• The interest rate spread decreased to 2.59% for the quarter ended September 30, 2008 compared to 2.77% for the quarter ended September 30, 2007;

• Loans receivable decreased $139.0 million, or 3.30%, since March 31, 2008;

• Deposits declined $190.7 million, or 5.39%, since March 31, 2008;

• Book value per share was $14.76 at September 30, 2008 compared to $16.17 at March 31, 2008 and $15.88 at September 30, 2007;

• Total non-performing assets (nonaccrual loans, loans past due more than ninety days and other real estate) increased $59.6 million, or 54.4%, to $169.1 million at September 30, 2008 from $109.5 million at March 31, 2008, and total non-accrual loans increased $38.2 million, or 37.6% to $139.4 million at September 30, 2008 from $101.2 million at March 31, 2008; and

• Real estate investment partnership revenue declined $7.2 million from $7.2 million for the six months ended September 30, 2007 to $0 for the six months ended September 30, 2008. Real estate investment partnership cost of sales declined $7.0 million from $7.0 million to $0 during the same respective periods. These decreases were due to the decline in the number of sales at the real estate partnership level. Net loss from the real estate investment segment remained steady at $1.2 million for the six months ended September 30, 2007 and 2008, respectively. The partnerships currently have approximately 43 single family housing units and approximately 100 individual lots for sale. There were no sales of partnership properties during the six months ended September 30, 2008. Management anticipates continued lower sales activity for the remainder of the fiscal year.

Selected quarterly data are set forth in the following tables.

                                                                                      Three Months Ended
(Dollars in thousands - except per share amounts)          9/30/2008            6/30/2008            3/31/2008           12/31/2007

Operations Data:
Net interest income                                      $    29,954          $    33,421          $    35,066          $    31,338
Provision for loan losses                                     46,964                9,400               10,393                7,792
Net gain on sale of loans                                        808                2,243                2,984                1,468
Real estate investment partnership revenue                         -                    -                  457                1,012
Other non-interest income                                      7,439                9,566               10,121                9,430
Real estate investment partnership cost of sales                   -                    -                  548                  932
Other non-interest expense                                    30,167               26,791               29,249               24,180
Minority interest in loss of real estate
partnership operations                                           (13 )                (39 )                (43 )                (81 )
Income (loss) before income taxes                            (38,917 )              9,078                8,481               10,425
Income taxes                                                 (15,618 )              3,566                2,838                4,096
Net income (loss)                                            (23,299 )              5,512                5,643                6,329

Selected Financial Ratios (1):
Yield on earning assets                                         5.59 %               6.05 %               6.10 %               6.68 %
Cost of funds                                                   3.00                 3.22                 3.31                 4.01
Interest rate spread                                            2.59                 2.83                 2.79                 2.67
Net interest margin                                             2.62                 2.87                 2.84                 2.83
Return on average assets                                       (1.89 )               0.44                 0.43                 0.54
Return on average equity                                      (27.69 )               6.37                 6.56                 7.44
Average equity to average assets                                6.84                 6.93                 6.55                 7.31
Non-interest expense to average assets                          2.45                 2.15                 2.27                 2.16

Per Share:
Basic earnings per share                                 $     (1.11 )        $      0.26          $      0.27          $      0.30
Diluted earnings per share                                     (1.11 )               0.26                 0.27                 0.30
Dividends per share                                             0.10                 0.18                 0.18                 0.18
Book value per share                                           14.76                16.00                16.17                15.98

Financial Condition:
Total assets                                             $ 4,928,074          $ 4,949,335          $ 5,149,557          $ 4,725,773
Loans receivable, net
Held for sale                                                  4,099                6,619                9,669                6,170
Held for investment                                        4,069,369            4,129,075            4,202,833            3,941,891
Deposits                                                   3,349,335            3,406,975            3,539,994            3,145,551
Borrowings                                                 1,210,562            1,147,329            1,206,761            1,150,914
Stockholders' equity                                         317,501              343,599              345,116              341,084
Allowance for loan losses                                     64,614               40,265               38,285               28,761
Non-performing assets                                        169,062              144,137              109,488               87,002

(1) Annualized when appropriate.

                                                                                      Three Months Ended
(Dollars in thousands - except per share amounts)          9/30/2007            6/30/2007            3/31/2007           12/31/2006

Operations Data:
Net interest income                                      $    31,584          $    31,017          $    29,834          $    32,529
Provision for loan losses                                      2,095                2,271                4,050                3,375
Net gain on sale of loans                                        814                1,587                  465                  776
Real estate investment partnership revenue                     2,428                4,726                2,851                8,009
Other non-interest income                                      7,696                8,327                8,205                7,331
Real estate investment partnership cost of sales               2,669                4,340                3,153                7,115
Other non-interest expense                                    22,659               22,547               21,410               22,443
Minority interest in loss of real estate
partnership operations                                          (203 )                (75 )               (573 )                (31 )
Income before income taxes                                    15,302               16,574               13,315               15,743
Income taxes                                                   6,028                6,688                5,086                5,308
Net income                                                     9,274                9,886                8,229               10,435

Selected Financial Ratios (1):
Yield on earning assets                                         6.90 %               6.80 %               6.73 %               6.81 %
Cost of funds                                                   4.13                 4.05                 4.08                 3.92
Interest rate spread                                            2.77                 2.75                 2.65                 2.89
Net interest margin                                             2.92                 2.90                 2.81                 3.05
Return on average assets                                        0.82                 0.88                 0.74                 0.93
Return on average equity                                       11.07                11.77                 9.72                12.51
Average equity to average assets                                7.37                 7.49                 7.61                 7.45
Non-interest expense to average assets                          2.23                 2.40                 2.21                 2.64

Per Share:
Basic earnings per share                                 $      0.44          $      0.47          $      0.39          $      0.49
Diluted earnings per share                                      0.44                 0.46                 0.38                 0.48
Dividends per share                                             0.18                 0.17                 0.17                 0.17
Book value per share                                           15.88                15.54                15.55                15.45

Financial Condition:
Total assets                                             $ 4,611,526          $ 4,532,758          $ 4,539,685          $ 4,505,896
Loans receivable, net
Held for sale                                                  5,403                9,062                4,474                4,470
Held for investment                                        3,944,980            3,890,053            3,874,049            3,834,381
Deposits                                                   3,178,588            3,248,964            3,248,246            3,240,540
Borrowings                                                 1,039,540              891,016              900,477              841,219
Stockholders' equity                                         338,907              331,593              336,866              336,522
Allowance for loan losses                                     22,002               22,220               20,517               20,031
Non-performing assets                                         63,078               53,180               54,452               39,484

(1) Annualized when appropriate.

Significant Accounting Policies
There are a number of accounting policies that require the use of judgment. Some of the more significant policies are as follows:
• Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If a security has been impaired, and the impairment is deemed other-than-temporary and material, a write down will occur in that quarter. If a loss is deemed to be other-than-temporary, it is recognized as a realized loss in the consolidated statement of income with the security assigned a new cost basis. Management has applied EITF 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets," based on the security attributes at the purchase date and then does not further evaluate. All securities were of high credit quality (ie, rated AA or above) at the purchase date and therefore, do not fall within the scope of EITF99-20.

• Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale securities be carried at fair value. Management determines fair value based on quoted market prices, identical assets in active markets or by other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques. Adjustments to the available-for-sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and stockholders' equity, and possibly net income as discussed in the preceding paragraph.

• The allowance for loan losses is a valuation allowance for probable losses incurred in the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk considerations in establishing an allowance for loan losses that we believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, economic conditions, peer group experience and other considerations. This information is then analyzed to determine "estimated loss factors" which, in turn, is assigned to each loan category. These factors also incorporate known information about individual loans, including the borrowers' sensitivity to interest rate movements. Changes in the factors themselves are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose and term. Management monitors local trends to anticipate probable delinquency on a quarterly basis.

The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are provided on both a specific and general basis. Specific allowances are provided for impaired credits based on the methodologies prescribed in FASB Statement No.114. General valuation allowances are based on a portfolio segmentation based on collateral type, purpose and risk grading, with a further evaluation of various qualitative factors noted above.

We incorporate our internal loss history to establish potential risk based on collateral type securing each loan. As an additional comparison, we examine peer group banks to determine the nature and scope of their losses. Finally, we closely examine each impaired loan to individually assess the appropriate specific loan loss reserve for such credit.

At least quarterly, we review the assumptions and formulas by which additions are made to the specific and general valuation allowances for loan losses in an effort to refine such allowance in light of the current status of the factors described above. The total loan portfolio is thoroughly reviewed at least quarterly for

satisfactory levels of general and specific reserves together with impaired loans to determine if write downs are necessary.

Although we believe the levels of the allowance as of September 30, 2008 are adequate to absorb probable losses in the loan portfolio, a continued decline in local economic conditions, a continued increase in our non-performing assets or other similar factors could result in increasing losses that cannot be reasonably estimated at this time.

• Valuation of mortgage servicing rights. Mortgage servicing rights are established on loans that are originated and subsequently sold. A portion of the loan's book basis is allocated to mortgage servicing rights when a loan is sold. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from the servicing relationship using current market participant assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience exceeds what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired. Mortgage servicing rights are carried at the lower of cost or market value.

• The Corporation evaluates goodwill for impairment on at least an annual basis pursuant to SFAS 142, Goodwill and Other Intangible Assets. The Corporation evaluates goodwill on an annual basis unless there is reason to believe goodwill is impaired. The first step of the impairment evaluation involves the determination of the fair value of each reporting unit to which goodwill has been assigned. Goodwill is not impaired if the fair value of the reporting unit exceeds its carrying value. The Corporation determined that none of its goodwill was impaired as of December 31, 2007, which is the annual review date. At September 30, 2008, the Corporation's market capitalization was less than the total shareholders' equity, which is one factor that is considered when determining goodwill impairment. If current market conditions persist, it is possible that we will have a goodwill impairment charge against earnings in the next quarter.

RESULTS OF OPERATIONS
General. Net income for the three and six months ended September 30, 2008 decreased $32.6 million or 351.2% to a net loss of $23.3 million from net income of $9.3 million and decreased $36.9 million or 192.8% to a net loss of $17.8 million from net income of $19.2 million as compared to the same respective periods in the prior year. The decrease in net income for the three-month period compared to the same period last year was largely due to an increase in provision for loan losses of $44.9 million, an increase in non-interest expense of $4.8 million, a decrease in non-interest income of $2.7 million and a decrease in net interest income of $1.6 million, which were partially offset by a decrease in income tax expense of $21.6 million. The decrease in net income for the six-month period compared to the same period last year was largely due to an increase in the provision for loan losses of $52.0 million, a decrease in non-interest income of $5.5 million and an increase in non-interest expense of $4.7 million, which were partially offset by a decrease in income tax expense of $24.8 million.
Net Interest Income. Net interest income decreased $1.6 million or 5.2% for the three months ended September 30, 2008 and increased $774,000 or 1.2% for the six months ended September 30, 2008, respectively, as compared to the same respective periods in the prior year. Interest income decreased $10.7 million or 14.4% for the three months ended September 30, 2008 as compared to the same period in the prior year. Interest expense decreased $9.1 million or 21.1% for the three months ended September 30, 2008 as compared to the same period in the prior year. The net interest margin decreased to 2.62% for the three-month period ended September 30, 2008 from 2.92% for the same period in the prior year and decreased to 2.74% for the six-month period ended September 30, 2008 from 2.91% for the same period in the prior year. The change in the net interest margin reflects the decrease in yield on interest-earning assets from 6.90% to 5.59% during the three months ended September 30, 2007 and 2008, respectively. The decrease in the yield on interest-earning assets is primarily the result of the reversal of interest income on nonaccrual loans as well as the indefinite suspension of dividends on the Federal Home Loan Bank stock. The interest rate spread decreased to 2.59% from 2.77% for the three-month period and decreased to 2.71% from 2.76% for the six-month period ended September 30, 2008 as compared to the same respective periods in the prior year.
Interest income on loans decreased $10.3 million or 14.7% and $12.6 million or 9.1%, for the three and six months ended September 30, 2008, as compared to the same respective periods in the prior year. These decreases were primarily attributable to a decrease of 136 basis points in the average yield on loans to 5.76% from 7.12% for the three-month period and a decrease of 103 basis points to 6.03% from 7.06% for the six-month period. The decrease in the yield on loans was due to the reversal of interest income on nonaccrual loans as well as a modest decline in rates on loans. These decreases were offset by an increase in the average balance of loans, which increased $208.6 million in the three months and increased $251.4 million in the six months ended September 30, 2008, respectively, as compared to the same periods in the prior year. The decrease in the yield on loans for the three- and six-month period was the result of the reversal of interest income on nonaccrual loans.
Interest income on mortgage-related securities increased $659,000 or 21.8% and increased $1.3 million or 21.9% for the three- and six-month periods ended September 30, 2008, as compared to the same respective periods in the prior year, primarily due to an increase of 41 basis points in the average yield on mortgage-related securities to 5.43% from 5.02% for the three-month period and an increase of 43 basis points to 5.39% from 4.96% for the six-month period. The increase in yield on mortgage-related securities is due to the purchase of securities at a greater discount. There also was an increase of $30.1 million in the three-month average balance and an increase of $29.7 million in the six-month average balance of mortgage-related securities. Interest income on investment securities (including Federal Home Loan Bank stock) decreased $565,000 or 42.0% and $979,000 or 38.2%, respectively, for the three- and six-month periods ended September 30, 2008 as compared to the same respective periods in the prior year. These decreases for the three- and six-month periods were due to the indefinite suspension of dividends on the Federal Home Loan Bank stock in the fourth quarter of 2007. Interest income on interest-bearing deposits decreased $565,000 and $632,000, respectively, for the three and six months ended September 30, 2008 as compared to the same respective periods in 2007, primarily due to decreases in the average yields for the three- and six-month periods.
Interest expense on deposits decreased $7.5 million or 23.9% and $12.1 million or 19.3% for the three and six months ended September 30, 2008, respectively, as compared to the same respective periods in 2007. These decreases were primarily attributable to a decrease of 109 basis points in the weighted average cost of deposits to

2.83% from 3.92% and a decrease of 93 basis points in the weighted average cost of deposits to 2.97% from 3.90% for the three and six months ended September 30, 2008, respectively, as compared to the same respective periods in the prior year, partially offset by an increase in the average balance of deposits of $171.5 million and $195.7 million for the respective three- and six-month periods. The decrease in the cost of deposits was due to the fact that certificates are repricing at lower rates. Interest expense on notes payable and other borrowings decreased $1.6 million or 13.5% and $1.5 million or 6.9% during the three and six months ended September 30, 2008, as compared to the same respective periods in the prior year due to the fact that the Federal Reserve rates have been lowered. For the three- and six-month periods ended September 30, 2008, the average balance of notes payable increased $199.1 million and $236.4 million, respectively, as compared to the same respective period in 2007. The weighted average cost of notes payable and other borrowings decreased 136 basis points to 3.46% from 4.82% for the three-month period and decreased 124 basis points to 3.52% from 4.76% for the six-month period ended September 30, 2008, respectively, as compared to the same respective period last year.
Provision for Loan Losses. Provision for loan losses increased $44.9 million or 2,141.7% for the three-month period and increased $52.0 million or 1,191.0% for the six-month period ended September 30, 2008, as compared to the same respective periods last year. Management evaluates a variety of qualitative and quantitative factors when determining the adequacy of the allowance for losses. Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current economic conditions. Due to recent increased charge-offs, increases in delinquent loans and non-accrual loans (as discussed under "Asset Quality" below) and an increase in loans moved to REO management determined that increased provisions for loan losses were appropriate to reflect the risks inherent in the various lending portfolios during the current period. The provisions were based on management's ongoing evaluation of asset quality and pursuant to a policy to maintain an allowance for losses at a level which management believes is adequate to absorb probable losses on loans as of the balance sheet date.
Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread. The table on the following page shows the Corporation's average balances, interest, average rates, net interest margin and interest rate spread for the periods indicated. The average balances are derived from average daily balances.

                                                              Three Months Ended September 30,
                                                 2008                                                 2007
                                                                  Average                                              Average
                               Average                            Yield/            Average                            Yield/
                               Balance          Interest         Cost (1)           Balance          Interest         Cost (1)
                                                                   (Dollars In Thousands)
Interest-Earning Assets
. . .