UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2009 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|  ̈ | 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 November 5, 2009 |
|-------------------------------|--------|------------------------------------|
| Common Stock ($.01 par value) |   |  12,146,080                   |

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|                                  | PAGE                                                                                                |
|---------------------------------------|-----------------------------------------------------------------------------------------------------|
| PART I — Financial Information: |                                                                                                |
| Item 1                                | — Financial Statements:                                                                       |   |
|                                  | — Condensed Consolidated Balance Sheets                                                       | 3 |
|                                  | — Condensed Consolidated Statements of Operations                                             | 4 |
|                                  | — Consolidated Statements of Comprehensive Income (Loss)                                      | 5 |
|                                  | — Condensed Consolidated Statements of Cash Flows                                             | 6 |
|                                  | — Notes to Condensed Consolidated Financial Statements                                        | 8 |
|                                  |                                                                                                |   |
| Item 2                           | — Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23  |
|                                  |                                                                                                |   |
| Item 3                                | — Quantitative and Qualitative Disclosures about Market Risk                                  | 43 |
|                                  |                                                                                                |   |
| Item 4                                | — Controls and Procedures                                                                     | 45 |
|                                  |                                                                                                |   |
| PART II — Other Information:    |                                                                                                |
| Item 1                                | — Legal Proceedings                                                                           | 45 |
| Item 1A                               | — Risk Factors                                                                                | 45 |
| Item 2                                | — Unregistered Sales of Equity Securities and Use of Proceeds                                 | 45 |
| Item 3                                | — Defaults Upon Senior Securities                                                             | 45 |
| Item 4                                | — Submission of Matters to a Vote of Security Holders                                         | 46 |
| Item 5                                | — Other Information                                                                           | 46 |
| Item 6                                | — Exhibits                                                                                    | 46 |
|                                  | — Signatures                                                                                  |  47 |

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|  (Dollars in thousands, except share and per share amounts)                                                                                                                       |   | September 30, |      |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
| (Unaudited)                                                                                                                                                                            |   | 2009          |      |   | 2008         |   |
|  ASSETS                                                                                                                                                                           |   |          |      |   |         |   |
| Cash on hand and in banks                                                                                                                                                              |   | $             | 4,401     |   |         | $      | 11,859 |   |
| Interest-earning deposits in other institutions                                                                                                                                        |   |          | 69,838    |   |         |   | 10,907 |   |
| Fed funds sold                                                                                                                                                                         |   |          | -         |   |         |   | 30,700 |   |
| Securities available-for-sale, fair value                                                                                                                                              |   |          | 242,136   |   |         |   | 123,678 |   |
| Federal Home Loan Bank (FHLB) stock                                                                                                                                                    |   |          | 11,920    |   |         |   | 11,920 |   |
| Securities held-to-maturity, amortized cost                                                                                                                                            |   |          | 26,912    |   |         |   | 120,594 |   |
| Loans, net of allowance for loan losses and deferred loan fees                                                                                                                         |   |          | 1,202,768 |   |         |   | 1,238,733 |   |
| Goodwill                                                                                                                                                                               |   |          | 12,885    |   |         |   | 24,585 |   |
| Core deposit intangible, net                                                                                                                                                           |   |          | 388       |   |         |   | 493 |   |
| Premises and equipment, net                                                                                                                                                            |   |          | 15,009    |   |         |   | 15,463 |   |
| Cash surrender value of bank-owned life insurance (BOLI)                                                                                                                               |   |          | 24,275    |   |         |   | 23,638 |   |
| Income tax refund receivable                                                                                                                                                           |   |          | 10,395    |   |         |   | - |   |
| Deferred tax asset                                                                                                                                                                     |   |          | 6,426     |   |         |   | 9,828 |   |
| Real estate owned (REO) and other repossessed assets                                                                                                                                   |   |          | 6,967     |   |         |   | 1,446 |   |
| Accrued interest receivable and other assets                                                                                                                                           |   |          | 12,667    |   |         |   | 13,475 |   |
| TOTAL ASSETS                                                                                                                                                                           |   | $             | 1,646,987 |   |         | $      | 1,637,319 |   |
|                                                                                                                                                                                   |   |          |      |   |         |   |   |   |
| LIABILITIES                                                                                                                                                                            |   |          |      |   |         |   |   |   |
| Deposits                                                                                                                                                                               |   | $             | 1,032,663 |   |         | $      | 1,006,782 |   |
| FHLB advances                                                                                                                                                                          |   |          | 239,000   |   |         |   | 249,000 |   |
| Securities sold under agreements to repurchase                                                                                                                                         |   |          | 147,455   |   |         |   | 146,390 |   |
| Federal Reserve Bank (FRB) TAF borrowing                                                                                                                                               |   |          | 60,000    |   |         |   | 40,000 |   |
| Junior subordinated debentures payable                                                                                                                                                 |   |          | 15,465    |   |         |   | 15,465 |   |
| Junior subordinated debentures payable, fair value                                                                                                                                     |   |          | 8,357     |   |         |   | 10,510 |   |
| Advance payments by borrowers for taxes and insurance                                                                                                                                  |   |          | 1,586     |   |         |   | 515 |   |
| Dividends payable                                                                                                                                                                      |   |          | 243       |   |         |   | 759 |   |
| Accrued interest payable, expenses and other liabilities                                                                                                                               |   |          | 5,660     |   |         |   | 7,776 |   |
| TOTAL LIABILITIES                                                                                                                                                                      |   |          | 1,510,429 |   |         |   | 1,477,197 |   |
|                                                                                                                                                                                   |   |          |      |   |         |   |   |   |
| STOCKHOLDERS’ EQUITY                                                                                                                                                             |   |          |      |   |         |   |   |   |
| Preferred stock, no par value, authorized 38,970 shares;Series A (liquidation preference $1,000 per share); issued and outstanding 38,970 at September 30, 2009, and December 31, 2008 |   |          | 36,931    |   |         |   | 36,616 |   |
| Preferred stock, $.01 par value, authorized 500,000 shares; no shares issued or outstanding                                                                                            |   |          | -         |   |         |   | - |   |
| Common stock, $.01 par value, authorized 25,000,000 shares; issued and outstanding 12,146,080 shares at September 30, 2009, and 12,071,032 shares at December 31, 2008                 |   |          | 121       |   |         |   | 121 |   |
| Additional paid-in capital                                                                                                                                                             |   |          | 43,397    |   |         |   | 43,170 |   |
| Retained earnings, substantially restricted                                                                                                                                            |   |          | 54,503    |   |         |   | 80,875 |   |
| Accumulated other comprehensive gain (loss), net of tax                                                                                                                                |   |          | 1,606     |   |         |   | (660 | ) |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                       |   |          | 136,558   |   |         |   | 160,122 |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                       |   | $             | 1,646,987 |   |         | $      | 1,637,319 |   |

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| (Dollars in thousands except share and per share amounts)(Unaudited) |   | Three Months Ended September 30, |   |   | Nine Months Ended September 30, |   |
|----------------------------------------------------------------------|--------|----------------------------------|--------|--------|--------------------------------------|--------|
|                                                                 |   | 2009                             |   |   | 2008                                 |   |   | 2009 |   |   | 2008 |   |
| Interest income:                                                     |   |                             |   |   |                                 |   |   |   |   |   |   |   |
| Loans                                                                |   | $                                | 17,094 |   |                                 | $      | 20,611 |   |   | $ | 52,642 |   |   | $ | 58,957 |   |
| Securities available-for-sale                                        |   |                             | 2,618  |   |                                 |   | 1,574 |   |   |   | 6,691 |   |   |   | 4,780 |   |
| FHLB dividends                                                       |   |                             | -      |   |                                 |   | 42 |   |   |   | - |   |   |   | 113 |   |
| Securities held-to-maturity                                          |   |                             | 457    |   |                                 |   | 2,102 |   |   |   | 2,441 |   |   |   | 6,178 |   |
| Interest-earning deposits                                            |   |                             | 20     |   |                                 |   | 16 |   |   |   | 40 |   |   |   | 124 |   |
| Total interest income                                                |   |                             | 20,189 |   |                                 |   | 24,345 |   |   |   | 61,814 |   |   |   | 70,152 |   |
| Interest expense:                                                    |   |                             |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                             |   |                             | 3,899  |   |                                 |   | 6,430 |   |   |   | 12,834 |   |   |   | 20,986 |   |
| FHLB advances                                                        |   |                             | 2,622  |   |                                 |   | 2,746 |   |   |   | 7,962 |   |   |   | 8,211 |   |
| Securities sold under agreements to repurchase                       |   |                             | 2,182  |   |                                 |   | 1,802 |   |   |   | 6,443 |   |   |   | 4,608 |   |
| Federal Reserve Bank borrowings                                      |   |                             | 38     |   |                                 |   | - |   |   |   | 125 |   |   |   | - |   |
| Junior subordinated debentures                                       |   |                             | 530    |   |                                 |   | 530 |   |   |   | 1,590 |   |   |   | 1,590 |   |
| Total interest expense                                               |   |                             | 9,271  |   |                                 |   | 11,508 |   |   |   | 28,954 |   |   |   | 35,395 |   |
| Net interest income                                                  |   |                             | 10,918 |   |                                 |   | 12,837 |   |   |   | 32,860 |   |   |   | 34,757 |   |
| Provision for loan losses                                            |   |                             | 4,000  |   |                                 |   | 1,250 |   |   |   | 36,175 |   |   |   | 4,840 |   |
| Net interest income (loss) after provision for loan losses           |   |                             | 6,918  |   |                                 |   | 11,587 |   |   |   | (3,315 | ) |   |   | 29,917 |   |
| Other income:                                                        |   |                             |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Checking fees                                                        |   |                             | 1,342  |   |                                 |   | 1,328 |   |   |   | 3,724 |   |   |   | 3,640 |   |
| Service fees                                                         |   |                             | 237    |   |                                 |   | 280 |   |   |   | 772 |   |   |   | 825 |   |
| Increase in cash surrender value of BOLI                             |   |                             | 239    |   |                                 |   | 271 |   |   |   | 687 |   |   |   | 790 |   |
| Net gain (loss) on sales/calls of securities available-for-sale      |   |                             | 806    |   |                                 |   | (87 | ) |   |   | 1,004 |   |   |   | 284 |   |
| Net gain on calls of securities held-to-maturity                     |   |                             | 46     |   |                                 |   | - |   |   |   | 192 |   |   |   | 112 |   |
| Net gain on fair value of financial instruments                      |   |                             | 351    |   |                                 |   | 389 |   |   |   | 2,153 |   |   |   | 887 |   |
| Other                                                                |   |                             | 146    |   |                                 |   | 145 |   |   |   | 519 |   |   |   | 459 |   |
| Total other income                                                   |   |                             | 3,167  |   |                                 |   | 2,326 |   |   |   | 9,051 |   |   |   | 6,997 |   |
| Other expenses:                                                      |   |                             |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits                                   |   |                             | 3,382  |   |                                 |   | 3,789 |   |   |   | 10,575 |   |   |   | 11,039 |   |
| Occupancy                                                            |   |                             | 1,055  |   |                                 |   | 955 |   |   |   | 3,167 |   |   |   | 2,935 |   |
| Marketing                                                            |   |                             | 279    |   |                                 |   | 228 |   |   |   | 855 |   |   |   | 790 |   |
| FDIC insurance and WPDPC assessment                                  |   |                             | 505    |   |                                 |   | 186 |   |   |   | 2,505 |   |   |   | 385 |   |
| REO expense                                                          |   |                             | 463    |   |                                 |   | 35 |   |   |   | 828 |   |   |   | 47 |   |
| Loss on REO and other repossessed assets                             |   |                             | 69     |   |                                 |   | 3 |   |   |   | 1,348 |   |   |   | 3 |   |
| Other than temporary impairment (OTTI) on investments                |   |                             | -      |   |                                 |   | 17,338 |   |   |   | 858 |   |   |   | 17,338 |   |
| Other                                                                |   |                             | 2,192  |   |                                 |   | 1,969 |   |   |   | 6,431 |   |   |   | 6,151 |   |
| Other expenses excluding goodwill impairment                         |   |                             | 7,945  |   |                                 |   | 24,503 |   |   |   | 26,567 |   |   |   | 38,688 |   |
| Goodwill impairment                                                  |   |                             | -      |   |                                 |   | - |   |   |   | 11,700 |   |   |   | - |   |
| Total other expenses                                                 |   |                             | 7,945  |   |                                 |   | 24,503 |   |   |   | 38,267 |   |   |   | 38,688 |   |
| Income (loss) before provision (benefit) for federal income taxes    |   |                             | 2,140  |   |                                 |   | (10,590 | ) |   |   | (32,531 | ) |   |   | (1,774 | ) |
| Provision (benefit) for federal income taxes                         |   |                             | 507    |   |                                 |   | (3,971 | ) |   |   | (7,947 | ) |   |   | (1,402 | ) |
| Net income (loss)                                                    |   |                             | 1,633  |   |                                 |   | (6,619 | ) |   |   | (24,584 | ) |   |   | (372 | ) |
| Dividends on preferred stock                                         |   |                             | 487    |   |                                 |   | - |   |   |   | 1,456 |   |   |   | - |   |
| Accretion of issuance discount on preferred stock                    |   |                             | 105    |   |                                 |   | - |   |   |   | 315 |   |   |   | - |   |
| Net income (loss) available for common stockholders                  |   | $                                | 1,041  |   |                                 | $      | (6,619 | ) |   | $ | (26,355 | ) |   | $ | (372 | ) |

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| (Unaudited)                                            |   | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------------------|--------|---------------------------------|------------|--------|--------------------------------|--------|
|                                                   |   | 2009                            |       |   | 2008                           |   |   | 2009 |   |   | 2008 |   |
| Net income (loss) per common share, basic              |   | $                               | 0.09       |   |                           | $      | (0.55 | ) |   | $ | (2.18 | ) |   | $ | (0.03 | ) |
| Weighted average number of shares outstanding, basic   |   |                            | 12,128,257 |   |                           |   | 12,059,480 |   |   |   | 12,113,623 |   |   |   | 12,047,700 |   |
| Net income (loss) per share, diluted                   |   | $                               | 0.09       |   |                           | $      | (0.55 | ) |   | $ | (2.18 | ) |   | $ | (0.03 | ) |
| Weighted average number of shares outstanding, diluted |   |                            | 12,128,257 |   |                           |   | 12,140,168 |   |   |   | 12,113,623 |   |   |   | 12,168,009 |   |
| Dividends declared per share                           |   | $                               | 0.00       |   |                           | $      | 0.09 |   |   | $ | 0.010 |   |   | $ | 0.27 |   |

| (Dollars in thousands)(Unaudited)                                                                                                                                                                                                                                                                 |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                              |   | 2009                            |   |   | 2008                           |   |   | 2009 |   |   | 2008 |   |
| Net income (loss)                                                                                                                                                                                                                                                                                 |   | $                               | 1,633  |   |                           | $      | (6,619 | ) |   | $ | (24,584 | ) |   | $ | (372 | ) |
|                                                                                                                                                                                                                                                                                              |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized gain (loss) on securities available-for-sale, net of tax provision (benefit) of $1,326 and $551 for the three months ended September 30, 2009, and 2008, respectively, and $869 and $(635) for the nine months ended September 30, 2009, and 2008, respectively.                       |   |                            | 2,461  |   |                           |   | 1,024 |   |   |   | 1,613 |   |   |   | (1,180 | ) |
|                                                                                                                                                                                                                                                                                              |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Reclassification adjustment for gains on securities included in net income (loss), net of tax provision (benefit) of $282 and $(30) for the three months ended September 30, 2009, and 2008, respectively, and $351 and $99 for the nine months ended September 30, 2009, and 2008, respectively. |   |                            | 524    |   |                           |   | (57 | ) |   |   | 653 |   |   |   | 185 |   |
|                                                                                                                                                                                                                                                                                              |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)                                                                                                                                                                                                                                                                       |   | $                               | 4,618  |   |                           | $      | (5,652 | ) |   | $ | (22,318 | ) |   | $ | (1,367 | ) |

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| (Dollars in thousands)                                                                    |   | Nine Months EndedSeptember 30, |     |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|----------|
| (Unaudited)                                                                               |   | 2009                           |     |   | 2008 |   |
|                                                                                      |   |                           |     |   |   |   |
| Cash flows from operating activities:                                                     |   |                           |     |   |   |   |
| Net loss                                                                                  |   | $                              | (24,584  | ) |   | $ | (372 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |   |                           |     |   |   |   |   |   |
| Depreciation and amortization of premises and equipment                                   |   |                           | 1,701    |   |   |   | 1,562 |   |
| Provision for loans losses                                                                |   |                           | 36,175   |   |   |   | 4,840 |   |
| REO write-downs                                                                           |   |                           | 1,122    |   |   |   | 117 |   |
| Goodwill impairment                                                                       |   |                           | 11,700   |   |   |   | - |   |
| Increase in cash surrender value of BOLI                                                  |   |                           | (637     | ) |   |   | (730 | ) |
| Amortization of retained servicing rights                                                 |   |                           | 22       |   |   |   | 30 |   |
| Amortization of core deposit intangible                                                   |   |                           | 105      |   |   |   | 105 |   |
| Deferred federal income taxes                                                             |   |                           | 2,182    |   |   |   | (6,327 | ) |
| Deferred loan fees, net of amortization                                                   |   |                           | 134      |   |   |   | (475 | ) |
| Gain on sale of loans                                                                     |   |                           | 160      |   |   |   | 119 |   |
| Stock-based compensation                                                                  |   |                           | 117      |   |   |   | 152 |   |
| Excess tax benefit from stock-based payments                                              |   |                           | (4       | ) |   |   | (30 | ) |
| Net gain on fair value of financial instruments                                           |   |                           | (2,153   | ) |   |   | (887 | ) |
| Gain on sales/calls of securities available-for-sale                                      |   |                           | (1,004   | ) |   |   | (284 | ) |
| Gain on calls of securities held-to-maturity                                              |   |                           | (192     | ) |   |   | (112 | ) |
| Gain on sales of premises and equipment                                                   |   |                           | (1       | ) |   |   | - |   |
| Net loss on sale of REO and other repossessed assets                                      |   |                           | 226      |   |   |   | 3 |   |
| Net increase in accrued interest receivable and other assets                              |   |                           | (9,955   | ) |   |   | (1,411 | ) |
| Net decrease in accrued interest payable, expenses and other liabilities                  |   |                           | (1,866   | ) |   |   | (3,155 | ) |
| Other than temporary impairment on investments                                            |   |                           | 858      |   |   |   | 17,338 |   |
| Net cash provided by operating activities                                                 |   |                           | 14,106   |   |   |   | 10,483 |   |
|                                                                                      |   |                           |     |   |   |   |   |   |
| Cash flows from investing activities:                                                     |   |                           |     |   |   |   |   |   |
| Loans originated, net of principal repayments                                             |   |                           | (9,667   | ) |   |   | (107,068 | ) |
| Net purchases of securities available-for-sale                                            |   |                           | (280,606 | ) |   |   | (123,896 | ) |
| Proceeds from sales/calls of securities available-for-sale                                |   |                           | 150,839  |   |   |   | 83,684 |   |
| Principal repayments on securities available-for-sale                                     |   |                           | 14,943   |   |   |   | 2,174 |   |
| Net purchases of securities held-to-maturity                                              |   |                           | -        |   |   |   | (81,866 | ) |
| Proceeds from calls of securities held-to-maturity                                        |   |                           | 89,600   |   |   |   | 77,050 |   |
| Principal repayments on securities held-to-maturity                                       |   |                           | 4,274    |   |   |   | 1,551 |   |
| Purchases of premises and equipment                                                       |   |                           | (1,248   | ) |   |   | (3,077 | ) |
| Proceeds from sales/retirements of premises and equipment                                 |   |                           | 2        |   |   |   | - |   |
| Proceeds from sales/retirements of REO                                                    |   |                           | 2,979    |   |   |   | 59 |   |
| Net change in investment in Community Reinvestment Act (CRA) – low income housing   |   |                           | (585     | ) |   |   | 323 |   |
| Net cash used in investing activities                                                     |   |                           | (29,469  | ) |   |   | (151,066 | ) |
|                                                                                      |   |                           |     |   |   |   |   |   |
| Subtotal, carried forward                                                                 |   | $                              | (15,363  | ) |   | $ | (140,583 | ) |

----

| (Dollars in thousands)                                                                       |   | Nine Months EndedSeptember 30, |    |
|----------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
| (Unaudited)                                                                                  |   | 2009                           |    |   | 2008 |   |
|                                                                                         |   |                           |    |   |   |   |
| Subtotal, brought forward                                                                    |   | $                              | (15,363 | ) |   | $ | (140,583 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |
| Cash flows from financing activities:                                                        |   |                           |    |   |   |   |   |   |
| Proceeds from issuance of common stock                                                       |   |                           | 208     |   |   |   | 356 |   |
| Dividends paid on common stock                                                               |   |                           | (664    | ) |   |   | (3,250 | ) |
| Dividends paid on preferred stock                                                            |   |                           | (1,429  | ) |   |   | - |   |
| Repurchase of common stock                                                                   |   |                           | (1      | ) |   |   | - |   |
| Excess tax benefits from stock-based payments                                                |   |                           | 4       |   |   |   | 30 |   |
| Net increase in deposits                                                                     |   |                           | 25,881  |   |   |   | 87,609 |   |
| Net (decrease) increase in FHLB advances                                                     |   |                           | (10,000 | ) |   |   | 24,000 |   |
| Net increase in securities sold under agreements to repurchase                               |   |                           | 1,065   |   |   |   | 358 |   |
| Net increase in Federal Reserve TAF borrowing                                                |   |                           | 20,000  |   |   |   | 30,000 |   |
| Net decrease in advance payments by borrowers for taxes and insurance                        |   |                           | 1,071   |   |   |   | 383 |   |
| Net cash provided by financing activities                                                    |   |                           | 36,135  |   |   |   | 139,486 |   |
| Net increase (decrease) in cash and cash equivalents                                         |   |                           | 20,772  |   |   |   | (1,097 | ) |
|                                                                                         |   |                           |    |   |   |   |   |   |
| Cash and cash equivalents at beginning of period                                             |   |                           | 53,467  |   |   |   | 14,530 |   |
| Cash and cash equivalents at end of period                                                   |   | $                              | 74,239  |   |   | $ | 13,433 |   |
|                                                                                         |   |                           |    |   |   |   |   |   |
| Supplemental disclosures of cash flow information—cash paid during the period for:     |   |                           |    |   |   |   |   |   |
| Interest                                                                                     |   | $                              | 30,191  |   |   | $ | 37,018 |   |
| Federal income taxes                                                                         |   |                           | 50      |   |   |   | - |   |
|                                                                                         |   |                           |    |   |   |   |   |   |
| Supplemental schedule of non-cash operating activities:                                      |   |                           |    |   |   |   |   |   |
| Change in portion of reserve identified for undisbursed loans and reclassifiedas a liability |   | $                              | 18      |   |   | $ | 35 |   |
|                                                                                         |   |                           |    |   |   |   |   |   |
| Supplemental schedule of non-cash investing activities:                                      |   |                           |    |   |   |   |   |   |
| Change in unrealized gain on securities available-for-sale, net of tax                       |   |                           | 2,266   |   |   |   | 1,530 |   |
|          Dividends accrued on preferred stock   |   |                           | 244     |   |   |   | - |   |
| Loans transferred to REO and other repossessed assets                                        |   |                           | 9,633   |   |   |   | 1,625 |   |

----

| 1. | Presentation of Financial Information |
|----|---------------------------------------|

| 2. | Commitments and Contingencies |
|----|-------------------------------|

----

| 3.   | Recently Issued Accounting Standards |
|----------------|--------------------------------------|

----

| a)   | the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| c)   | the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. |
|----------------|---------------------------------------------------------------------------------------------------------------------|

----

| 5.   | Goodwill Impairment |
|----------------|---------------------|

----

|  (Dollars in thousands)  |   |  September 30, 2009 |                 |
|-------------------------------|--------|--------------------------|----------------------|
|                          |   |  AmortizedCost      | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
| Securities available-for-sale |   |                     |                 |   |   |   |   |   |   |
| MBS                           |   | $                        | 55,082               |   |   | $ | 1,187 |   |   | $ | (90 | ) |   | $ | 56,179 |   |
| Agency notes                  |   |                     | 184,582              |   |   |   | 1,803 |   |   |   | (428 | ) |   |   | 185,957 |   |
| Total                         |   | $                        | 239,664              |   |   | $ | 2,990 |   |   | $ | (518 | ) |   | $ | 242,136 |   |
|                          |   |                     |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |                     |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                        | 16,203               |   |   | $ | 562 |   |   | $ | - |   |   | $ | 16,765 |   |
| Agency notes                  |   |                     | 9,934                |   |   |   | 96 |   |   |   | - |   |   |   | 10,030 |   |
| Corporate/other               |   |                     | 775                  |   |   |   | - |   |   |   | - |   |   |   | 775 |   |
| Total                         |   | $                        | 26,912               |   |   | $ | 658 |   |   | $ | - |   |   | $ | 27,570 |   |

| (Dollars in thousands)        |   | December 31, 2008 |    |
|-------------------------------|--------|-------------------|---------|
|                          |   | AmortizedCost     |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
| Securities available-for-sale |   |              |    |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                 | 42,250  |   |   | $ | 288 |   |   | $ | (686 | ) |   | $ | 41,852 |   |
| Agency notes                  |   |              | 81,149  |   |   |   | 368 |   |   |   | (145 | ) |   |   | 81,372 |   |
| Corporate/other               |   |              | 1,294   |   |   |   | - |   |   |   | (840 | ) |   |   | 454 |   |
| Total                         |   | $                 | 124,693 |   |   | $ | 656 |   |   | $ | (1,671 | ) |   | $ | 123,678 |   |
|                          |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                 | 20,484  |   |   | $ | 209 |   |   | $ | (148 | ) |   | $ | 20,545 |   |
| Agency notes                  |   |              | 99,335  |   |   |   | 442 |   |   |   | (396 | ) |   |   | 99,381 |   |
| Corporate/other               |   |              | 775     |   |   |   | - |   |   |   | - |   |   |   | 775 |   |
| Total                         |   | $                 | 120,594 |   |   | $ | 651 |   |   | $ | (544 | ) |   | $ | 120,701 |   |

----

| (Dollars in thousands)        |   | September 30, 2009 |   |
|-------------------------------|--------|--------------------|--------|
|                          |   |               |   |   | Gross |   |   |   |   |   | Gross |   |   |   |   |   |   |   |
|                          |   |               |   |   | Unrealized |   |   |   |   |   | Unrealized |   |   |   |   |   |   |   |
|                          |   |               |   |   | Losses |   |   |   |   |   | Losses |   |   | TOTAL |   |
|                          |   | Fair               |   |   | Less Than |   |   | Fair |   |   | More Than |   |   | Fair |   |   | Unrealized |   |
|                          |   | Value              |   |   | 1 Year |   |   | Value |   |   | 1 Year |   |   | Value |   |   | Losses |   |
| Securities available-for-sale |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                  | 12,220 |   |   | $ | (29 | ) |   | $ | 2,514 |   |   | $ | (61 | ) |   | $ | 14,734 |   |   | $ | (90 | ) |
| Agency notes                  |   |               | 29,922 |   |   |   | (428 | )  |   |   | - |   |   |   | - |   |   |   | 29,922 |   |   |   | (428 | )  |
| Total                         |   | $                  | 42,142 |   |   | $ | (457 | ) |   | $ | 2,514 |   |   | $ | (61 | ) |   | $ | 44,656 |   |   | $ | (518 | ) |
|                          |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                  | 16,765 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 16,765 |   |   | $ | - |   |
| Agency notes                  |   |               | 10,030 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 10,030 |   |   |   | - |   |
| Corporate/other               |   |               | 775    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 775 |   |   |   | - |   |
| Total                         |   | $                  | 27,570 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | 27,570 |   |   | $ | - |   |
|                          |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                          |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (Dollars in thousands)        |   | December 31, 2008 |   |
|-------------------------------|--------|-------------------|--------|
|                          |   |              |   |   |   | Gross |   |   |   |   |   |   | Gross |   |   |   |   |   |   |   |   |   |
|                          |   |              |   |   |   | Unrealized |   |   |   |   |   |   | Unrealized |   |   |   |   |   |   |   |   |   |
|                          |   |              |   |   |   | Losses |   |   |   |   |   |   | Losses |   |   | TOTAL |   |
|                          |   | Fair              |   |   | Less Than |   |   | Fair |   |   | More Than |   |   | Fair |   |   | Unrealized |   |
|                          |   | Value             |   |   | 1 Year |   |   | Value |   |   | 1 Year |   |   | Value |   |   | Losses |   |
| Securities available-for-sale |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                 | 9,492  |   |   | $ | (281 | ) |   | $ | 9,766 |   |   | $ | (405 | ) |   | $ | 19,258 |   |   | $ | (686 | ) |
| Agency notes                  |   |              | 19,846 |   |   |   | (145 | ) |   |   | - |   |   |   | - |   |   |   | 19,846 |   |   |   | (145 | )  |
|                          |   |              | 454    |   |   |   | (840 | ) |   |   | - |   |   |   | - |   |   |   | 454 |   |   |   | (840 | )  |
| Total                         |   | $                 | 29,792 |   |   | $ | (1,266 | ) |   | $ | 9,766 |   |   | $ | (405 | ) |   | $ | 39,558 |   |   | $ | (1,671 | ) |
|                          |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities held-to-maturity   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MBS                           |   | $                 | 7,426  |   |   | $ | (139 | ) |   | $ | 1,811 |   |   | $ | (9 | ) |   | $ | 9,237 |   |   | $ | (148 | ) |
| Agency notes                  |   |              | 27,997 |   |   |   | (396 | )  |   |   | - |   |   |   | - |   |   |   | 27,997 |   |   |   | (396 | )  |
| Corporate/other               |   |              | 775    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 775 |   |   |   | - |   |
| Total                         |   | $                 | 36,198 |   |   | $ | (535 | ) |   | $ | 1,811 |   |   | $ | (9 | ) |   | $ | 38,009 |   |   | $ | (544 | ) |

----

| (Dollars in thousands)           |   | September 30, 2009 |    |
|----------------------------------|--------|--------------------|---------|
| Securities available-for-sale    |   | AmortizedCost      |    |   | FairValue |   |
| Due less than one year           |   | $                  | -       |   |   | $ | - |   |
| Due after one through five years |   |               | 19,978  |   |   |   | 19,778 |   |
| Due after five through ten years |   |               | 154,632 |   |   |   | 156,107 |   |
| Due after ten years              |   |               | 9,972   |   |   |   | 10,072 |   |
| Subtotal                         |   |               | 184,582 |   |   |   | 185,957 |   |
| Mortgage-backed securities       |   |               | 55,082  |   |   |   | 56,179 |   |
| Total                            |   | $                  | 239,664 |   |   | $ | 242,136 |   |
|                             |   |               |    |   |   |   |   |   |
| Securities held-to-maturity      |   |               |    |   |   |   |   |   |
| Due less than one year           |   | $                  | 9,934   |   |   | $ | 10,030 |   |
| Subtotal                         |   |               | 9,934   |   |   |   | 10,030 |   |
| Mortgage-backed securities       |   |               | 16,203  |   |   |   | 16,765 |   |
| Total                            |   | $                  | 26,137  |   |   | $ | 26,795 |   |

| (Dollars in thousands)  |   | September 30, 2009 |      |   | December 31, 2008 |   |
|------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| Business                     |   | $                  | 473,546   |   |              | $      | 485,060 |   |
| R/E construction(1)          |   |               | 284,888   |   |              |   | 406,505 |   |
| Commercial R/E               |   |               | 193,652   |   |              |   | 122,951 |   |
| Multifamily                  |   |               | 84,029    |   |              |   | 86,864 |   |
| Home equity/consumer         |   |               | 31,455    |   |              |   | 30,772 |   |
| Residential(2)               |   |               | 163,151   |   |              |   | 126,089 |   |
| Total loans                  |   | $                  | 1,230,721 |   |              | $      | 1,258,241 |   |
| Deferred loan fees           |   |               | (3,204    | )      |              |   | (3,069 | ) |
| Allowance for loan losses    |   |               | (24,749   | )      |              |   | (16,439 | ) |
| Loans, net                   |   | $                  | 1,202,768 |   |              | $      | 1,238,733 |   |

----

| (Dollars in thousands)                                       |   | Three Months EndedSeptember 30, 2009 |   |   | Nine Months EndedSeptember 30, 2009 |   |
|-------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
| Beginning allowance for loan losses                               |   | $                                    | 24,490 |   |                                | $      | 16,439 |   |
| Additions                                                         |   |                                 | 4,000  |   |                                |   | 36,175 |   |
| Transfer from off-balance sheet general valuation allowance (GVA) |   |                                 | (3     | )      |                                |   | 18 |   |
| Net charge-offs                                                   |   |                                 | (3,368 | )      |                                |   | (27,179 | ) |
| Fair value charges for builder loans                              |   |                                 | (370   | )      |                                |   | (704 | ) |
| Allowance for loan losses                                         |   |                                 | 24,749 |   |                                |   | 24,749 |   |
| Off-balance sheet GVA                                             |   |                                 | 75     |   |                                |   | 75 |   |
| Total allowance for loan losses                                   |   | $                                    | 24,824 |   |                                | $      | 24,824 |   |

| (Dollars in thousands) Nonperforming loans |   | Balance atSeptember 30, 2009 |    |   | Balance atDecember 31, 2008 |   |
|-------------------------------------------------|--------|------------------------------|---------|--------|-----------------------------|--------|
| Business                                        |   | $                            | 8,624   |   |                        | $      | 1,150 |   |
| R/E construction                                |   |                         |    |   |                        |   |   |   |
| Spec construction                               |   |                         | 17,760  |   |                        |   | 11,735 |   |
| Land acquisition and development                |   |                         | 56,835  |   |                        |   | 22,799 |   |
| Land                                            |   |                         | 19,679  |   |                        |   | 4,437 |   |
|   Commercial R/E                      |   |                         | 6,364   |   |                        |   | - |   |
| Total R/E construction                          |   |                         | 100,638 |   |                        |   | 38,971 |   |
| Commercial R/E                                  |   |                         | 13,459  |   |                        |   | - |   |
| Multifamily                                     |   |                         | 2,100   |   |                        |   | - |   |
| Home equity/consumer                            |   |                         | 458     |   |                        |   | 2 |   |
| Residential                                     |   |                         | 408     |   |                        |   | 155 |   |
| Total                                           |   | $                            | 125,687 |   |                        | $      | 40,278 |   |

| (Dollars  in thousands) REO and other repossessed assets |   | Nine Months EndedSeptember 30, 2009 |   |   | Twelve Months EndedDecember 31, 2008 |   |
|-------------------------------------------------------------------------|--------|-------------------------------------|--------|--------|--------------------------------------|--------|
| Beginning balance                                                       |   | $                                   | 1,446  |   |                                 | $      | - |   |
| Loans transferred to REO                                                |   |                                | 9,623  |   |                                 |   | 5,821 |   |
| Loans transferred to other repossessed assets                           |   |                                | 10     |   |                                 |   | 179 |   |
| Capitalized improvements                                                |   |                                | 215    |   |                                 |   | - |   |
| Sales                                                                   |   |                                | (2,979 | )      |                                 |   | (4,434 | ) |
| Write-downs                                                             |   |                                | (1,122 | )      |                                 |   | (117 | ) |
| Loss on sales                                                           |   |                                | (226   | )      |                                 |   | (3 | ) |
| Ending balance                                                          |   | $                                   | 6,967  |   |                                 | $      | 1,446 |   |

----

| a) |     Earnings per Share |
|----|--------------------------------------------|

| (Dollars in thousands,                                                                                                                       |   | Three Months Ended September 30, |       |   | Nine Months EndedSeptember 30, |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|--------|--------------------------------|
| except share and per share amounts)                                                                                                          |   | 2009                             |       |   | 2008                           |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                         |   |                             |
| Numerator:                                                                                                                                   |   |                             |       |   |                           |   |   |   |   |
| Net income (loss)                                                                                                                            |   | $                                | 1,633      |   |                           | $ | (6,619 | ) |   | $ | (24,584 | ) |   | $ | (372 | ) |
| Less dividends on preferred stock                                                                                                            |   |                             | 487        |   |                           |   | - |   |   |   | 1,456 |   |   |   | - |   |
| Less accretion of issuance discount on preferred stock                                                                                       |   |                             | 105        |   |                           |   | - |   |   |   | 315 |   |   |   | - |   |
| Net income (loss) available for common stockholders                                                                                          |   | $                                | 1,041      |   |                           | $ | (6,619 | ) |   | $ | (26,355 | ) |   | $ | (372 | ) |
|                                                                                                                                         |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                                                 |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic net income (loss) per common share-Weighted average shares                                                             |   |                             | 12,128,257 |   |                           |   | 12,059,480 |   |   |   | 12,113,623 |   |   |   | 12,047,700 |   |
| Effect of dilutive stock options                                                                                                             |   |                             | -          |   |                           |   | 80,688 |   |   |   | - |   |   |   | 120,309 |   |
|                                                                                                                                         |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for diluted net income (loss) per common share - Weighted average common shares and assumed conversion of dilutive stock options |   |                             | 12,128,257 |   |                           |   | 12,140,168 |   |   |   | 12,113,623 |   |   |   | 12,168,009 |   |
|                                                                                                                                         |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Basic net income (loss) per common share                                                                                                     |   | $                                | 0.09       |   |                           | $ | (0.55 | ) |   | $ | (2.18 | ) |   | $ | (0.03 | ) |
| Diluted net income (loss) per common share                                                                                                   |   | $                                | 0.09       |   |                           | $ | (0.55 | ) |   | $ | (2.18 | ) |   | $ | (0.03 | ) |

|   | c) | Stock-based Compensation |
|--------|----|--------------------------|

----

|                              |   |     Options |    |   | Weighted-AverageExercisePrice per Share |   |   | Weighted-AverageRemainingContractualTerm(in years) |   |   |   AggregateIntrinsicValue |   |
|-----------------------------------|--------|---------------------------------|---------|--------|-----------------------------------------|--------|--------|----------------------------------------------------|--------|--------|-------------------------------------|--------|
| Outstanding on December 31, 2008  |   |                            | 656,883 |   |                                    | $      | 10.41  |                                               |   |   | 5.07                                |   |   | $ | 153,385 |   |
| Granted                           |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Exercised                         |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Forfeited/canceled                |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Outstanding on March 31, 2009     |   |                            | 656,883 |   |                                    | $      | 10.41  |                                               |   |   | 4.82                                |   |   | $ | - |   |
| Granted                           |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Exercised                         |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Forfeited/canceled                |   |                            | 900     |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Outstanding on June 30, 2009      |   |                            | 655,983 |   |                                    | $      | 10.41  |                                               |   |   | 4.56                                |   |   | $ | - |   |
| Granted                           |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Exercised                         |   |                            | -       |   |                                    |   | -      |                                               |   |   |                                |   |   |   |   |   |
| Forfeited/canceled                |   |                            | 8,007   |   |                                    |   | 6.59   |                                               |   |   |                                |   |   |   |   |   |
| Outstanding on September 30, 2009 |   |                            | 647,976 |   |                                    | $      | 10.46  |                                               |   |   | 4.36                                |   |   | $ | - |   |
|                              |   |                            |    |   |                                    |   |   |                                               |   |   |                                |   |   |   |   |   |
| Exercisable on September 30, 2009 |   |                            | 497,708 |   |                                    | $      | 9.51   |                                               |   |   | 3.39                                |   |   | $ | - |   |

----

----

| 9. | Non-Qualified Deferred Compensation Plan |
|----|------------------------------------------|

| 10. | Fair Value Measurements |
|-----|-------------------------|

| •  Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.                                                                                                                                               |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.  |
| •  Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.                                                                                                                                                                          |

----

| (Dollars in thousands)                 |   | Fair Value at September 30, 2009 |   |
|----------------------------------------|--------|----------------------------------|--------|
| Assets                                 |   | Level 1                     |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Available-for-sale securities          |   | $                                | -      |   |   | $ | 242,136 |   |   | $ | - |   |   | $ | 242,136 |   |
| Liabilities                            |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Junior subordinated debentures payable |   | $                                | -      |   |   | $ | - |   |   | $ | 8,357 |   |   | $ | 8,357 |   |

| (Dollars in thousands)                 |   | Fair Value at December 31, 2008 |   |
|----------------------------------------|--------|---------------------------------|--------|
| Assets                                 |   | Level 1                    |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Available-for-sale securities          |   | $                               | 454    |   |   | $ | 123,224 |   |   | $ | - |   |   | $ | 123,678 |   |
| Liabilities                            |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Junior subordinated debentures payable |   | $                               | -      |   |   | $ | - |   |   | $ | 10,510 |   |   | $ | 10,510 |   |

| (Dollars in thousands)                 |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|----------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
| Assets                                 |   | 2009                            |   |   | 2008                           |   |   | 2009 |   |   | 2008 |   |
| Available-for-sale securities          |   | $                               | 4,593  |   |                           | $      | 1,488 |   |   | $ | 3,487 |   |   | $ | (1,530 | ) |
| Liabilities                            |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Junior subordinated debentures payable |   | $                               | 351    |   |                           | $      | 389 |   |   | $ | 2,153 |   |   | $ | 887 |   |

| (Dollars in thousands) |   | Fair Value Measurements Using SignificantUnobservable Inputs (Level 3) |   |
|------------------------|--------|------------------------------------------------------------------------|--------|
|                   |   | Three Months Ended September 30, 2009                                  |   |   | Nine Months Ended September 30, 2009 |   |
| Beginning balance      |   | $                                                                      | 8,708  |   |   | $ | 10,510 |   |
| Total gains recognized |   |                                                                   | (351   | ) |   |   | (2,153 | ) |
| Ending balance         |   | $                                                                      | 8,357  |   |   | $ | 8,357 |   |

----

| (Dollars in thousands)           |   | Fair Value at September 30, 2009 |   |
|----------------------------------|--------|----------------------------------|--------|
| Description                      |   | Level 1                     |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans                   |   | $                                | -      |   |   | $ | - |   |   | $ | 193,810 |   |   | $ | 193,810 |   |
| REO and other repossessed assets |   |                             | -      |   |   |   | - |   |   |   | 6,967 |   |   |   | 6,967 |   |
| Goodwill                         |   |                             | -      |   |   |   | - |   |   |   | 12,885 |   |   |   | 12,885 |   |
| Total                            |   | $                                | -      |   |   | $ | - |   |   | $ | 213,662 |   |   | $ | 213,622 |   |

| (Dollars in thousands)           |   | Fair Value at December 31, 2008 |   |
|----------------------------------|--------|---------------------------------|--------|
| Description                      |   | Level 1                    |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| Impaired loans                   |   | $                               | -      |   |   | $ | - |   |   | $ | 94,025 |   |   | $ | 94,025 |   |
| REO and other repossessed assets |   |                            | -      |   |   |   | - |   |   |   | 1,446 |   |   |   | 1,446 |   |
| Total                            |   | $                               | -      |   |   | $ | - |   |   | $ | 95,471 |   |   | $ | 95,471 |   |

| (Dollars in thousands)               |   | Nine Months Ended September 30, |   |
|--------------------------------------|--------|---------------------------------|--------|
| Description                          |   | 2009                            |   |   | 2008 |   |
| Impaired loans (1)                   |   | $                               | 26,912 |   |   | $ | 2,466 |   |
| REO and other repossessed assets (2) |   |                            | 2,776  |   |   |   | 246 |   |
| Goodwill                             |   |                            | 11,700 |   |   |   | - |   |
| Total                                |   | $                               | 41,388 |   |   | $ | 2,712 |   |

| (1)   | At September 30, 2009, charge-offs on nonaccruing loans totaled $21.2 million and impairments on nonaccruing loans totaled $5.7 million. The loss on impaired loans represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral recognized through the allowance forloan losses. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   (2)   |  The balance of REO and other repossessed assets measured at fair value at September 30, 2009 and December 31, 2008, represents real estate that was recorded at fair value less costs to sell at the time of foreclosure and/or has had a valuation adjustment subsequent to becoming REO.  The loss on REO and other repossessed assets represents charge-offs of approximately $1.7 million atthe time of foreclosure and subsequent valuation adjustments of $1.1 million |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                  |   | September 30, 2009 |      |   | December 31, 2008   |   |
|-------------------------------------------------------|--------|--------------------|-----------|--------|---------------------|--------|
| (Dollars in thousands)                           |   | CarryingValue      |      |   | EstimatedFair Value |   |   | CarryingValue |   |   | EstimatedFair Value |   |
| Financial assets:                                     |   |               |      |   |                |   |   |   |   |   |   |   |
| Cash and cash equivalents                        |   | $                  | 74,239    |   |                | $      | 74,239 |   |   | $ | 53,466 |   |   | $ | 53,466 |   |
| Securities available-for-sale                         |   |               | 242,136   |   |                |   | 242,136 |   |   |   | 123,678 |   |   |   | 123,678 |   |
| FHLB stock                                            |   |               | 11,920    |   |                |   | 11,920 |   |   |   | 11,920 |   |   |   | 11,920 |   |
| Securities held-to-maturity                           |   |               | 26,912    |   |                |   | 27,571 |   |   |   | 120,594 |   |   |   | 120,701 |   |
| Loans, net                                            |   |               | 1,202,768 |   |                |   | 1,217,701 |   |   |   | 1,238,733 |   |   |   | 1,260,455 |   |
|                                                  |   |               |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                                |   |               |      |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Deposit accounts                                      |   | $                  | 1,032,663 |   |                | $      | 1,015,148 |   |   | $ | 1,006,782 |   |   | $ | 997,826 |   |
| Borrowings                                            |   |               | 446,455   |   |                |   | 489,424 |   |   |   | 435,390 |   |   |   | 458,911 |   |
| Junior subordinated debentures payable                |   |               | 15,465    |   |                |   | 12,446 |   |   |   | 15,465 |   |   |   | 11,569 |   |
| Junior subordinated debentures payable, at fair value |   |               | 8,357     |   |                |   | 8,357 |   |   |   | 10,510 |   |   |   | 10,510 |   |

----

| 11.   | Subsequent Events |
|-----------------|-------------------|

----

|                                                                    |   | At or for theThree Months EndedSeptember 30, |   |   | At or for theNine Months Ended September 30, |   |
|-------------------------------------------------------------------------|--------|----------------------------------------------|--------|--------|---------------------------------------------------|--------|
|                                                                    |   | 2009                                         |   |   | 2008                                              |   |   | 2009 |   |   | 2008 |   |
| Return on average assets (1)                                            |   |                                         | 0.40   | %      |                                              |   | (1.69 | )% |   |   | (2.02 | )% |   |   | (0.03 | )% |
| Return on average common equity (1)(2)                                  |   |                                         | 6.77   |   |                                              |   | (20.69 | ) |   |   | (30.08 | ) |   |   | (0.39 | ) |
| Average stockholders’ equity to average assets                    |   |                                         | 8.16   |   |                                              |   | 8.22 |   |   |   | 8.96 |   |   |   | 8.32 |   |
| Other expenses to average assets (1)                                    |   |                                         | 1.94   |   |                                              |   | 6.30 |   |   |   | 3.14 |   |   |   | 3.40 |   |
| Efficiency ratio                                                        |   |                                         | 56.41  |   |                                              |   | 161.61 |   |   |   | 63.39 |   |   |   | 92.66 |   |
| Average interest-bearing assets to average interest-bearing liabilities |   |                                         | 102.42 |   |                                              |   | 109.24 |   |   |   | 104.96 |   |   |   | 110.56 |   |
|  (1) Annualized(2) Excludes preferred stock.             |   |

----

----

----

| (Dollars in thousands)  |   | September 30, 2009 |      |   | % of Portfolio |   |   | December 31, 2008 |   |   | % of Portfolio |   |
|------------------------------|--------|--------------------|-----------|--------|---------------------|--------|--------|-------------------|--------|--------|---------------------|--------|
| Business                     |   | $                  | 473,546   |   |                |   | 38.5   | %                 |   | $      | 485,060             |   |   |   | 38.6 | % |
| R/E construction(1)          |   |               | 284,888   |   |                |   | 23.1   |              |   |   | 406,505             |   |   |   | 32.3 |   |
| Commercial R/E               |   |               | 193,652   |   |                |   | 15.7   |              |   |   | 122,951             |   |   |   | 9.8 |   |
| Multifamily                  |   |               | 84,029    |   |                |   | 6.8    |              |   |   | 86,864              |   |   |   | 6.9 |   |
| Home equity/consumer         |   |               | 31,455    |   |                |   | 2.6    |              |   |   | 30,772              |   |   |   | 2.4 |   |
| Residential(2)               |   |               | 163,151   |   |                |   | 13.3   |              |   |   | 126,089             |   |   |   | 10.0 |   |
| Total loans                  |   | $                  | 1,230,721 |   |                |   | 100.0  | %                 |   | $      | 1,258,241           |   |   |   | 100.0 | % |
| Deferred loan fees           |   |               | (3,204    | )      |                |   |   |              |   |   | (3,069              | )      |   |   |   |   |
| Allowance for loan losses    |   |               | (24,749   | )      |                |   |   |              |   |   | (16,439             | )      |   |   |   |   |
| Loans, net                   |   | $                  | 1,202,768 |   |                |   |   |              |   | $      | 1,238,733           |   |   |   |   |   |

|   | (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 at September 30, 2009 |      |   | Net New Loans - Payments |   |    | Reclassifi-cations (2) |   |   | Transfers to REO |   |   | Charge-offs (1) |   |   | Balance at December 31, 2008 |   |    | Change |   |
|-----------------------------------------|--------|-------------------------------|-----------|--------|--------------------------|--------|---------|------------------------|--------|--------|------------------|--------|--------|-----------------|--------|--------|------------------------------|--------|---------|--------|--------|
| Business                                |   | $                             | 473,546   |   |                     | $      | (10,918 | )                      |   | $      | -                |   |   | $               | -      |   |                         | $      | (596    | )      |   | $ | 485,060 |   |   |   | (2.4 | )% |
| R/E construction                        |   |                          | 284,888   |   |                     |   | (13,097 | )                      |   |   | (72,607          | )      |   |            | (9,623 | )      |                         |   | (26,290 | )      |   |   | 406,505 |   |   |   | (29.9 | ) |
| Commercial R/E                          |   |                          | 193,652   |   |                     |   | 11,119  |                   |   |   | 59,582           |   |   |            | -      |   |                         |   | -       |   |   |   | 122,951 |   |   |   | 57.5 |   |
| Multifamily                             |   |                          | 84,029    |   |                     |   | (9,646  | )                      |   |   | 6,811            |   |   |            | -      |   |                         |   | -       |   |   |   | 86,864 |   |   |   | (3.3 | ) |
| Home equity/consumer                    |   |                          | 31,455    |   |                     |   | 994     |                   |   |   | -                |   |   |            | (10    | )      |                         |   | (301    | )      |   |   | 30,772 |   |   |   | 2.2 |   |
| Residential                             |   |                          | 163,151   |   |                     |   | 30,848  |                   |   |   | 6,214            |   |   |            | -      |   |                         |   | -       |   |   |   | 126,089 |   |   |   | 29.4 |   |
| Total loans                             |   | $                             | 1,230,721 |   |                     | $      | 9,300   |                   |   | $      | -                |   |   | $               | (9,633 | )      |                         | $      | (27,187 | )      |   | $ | 1,258,241 |   |   |   | (2.2 | ) |
| Deferred loan fees                      |   |                          | (3,204    | )      |                     |   | 569     |                   |   |   | (704             | )      |   |            | -      |   |                         |   | -       |   |   |   | (3,069 | ) |   |   | 4.4 |   |
| Allowance for loan losses               |   |                          | (24,749   | )      |                     |   | (36,175 | )                      |   |   | 686              |   |   |            | -      |   |                         |   | 27,179  |   |   |   | (16,439 | ) |   |   | 50.6 |   |
| Loans, net                              |   | $                             | 1,202,768 |   |                     | $      | (26,306 | )                      |   | $      | (18              | )      |   | $               | (9,633 | )      |                         | $      | (8      | )      |   | $ | 1,238,733 |   |   |   | (2.9 | ) |

| (1)   | Excludes negative now accounts totaling $193,000 and recoveries of $201,000. |
|-----------------|------------------------------------------------------------------------------|

| (2)   | Transferred $18,000 to off-balance sheet general valuation allowance. |
|-----------------|-----------------------------------------------------------------------|

----

----

|  (Dollars in thousands) |   | September 30, 2009 |      |   | % of Deposits |   |   | December 31, 2008 |   |   | % of Deposits |   |
|------------------------------|--------|--------------------|-----------|--------|--------------------|--------|--------|-------------------|--------|--------|---------------|--------|
| Checking accounts            |   | $                  | 327,612   |   |               |   | 31.7   | %                 |   | $      | 186,843       |   |   |   | 18.5 | % |
| Savings & MMDA           |   |               | 128,918   |   |               |   | 12.5   |              |   |   | 204,035       |   |   |   | 20.3 |   |
| CDs                          |   |               | 576,133   |   |               |   | 55.8   |              |   |   | 615,904       |   |   |   | 61.2 |   |
| Total                        |   | $                  | 1,032,663 |   |               |   | 100.0  | %                 |   | $      | 1,006,782     |   |   |   | 100.0 | % |

----

----

| (Dollars in thousands) Loan portfolio ($ in 000's) |   | Balance at09/30/2009 |      |   | NonperformingLoans (NPL) |   |    | NPL as a %of each Loan Category |   |
|---------------------------------------------------------|--------|----------------------|-----------|--------|--------------------------|--------|---------|---------------------------------|--------|
| Business                                                |   | $                    | 473,546   |   |                     | $      | 8,624   |                            |   |   | 1.82 | % |
| R/E construction                                        |   |                 |      |   |                     |   |    |                            |   |   |   |   |
|   Spec construction                           |   |                 | 70,325    |   |                     |   | 17,760  |                            |   |   | 25.25 |   |
|   Land acquisition and development            |   |                 | 129,345   |   |                     |   | 56,835  |                            |   |   | 43.94 |   |
|   Land                                        |   |                 | 35,416    |   |                     |   | 19,679  |                            |   |   | 55.57 |   |
|   Multifamily construction                    |   |                 | 16,564    |   |                     |   | -       |                            |   |   | - |   |
|   Commercial construction                     |   |                 | 32,208    |   |                     |   | 6,364   |                            |   |   | 19.76 |   |
|   1-4 construction                            |   |                 | 1,030     |   |                     |   | -       |                            |   |   | - |   |
| Total R/E construction                                  |   |                 | 284,888   |   |                     |   | 100,638 |                            |   |   | 35.33 |   |
| Commercial R/E                                          |   |                 | 193,652   |   |                     |   | 13,459  |                            |   |   | 6.95 |   |
| Multifamily                                             |   |                 | 84,029    |   |                     |   | 2,100   |                            |   |   | 2.50 |   |
| Home equity/consumer                                    |   |                 | 31,455    |   |                     |   | 458     |                            |   |   | 1.46 |   |
| Residential                                             |   |                 | 163,151   |   |                     |   | 408     |                            |   |   | 0.25 |   |
| Total                                                   |   | $                    | 1,230,721 |   |                     | $      | 125,687 |                            |   |   | 10.21 | % |

|                                            |   |                         |    |   |      |   |    | On Loans Designated NPLs as of 9/30/09 |   |   |        |   |
|-------------------------------------------------|--------|------------------------------|---------|--------|-----------|--------|---------|----------------------------------------|--------|--------|-------------|--------|
| (Dollars in thousands) Nonperforming loans |   | Balance at September 30,2009 |    |   | Additions |   |    | Paydowns                               |   |   | Charge-offs |   |   | Transfers to REO |   |   | Balance at December 31, 2008 |   |
| Business                                        |   | $                            | 8,624   |   |      | $      | 8,141   |                                   |   | $      | (83         | )      |   | $ | (584 | ) |   | $ | - |   |   | $ | 1,150 |   |
| R/E construction                                |   |                         |    |   |      |   |    |                                   |   |   |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Spec construction                               |   |                         | 17,760  |   |      |   | 31,420  |                                   |   |   | (13,679     | )      |   |   | (6,129 | ) |   |   | (5,587 | ) |   |   | 11,735 |   |
| Land acquisition and development                |   |                         | 56,835  |   |      |   | 49,501  |                                   |   |   | (3,956      | )      |   |   | (6,171 | ) |   |   | (5,338 | ) |   |   | 22,799 |   |
| Land                                            |   |                         | 19,679  |   |      |   | 27,109  |                                   |   |   | (766        | )      |   |   | (11,101 | ) |   |   | - |   |   |   | 4,437 |   |
| Commercial RE                                   |   |                         | 6,364   |   |      |   | 6,364   |                                   |   |   | -           |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total R/E construction                          |   |                         | 100,638 |   |      |   | 114,394 |                                   |   |   | (18,401     | )      |   |   | (23,401 | ) |   |   | (10,925 | ) |   |   | 38,971 |   |
| Commercial R/E                                  |   |                         | 13,459  |   |      |   | 13,459  |                                   |   |   | -           |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Multifamily                                     |   |                         | 2,100   |   |      |   | 2,100   |                                   |   |   | -           |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Home equity/consumer                            |   |                         | 458     |   |      |   | 670     |                                   |   |   | (2          | )      |   |   | (202 | ) |   |   | (10 | ) |   |   | 2 |   |
| Residential                                     |   |                         | 408     |   |      |   | 415     |                                   |   |   | (162        | )      |   |   | - |   |   |   | - |   |   |   | 155 |   |
| Total                                           |   | $                            | 125,687 |   |      | $      | 139,179 |                                   |   | $      | (18,648     | )      |   | $ | (24,187 | ) |   | $ | (10,935 | ) |   | $ | 40,278 |   |

----

| (Dollars  in thousands)        |   |               |   |   |              |   |
|-----------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
| REO and other repossessed assets              |   | September 30, 2009 |   |   | December 31, 2008 |   |
| Beginning balance                             |   | $                  | 1,446  |   |              | $      | - |   |
| Loans transferred to REO                      |   |               | 9,623  |   |              |   | 5,821 |   |
| Loans transferred to other repossessed assets |   |               | 10     |   |              |   | 179 |   |
| Capitalized improvements                      |   |               | 215    |   |              |   | - |   |
| Sales                                         |   |               | (2,979 | )      |              |   | (4,434 | ) |
| Write-downs                                   |   |               | (1,122 | )      |              |   | (117 | ) |
| Loss on sales                                 |   |               | (226   | )      |              |   | (3 | ) |
| Ending balance                                |   | $                  | 6,967  |   |              | $      | 1,446 |   |

|  (Dollars in thousands)                                 |   | Three Months EndedSeptember 30, 2009 |   |   | Nine Months EndedSeptember 30, 2009 |   |
|-------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
| Beginning allowance for loan losses                               |   | $                                    | 24,490 |   |                                | $      | 16,439 |   |
| Additions                                                         |   |                                 | 4,000  |   |                                |   | 36,175 |   |
| Transfer from off-balance sheet general valuation allowance (GVA) |   |                                 | (3     | )      |                                |   | 18 |   |
| Net charge-offs and write-downs                                   |   |                                 | (3,368 | )      |                                |   | (27,179 | ) |
| Fair value charges                                                |   |                                 | (370   | )      |                                |   | (704 | ) |
| Allowance for loan losses                                         |   |                                 | 24,749 |   |                                |   | 24,749 |   |
| Off-balance sheet GVA                                             |   |                                 | 75     |   |                                |   | 75 |   |
| Total allowance for loan losses                                   |   | $                                    | 24,824 |   |                                | $      | 24,824 |   |

----

|  (Dollars in thousands)                                                                                                                         |   | September 30, 2009 |      |   | December 31, 2008 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| Nonperforming loans                                                                                                                                       |   | $                  | 125,687   |   |              | $      | 40,278 |   |
| Total loans                                                                                                                                               |   |               | 1,230,721 |   |              |   | 1,258,241 |   |
| Nonperforming loans/total loans                                                                                                                           |   |               | 10.21     | %      |              |   | 3.20 | % |
| Nonperforming loans/total assets                                                                                                                          |   |               | 7.63      |   |              |   | 2.46 |   |
| Total allowance for loan losses/total loans (1)                                                                                                           |   |               | 2.02      |   |              |   | 1.31 |   |
| Total allowance for loan losses/nonperforming loans (1)                                                                                                   |   |               | 20.00     |   |              |   | 41.00 |   |
| REO and other repossessed assets                                                                                                                          |   | $                  | 6,967     |   |              | $      | 1,446 |   |
| Total nonperforming assets                                                                                                                                |   |               | 132,654   |   |              |   | 41,724 |   |
| Nonperforming assets/total assets                                                                                                                         |   |               | 8.05      | %      |              |   | 2.55 | % |
|  (1) Total allowance for loan losses includes off-balance sheet loan commitments of $75,000 at September 30, 2009, and $93,000 at December 31, 2008. |   |

----

| (Dollars in thousands)          |   | September 30, 2009 |   |   | December 31, 2008 |   |
|---------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                            |   | Amount             |   |   | Percent           |   |   | Amount |   |   | Percent |   |
| Business                        |   | $                  | 7,620  |   |              |   | 30.79 | % |   | $ | 3,193 |   |   |   | 19.42 | % |
| Construction                    |   |               | 7,813  |   |              |   | 31.57 |   |   |   | 4,341 |   |   |   | 26.40 |   |
| Commercial real estate          |   |               | 2,069  |   |              |   | 8.36 |   |   |   | 610 |   |   |   | 3.71 |   |
| Multifamily                     |   |               | 172    |   |              |   | 0.69 |   |   |   | 149 |   |   |   | 0.91 |   |
| Consumer                        |   |               | 334    |   |              |   | 1.35 |   |   |   | 333 |   |   |   | 2.03 |   |
| Residential                     |   |               | 252    |   |              |   | 1.02 |   |   |   | 253 |   |   |   | 1.54 |   |
| Unallocated                     |   |               | 6,489  |   |              |   | 26.22 |   |   |   | 7,560 |   |   |   | 45.99 |   |
| Total allowance for loan losses |   | $                  | 24,749 |   |              |   | 100.00 | % |   | $ | 16,439 |   |   |   | 100.00 | % |

----

|                                                                   |   | Three Months Ended September 30, |      |
|------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                   |   | 2009                             |      |   | 2008 |   |
| (Dollars in thousands)                                            |   | AverageBalance                   |      |   | InterestandDividend |   |   | Yield/Cost |   |   | AverageBalance |   |   | InterestandDividend |   |   | Yield/Cost |   |
| ASSETS                                                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets                                                |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential loans                                                      |   | $                                | 153,417   |   |   | $ | 2,098 |   |   |   | 5.43 | % |   | $ | 107,464 |   |   | $ | 1,589 |   |   |   | 5.88 | % |
| Multifamily loans                                                      |   |                             | 91,379    |   |   |   | 1,549 |   |   |   | 6.73 |   |   |   | 72,658 |   |   |   | 1,222 |   |   |   | 6.69 |   |
| Commercial real estate loans                                           |   |                             | 180,319   |   |   |   | 2,825 |   |   |   | 6.22 |   |   |   | 116,273 |   |   |   | 1,962 |   |   |   | 6.71 |   |
| Construction loans                                                     |   |                             | 193,955   |   |   |   | 2,470 |   |   |   | 5.05 |   |   |   | 375,480 |   |   |   | 7,091 |   |   |   | 7.51 |   |
| Consumer loans                                                         |   |                             | 30,886    |   |   |   | 508 |   |   |   | 6.53 |   |   |   | 29,148 |   |   |   | 480 |   |   |   | 6.55 |   |
| Business banking loans                                                 |   |                             | 464,036   |   |   |   | 7,644 |   |   |   | 6.54 |   |   |   | 478,869 |   |   |   | 8,267 |   |   |   | 6.87 |   |
| Total loans(1)                                                         |   |                             | 1,113,992 |   |   |   | 17,094 |   |   |   | 6.09 |   |   |   | 1,179,892 |   |   |   | 20,611 |   |   |   | 6.95 |   |
| Securities available-for-sale                                          |   |                             | 241,384   |   |   |   | 2,618 |   |   |   | 4.30 |   |   |   | 119,456 |   |   |   | 1,616 |   |   |   | 5.38 |   |
| Securities held-to-maturity                                            |   |                             | 37,141    |   |   |   | 457 |   |   |   | 4.88 |   |   |   | 140,545 |   |   |   | 2,102 |   |   |   | 5.95 |   |
| Interest-earning deposits in other institutions                        |   |                             | 38,312    |   |   |   | 20 |   |   |   | 0.21 |   |   |   | 12,633 |   |   |   | 16 |   |   |   | 0.50 |   |
| Total securities and interest-earning deposits                         |   |                             | 316,837   |   |   |   | 3,095 |   |   |   | 3.88 |   |   |   | 272,634 |   |   |   | 3,734 |   |   |   | 5.45 |   |
| Total interest-earning assets                                          |   |                             | 1,430,829 |   |   |   | 20,189 |   |   |   | 5.60 |   |   |   | 1,452,526 |   |   |   | 24,345 |   |   |   | 6.67 |   |
| Noninterest-earning assets                                             |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Office properties and equipment, net                                   |   |                             | 15,184    |   |   |   |   |   |   |   |   |   |   |   | 15,799 |   |   |   |   |   |   |   |   |   |
| REO, net                                                               |   |                             | 7,439     |   |   |   |   |   |   |   |   |   |   |   | 990 |   |   |   |   |   |   |   |   |   |
| Nonperforming loans                                                    |   |                             | 117,896   |   |   |   |   |   |   |   |   |   |   |   | 21,873 |   |   |   |   |   |   |   |   |   |
| Other noninterest-earning assets                                       |   |                             | 63,507    |   |   |   |   |   |   |   |   |   |   |   | 65,583 |   |   |   |   |   |   |   |   |   |
| Total assets                                                           |   | $                                | 1,634,855 |   |   |   |   |   |   |   |   |   |   | $ | 1,556,771 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND EQUITY                                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                           |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                       |   | $                                | 9,843     |   |   | $ | 6 |   |   |   | 0.24 | % |   | $ | 10,944 |   |   | $ | 14 |   |   |   | 0.51 | % |
| Checking accounts                                                      |   |                             | 201,348   |   |   |   | 626 |   |   |   | 1.23 |   |   |   | 79,686 |   |   |   | 349 |   |   |   | 1.74 |   |
| Money market accounts                                                  |   |                             | 119,244   |   |   |   | 261 |   |   |   | 0.87 |   |   |   | 299,411 |   |   |   | 1,617 |   |   |   | 2.15 |   |
| Certificates of deposit                                                |   |                             | 596,546   |   |   |   | 3,006 |   |   |   | 2.00 |   |   |   | 507,610 |   |   |   | 4,450 |   |   |   | 3.49 |   |
| Total interest-bearing deposits                                        |   |                             | 926,981   |   |   |   | 3,899 |   |   |   | 1.67 |   |   |   | 897,651 |   |   |   | 6,430 |   |   |   | 2.85 |   |
| Other interest-bearing liabilities                                     |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                                                          |   |                             | 239,000   |   |   |   | 2,622 |   |   |   | 4.35 |   |   |   | 253,927 |   |   |   | 2,746 |   |   |   | 4.30 |   |
| Securities sold under agreements to repurchase                         |   |                             | 146,841   |   |   |   | 2,182 |   |   |   | 5.90 |   |   |   | 120,935 |   |   |   | 1,619 |   |   |   | 5.33 |   |
| Junior subordinated debentures payable                                 |   |                             | 24,169    |   |   |   | 530 |   |   |   | 8.70 |   |   |   | 26,356 |   |   |   | 530 |   |   |   | 8.00 |   |
| Other borrowings                                                       |   |                             | 60,000    |   |   |   | 38 |   |   |   | 0.25 |   |   |   | 30,829 |   |   |   | 183 |   |   |   | 2.36 |   |
| Total interest-bearing liabilities                                     |   |                             | 1,396,991 |   |   |   | 9,271 |   |   |   | 2.63 |   |   |   | 1,329,698 |   |   |   | 11,508 |   |   |   | 3.44 |   |
| Other liabilities                                                      |   |                             | 104,489   |   |   |   |   |   |   |   |   |   |   |   | 99,137 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                      |   |                             | 1,501,480 |   |   |   |   |   |   |   |   |   |   |   | 1,428,835 |   |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                             |   |                             | 133,375   |   |   |   |   |   |   |   |   |   |   |   | 127,936 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                       |   | $                                | 1,634,855 |   |   |   |   |   |   |   |   |   |   | $ | 1,556,771 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (2)                                                |   |                             |      |   |   | $ | 10,918 |   |   |   |   |   |   |   |   |   |   | $ | 12,837 |   |   |   |   |   |
| Interest rate spread (3)                                               |   |                             |      |   |   |   |   |   |   |   | 2.97 | % |   |   |   |   |   |   |   |   |   |   | 3.23 | % |
| Net interest margin (4)                                                |   |                             |      |   |   |   | 3.03 | % |   |   |   |   |   |   |   |   |   |   | 3.52 | % |   |   |   |   |
| Average interest-earning assets to averageinterest-bearing liabilities |   |                             | 102.42    | % |   |   |   |   |   |   |   |   |   |   | 109.24 | % |   |   |   |   |   |   |   |   |

----

|                                                                   |   | Nine Months Ended September 30, |      |
|------------------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                                   |   | 2009                            |      |   | 2008 |   |
| (Dollars in thousands)                                            |   | AverageBalance                  |      |   | InterestandDividend |   |   | Yield/Cost |   |   | AverageBalance |   |   | InterestandDividend |   |   | Yield/Cost |   |
| ASSETS                                                                 |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning assets                                                |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential loans                                                      |   | $                               | 137,912   |   |   | $ | 5,909 |   |   |   | 5.73 | % |   | $ | 104,255 |   |   | $ | 4,690 |   |   |   | 6.01 | % |
| Multifamily loans                                                      |   |                            | 90,963    |   |   |   | 4,375 |   |   |   | 6.43 |   |   |   | 41,758 |   |   |   | 2,181 |   |   |   | 6.98 |   |
| Commercial real estate loans                                           |   |                            | 164,457   |   |   |   | 7,911 |   |   |   | 6.43 |   |   |   | 115,680 |   |   |   | 5,843 |   |   |   | 6.75 |   |
| Construction loans                                                     |   |                            | 264,971   |   |   |   | 9,714 |   |   |   | 4.90 |   |   |   | 392,087 |   |   |   | 19,943 |   |   |   | 6.79 |   |
| Consumer loans                                                         |   |                            | 30,883    |   |   |   | 1,503 |   |   |   | 6.51 |   |   |   | 28,623 |   |   |   | 1,435 |   |   |   | 6.70 |   |
| Business banking loans                                                 |   |                            | 471,223   |   |   |   | 23,230 |   |   |   | 6.59 |   |   |   | 475,388 |   |   |   | 24,864 |   |   |   | 6.99 |   |
| Total loans(1)                                                         |   |                            | 1,160,409 |   |   |   | 52,642 |   |   |   | 6.07 |   |   |   | 1,157,791 |   |   |   | 58,956 |   |   |   | 6.80 |   |
| Securities available-for-sale                                          |   |                            | 199,670   |   |   |   | 6,691 |   |   |   | 4.48 |   |   |   | 125,100 |   |   |   | 4,894 |   |   |   | 5.23 |   |
| Securities held-to-maturity                                            |   |                            | 62,871    |   |   |   | 2,441 |   |   |   | 5.19 |   |   |   | 140,959 |   |   |   | 6,177 |   |   |   | 5.85 |   |
| Interest-earning deposits in other institutions                        |   |                            | 30,778    |   |   |   | 40 |   |   |   | 0.17 |   |   |   | 6,965 |   |   |   | 125 |   |   |   | 2.40 |   |
| Total securities and interest-earning deposits                         |   |                            | 293,319   |   |   |   | 9,172 |   |   |   | 4.18 |   |   |   | 273,024 |   |   |   | 11,196 |   |   |   | 5.48 |   |
| Total interest-earning assets                                          |   |                            | 1,453,728 |   |   |   | 61,814 |   |   |   | 5.69 |   |   |   | 1,430,815 |   |   |   | 70,152 |   |   |   | 6.55 |   |
| Noninterest-earning assets                                             |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Office properties and equipment, net                                   |   |                            | 15,387    |   |   |   |   |   |   |   |   |   |   |   | 15,367 |   |   |   |   |   |   |   |   |   |
| REO, net                                                               |   |                            | 6,051     |   |   |   |   |   |   |   |   |   |   |   | 332 |   |   |   |   |   |   |   |   |   |
| Nonperforming loans                                                    |   |                            | 85,721    |   |   |   |   |   |   |   |   |   |   |   | 18,003 |   |   |   |   |   |   |   |   |   |
| Other noninterest-earning assets                                       |   |                            | 66,079    |   |   |   |   |   |   |   |   |   |   |   | 54,556 |   |   |   |   |   |   |   |   |   |
| Total assets                                                           |   | $                               | 1,626,966 |   |   |   |   |   |   |   |   |   |   | $ | 1,519,073 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LIABILITIES AND EQUITY                                                 |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                           |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                                       |   | $                               | 10,011    |   |   | $ | 19 |   |   |   | 0.25 | % |   | $ | 11,033 |   |   | $ | 41 |   |   |   | 0.50 | % |
| Checking accounts                                                      |   |                            | 172,212   |   |   |   | 1,604 |   |   |   | 1.25 |   |   |   | 66,059 |   |   |   | 784 |   |   |   | 1.59 |   |
| Money market accounts                                                  |   |                            | 140,076   |   |   |   | 1,053 |   |   |   | 1.01 |   |   |   | 323,131 |   |   |   | 6,337 |   |   |   | 2.62 |   |
| Certificates of deposit                                                |   |                            | 583,375   |   |   |   | 10,159 |   |   |   | 2.33 |   |   |   | 472,643 |   |   |   | 13,824 |   |   |   | 3.91 |   |
| Total interest-bearing deposits                                        |   |                            | 905,674   |   |   |   | 12,835 |   |   |   | 1.89 |   |   |   | 872,866 |   |   |   | 20,986 |   |   |   | 3.21 |   |
| Other interest-bearing liabilities                                     |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FHLB advances                                                          |   |                            | 245,557   |   |   |   | 7,962 |   |   |   | 4.34 |   |   |   | 255,505 |   |   |   | 8,211 |   |   |   | 4.29 |   |
| Securities sold under agreements to repurchase                         |   |                            | 148,726   |   |   |   | 6,443 |   |   |   | 5.79 |   |   |   | 120,802 |   |   |   | 4,270 |   |   |   | 4.72 |   |
| Junior subordinated debentures payable                                 |   |                            | 24,763    |   |   |   | 1,590 |   |   |   | 8.58 |   |   |   | 26,585 |   |   |   | 1,590 |   |   |   | 7.99 |   |
| Other borrowings                                                       |   |                            | 60,293    |   |   |   | 124 |   |   |   | 0.27 |   |   |   | 18,380 |   |   |   | 338 |   |   |   | 2.46 |   |
| Total interest-bearing liabilities                                     |   |                            | 1,385,013 |   |   |   | 28,954 |   |   |   | 2.80 |   |   |   | 1,294,138 |   |   |   | 35,395 |   |   |   | 3.65 |   |
| Other liabilities                                                      |   |                            | 96,225    |   |   |   |   |   |   |   |   |   |   |   | 98,566 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                      |   |                            | 1,481,238 |   |   |   |   |   |   |   |   |   |   |   | 1,392,704 |   |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                             |   |                            | 145,728   |   |   |   |   |   |   |   |   |   |   |   | 126,369 |   |   |   |   |   |   |   |   |   |
| Total liabilities and stockholders’ equity                       |   | $                               | 1,626,966 |   |   |   |   |   |   |   |   |   |   | $ | 1,519,073 |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                            |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income (2)                                                |   |                            |      |   |   | $ | 32,860 |   |   |   |   |   |   |   |   |   |   | $ | 34,757 |   |   |   |   |   |
| Interest rate spread (3)                                               |   |                            |      |   |   |   |   |   |   |   | 2.89 | % |   |   |   |   |   |   |   |   |   |   | 2.90 | % |
| Net interest margin (4)                                                |   |                            |      |   |   |   | 3.02 | % |   |   |   |   |   |   |   |   |   |   | 3.24 | % |   |   |   |   |
| Average interest-earning assets to averageinterest-bearing liabilities |   |                            | 104.96    | % |   |   |   |   |   |   |   |   |   |   | 110.56 | % |   |   |   |   |   |   |   |   |

----

| (Dollars in thousands)                                       |   | Three Months Ended September 30, 2009Compared toThree Months Ended September 30, 2008Increase (Decrease) Due to |
|--------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|
|                                                         |   | Rate                                                                                                            |   |   | Volume |   |   | Mix |   |   | Net |
| Interest-earning assets                                      |   |                                                                                                            |   |   |   |   |   |   |   |   |   |
|   Residential loans                                |   | $                                                                                                               | (123 | ) |   | $ | 676 |   |   | $ | (44 | ) |   | $ | 509 |   |
|   Multifamily loans                                |   |                                                                                                            | 6 |   |   |   | 313 |   |   |   | 8 |   |   |   | 327 |   |
|   Commercial real estate                           |   |                                                                                                            | (145 | ) |   |   | 1,075 |   |   |   | (67 | ) |   |   | 863 |   |
|   Construction loans                               |   |                                                                                                            | (2,310 | ) |   |   | (3,409 | ) |   |   | 1,098 |   |   |   | (4,621 | ) |
|   Consumer loans                                   |   |                                                                                                            | (2 | ) |   |   | 28 |   |   |   | 2 |   |   |   | 28 |   |
|   Business banking loans                           |   |                                                                                                            | (398 | ) |   |   | (255 | ) |   |   | 30 |   |   |   | (623 | ) |
|      Total loans                    |   |                                                                                                            | (2,972 | ) |   |   | (1,572 | ) |   |   | 1,027 |   |   |   | (3,517 | ) |
|   Securities available-for-sale                    |   |                                                                                                            | (322 | ) |   |   | 1,640 |   |   |   | (316 | ) |   |   | 1,002 |   |
|   Securities held-to-maturity                      |   |                                                                                                            | (375 | ) |   |   | (1,538 | ) |   |   | 268 |   |   |   | (1,645 | ) |
|   Interest-earning deposits in other institutions  |   |                                                                                                            | (9 | ) |   |   | 32 |   |   |   | (19 | ) |   |   | 4 |   |
| Total net change in income on interest-earning assets        |   | $                                                                                                               | (3,678 | ) |   | $ | (1,438 | ) |   | $ | 960 |   |   | $ | (4,156 | ) |
|                                                         |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                 |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                    |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                             |   | $                                                                                                               | (7 | ) |   | $ | (1 | ) |   | $ | - |   |   | $ | (8 | ) |
| Checking accounts                                            |   |                                                                                                            | (101 | ) |   |   | 530 |   |   |   | (152 | ) |   |   | 277 |   |
| Money market accounts                                        |   |                                                                                                            | (958 | ) |   |   | (968 | ) |   |   | 570 |   |   |   | (1,356 | ) |
| Certificates of Deposit                                      |   |                                                                                                            | (1,889 | ) |   |   | 775 |   |   |   | (330 | ) |   |   | (1,444 | ) |
| Total deposits                                               |   |                                                                                                            | (2,955 | ) |   |   | 336 |   |   |   | 88 |   |   |   | (2,531 | ) |
| FHLB advances                                                |   |                                                                                                            | 32 |   |   |   | (161 | ) |   |   | 5 |   |   |   | (124 | ) |
| Securities sold under agreements to repurchase               |   |                                                                                                            | 172 |   |   |   | 345 |   |   |   | 46 |   |   |   | 563 |   |
| Junior subordinated debentures payable                       |   |                                                                                                            | 46 |   |   |   | (44 | ) |   |   | (2 | ) |   |   | - |   |
| Other borrowings                                             |   |                                                                                                            | (163 | ) |   |   | 172 |   |   |   | (154 | ) |   |   | (145 | ) |
| Total net change in expenses on interest-bearing liabilities |   | $                                                                                                               | (2,868 | ) |   | $ | 648 |   |   | $ | (17 | ) |   | $ | (2,237 | ) |
| Net (decrease) increase in net interest income               |   | $                                                                                                               | (810 | ) |   | $ | (2,086 | ) |   | $ | 977 |   |   | $ | (1,919 | ) |

----

| (Dollars in thousands)                                       |   | Nine Months Ended September 30, 2009Compared toNine Months Ended September 30, 2008Increase (Decrease) Due to |   |
|--------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|
|                                                         |   | Rate                                                                                                          |   |   | Volume |   |   | Mix |   |   | Net |   |
| Interest-earning assets                                      |   |                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|   Residential loans                                |   | $                                                                                                             | (219   | ) |   | $ | 1,517 |   |   | $ | (79 | ) |   | $ | 1,219 |   |
|   Multifamily loans                                |   |                                                                                                          | (171   | ) |   |   | 2,575 |   |   |   | (210 | ) |   |   | 2,194 |   |
|   Commercial real estate                           |   |                                                                                                          | (274   | ) |   |   | 2,468 |   |   |   | (126 | ) |   |   | 2,068 |   |
|   Construction loans                               |   |                                                                                                          | (5,566 | ) |   |   | (6,477 | ) |   |   | 1,814 |   |   |   | (10,229 | ) |
|   Consumer loans                                   |   |                                                                                                          | (41    | ) |   |   | 114 |   |   |   | (5 | ) |   |   | 68 |   |
|   Business banking loans                           |   |                                                                                                          | (1,410 | ) |   |   | (218 | ) |   |   | (6 | ) |   |   | (1,634 | ) |
|      Total loans                    |   |                                                                                                          | (7,681 | ) |   |   | (21 | ) |   |   | 1,388 |   |   |   | (6,314 | ) |
|   Securities available-for-sale                    |   |                                                                                                          | (699   | ) |   |   | 2,923 |   |   |   | (427 | ) |   |   | 1,797 |   |
|   Securities held-to-maturity                      |   |                                                                                                          | (700   | ) |   |   | (3,428 | ) |   |   | 392 |   |   |   | (3,736 | ) |
|   Interest-earning deposits in other institutions  |   |                                                                                                          | (116   | ) |   |   | 428 |   |   |   | (397 | ) |   |   | (85 | ) |
| Total net change in income on interest-earning assets        |   | $                                                                                                             | (9,196 | ) |   | $ | (98 | ) |   | $ | 956 |   |   | $ | (8,338 | ) |
|                                                         |   |                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities                                 |   |                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing deposits                                    |   |                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Savings accounts                                             |   | $                                                                                                             | (20    | ) |   | $ | (4 | ) |   | $ | 2 |   |   | $ | (22 | ) |
| Checking accounts                                            |   |                                                                                                          | (168   | ) |   |   | 1,262 |   |   |   | (274 | ) |   |   | 820 |   |
| Money market accounts                                        |   |                                                                                                          | (3,913 | ) |   |   | (3,596 | ) |   |   | 2,225 |   |   |   | (5,284 | ) |
| Certificates of Deposit                                      |   |                                                                                                          | (5,596 | ) |   |   | 3,245 |   |   |   | (1,314 | ) |   |   | (3,665 | ) |
| Total deposits                                               |   |                                                                                                          | (9,697 | ) |   |   | 907 |   |   |   | 639 |   |   |   | (8,151 | ) |
| FHLB advances                                                |   |                                                                                                          | 81     |   |   |   | (320 | ) |   |   | (10 | ) |   |   | (249 | ) |
| Securities sold under agreements to repurchase               |   |                                                                                                          | 970    |   |   |   | 989 |   |   |   | 214 |   |   |   | 2,173 |   |
| Junior subordinated debentures payable                       |   |                                                                                                          | 119    |   |   |   | (109 | ) |   |   | (10 | ) |   |   | - |   |
| Other borrowings                                             |   |                                                                                                          | (301   | ) |   |   | 772 |   |   |   | (685 | ) |   |   | (214 | ) |
| Total net change in expenses on interest-bearing liabilities |   | $                                                                                                             | (8,828 | ) |   | $ | 2,239 |   |   | $ | 148 |   |   | $ | (6,441 | ) |
| Net (decrease) increase in net interest income               |   | $                                                                                                             | (368   | ) |   | $ | (2,337 | ) |   | $ | 808 |   |   | $ | (1,897 | ) |

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|  (Dollars in millions)          |   | At or for theThree Months EndedSeptember 30, |      |   | At or for theNine Months EndedSeptember 30, |   |
|--------------------------------------|--------|----------------------------------------------|-----------|--------|---------------------------------------------|--------|
|                                 |   | 2009                                         |      |   | 2008                                        |   |   | 2009 |   |   | 2008 |   |
| Average interest-earning assets      |   | $                                            | 1,430,829 |   |                                        | $      | 1,452,526 |   |   | $ | 1,453,728 |   |   | $ | 1,430,815 |   |
| Average interest-bearing liabilities |   |                                         | 1,396,991 |   |                                        |   | 1,329,698 |   |   |   | 1,385,013 |   |   |   | 1,294,138 |   |
| Yield on interest-earning assets     |   |                                         | 5.60      | %      |                                        |   | 6.67 | % |   |   | 5.69 | % |   |   | 6.55 | % |
| Cost of interest-bearing liabilities |   |                                         | 2.63      |   |                                        |   | 3.44 |   |   |   | 2.80 |   |   |   | 3.65 |   |
|   Net interest spread      |   |                                         | 2.97      |   |                                        |   | 3.23 |   |   |   | 2.89 |   |   |   | 2.90 |   |
|   Net interest margin      |   |                                         | 3.03      |   |                                        |   | 3.52 |   |   |   | 3.02 |   |   |   | 3.24 |   |

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|  (Dollars in thousands)  |   | Adequately Capitalized |    |   | Well Capitalized |   |
|------------------------------------|--------|------------------------|---------|--------|------------------|--------|
| Cascade Bank core capital          |   | Amount                 |    |   | Percentage       |   |   | Amount |   |   | Percentage |   |
| Tier 1 (Core) capital              |   | $                      | 144,876 |   |             |   | 8.94 | % |   | $ | 144,876 |   |   |   | 8.94 | % |
| Minimum requirement                |   |                   | 64,838  |   |             |   | 4.00 |   |   |   | 97,256 |   |   |   | 6.00 |   |
| Excess                             |   | $                      | 80,038  |   |             |   | 4.94 | % |   | $ | 47,620 |   |   |   | 2.94 | % |
|                               |   |                   |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Cascade Bank risk-based capital    |   | Amount                 |    |   | Percentage       |   |   | Amount |   |   | Percentage |   |
| Risk-based capital                 |   | $                      | 160,600 |   |             |   | 12.86 | % |   | $ | 160,600 |   |   |   | 12.86 | % |
| Minimum requirement(1)             |   |                   | 99,903  |   |             |   | 8.00 |   |   |   | 124,879 |   |   |   | 10.00 |   |
| Excess                             |   | $                      | 60,697  |   |             |   | 4.86 | % |   | $ | 35,721 |   |   |   | 2.86 | % |
| (1) Based on risk-weighted assets. |   |                   |    |   |             |   |   |   |   |   |   |   |   |   |   |   |

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| Type       |   | % of Portfolio |   |
|------------|--------|----------------|--------|
| Variable   |   |           | 25     | % |
| Adjustable |   |           | 44     | % |
| Fixed      |   |           | 31     | % |
|       |   |           | 100    | % |

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

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|             | CASCADE FINANCIAL CORPORATION                                                                                                                     |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                                              |
| November 6, 2009 | /s/ Carol K. Nelson                                                                                                                               |
|             | By:     Carol K. Nelson,President and Chief Executive Officer(Principal Executive Officer)                               |
|             |                                                                                                                                              |
| November 6, 2009 | /s/ Lars H. Johnson                                                                                                                               |
|             | By:     Lars H. Johnson,Executive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |

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