   | (942 | ) |
| Excess tax benefits from stock-based payments                                           |   |                     | -       |   |   |   | 4 |   |
| Net increase (decrease) in deposits                                                     |   |                     | 43,181  |   |   |   | (5,486 | ) |
| Net decrease in FHLB advances                                                           |   |                     | -       |   |   |   | (10,000 | ) |
| Net increase in securities sold under agreements to repurchase                          |   |                     | 10      |   |   |   | 210 |   |
| Net (decrease) increase in Federal Reserve TAF borrowing                                |   |                     | (20,000 | ) |   |   | 20,000 |   |
| Net decrease in advance payments by borrowers for taxes and insurance                   |   |                     | (63     | ) |   |   | (67 | ) |
| Net cash provided by financing activities                                               |   |                     | 23,350  |   |   |   | 3,191 |   |
| Net increase (decrease) in cash and cash equivalents                                    |   |                     | 15,996  |   |   |   | (13,087 | ) |
|                                                                                    |   |                     |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of period                                        |   |                     | 145,595 |   |   |   | 53,466 |   |
| Cash and cash equivalents at end of period                                              |   | $                        | 161,591 |   |   | $ | 40,379 |   |
|                                                                                    |   |                     |    |   |   |   |   |   |
| Supplemental disclosures of cash flow information—cash paid duringthe period for: |   |                     |    |   |   |   |   |   |
| Interest                                                                                |   | $                        | 17,801  |   |   | $ | 20,819 |   |
| Income taxes                                                                            |   |                     | -       |   |   |   | 50 |   |
|                                                                                    |   |                     |    |   |   |   |   |   |
| Supplemental schedule of non-cash investing activities:                                 |   |                     |    |   |   |   |   |   |
| Change in unrealized gain (loss) on securities available-for-sale, net of tax           |   |                     | 6,382   |   |   |   | (719 | ) |
| Dividends accrued on preferred stock                                                    |   |                     | 1,002   |   |   |   | 162 |   |
| Loans transferred to REO                                                                |   |                     | 36,464  |   |   |   | 9,384 |   |

----

----

----

|                           |   | June 30, 2010 |    |
|--------------------------------|--------|---------------|---------|
| (Dollars in thousands)         |   | AmortizedCost |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
| Securities available-for-sale  |   |          |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $             | 32,493  |   |   | $ | 1,518 |   |   | $ | (68 | ) |   | $ | 33,943 |   |
| Agency notes & bonds       |   |          | 138,833 |   |   |   | 4,193 |   |   |   | - |   |   |   | 143,026 |   |
| US Treasury notes              |   |          | 115,556 |   |   |   | 218 |   |   |   | - |   |   |   | 115,774 |   |
| FDIC guaranteed debt           |   |          | 10,300  |   |   |   | 21 |   |   |   | - |   |   |   | 10,321 |   |
| Total                          |   | $             | 297,182 |   |   | $ | 5,950 |   |   | $ | (68 | ) |   | $ | 303,064 |   |
|                           |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity    |   |          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $             | 21,074  |   |   | $ | 928 |   |   | $ | (1 | ) |   | $ | 22,001 |   |
| Junior subordinated debentures |   |          | 775     |   |   |   | - |   |   |   | - |   |   |   | 775 |   |
| Total                          |   | $             | 21,849  |   |   | $ | 928 |   |   | $ | (1 | ) |   | $ | 22,776 |   |

----

|                           |   | December 31, 2009 |    |
|--------------------------------|--------|-------------------|---------|
| (Dollars in thousands)         |   | AmortizedCost     |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
| Securities available-for-sale  |   |              |    |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $                 | 40,997  |   |   | $ | 729 |   |   | $ | (446 | ) |   | $ | 41,280 |   |
| Agency notes & bonds       |   |              | 188,585 |   |   |   | 88 |   |   |   | (2,148 | ) |   |   | 186,525 |   |
| Total                          |   | $                 | 229,582 |   |   | $ | 817 |   |   | $ | (2,594 | ) |   | $ | 227,805 |   |
|                           |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity    |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $                 | 15,405  |   |   | $ | 504 |   |   | $ | - |   |   | $ | 15,909 |   |
| Agency notes & bonds       |   |              | 19,997  |   |   |   | - |   |   |   | (187 | ) |   |   | 19,810 |   |
| Junior subordinated debentures |   |              | 775     |   |   |   | - |   |   |   | - |   |   |   | 775 |   |
| Total                          |   | $                 | 36,177  |   |   | $ | 504 |   |   | $ | (187 | ) |   | $ | 36,494 |   |

|                             |   | June 30, 2010  |    |
|----------------------------------|--------|----------------|---------|
| (Dollars in thousands)           |   | Amortized Cost |    |   | FairValue |   |   | Yield |   |
| Securities available-for-sale    |   |           |    |   |   |   |   |   |   |
| Due less than one year           |   | $              | 65,314  |   |   | $ | 65,549 |   |   |   | 1.41 | % |
| Due after one through five years |   |           | 115,525 |   |   |   | 116,048 |   |   |   | 1.77 |   |
| Due after five through ten years |   |           | 83,808  |   |   |   | 87,482 |   |   |   | 3.91 |   |
| Due after ten years              |   |           | 42      |   |   |   | 42 |   |   |   | - |   |
| Subtotal                         |   |           | 264,689 |   |   |   | 269,121 |   |   |   | 2.38 |   |
| Mortgage-backed securities       |   |           | 32,493  |   |   |   | 33,943 |   |   |   | 4.72 |   |
| Total                            |   | $              | 297,182 |   |   | $ | 303,064 |   |   |   | 2.64 | % |
| Securities held-to-maturity      |   |           |    |   |   |   |   |   |   |   |   |   |
| Due after ten years              |   | $              | 775     |   |   | $ | 775 |   |   |   | 7.50 | % |
| Subtotal                         |   |           | 775     |   |   |   | 775 |   |   |   | 7.50 |   |
| Mortgage-backed securities       |   |           | 21,074  |   |   |   | 22,001 |   |   |   | 4.50 |   |
| Total                            |   | $              | 21,849  |   |   | $ | 22,776 |   |   |   | 4.60 | % |

----

|                          |   | June 30, 2010     |    |
|-------------------------------|--------|-------------------|---------|
|                          |   | FairValue         |    |   | GrossUnrealizedLossesLess Than1 Year |   |   | FairValue |   |   | GrossUnrealizedLossesMore Than1 Year |   |   | TOTAL |   |
| (Dollars in thousands)        |   | FairValue         |    |   | Unrealized Losses |   |
| Securities available-for-sale |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities    |   | $                 | 3,603   |   |   | $ | (43 | ) |   | $ | 1,595 |   |   | $ | (25 | ) |   | $ | 5,198 |   |   | $ | (68 | ) |
| Total                         |   | $                 | 3,603   |   |   | $ | (43 | ) |   | $ | 1,595 |   |   | $ | (25 | ) |   | $ | 5,198 |   |   | $ | (68 | ) |
|                          |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities    |   | $                 | 169     |   |   | $ | (1 | ) |   | $ | - |   |   | $ | - |   |   | $ | 169 |   |   | $ | (1 | ) |
| Total                         |   | $                 | 169     |   |   | $ | (1 | ) |   | $ | - |   |   | $ | - |   |   | $ | 169 |   |   | $ | (1 | ) |
|                          |   |              |    |
|                          |   | December 31, 2009 |    |
|                          |   | FairValue         |    |   | GrossUnrealizedLossesLess Than1 Year |   |   | FairValue |   |   | GrossUnrealizedLossesMore Than1 Year |   |   | TOTAL |   |
| (Dollars in thousands)        |   | FairValue         |    |   | UnrealizedLosses |   |
| Securities available-for-sale |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities    |   | $                 | 16,828  |   |   | $ | (375 | ) |   | $ | 3,597 |   |   | $ | (71 | ) |   | $ | 20,425 |   |   | $ | (446 | ) |
| Agency notes & bonds      |   |              | 140,981 |   |   |   | (2,148 | ) |   |   | - |   |   |   | - |   |   |   | 140,981 |   |   |   | (2,148 | ) |
| Total                         |   | $                 | 157,809 |   |   | $ | (2,523 | ) |   | $ | 3,597 |   |   | $ | (71 | ) |   | $ | 161,406 |   |   | $ | (2,594 | ) |
|                          |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Agency notes & bonds      |   | $                 | 19,810  |   |   | $ | (187 | ) |   | $ | - |   |   | $ | - |   |   | $ | 19,810 |   |   | $ | (187 | ) |
| Total                         |   | $                 | 19,810  |   |   | $ | (187 | ) |   | $ | - |   |   | $ | - |   |   | $ | 19,810 |   |   | $ | (187 | ) |

----

| (Dollars in thousands)Loans |   | June 30, 2010 |      |   | December 31, 2009 |   |
|-----------------------------|--------|---------------|-----------|--------|-------------------|--------|
| Business                    |   | $             | 437,516   |   |              | $      | 469,196 |   |
| R/E construction(1)         |   |          | 156,814   |   |              |   | 256,917 |   |
| Commercial R/E              |   |          | 184,223   |   |              |   | 183,286 |   |
| Multifamily                 |   |          | 94,325    |   |              |   | 82,418 |   |
| Home equity/consumer        |   |          | 31,879    |   |              |   | 31,738 |   |
| Residential(2)              |   |          | 203,138   |   |              |   | 179,133 |   |
| Total loans                 |   | $             | 1,107,895 |   |              | $      | 1,202,688 |   |
| Deferred loan fees          |   |          | (4,255    | )      |              |   | (3,575 | ) |
| Allowance for loan losses   |   |          | (26,058   | )      |              |   | (25,900 | ) |
| Loans, net                  |   | $             | 1,077,582 |   |              | $      | 1,173,213 |   |

----

| (Dollars in thousands)        |   | Three Months EndedJune 30, |    |   | Six Months EndedJune 30, |   |
|-------------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
| Allowance for loan losses     |   | 2010                       |    |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Beginning balance             |   | $                          | 26,003  |   |                     | $      | 25,020 |   |   | $ | 25,900 |   |   | $ | 16,439 |   |
| Charge-offs                   |   |                       | (12,487 | )      |                     |   | (18,945 | ) |   |   | (43,756 | ) |   |   | (24,268 | ) |
| Recoveries                    |   |                       | 808     |   |                     |   | 99 |   |   |   | 890 |   |   |   | 123 |   |
| Provision for losses          |   |                       | 11,725  |   |                     |   | 18,300 |   |   |   | 43,015 |   |   |   | 32,175 |   |
| Off-balance sheet commitments |   |                       | 9       |   |                     |   | 16 |   |   |   | 9 |   |   |   | 21 |   |
| Ending balance                |   | $                          | 26,058  |   |                     | $      | 24,490 |   |   | $ | 26,058 |   |   | $ | 24,490 |   |

| (Dollars in thousands)Impaired loans                        |   | June 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Impaired loans with an allowance                            |   | $             | 49,330  |   |              | $      | 58,296 |   |
| Impaired loans without an allowance                         |   |          | 81,003  |   |              |   | 125,443 |   |
| Total impaired loans                                        |   | $             | 130,333 |   |              | $      | 183,739 |   |
| Allowance for loan losses related to impaired loans         |   |          | 5,182   |   |              |   | 6,422 |   |
| Total nonperforming loans                                   |   |          | 69,824  |   |              |   | 106,096 |   |
| Total loans past-due ninety days or more and still accruing |   |          | -       |   |              |   | 247 |   |
| Performing restructured loans(1)                            |   |          | 33,024  |   |              |   | 26,635 |   |
|  (1) Includes impaired restructured loans.             |   |          |    |   |              |   |   |   |

----

| (Dollars in thousands)   |   | Three Months EndedJune 30, |    |   | Six Months EndedJune 30, |   |
|--------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
| REO                      |   | 2010                       |    |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Beginning balance        |   | $                          | 27,394  |   |                     | $      | 9,082 |   |   | $ | 18,842 |   |   | $ | 1,446 |   |
| Loans transferred to REO |   |                       | 25,264  |   |                     |   | 1,693 |   |   |   | 36,464 |   |   |   | 9,384 |   |
| Capitalized improvements |   |                       | 3,091   |   |                     |   | 7 |   |   |   | 4,062 |   |   |   | 7 |   |
| Sales                    |   |                       | (11,691 | )      |                     |   | (1,685 | ) |   |   | (14,613 | ) |   |   | (1,686 | ) |
| Writedown/loss on sales  |   |                       | (3,595  | )      |                     |   | (1,225 | ) |   |   | (4,292 | ) |   |   | (1,279 | ) |
| Ending balance           |   | $                          | 40,463  |   |                     | $      | 7,872 |   |   | $ | 40,463 |   |   | $ | 7,872 |   |

----

----

----

|                                                                                                                                |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
| (Dollars in thousands, except share and per share amounts)                                                                          |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Numerator:                                                                                                                          |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Net loss                                                                                                                            |   | $                          | (24,172    | )      |                     | $      | (21,400 | ) |   | $ | (56,312 | ) |   | $ | (26,217 | ) |
| Less dividends on preferred stock                                                                                                   |   |                       | 503        |   |                     |   | 487 |   |   |   | 1,002 |   |   |   | 969 |   |
| Less accretion of issuance discount on preferred stock                                                                              |   |                       | 112        |   |                     |   | 105 |   |   |   | 223 |   |   |   | 210 |   |
| Net loss attributable to common stockholders                                                                                        |   | $                          | (24,787    | )      |                     | $      | (21,992 | ) |   | $ | (57,537 | ) |   | $ | (27,396 | ) |
|                                                                                                                                |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                                        |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic net loss per common share-weighted average shares                                                             |   |                       | 12,246,529 |   |                     |   | 12,110,434 |   |   |   | 12,210,751 |   |   |   | 12,104,805 |   |
| Effect of dilutive stock options                                                                                                    |   |                       | -          |   |                     |   | - |   |   |   | - |   |   |   | - |   |
| Denominator for diluted net loss per common share - weighted average common shares and assumed conversion of dilutive stock options |   |                       | 12,246,529 |   |                     |   | 12,110,434 |   |   |   | 12,210,751 |   |   |   | 12,104,805 |   |
|                                                                                                                                |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Loss per common share, basic                                                                                                        |   | $                          | (2.02      | )      |                     | $      | (1.82 | ) |   | $ | (4.71 | ) |   | $ | (2.26 | ) |
| Loss per common share, diluted                                                                                                      |   | $                          | (2.02      | )      |                     | $      | (1.82 | ) |   | $ | (4.71 | ) |   | $ | (2.26 | ) |

----

----

| (Dollars in thousands)             | Adequately Capitalized |    |   | Well-Capitalized |   |
|------------------------------------|------------------------|---------|--------|------------------|--------|
| Cascade Bank core capital          | Amount                 |    |   | Percentage       |   |   | Amount |   |   | Percentage |   |
| Tier 1 (Core) capital              | $                      | 99,198  |   |             |   | 5.84 | % |   | $ | 99,198 |   |   |   | 5.84 | % |
| Minimum requirement                |                   | 67,936  |   |             |   | 4.00 |   |   |   | 84,920 |   |   |   | 5.00 |   |
| Excess                             | $                      | 31,262  |   |             |   | 1.84 | % |   | $ | 14,278 |   |   |   | 0.84 | % |
|                               |                   |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Cascade Bank risk-based capital    | Amount                 |    |   | Percentage       |   |   | Amount |   |   | Percentage |   |
| Risk-based capital                 | $                      | 113,106 |   |             |   | 10.28 | % |   | $ | 113,106 |   |   |   | 10.28 | % |
| Minimum requirement(1)             |                   | 88,035  |   |             |   | 8.00 |   |   |   | 110,044 |   |   |   | 10.00 |   |
| Excess                             | $                      | 25,071  |   |             |   | 2.28 | % |   | $ | 3,062 |   |   |   | 0.28 | % |
| (1) Based on risk-weighted assets. |                   |    |   |             |   |   |   |   |   |   |   |   |   |   |   |

----

| ·   | review the qualifications of the Bank’s management; |
|--------------------|-----------------------------------------------------------|

| ·   | provide the FDIC with 30 days written notice prior to adding any individual to the Board of Directors of the Bank or employing any individual as a senior executive officer; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | increase director participation and supervision of Bank affairs; |
|--------------------|------------------------------------------------------------------|

| ·   | develop a capital plan and increase Tier 1 leverage capital to 10% of the Bank’s total assets and increase total risk-based capital to 12% of the Bank’s risk-weighted assets within 120 days, and maintain such capital levels, in addition to maintaining a fully funded allowance for loan losses satisfactory to the regulators; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate from its books, by charge-off or collection, all loans classified “loss” and all amounts in excess of the fair value of the underlying collateral for assets classified “doubtful” in the Report of Visitation dated February 16, 2010 that have not been previously collected or charged-off, by July 30, 2010; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | reduce the amount of loans classified “substandard” and “doubtful” in the Report of Visitation that have not previously been charged off to not more than 130% of the Bank’s Tier 1 capital and allowance for loan losses, within 180 days; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eventually reduce the total of all adversely classified loans by collection, charge-off or sufficiently improving the quality of adversely classified loans to warrant removing any adverse classification, as determined by the regulators; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate a written plan to reduce the Bank’s levels of nonperforming assets and/or assets listed for “special mention” by the Bank to an acceptable level and to reduce the Bank’s concentrations in commercial real estate and acquisition, development and construction loans; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | develop a 3-year strategic plan and budget with specific goals for total loans, total investment securities and total deposits, and improvements in profitability and net interest margin, and reduction of overhead expenses; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | submit a written plan for eliminating the Bank’s reliance on brokered deposits, in compliance with FDIC’s rules; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate and/or correct all violations of law set forth in the Report of Visitation and the Report of Examination dated May 18, 2009, and ensure future compliance with all applicable laws and regulations; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | implement a comprehensive policy for determining the adequacy of the allowance for loan losses satisfactory to the regulators and remedy any deficiency in the allowance in the calendar quarter discovered by a change to current operating earnings; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | refrain from extending additional credit with respect to loans charged-off or classified as “loss” and uncollected; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | refrain from extending additional credit with respect to other adversely classified loans, without the prior approval of a majority of the directors on the Bank Board or its loan committee, and without first collecting all past due interest; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | implement a liquidity and funds management policy to reduce the Bank’s reliance on brokered deposits and other non-core funding sources; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | prepare and submit progress reports to the FDIC and the Washington DFI. |
|--------------------|-------------------------------------------------------------------------|

|                             |   |   Options |    |   | Weighted-AverageExercisePrice per Share |   |   | Weighted-AverageRemainingContractualTerm (in years) |   |   |  AggregateIntrinsic Value |   |
|----------------------------------|--------|---------------------|---------|--------|-----------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|--------------------------------|--------|
| Outstanding on December 31, 2009 |   |                | 647,976 |   |                                    | $      | 10.46  |                                                |   |   | 4.11                           |   |   | $ | - |   |
| Granted                          |   |                | -       |   |                                    |   | -      |                                                |   |   |                           |   |   |   |   |   |
| Exercised                        |   |                | -       |   |                                    |   | -      |                                                |   |   |                           |   |   |   |   |   |
| Forfeited/canceled               |   |                | 61,204  |   |                                    |   | 9.06   |                                                |   |   |                           |   |   |   |   |   |
| Outstanding on March 31, 2010    |   |                | 586,772 |   |                                    | $      | 10.61  |                                                |   |   | 3.92                           |   |   | $ | - |   |
| Granted                          |   |                | -       |   |                                    |   | -      |                                                |   |   |                           |   |   |   |   |   |
| Exercised                        |   |                | -       |   |                                    |   | -      |                                                |   |   |                           |   |   |   |   |   |
| Forfeited/canceled               |   |                | 71,272  |   |                                    |   | 12.21  |                                                |   |   |                           |   |   |   |   |   |
| Outstanding on June 30, 2010     |   |                | 515,500 |   |                                    | $      | 10.38  |                                                |   |   | 3.64                           |   |   | $ | - |   |
|                             |   |                |    |   |                                    |   |   |                                                |   |   |                           |   |   |   |   |   |
| Exercisable on June 30, 2010     |   |                | 437,070 |   |                                    | $      | 9.84   |                                                |   |   | 3.00                           |   |   | $ | - |   |

----

----

|                                           |   | June 30, 2010  |      |   | December 31, 2009    |   |
|------------------------------------------------|--------|----------------|-----------|--------|----------------------|--------|
| (Dollars in thousands)                         |   | Carrying Value |      |   | Estimated Fair Value |   |   | Carrying Value |   |   | Estimated Fair Value |   |
| Financial assets                               |   |           |      |   |                 |   |   |   |   |   |   |   |
| Cash and cash equivalents                 |   | $              | 161,591   |   |                 | $      | 161,591 |   |   | $ | 145,595 |   |   | $ | 145,595 |   |
| Securities available-for-sale                  |   |           | 303,064   |   |                 |   | 303,064 |   |   |   | 227,805 |   |   |   | 227,805 |   |
| Securities held-to-maturity                    |   |           | 21,849    |   |                 |   | 22,776 |   |   |   | 36,177 |   |   |   | 36,494 |   |
| FHLB stock                                     |   |           | 11,920    |   |                 |   | 11,920 |   |   |   | 11,920 |   |   |   | 11,920 |   |
| Loans, net                                     |   |           | 1,077,582 |   |                 |   | 1,036,366 |   |   |   | 1,173,213 |   |   |   | 1,074,697 |   |
| BOLI                                           |   |           | 25,012    |   |                 |   | 25,012 |   |   |   | 24,522 |   |   |   | 24,522 |   |
| REO                                            |   |           | 40,463    |   |                 |   | 40,463 |   |   |   | 18,842 |   |   |   | 18,842 |   |
|                                           |   |           |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities                          |   |           |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposit accounts                               |   | $              | 1,182,955 |   |                 | $      | 1,167,518 |   |   | $ | 1,139,774 |   |   | $ | 1,116,840 |   |
| FHLB advances                                  |   |           | 239,000   |   |                 |   | 266,098 |   |   |   | 239,000 |   |   |   | 261,217 |   |
| FRB TAF borrowings                             |   |           | -         |   |                 |   | - |   |   |   | 20,000 |   |   |   | 20,000 |   |
| Securities sold under agreements to repurchase |   |           | 145,420   |   |                 |   | 180,974 |   |   |   | 145,410 |   |   |   | 174,700 |   |
| Junior subordinated debentures                 |   |           | 15,465    |   |                 |   | 8,079 |   |   |   | 15,465 |   |   |   | 8,079 |   |
| Junior subordinated debentures, fair value     |   |           | 3,341     |   |                 |   | 3,341 |   |   |   | 3,341 |   |   |   | 3,341 |   |

----

----

----

| (Dollars in thousands)         |   | Fair Value at June 30, 2010     |    |
|--------------------------------|--------|---------------------------------|---------|
| Assets                         |   | Level 1                    |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Mortgage-backed securities     |   | $                               | -       |   |   | $ | 33,943 |   |   | $ | - |   |   | $ | 33,943 |   |
| Agency notes & bonds       |   |                            | -       |   |   |   | 143,026 |   |   |   | - |   |   |   | 143,026 |   |
| US Treasury notes              |   |                            |  - |   |   |   | 115,774 |   |   |   |  - |   |   |   | 115,774 |   |
| FDIC guaranteed debt           |   |                            | 10,321  |   |   |   | - |   |   |   | - |   |   |   | 10,321 |   |
| Total                          |   | $                               | 10,321  |   |   | $ | 292,743 |   |   | $ | - |   |   | $ | 303,064 |   |
|                           |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                    |   | Level 1                    |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Junior subordinated debentures |   | $                               | -       |   |   | $ | - |   |   | $ | 3,341 |   |   | $ | 3,341 |   |
| Total                          |   | $                               | -       |   |   | $ | - |   |   | $ | 3,341 |   |   | $ | 3,341 |   |
|                           |   |                            |    |
| (Dollars in thousands)         |   | Fair Value at December 31, 2009 |    |
| Assets                         |   | Level 1                    |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Mortgage-backed securities     |   | $                               | -       |   |   | $ | 41,280 |   |   | $ | - |   |   | $ | 41,280 |   |
| Agency notes & bonds       |   |                            | -       |   |   |   | 186,525 |   |   |   | - |   |   |   | 186,525 |   |
| Total                          |   | $                               | -       |   |   | $ | 227,805 |   |   | $ | - |   |   | $ | 227,805 |   |
|                           |   |                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                    |   | Level 1                    |    |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Junior subordinated debentures |   | $                               | -       |   |   | $ | - |   |   | $ | 3,341 |   |   | $ | 3,341 |   |
| Total                          |   | $                               | -       |   |   | $ | - |   |   | $ | 3,341 |   |   | $ | 3,341 |   |

|                           |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|--------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
| (Dollars in thousands)         |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Assets                         |   |                       |   |   |                     |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $                          | 879    |   |                     | $      | (443 | ) |   | $ | 1,167 |   |   | $ | 214 |   |
| Agency notes & bonds       |   |                       | 3,113  |   |                     |   | (2,706 | ) |   |   | 6,471 |   |   |   | (2,255 | ) |
| FDIC guaranteed debt           |   |                       | 20     |   |                     |   | 94 |   |   |   | 20 |   |   |   | 94 |   |
| Total                          |   | $                          | 4,012  |   |                     | $      | (3,055 | ) |   | $ | 7,658 |   |   | $ | (1,947 | ) |
|                           |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                    |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Junior subordinated debentures |   | $                          | -      |   |                     | $      | 12 |   |   | $ | - |   |   | $ | 1,802 |   |
| Total                          |   | $                          | -      |   |                     | $      | 12 |   |   | $ | - |   |   | $ | 1,802 |   |

----

|                   |   | Fair value measurements usingsignificant unobservable inputs(Level 3) |   |
|------------------------|--------|-----------------------------------------------------------------------|--------|
|                   |   | Three Months EndedJune 30,                                            |   |   | Six Months EndedJune 30, |   |
| (Dollars in thousands) |   | 2010                                                                  |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
| Beginning balance      |   | $                                                                     | 3,341  |   |   | $ | 8,720 |   |   | $ | 3,341 |   |   | $ | 10,510 |   |
| Total gains recognized |   |                                                                  | -      |   |   |   | (12 | ) |   |   | - |   |   |   | (1,802 | ) |
| Ending balance         |   | $                                                                     | 3,341  |   |   | $ | 8,708 |   |   | $ | 3,341 |   |   | $ | 8,708 |   |

| (Dollars in thousands) |   | Fair Value at June 30, 2010     |   |
|------------------------|--------|---------------------------------|--------|
| Description            |   | Level 1                    |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans (1)     |   | $                               | -      |   |   | $ | - |   |   | $ | 125,151 |   |   | $ | 125,151 |   |
| REO(2)                 |   |                            | -      |   |   |   | - |   |   |   | 40,463 |   |   |   | 40,463 |   |
| Total                  |   | $                               | -      |   |   | $ | - |   |   | $ | 165,614 |   |   | $ | 165,614 |   |
|                   |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Dollars in thousands) |   | Fair Value at December 31, 2009 |   |
| Description            |   | Level 1                    |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans (1)     |   | $                               | -      |   |   | $ | - |   |   | $ | 177,317 |   |   | $ | 177,317 |   |
| REO(2)                 |   |                            | -      |   |   |   | - |   |   |   | 18,842 |   |   |   | 18,842 |   |
| Total                  |   | $                               | -      |   |   | $ | - |   |   | $ | 196,159 |   |   | $ | 196,159 |   |

| (1)   | Impaired loans include loans on nonaccrual, classified doubtful, TDR and/or individually analyzed for impairment, adjusted by the impairment amount. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | REO is disclosed at book balance, which approximates fair value. |
|-----------------|------------------------------------------------------------------|

| (Dollars in thousands)  |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|-------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
| Description             |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Impaired loans (1) |   | $                          | 16,663 |   |                     | $      | 23,216 |   |   | $ | 53,905 |   |   | $ | 29,296 |   |
| REO(2)                  |   |                       | 3,595  |   |                     |   | 1,225 |   |   |   | 4,292 |   |   |   | 1,279 |   |
| Total                   |   | $                          | 20,258 |   |                     | $      | 24,441 |   |   | $ | 58,197 |   |   | $ | 30,575 |   |

| (1)   | Total gains/losses for loans includes the actual impairment amount, plus the allowance for loan loss write downs during the quarter for those loans considered impaired. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)  | Losses for REO are the net losses recognized during the quarter. |
|-----------|------------------------------------------------------------------|

----

| (Dollars in thousands)                                      |   | June 30, 2010 |    |   | December 31, 2009 |   |
|-------------------------------------------------------------|--------|---------------|---------|--------|-------------------|--------|
| Commitments to grant loans                                  |   | $             | 2,453   |   |              | $      | 11,145 |   |
| Unfunded commitments under lines of credit/loans in process |   |          | 105,113 |   |              |   | 122,714 |   |
| Standby letters of credit and financial guarantees written  |   |          | 1,803   |   |              |   | 1,695 |   |
| Unused commitments on bankcards                             |   |          | 13,617  |   |              |   | 13,621 |   |
| Total                                                       |   | $             | 122,986 |   |              | $      | 149,175 |   |

----

----

| ·   | management’s ability to effectively execute its business plan and strategy; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | the credit risks of lending activities, including changes in the level and trend of loan delinquencies, collections and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes in general economic conditions, either nationally or in our market areas; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | the availability of and costs associated with sources of liquidity; |
|--------------------|---------------------------------------------------------------------|

| ·   | inflation, interest rates, market and monetary fluctuations; |
|--------------------|--------------------------------------------------------------|

| ·   | legislative or regulatory changes or changes in accounting principles, policies or guidelines; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | the possibility that we will be unable to comply with certain conditions imposed upon us in regulatory actions, which could result in the imposition of further restrictions on our operations, penalties or other regulatory actions; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | our ability to attract and retain deposits; |
|--------------------|---------------------------------------------|

| ·   | further increases in premiums for deposit insurance; |
|--------------------|------------------------------------------------------|

| ·   | the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the failure or security breach of computer systems on which we depend; |
|--------------------|------------------------------------------------------------------------|

| ·   | increased competitive pressures among financial services companies; |
|--------------------|---------------------------------------------------------------------|

| ·   | adverse changes in the securities markets; |
|--------------------|--------------------------------------------|

| ·   | technological changes; |
|--------------------|------------------------|

| ·   | the ability to increase market share and control expenses; |
|--------------------|------------------------------------------------------------|

----

| ·   | our success at managing the risks involved in the foregoing; and |
|--------------------|------------------------------------------------------------------|

| ·   | other risks which may be described in Cascade’s future filings with the SEC under the Securities Exchange Act of 1934. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|                                                                                                                                                                                                                                                                                                                   |   | At or for the ThreeMonths EndedJune 30, |    |   | At or for the SixMonths EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                   |   | 2010                                    |    |   | 2009                                  |   |   | 2010 |   |   | 2009 |   |
| Return on average assets (2)                                                                                                                                                                                                                                                                                           |   |                                    | (5.85   | )%     |                                  |   | (5.47 | )% |   |   | (6.79 | )% |   |   | (3.40 | )% |
| Return on average common equity (1)(2)                                                                                                                                                                                                                                                                                 |   |                                    | (187.06 | )      |                                  |   | (83.14 | ) |   |   | (154.71 | ) |   |   | (47.92 | ) |
| Average stockholders’ equity to average assets                                                                                                                                                                                                                                                                   |   |                                    | 5.32    |   |                                  |   | 8.86 |   |   |   | 6.57 |   |   |   | 9.37 |   |
| Other expenses to average assets (1)                                                                                                                                                                                                                                                                                   |   |                                    | 3.06    |   |                                  |   | 2.71 |   |   |   | 4.13 |   |   |   | 3.76 |   |
| Efficiency ratio                                                                                                                                                                                                                                                                                                       |   |                                    | 193.57  |   |                                  |   | 166.42 |   |   |   | 140.50 |   |   |   | 108.97 |   |
| Efficiency ratio (excluding goodwill impairment & OTTI charge) (3)                                                                                                                                                                                                                                                 |   |                                    | 96.71   |   |                                  |   | 76.60 |   |   |   | 88.76 |   |   |   | 63.79 |   |
|                                                                                                                                                                                                                                                                                                                   |   |
| (1) Annualized(2) Excludes preferred stock.(3) Non-GAAP measurement: excludes a goodwill impairment charge of $12.9 million and $11.7 million for the three and six months ended June 30, 2010 and 2009, respectively and an OTTI charge of $858,000 for the six  months ended June 30, 2009. |   |

----

|                           |   | June 30, 2010 |    |   | December 31, 2009 |   |
|--------------------------------|--------|---------------|---------|--------|-------------------|--------|
| (Dollars in thousands)         |   | AmortizedCost |    |   | FairValue         |   |   | AmortizedCost |   |   | FairValue |   |
| Securities available-for-sale  |   |          |    |   |              |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $             | 32,493  |   |              | $      | 33,943 |   |   | $ | 40,997 |   |   | $ | 41,280 |   |
| Agency notes & bonds       |   |          | 138,833 |   |              |   | 143,026 |   |   |   | 188,585 |   |   |   | 186,525 |   |
| US Treasury notes              |   |          | 115,556 |   |              |   | 115,774 |   |   |   | - |   |   |   | - |   |
| FDIC guaranteed debt           |   |          | 10,300  |   |              |   | 10,321 |   |   |   | - |   |   |   | - |   |
| Total                          |   | $             | 297,182 |   |              | $      | 303,064 |   |   | $ | 229,582 |   |   | $ | 227,805 |   |
|                           |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| (Dollars in thousands)         |   | AmortizedCost |    |   | FairValue         |   |   | AmortizedCost |   |   | FairValue |   |
| Securities held-to-maturity    |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Mortgage-backed securities     |   | $             | 21,074  |   |              | $      | 22,001 |   |   | $ | 15,405 |   |   | $ | 15,909 |   |
| Agency notes & bonds       |   |          | -       |   |              |   | – |   |   |   | 19,997 |   |   |   | 19,810 |   |
| Junior subordinated debentures |   |          | 775     |   |              |   | 775 |   |   |   | 775 |   |   |   | 775 |   |
| Total                          |   | $             | 21,849  |   |              | $      | 22,776 |   |   | $ | 36,177 |   |   | $ | 36,494 |   |

----

----

| (Dollars in thousands)Loans             |   | June 30, 2010 |      |   | % ofPortfolio |   |   | December 31, 2009 |   |   | % of Portfolio |   |
|-----------------------------------------|--------|--------------------|-----------|--------|---------------|--------|--------|------------------------|--------|--------|---------------------|--------|
| Business                                |   | $                  | 437,516   |   |          |   | 39.5   | %                      |   | $      | 469,196             |   |   |   | 39.0 | % |
| R/E construction(1)                     |   |               |      |   |          |   |   |                   |   |   |                |   |   |   |   |   |
| Spec construction                       |   |               | 45,099    |   |          |   | 4.1    |                   |   |   | 59,360              |   |   |   | 4.9 |   |
| Land acquisition & development/land |   |               | 74,119    |   |          |   | 6.7    |                   |   |   | 146,164             |   |   |   | 12.2 |   |
| Multifamily/custom construction         |   |               | 11,258    |   |          |   | 1.0    |                   |   |   | 18,923              |   |   |   | 1.6 |   |
| Commercial R/E construction             |   |               | 26,338    |   |          |   | 2.4    |                   |   |   | 32,470              |   |   |   | 2.7 |   |
| Total R/E construction                  |   |               | 156,814   |   |          |   | 14.2   |                   |   |   | 256,917             |   |   |   | 21.4 |   |
| Commercial R/E                          |   |               | 184,223   |   |          |   | 16.6   |                   |   |   | 183,286             |   |   |   | 15.2 |   |
| Multifamily                             |   |               | 94,325    |   |          |   | 8.5    |                   |   |   | 82,418              |   |   |   | 6.9 |   |
| Home equity/consumer                    |   |               | 31,879    |   |          |   | 2.9    |                   |   |   | 31,738              |   |   |   | 2.6 |   |
| Residential(2)                          |   |               | 203,138   |   |          |   | 18.3   |                   |   |   | 179,133             |   |   |   | 14.9 |   |
| Total loans                             |   | $                  | 1,107,895 |   |          |   | 100.0  | %                      |   | $      | 1,202,688           |   |   |   | 100.0 | % |
| Deferred loan fees                      |   |               | (4,255    | )      |          |   |   |                   |   |   | (3,575              | )      |   |   |   |   |
| Allowance for loan losses               |   |               | (26,058   | )      |          |   |   |                   |   |   | (25,900             | )      |   |   |   |   |
| Loans, net                              |   | $                  | 1,077,582 |   |          |   |   |                   |   | $      | 1,173,213           |   |   |   |   |   |

|   | (1) | Real estate construction loans are net of loans in process. |
|--------|-----|-------------------------------------------------------------|

|   | (2) | Loans held-for-sale are included in residential loans, and at less than 1% of total loans, are not considered material. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------|

----

----

| (Dollars in thousands)Loans |   | Balance atJune 30,2010 |      |   |  Additions/ Advances |   |    | Payments/ Payoffs |   |   | Reclassifi-cations |   |   | Charge-offs (1) |   |   | Transfersto REO |   |    | Transfers to NotesReceivable |   |   | Balance at December 31, 2009 |   |
|-----------------------------|--------|------------------------|-----------|--------|---------------------------|--------|---------|-------------------|--------|--------|--------------------|--------|--------|-----------------|--------|--------|-----------------|--------|---------|------------------------------|--------|--------|------------------------------|--------|
| Business                    |   | $                      | 437,516   |   |                      | $      | 82,125  |              |   | $      | (105,181           | )      |   | $               | 21     |   |            | $      | (5,860  | )                            |   | $      | (560                         | )      |   | $ | (2,225 | ) |   | $ | 469,196 |   |
| R/E construction            |   |                   | 156,814   |   |                      |   | 23,519  |              |   |   | (41,333            | )      |   |            | (9,413 | )      |            |   | (37,136 | )                            |   |   | (35,740                      | )      |   |   | - |   |   |   | 256,917 |   |
| Commercial R/E              |   |                   | 184,223   |   |                      |   | 2,020   |              |   |   | (1,410             | )      |   |            | 554    |   |            |   | (227    | )                            |   |   | -                            |   |   |   | - |   |   |   | 183,286 |   |
| Multifamily                 |   |                   | 94,325    |   |                      |   | 4,250   |              |   |   | (1,233             | )      |   |            | 8,890  |   |            |   | -       |                         |   |   | -                            |   |   |   | - |   |   |   | 82,418 |   |
| Home equity/consumer        |   |                   | 31,879    |   |                      |   | 4,286   |              |   |   | (3,935             | )      |   |            | (52    | )      |            |   | (158    | )                            |   |   | -                            |   |   |   | - |   |   |   | 31,738 |   |
| Residential                 |   |                   | 203,138   |   |                      |   | 35,266  |              |   |   | (10,852            | )      |   |            | -      |   |            |   | (245    | )                            |   |   | (164                         | )      |   |   | - |   |   |   | 179,133 |   |
| Total loans                 |   | $                      | 1,107,895 |   |                      | $      | 151,466 |              |   | $      | (163,944           | )      |   | $               | -      |   |            | $      | (43,626 | )                            |   | $      | (36,464                      | )      |   | $ | (2,225 | ) |   | $ | 1,202,688 |   |
| Deferred loan fees          |   |                   | (4,255    | )      |                      |   | (680    | )                 |   |   | -                  |   |   |            | -      |   |            |   | -       |                         |   |   | -                            |   |   |   | - |   |   |   | (3,575 | ) |
| Allowance for loan losses   |   |                   | (26,058   | )      |                      |   | (43,015 | )                 |   |   | -                  |   |   |            | (9     | )      |            |   | 42,866  |                         |   |   | -                            |   |   |   | - |   |   |   | (25,900 | ) |
| Loans, net                  |   | $                      | 1,077,582 |   |                      | $      | 107,771 |              |   | $      | (163,944           | )      |   | $               | (9     | )      |            | $      | (760    | )                            |   | $      | (36,464                      | )      |   | $ | (2,225 | ) |   | $ | 1,173,213 |   |

----

| (Dollars in thousands)                                            |   | Three Months EndedJune 30, |      |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------------------|--------|----------------------------|-----------|--------|--------------------------|--------|
| Allowance for Loan Losses                                         |   | 2010                       |      |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Balance at beginning of period                                    |   | $                          | 26,003    |   |                     | $      | 25,020 |   |   | $ | 25,900 |   |   | $ | 16,439 |   |
| Charge-Offs                                                       |   |                       |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Business                                                          |   |                       | (5,150    | )      |                     |   | (164 | ) |   |   | (5,860 | ) |   |   | (595 | ) |
| Construction/land                                                 |   |                       | (6,938    | )      |                     |   | (18,523 | ) |   |   | (37,135 | ) |   |   | (23,295 | ) |
| Commercial R/E                                                    |   |                       | (227      | )      |                     |   | - |   |   |   | (227 | ) |   |   | - |   |
| Residential                                                       |   |                       | (2        | )      |                     |   | - |   |   |   | (245 | ) |   |   | - |   |
| Consumer and other                                                |   |                       | (170      | )      |                     |   | (258 | ) |   |   | (289 | ) |   |   | (378 | ) |
| Recoveries                                                        |   |                       | 808       |   |                     |   | 99 |   |   |   | 890 |   |   |   | 123 |   |
|   Net charge-offs                                       |   |                       | (11,679   | )      |                     |   | (18,846 | ) |   |   | (42,866 | ) |   |   | (24,145 | ) |
| Provision for loan losses                                         |   |                       | 11,725    |   |                     |   | 18,300 |   |   |   | 43,015 |   |   |   | 32,175 |   |
| Transfers from off-balance commitments                            |   |                       | 9         |   |                     |   | 16 |   |   |   | 9 |   |   |   | 21 |   |
| Balance at end of period                                          |   | $                          | 26,058    |   |                     | $      | 24,490 |   |   | $ | 26,058 |   |   | $ | 24,490 |   |
|                                                              |   |                       |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Average total loans                                               |   | $                          | 1,134,477 |   |                     | $      | 1,247,475 |   |   | $ | 1,165,114 |   |   | $ | 1,253,370 |   |
| Nonperforming loans                                               |   |                       | 69,824    |   |                     |   | 114,449 |   |   |   | 69,824 |   |   |   | 114,449 |   |
|                                                              |   |                       |      |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Ratio of net charge-offs during the period to average total loans |   |                       | 1.03      | %      |                     |   | 1.51 | % |   |   | 3.68 | % |   |   | 1.93 | % |
| Ratio of allowance for loan losses to average total loans         |   |                       | 2.30      |   |                     |   | 1.96 |   |   |   | 2.24 |   |   |   | 1.95 |   |
| Ratio of allowance for loan losses to total loans                 |   |                       | 2.35      |   |                     |   | 2.00 |   |   |   | 2.35 |   |   |   | 2.00 |   |
| Coverage ratio                                                    |   |                       | 37.32     |   |                     |   | 21.40 |   |   |   | 37.32 |   |   |   | 21.40 |   |

----

| (Dollars in thousands)Nonperforming assets |   | June 30,2010 |    |   | December 31,2009 |   |
|--------------------------------------------|--------|--------------|---------|--------|------------------|--------|
| Business                                   |   | $            | 6,715   |   |             | $      | 6,988 |   |
| R/E construction                           |   |         |    |   |             |   |   |   |
| Spec construction                          |   |         | 19,165  |   |             |   | 13,787 |   |
| Land acquisition & development/land    |   |         | 19,305  |   |             |   | 65,120 |   |
| Commercial R/E construction                |   |         | -       |   |             |   | 6,477 |   |
| Total R/E construction                     |   |         | 38,470  |   |             |   | 85,384 |   |
| Commercial R/E                             |   |         | 24,126  |   |             |   | 12,581 |   |
| Home equity/consumer                       |   |         | 147     |   |             |   | 486 |   |
| Residential                                |   |         | 366     |   |             |   | 657 |   |
| Total nonperforming loans                  |   |         | 69,824  |   |             |   | 106,096 |   |
| REO                                        |   |         | 40,463  |   |             |   | 18,842 |   |
| Total nonperforming assets                 |   | $            | 110,287 |   |             | $      | 124,938 |   |
| Performing restructured loans (1)          |   | $            | 33,024  |   |             | $      | 26,635 |   |
|                                       |   |         |    |   |             |   |   |   |
| Total nonperforming loans to total loans   |   |         | 6.30    | %      |             |   | 8.82 | % |
| Total nonperforming loans to total assets  |   |         | 4.16    |   |             |   | 6.22 |   |
| Total nonperforming assets to total assets |   |         | 6.57    |   |             |   | 7.33 |   |
|                                       |   |
| (1) Includes impaired restructured loans.  |   |

----

|                                      |   | On Loans Designated NPLsas of June 30, 2010 |   |
|-------------------------------------------|--------|---------------------------------------------|--------|
| (Dollars in thousands)Nonperforming loans |   | Balance atJune 30, 2010                     |   |   | Additions |   |   | Paydowns |   |   | Charge-offs |   |   | Transfers to REO |   |   | Transfers to NotesReceivable |   |   | Balance at December 31, 2009 |   |
| Business                                  |   | $                                           | 6,715  |   |   | $ | 8,491 |   |   | $ | (119 | ) |   | $ | (5,860 | ) |   | $ | (560 | ) |   | $ | (2,225 | ) |   | $ | 6,988 |   |
| R/E construction                          |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Spec construction                         |   |                                        | 19,165 |   |   |   | 23,454 |   |   |   | (13,111 | ) |   |   | (3,506 | ) |   |   | (1,459 | ) |   |   | - |   |   |   | 13,787 |   |
| Land acquisition & development/land   |   |                                        | 19,305 |   |   |   | 19,467 |   |   |   | (3,868 | ) |   |   | (31,878 | ) |   |   | (29,536 | ) |   |   | - |   |   |   | 65,120 |   |
| Commercial R/E construction               |   |                                        | -      |   |   |   | 20 |   |   |   | - |   |   |   | (1,752 | ) |   |   | (4,745 | ) |   |   | - |   |   |   | 6,477 |   |
| Total R/E construction                    |   |                                        | 38,470 |   |   |   | 42,941 |   |   |   | (16,979 | ) |   |   | (37,136 | ) |   |   | (35,740 | ) |   |   | - |   |   |   | 85,384 |   |
| Commercial R/E                            |   |                                        | 24,126 |   |   |   | 12,210 |   |   |   | (438 | ) |   |   | (227 | ) |   |   | - |   |   |   | - |   |   |   | 12,581 |   |
| Home equity/consumer                      |   |                                        | 147    |   |   |   | 17 |   |   |   | (198 | ) |   |   | (158 | ) |   |   | - |   |   |   | - |   |   |   | 486 |   |
| Residential                               |   |                                        | 366    |   |   |   | 369 |   |   |   | (251 | ) |   |   | (245 | ) |   |   | (164 | ) |   |   | - |   |   |   | 657 |   |
| Total nonperforming loans                 |   | $                                           | 69,824 |   |   | $ | 64,028 |   |   | $ | (17,985 | ) |   | $ | (43,626 | ) |   | $ | (36,464 | ) |   | $ | (2,225 | ) |   | $ | 106,096 |   |

| (Dollars in thousands)                              |   | Balance atJune 30, 2010 |      |   | NonperformingLoans (NPL) |   |   | NPL as a % ofLoan Category |   |
|-----------------------------------------------------|--------|-------------------------|-----------|--------|--------------------------|--------|--------|----------------------------|--------|
| Business                                            |   | $                       | 437,516   |   |                     | $      | 6,715  |                       |   |   | 2 | % |
| R/E Construction                                    |   |                    |      |   |                     |   |   |                       |   |   |   |   |
|   Spec construction                       |   |                    | 45,099    |   |                     |   | 19,165 |                       |   |   | 42 |   |
|   Land acquisition & development/land |   |                    | 74,119    |   |                     |   | 19,305 |                       |   |   | 27 |   |
|   Multifamily/custom construction         |   |                    | 11,258    |   |                     |   | -      |                       |   |   | 0 |   |
|   Commercial R/E construction             |   |                    | 26,338    |   |                     |   | -      |                       |   |   | 0 |   |
| Total R/E construction                              |   |                    | 156,814   |   |                     |   | 38,470 |                       |   |   | 25 |   |
| Commercial R/E                                      |   |                    | 184,223   |   |                     |   | 24,126 |                       |   |   | 13 |   |
| Multifamily                                         |   |                    | 94,325    |   |                     |   | -      |                       |   |   | 0 |   |
| Home equity/consumer                                |   |                    | 31,879    |   |                     |   | 147    |                       |   |   | 0 |   |
| Residential                                         |   |                    | 203,138   |   |                     |   | 366    |                       |   |   | 0 |   |
| Total                                               |   | $                       | 1,107,895 |   |                     | $      | 69,824 |                       |   |   | 6 | % |

----

| (Dollars in thousands)                            |   | Balance atJune 30, 2010 |   |   | Balance atDecember 31, 2009 |   |
|---------------------------------------------------|--------|-------------------------|--------|--------|-----------------------------|--------|
| Troubled Debt Restructured Loans                  |   |                    |   |   |                        |   |
| Business                                          |   | $                       | 3,584  |   |                        | $      | 3,626 |   |
| R/E construction                                  |   |                    |   |   |                        |   |   |   |
|   Spec construction                     |   |                    | 6,317  |   |                        |   | 11,783 |   |
|   Land acquisition and development/land |   |                    | 7,486  |   |                        |   | 14,118 |   |
| Total R/E construction                            |   |                    | 13,803 |   |                        |   | 25,901 |   |
| Commercial R/E                                    |   |                    | 21,032 |   |                        |   | 20,441 |   |
| Multifamily                                       |   |                    | 5,638  |   |                        |   | - |   |
| Residential                                       |   |                    | 2,568  |   |                        |   | 1,896 |   |
| Total                                             |   | $                       | 46,625 |   |                        | $      | 51,864 |   |

----

| (Dollars in thousands)REO               |   | Balance atJune 30, 2010 |   |   | Additions |   |   | Capitalized Costs |   |   | Paydowns/Sales |   |   | Writedowns/Losses |    |   | Balance atDecember 31, 2009 |   |
|-----------------------------------------|--------|-------------------------|--------|--------|-----------|--------|--------|-------------------|--------|--------|----------------|--------|--------|-------------------|---------|--------|-----------------------------|--------|
| R/E construction                        |   |                    |   |   |      |   |   |              |   |   |           |   |   |              |    |   |                        |   |
| Residential construction                |   | $                       | 1,029  |   |      | $      | 2,276  |              |   | $      | 2,261          |   |   | $                 | (6,257  | )      |                        | $      | (376 | ) |   | $ | 3,125 |   |
| Land acquisition & development/land |   |                    | 31,606 |   |      |   | 28,883 |              |   |   | 1,275          |   |   |              | (6,958  | )      |                        |   | (3,327 | ) |   |   | 11,733 |   |
| Condominium construction                |   |                    | 2,112  |   |      |   | -      |              |   |   | 456            |   |   |              | -       |   |                        |   | (432 | ) |   |   | 2,088 |   |
| Total R/E construction                  |   |                    | 34,747 |   |      |   | 31,159 |              |   |   | 3,992          |   |   |              | (13,215 | )      |                        |   | (4,135 | ) |   |   | 16,946 |   |
| Commercial R/E                          |   |                    | 5,375  |   |      |   | 5,305  |              |   |   | 70             |   |   |              | -       |   |                        |   | - |   |   |   | - |   |
| Residential                             |   |                    | 341    |   |      |   | -      |              |   |   | -              |   |   |              | (1,398  | )      |                        |   | (157 | ) |   |   | 1,896 |   |
| Total                                   |   | $                       | 40,463 |   |      | $      | 36,464 |              |   | $      | 4,062          |   |   | $                 | (14,613 | )      |                        | $      | (4,292 | ) |   | $ | 18,842 |   |

| (Dollars in thousands)Deposits |   | June 30, 2010 |      |   | % of Deposits |   |   | December 31, 2009 |   |   | % of Deposits |   |
|--------------------------------|--------|---------------|-----------|--------|--------------------|--------|--------|-------------------|--------|--------|---------------|--------|
| Checking accounts              |   | $             | 407,934   |   |               |   | 34.5   | %                 |   | $      | 444,922       |   |   |   | 39.0 | % |
| Savings & MMDA             |   |          | 128,803   |   |               |   | 10.9   |              |   |   | 133,130       |   |   |   | 11.7 |   |
| CDs                            |   |          | 646,218   |   |               |   | 54.6   |              |   |   | 561,722       |   |   |   | 49.3 |   |
| Total deposits                 |   | $             | 1,182,955 |   |               |   | 100.0  | %                 |   | $      | 1,139,774     |   |   |   | 100.0 | % |

----

----

----

| ·   | review the qualifications of the Bank’s management; |
|--------------------|-----------------------------------------------------------|

| ·   | provide the FDIC with 30 days written notice prior to adding any individual to the Board of Directors of the Bank or employing any individual as a senior executive officer; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | increase director participation and supervision of Bank affairs; |
|--------------------|------------------------------------------------------------------|

| ·   | develop a capital plan and increase Tier 1 leverage capital to 10% of the Bank’s total assets and increase total risk-based capital to 12% of the Bank’s risk-weighted assets within 120 days, and maintain such capital levels, in addition to maintaining a fully funded allowance for loan losses satisfactory to the regulators; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate from its books, by charge-off or collection, all loans classified “loss” and all amounts in excess of the fair value of the underlying collateral for assets classified “doubtful” in the Report of Visitation dated February 16, 2010 that have not been previously collected or charged-off, by July 30, 2010; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | reduce the amount of loans classified “substandard” and “doubtful” in the Report of Visitation that have not previously been charged off to not more than 130% of the Bank’s Tier 1 capital and allowance for loan losses, within 180 days; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | eventually reduce the total of all adversely classified loans by collection, charge-off or sufficiently improving the quality of adversely classified loans to warrant removing any adverse classification, as determined by the regulators; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | formulate a written plan to reduce the Bank’s levels of nonperforming assets and/or assets listed for “special mention” by the Bank to an acceptable level and to reduce the Bank’s concentrations in commercial real estate and acquisition, development and construction loans; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | develop a 3-year strategic plan and budget with specific goals for total loans, total investment securities and total deposits, and improvements in profitability and net interest margin, and reduction of overhead expenses; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | submit a written plan for eliminating the Bank’s reliance on brokered deposits, in compliance with FDIC’s rules; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | eliminate and/or correct all violations of law set forth in the Report of Visitation and the Report of Examination dated May 18, 2009, and ensure future compliance with all applicable laws and regulations; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | implement a comprehensive policy for determining the adequacy of the allowance for loan losses satisfactory to the regulators and remedy any deficiency in the allowance in the calendar quarter discovered by a change to current operating earnings; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | refrain from extending additional credit with respect to loans charged-off or classified as “loss” and uncollected; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | refrain from extending additional credit with respect to other adversely classified loans, without the prior approval of a majority of the directors on the Bank Board or its loan committee, and without first collecting all past due interest; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | implement a liquidity and funds management policy to reduce the Bank’s reliance on brokered deposits and other non-core funding sources; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | prepare and submit progress reports to the FDIC and the Washington DFI. |
|--------------------|-------------------------------------------------------------------------|

----

|                                                                    |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|-------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
| (Dollars in thousands)                                                  |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Average interest-earning assets                                         |   | $                          | 1,527  |   |                     | $      | 1,440 |   |   | $ | 1,519 |   |   | $ | 1,465 |   |
| Average interest-bearing liabilities                                    |   |                       | 1,493  |   |                     |   | 1,375 |   |   |   | 1,483 |   |   |   | 1,379 |   |
| Average interest-earning assets to average interest-bearing liabilities |   |                       | 102.26 | %      |                     |   | 104.77 | % |   |   | 102.45 | % |   |   | 106.27 | % |
| Yield on interest-earning assets                                        |   |                       | 4.89   |   |                     |   | 5.63 |   |   |   | 5.01 |   |   |   | 5.73 |   |
| Cost of interest-bearing liabilities                                    |   |                       | 2.46   |   |                     |   | 2.74 |   |   |   | 2.53 |   |   |   | 2.88 |   |
| Net interest spread                                                     |   |                       | 2.43   |   |                     |   | 2.89 |   |   |   | 2.48 |   |   |   | 2.85 |   |
| Net interest margin                                                     |   |                       | 2.49   |   |                     |   | 3.01 |   |   |   | 2.54 |   |   |   | 3.02 |   |

----

|                                                                   |   | Three months ended June 30, |      |
|------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                   |   | 2010                        |      |   | 2009 |   |
| (Dollars in thousands)                                                 |   | AverageBalance              |      |   | InterestandDividend |   |   | Yield/Cost |   |   | AverageBalance |   |   | InterestandDividend |   |   | Yield/Cost |   |
| Assets                                                                 |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets                                                |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential loans                                                      |   | $                           | 194,747   |   |   | $ | 2,380 |   |   |   | 4.90 | % |   | $ | 133,078 |   |   | $ | 1,953 |   |   |   | 5.89 | % |
| Multifamily loans                                                      |   |                        | 93,996    |   |   |   | 1,383 |   |   |   | 5.90 |   |   |   | 93,671 |   |   |   | 1,470 |   |   |   | 6.29 |   |
| Commercial R/E loans                                                   |   |                        | 167,443   |   |   |   | 2,625 |   |   |   | 6.29 |   |   |   | 174,728 |   |   |   | 2,792 |   |   |   | 6.41 |   |
| R/E construction loans                                                 |   |                        | 126,065   |   |   |   | 1,720 |   |   |   | 5.47 |   |   |   | 254,998 |   |   |   | 2,869 |   |   |   | 4.51 |   |
| Home equity/consumer loans                                             |   |                        | 31,635    |   |   |   | 528 |   |   |   | 6.69 |   |   |   | 30,875 |   |   |   | 495 |   |   |   | 6.43 |   |
| Business loans                                                         |   |                        | 440,650   |   |   |   | 7,345 |   |   |   | 6.69 |   |   |   | 471,564 |   |   |   | 7,754 |   |   |   | 6.60 |   |
| Total loans(1)                                                         |   |                        | 1,054,536 |   |   |   | 15,981 |   |   |   | 6.08 |   |   |   | 1,158,914 |   |   |   | 17,333 |   |   |   | 6.00 |   |
| Securities available-for-sale                                          |   |                        | 304,737   |   |   |   | 2,293 |   |   |   | 3.02 |   |   |   | 201,399 |   |   |   | 2,198 |   |   |   | 4.38 |   |
| Securities held-to-maturity                                            |   |                        | 23,986    |   |   |   | 274 |   |   |   | 4.58 |   |   |   | 55,105 |   |   |   | 674 |   |   |   | 4.91 |   |
| Interest-earning deposits in other institutions                        |   |                        | 143,483   |   |   |   | 79 |   |   |   | 0.22 |   |   |   | 24,898 |   |   |   | 10 |   |   |   | 0.16 |   |
| Total securities and interest-earning deposits                         |   |                        | 472,206   |   |   |   | 2,646 |   |   |   | 2.25 |   |   |   | 281,402 |   |   |   | 2,882 |   |   |   | 4.11 |   |
| Total interest-earning assets                                          |   |                        | 1,526,742 |   |   |   | 18,627 |   |   |   | 4.89 |   |   |   | 1,440,316 |   |   |   | 20,215 |   |   |   | 5.63 |   |
| Noninterest-earning assets                                             |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Office properties and equipment, net                                   |   |                        | 14,054    |   |   |   |   |   |   |   |   |   |   |   | 15,412 |   |   |   |   |   |   |   |   |   |
| REO, net                                                               |   |                        | 40,231    |   |   |   |   |   |   |   |   |   |   |   | 9,146 |   |   |   |   |   |   |   |   |   |
| Nonperforming loans                                                    |   |                        | 79,941    |   |   |   |   |   |   |   |   |   |   |   | 88,409 |   |   |   |   |   |   |   |   |   |
| Other noninterest-earning assets                                       |   |                        | 38,281    |   |   |   |   |   |   |   |   |   |   |   | 58,438 |   |   |   |   |   |   |   |   |   |
| Total assets                                                           |   | $                           | 1,699,249 |   |   |   |   |   |   |   |   |   |   | $ | 1,611,721 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and stockholders’ equity                             |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                           |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                       |   | $                           | 10,506    |   |   | $ | 7 |   |   |   | 0.27 | % |   | $ | 9,949 |   |   | $ | 6 |   |   |   | 0.24 | % |
| Checking accounts                                                      |   |                        | 329,917   |   |   |   | 841 |   |   |   | 1.02 |   |   |   | 185,477 |   |   |   | 526 |   |   |   | 1.14 |   |
| Money market accounts                                                  |   |                        | 126,750   |   |   |   | 261 |   |   |   | 0.83 |   |   |   | 127,833 |   |   |   | 303 |   |   |   | 0.95 |   |
| Certificates of deposit                                                |   |                        | 622,415   |   |   |   | 2,805 |   |   |   | 1.81 |   |   |   | 575,722 |   |   |   | 3,144 |   |   |   | 2.19 |   |
| Total interest-bearing deposits                                        |   |                        | 1,089,588 |   |   |   | 3,914 |   |   |   | 1.40 |   |   |   | 898,981 |   |   |   | 3,979 |   |   |   | 1.78 |   |
| Other interest-bearing liabilities                                     |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                                                          |   |                        | 239,000   |   |   |   | 2,594 |   |   |   | 4.35 |   |   |   | 248,780 |   |   |   | 2,684 |   |   |   | 4.33 |   |
| Securities sold under agreements to repurchase                         |   |                        | 145,556   |   |   |   | 2,148 |   |   |   | 5.92 |   |   |   | 151,041 |   |   |   | 2,160 |   |   |   | 5.74 |   |
| Junior subordinated debentures payable                                 |   |                        | 18,806    |   |   |   | 506 |   |   |   | 10.79 |   |   |   | 24,185 |   |   |   | 530 |   |   |   | 8.79 |   |
| Other borrowings                                                       |   |                        | -         |   |   |   | - |   |   |   | - |   |   |   | 51,758 |   |   |   | 39 |   |   |   | 0.30 |   |
| Total interest-bearing liabilities                                     |   |                        | 1,492,950 |   |   |   | 9,162 |   |   |   | 2.46 |   |   |   | 1,374,745 |   |   |   | 9,392 |   |   |   | 2.74 |   |
| Other liabilities                                                      |   |                        | 115,961   |   |   |   |   |   |   |   |   |   |   |   | 94,115 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                      |   |                        | 1,608,911 |   |   |   |   |   |   |   |   |   |   |   | 1,468,860 |   |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                             |   |                        | 90,338    |   |   |   |   |   |   |   |   |   |   |   | 142,861 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                       |   | $                           | 1,699,249 |   |   |   |   |   |   |   |   |   |   | $ | 1,611,721 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (2)                                                |   |                        |      |   |   | $ | 9,465 |   |   |   |   |   |   |   |   |   |   | $ | 10,823 |   |   |   |   |   |
| Interest rate spread (3)                                               |   |                        |      |   |   |   |   |   |   |   | 2.43 | % |   |   |   |   |   |   |   |   |   |   | 2.89 | % |
| Net interest margin (4)                                                |   |                        |      |   |   |   | 2.49 | % |   |   |   |   |   |   |   |   |   |   | 3.01 | % |   |   |   |   |
| Average interest-earning assets to averageinterest-bearing liabilities |   |                        | 102.26    | % |   |   |   |   |   |   |   |   |   |   | 104.77 | % |   |   |   |   |   |   |   |   |

----

|                                                                   |   | Six months ended June 30, |      |
|------------------------------------------------------------------------|--------|---------------------------|-----------|
|                                                                   |   | 2010                      |      |   | 2009 |   |
| (Dollars in thousands)                                                 |   | AverageBalance            |      |   | InterestandDividend |   |   | Yield/Cost |   |   | AverageBalance |   |   | InterestandDividend |   |   | Yield/Cost |   |
| Assets                                                                 |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets                                                |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential loans                                                      |   | $                         | 188,684   |   |   | $ | 4,588 |   |   |   | 4.90 | % |   | $ | 130,031 |   |   | $ | 3,810 |   |   |   | 5.91 | % |
| Multifamily loans                                                      |   |                      | 89,811    |   |   |   | 2,756 |   |   |   | 6.19 |   |   |   | 90,751 |   |   |   | 2,826 |   |   |   | 6.28 |   |
| Commercial R/E loans                                                   |   |                      | 169,092   |   |   |   | 5,277 |   |   |   | 6.29 |   |   |   | 156,394 |   |   |   | 5,086 |   |   |   | 6.56 |   |
| R/E construction loans                                                 |   |                      | 145,976   |   |   |   | 3,740 |   |   |   | 5.17 |   |   |   | 301,067 |   |   |   | 7,244 |   |   |   | 4.85 |   |
| Home equity/consumer loans                                             |   |                      | 31,417    |   |   |   | 1,050 |   |   |   | 6.74 |   |   |   | 30,881 |   |   |   | 996 |   |   |   | 6.50 |   |
| Business loans                                                         |   |                      | 446,625   |   |   |   | 14,736 |   |   |   | 6.65 |   |   |   | 474,877 |   |   |   | 15,586 |   |   |   | 6.62 |   |
| Total loans(1)                                                         |   |                      | 1,071,605 |   |   |   | 32,147 |   |   |   | 6.05 |   |   |   | 1,184,001 |   |   |   | 35,548 |   |   |   | 6.05 |   |
| Securities available-for-sale                                          |   |                      | 274,259   |   |   |   | 4,765 |   |   |   | 3.50 |   |   |   | 178,469 |   |   |   | 4,074 |   |   |   | 4.60 |   |
| Securities held-to-maturity                                            |   |                      | 31,579    |   |   |   | 691 |   |   |   | 4.41 |   |   |   | 75,949 |   |   |   | 1,984 |   |   |   | 5.27 |   |
| Interest-earning deposits in other institutions                        |   |                      | 141,991   |   |   |   | 155 |   |   |   | 0.22 |   |   |   | 26,949 |   |   |   | 20 |   |   |   | 0.15 |   |
| Total securities and interest-earning deposits                         |   |                      | 447,829   |   |   |   | 5,611 |   |   |   | 2.53 |   |   |   | 281,367 |   |   |   | 6,078 |   |   |   | 4.36 |   |
| Total interest-earning assets                                          |   |                      | 1,519,434 |   |   |   | 37,758 |   |   |   | 5.01 |   |   |   | 1,465,368 |   |   |   | 41,626 |   |   |   | 5.73 |   |
| Noninterest-earning assets                                             |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Office properties and equipment, net                                   |   |                      | 14,197    |   |   |   |   |   |   |   |   |   |   |   | 15,490 |   |   |   |   |   |   |   |   |   |
| REO, net                                                               |   |                      | 29,410    |   |   |   |   |   |   |   |   |   |   |   | 5,345 |   |   |   |   |   |   |   |   |   |
| Nonperforming loans                                                    |   |                      | 93,508    |   |   |   |   |   |   |   |   |   |   |   | 69,368 |   |   |   |   |   |   |   |   |   |
| Other noninterest-earning assets                                       |   |                      | 51,049    |   |   |   |   |   |   |   |   |   |   |   | 67,384 |   |   |   |   |   |   |   |   |   |
| Total assets                                                           |   | $                         | 1,707,598 |   |   |   |   |   |   |   |   |   |   | $ | 1,622,955 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and stockholders’ equity                             |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                           |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                       |   | $                         | 10,116    |   |   | $ | 12 |   |   |   | 0.24 | % |   | $ | 10,097 |   |   | $ | 12 |   |   |   | 0.24 | % |
| Checking accounts                                                      |   |                      | 349,280   |   |   |   | 2,087 |   |   |   | 1.20 |   |   |   | 157,402 |   |   |   | 978 |   |   |   | 1.25 |   |
| Money market accounts                                                  |   |                      | 124,298   |   |   |   | 530 |   |   |   | 0.86 |   |   |   | 150,664 |   |   |   | 792 |   |   |   | 1.06 |   |
| Certificates of deposit                                                |   |                      | 594,549   |   |   |   | 5,535 |   |   |   | 1.88 |   |   |   | 576,680 |   |   |   | 7,153 |   |   |   | 2.50 |   |
| Total interest-bearing deposits                                        |   |                      | 1,078,243 |   |   |   | 8,164 |   |   |   | 1.53 |   |   |   | 894,843 |   |   |   | 8,935 |   |   |   | 2.01 |   |
| Other interest-bearing liabilities                                     |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                                                          |   |                      | 239,000   |   |   |   | 5,159 |   |   |   | 4.35 |   |   |   | 248,889 |   |   |   | 5,340 |   |   |   | 4.33 |   |
| Securities sold under agreements to repurchase                         |   |                      | 145,579   |   |   |   | 4,280 |   |   |   | 5.93 |   |   |   | 149,684 |   |   |   | 4,261 |   |   |   | 5.74 |   |
| Junior subordinated debentures payable                                 |   |                      | 18,806    |   |   |   | 1,001 |   |   |   | 10.73 |   |   |   | 25,065 |   |   |   | 1,060 |   |   |   | 8.53 |   |
| Other borrowings                                                       |   |                      | 1,437     |   |   |   | 2 |   |   |   | 0.28 |   |   |   | 60,443 |   |   |   | 87 |   |   |   | 0.29 |   |
| Total interest-bearing liabilities                                     |   |                      | 1,483,065 |   |   |   | 18,606 |   |   |   | 2.53 |   |   |   | 1,378,924 |   |   |   | 19,683 |   |   |   | 2.88 |   |
| Other liabilities                                                      |   |                      | 112,401   |   |   |   |   |   |   |   |   |   |   |   | 92,025 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                      |   |                      | 1,595,466 |   |   |   |   |   |   |   |   |   |   |   | 1,470,949 |   |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                             |   |                      | 112,132   |   |   |   |   |   |   |   |   |   |   |   | 152,006 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                       |   | $                         | 1,707,598 |   |   |   |   |   |   |   |   |   |   | $ | 1,622,955 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                      |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (2)                                                |   |                      |      |   |   | $ | 19,152 |   |   |   |   |   |   |   |   |   |   | $ | 21,943 |   |   |   |   |   |
| Interest rate spread (3)                                               |   |                      |      |   |   |   |   |   |   |   | 2.48 | % |   |   |   |   |   |   |   |   |   |   | 2.85 | % |
| Net interest margin (4)                                                |   |                      |      |   |   |   | 2.54 | % |   |   |   |   |   |   |   |   |   |   | 3.02 | % |   |   |   |   |
| Average interest-earning assets to averageinterest-bearing liabilities |   |                      | 102.45    | % |   |   |   |   |   |   |   |   |   |   | 106.27 | % |   |   |   |   |   |   |   |   |

----

|                                                         |   | Three months ended June 30, 2010compared tothree months ended June 30, 2009Increase (Decrease) Due to |   |
|--------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|
| (Dollars in thousands)                                       |   | Rate                                                                                                  |   |   | Volume |   |   | Mix |   |   | Net |   |
| Interest-earning assets                                      |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |
|   Residential loans                                |   | $                                                                                                     | (328   | ) |   | $ | 908 |   |   | $ | (153 | ) |   | $ | 427 |   |
|   Multifamily loans                                |   |                                                                                                  | (92    | ) |   |   | 5 |   |   |   | - |   |   |   | (87 | ) |
|   Commercial R/E loans                             |   |                                                                                                  | (53    | ) |   |   | (117 | ) |   |   | 3 |   |   |   | (167 | ) |
|   R/E construction loans                           |   |                                                                                                  | 612    |   |   |   | (1,455 | ) |   |   | (306 | ) |   |   | (1,149 | ) |
|   Home equity/consumer loans                       |   |                                                                                                  | 20     |   |   |   | 12 |   |   |   | 1 |   |   |   | 33 |   |
|   Business loans                                   |   |                                                                                                  | 108    |   |   |   | (510 | ) |   |   | (7 | ) |   |   | (409 | ) |
| Total loans                                                  |   |                                                                                                  | 267    |   |   |   | (1,157 | ) |   |   | (462 | ) |   |   | (1,352 | ) |
|   Securities available-for-sale                    |   |                                                                                                  | (684   | ) |   |   | 1,131 |   |   |   | (352 | ) |   |   | 95 |   |
|   Securities held-to-maturity                      |   |                                                                                                  | (45    | ) |   |   | (382 | ) |   |   | 27 |   |   |   | (400 | ) |
|   Interest-earning deposits in other institutions  |   |                                                                                                  | 4      |   |   |   | 48 |   |   |   | 17 |   |   |   | 69 |   |
| Total securities and interest-earning deposits               |   |                                                                                                  | (725   | ) |   |   | 797 |   |   |   | (308 | ) |   |   | (236 | ) |
| Total net change in income on interest-earning assets        |   | $                                                                                                     | (458   | ) |   | $ | (360 | ) |   | $ | (770 | ) |   | $ | (1,588 | ) |
|                                                         |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                 |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                    |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                             |   | $                                                                                                     | 1      |   |   | $ | - |   |   | $ | - |   |   | $ | 1 |   |
| Checking accounts                                            |   |                                                                                                  | (53    | ) |   |   | 411 |   |   |   | (43 | ) |   |   | 315 |   |
| Money market accounts                                        |   |                                                                                                  | (40    | ) |   |   | (3 | ) |   |   | 1 |   |   |   | (42 | ) |
| Certificates of Deposit                                      |   |                                                                                                  | (551   | ) |   |   | 256 |   |   |   | (44 | ) |   |   | (339 | ) |
| Total deposits                                               |   |                                                                                                  | (643   | ) |   |   | 664 |   |   |   | (86 | ) |   |   | (65 | ) |
| FHLB advances                                                |   |                                                                                                  | 16     |   |   |   | (106 | ) |   |   | - |   |   |   | (90 | ) |
| Securities sold under agreements to repurchase               |   |                                                                                                  | 69     |   |   |   | (79 | ) |   |   | (2 | ) |   |   | (12 | ) |
| Junior subordinated debentures payable                       |   |                                                                                                  | 121    |   |   |   | (118 | ) |   |   | (27 | ) |   |   | (24 | ) |
| Other borrowings                                             |   |                                                                                                  | (7     | ) |   |   | (39 | ) |   |   | 7 |   |   |   | (39 | ) |
| Total net change in expenses on interest-bearing liabilities |   |                                                                                                  | (444   | ) |   |   | 322 |   |   |   | (108 | ) |   |   | (230 | ) |
| Net change in net interest income                            |   | $                                                                                                     | (14    | ) |   | $ | (682 | ) |   | $ | (662 | ) |   | $ | (1,358 | ) |

----

|                                                         |   | Six months ended June 30, 2010compared to Six months ended June 30, 2009Increase (Decrease) Due to |   |
|--------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|
| (Dollars in thousands)                                       |   | Rate                                                                                                    |   |   | Volume |   |   | Mix |   |   | Net |   |
| Interest-earning assets                                      |   |                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Residential loans                                            |   | $                                                                                                       | (653   | ) |   | $ | 1,733 |   |   | $ | (302 | ) |   | $ | 778 |   |
| Multifamily loans                                            |   |                                                                                                    | (41    | ) |   |   | (29 | ) |   |   | - |   |   |   | (70 | ) |
| Commercial R/E loans                                         |   |                                                                                                    | (207   | ) |   |   | 416 |   |   |   | (18 | ) |   |   | 191 |   |
| R/E construction loans                                       |   |                                                                                                    | 473    |   |   |   | (3,762 | ) |   |   | (215 | ) |   |   | (3,504 | ) |
| Home equity/consumer loans                                   |   |                                                                                                    | 36     |   |   |   | 17 |   |   |   | 1 |   |   |   | 54 |   |
| Business loans                                               |   |                                                                                                    | 82     |   |   |   | (935 | ) |   |   | 3 |   |   |   | (850 | ) |
| Total loans                                                  |   |                                                                                                    | (310   | ) |   |   | (2,560 | ) |   |   | (531 | ) |   |   | (3,401 | ) |
| Securities available-for-sale                                |   |                                                                                                    | (981   | ) |   |   | 2,205 |   |   |   | (533 | ) |   |   | 691 |   |
| Securities held-to-maturity                                  |   |                                                                                                    | (325   | ) |   |   | (1,169 | ) |   |   | 201 |   |   |   | (1,293 | ) |
| Interest-earning deposits in other institutions              |   |                                                                                                    | 10     |   |   |   | 86 |   |   |   | 39 |   |   |   | 135 |   |
| Total securities and interest-earning deposits               |   |                                                                                                    | (1,296 | ) |   |   | 1,122 |   |   |   | (293 | ) |   |   | (467 | ) |
| Total net change in income on interest-earning assets        |   | $                                                                                                       | (1,606 | ) |   | $ | (1,438 | ) |   | $ | (824 | ) |   | $ | (3,868 | ) |
|                                                         |   |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                 |   |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                    |   |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                             |   | $                                                                                                       | -      |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Checking accounts                                            |   |                                                                                                    | (38    | ) |   |   | 1,202 |   |   |   | (55 | ) |   |   | 1,109 |   |
| Money market accounts                                        |   |                                                                                                    | (150   | ) |   |   | (139 | ) |   |   | 27 |   |   |   | (262 | ) |
| Certificates of Deposit                                      |   |                                                                                                    | (1,799 | ) |   |   | 224 |   |   |   | (43 | ) |   |   | (1,618 | ) |
| Total deposits                                               |   |                                                                                                    | (1,987 | ) |   |   | 1,287 |   |   |   | (71 | ) |   |   | (771 | ) |
| FHLB advances                                                |   |                                                                                                    | 33     |   |   |   | (214 | ) |   |   | - |   |   |   | (181 | ) |
| Securities sold under agreements to repurchase               |   |                                                                                                    | 141    |   |   |   | (118 | ) |   |   | (4 | ) |   |   | 19 |   |
| Junior subordinated debentures payable                       |   |                                                                                                    | 276    |   |   |   | (267 | ) |   |   | (68 | ) |   |   | (59 | ) |
| Other borrowings                                             |   |                                                                                                    | (3     | ) |   |   | (86 | ) |   |   | 4 |   |   |   | (85 | ) |
| Total net change in expenses on interest-bearing liabilities |   |                                                                                                    | (1,540 | ) |   |   | 602 |   |   |   | (139 | ) |   |   | (1,077 | ) |
| Net change in net interest income                            |   | $                                                                                                       | (66    | ) |   | $ | (2,040 | ) |   | $ | (685 | ) |   | $ | (2,791 | ) |

----

----

|                                                      |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|-----------------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
| (Dollars in thousands)                                    |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Total other expenses                                      |   | $                          | 25,750 |   |                     | $      | 21,678 |   |   | $ | 34,987 |   |   | $ | 30,288 |   |
| Less goodwill impairment                                  |   |                       | 12,885 |   |                     |   | 11,700 |   |   |   | 12,885 |   |   |   | 11,700 |   |
| Less OTTI                                                 |   |                       | -      |   |                     |   | - |   |   |   | - |   |   |   | 858 |   |
| Total other expenses                                      |   | $                          | 12,865 |   |                     | $      | 9,978 |   |   | $ | 22,102 |   |   | $ | 17,730 |   |
|                                                      |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                       |   | $                          | 9,465  |   |                     | $      | 10,823 |   |   | $ | 19,152 |   |   | $ | 21,943 |   |
| Other income                                              |   |                       | 3,838  |   |                     |   | 2,203 |   |   |   | 5,749 |   |   |   | 5,851 |   |
| Total income                                              |   | $                          | 13,303 |   |                     | $      | 13,026 |   |   | $ | 24,901 |   |   | $ | 27,794 |   |
|                                                      |   |                       |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Efficiency ratio (excluding goodwill impairment and OTTI) |   |                       | 96.71  | %      |                     |   | 76.60 | % |   |   | 88.76 | % |   |   | 63.79 | % |

|                                                        |   | June 30, |    |   | December 31, |   |
|-------------------------------------------------------------|--------|----------|---------|--------|--------------|--------|
| (Dollars in thousands)                                      |   | 2010     |    |   | 2009         |   |
| Commitments to grant loans                                  |   | $        | 2,453   |   |         | $      | 11,145 |   |
| Unfunded commitments under lines of credit/loans in process |   |     | 105,113 |   |         |   | 122,714 |   |
| Standby letters of credit and financial guarantees written  |   |     | 1,803   |   |         |   | 1,695 |   |
| Unused commitments on bankcards                             |   |     | 13,617  |   |         |   | 13,621 |   |
| Total                                                       |   | $        | 122,986 |   |         | $      | 149,175 |   |

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|                                           |   | Payments Due Per Period |    |
|------------------------------------------------|--------|-------------------------|---------|
| (Dollars in thousands)                         |   | <1 Year              |    |   | 1-3 Years |   |   | 3-5 Years |   |   | Thereafter |   |   | Total |   |
| Certificates of deposit                        |   | $                       | 560,542 |   |   | $ | 69,716 |   |   | $ | 15,960 |   |   | $ | - |   |   | $ | 646,218 |   |
| Federal Home Loan Bank advances                |   |                    | -       |   |   |   | 80,000 |   |   |   | 10,000 |   |   |   | 149,000 |   |   |   | 239,000 |   |
| Securities sold under agreements to repurchase |   |                    | 420     |   |   |   | - |   |   |   | - |   |   |   | 145,000 |   |   |   | 145,420 |   |
| Operating leases                               |   |                    | 898     |   |   |   | 1,750 |   |   |   | 1,577 |   |   |   | 7,402 |   |   |   | 11,627 |   |
| Junior subordinated debentures                 |   |                    | -       |   |   |   | - |   |   |   | - |   |   |   | 18,806 |   |   |   | 18,806 |   |
| Total                                          |   | $                       | 561,860 |   |   | $ | 151,466 |   |   | $ | 27,537 |   |   | $ | 320,208 |   |   | $ | 1,061,071 |   |

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| Type       |   | % of Portfolio |   |
|------------|--------|----------------|--------|
| Variable   |   |           | 16     | % |
| Adjustable |   |           | 47     | % |
| Fixed      |   |           | 37     | % |
|       |   |           | 100    | % |

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| 31.1 | Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act          |
|------|---------------------------------------------------------------------------------------------------------------|
| 31.2 | Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
| 32   | Certification pursuant to Section 906 of the Sarbanes-Oxley Act                                          |

| (b) | Reports on Form 8-K |
|-----|---------------------|

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| (b) | Reports on Form 8-K (continued) |
|-----|---------------------------------|

|            | CASCADE FINANCIAL CORPORATION                                                                                                                      |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|            |                                                                                                                                               |
| August 13, 2010 | /s/ Carol K. Nelson                                                                                                                                |
|            | By:     Carol K. Nelson,President and Chief Executive Officer(Principal Executive Officer)                                |
|            |                                                                                                                                               |
| August 13, 2010 | /s/ Debra L. Johnson                                                                                                                               |
|            | By:     Debra L. Johnson,Executive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |

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