The quality of the Company's assets also influences its earnings. Loans and leases that are not paid on a timely basis and exhibit other weaknesses can result in the loss of principal and/or interest income. Additionally, the Company must make timely provisions to the allowance for loan and lease losses based on estimates of probable losses inherent in the loan and lease portfolio; these additions, which are charged against earnings, are necessarily greater when greater probable losses are expected. Further, the Company incurs expenses as a result of resolving troubled assets. All of these reflect the "credit risk" that the Company takes on in the ordinary course of business and is further discussed under "Financial Condition - Asset Quality" on page 21. The Company's business strategy has been to concentrate its asset generation efforts on commercial and consumer loans and its deposit generation efforts on checking and savings accounts. These deposit accounts are commonly referred to as "transaction accounts." This strategy is based on the Company's belief that it can distinguish itself from its larger competitors, and indeed attract customers from them, through a higher level of service and through its ability to set policies and procedures, as well as make decisions, locally. The loan and deposit products referenced also tend to be geared more toward customers who are relationship oriented than those who are seeking stand-alone or single transaction products. The Company believes that its service-oriented approach enables it to compete successfully for relationship-oriented customers. Additionally, the Company is predominantly an urban franchise with a high concentration of businesses, which makes deployment of funds in the commercial lending area practicable. Commercial loans are attractive to the Company, among other reasons, because of their higher yields. Similarly, transaction accounts are attractive to the Company because of their generally lower interest cost and potential for fee income.
The deposit market in Rhode Island is highly concentrated. The State's three largest banks have an aggregate market share of approximately 87% (based upon June 2008 FDIC statistics, excluding one bank that draws its deposits primarily from the internet) in Providence and Kent Counties, the Bank's primary marketplace. Competition for loans and deposits remains intense. This competition has resulted in considerable advertising and promotional product offerings by competitors, including print, radio and television media as well as web-based advertising and promotions.
The Company also seeks to leverage business opportunities presented by its customer base, franchise footprint and resources. In 2005, the Bank completed the acquisition of an equipment leasing company located in Long Island, New York ("Macrolease") and formed a private banking division. The Bank is using the Macrolease platform to increase the Bank's loan and lease portfolio, as well as to generate additional income by originating equipment leases for third parties. For the three months ended March 31, 2009, approximately 82% of the Company's revenues (defined as net interest income plus noninterest income) were derived from its net interest income. In a continuing effort to diversify its sources of revenue, the Company has sought to expand its sources of noninterest income (primarily fees and charges for products and services the Bank offers). Service charges on deposit accounts remain the largest component of noninterest income. The future operating results of the Company will depend upon on the ability to maintain its net interest margin, while minimizing its exposure to credit risk, along with increasing sources of noninterest income, while controlling the growth of noninterest or operating expenses.

Financial Condition - Executive Summary
Selected balance sheet data is presented in the table below as of the dates indicated:

                                             March 31,       December 31,       September 30,       June 30,        March 31,
(In thousands)                                 2009              2008               2008              2008            2008

Total assets                                $ 1,548,863     $    1,528,974     $     1,489,980     $ 1,490,054     $ 1,490,720
Loans and leases receivable                   1,105,298          1,077,742           1,060,739       1,060,304       1,024,901
Available for sale securities                   356,681            326,406             333,431         333,812         342,512
Goodwill                                         12,051             12,019              12,019          12,019          12,019
Transaction accounts (a)                        636,240            618,749             615,085         662,888         658,557
Certificates of deposit                         419,621            423,443             407,069         377,626         379,673
Borrowings                                      320,517            320,015             338,862         321,628         317,099
Total shareholders' equity                      150,962            149,605             114,226         113,094         114,831
Common shareholders' equity                     122,306            121,010             114,226         113,094         114,831
Book value per common share                       26.57              26.45               24.97           24.75           25.21
Tangible book value per common share              23.95              23.82               22.34           22.12           22.57
Tangible common equity ratio                       7.17 %             7.18 %              6.92 %          6.84 %          6.95 %
Transaction accounts to total deposits(a)          60.3 %             59.4 %              60.2 %          63.7 %          63.4 %

(a) Transaction accounts consist of demand deposit, NOW, money market and savings accounts.

Total assets increased by $19.9 million since December 31, 2008. Total loans and leases increased by $27.6 million during the first three months of 2009, with increases in commercial loans and leases and consumer and other loans up $28.2 million, or 4.3%, and $8.2 million, or 4.0%, respectively. Slightly offsetting this increase was a decrease in the residential mortgage loan portfolio of $8.9 million, or 4.2%. Available for sale securities increased $30.3 million, or 9.3%, since year-end. The Bank's transaction accounts increased by $17.5 million, or 2.8%, since year-end. Within this increase, savings accounts increased by $15.4 million, or 4.0%, and NOW accounts increased by $6.3 million, or 11.1%, offset by a decrease in demand deposit accounts of $6.8 million, or 3.9%. Borrowings increased by $502,000, or 0.2%. Shareholders' equity as a percentage of total assets was 9.7% at March 31, 2009 and 9.8% at December 31, 2008.
The Company's financial position at March 31, 2009 as compared to March 31, 2008 reflects net growth of $80.4 million in total loans and leases. This increase reflects the continuing conversion of the balance sheet to a more commercial profile with increases in commercial loans and leases of $109.7 million, or 19.0%. Consumer loans increased $3.4 million, or 1.6%, from the prior year quarter-end. The residential mortgage portfolio declined $32.7 million, or 13.8%, from March 31, 2008. Also, available for sale securities at March 31, 2009 increased by $14.2 million, or 4.1%. Total deposits have increased $17.6 million, or 1.7%, since the prior year quarter-end, with growth centered in certificate of deposit accounts of $39.9 million, NOW accounts of $1.3 million and money market accounts of $884,000. These increases were offset by decreases in savings accounts of $14.3 million and demand deposit accounts of $10.2 million. Borrowings have decreased since March 31, 2008 by $3.4 million.

Financial Condition - Detailed Analysis

Investments
Total investments consist of available for sale securities, stock in the FHLB and overnight investments. Total investments comprised $373.1 million, or 24.1% of total assets at March 31, 2009, compared to $343.2 million, or 22.4% of total assets at December 31, 2008, representing an increase of $29.9 million, or 8.7%. Available for sale securities are recorded at fair value. At March 31, 2009, the fair value of available for sale securities was $356.7 million and carried a total of $1.6 million of net unrealized gain at the end of the quarter, compared to $639,000 of net unrealized gain at December 31, 2008.
The investment portfolio provides the Company a source of short-term liquidity and acts as a counterbalance to loan and deposit flows. During the first three months of 2009, the Company purchased $81.5 million of available for sale securities compared to $66.1 million during the same period in 2008. Maturities, calls and principal repayments totaled $50.4 million for the three months ended March 31, 2009 compared to $47.3 million at for the same period in 2008. Additionally, in the first three months of 2009, the Company sold $1.9 million of mortgage-backed securities generating gains of $61,000.
The Company performs regular impairment analysis on the available for sale securities portfolio. If the Company determines that a decline in fair value is other-than-temporary, an impairment write-down is recognized in current earnings. In making these other-than-temporary impairment determinations, management considers, among other facts, the length of time and extent to which the fair value has been less than cost and the creditworthiness and near-term prospects of the issuer. Management also considers capital adequacy, interest rate risk, liquidity and business plans in assessing the intent and ability to hold all securities with unrealized losses until recovery or maturity. The Company owns two collateralized debt obligations ("CDOs") backed by pools of trust preferred securities. The total unrealized loss on these securities as of March 31, 2009 was $2.0 million. During the third quarter of 2008, one of the CDOs was determined to have experienced an adverse change in cash flows and to be other-than-temporarily impaired. If the creditworthiness of the underlying issuers of the trust preferred securities or any other securities in the available for sale portfolio deteriorates, it is possible that the Company may recognize additional other-than-temporary impairments in future periods. As of March 31, 2009, the Company's securities in an unrealized loss position were deemed to be not other-than-temporarily impaired after considering the aforementioned factors. In addition, the Company has the intent and ability to hold securities with unrealized losses until recovery or maturity and believes it will continue to receive all contractual principal and interest payments. Loans and Leases
Total loans and leases increased by $27.6 million since December 31, 2008 and stood at $1.11 billion at March 31, 2009. As a percentage of total assets, loans and leases increased to 71.4% at March 31, 2009, compared to 70.5% at December 31, 2008. This increase was centered in commercial loans, where the Company concentrates its origination efforts, and was partially offset by decreases in residential mortgage loans, which the Company primarily purchases. Total loans and leases as of March 31, 2009 are comprised of three broad categories: commercial loans and leases that aggregate $686.7 million, or 62.1% of the portfolio; residential mortgages that aggregate $203.8 million, or 18.4% of the portfolio; and consumer and other loans that aggregate $214.8 million, or 19.4% of the portfolio.
Commercial loans and leases - The commercial loan and lease portfolio (consisting of commercial real estate, commercial and industrial, equipment leases, multi-family real estate, construction and small business loans) increased $28.2 million, or 4.3%, during the first three months of 2009. The primary drivers of this growth occurred in the commercial real estate and commercial and industrial areas.
The Bank's business lending group originates business loans, also referred to as commercial and industrial loans, including owner-occupied commercial real estate loans, term loans and revolving lines of credit. Within the business lending portfolio, commercial and industrial loans increased $13.2 million, or 8.0%, while owner-occupied commercial real estate loans decreased by $1.8 million, or 1.0%, since year-end.
The Bank's commercial real estate ("CRE") group originates nonowner-occupied commercial real estate, multi-family residential real estate and construction loans. These real estate secured commercial loans are offered as both fixed and adjustable-rate products. Since December 31, 2008, CRE loans have increased $12.3 million, or 5.6%, on a net basis.
The Bank purchases equipment leases from originators outside of the Bank. The U.S. Government or its agencies are the principal lessees on these purchased leases. These "government" leases generally have maturities of five years or less and are not dependent on residual collateral values. At March 31, 2009, $7.2 million of purchased government leases were included in the commercial loan and lease portfolio.

With the Macrolease platform, the Bank originates and purchases equipment loans and leases for its own portfolio, as well as originates loans and leases for third parties as a source of noninterest income. At March 31, 2009, Macrolease-generated loans and leases totaled $92.7 million and comprised 13.5% of the commercial loan and lease portfolio.
At March 31, 2009, small business loans (business lending relationships of approximately $500,000 or less) were $51.2 million, or 7.5% of the portfolio, compared to $50.5 million, or 7.7% of the portfolio at December 31, 2008. These loans reflect those originated by the Bank's business development group, as well as throughout the Bank's branch system. The Bank utilizes credit scoring and streamlined documentation, as well as traditional review standards in originating these credits.
The Bank is a participant in the U.S. Small Business Administration ("SBA") Preferred Lender Program in both Rhode Island and Massachusetts. SBA guaranteed loans are found throughout the portfolios managed by the Bank's various lending groups.
The Company believes it is well positioned for continued commercial growth. The Bank places particular emphasis on the generation of small- to medium-sized commercial relationships (those with $10.0 million or less in total loan commitments).
Residential mortgage loans - Since inception, the Bank has concentrated its portfolio lending efforts on commercial and consumer lending opportunities, but originates mortgage loans for its own portfolio on a limited basis. The Bank employs one mortgage originator who supports the Bank's customer base. The Bank does not employ any outside mortgage originators, but periodically purchases residential mortgage loans from third-party originators. During the three months of 2009, residential mortgage loans decreased $8.9 million, or 4.2%. During this period, the Bank originated $1.9 million of mortgages for the portfolio. Comparatively, during the first three months of 2008, the Bank did not originate any mortgages. No mortgages were purchased for the portfolio during the first three months of 2009 or 2008. The Bank may purchase residential mortgage loans with high credit quality to utilize available cash flow if and when opportunities arise.
Consumer loans - The consumer loan portfolio increased $8.2 million, or 4.0%, during the first three months of 2009 as originations and advances of $19.9 million exceeded repayments of $11.7 million. The increase in growth through March 31, 2009 was reflective of the Company's home equity loan promotions during the first three months of the year. The Company continues to offer consumer lending as it believes that these amortizing fixed rate products, along with floating rate lines of credit, possess attractive cash flow characteristics in the current interest rate environment.

The following is a summary of loans and leases receivable:

                                                   March 31,       December 31,
                                                     2009              2008
                                                          (In thousands)
     Commercial loans and leases:
     Commercial real estate - owner occupied      $   173,691     $      175,472
     Commercial and industrial                        177,810            164,569
     Commercial real estate - nonowner occupied       147,517            133,782
     Small business                                    51,200             50,464
     Multi-family                                      51,625             53,159
     Construction                                      22,405             22,300
     Leases and other (a)                              68,202             63,799

     Subtotal                                         692,450            663,545
     Unearned lease income                             (7,833 )           (6,980 )
     Net deferred loan origination costs                2,045              1,857

     Total commercial loans and leases                686,662            658,422


     Residential mortgage loans:
     One- to four-family adjustable rate              123,749            126,689
     One- to four-family fixed rate                    79,528             85,057

     Subtotal                                         203,277            211,746
     Premium on loans acquired                            551                953
     Net deferred loan origination fees                   (28 )              (34 )

     Total residential mortgage loans                 203,800            212,665


     Consumer loans:
     Home equity - term loans                         132,415            127,142
     Home equity - lines of credit                     79,284             76,038
     Unsecured and other                                1,915              2,216

     Subtotal                                         213,614            205,396
     Net deferred loan origination costs                1,222              1,259

     Total consumer loans                             214,836            206,655

     Total loans and leases receivable            $ 1,105,298     $    1,077,742

(a) Included within commercial loans and leases were leases held for sale of $156,000 at December 31, 2008. There were no leases held for sale at March 31, 2009.

Deposits
Total deposits increased by $13.7 million, or 1.3%, during the first three
months of 2009, from $1.04 billion at December 31, 2008 to $1.06 billion at
March 31, 2009. Total deposits as a percentage of total assets remained
consistent at 68.2% for March 31, 2009 and December 31, 2008.
The following table sets forth certain information regarding deposits:

                                       March 31, 2009                                December 31, 2008
                                           Percent        Weighted                        Percent        Weighted
                                              Of          Average                            of          Average
                            Amount          Total           Rate           Amount          Total           Rate
                                                               (In thousands)

NOW accounts              $    63,013           6.0 %          0.08 %    $    56,703           5.5 %          0.10 %
Money market accounts           7,056           0.7 %          0.80 %          4,445           0.4 %          0.39 %
Savings accounts              396,492          37.5 %          1.08 %        381,106          36.6 %          1.46 %
Certificate of deposit
accounts                      419,621          39.7 %          3.16 %        423,443          40.6 %          3.29 %

Total interest bearing
deposits                      886,182          83.9 %          1.99 %        865,697          83.1 %          2.26 %
Noninterest bearing
accounts                      169,679          16.1 %          0.00 %        176,495          16.9 %          0.00 %

Total deposits            $ 1,055,861         100.0 %          1.67 %    $ 1,042,192         100.0 %          1.89 %

During the first three months of 2009, competition for deposits remained strong in the Company's market areas. During this period, the Bank increased its total deposits by $13.7 million as compared to December 31, 2008. Saving accounts and money market accounts grew $15.4 million and $2.6 million, respectively, over the past three months. NOW accounts grew to $63.0 million, an increase of $6.3 million from $56.7 million at December 31, 2008. These increases offset the decline of demand deposit and certificate of deposit accounts ("CDs") of $6.8 million and $3.8 million, respectively. At March 31, 2009, brokered CDs were $20.0 million, or 1.9% of total deposits, compared to $30.0 million, or 2.9% at year-end. The Bank may continue to utilize brokered CDs if rates are attractive compared to wholesale funding.

Borrowings
The Bank routinely enters into repurchase agreements with its larger deposit and commercial customers as part of its cash management services. These repurchase agreements represent an additional source of funds and are typically overnight borrowings. The Bank also borrows funds through the use of secured wholesale repurchase agreements with correspondent banks. Overnight and short-term borrowings decreased $13.9 million during the first three months of 2009 from the December 31, 2008 level of $57.7 million. FHLB borrowings increased by $14.4 million from the December 31, 2008 amount of $238.9 million. Wholesale repurchase agreements remained constant with the December 31, 2008 balance of $10.0 million. The Bank may utilize wholesale repurchase agreement funding or brokered CDs in the future if spreads are favorable compared to FHLB borrowings. On a long-term basis, the Company intends to continue concentrating on increasing its transaction accounts and will utilize FHLB borrowings, brokered deposits, Federal Reserve discount window borrowings or wholesale repurchase agreements as cash flows dictate, as opportunities present themselves and as part of the Bank's overall strategy to manage interest rate risk. Asset Quality
"Nonperforming assets" consist of "nonperforming loans" and other real estate owned ("OREO"). OREO consists of real estate acquired through foreclosure proceedings and real estate acquired through acceptance of a deed in lieu of foreclosure. "Nonperforming loans" are nonaccrual loans, loans past due 90 days or more, but still accruing and impaired loans. Under certain circumstances the Company may restructure the terms of a loan as a concession to a borrower. These restructured loans are generally considered "nonperforming loans" until a . . .