----

----

|   |  Washington                                      |        91-1725825 |   |
|--------|----------------------------------------------------------------------|------------------------------------------------------|--------|
|   |  (State or other jurisdiction of incorporation or organization) |  (I.R.S. Employer Identification Number)        |   |
|   |                                                                 |                                                 |   |

|  Large accelerated filer [   ]   |  Accelerated filer [X]    |       Non-Accelerated filer [   ] |  Smaller reporting company [   ] |
|----------------------------------------------------------------|-----------------------------------------------|--------------------------------------------------------------------------------|------------------------------------------------------|

----

| PART I - FINANCIAL INFORMATION |
|--------------------------------|
|                           |   |   |   |   |   | Page |
| Item 1.                        |   | Financial Statements |   |   |
|                           |   |   | Condensed Consolidated Statements of Financial Condition (unaudited) |   |   |
|                           |   |   |   | March 31, 2011 and December 31, 2010 |   |   1 |
|                           |   |   |   |   |   |   |
|                           |   |   | Condensed Consolidated Statements of Income (unaudited) |   |   |
|                           |   |   |   | Three Months Ended March 31, 2011 and 2010 |   |   2 |
|                           |   |   |   |   |   |   |
|                           |   |   | Condensed Consolidated Statements of Shareholders' Equity and Comprehensive |   |   |
|                           |   |   |   | Income (unaudited) Three Months Ended March 31, 2011 and 2010 |   |   3 |
|                           |   |   |   |   |   |   |
|                           |   |   | Condensed Consolidated Statements of Cash Flows (unaudited) |   |   |
|                           |   |   |   | Three Months Ended March 31, 2011 and 2010       |   |   4 |
|                           |   |   |   |   |   |   |
|                           |   |   | Notes to Condensed Consolidated Financial Statements |   |   6 |
|                           |   |   |   |   |   |   |
| Item 2.                        |   | Management's Discussion and Analysis of Financial Condition and Results of Operations |   36 |
|                           |   |   |   |   |   |   |
| Item 3.                        |   | Quantitative and Qualitative Disclosures about Market Risk |   |   56 |
|                           |   |   |   |   |   |   |
| Item 4.                        |   | Controls and Procedures |   |   56 |
|                           |   |   |   |   |   |   |
| PART II - OTHER INFORMATION    |
|                           |   |   |   |   |   |   |
| Item 1.                        |   | Legal Proceedings |   |   57 |
|                           |   |   |   |   |   |   |
| Item 1A.                       |   | Risk Factors |   |   57 |
|                           |   |   |   |   |   |   |
| Item 2.                        |   | Unregistered Sales of Equity Securities and Use of Proceeds |   |   57 |
|                           |   |   |   |   |   |   |
| Item 3.                        |   | Defaults Upon Senior Securities |   |   57 |
|                           |   |   |   |   |   |   |
| Item 4.                        |   | (Removed and Reserved) |   |   57 |
|                           |   |   |   |   |   |   |
| Item 5.                        |   | Other Information |   |   57 |
|                           |   |   |   |   |   |   |
| Item 6.                        |   | Exhibits |   |   58 |
|                           |   |   |   |   |   |   |
|                           |   | Signatures |   |   59 |

----

Table of Contents

WASHINGTON BANKING COMPANY AND SUBSIDIARY

|                                                                     |   | March 31, |      |   | December 31, |   |
|--------------------------------------------------------------------------|--------|-----------|-----------|--------|--------------|--------|
|                                                                     |   | 2011      |      |   | 2010         |   |
| Assets                                                                   |   |      |      |   |         |   |
| Cash and due from banks                                                  |   | $         | 24,349    |   |         | $      | 19,766 |   |
| ($5,274 and $2,748, respectively, are restricted)                        |   |      |      |   |         |   |   |   |
| Interest-bearing deposits                                                |   |      | 102,237   |   |         |   | 61,186 |   |
| Federal funds sold                                                       |   |      | 1,100     |   |         |   | 735 |   |
| Total cash, restricted cash and cash equivalents                         |   |      | 127,686   |   |         |   | 81,687 |   |
| Investment securities available for sale, at fair value                  |   |      | 183,378   |   |         |   | 199,556 |   |
| Federal Home Loan Bank stock                                             |   |      | 7,576     |   |         |   | 7,576 |   |
| Loans held for sale                                                      |   |      | 3,455     |   |         |   | 10,976 |   |
| Non-covered loans, net of allowance for loan losses                      |   |      | 807,498   |   |         |   | 815,481 |   |
| Covered loans, net of allowance for loan losses                          |   |      | 340,290   |   |         |   | 364,817 |   |
| Total loans, net of allowances for loan losses                           |   |      | 1,147,788 |   |         |   | 1,180,298 |   |
| Premises and equipment, net                                              |   |      | 37,715    |   |         |   | 37,847 |   |
| Bank owned life insurance                                                |   |      | 17,282    |   |         |   | 17,202 |   |
| Goodwill and other intangible assets, net                                |   |      | 7,383     |   |         |   | 7,540 |   |
| Non-covered other real estate owned                                      |   |      | 4,845     |   |         |   | 4,122 |   |
| Covered other real estate owned                                          |   |      | 28,826    |   |         |   | 29,766 |   |
| FDIC indemnification asset                                               |   |      | 96,863    |   |         |   | 107,896 |   |
| Other assets                                                             |   |      | 20,590    |   |         |   | 20,021 |   |
| Total assets                                                             |   | $         | 1,683,387 |   |         | $      | 1,704,487 |   |
| Liabilities and Shareholders' Equity                                     |   |      |      |   |         |   |   |   |
| Liabilities:                                                             |   |      |      |   |         |   |   |   |
| Deposits                                                                 |   |      |      |   |         |   |   |   |
| Noninterest-bearing demand                                               |   | $         | 188,583   |   |         | $      | 184,098 |   |
| Interest-bearing                                                         |   |      | 1,305,930 |   |         |   | 1,308,122 |   |
| Total deposits                                                           |   |      | 1,494,513 |   |         |   | 1,492,220 |   |
|                                                                     |   |      |      |   |         |   |   |   |
| Junior subordinated debentures                                           |   |      | 25,774    |   |         |   | 25,774 |   |
| Other liabilities                                                        |   |      | 5,975     |   |         |   | 4,847 |   |
| Total liabilities                                                        |   |      | 1,526,262 |   |         |   | 1,522,841 |   |
| Commitments and contingencies (See Note 14)                              |   |      |      |   |         |   |   |   |
| Shareholders' Equity:                                                    |   |      |      |   |         |   |   |   |
| Preferred stock, no par value; 26,380 shares authorized                  |   |      |      |   |         |   |   |   |
| Series A (liquidiation preference $1,000 per share); no shares issued    |   |      |      |   |         |   |   |   |
| and outstanding at March 31, 2011 and 26,380 at December 31, 2010        |   |      | -         |   |         |   | 25,334 |   |
| Common stock, no par value; 35,000,000 shares authorized; 15,333,073 and |   |      |      |   |         |   |   |   |
| 15,321,277 shares issued and outstanding at March 31, 2011 and           |   |      |      |   |         |   |   |   |
| December 31, 2010, respectively                                          |   |      | 83,869    |   |         |   | 85,264 |   |
| Retained earnings                                                        |   |      | 73,533    |   |         |   | 71,307 |   |
| Accumulated other comprehensive loss                                     |   |      | (277      | )      |         |   | (259 | ) |
| Total shareholders' equity                                               |   |      | 157,125   |   |         |   | 181,646 |   |
| Total liabilities and shareholders' equity                               |   | $         | 1,683,387 |   |         | $      | 1,704,487 |   |

----

Table of Contents

|                                                 |   | Three Months Ended |       |
|------------------------------------------------------|--------|--------------------|------------|
|                                                 |   | March 31,          |       |
|                                                 |   | 2011               |       |   | 2010 |   |
| Interest income:                                     |   |               |       |   |   |   |
| Interest and fees on non-covered loans               |   | $                  | 12,640     |   |   | $ | 13,085 |   |
| Interest and fees on covered loans                   |   |               | 8,310      |   |   |   | - |   |
| Interest on taxable investment securities            |   |               | 793        |   |   |   | 413 |   |
| Interest on tax-exempt investment securities         |   |               | 210        |   |   |   | 158 |   |
| Other                                                |   |               | 45         |   |   |   | 36 |   |
| Total interest income                                |   |               | 21,998     |   |   |   | 13,692 |   |
| Interest expense:                                    |   |               |       |   |   |   |   |   |
| Interest on deposits                                 |   |               | 2,591      |   |   |   | 2,503 |   |
| Interest on other borrowed funds                     |   |               | -          |   |   |   | 91 |   |
| Interest on junior subordinated debentures           |   |               | 120        |   |   |   | 117 |   |
| Total interest expense                               |   |               | 2,711      |   |   |   | 2,711 |   |
| Net interest income                                  |   |               | 19,287     |   |   |   | 10,981 |   |
| Provision for loan losses, non-covered loans         |   |               | 3,000      |   |   |   | 2,150 |   |
| Net interest income after provision for loan losses  |   |               | 16,287     |   |   |   | 8,831 |   |
| Noninterest income:                                  |   |               |       |   |   |   |   |   |
| Service charges and fees                             |   |               | 993        |   |   |   | 735 |   |
| Electronic banking income                            |   |               | 556        |   |   |   | 367 |   |
| Investment products                                  |   |               | 222        |   |   |   | 50 |   |
| Bank owned life insurance income                     |   |               | 80         |   |   |   | 82 |   |
| Income from the sale of mortgage loans               |   |               | 338        |   |   |   | 141 |   |
| SBA premium income                                   |   |               | 121        |   |   |   | 46 |   |
| Change in FDIC indemnification asset                 |   |               | (1,316     | ) |   |   | - |   |
| Gain on disposition of covered assets                |   |               | 2,218      |   |   |   | - |   |
| Other                                                |   |               | 520        |   |   |   | 322 |   |
| Total noninterest income                             |   |               | 3,732      |   |   |   | 1,743 |   |
| Noninterest expense:                                 |   |               |       |   |   |   |   |   |
| Salaries and benefits                                |   |               | 6,819      |   |   |   | 4,329 |   |
| Occupancy and equipment                              |   |               | 1,667      |   |   |   | 1,027 |   |
| Office supplies and printing                         |   |               | 330        |   |   |   | 210 |   |
| Data processing                                      |   |               | 470        |   |   |   | 211 |   |
| Consulting and professional fees                     |   |               | 444        |   |   |   | 268 |   |
| Intangible amortization                              |   |               | 157        |   |   |   | - |   |
| Merger related expenses                              |   |               | 119        |   |   |   | - |   |
| FDIC premiums                                        |   |               | 589        |   |   |   | 252 |   |
| Non-covered OREO and repossession expenses           |   |               | 300        |   |   |   | 193 |   |
| Covered OREO and repossession expenses               |   |               | 770        |   |   |   | - |   |
| Other                                                |   |               | 2,391      |   |   |   | 1,285 |   |
| Total noninterest expense                            |   |               | 14,056     |   |   |   | 7,775 |   |
| Income before provision for income taxes             |   |               | 5,963      |   |   |   | 2,799 |   |
| Provision for income taxes                           |   |               | 1,887      |   |   |   | 804 |   |
| Net income before preferred dividends                |   |               | 4,076      |   |   |   | 1,995 |   |
| Preferred stock dividends and discount accretion     |   |               | 1,084      |   |   |   | 414 |   |
| Net income available to common shareholders          |   | $                  | 2,992      |   |   | $ | 1,581 |   |
| Net income available per common share, basis         |   | $                  | 0.20       |   |   | $ | 0.10 |   |
| Net income available per common share, diluted       |   | $                  | 0.19       |   |   | $ | 0.10 |   |
| Average number of common shares outstanding, basis   |   |               | 15,329,000 |   |   |   | 15,297,000 |   |
| Average number of common shares outstanding, diluted |   |               | 15,467,000 |   |   |   | 15,430,000 |   |

----

Table of Contents

|                                          |   |      |    |   |         |   |   |     |   |   |          |   |   | Accumulated   |   |   |   |   |
|-----------------------------------------------|--------|-----------|---------|--------|--------------|--------|--------|----------|--------|--------|---------------|--------|--------|---------------|--------|--------|--------|--------|
|                                          |   | Preferred |    |   |         |   |   |     |   |   |          |   |   | other         |   |   | Total  |   |
|                                          |   | stock     |    |   | Common stock |   |   | Retained |   |   | comprehensive |   |   | shareholders' |   |
|                                          |   | amount    |    |   | Shares       |   |   | Amount   |   |   | earnings      |   |   | income (loss) |   |   | equity |   |
| Balance at December 31, 2009                  |   | $         | 24,995  |   |         |   | 15,298 |     |   | $      | 84,814        |   |   | $             | 49,463 |   |   | $      | 249 |   |   | $ | 159,521 |   |
| Comprehensive income:                         |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Net income                                    |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | 1,995  |   |   |   | - |   |   |   | 1,995 |   |
| Net change in unrealized gain                 |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| (net of tax expense of $168)                  |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | -      |   |   |   | 307 |   |   |   | 307 |   |
| Total comprehensive income                    |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   | 2,302 |   |
| Preferred stock dividend and accretion        |   |      | 85      |   |         |   | -      |     |   |   | -             |   |   |          | (414   | )      |   |   | - |   |   |   | (329 | ) |
| Cash dividends on common stock,               |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| $0.025 per share                              |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | (382   | )      |   |   | - |   |   |   | (382 | ) |
| Stock-based compensation expense              |   |      | -       |   |         |   | -      |     |   |   | 77            |   |   |          | -      |   |   |   | - |   |   |   | 77 |   |
| Issuance of common stock under stock plans    |   |      | -       |   |         |   | 5      |     |   |   | 3             |   |   |          | -      |   |   |   | - |   |   |   | 3 |   |
| Balance at March 31, 2010                     |   | $         | 25,080  |   |         |   | 15,303 |     |   | $      | 84,894        |   |   | $             | 50,662 |   |   | $      | 556 |   |   | $ | 161,192 |   |
|                                          |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Balance at December 31, 2010                  |   | $         | 25,334  |   |         |   | 15,321 |     |   | $      | 85,264        |   |   | $             | 71,307 |   |   | $      | (259 | ) |   | $ | 181,646 |   |
| Comprehensive income:                         |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Net income                                    |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | 4,076  |   |   |   | - |   |   |   | 4,076 |   |
| Net change in unrealized gain                 |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| (net of tax expense of $9)                    |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | -      |   |   |   | (18 | ) |   |   | (18 | ) |
| Total comprehensive income                    |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   | 4,058 |   |
| Redemption of preferred stock issued to       |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury                                 |   |      | (26,380 | )      |         |   | -      |     |   |   | -             |   |   |          | -      |   |   |   | - |   |   |   | (26,380 | ) |
| Repurchase of warrant issued to U.S. Treasury |   |      | -       |   |         |   | -      |     |   |   | (1,625        | )      |   |          | -      |   |   |   | - |   |   |   | (1,625 | ) |
| Preferred stock dividend and accretion        |   |      | 1,046   |   |         |   | -      |     |   |   | -             |   |   |          | (1,084 | )      |   |   | - |   |   |   | (38 | ) |
| Cash dividends on common stock,               |   |      |    |   |         |   |   |     |   |   |          |   |   |          |   |   |   |   |   |   |   |   |   |   |
| $0.05 per share                               |   |      | -       |   |         |   | -      |     |   |   | -             |   |   |          | (766   | )      |   |   | - |   |   |   | (766 | ) |
| Stock-based compensation expense              |   |      | -       |   |         |   | -      |     |   |   | 218           |   |   |          | -      |   |   |   | - |   |   |   | 218 |   |
| Issuance of common stock under stock plans    |   |      | -       |   |         |   | 12     |     |   |   | 7             |   |   |          | -      |   |   |   | - |   |   |   | 7 |   |
| Tax benefit associated with stock awards      |   |      | -       |   |         |   | -      |     |   |   | 5             |   |   |          | -      |   |   |   | - |   |   |   | 5 |   |
| Balance at March 31, 2011                     |   | $         | -       |   |         |   | 15,333 |     |   | $      | 83,869        |   |   | $             | 73,533 |   |   | $      | (277 | ) |   | $ | 157,125 |   |

----

Table of Contents

|                                                               |   | Three Months Ended |    |
|--------------------------------------------------------------------|--------|--------------------|---------|
|                                                               |   | March 31,          |    |
|                                                               |   | 2011               |    |   | 2010 |   |
| Cash flows from operating activities:                              |   |               |    |   |   |   |
| Net income                                                         |   | $                  | 4,076   |   |   | $ | 1,995 |   |
| Adjustments to reconcile net income to net cash provided by        |   |               |    |   |   |   |   |   |
| operating activities:                                              |   |               |    |   |   |   |   |   |
| Amortization of investment security discounts, net                 |   |               | 173     |   |   |   | 93 |   |
| Depreciation                                                       |   |               | 493     |   |   |   | 388 |   |
| Intangible amortization                                            |   |               | 157     |   |   |   | - |   |
| Provision for loan losses, non-covered loans                       |   |               | 3,000   |   |   |   | 2,150 |   |
| Earnings on bank owned life insurance                              |   |               | (80     | ) |   |   | (82 | ) |
| Net gain on sale of premises and equipment                         |   |               | (85     | ) |   |   | - |   |
| Net loss on sale of non-covered other real estate owned            |   |               | -       |   |   |   | 7 |   |
| Origination of loans held for sale                                 |   |               | (32,640 | ) |   |   | (17,670 | ) |
| Proceeds from sales of loans held for sale                         |   |               | 40,161  |   |   |   | 17,605 |   |
| Deferred taxes                                                     |   |               | 1,991   |   |   |   | (6 | ) |
| Change in FDIC indemnification asset                               |   |               | 1,316   |   |   |   | - |   |
| Stock-based compensation                                           |   |               | 218     |   |   |   | 77 |   |
| Excess tax benefit from stock-based compensation                   |   |               | (5      | ) |   |   | - |   |
| Net change in assets and liabilities:                              |   |               |    |   |   |   |   |   |
| Net (increase) decrease in other assets                            |   |               | (2,546  | ) |   |   | 67 |   |
| Net increase in other liabilities                                  |   |               | 1,128   |   |   |   | 143 |   |
| Net cash provided by operating activities                          |   |               | 17,357  |   |   |   | 4,767 |   |
|                                                               |   |               |    |   |   |   |   |   |
| Cash flows from investing activities:                              |   |               |    |   |   |   |   |   |
| Purchases of investment securities, available for sale             |   |               | (3,000  | ) |   |   | (21,706 | ) |
| Maturities/calls/principal payments of investment and              |   |               |    |   |   |   |   |   |
| mortgage-backed securities available for sale                      |   |               | 18,978  |   |   |   | 6,703 |   |
| Net decrease (increase) in non-covered loans and covered loans     |   |               | 21,900  |   |   |   | (10,153 | ) |
| Purchases of premises and equipment                                |   |               | (770    | ) |   |   | (565 | ) |
| Proceeds from the sale of premises and equipment                   |   |               | 494     |   |   |   | - |   |
| Proceeds from sale of non-covered other real estate owned          |   |               | 289     |   |   |   | 213 |   |
| Proceeds from sale of covered other real estate owned              |   |               | 7,611   |   |   |   | - |   |
| Capitalization of non-covered other real estate owned improvements |   |               | -       |   |   |   | (118 | ) |
| Capitalization of covered other real estate owned improvements     |   |               | (73     | ) |   |   | - |   |
| Net proceeds from FDIC indemnification asset                       |   |               | 9,717   |   |   |   | - |   |
| Net cash provided by (used in) investing activities                |   | $                  | 55,146  |   |   | $ | (25,626 | ) |

----

Table of Contents

|                                                                           |   | Three Months Ended |    |
|--------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                           |   | March 31,          |    |
|                                                                           |   | 2011               |    |   | 2010 |   |
| Cash flows from financing activities:                                          |   |               |    |   |   |   |
| Net increase (decrease) in deposits                                            |   | $                  | 2,293   |   |   | $ | (1,031 | ) |
| Redemption of preferred stock                                                  |   |               | (26,380 | ) |   |   | - |   |
| Repurchase of common stock warrant                                             |   |               | (1,625  | ) |   |   | - |   |
| Proceeds from exercise of stock options                                        |   |               | 7       |   |   |   | 3 |   |
| Excess tax benefits from stock-based compensation                              |   |               | 5       |   |   |   | - |   |
| Dividends paid on preferred stock                                              |   |               | (38     | ) |   |   | (329 | ) |
| Dividends paid on common stock                                                 |   |               | (766    | ) |   |   | (382 | ) |
| Net cash used in financing activities                                          |   |               | (26,504 | ) |   |   | (1,739 | ) |
|                                                                           |   |               |    |   |   |   |   |   |
| Net change in cash and cash equivalents                                        |   |               | 45,999  |   |   |   | (22,598 | ) |
| Cash and cash equivalents at beginning of period                               |   |               | 81,687  |   |   |   | 101,841 |   |
| Cash and cash equivalents at end of period                                     |   | $                  | 127,686 |   |   | $ | 79,243 |   |
|                                                                           |   |               |    |   |   |   |   |   |
| Supplemental disclosures of cash flow information:                             |   |               |    |   |   |   |   |   |
| Cash paid during the period for:                                               |   |               |    |   |   |   |   |   |
| Interest                                                                       |   | $                  | 2,846   |   |   | $ | 2,821 |   |
| Income taxes                                                                   |   | $                  | 1,200   |   |   | $ | 1,100 |   |
|                                                                           |   |               |    |   |   |   |   |   |
| Supplemental disclosures about noncash investing and financing activities:     |   |               |    |   |   |   |   |   |
| Change in fair value of investment securities available for sale, net of taxes |   | $                  | (18     | ) |   | $ | 307 |   |
| Transfer of non-covered loans to non-covered other real estate owned           |   | $                  | 1,012   |   |   | $ | 490 |   |
| Transfer of covered loans to covered other real estate owned                   |   | $                  | 6,598   |   |   | $ | - |   |

----

Table of Contents

(1)  Description of Business and Summary of Significant Accounting Policies

----

Table of Contents

----

Table of Contents

----

Table of Contents

| (dollars in thousands)                                  |   | City Bank      |     |   | North County Bank  |   |
|---------------------------------------------------------|--------|----------------|----------|--------|--------------------|--------|
|                                                    |   | April 16, 2010 |     |   | September 24, 2010 |   |
| Cost basis net assets (liabilities)                     |   | $              | (54,943  | )      |               | $      | 11,217 |   |
| Cash payment received from the FDIC                     |   |           | 99,445   |   |               |   | 46,860 |   |
| Net assets acquired before fair value adjustments       |   |           | 44,502   |   |               |   | 58,077 |   |
|                                                    |   |           |     |   |               |   |   |   |
| Fair value adjustments:                                 |   |           |     |   |               |   |   |   |
| Covered loans                                           |   |           | (126,378 | )      |               |   | (67,360 | ) |
| Covered other real estate owned                         |   |           | (551     | )      |               |   | (6,842 | ) |
| Core deposit intangible                                 |   |           | 3,293    |   |               |   | 50 |   |
| FDIC indemnification asset                              |   |           | 84,393   |   |               |   | 39,000 |   |
| Visa Class B common stock                               |   |           | 2,025    |   |               |   | - |   |
| Other assets                                            |   |           | (597     | )      |               |   | (89 | ) |
| Deposits                                                |   |           | (6,000   | )      |               |   | (956 | ) |
| FHLB advances                                           |   |           | (103     | )      |               |   | - |   |
| Other liabilities                                       |   |           | (3,271   | )      |               |   | (1,955 | ) |
| FDIC equity appreciation instrument                     |   |           | (2,131   | )      |               |   | - |   |
| Pre-tax bargain purchase gain (goodwill) on acquisition |   |           | (4,818   | )      |               |   | 19,925 |   |
| Deferred income tax liability                           |   |           | (51      | )      |               |   | (6,974 | ) |
| Bargain purchase gain (goodwill) on acquisition         |   | $              | (4,869   | )      |               | $      | 12,951 |   |

----

Table of Contents

| (dollars in thousands)                                   |   | City Bank      |    |   | North County Bank  |   |
|----------------------------------------------------------|--------|----------------|---------|--------|--------------------|--------|
|                                                     |   | April 16, 2010 |    |   | September 24, 2010 |   |
| Assets                                                   |   |           |    |   |               |   |
| Cash and due from banks                                  |   | $              | 277,907 |   |               | $      | 66,770 |   |
| Interest-bearing deposits                                |   |           | 2,078   |   |               |   | 4,532 |   |
| Total cash and cash equivalents                          |   |           | 279,985 |   |               |   | 71,302 |   |
|                                                     |   |           |    |   |               |   |   |   |
| Investment securities, available for sale                |   |           | 9,120   |   |               |   | 21,286 |   |
| Covered loans                                            |   |           | 321,581 |   |               |   | 133,136 |   |
| FHLB stock                                               |   |           | 4,744   |   |               |   | 402 |   |
| Goodwill                                                 |   |           | 4,869   |   |               |   | - |   |
| Core deposit intangible                                  |   |           | 3,293   |   |               |   | 50 |   |
| Covered other real estate owned                          |   |           | 5,798   |   |               |   | 12,412 |   |
| FDIC indemnification asset                               |   |           | 84,393  |   |               |   | 39,000 |   |
| Other assets                                             |   |           | 4,236   |   |               |   | 2,695 |   |
| Total assets acquired                                    |   | $              | 718,019 |   |               | $      | 280,283 |   |
|                                                     |   |           |    |   |               |   |   |   |
| Liabilities                                              |   |           |    |   |               |   |   |   |
| Deposits                                                 |   | $              | 650,104 |   |               | $      | 257,845 |   |
| FHLB advances                                            |   |           | 50,152  |   |               |   | - |   |
| Other liabilities                                        |   |           | 17,763  |   |               |   | 9,487 |   |
| Total liabilities assumed                                |   |           | 718,019 |   |               |   | 267,332 |   |
| Net assets acquired/bargain purchase gain on acquisition |   |           | -       |   |               |   | 12,951 |   |
| Total liabilities assumed and net assets acquired        |   | $              | 718,019 |   |               | $      | 280,283 |   |

----

Table of Contents

| (dollars in thousands)                         |   | March 31, 2011 |    |
|------------------------------------------------|--------|----------------|---------|
|                                           |   | Amortized cost |    |   | Unrealized gains |   |   | Unrealized losses |   |   | Fair value |   |
| U.S. government agencies                       |   | $              | 87,123  |   |   | $ | 497 |   |   | $ | (914 | ) |   | $ | 86,706 |   |
| U.S. Treasuries                                |   |           | 54,151  |   |   |   | 422 |   |   |   | (95 | ) |   |   | 54,478 |   |
| Pass-through securities                        |   |           | 1,108   |   |   |   | 17 |   |   |   | - |   |   |   | 1,125 |   |
| Taxable state and political subdivisions       |   |           | 6,085   |   |   |   | 14 |   |   |   | (277 | ) |   |   | 5,822 |   |
| Tax exempt state and political subdivisions    |   |           | 22,284  |   |   |   | 775 |   |   |   | (163 | ) |   |   | 22,896 |   |
| Corporate obligations                          |   |           | 9,001   |   |   |   | 19 |   |   |   | (45 | ) |   |   | 8,975 |   |
| Investments in mutual funds and other equities |   |           | 4,044   |   |   |   | - |   |   |   | (668 | ) |   |   | 3,376 |   |
| Total investment securities available for sale |   | $              | 183,796 |   |   | $ | 1,744 |   |   | $ | (2,162 | ) |   | $ | 183,378 |   |

| (dollars in thousands)                         |   | December 31, 2010 |    |
|------------------------------------------------|--------|-------------------|---------|
|                                           |   | Amortized cost    |    |   | Unrealized gains |   |   | Unrealized losses |   |   | Fair value |   |
| U.S. government agencies                       |   | $                 | 103,109 |   |   | $ | 695 |   |   | $ | (814 | ) |   | $ | 102,990 |   |
| U.S. Treasuries                                |   |              | 54,175  |   |   |   | 530 |   |   |   | (62 | ) |   |   | 54,643 |   |
| Pass-through securities                        |   |              | 1,216   |   |   |   | 24 |   |   |   | (1 | ) |   |   | 1,239 |   |
| Taxable state and political subdivisions       |   |              | 6,090   |   |   |   | 33 |   |   |   | (356 | ) |   |   | 5,767 |   |
| Tax exempt state and political subdivisions    |   |              | 22,312  |   |   |   | 603 |   |   |   | (304 | ) |   |   | 22,611 |   |
| Corporate obligations                          |   |              | 9,001   |   |   |   | 24 |   |   |   | (51 | ) |   |   | 8,974 |   |
| Investments in mutual funds and other equities |   |              | 4,044   |   |   |   | - |   |   |   | (712 | ) |   |   | 3,332 |   |
| Total investment securities available for sale |   | $                 | 199,947 |   |   | $ | 1,909 |   |   | $ | (2,300 | ) |   | $ | 199,556 |   |

----

Table of Contents

| (dollars in thousands)                         |   | March 31, 2011      |   |
|------------------------------------------------|--------|---------------------|--------|
|                                           |   | Less than 12 Months |   |   | 12 Months or Longer |   |   | Total |   |
|                                           |   | Fair value          |   |   | Unrealized losses |   |   | Fair value |   |   | Unrealized losses |   |   | Fair value |   |   | Unrealized losses |   |
| U.S. government agencies                       |   | $                   | 53,070 |   |   | $ | (914 | ) |   | $ | - |   |   | $ | - |   |   | $ | 53,070 |   |   | $ | (914 | ) |
| U.S. Treasuries                                |   |                | 4,952  |   |   |   | (95 | ) |   |   | - |   |   |   | - |   |   |   | 4,952 |   |   |   | (95 | ) |
| Taxable state and political subdivisions       |   |                | 4,295  |   |   |   | (277 | ) |   |   | - |   |   |   | - |   |   |   | 4,295 |   |   |   | (277 | ) |
| Tax exempt state and political subdivisions    |   |                | 4,429  |   |   |   | (163 | ) |   |   | - |   |   |   | - |   |   |   | 4,429 |   |   |   | (163 | ) |
| Corporate obligations                          |   |                | 2,955  |   |   |   | (45 | ) |   |   | - |   |   |   | - |   |   |   | 2,955 |   |   |   | (45 | ) |
| Investments in mutual funds and other equities |   |                | 4,044  |   |   |   | (668 | ) |   |   | - |   |   |   | - |   |   |   | 4,044 |   |   |   | (668 | ) |
| Total investment securities available for sale |   | $                   | 73,745 |   |   | $ | (2,162 | ) |   | $ | - |   |   | $ | - |   |   | $ | 73,745 |   |   | $ | (2,162 | ) |

| (dollars in thousands)                         |   | December 31, 2010   |   |
|------------------------------------------------|--------|---------------------|--------|
|                                           |   | Less than 12 Months |   |   | 12 Months or Longer |   |   | Total |   |
|                                           |   | Fair value          |   |   | Unrealized losses |   |   | Fair value |   |   | Unrealized losses |   |   | Fair value |   |   | Unrealized losses |   |
| U.S. government agencies                       |   | $                   | 52,196 |   |   | $ | (814 | ) |   | $ | - |   |   | $ | - |   |   | $ | 52,196 |   |   | $ | (814 | ) |
| U.S. Treasuries                                |   |                | 4,988  |   |   |   | (62 | ) |   |   | - |   |   |   | - |   |   |   | 4,988 |   |   |   | (62 | ) |
| Pass-through securities                        |   |                | 200    |   |   |   | (1 | ) |   |   | - |   |   |   | - |   |   |   | 200 |   |   |   | (1 | ) |
| Taxable state and political subdivisions       |   |                | 4,221  |   |   |   | (356 | ) |   |   | - |   |   |   | - |   |   |   | 4,221 |   |   |   | (356 | ) |
| Tax exempt state and political subdivisions    |   |                | 6,004  |   |   |   | (304 | ) |   |   | - |   |   |   | - |   |   |   | 6,004 |   |   |   | (304 | ) |
| Corporate obligations                          |   |                | 7,949  |   |   |   | (51 | ) |   |   | - |   |   |   | - |   |   |   | 7,949 |   |   |   | (51 | ) |
| Investments in mutual funds and other equities |   |                | 4,044  |   |   |   | (712 | ) |   |   | - |   |   |   | - |   |   |   | 4,044 |   |   |   | (712 | ) |
| Total investment securities available for sale |   | $                   | 79,602 |   |   | $ | (2,300 | ) |   | $ | - |   |   | $ | - |   |   | $ | 79,602 |   |   | $ | (2,300 | ) |

| (dollars in thousands)               |   | March 31, 2011 |    |
|--------------------------------------|--------|----------------|---------|
|                                 |   | Amortized      |    |   | Fair |   |
|                                 |   | Cost           |    |   | Value |   |
| Three months or less                 |   | $              | 6,180   |   |   | $ | 6,185 |   |
| Over three months to one year        |   |           | 18,494  |   |   |   | 18,615 |   |
| After one year through three years   |   |           | 51,212  |   |   |   | 51,936 |   |
| After three years through five years |   |           | 75,688  |   |   |   | 75,118 |   |
| After five years through ten years   |   |           | 12,515  |   |   |   | 12,479 |   |
| After ten years                      |   |           | 19,707  |   |   |   | 19,045 |   |
| Total                                |   | $              | 183,796 |   |   | $ | 183,378 |   |

----

Table of Contents

| (dollars in thousands)                                   |   | March 31, 2011 |   |
|----------------------------------------------------------|--------|----------------|--------|
|                                                     |   | Amortized cost |   |   | Fair value |   |
| To state and local governments to secure public deposits |   | $              | 49,612 |   |   | $ | 50,272 |   |
| To Federal Reserve Bank to secure borrowings             |   |           | 27,835 |   |   |   | 27,742 |   |
| To Federal Home Loan Bank to secure borrowings           |   |           | 7,970  |   |   |   | 7,822 |   |
| Other securities pledged, principally to secure deposits |   |           | 12,071 |   |   |   | 12,346 |   |
| Total pledged investment securities                      |   | $              | 97,488 |   |   | $ | 98,182 |   |

| (dollars in thousands)       |   | March 31, 2011 |    |   | December 31, 2010 |   |
|------------------------------|--------|----------------|---------|--------|-------------------|--------|
| Commercial                   |   | $              | 147,436 |   |              | $      | 145,319 |   |
| Real estate mortgage         |   |           | 397,581 |   |              |   | 395,265 |   |
| Real estate construction     |   |           | 107,445 |   |              |   | 115,609 |   |
| Consumer                     |   |           | 172,075 |   |              |   | 175,896 |   |
|                         |   |           | 824,537 |   |              |   | 832,089 |   |
| Deferred loan costs, net     |   |           | 2,199   |   |              |   | 2,204 |   |
| Allowance for loan losses    |   |           | (19,238 | )      |              |   | (18,812 | ) |
| Total non-covered loans, net |   | $              | 807,498 |   |              | $      | 815,481 |   |

----

Table of Contents

| (dollars in thousands) |   | Three Months Ended March 31, 2011 |   |
|------------------------|--------|-----------------------------------|--------|
|                   |   | Commercial                        |   |   | Real estate mortgage |   |   | Real estate construction |   |   | Consumer |   |   | Total |   |
| Beginning balance      |   | $                                 | 3,915  |   |   | $ | 6,507 |   |   | $ | 4,947 |   |   | $ | 3,443 |   |   | $ | 18,812 |   |
| Provision              |   |                              | 1,302  |   |   |   | 558 |   |   |   | 511 |   |   |   | 629 |   |   |   | 3,000 |   |
| Charge-offs            |   |                              | (469   | ) |   |   | (1,285 | ) |   |   | - |   |   |   | (1,145 | ) |   |   | (2,899 | ) |
| Recoveries             |   |                              | 81     |   |   |   | 88 |   |   |   | 1 |   |   |   | 155 |   |   |   | 325 |   |
| Ending Balance         |   | $                                 | 4,829  |   |   | $ | 5,868 |   |   | $ | 5,459 |   |   | $ | 3,082 |   |   | $ | 19,238 |   |

| (dollars in thousands) |   | Three Months Ended March 31, 2010 |   |
|------------------------|--------|-----------------------------------|--------|
|                   |   | Commercial                        |   |   | Real estate mortgage |   |   | Real estate construction |   |   | Consumer |   |   | Total |   |
| Beginning balance      |   | $                                 | 1,515  |   |   | $ | 8,060 |   |   | $ | 2,330 |   |   | $ | 4,307 |   |   | $ | 16,212 |   |
| Provision              |   |                              | 1,126  |   |   |   | 214 |   |   |   | 533 |   |   |   | 277 |   |   |   | 2,150 |   |
| Charge-offs            |   |                              | (542   | ) |   |   | (470 | ) |   |   | (675 | ) |   |   | (633 | ) |   |   | (2,320 | ) |
| Recoveries             |   |                              | 72     |   |   |   | 2 |   |   |   | 101 |   |   |   | 247 |   |   |   | 422 |   |
| Ending Balance         |   | $                                 | 2,171  |   |   | $ | 7,806 |   |   | $ | 2,289 |   |   | $ | 4,198 |   |   | $ | 16,464 |   |

----

Table of Contents

| (dollars in thousands)                                                    |   | March 31, 2011 |    |
|---------------------------------------------------------------------------|--------|----------------|---------|
|                                                                      |   | Commercial     |    |   | Real estate mortgage |   |   | Real estate construction |   |   | Consumer |   |   | Total |   |
| Allowance for loan losses:                                                |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment                                     |   | $              | 1,182   |   |   | $ | 113 |   |   | $ | 2,039 |   |   | $ | - |   |   | $ | 3,334 |   |
| Collectively evaluated for impairment                                     |   |           | 3,647   |   |   |   | 5,755 |   |   |   | 3,420 |   |   |   | 3,082 |   |   |   | 15,904 |   |
| Total allowance for loan losses                                           |   | $              | 4,829   |   |   | $ | 5,868 |   |   | $ | 5,459 |   |   | $ | 3,082 |   |   | $ | 19,238 |   |
|                                                                      |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered loans                                                         |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment                                     |   | $              | 5,059   |   |   | $ | 14,009 |   |   | $ | 29,866 |   |   | $ | 240 |   |   | $ | 49,174 |   |
| Collectively evaluated for impairment                                     |   |           | 142,377 |   |   |   | 383,572 |   |   |   | 77,579 |   |   |   | 171,835 |   |   |   | 775,363 |   |
| Total non-covered loans (1)                                               |   | $              | 147,436 |   |   | $ | 397,581 |   |   | $ | 107,445 |   |   | $ | 172,075 |   |   | $ | 824,537 |   |
|                                                                      |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Total non-covered loans excludes deferred loan costs of $2.2 million. |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (dollars in thousands)                                                    |   | December 31, 2010 |    |
|---------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                      |   | Commercial        |    |   | Real estate mortgage |   |   | Real estate construction |   |   | Consumer |   |   | Total |   |
| Allowance for loan losses:                                                |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment                                     |   | $                 | 898     |   |   | $ | 345 |   |   | $ | 1,100 |   |   | $ | - |   |   | $ | 2,343 |   |
| Collectively evaluated for impairment                                     |   |              | 3,017   |   |   |   | 6,162 |   |   |   | 3,847 |   |   |   | 3,443 |   |   |   | 16,469 |   |
| Total allowance for loan losses                                           |   | $                 | 3,915   |   |   | $ | 6,507 |   |   | $ | 4,947 |   |   | $ | 3,443 |   |   | $ | 18,812 |   |
|                                                                      |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered loans                                                         |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment                                     |   | $                 | 3,422   |   |   | $ | 11,625 |   |   | $ | 30,617 |   |   | $ | 118 |   |   | $ | 45,782 |   |
| Collectively evaluated for impairment                                     |   |              | 141,897 |   |   |   | 383,640 |   |   |   | 84,992 |   |   |   | 175,778 |   |   |   | 786,307 |   |
| Total non-covered loans (1)                                               |   | $                 | 145,319 |   |   | $ | 395,265 |   |   | $ | 115,609 |   |   | $ | 175,896 |   |   | $ | 832,089 |   |
|                                                                      |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Total non-covered loans excludes deferred loan costs of $2.2 million. |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

| (dollars in thousands)             |   | March 31, 2011      |   |   | December 31, 2010 |   |
|------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                               |   | Recorded Investment |   |   | Allowance         |   |   | Recorded Investment |   |   | Allowance |   |
| With no related allowance recorded |   |                |   |   |              |   |   |   |   |   |   |   |
| Nonaccrual loans                   |   | $                   | 19,482 |   |              | $      | - |   |   | $ | 11,382 |   |   | $ | - |   |
| Restructured loans                 |   |                | 19,654 |   |              |   | - |   |   |   | 19,936 |   |   |   | - |   |
| Total with no related allowance    |   | $                   | 39,136 |   |              | $      | - |   |   | $ | 31,318 |   |   | $ | - |   |
|                               |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| With an allowance recorded         |   |                |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Nonaccrual loans                   |   | $                   | 10,038 |   |              | $      | 3,334 |   |   | $ | 14,464 |   |   | $ | 2,343 |   |
| Total with an allowance recorded   |   |                | 10,038 |   |              |   | 3,334 |   |   |   | 14,464 |   |   |   | 2,343 |   |
| Total                              |   | $                   | 49,174 |   |              | $      | 3,334 |   |   | $ | 45,782 |   |   | $ | 2,343 |   |

----

Table of Contents

| (dollars in thousands)                   |   | March 31, 2011      |   |   | December 31, 2010        |   |
|------------------------------------------|--------|---------------------|--------|--------|--------------------------|--------|
|                                     |   | Recorded Investment |   |   | Unpaid Principal Balance |   |   | Related Allowance |   |   | Recorded Investment |   |   | Unpaid Principal Balance |   |   | Related Allowance |   |
| With no related allowance recorded       |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                               |   | $                   | 2,332  |   |                     | $      | 3,047 |   |   | $ | - |   |   | $ | 1,855 |   |   | $ | 1,858 |   |   | $ | - |   |
| Real estate mortgages:                   |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential           |   |                | 3,089  |   |                     |   | 3,939 |   |   |   | - |   |   |   | 2,700 |   |   |   | 3,400 |   |   |   | - |   |
| Multi-family and commercial              |   |                | 9,869  |   |                     |   | 10,565 |   |   |   | - |   |   |   | 7,036 |   |   |   | 7,163 |   |   |   | - |   |
| Total real estate mortgages              |   |                | 12,958 |   |                     |   | 14,504 |   |   |   | - |   |   |   | 9,736 |   |   |   | 10,563 |   |   |   | - |   |
| Real estate construction:                |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential           |   |                | 23,219 |   |                     |   | 23,909 |   |   |   | - |   |   |   | 19,222 |   |   |   | 19,644 |   |   |   | - |   |
| Multi-family and commercial              |   |                | 387    |   |                     |   | 387 |   |   |   | - |   |   |   | 387 |   |   |   | 387 |   |   |   | - |   |
| Total real estate construction           |   |                | 23,606 |   |                     |   | 24,296 |   |   |   | - |   |   |   | 19,609 |   |   |   | 20,031 |   |   |   | - |   |
| Consumer:                                |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                                 |   |                | -      |   |                     |   | 468 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Direct                                   |   |                | 240    |   |                     |   | 1,096 |   |   |   | - |   |   |   | 118 |   |   |   | 118 |   |   |   | - |   |
| Total consumer                           |   |                | 240    |   |                     |   | 1,564 |   |   |   | - |   |   |   | 118 |   |   |   | 118 |   |   |   | - |   |
| Total with no related allowance recorded |   | $                   | 39,136 |   |                     | $      | 43,411 |   |   | $ | - |   |   | $ | 31,318 |   |   | $ | 32,570 |   |   | $ | - |   |
|                                     |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| With an allowance recorded               |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                               |   | $                   | 2,727  |   |                     | $      | 2,958 |   |   | $ | 1,182 |   |   | $ | 1,567 |   |   | $ | 1,567 |   |   | $ | 898 |   |
| Real estate mortgages:                   |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential           |   |                | 189    |   |                     |   | 190 |   |   |   | 31 |   |   |   | 1,180 |   |   |   | 1,188 |   |   |   | 207 |   |
| Multi-family and commercial              |   |                | 862    |   |                     |   | 876 |   |   |   | 82 |   |   |   | 709 |   |   |   | 1,036 |   |   |   | 138 |   |
| Total real estate mortgages              |   |                | 1,051  |   |                     |   | 1,066 |   |   |   | 113 |   |   |   | 1,889 |   |   |   | 2,224 |   |   |   | 345 |   |
| Real estate construction:                |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential           |   |                | 6,260  |   |                     |   | 6,874 |   |   |   | 2,039 |   |   |   | 11,008 |   |   |   | 11,166 |   |   |   | 1,100 |   |
| Multi-family and commercial              |   |                | -      |   |                     |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total real estate construction           |   |                | 6,260  |   |                     |   | 6,874 |   |   |   | 2,039 |   |   |   | 11,008 |   |   |   | 11,166 |   |   |   | 1,100 |   |
| Consumer:                                |   |                |   |   |                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                                 |   |                | -      |   |                     |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Direct                                   |   |                | -      |   |                     |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total consumer                           |   |                | -      |   |                     |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total with an allowance recorded         |   |                | 10,038 |   |                     |   | 10,898 |   |   |   | 3,334 |   |   |   | 14,464 |   |   |   | 14,957 |   |   |   | 2,343 |   |
| Total impaired non-coverd loans          |   | $                   | 49,174 |   |                     | $      | 54,309 |   |   | $ | 3,334 |   |   | $ | 45,782 |   |   | $ | 47,527 |   |   | $ | 2,343 |   |

----

Table of Contents

| (dollars in thousands)         |   | March 31, 2011        |   |
|--------------------------------|--------|-----------------------|--------|
|                           |   | 30 - 59 Days Past Due |   |   | 60 - 89 Days Past Due |   |   | Greater Than 90 Days and Accruing |   |   | Total Past Due |   |   | Nonaccrual |   |   | Current |   |   | Total Non-Covered Loans |   |
| Commercial                     |   | $                     | 764    |   |   | $ | 907 |   |   | $ | - |   |   | $ | 1,671 |   |   | $ | 4,118 |   |   | $ | 141,647 |   |   | $ | 147,436 |   |
| Real estate mortgages:         |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |                  | 565    |   |   |   | 74 |   |   |   | - |   |   |   | 639 |   |   |   | 3,278 |   |   |   | 42,847 |   |   |   | 46,764 |   |
| Multi-family and commercial    |   |                  | 1,714  |   |   |   | 461 |   |   |   | - |   |   |   | 2,175 |   |   |   | 2,750 |   |   |   | 345,892 |   |   |   | 350,817 |   |
| Total real estate mortgages    |   |                  | 2,279  |   |   |   | 535 |   |   |   | - |   |   |   | 2,814 |   |   |   | 6,028 |   |   |   | 388,739 |   |   |   | 397,581 |   |
|                           |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate construction:      |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 18,747 |   |   |   | 50,130 |   |   |   | 68,877 |   |
| Multi-family and commercial    |   |                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 387 |   |   |   | 38,181 |   |   |   | 38,568 |   |
| Total real estate construction |   |                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 19,134 |   |   |   | 88,311 |   |   |   | 107,445 |   |
|                           |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer:                      |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                       |   |                  | 1,185  |   |   |   | 197 |   |   |   | - |   |   |   | 1,382 |   |   |   | - |   |   |   | 87,031 |   |   |   | 88,413 |   |
| Direct                         |   |                  | 421    |   |   |   | 352 |   |   |   | - |   |   |   | 773 |   |   |   | 240 |   |   |   | 82,649 |   |   |   | 83,662 |   |
| Total consumer                 |   |                  | 1,606  |   |   |   | 549 |   |   |   | - |   |   |   | 2,155 |   |   |   | 240 |   |   |   | 169,680 |   |   |   | 172,075 |   |
| Total                          |   | $                     | 4,649  |   |   | $ | 1,991 |   |   | $ | - |   |   | $ | 6,640 |   |   | $ | 29,520 |   |   | $ | 788,377 |   |   |   | 824,537 |   |
| Deferred loan costs, net       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,199 |   |
| Total non-covered loans        |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 826,736 |   |

| (dollars in thousands)         |   | December 31, 2010     |   |
|--------------------------------|--------|-----------------------|--------|
|                           |   | 30 - 59 Days Past Due |   |   | 60 - 89 Days Past Due |   |   | Greater Than 90 Days and Accruing |   |   | Total Past Due |   |   | Nonaccrual |   |   | Current |   |   | Total Non-Covered Loans |   |
| Commercial                     |   | $                     | 1,010  |   |   | $ | 461 |   |   | $ | - |   |   | $ | 1,471 |   |   | $ | 3,304 |   |   | $ | 140,544 |   |   | $ | 145,319 |   |
| Real estate mortgages:         |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |                  | 928    |   |   |   | 32 |   |   |   | - |   |   |   | 960 |   |   |   | 3,880 |   |   |   | 41,877 |   |   |   | 46,717 |   |
| Multi-family and commercial    |   |                  | -      |   |   |   | 1,799 |   |   |   | - |   |   |   | 1,799 |   |   |   | 3,134 |   |   |   | 343,615 |   |   |   | 348,548 |   |
| Total real estate mortgages    |   |                  | 928    |   |   |   | 1,831 |   |   |   | - |   |   |   | 2,759 |   |   |   | 7,014 |   |   |   | 385,492 |   |   |   | 395,265 |   |
|                           |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate construction:      |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |                  | 2,034  |   |   |   | 2,656 |   |   |   | - |   |   |   | 4,690 |   |   |   | 15,023 |   |   |   | 53,232 |   |   |   | 72,945 |   |
| Multi-family and commercial    |   |                  | -      |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 387 |   |   |   | 42,277 |   |   |   | 42,664 |   |
| Total real estate construction |   |                  | 2,034  |   |   |   | 2,656 |   |   |   | - |   |   |   | 4,690 |   |   |   | 15,410 |   |   |   | 95,509 |   |   |   | 115,609 |   |
|                           |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer:                      |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                       |   |                  | 1,159  |   |   |   | 259 |   |   |   | 34 |   |   |   | 1,452 |   |   |   | - |   |   |   | 88,779 |   |   |   | 90,231 |   |
| Direct                         |   |                  | 1,214  |   |   |   | 271 |   |   |   | 10 |   |   |   | 1,495 |   |   |   | 118 |   |   |   | 84,052 |   |   |   | 85,665 |   |
| Total consumer                 |   |                  | 2,373  |   |   |   | 530 |   |   |   | 44 |   |   |   | 2,947 |   |   |   | 118 |   |   |   | 172,831 |   |   |   | 175,896 |   |
| Total                          |   | $                     | 6,345  |   |   | $ | 5,478 |   |   | $ | 44 |   |   | $ | 11,867 |   |   | $ | 25,846 |   |   | $ | 794,376 |   |   |   | 832,089 |   |
| Deferred loan costs, net       |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,204 |   |
| Total non-covered loans        |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 834,293 |   |

----

Table of Contents

----

Table of Contents

| (dollars in thousands)         |   | March 31, 2011 |    |
|--------------------------------|--------|----------------|---------|
|                           |   | Pass/Watch     |    |   | Special Mention |   |   | Substandard |   |   | Doubtful/Loss |   |   | Total |   |
| Commercial                     |   | $              | 113,200 |   |   | $ | 7,101 |   |   | $ | 27,135 |   |   | $ | - |   |   | $ | 147,436 |   |
| Real estate mortgages:         |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |           | 37,527  |   |   |   | 2,176 |   |   |   | 7,061 |   |   |   | - |   |   |   | 46,764 |   |
| Multi-family and commercial    |   |           | 285,416 |   |   |   | 24,553 |   |   |   | 40,848 |   |   |   | - |   |   |   | 350,817 |   |
| Total real estate mortgages    |   |           | 322,943 |   |   |   | 26,729 |   |   |   | 47,909 |   |   |   | - |   |   |   | 397,581 |   |
|                           |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate construction:      |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |           | 23,014  |   |   |   | 5,861 |   |   |   | 40,002 |   |   |   | - |   |   |   | 68,877 |   |
| Multi-family and commercial    |   |           | 28,126  |   |   |   | 9,713 |   |   |   | 729 |   |   |   | - |   |   |   | 38,568 |   |
| Total real estate construction |   |           | 51,140  |   |   |   | 15,574 |   |   |   | 40,731 |   |   |   | - |   |   |   | 107,445 |   |
|                           |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer:                      |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                       |   |           | 85,890  |   |   |   | 15 |   |   |   | 2,508 |   |   |   | - |   |   |   | 88,413 |   |
| Direct                         |   |           | 77,292  |   |   |   | 1,255 |   |   |   | 5,115 |   |   |   | - |   |   |   | 83,662 |   |
| Total consumer                 |   |           | 163,182 |   |   |   | 1,270 |   |   |   | 7,623 |   |   |   | - |   |   |   | 172,075 |   |
| Total                          |   | $              | 650,465 |   |   | $ | 50,674 |   |   | $ | 123,398 |   |   | $ | - |   |   |   | 824,537 |   |
| Deferred loan costs, net       |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,199 |   |
|                           |   |           |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 826,736 |   |

| (dollars in thousands)         |   | December 31, 2010 |    |
|--------------------------------|--------|-------------------|---------|
|                           |   | Pass/Watch        |    |   | Special Mention |   |   | Substandard |   |   | Doubtful/Loss |   |   | Total |   |
| Commercial                     |   | $                 | 112,145 |   |   | $ | 6,265 |   |   | $ | 26,909 |   |   | $ | - |   |   | $ | 145,319 |   |
| Real estate mortgages:         |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |              | 36,626  |   |   |   | 1,788 |   |   |   | 8,303 |   |   |   | - |   |   |   | 46,717 |   |
| Multi-family and commercial    |   |              | 283,790 |   |   |   | 24,617 |   |   |   | 40,141 |   |   |   | - |   |   |   | 348,548 |   |
| Total real estate mortgages    |   |              | 320,416 |   |   |   | 26,405 |   |   |   | 48,444 |   |   |   | - |   |   |   | 395,265 |   |
|                           |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real estate construction:      |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |              | 27,485  |   |   |   | 3,860 |   |   |   | 41,600 |   |   |   | - |   |   |   | 72,945 |   |
| Multi-family and commercial    |   |              | 32,015  |   |   |   | 9,917 |   |   |   | 732 |   |   |   | - |   |   |   | 42,664 |   |
| Total real estate construction |   |              | 59,500  |   |   |   | 13,777 |   |   |   | 42,332 |   |   |   | - |   |   |   | 115,609 |   |
|                           |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer:                      |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                       |   |              | 87,679  |   |   |   | 11 |   |   |   | 2,541 |   |   |   | - |   |   |   | 90,231 |   |
| Direct                         |   |              | 78,846  |   |   |   | 1,132 |   |   |   | 5,687 |   |   |   | - |   |   |   | 85,665 |   |
| Total consumer                 |   |              | 166,525 |   |   |   | 1,143 |   |   |   | 8,228 |   |   |   | - |   |   |   | 175,896 |   |
| Total                          |   | $                 | 658,586 |   |   | $ | 47,590 |   |   | $ | 125,913 |   |   | $ | - |   |   |   | 832,089 |   |
| Deferred loan costs, net       |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,204 |   |
|                           |   |              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 834,293 |   |

----

Table of Contents

| (dollars in thousands) |   | City Bank      |     |   | North County Bank  |   |
|------------------------|--------|----------------|----------|--------|--------------------|--------|
|                   |   | April 16, 2010 |     |   | September 24, 2010 |   |
| Gross loans acquired   |   | $              | 447,959  |   |               | $      | 200,496 |   |
| Fair value discount    |   |           | (126,378 | )      |               |   | (67,360 | ) |
| Covered loans, net     |   | $              | 321,581  |   |               | $      | 133,136 |   |

----

Table of Contents

| (dollars in thousands)                  |   | March 31, 2011 |    |
|-----------------------------------------|--------|----------------|---------|
|                                    |   | City Bank      |    |   | North County Bank |   |   | Total |   |
| Commercial                              |   | $              | 21,804  |   |   | $ | 9,944 |   |   | $ | 31,748 |   |
| Real estate mortgages:                  |   |           |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |           | 6,690   |   |   |   | 8,660 |   |   |   | 15,350 |   |
| Multi-family residential and commercial |   |           | 213,907 |   |   |   | 42,692 |   |   |   | 256,599 |   |
| Total real estate mortgages             |   |           | 220,597 |   |   |   | 51,352 |   |   |   | 271,949 |   |
|                                    |   |           |    |   |   |   |   |   |   |   |   |   |
| Real estate construction:               |   |           |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |           | 8,659   |   |   |   | 62,867 |   |   |   | 71,526 |   |
| Multi-family and commercial             |   |           | 39,348  |   |   |   | 27,948 |   |   |   | 67,296 |   |
| Total real estate construction          |   |           | 48,007  |   |   |   | 90,815 |   |   |   | 138,822 |   |
|                                    |   |           |    |   |   |   |   |   |   |   |   |   |
| Consumer - direct                       |   |           | 3,861   |   |   |   | 17,943 |   |   |   | 21,804 |   |
| Subtotal                                |   |           | 294,269 |   |   |   | 170,054 |   |   |   | 464,323 |   |
| Fair value discount                     |   |           | (70,403 | ) |   |   | (52,294 | ) |   |   | (122,697 | ) |
| Total covered loans                     |   |           | 223,866 |   |   |   | 117,760 |   |   |   | 341,626 |   |
| Allowance for loan losses               |   |           | (1,336  | ) |   |   | - |   |   |   | (1,336 | ) |
| Total covered loans, net                |   | $              | 222,530 |   |   | $ | 117,760 |   |   | $ | 340,290 |   |

| (dollars in thousands)                  |   | December 31, 2010 |    |
|-----------------------------------------|--------|-------------------|---------|
|                                    |   | City Bank         |    |   | North County Bank |   |   | Total |   |
| Commercial                              |   | $                 | 22,524  |   |   | $ | 10,313 |   |   | $ | 32,837 |   |
| Real estate mortgages:                  |   |              |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |              | 7,138   |   |   |   | 10,586 |   |   |   | 17,724 |   |
| Multi-family residential and commercial |   |              | 237,510 |   |   |   | 44,524 |   |   |   | 282,034 |   |
| Total real estate mortgages             |   |              | 244,648 |   |   |   | 55,110 |   |   |   | 299,758 |   |
|                                    |   |              |    |   |   |   |   |   |   |   |   |   |
| Real estate construction:               |   |              |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |              | 8,829   |   |   |   | 62,056 |   |   |   | 70,885 |   |
| Multi-family and commercial             |   |              | 42,281  |   |   |   | 36,398 |   |   |   | 78,679 |   |
| Total real estate construction          |   |              | 51,110  |   |   |   | 98,454 |   |   |   | 149,564 |   |
|                                    |   |              |    |   |   |   |   |   |   |   |   |   |
| Consumer - direct                       |   |              | 4,050   |   |   |   | 18,576 |   |   |   | 22,626 |   |
| Subtotal                                |   |              | 322,332 |   |   |   | 182,453 |   |   |   | 504,785 |   |
| Fair value discount                     |   |              | (82,782 | ) |   |   | (55,850 | ) |   |   | (138,632 | ) |
| Total covered loans                     |   |              | 239,550 |   |   |   | 126,603 |   |   |   | 366,153 |   |
| Allowance for loan losses               |   |              | (1,336  | ) |   |   | - |   |   |   | (1,336 | ) |
| Total covered loans, net                |   | $                 | 238,214 |   |   | $ | 126,603 |   |   | $ | 364,817 |   |

----

Table of Contents

| (dollars in thousands)                                |   | City Bank      |     |   | North County Bank  |   |
|-------------------------------------------------------|--------|----------------|----------|--------|--------------------|--------|
|                                                  |   | April 16, 2010 |     |   | September 24, 2010 |   |
| Undiscounted contractual cash flows                   |   | $              | 504,721  |   |               | $      | 225,937 |   |
| Undiscounted cash flows not expected to be collected  |   |           |     |   |               |   |   |   |
| (nonaccretable difference)                            |   |           | (132,419 | )      |               |   | (61,906 | ) |
| Undiscounted cash flows expected to be collected      |   |           | 372,302  |   |               |   | 164,031 |   |
| Accretable yield at acquisition                       |   |           | (50,721  | )      |               |   | (30,895 | ) |
| Estimated fair value of loans acquired at acquisition |   | $              | 321,581  |   |               | $      | 133,136 |   |

| (dollars in thousands)       |   | March 31, 2011 |   |
|------------------------------|--------|----------------|--------|
|                         |   | City Bank      |   |   | North County Bank |   |
| Balance, beginning of period |   | $              | 56,079 |   |   | $ | 27,880 |   |
| Accretion to interest income |   |           | (6,064 | ) |   |   | (2,417 | ) |
| Disposals                    |   |           | (4,211 | ) |   |   | - |   |
| Balance, end of period       |   | $              | 45,804 |   |   | $ | 25,463 |   |

----

Table of Contents

| (dollars in thousands)                             |   | March 31, 2011 |    |   | December 31, 2010 |   |
|----------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| Covered nonaccrual loans                           |   | $              | 94,438  |   |              | $      | 96,182 |   |
| Covered restructured loans                         |   |           | -       |   |              |   | - |   |
| Total covered nonperforming loans                  |   |           | 94,438  |   |              |   | 96,182 |   |
| Covered other real estate owned                    |   |           | 28,826  |   |              |   | 29,766 |   |
| Total covered nonperforming assets                 |   | $              | 123,264 |   |              | $      | 125,948 |   |
|                                               |   |           |    |   |              |   |   |   |
| Total covered impaired loans                       |   | $              | 94,438  |   |              | $      | 96,182 |   |
| Covered accruing loans past due 90                 |   |           |    |   |              |   |   |   |
| days or more                                       |   |           | -       |   |              |   | - |   |
|                                               |   |           |    |   |              |   |   |   |
| Allowance for loan losses                          |   | $              | 1,336   |   |              | $      | 1,336 |   |
|                                               |   |           |    |   |              |   |   |   |
| Covered nonperforming loans to total covered loans |   |           | 27.64   | %      |              |   | 26.27 | % |
| Allowance for loan losses to total covered loans   |   |           | 0.39    | %      |              |   | 0.36 | % |
| Allowance for loan losses to covered               |   |           |    |   |              |   |   |   |
| nonperforming loans                                |   |           | 1.41    | %      |              |   | 1.39 | % |
| Covered nonperforming assets to total assets       |   |           | 7.32    | %      |              |   | 7.39 | % |

| (dollars in thousands)       |   | Three Months Ended |   |
|------------------------------|--------|--------------------|--------|
|                         |   | March 31, 2011     |   |
|                         |   | City Bank          |   |   | North County Bank |   |   | Total |   |
| Balance, beginning of period |   | $                  | 17,906 |   |   | $ | 11,860 |   |   | $ | 29,766 |   |
| Additions to covered OREO    |   |               | 6,008  |   |   |   | 590 |   |   |   | 6,598 |   |
| Capitalized improvements     |   |               | -      |   |   |   | 73 |   |   |   | 73 |   |
| Dispositions of covered OREO |   |               | (6,451 | ) |   |   | (1,160 | ) |   |   | (7,611 | ) |
| Balance, end of period       |   | $                  | 17,463 |   |   | $ | 11,363 |   |   | $ | 28,826 |   |

----

Table of Contents

| (dollars in thousands)               |   | Three Months Ended |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | March 31, 2011     |   |
|                                 |   | City Bank          |   |   | North County Bank |   |   | Total |   |
| Balance, beginning of period         |   | $                  | 68,389 |   |   | $ | 39,507 |   |   | $ | 107,896 |   |
| Change in FDIC indemnification asset |   |               | (1,735 | ) |   |   | 419 |   |   |   | (1,316 | ) |
| Transfers to due from FDIC           |   |               | (4,647 | ) |   |   | (5,070 | ) |   |   | (9,717 | ) |
| Balance, end of period               |   | $                  | 62,007 |   |   | $ | 34,856 |   |   | $ | 96,863 |   |

| (dollars in thousands)       |   | Three Months Ended |   |
|------------------------------|--------|--------------------|--------|
|                         |   | March 31,          |   |
|                         |   | 2011               |   |   | 2010 |   |
| Balance, beginning of period |   | $                  | 4,122  |   |   | $ | 4,549 |   |
| Additions to OREO            |   |               | 1,012  |   |   |   | 490 |   |
| Capitalized improvements     |   |               | -      |   |   |   | 118 |   |
| Dispositions of OREO         |   |               | (289   | ) |   |   | (220 | ) |
| Balance, end of period       |   | $                  | 4,845  |   |   | $ | 4,937 |   |

----

Table of Contents

| (dollars in thousands)                            |   | Three Months Ended |       |
|---------------------------------------------------|--------|--------------------|------------|
|                                              |   | March 31,          |       |
|                                              |   | 2011               |       |   | 2010 |   |
| Income available to common shareholders           |   | $                  | 2,992      |   |   | $ | 1,581 |   |
|                                              |   |               |       |   |   |   |   |   |
| Weighted average number of common shares, basic   |   |               | 15,329,000 |   |   |   | 15,297,000 |   |
| Effect of dilutive stock awards and CPP warrants  |   |               | 138,000    |   |   |   | 133,000 |   |
| Weighted average number of common shares, diluted |   |               | 15,467,000 |   |   |   | 15,430,000 |   |
|                                              |   |               |       |   |   |   |   |   |
| Earnings per common share                         |   |               |       |   |   |   |   |   |
| Basic                                             |   | $                  | 0.20       |   |   | $ | 0.10 |   |
| Diluted                                           |   | $                  | 0.19       |   |   | $ | 0.10 |   |

----

Table of Contents

|                            |   | Shares |    |   | Weighted average exercise price per share |   |   | Weighted average remaining contractual terms (in years) |   |   | Total intrinsic value (in thousands) |   |
|---------------------------------|--------|--------|---------|--------|-------------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|--------------------------------------|--------|
| Outstanding, January 1, 2011    |   |   | 204,622 |   |                                      | $      | 10.08  |                                                    |   |   |                                 |   |   |   |
| Granted                         |   |   | -       |   |                                      |   | -      |                                                    |   |   |                                 |   |   |   |
| Exercised                       |   |   | (917    | )      |                                      |   | 7.85   |                                                    |   |   |                                 |   | $ | 5 |   |
| Forfeited, expired or cancelled |   |   | -       |   |                                      |   | -      |                                                    |   |   |                                 |   |   |   |   |
| Outstanding, March 31, 2011     |   |   | 203,705 |   |                                      |   | 10.09  |                                                    |   |   | 5.71                                 |   |   | $ | 895 |   |
|                            |   |   |    |   |                                      |   |   |                                                    |   |   |                                 |   |   |   |   |   |
| Exercisable at March 31, 2011   |   |   | 148,324 |   |                                      | $      | 9.80   |                                                    |   |   | 5.27                                 |   |   | $ | 692 |   |

|                            |   | Shares |   |   | Weighted average fair value per share |   | Weighted average remaining contractual terms (in years) |
|---------------------------------|--------|--------|--------|--------|---------------------------------------|--------|---------------------------------------------------------|
| Outstanding, January 1, 2011    |   |   | 1,354  |   |                                  | $      | 15.06                                                   |   |   |
| Granted                         |   |   | -      |   |                                  |   | -                                                       |   |   |
| Vested                          |   |   | -      |   |                                  |   | -                                                       |   |   |
| Forfeited, expired or cancelled |   |   | -      |   |                                  |   | -                                                       |   |   |
| Outstanding, March 31, 2011     |   |   | 1,354  |   |                                  | $      | 15.06                                                   |   | 0.12 |

----

Table of Contents

|                            |   | Shares |    |   | Weighted average exercise price per share |   | Weighted average remaining contractual terms (in years) |
|---------------------------------|--------|--------|---------|--------|-------------------------------------------|--------|---------------------------------------------------------|
| Outstanding, January 1, 2011    |   |   | 57,533  |   |                                      | $      | 12.56                                                   |   |   |
| Granted                         |   |   | 500     |   |                                      |   | 13.92                                                   |   |   |
| Vested                          |   |   | (10,929 | )      |                                      |   | 11.94                                                   |   |   |
| Forfeited, expired or cancelled |   |   | -       |   |                                      |   | -                                                       |   |   |
| Outstanding, March 31, 2011     |   |   | 47,104  |   |                                      | $      | 12.72                                                   |   | 3.42 |

----

Table of Contents

----

Table of Contents

| Dividend yield                                |   |   | 5.00  | %      |
|-----------------------------------------------|--------|--------|-------|--------|
| Expected life (years)                         |   |   | 10    |   |
| Expected volatility                           |   |   | 49.56 | %      |
| Risk-free rate                                |   |   | 2.80  | %      |
| Fair value per warrant at grant date          |   | $      | 3.27  |   |
| Relative fair value per warrant at grant date |   | $      | 3.49  |   |

----

Table of Contents

|   | Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drives are observable. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (dollars in thousands)                         |   | Fair Value at March 31, 2011 |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   | Level 1                      |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| U.S. government agencies                       |   | $                            | -      |   |   | $ | 86,706 |   |   | $ | - |   |   | $ | 86,706 |   |
| U.S. Treasuries                                |   |                         | -      |   |   |   | 54,478 |   |   |   | - |   |   |   | 54,478 |   |
| Pass-through securities                        |   |                         | -      |   |   |   | 1,125 |   |   |   | - |   |   |   | 1,125 |   |
| Taxable state and political subdivisions       |   |                         | -      |   |   |   | 5,822 |   |   |   | - |   |   |   | 5,822 |   |
| Tax exempt state and political subdivisions    |   |                         | -      |   |   |   | 22,896 |   |   |   | - |   |   |   | 22,896 |   |
| Corporate obligations                          |   |                         | -      |   |   |   | 8,975 |   |   |   | - |   |   |   | 8,975 |   |
| Investments in mutual funds and other equities |   |                         | -      |   |   |   | 3,376 |   |   |   | - |   |   |   | 3,376 |   |
| Total                                          |   | $                            | -      |   |   | $ | 183,378 |   |   | $ | - |   |   | $ | 183,378 |   |

| (dollars in thousands)                         |   | Fair Value at December 31, 2010 |   |
|------------------------------------------------|--------|---------------------------------|--------|
|                                           |   | Level 1                         |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
| U.S. government agencies                       |   | $                               | -      |   |   | $ | 102,990 |   |   | $ | - |   |   | $ | 102,990 |   |
| U.S. Treasuries                                |   |                            | -      |   |   |   | 54,643 |   |   |   | - |   |   |   | 54,643 |   |
| Pass-through securities                        |   |                            | -      |   |   |   | 1,239 |   |   |   | - |   |   |   | 1,239 |   |
| Taxable state and political subdivisions       |   |                            | -      |   |   |   | 5,767 |   |   |   | - |   |   |   | 5,767 |   |
| Tax exempt state and political subdivisions    |   |                            | -      |   |   |   | 22,611 |   |   |   | - |   |   |   | 22,611 |   |
| Corporate obligations                          |   |                            | -      |   |   |   | 8,974 |   |   |   | - |   |   |   | 8,974 |   |
| Investments in mutual funds and other equities |   |                            | -      |   |   |   | 3,332 |   |   |   | - |   |   |   | 3,332 |   |
| Total                                          |   | $                               | -      |   |   | $ | 199,556 |   |   | $ | - |   |   | $ | 199,556 |   |

----

Table of Contents

| (dollars in thousands)                  |   | Fair Value at March 31, 2011 |   |
|-----------------------------------------|--------|------------------------------|--------|
|                                    |   | Level 1                      |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |   | Total losses for the period |   |
| Non-covered impaired loans (1)          |   | $                            | -      |   |   | $ | - |   |   | $ | 45,840 |   |   | $ | 45,840 |   |   | $ | (5,573 | ) |
| Non-covered other real estate owned (2) |   |                         | -      |   |   |   | - |   |   |   | 4,845 |   |   |   | 4,845 |   |   |   | - |   |
| Covered other real estate owned (2)     |   |                         | -      |   |   |   | - |   |   |   | 28,826 |   |   |   | 28,826 |   |   |   | - |   |
| Total                                   |   | $                            | -      |   |   | $ | - |   |   | $ | 79,511 |   |   | $ | 79,511 |   |   | $ | (5,573 | ) |

| (dollars in thousands)                  |   | Fair Value at December 31, 2010 |   |
|-----------------------------------------|--------|---------------------------------|--------|
|                                    |   | Level 1                         |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |   | Total losses for the period |   |
| Non-covered impaired loans (1)          |   | $                               | -      |   |   | $ | - |   |   | $ | 43,439 |   |   | $ | 43,439 |   |   | $ | (8,269 | ) |
| Non-covered other real estate owned (2) |   |                            | -      |   |   |   | - |   |   |   | 4,122 |   |   |   | 4,122 |   |   |   | (300 | ) |
| Covered other real estate owned (2)     |   |                            | -      |   |   |   | - |   |   |   | 29,766 |   |   |   | 29,766 |   |   |   | (858 | ) |
| Total                                   |   | $                               | -      |   |   | $ | - |   |   | $ | 77,327 |   |   | $ | 77,327 |   |   | $ | (9,427 | ) |

| (1) |   | Represents carrying value and related specific valuation allowances, which are included in the allowance for loan losses.                                                                                                                                 |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents the fair value and related losses of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial classification as non-covered other real estate owned and covered other real estate owned. |

----

Table of Contents

| (dollars in thousands)                   |   | March 31, 2011 |      |   | December 31, 2010    |   |
|------------------------------------------|--------|----------------|-----------|--------|----------------------|--------|
|                                     |   | Carrying value |      |   | Estimated fair value |   |   | Carrying value |   |   | Estimated fair value |   |
| Financial assets:                        |   |           |      |   |                 |   |   |   |   |   |   |   |
| Cash and cash equivalents                |   | $              | 24,349    |   |                 | $      | 24,349 |   |   | $ | 19,766 |   |   | $ | 19,766 |   |
| Interest-bearing deposits                |   |           | 102,237   |   |                 |   | 102,237 |   |   |   | 61,186 |   |   |   | 61,186 |   |
| Federal funds sold                       |   |           | 1,100     |   |                 |   | 1,100 |   |   |   | 735 |   |   |   | 735 |   |
| Investment securities available for sale |   |           | 183,378   |   |                 |   | 183,378 |   |   |   | 199,556 |   |   |   | 199,556 |   |
| FHLB stock                               |   |           | 7,576     |   |                 |   | 7,576 |   |   |   | 7,576 |   |   |   | 7,576 |   |
| Loans held for sale                      |   |           | 3,455     |   |                 |   | 3,455 |   |   |   | 10,976 |   |   |   | 10,976 |   |
| Non-covered loans, net                   |   |           | 807,498   |   |                 |   | 804,321 |   |   |   | 815,481 |   |   |   | 813,769 |   |
| Covered loans, net                       |   |           | 340,290   |   |                 |   | 375,505 |   |   |   | 364,817 |   |   |   | 411,266 |   |
| FDIC indemnification asset               |   |           | 96,863    |   |                 |   | 65,622 |   |   |   | 107,896 |   |   |   | 73,078 |   |
|                                     |   |           |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                   |   |           |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                 |   |           | 1,494,513 |   |                 |   | 1,503,782 |   |   |   | 1,492,220 |   |   |   | 1,496,791 |   |
| Junior subordinated debentures           |   |           | 25,774    |   |                 |   | 9,443 |   |   |   | 25,774 |   |   |   | 9,396 |   |

----

Table of Contents

----

Table of Contents

----

Table of Contents

Item 2.          

| ·   | On January 12, 2011, the Company redeemed all 26,380 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, originally issued in January 2009 to the U.S. Department of the Treasury under the Troubled Asset Relief Program Capital Purchase Program.  The Company paid a total of $26.6 million to the Treasury, consisting of $26.4 million in principal and $209 thousand in accrued and unpaid dividends. The Company's redemption of the shares is not subject to additional conditions.  At December 31, 2010, the preferred stock had a carrying value of $25.3 million (net of a $1 million unaccreted discount) on the Company's statement of financial condition. The Company accelerated the accretion of the remaining discount in the first quarter of 2011, reducing net income available to common shareholders by $1 million. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On March 2, 2011, the Company completed the repurchase of Warrant to Purchase Common Stock issued to the U.S. Department of the Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program. The Company repurchased the Warrant for $1.6 million. The Warrant repurchase, together with the Company’s earlier redemption of the entire amount of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, issued to the U.S. Treasury, represents full repayment of all TARP obligations and cancellation of all equity interests in the Company held by the U.S. Treasury. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | Net income available to common shareholders per diluted share was $0.19 for the three months ended March 31, 2011, compared to net income available to common shareholders per diluted common share of $0.10 for the three months ended March 31, 2010. Diluted operating earnings per common share, a non-GAAP financial measure, defined as earnings available to common shareholders before the acceleration of the accretion of the remaining preferred stock discount and merger related expenses, net of tax, divided by the same diluted share total used in determining diluted earnings per common share, was $0.25 and $0.10 for the three months ended March 31, 2011 and 2010, respectively.  This measurement and reconciliation to the comparable GAAP measurement is provided under the heading Results of Operations—Overview below. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | Net interest margin, on a tax equivalent basis, was 5.42% for the three months ended March 31, 2011, compared to 4.66% for the same period a year ago. |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|         · | Total risk-based capital decreased to 19.04% at March 31, 2011, compared to 20.96% at December 31, 2010, reflecting the first quarter 2011 redemption of the 26,380 preferred shares and the repurchase of the associated stock warrants. |
|--------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Tangible book value per common share increased to $9.77 at March 31, 2011, up from $9.71 at December 31, 2010. |
|--------|----------------------------------------------------------------------------------------------------------------|

----

Table of Contents

----

Table of Contents

| (dollars in thousands)                                        |   | Three Months Ended |   |
|---------------------------------------------------------------|--------|--------------------|--------|
|                                                          |   | March 31,          |   |
|                                                          |   | 2011               |   |   | 2010 |   |
| GAAP earnings available to common shareholders                |   | $                  | 2,992  |   |   | $ | 1,581 |   |
| Provision for income taxes                                    |   |               | 1,887  |   |   |   | 804 |   |
|                                                          |   |               | 4,879  |   |   |   | 2,385 |   |
| Adjustments to GAAP earnings available to common shareholders |   |               |   |   |   |   |   |   |
| Merger related expenses                                       |   |               | 119    |   |   |   | - |   |
| Accelerated accretion of remaining preferred stock discount   |   |               | 1,046  |   |   |   | - |   |
| Operating earnings before taxes                               |   |               | 6,044  |   |   |   | 2,385 |   |
| Provision for income taxes                                    |   |               | (2,115 | ) |   |   | (835 | ) |
| Net operating earnings                                        |   | $                  | 3,929  |   |   | $ | 1,550 |   |
|                                                          |   |               |   |   |   |   |   |   |
| Diluted GAAP earnings per common share                        |   | $                  | 0.19   |   |   | $ | 0.10 |   |
| Diluted operating earnings per common share                   |   | $                  | 0.25   |   |   | $ | 0.10 |   |

----

Table of Contents

| Tangible Common Equity and Tangible Assets  |
|--------------------------------------------------|

| (dollars in thousands)                     |   | March 31, 2011 |       |   | December 31, 2010 |   |
|--------------------------------------------|--------|----------------|------------|--------|-------------------|--------|
| Total shareholders' equity                 |   | $              | 157,125    |   |              | $      | 181,646 |   |
| Adjustments to shareholders' equity        |   |           |       |   |              |   |   |   |
| Preferred stock                            |   |           | -          |   |              |   | (25,334 | ) |
| Other intangible assets, net               |   |           | (7,383     | )      |              |   | (7,540 | ) |
| Tangible common equity                     |   | $              | 149,742    |   |              | $      | 148,772 |   |
|                                       |   |           |       |   |              |   |   |   |
| Total assets                               |   | $              | 1,683,387  |   |              | $      | 1,704,487 |   |
| Adjustments to total assets                |   |           |       |   |              |   |   |   |
| Other intangible assets, net               |   |           | (7,383     | )      |              |   | (7,540 | ) |
| Tangible assets                            |   | $              | 1,676,004  |   |              | $      | 1,696,947 |   |
|                                       |   |           |       |   |              |   |   |   |
| Common shares outstanding at end of period |   |           | 15,333,073 |   |              |   | 15,321,277 |   |
|                                       |   |           |       |   |              |   |   |   |
| Tangible common equity ratio               |   |           | 8.93       | %      |              |   | 8.77 | % |
| Tangible book value per common share       |   | $              | 9.77       |   |              | $      | 9.71 |   |

| ·   | The volume, pricing, mix and maturity of interest-earning assets and interest-bearing liabilities; |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | The volume of free funds (consisting of noninterest-bearing deposits and other liabilities and shareholders’ equity); |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | The volume of noninterest-earning assets; |
|--------------------|-------------------------------------------|

| ·   | Market interest rate fluctuations; and |
|--------------------|----------------------------------------|

| ·   | Asset quality. |
|--------------------|----------------|

----

Table of Contents

| (dollars in thousands)                                                                                                                                                                                                                                     |   | Three Months Ended March 31, |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                                                                                                                                                                       |   | 2011                         |      |   | 2010 |   |
|                                                                                                                                                                                                                                                       |   |                         |      |   | Interest |   |   |   |   |   |   |   |   | Interest |   |   |   |   |
|                                                                                                                                                                                                                                                       |   | Average                      |      |   | earned/ |   |   | Average |   |   | Average |   |   | earned/ |   |   | Average |   |
|                                                                                                                                                                                                                                                       |   | balance                      |      |   | paid |   |   | yield |   |   | balance |   |   | paid |   |   | yield |   |
| Assets                                                                                                                                                                                                                                                     |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-covered loans (1)(2)                                                                                                                                                                                                                                   |   | $                            | 835,122   |   |   | $ | 12,782 |   |   |   | 6.21 | % |   | $ | 820,578 |   |   | $ | 13,212 |   |   |   | 6.53 | % |
| Covered loans                                                                                                                                                                                                                                              |   |                         | 352,663   |   |   |   | 8,310 |   |   |   | 9.56 | % |   |   | - |   |   |   | - |   |   |   | - |   |
| Federal funds sold                                                                                                                                                                                                                                         |   |                         | 832       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Interest-bearing deposits                                                                                                                                                                                                                                  |   |                         | 72,339    |   |   |   | 45 |   |   |   | 0.25 | % |   |   | 55,346 |   |   |   | 36 |   |   |   | 0.27 | % |
| Investments                                                                                                                                                                                                                                                |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                                                                                                                                                    |   |                         | 177,583   |   |   |   | 793 |   |   |   | 1.81 | % |   |   | 80,861 |   |   |   | 413 |   |   |   | 2.07 | % |
| Non-taxable (2)                                                                                                                                                                                                                                            |   |                         | 22,495    |   |   |   | 319 |   |   |   | 5.76 | % |   |   | 16,465 |   |   |   | 239 |   |   |   | 5.88 | % |
| Interest-earning assets                                                                                                                                                                                                                                    |   |                         | 1,461,034 |   |   |   | 22,249 |   |   |   | 6.18 | % |   |   | 973,250 |   |   |   | 13,900 |   |   |   | 5.79 | % |
| Noninterest-earning assets                                                                                                                                                                                                                                 |   |                         | 226,636   |   |   |   |   |   |   |   |   |   |   |   | 57,947 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                                                                                                                                                                               |   | $                            | 1,687,670 |   |   |   |   |   |   |   |   |   |   | $ | 1,031,197 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities and shareholders' equity                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                  |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NOW accounts and MMA                                                                                                                                                                                                                                       |   | $                            | 559,793   |   |   | $ | 720 |   |   |   | 0.52 | % |   | $ | 339,523 |   |   | $ | 546 |   |   |   | 0.65 | % |
| Savings                                                                                                                                                                                                                                                    |   |                         | 96,176    |   |   |   | 64 |   |   |   | 0.27 | % |   |   | 50,594 |   |   |   | 32 |   |   |   | 0.25 | % |
| Time deposits                                                                                                                                                                                                                                              |   |                         | 653,520   |   |   |   | 1,807 |   |   |   | 1.12 | % |   |   | 336,121 |   |   |   | 1,925 |   |   |   | 2.32 | % |
| Total interest-bearing deposits                                                                                                                                                                                                                            |   |                         | 1,309,489 |   |   |   | 2,591 |   |   |   | 0.80 | % |   |   | 726,238 |   |   |   | 2,503 |   |   |   | 1.40 | % |
| Federal funds purchased                                                                                                                                                                                                                                    |   |                         | -         |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Junior subordinated debentures                                                                                                                                                                                                                             |   |                         | 25,774    |   |   |   | 120 |   |   |   | 1.89 | % |   |   | 25,774 |   |   |   | 117 |   |   |   | 1.84 | % |
| Other interest-bearing liabilities                                                                                                                                                                                                                         |   |                         | -         |   |   |   | - |   |   |   | - |   |   |   | 10,000 |   |   |   | 91 |   |   |   | 3.71 | % |
| Total interest-bearing liabilities                                                                                                                                                                                                                         |   |                         | 1,335,263 |   |   |   | 2,711 |   |   |   | 0.82 | % |   |   | 762,012 |   |   |   | 2,711 |   |   |   | 1.44 | % |
|                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing deposits                                                                                                                                                                                                                               |   |                         | 186,915   |   |   |   |   |   |   |   |   |   |   |   | 107,076 |   |   |   |   |   |   |   |   |   |
| Other liabilities                                                                                                                                                                                                                                          |   |                         | 6,034     |   |   |   |   |   |   |   |   |   |   |   | 2,069 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                                                                                                                                                                                          |   |                         | 1,528,212 |   |   |   |   |   |   |   |   |   |   |   | 871,157 |   |   |   |   |   |   |   |   |   |
| Total shareholders' equity                                                                                                                                                                                                                                 |   |                         | 159,458   |   |   |   |   |   |   |   |   |   |   |   | 160,040 |   |   |   |   |   |   |   |   |   |
| Total liabilities and                                                                                                                                                                                                                                      |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| shareholders' equity                                                                                                                                                                                                                                       |   | $                            | 1,687,670 |   |   |   |   |   |   |   |   |   |   | $ | 1,031,197 |   |   |   |   |   |   |   |   |   |
| Net interest income/spread                                                                                                                                                                                                                                 |   |                         |      |   |   | $ | 19,538 |   |   |   | 5.36 | % |   |   |   |   |   | $ | 11,189 |   |   |   | 4.35 | % |
| Credit for interest-bearing funds                                                                                                                                                                                                                          |   |                         |      |   |   |   |   |   |   |   | 0.06 | % |   |   |   |   |   |   |   |   |   |   | 0.31 | % |
| Net interest margin (2)                                                                                                                                                                                                                                    |   |                         |      |   |   |   |   |   |   |   | 5.42 | % |   |   |   |   |   |   |   |   |   |   | 4.66 | % |
|                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1) Average balance includes nonaccrual loans.                                                                                                                                                                                                             |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (2) Interest income on non-taxable investments and loans is presented on a taxable-equivalent basis using the federal statutory rate of 35%. These adjustments totaled $251 thousand and $208 thousand for the three months ended March 31, 2011 and 2010, |   |
| respectively. Taxable-equivalent is a non- GAAP performance measurement that management believes provides investors with a more accurate picture of the net interest margin and efficiency ratio for comparative purposes.                                 |   |

----

Table of Contents

|                                                                                                                          |   | Three Months Ended March 31,    |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
| (dollars in thousands)                                                                                                        |   | 2011 compared to 2010           |   |
|                                                                                                                          |   | Increase (decrease) due to (2): |   |
|                                                                                                                          |   | Volume                          |   |   | Rate |   |   | Total |   |
| Assets                                                                                                                        |   |                            |   |   |   |   |   |   |   |
| Non-covered loans (1)(3)                                                                                                      |   | $                               | 240    |   |   | $ | (670 | ) |   | $ | (430 | ) |
| Covered loans                                                                                                                 |   |                            | 8,310  |   |   |   | - |   |   |   | 8,310 |   |
| Interest-bearing deposits                                                                                                     |   |                            | 11     |   |   |   | (2 | ) |   |   | 9 |   |
| Investments (1)                                                                                                               |   |                            |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                       |   |                            | 424    |   |   |   | (44 | ) |   |   | 380 |   |
| Non-taxable                                                                                                                   |   |                            | 85     |   |   |   | (5 | ) |   |   | 80 |   |
| Interest-earning assets                                                                                                       |   | $                               | 9,070  |   |   | $ | (721 | ) |   | $ | 8,349 |   |
|                                                                                                                          |   |                            |   |   |   |   |   |   |   |   |   |   |
| Liabilities                                                                                                                   |   |                            |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                     |   |                            |   |   |   |   |   |   |   |   |   |   |
| NOW accounts and money market                                                                                                 |   | $                               | 300    |   |   | $ | (126 | ) |   | $ | 174 |   |
| Savings                                                                                                                       |   |                            | 30     |   |   |   | 2 |   |   |   | 32 |   |
| Time deposits                                                                                                                 |   |                            | 1,211  |   |   |   | (1,329 | ) |   |   | (118 | ) |
| Total interest-bearing deposits                                                                                               |   |                            | 1,541  |   |   |   | (1,453 | ) |   |   | 88 |   |
| Junior subordinated debentures                                                                                                |   |                            | -      |   |   |   | 3 |   |   |   | 3 |   |
| Other interest-bearing liabilities                                                                                            |   |                            | (45    | ) |   |   | (46 | ) |   |   | (91 | ) |
| Total interest-bearing liabilities                                                                                            |   | $                               | 1,496  |   |   | $ | (1,496 | ) |   | $ | - |   |
|                                                                                                                          |   |                            |   |   |   |   |   |   |   |   |   |   |
| (1) Interest on loans and investments is presented on a fully tax-equivalent basis.                                           |   |                            |   |   |   |
| (2) The changes attributable to the combined effect of volume and interest rates have been allocated proportionately.         |   |
| (3) Interest income previously accrued on nonaccrual loans is reversed in the period the loan is placed on nonaccrual status. |   |

----

Table of Contents

| (dollars in thousands)                 |   | Three Months Ended March 31, |   |   | Change |   |
|----------------------------------------|--------|------------------------------|--------|--------|--------|--------|
|                                   |   | 2011                         |   |   | 2010   |   |   | 2011 vs. 2010 |   |
| Service charges and fees               |   | $                            | 993    |   |   | $      | 735 |   |   | $ | 258 |   |
| Electronic banking income              |   |                         | 556    |   |   |   | 367 |   |   |   | 189 |   |
| Investment products                    |   |                         | 222    |   |   |   | 50 |   |   |   | 172 |   |
| Bank owned life insurance income       |   |                         | 80     |   |   |   | 82 |   |   |   | (2 | ) |
| Income from the sale of mortgage loans |   |                         | 338    |   |   |   | 141 |   |   |   | 197 |   |
| SBA premium income                     |   |                         | 121    |   |   |   | 46 |   |   |   | 75 |   |
| Change in FDIC indemnification asset   |   |                         | (1,316 | )      |   |   | - |   |   |   | (1,316 | ) |
| Gain on disposition of covered assets  |   |                         | 2,218  |   |   |   | - |   |   |   | 2,218 |   |
| Other                                  |   |                         | 520    |   |   |   | 322 |   |   |   | 198 |   |
| Total noninterest income               |   | $                            | 3,732  |   |   | $      | 1,743 |   |   | $ | 1,989 |   |

| §   | Service charges and fees increase was primarily attributable to the increased volume of transaction deposit accounts and an increase in NSF fees. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Electronic banking income increase was primarily attributable to an increase in ATM machines acquired through the acquisitions of City Bank and North County Bank. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Investment products increased due to increased sales of annuity products to customers seeking more stable investment options. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------|

| §   | Income from the sale of mortgage loans increased due to an increase in volume of originations and refinances resulting from favorable interest rates. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Change in FDIC indemnification asset represents the accretion (amortization) of the FDIC indemnification asset related to the acquisitions of City Bank and North County Bank. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Gain on disposition of covered assets is the income the Company recognizes when a covered asset is paid off or sold and the proceeds exceed its carrying value. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| (dollars in thousands)                     |   | Three Months Ended March 31, |   |   | Change |   |
|--------------------------------------------|--------|------------------------------|--------|--------|--------|--------|
|                                       |   | 2011                         |   |   | 2010   |   |   | 2011 vs. 2010 |   |
| Salaries and benefits                      |   | $                            | 6,819  |   |   | $      | 4,329 |   |   | $ | 2,490 |   |
| Occupancy and equipment                    |   |                         | 1,667  |   |   |   | 1,027 |   |   |   | 640 |   |
| Office supplies and printing               |   |                         | 330    |   |   |   | 210 |   |   |   | 120 |   |
| Data processing                            |   |                         | 470    |   |   |   | 211 |   |   |   | 259 |   |
| Consulting and professional fees           |   |                         | 444    |   |   |   | 268 |   |   |   | 176 |   |
| Intangible amortization                    |   |                         | 157    |   |   |   | - |   |   |   | 157 |   |
| Merger related expenses                    |   |                         | 119    |   |   |   | - |   |   |   | 119 |   |
| FDIC premiums                              |   |                         | 589    |   |   |   | 252 |   |   |   | 337 |   |
| Non-covered OREO and repossession expenses |   |                         | 300    |   |   |   | 193 |   |   |   | 107 |   |
| Covered OREO and repossession expenses     |   |                         | 770    |   |   |   | - |   |   |   | 770 |   |
| Other                                      |   |                         | 2,391  |   |   |   | 1,285 |   |   |   | 1,106 |   |
| Total noninterest expense                  |   | $                            | 14,056 |   |   | $      | 7,775 |   |   | $ | 6,281 |   |

| §   | Salaries and benefits increased primarily due to the increase in full-time equivalents due to the acquisitions of City Bank and North County Bank.  Total full-time equivalents were 455 and 298 at March 31, 2011 and 2010, respectively. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Occupancy and equipment and office supplies and printing increased primarily due to the additional cost of operating the eight new branches acquired in the City Bank acquisition and the four branches acquired in the North County Bank acquisition. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Data processing increased due to the additional expenses related to the City Bank and North County Bank acquisitions.  Additionally, the consolidation of North County Bank’s data systems was completed in April 2011. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Consulting and professional fees increased due to an increase in legal and accounting fees resulting from the acquisitions of City Bank and North County Bank. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Intangible amortization represents amortization related to the core deposit intangible recorded as part of the fair valuation of the City Bank and North County Bank acquisitions. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Merger related expenses relate to one-time expenses of the City Bank and North County Banks acquisitions. Merger related expenses include conversion expense, severance and professional and consulting services. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | FDIC premiums increased primarily due to an increase in year-over-year deposits, as well as due to an industry wide increase in overall assessment rates. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Non-covered and covered OREO and repossession expense represents costs the Company incurs in reclaiming, repairing and selling real estate properties and automobiles, as well as any write-downs or losses on the sale of non-covered and covered OREO properties. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Other noninterest expense was primarily affected by the increase in branches due to the FDIC-assisted acquisitions. |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| (dollars in thousands)                                  |   | March 31, 2011 |    |   | December 31, 2010 |   |
|---------------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| U.S. government agencies                                |   | $              | 86,706  |   |              | $      | 102,990 |   |
| U.S. Treasuries                                         |   |           | 54,478  |   |              |   | 54,643 |   |
| Pass-through securities                                 |   |           | 1,125   |   |              |   | 1,239 |   |
| State and political subdivisions                        |   |           | 28,718  |   |              |   | 28,378 |   |
| Corporate obligations                                   |   |           | 8,975   |   |              |   | 8,974 |   |
| Investments in mutual funds and other equity securities |   |           | 3,376   |   |              |   | 3,332 |   |
| Total investment securities available for sale          |   | $              | 183,378 |   |              | $      | 199,556 |   |

----

Table of Contents

| (dollars in thousands)         |   | March 31, 2011 |    |   | December 31, 2010 |   |
|--------------------------------|--------|----------------|---------|--------|-------------------|--------|
|                           |   | Balance        |    |   | % of total        |   |   | Balance |   |   | % of total |   |
| Commercial                     |   | $              | 147,436 |   |              |   | 17.9 | % |   | $ | 145,319 |   |   |   | 17.5 | % |
| Real estate mortgages:         |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |           | 46,764  |   |              |   | 5.7 | % |   |   | 46,717 |   |   |   | 5.6 | % |
| Multi-family and commercial    |   |           | 350,817 |   |              |   | 42.5 | % |   |   | 348,548 |   |   |   | 41.9 | % |
| Total real estate mortgages    |   |           | 397,581 |   |              |   | 48.2 | % |   |   | 395,265 |   |   |   | 47.5 | % |
|                           |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Real estate construction:      |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential |   |           | 68,877  |   |              |   | 8.4 | % |   |   | 72,945 |   |   |   | 8.8 | % |
| Multi-family and commercial    |   |           | 38,568  |   |              |   | 4.7 | % |   |   | 42,664 |   |   |   | 5.1 | % |
| Total real estate construction |   |           | 107,445 |   |              |   | 13.0 | % |   |   | 115,609 |   |   |   | 13.9 | % |
|                           |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Consumer:                      |   |           |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Indirect                       |   |           | 88,413  |   |              |   | 10.7 | % |   |   | 90,231 |   |   |   | 10.8 | % |
| Direct                         |   |           | 83,662  |   |              |   | 10.1 | % |   |   | 85,665 |   |   |   | 10.3 | % |
| Total consumer                 |   |           | 172,075 |   |              |   | 20.9 | % |   |   | 175,896 |   |   |   | 21.1 | % |
| Subtotal                       |   |           | 824,537 |   |              |   | 100.0 | % |   |   | 832,089 |   |   |   | 100.0 | % |
| Deferred loan costs, net       |   |           | 2,199   |   |              |   |   |   |   |   | 2,204 |   |   |   |   |   |
| Allowance for loan losses      |   |           | (19,238 | )      |              |   |   |   |   |   | (18,812 | ) |   |   |   |   |
| Total non-covered loans        |   | $              | 807,498 |   |              |   |   |   |   | $ | 815,481 |   |   |   |   |   |

----

Table of Contents

| (dollars in thousands)                  |   | March 31, 2011 |    |
|-----------------------------------------|--------|----------------|---------|
|                                    |   | City Bank      |    |   | North County Bank |   |   | Total |   |
| Commercial                              |   | $              | 21,804  |   |   | $ | 9,944 |   |   | $ | 31,748 |   |
| Real estate mortgages:                  |   |           |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |           | 6,690   |   |   |   | 8,660 |   |   |   | 15,350 |   |
| Multi-family residential and commercial |   |           | 213,907 |   |   |   | 42,692 |   |   |   | 256,599 |   |
| Total real estate mortgages             |   |           | 220,597 |   |   |   | 51,352 |   |   |   | 271,949 |   |
|                                    |   |           |    |   |   |   |   |   |   |   |   |   |
| Real estate construction:               |   |           |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |           | 8,659   |   |   |   | 62,867 |   |   |   | 71,526 |   |
| Multi-family and commercial             |   |           | 39,348  |   |   |   | 27,948 |   |   |   | 67,296 |   |
| Total real estate construction          |   |           | 48,007  |   |   |   | 90,815 |   |   |   | 138,822 |   |
|                                    |   |           |    |   |   |   |   |   |   |   |   |   |
| Consumer - direct                       |   |           | 3,861   |   |   |   | 17,943 |   |   |   | 21,804 |   |
| Subtotal                                |   |           | 294,269 |   |   |   | 170,054 |   |   |   | 464,323 |   |
| Fair value discount                     |   |           | (70,403 | ) |   |   | (52,294 | ) |   |   | (122,697 | ) |
| Total covered loans                     |   |           | 223,866 |   |   |   | 117,760 |   |   |   | 341,626 |   |
| Allowance for loan losses               |   |           | (1,336  | ) |   |   | - |   |   |   | (1,336 | ) |
| Total covered loans, net                |   | $              | 222,530 |   |   | $ | 117,760 |   |   | $ | 340,290 |   |

| (dollars in thousands)                  |   | December 31, 2010 |    |
|-----------------------------------------|--------|-------------------|---------|
|                                    |   | City Bank         |    |   | North County Bank |   |   | Total |   |
| Commercial                              |   | $                 | 22,524  |   |   | $ | 10,313 |   |   | $ | 32,837 |   |
| Real estate mortgages:                  |   |              |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |              | 7,138   |   |   |   | 10,586 |   |   |   | 17,724 |   |
| Multi-family residential and commercial |   |              | 237,510 |   |   |   | 44,524 |   |   |   | 282,034 |   |
| Total real estate mortgages             |   |              | 244,648 |   |   |   | 55,110 |   |   |   | 299,758 |   |
|                                    |   |              |    |   |   |   |   |   |   |   |   |   |
| Real estate construction:               |   |              |    |   |   |   |   |   |   |   |   |   |
| One-to-four family residential          |   |              | 8,829   |   |   |   | 62,056 |   |   |   | 70,885 |   |
| Multi-family and commercial             |   |              | 42,281  |   |   |   | 36,398 |   |   |   | 78,679 |   |
| Total real estate construction          |   |              | 51,110  |   |   |   | 98,454 |   |   |   | 149,564 |   |
|                                    |   |              |    |   |   |   |   |   |   |   |   |   |
| Consumer - direct                       |   |              | 4,050   |   |   |   | 18,576 |   |   |   | 22,626 |   |
| Subtotal                                |   |              | 322,332 |   |   |   | 182,453 |   |   |   | 504,785 |   |
| Fair value discount                     |   |              | (82,782 | ) |   |   | (55,850 | ) |   |   | (138,632 | ) |
| Total covered loans                     |   |              | 239,550 |   |   |   | 126,603 |   |   |   | 366,153 |   |
| Allowance for loan losses               |   |              | (1,336  | ) |   |   | - |   |   |   | (1,336 | ) |
| Total covered loans, net                |   | $                 | 238,214 |   |   | $ | 126,603 |   |   | $ | 364,817 |   |

----

Table of Contents

----

Table of Contents

| (dollars in thousands)                                                                                                                                                                                                                                                                                                      |   | March 31, |   |   | December 31, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                        |   | 2011      |   |   | 2010         |   |
| Non-covered nonaccrual loans                                                                                                                                                                                                                                                                                                |   | $         | 29,520 |   |         | $      | 25,846 |   |
| Total non-covered nonperforming loans                                                                                                                                                                                                                                                                                       |   |      | 29,520 |   |         |   | 25,846 |   |
| Non-covered other real estate owned                                                                                                                                                                                                                                                                                         |   |      | 4,845  |   |         |   | 4,122 |   |
| Total non-covered nonperforming assets                                                                                                                                                                                                                                                                                      |   | $         | 34,365 |   |         | $      | 29,968 |   |
|                                                                                                                                                                                                                                                                                                                        |   |      |   |   |         |   |   |   |
| Restructured Loans (1)                                                                                                                                                                                                                                                                                                      |   | $         | 19,654 |   |         | $      | 19,936 |   |
|                                                                                                                                                                                                                                                                                                                        |   |      |   |   |         |   |   |   |
| Total non-covered impaired loans                                                                                                                                                                                                                                                                                            |   | $         | 49,174 |   |         | $      | 45,782 |   |
| Non-covered accruing loans past due 90                                                                                                                                                                                                                                                                                      |   |      |   |   |         |   |   |   |
| days or more                                                                                                                                                                                                                                                                                                                |   | $         | -      |   |         | $      | - |   |
| Non-covered potential problem loans (2)                                                                                                                                                                                                                                                                                     |   | $         | -      |   |         | $      | 5,178 |   |
|                                                                                                                                                                                                                                                                                                                        |   |      |   |   |         |   |   |   |
| Allowance for loan losses                                                                                                                                                                                                                                                                                                   |   | $         | 19,238 |   |         | $      | 18,812 |   |
|                                                                                                                                                                                                                                                                                                                        |   |      |   |   |         |   |   |   |
| Non-covered nonperforming loans to total                                                                                                                                                                                                                                                                                    |   |      |   |   |         |   |   |   |
| non-covered loans                                                                                                                                                                                                                                                                                                           |   |      | 3.57   | %      |         |   | 3.10 | % |
| Allowance for loan losses to total non-covered loans                                                                                                                                                                                                                                                                        |   |      | 2.33   | %      |         |   | 2.25 | % |
| Allowance for loan losses to non-covered                                                                                                                                                                                                                                                                                    |   |      |   |   |         |   |   |   |
| nonperfoming loans                                                                                                                                                                                                                                                                                                          |   |      | 65.17  | %      |         |   | 72.78 | % |
| Non-covered nonperforming assets to total assets                                                                                                                                                                                                                                                                            |   |      | 2.04   | %      |         |   | 1.76 | % |
|                                                                                                                                                                                                                                                                                                                        |   |      |   |   |         |   |   |   |
| (1) Represents accruing restructured loans performing according to their restructured terms.                                                                                                                                                                                                                                |   |      |   |   |         |   |   |   |
| (2) Potential problem loans represent loans where known information about possible credit problems of borrowers causes management to have serious doubts about the ability of such borrowers to comply with the present loan repayment terms but the loans do not presently meet the criteria to be classified as impaired. |   |
| Non-covered potential problem loans identified by management at December 31, 2010, have migrated to nonaccrual status at March 31, 2011.  There were no loans that management deemed potential problem loans at March 31, 2011.                                                                                        |   |

----

Table of Contents

| (dollars in thousands)                     |   | Island County |   |   | King County |   |   | Skagit County |   |   | Whatcom County |   |   | Snohomish County |   |   | Total  |   |   | Percent of total NPA by loan type |   |
|--------------------------------------------|--------|---------------|--------|--------|-------------|--------|--------|---------------|--------|--------|----------------|--------|--------|------------------|--------|--------|--------|--------|--------|-----------------------------------|--------|
|                                       |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |
|                                       |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |
| Commercial loans                           |   | $             | 737    |   |        | $      | -      |          |   | $      | 3,381          |   |   | $                | -      |   |   | $      | -      |                              |   | $ | 4,118 |   |   |   | 11.98 | % |
| Real estate mortgage loans:                |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |   |   |   |   |   |   |   |
|   One-to-four family residential |   |          | 435    |   |        |   | 1,759  |          |   |   | 746            |   |   |             | 338    |   |   |   | -      |                              |   |   | 3,278 |   |   |   | 9.54 | % |
|   Multi-family and commercial    |   |          | 263    |   |        |   | -      |          |   |   | 1,174          |   |   |             | 838    |   |   |   | 475    |                              |   |   | 2,750 |   |   |   | 8.00 | % |
| Real estate construction loans:            |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |   |   |   |   |   |   |   |
|   One-to-four family residential |   |          | 4,035  |   |        |   | -      |          |   |   | 9,171          |   |   |             | 5,541  |   |   |   | -      |                              |   |   | 18,747 |   |   |   | 54.55 | % |
|   Multi-family and commercial    |   |          | 387    |   |        |   | -      |          |   |   | -              |   |   |             | -      |   |   |   | -      |                              |   |   | 387 |   |   |   | 1.13 | % |
| Consumer loans:                            |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |   |   |   |   |   |   |   |
|   Direct                         |   |          | 240    |   |        |   | -      |          |   |   | -              |   |   |             | -      |   |   |   | -      |                              |   |   | 240 |   |   |   | 0.70 | % |
| Other Real Estate Owned                    |   |          | 179    |   |        |   | -      |          |   |   | 1,380          |   |   |             | 3,286  |   |   |   | -      |                              |   |   | 4,845 |   |   |   | 14.10 | % |
|    Total                    |   | $             | 6,276  |   |        | $      | 1,759  |          |   | $      | 15,852         |   |   | $                | 10,003 |   |   | $      | 475    |                              |   | $ | 34,365 |   |   |   | 100.00 | % |
|                                       |   |          |   |   |        |   |   |          |   |   |           |   |   |             |   |   |   |   |   |                              |   |   |   |   |   |   |   |   |
| Percent of total NPA by location           |   |          | 18.26  | %      |        |   | 5.12   | %             |   |   | 46.13          | %      |   |             | 29.11  | %      |   |   | 1.38   | %                                 |   |   | 100.00 | % |   |   |   |   |

| (dollars in thousands)                             |   | March 31, 2011 |    |   | December 31, 2010 |   |
|----------------------------------------------------|--------|----------------|---------|--------|-------------------|--------|
| Covered nonaccrual loans                           |   | $              | 94,438  |   |              | $      | 96,182 |   |
| Covered restructured loans                         |   |           | -       |   |              |   | - |   |
| Total covered nonperforming loans                  |   |           | 94,438  |   |              |   | 96,182 |   |
| Covered other real estate owned                    |   |           | 28,826  |   |              |   | 29,766 |   |
| Total covered nonperforming assets                 |   | $              | 123,264 |   |              | $      | 125,948 |   |
|                                               |   |           |    |   |              |   |   |   |
| Total covered impaired loans                       |   | $              | 94,438  |   |              | $      | 96,182 |   |
| Covered accruing loans past due 90                 |   |           |    |   |              |   |   |   |
| days or more                                       |   |           | -       |   |              |   | - |   |
|                                               |   |           |    |   |              |   |   |   |
| Allowance for loan losses                          |   | $              | 1,336   |   |              | $      | 1,336 |   |
|                                               |   |           |    |   |              |   |   |   |
| Covered nonperforming loans to total covered loans |   |           | 27.64   | %      |              |   | 26.27 | % |
| Allowance for loan losses to total covered loans   |   |           | 0.39    | %      |              |   | 0.36 | % |
| Allowance for loan losses to covered               |   |           |    |   |              |   |   |   |
| nonperforming loans                                |   |           | 1.41    | %      |              |   | 1.39 | % |
| Covered nonperforming assets to total assets       |   |           | 7.32    | %      |              |   | 7.39 | % |

| ·   | Specific Allowances: A specific allowance is established when management has identified unique or particular risks that are related to a specific loan that demonstrate risk characteristics consistent with impairment. Specific allowances may also be established to address the unique risks associated with a group of loans or particular type of credit exposure. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | Formula Allowance: The calculations of expected loss rates are determined utilizing a two factor approach; loss given default (“LGD”) and probability of default (“PD”). Taken together, these two factors produce the expected loss rate. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ø   | LGD is defined as the rate of loss as determined by dividing the expected net charge-off by defaulted loans, where defaulted loans are defined as loans that have 30 days or greater payment delinquency plus non-accrual and gross loans charged off.  LGD rates utilized reflect industry experience as determined by state and loan type, and are based upon banks with total assets below one billion dollars.  Banks falling into these size and state groupings will better capture state/geographic differences that occur in LGD rates, as well as provide a sufficient number of observations to be statistically meaningful. LGD rates will be based upon industry experience starting in 1992 and applied at a two standard deviation level. Bank specific LGD rates will be utilized when there are sufficient observations to generate a meaningful result, and these observations should include at least three observations as observed over a minimum of at least one full economic cycle for each type/sector/subsector/geographic combination to be considered meaningful. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ø   | PD is defined as the actual payment default rate (defined as the number of times a loan has been delinquent 30 or more days divided by the number of months the loan has been outstanding from the origination date to the valuation date), or for loans which have not generated an actual payment default rate, the rate applied is based upon industry experience for such loans as applied by loan type and state in which the loan applies to (in the case of real estate loans, the state determination is based upon were the collateral resides), where the expected payment default rate is defined as the sum loans where payment delinquencies are 30 or more days delinquent, plus non-accrual and gross loans charged off divided by total loans for each group. Expected payment default rates are then scaled against the bank’s loan risk grades with the bank’s lowest pass/non-watch grade set to equal the industry PD and then scaled lower or higher against the bank’s remaining loan grades. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Consideration of loan grade classification |
|--------------------|--------------------------------------------|

| ·   | Consideration of loan type |
|--------------------|----------------------------|

| ·   | Consideration of historical loss rates |
|--------------------|----------------------------------------|

| ·   | Consideration of the underlying business and economic and business conditions |
|--------------------|-------------------------------------------------------------------------------|

| ·   | Consideration of PD and LGD rates based on geographic/size peer data |
|--------------------|----------------------------------------------------------------------|

| ·   | Additional weight given to recent periods when calculating PD and LGD |
|--------------------|-----------------------------------------------------------------------|

| ·   | PD and LGD based on loan type |
|--------------------|-------------------------------|

| ·   | Loan level consideration given to Past Due history |
|--------------------|----------------------------------------------------|

| ·   | Additional detail/input for economic conditions/trends available |
|--------------------|------------------------------------------------------------------|

----

Table of Contents

| (dollars in thousands)   |   | March 31, 2011 |   |   | December 31, 2010 |   |
|--------------------------|--------|----------------|--------|--------|------------------------|--------|
|                     |   | Amount         |   |   | % of Loans (1)         |   |   | Amount |   |   | % of Loans (1) |   |
| Commercial               |   |           | 4,829  |   |                   |   | 17.9 | % |   |   | 3,915 |   |   |   | 17.5 | % |
| Real estate mortgage     |   |           | 5,868  |   |                   |   | 48.2 | % |   |   | 6,507 |   |   |   | 47.5 | % |
| Real estate construction |   |           | 5,459  |   |                   |   | 13.0 | % |   |   | 4,947 |   |   |   | 13.9 | % |
| Consumer                 |   |           | 3,082  |   |                   |   | 20.9 | % |   |   | 3,443 |   |   |   | 21.1 | % |
| Total                    |   | $              | 19,238 |   |                   |   | 100.0 | % |   | $ | 18,812 |   |   |   | 100.0 | % |

| (dollars in thousands)                |   | Three Months Ended |   |
|---------------------------------------|--------|--------------------|--------|
|                                  |   | March 31,          |   |
|                                  |   | 2011               |   |   | 2010 |   |
| Balance at beginning of period        |   | $                  | 18,812 |   |   | $ | 16,212 |   |
| Provision for non-covered loan losses |   |               | 3,000  |   |   |   | 2,150 |   |
| Charge-offs:                          |   |               |   |   |   |   |   |   |
| Commercial                            |   |               | (469   | ) |   |   | (542 | ) |
| Real estate mortgage                  |   |               | (1,285 | ) |   |   | (470 | ) |
| Real estate construction              |   |               | -      |   |   |   | (675 | ) |
| Consumer                              |   |               |   |   |   |   |   |   |
| Direct                                |   |               | (797   | ) |   |   | (227 | ) |
| Indirect                              |   |               | (348   | ) |   |   | (406 | ) |
| Total charge-offs                     |   |               | (2,899 | ) |   |   | (2,320 | ) |
|                                  |   |               |   |   |   |   |   |   |
| Recoveries:                           |   |               |   |   |   |   |   |   |
| Commercial                            |   |               | 81     |   |   |   | 72 |   |
| Real estate mortgage                  |   |               | 88     |   |   |   | 2 |   |
| Real estate construction              |   |               | 1      |   |   |   | 101 |   |
| Consumer                              |   |               |   |   |   |   |   |   |
| Direct                                |   |               | 19     |   |   |   | 29 |   |
| Indirect                              |   |               | 136    |   |   |   | 218 |   |
| Total recoveries                      |   |               | 325    |   |   |   | 422 |   |
| Net charge-offs                       |   |               | (2,574 | ) |   |   | (1,898 | ) |
| Balance at end of period              |   | $                  | 19,238 |   |   | $ | 16,464 |   |

----

Table of Contents

| (dollars in thousands)     |   | March 31, 2011 |      |   | December 31, 2010 |   |   |    |   |
|----------------------------|--------|----------------|-----------|--------|-------------------|--------|--------|---------|--------|
|                       |   | Balance        |      |   | % of total        |   |   | Balance |   |   | % of total |   |   | Change |   |
| Noninterest-bearing demand |   | $              | 188,583   |   |              |   | 12.6   | %       |   | $ | 184,098 |   |   |   | 12.3 | % |   | $ | 4,485 |   |
| NOW accounts               |   |           | 204,836   |   |              |   | 13.7   | %       |   |   | 206,717 |   |   |   | 13.9 | % |   |   | (1,881 | ) |
| Money market               |   |           | 367,940   |   |              |   | 24.6   | %       |   |   | 341,211 |   |   |   | 22.9 | % |   |   | 26,729 |   |
| Savings                    |   |           | 96,389    |   |              |   | 6.5    | %       |   |   | 94,235 |   |   |   | 6.3 | % |   |   | 2,154 |   |
| Time deposits              |   |           | 636,765   |   |              |   | 42.6   | %       |   |   | 665,959 |   |   |   | 44.6 | % |   |   | (29,194 | ) |
| Total deposits             |   | $              | 1,494,513 |   |              |   | 100.0  | %       |   | $ | 1,492,220 |   |   |   | 100.0 | % |   | $ | 2,293 |   |

| (dollars in thousands)     |   | March 31, 2011 |      |
|----------------------------|--------|----------------|-----------|
|                       |   | Consolidated   |      |   |   |   |   | North |   |   |   |   |
|                       |   | Balance        |      |   | City Bank |   |   | County Bank |   |   | Organic |   |
| Noninterest-bearing demand |   | $              | 188,583   |   |   | $ | 41,167 |   |   | $ | 13,351 |   |   | $ | 134,065 |   |
| NOW accounts               |   |           | 204,836   |   |   |   | 31,278 |   |   |   | 18,427 |   |   |   | 155,131 |   |
| Money market               |   |           | 367,940   |   |   |   | 76,577 |   |   |   | 27,414 |   |   |   | 263,949 |   |
| Savings                    |   |           | 96,389    |   |   |   | 29,418 |   |   |   | 3,971 |   |   |   | 63,000 |   |
| Time deposits              |   |           | 636,765   |   |   |   | 273,670 |   |   |   | 102,669 |   |   |   | 260,426 |   |
| Total deposits             |   | $              | 1,494,513 |   |   | $ | 452,110 |   |   | $ | 165,832 |   |   | $ | 876,571 |   |

| (dollars in thousands)     |   | December 31, 2010 |      |
|----------------------------|--------|-------------------|-----------|
|                       |   | Consolidated      |      |   |   |   |   | North |   |   |   |   |
|                       |   | Balance           |      |   | City Bank |   |   | County Bank |   |   | Organic |   |
| Noninterest-bearing demand |   | $                 | 184,098   |   |   | $ | 43,421 |   |   | $ | 12,800 |   |   | $ | 127,877 |   |
| NOW accounts               |   |              | 206,717   |   |   |   | 27,800 |   |   |   | 19,931 |   |   |   | 158,986 |   |
| Money market               |   |              | 341,211   |   |   |   | 67,034 |   |   |   | 28,583 |   |   |   | 245,594 |   |
| Savings                    |   |              | 94,235    |   |   |   | 30,616 |   |   |   | 4,090 |   |   |   | 59,529 |   |
| Time deposits              |   |              | 665,959   |   |   |   | 291,967 |   |   |   | 106,965 |   |   |   | 267,027 |   |
| Total deposits             |   | $                 | 1,492,220 |   |   | $ | 460,838 |   |   | $ | 172,369 |   |   | $ | 859,013 |   |

| (dollars in thousands)               |   | March 31, 2011 |   |   | December 31, 2010 |   |
|--------------------------------------|--------|----------------|--------|--------|-------------------|--------|
|                                 |   | Balance        |   |   | % of total        |   |   | Balance |   |   | % of total |   |
| Mutual fund money market deposits    |   |           | 24,704 |   |              |   | 75.2 | % |   |   | 24,704 |   |   |   | 72.9 | % |
| CDARS deposits                       |   |           | 8,141  |   |              |   | 24.8 | % |   |   | 9,206 |   |   |   | 27.1 | % |
| Total wholesale deposits             |   | $              | 32,845 |   |              |   | 100.0 | % |   | $ | 33,910 |   |   |   | 100.0 | % |
|                                 |   |           |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Wholesale deposits to total deposits |   |           | 2.2    | %      |              |   |   |   |   |   | 2.3 | % |   |   |   |   |

----

Table of Contents

| ·  | FHLB Overnight Borrowings and Other Borrowed Funds:  The Company relies upon advances from the FHLB to supplement funding needs. The FHLB provides credit for member financial institutions in the form of overnight borrowings, short term and long term advances. As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the pledge of certain of its mortgage loans and other assets (principally, securities which are obligations of, or guaranteed by, the United States) provided certain standards related to creditworthiness have been met. At March 31, 2011, the Company had no outstanding overnight borrowings or other borrowed funds.  The Company had a remaining unused line of credit of $214.4 million, subject to certain collateral and stock requirements at March 31, 2011. |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Federal Funds Purchased: The Company also uses lines of credit at correspondent banks to purchase federal funds for short-term funding. There were no outstanding borrowings at March 31, 2011.  Available borrowings under these lines of credit totaled $60.0 million at March 31, 2011. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Federal Reserve Bank Overnight Borrowings: The Company can use advances from the Federal Reserve Bank (“FRB”) of San Francisco to supplement funding needs. The FRB provides credit for financial institutions in the form of overnight borrowings. The Bank is required to pledge certain of its loans and other assets (principally, securities which are obligations of, or guaranteed by, the United States) provided certain standards related to creditworthiness have been met. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Junior Subordinated Debentures: A wholly-owned subsidiary of the Company issued $25.8 million of trust preferred securities with a quarterly adjustable rate based upon the London Interbank Offered Rate (“LIBOR”) plus 1.56%. The debentures, within certain limitations, are considered Tier 1 capital for regulatory capital requirements. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                            |   | Regulatory Requirements |   |   | Actual Ratios    |   |
|---------------------------------|--------|-------------------------|--------|--------|------------------|--------|
|                            |   | Adequately- capitalized |   |   | Well-capitalized |   |   | March 31, 2011 |   |   | December 31, 2010 |   |
| Total risk-based capital ratio  |   |                    |   |   |             |   |   |   |   |   |   |   |
| Company (consolidated)          |   |                    | 8.00   | %      |             |   | N/A |   |   |   | 19.04 | % |   |   | 20.96 | % |
| Whidbey Island Bank             |   |                    | 8.00   | %      |             |   | 10.00 | % |   |   | 18.44 | % |   |   | 20.78 | % |
|                            |   |                    |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 risk-based capital ratio |   |                    |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Company (consolidated)          |   |                    | 4.00   | %      |             |   | N/A |   |   |   | 17.78 | % |   |   | 19.70 | % |
| Whidbey Island Bank             |   |                    | 4.00   | %      |             |   | 6.00 | % |   |   | 17.18 | % |   |   | 19.52 | % |
|                            |   |                    |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Tier 1 leverage ratio           |   |                    |   |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Company (consolidated)          |   |                    | 4.00   | %      |             |   | N/A |   |   |   | 10.46 | % |   |   | 11.42 | % |
| Whidbey Island Bank             |   |                    | 4.00   | %      |             |   | 5.00 | % |   |   | 10.10 | % |   |   | 11.30 | % |

----

Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

|   | Changes in Internal Control over Disclosure and Reporting |
|--------|-----------------------------------------------------------|

----

Table of Contents

|   | PART II – OTHER INFORMATION |
|--------|-----------------------------------|

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. (Removed and Reserved)

Item 5. Other Information

|   | (b) | There have been no material changes in the procedures for shareholders to nominate directors to the Company’s board. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

Item 6. Exhibits

|   | 3.1 | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 10-K filed March 12, 2010) |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------|

|   | 3.2 | Bylaws of the Company (incorporated by reference to Exhibit 4.1 to the Registrant’s Form SB-2 (Registration No. 333-49925) filed April 10, 1998) |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.1 | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form SB-2 (Registration No. 333-49925) filed April 10, 1998) |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4.2 | Pursuant to Section 601(b)(4)(iii)(A) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt are not filed. The Company agrees to furnish a copy thereof to the Securities and Exchange Commission upon request. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes Oxley Act of 2002 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. Section 1350 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes Oxley Act of 2002, 18 U.S.C. Section 1350 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

SIGNATURES

|  Date: May 10, 2011 |  By: /s/ John L. Wagner                |   |
|--------------------------|---------------------------------------------|--------|
|                     |  President and Chief Executive Officer |   |
|                     |                                        |   |

|  Date: May 10, 2011 |  By: /s/ Richard A. Shields                           |   |
|--------------------------|------------------------------------------------------------|--------|
|                     |  Executive Vice President and Chief Financial Officer |   |

----