The following is management's discussion and analysis of the major factors that caused changes in our consolidated results of operations and financial condition as of and for the three months ended March 31, 2009. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 and the unaudited consolidated financial statements and notes set forth elsewhere in this report.

                                    GENERAL

Selected Financial Data

The following table sets forth certain selected financial data concerning the
periods indicated:



                                                     At or for the Three Months Ended March 31,
                                                          2009                        2008
                                                       (Dollars in thousands, except share and
                                                                   per share data)
Income Statement Data:
Interest income                                   $              36,041       $              44,360
Interest expense                                                 15,620                      19,750

Net interest income                                              20,421                      24,610
Provision for loan losses                                        15,670                       4,993

Net interest income after provision for loan
losses                                                            4,751                      19,617
Non-interest income                                               4,383                       4,599
Non-interest expense                                             15,248                      14,431

Income (loss) before income tax provision
(benefit)                                                        (6,114 )                     9,785
Income tax provision (benefit)                                   (2,934 )                     4,012

Net income (loss)                                 $              (3,180 )     $               5,773

Dividends and discount accretion on preferred
stock                                             $              (1,068 )     $                  -

Net income (loss) available to common
stockholders                                      $              (4,248 )     $               5,773

Per Share Data:
Earnings (loss) per common share - basic          $               (0.16 )     $                0.22
Earnings (loss) per common share - diluted        $               (0.16 )     $                0.22
Book value (period end, excluding preferred
stock and warrants)                               $                8.47       $                8.68
Common shares outstanding                                    26,256,960                  26,193,560
Weighted average shares - basic                              26,250,258                  26,193,560
Weighted average shares - diluted                            26,250,258                  26,400,690
Statement of Financial Condition Data - at
Period End:
Assets                                            $           2,825,537       $           2,546,113
Securities available for sale                                   430,219                     273,779
Gross loans, net of deferred loan fees and
costs (excludes loans held for sale)                          2,088,228                   2,073,851
Deposits                                                      2,098,312                   1,854,349
Federal Home Loan Bank borrowings                               350,000                     393,000
Subordinated debentures                                          39,268                      39,268
Stockholders' equity                                            289,685                     227,394

                                                          At or for the Three Months Ended
                                                                      March 31,
                                                            2009                    2008
                                                               (Dollars in thousands)
Average Balance Sheet Data:
Assets                                                $       2,696,951       $       2,479,042
Securities available for sale and held to maturity              423,907                 292,283
Gross loans, including loans held for sale                    2,107,685               2,055,535
Deposits                                                      1,960,272               1,771,075
Stockholders' equity                                            291,908                 227,598
Selected Performance Ratios:
Return on average assets (1)                                      -0.47 %                  0.93 %
Return on average stockholders' equity (1)                        -4.36 %                 10.15 %
Non-interest expense to average assets (1)                         2.26 %                  2.33 %
Efficiency ratio (2)                                              61.47 %                 49.41 %
Net interest margin (3)                                            3.19 %                  4.15 %
Regulatory Capital Ratios (4)
Leverage capital ratio (5)                                        11.95 %                 10.56 %
Tier 1 risk-based capital ratio                                   14.03 %                 11.56 %
Total risk-based capital ratio                                    15.30 %                 12.59 %
Tangible common equity ratio                                       7.74 %                  8.76 %
Asset Quality Ratios:
Allowance for loan losses to gross loans,
excluding loans held for sale                                      2.42 %                  1.11 %
Allowance for loan losses to non-performing loans                122.18 %                121.15 %
Total non-performing loans to gross loans                          1.98 %                  1.79 %
Total non-performing assets to total assets (6)                    2.74 %                  0.79 %

(1) Annualized.

(2) Efficiency ratio is defined as non-interest expense divided by the sum of net interest income and non-interest income.

(3) Net interest margin is calculated by dividing annualized net interest income by average total interest-earning assets.

(4) The required ratios for a "well-capitalized" institution are 5% leverage capital, 6% tier I risk-based capital and 10% total risk-based capital.

(5) Calculations are based on average quarterly asset balances.

(6) Non-performing assets include non-accrual loans, loans past due 90 or more and still accruing interest, other real estate owned, and restructured loans.

Overview

During the three months ended March 31, 2009, we experienced strong growth in our total assets supported by growth in deposits. Our total assets grew by 5.7%, or $153.5 million, to $2.8 billion at March 31, 2009 from $2.7 billion at December 31, 2008. The increase in total assets for the period was primarily due to growth in liquid assets and investment securities. Deposit growth was primarily from non-jumbo time deposits and interest bearing demand deposits.

Net income

Net income (loss) available to common stockholders for the three months ended March 31, 2009 was $(4.2 million), or $(0.16) per diluted share, compared to $5.8 million, or $0.22 per diluted share, for the same period of 2008, representing a decrease of $10.0 million, or 174%. The decrease is primarily due to an increase in the provision for loan losses and a decrease in net interest income, partially offset by an income tax benefit.

The annualized return (loss) on average assets was (0.47)% for the first quarter of 2009, compared to 0.93% for the same period of 2008. The annualized return
(loss) on average equity was (4.36)% for the three months ended March 31, 2009, compared to 10.15% for the same period of 2008. The efficiency ratio was 61.47% for the three months ended March 31, 2009, compared to 49.41% for the same period of 2008.

Net Interest Income and Net Interest Margin

Net Interest Income and Expense

The principal component of our earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds. Net interest income expressed as a percentage of average interest-earning assets is defined as net interest margin. The net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing liabilities (interest-bearing deposits and borrowed funds). Net interest income is affected by changes in the volume of interest-earning assets and funding liabilities as well as by changes in the yield earned on interest-earning assets and the rates paid on interest-bearing liabilities.

Net interest income before provision for loan losses was $20.4 million for the quarter ended March 31, 2009, a decrease of $4.2 million, or 17.0%, compared to $24.6 million for the same period of 2008. The decrease is primarily due to a decrease in net interest margin.

Interest income for the first quarter of 2009 was $36.0 million, which represented a decrease of $8.3 million, or 18.8%, over interest income of $44.4 million for the same quarter of 2008. The decrease was the result of a $10.8 million decrease in interest income due to a decrease in the average yield earned on average interest-earning assets (rate change), partially offset by a $2.4 million increase in interest income due to an increase in the volume of those average interest-earning assets (volume change).

Interest expense for the first quarter of 2009 was $15.6 million, a decrease of $4.1 million, or 20.9%, compared to interest expense of $19.8 million for the same quarter of 2008. The decrease was primarily the result of a $6.0 million decrease in interest expense due to a decrease in the average rates paid on interest-bearing liabilities (rate change), partially offset by $1.9 million increase in interest expense due to an increase in the volume of average interest-bearing liabilities (volume change).

Net Interest Margin

During the first quarter 2009, the net interest margin decreased 96 basis points to 3.19% from 4.15% for the same quarter of last year. The weighted average yield on the loan portfolio for the first quarter 2009 decreased 184 basis points to 6.01% from 7.85% for the same quarter of last year. The decrease was the result of the prime rate-based portion of the loan portfolio repricing downward as market interest rates continued to decline due to further reductions in interest rates by the Federal Reserve throughout 2008. The prime rate declined 200 basis points since the first quarter 2008. The decrease in net interest margin was also attributable to a shift in asset allocation from loans into lower yielding investment securities and other short-term investments, such as overnight federal funds sold. The change in asset mix was part of a plan to improve our liquidity and strengthen the balance sheet. The weighted average yield on investment securities for the first quarter 2009 decreased 94 basis points to 4.08% from 5.02% for the same quarter 2008. The decrease was attributable to variable rate agency CMO investment securities repricing downward as one month LIBOR rates declined.

The weighted average cost of deposits for first quarter 2009 decreased 102 basis points to 2.41% from 3.43% for the same quarter last year. The cost of time deposits decreased 175 basis points to 2.81% from 4.56%, accounting for a substantial portion of the decrease.

Following are selected weighted average data at March 31, 2009 and 2008:

                                                                   March 31,       March 31,
                                                                     2009            2008
Weighted average loan portfolio yield (excluding discounts)             6.06 %          7.21 %
Weighted average securities available-for-sale portfolio yield          4.25 %          4.89 %
Weighted average cost of time deposits                                  2.80 %          4.04 %
Weighted average cost of deposits                                       2.41 %          3.09 %
Weighted average cost of total interest-bearing deposits                2.83 %          3.82 %

Prepayment penalty income for first quarter 2009 and 2008 was $147 thousand and $221 thousand, respectively. Non-accrual interest income recognized (reversed) was $(394 thousand) and $159 thousand for the first quarter ended March 31, 2009 and 2008, respectively. Excluding the effects of both non-accrual loan interest income and prepayment penalty income, the net interest margin for first quarter 2009 and 2008 was 3.23% and 4.09%, respectively.

Prepayment penalty income will vary with the level of loans paid off. Generally as interest rates decline, the level of pay-offs increase as fixed rate borrowers refinance their loans, which generate higher levels of prepayment penalty income. However, the deteriorating economic environment in recent years has slowed sales of properties and business, and has the effect of reducing loan pay-offs. It is difficult to determine the trend in prepayment penalty income given these two competing factors.

The following table presents our condensed consolidated average balance sheet information, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:

                                              Three months ended                    Three months ended
                                                March 31, 2009                        March 31, 2008
                                                     Interest    Average                   Interest    Average
                                         Average      Income/    Yield/        Average      Income/    Yield/
                                         Balance      Expense    Rate *        Balance      Expense    Rate *
                                                               (Dollars in thousands)
INTEREST EARNINGS ASSETS:
Loans (1) (2)                          $ 2,107,685   $  31,672      6.01 %   $ 2,055,535   $  40,364      7.85 %
Securities available for sale (3)          423,907       4,320      4.08 %       292,283       3,668      5.02 %
FRB and FHLB stock and other
investments                                 22,880          48      0.84 %        22,940         316      5.51 %
Federal funds sold                           2,267           1      0.18 %         1,506          12      3.19 %

Total interest earning assets          $ 2,556,739   $  36,041      5.64 %   $ 2,372,264   $  44,360      7.48 %

INTEREST BEARING LIABILITITES:
Deposits:
Demand, interest-bearing               $   342,843   $   2,265      2.64 %   $   246,120   $   1,912      3.11 %
Savings                                    111,233       1,008      3.62 %       136,596       1,308      3.83 %
Time deposits:
$100,000 or more                           579,333       3,544      2.45 %       606,746       7,515      4.95 %
Other                                      637,226       5,008      3.14 %       443,570       4,471      4.03 %

Total time deposits                      1,216,559       8,552      2.81 %     1,050,316      11,986      4.56 %

Total interest bearing deposits          1,670,635      11,825      2.83 %     1,433,032      15,206      4.24 %

FHLB advances                              368,584       3,237      3.51 %       401,148       3,783      3.77 %
Other borrowings                            39,734         558      5.62 %        37,618         761      8.09 %

Total interest bearing liabilities       2,078,953   $  15,620      3.01 %     1,871,798   $  19,750      4.22 %


Non-interest bearing demand deposits       291,324                               338,043

Total funding liabilities / cost of
funds                                  $ 2,370,277                  2.64 %   $ 2,209,841                  3.57 %

Net interest income/net interest
spread                                               $  20,421      2.63 %                 $  24,610      3.26 %

Net interest margin                                                 3.19 %                                4.15 %
Net interest margin, excluding
effect of non-accrual loan
income(expense) (4)                                                 3.26 %                                4.12 %
Net interest margin, excluding
effect of non-accrual loan
income(expense) and prepayment fee
income (4) (5)                                                      3.23 %                                4.09 %
Cost of deposits:
Non-interest demand deposits           $   291,324   $      -                $   338,043   $      -
Interest bearing deposits                1,670,635      11,825      2.83 %     1,433,032      15,206      4.24 %

Total deposits                         $ 1,961,959   $  11,825      2.41 %   $ 1,771,075   $  15,206      3.43 %

* Annualized

(1) Interest income on loans includes loan fees and net interest settlement from interest rate swaps.

(2) Average balances of loans are net of deferred loan fees and costs and include nonaccrual loans and loans held for sale.

(3) Interest income and yields are not presented on a tax-equivalent basis.

(4) Non-accrual interest income recognized (reversed) was $(394 thousand) and $159 thousand for the three months ended March 31, 2009 and 2008, respectively.

(5) Loan prepayment fee income excluded was $147 thousand and $221 thousand for the three months ended March 31, 2009 and 2008, respectively.

The following table illustrates the changes in our interest income, interest expense, and amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the changes due to volume and the changes due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.

                                                       Three months ended
                                               March 31, 2009 over March 31, 2008

                                              Net                  Change due to
                                            Increase
                                           (Decrease)            Rate          Volume
                                                     (Dollars in thousands)
    INTEREST INCOME :
    Interest and fees on loans            $     (8,692 )     $      (9,693 )   $ 1,001
    Interest on securities                         652                (781 )     1,433
    Interest on other investments                 (268 )              (267 )        (1 )
    Interest on federal funds sold                 (11 )               (15 )         4

    Total interest income                 $     (8,319 )     $     (10,756 )   $ 2,437

    INTEREST EXPENSE :
    Interest on demand deposits           $        353       $        (317 )   $   670
    Interest on savings                           (300 )               (67 )      (233 )
    Interest on time deposits                   (3,434 )            (5,118 )     1,684
    Interest on FHLB borrowings                   (546 )              (250 )      (296 )
    Interest on subordinated debentures           (203 )              (244 )        41

    Total interest expense                $     (4,130 )     $      (5,996 )   $ 1,866

    Net Interest Income                   $     (4,189 )     $      (4,760 )   $   571

Provision for Loan Losses

The provision for loan losses reflects our judgment of the current period cost associated with credit risk inherent in our loan portfolio. The loan loss provision for each period is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties' and regulators' examination of the quality of the loan portfolio, the value of the underlying collateral on problem loans and the general economic conditions in our market areas. Specifically, the provision for loan losses represents the amount charged against current period earnings to achieve an allowance for loan losses that, in our judgment, is adequate to absorb probable incurred losses inherent in our loan portfolio. Periodic fluctuations in the provision for loan losses result from management's assessment of the adequacy of the allowance for loan losses; however, actual loan losses may vary from current estimates. If the allowance for loan losses is inadequate, it could have a material adverse effect on our financial condition.

The provision for loan losses for the three months ended March 31, 2009 was $15.7 million, an increase of $10.7 million or 214%, from $5.0 million for the same period last year. The increase is primarily due to the increases in net charge-offs and watch list loans. The net charge-offs increased to $8.6 million for first quarter of 2009, compared to $1.9 million for the same quarter last year. The classified loans increased significantly to $174.1 million at March 31, 2009, compared to $41.0 million at March 31, 2008.

See Footnote 7 of the Notes to Condensed Consolidated Financial Statements (unaudited) and Financial Condition-Allowance for Loan Losses for further discussion.

Non-interest Income

Non-interest income includes revenues earned from sources other than interest income. It is primarily comprised of service fees on deposits accounts, fees received from our TFS letter of credit operations and net gains on sale of loans and net gains on calls or sales of securities available for sale.

Non-interest income for the first quarter of 2009 was $4.4 million compared to $4.6 million for the same quarter of 2008, a decrease of $216 thousand, or 4.7%. This was primarily due to a decrease in net gains on sales of SBA loans, offset by an increase in net gains on sale of other loans and securities available for sale. The net gains on sales of SBA loans decreased $652 thousand, or 91.2%, to $63 thousand for the first quarter of 2009, compared to $715 thousand for the same quarter of 2008. Net gains of $63 thousand for the quarter represents the SBA loan discounts recognized on loans that were paid off. There were no sales of SBA loans for the first quarter 2009, compared to $24.4 million for the same quarter 2008. The origination of SBA loans also declined significantly beginning in the second quarter of 2008, due to the tightening of our underwriting standards and decreases in business sales transactions due to the slowdown in the economy. Total SBA loan originations for the first quarter 2009 were $570 thousand, compared to $21.4 million for the same quarter of 2008.

The net gains on sales of other loans for first quarter 2009 increased by $302 thousand to $387 thousand from $85 thousand for the same quarter 2008. During first quarter of 2009, we sold a non-SBA problem loan that had been written down during fourth quarter 2008.

We recognized $785 thousand in net gains on sales of $42.9 million of available-for-sale MBS during first quarter of 2009. For the first quarter of 2008, we recognized $467 thousand in net gains on sale of $54.1 million of available for sale MBS and the exercise of calls by issuers on $18.1 million of callable agency securities. The sales of securities were part of our on-going interest rate risk management strategy.

The breakdown of changes in our non-interest income by category is illustrated below:

                                                   Three Months Ended                      Increase (Decrease)
                                         March 31, 2009           March 31, 2008        Amount        Percent (%)
                                                                 (Dollars in thousands)
Service fees on deposit accounts        $           1,769        $          1,821       $   (52 )            -2.9 %
International service fees                            420                     445           (25 )            -5.6 %
Loan servicing fees, net                              475                     528           (53 )           -10.0 %
Wire transfer fees                                    352                     364           (12 )            -3.3 %
Other income and fees                                 378                     481          (103 )           -21.4 %
Net gains on sales of SBA loans                        63                     715          (652 )           -91.2 %
Net gains on sales of other loans                     387                      85           302             355.3 %
Net gains on sales securities
available for sale                                    785                     467           318              68.1 %
Net losses on sale of OREO                           (130 )                    -           (130 )          -100.0 %
Net valuation loss on interest rate
swaps                                                (116 )                  (307 )         191             -62.2 %

Total non-interest income               $           4,383        $          4,599       $  (216 )            -4.7 %

Non-interest Expense

Non-interest expense for first quarter 2009 was $15.2 million compared to $14.4 million for the same quarter of 2008, an increase of $817 thousand, or 5.7%. Salaries and employee benefits decreased 15.6% to $6.4 million during the first quarter of 2009, compared to $7.6 million for the same quarter last year. The decrease is primarily due to a decrease in bonus expense and in the number of full-time equivalent employees ("FTE"). In an effort to improve our efficiency, we allowed some attrition in staffing in order to reduce the FTE employee count. We also closed four loan production offices where loan demand was significantly decreased over the past year. At March 31, 2009, we had 367 FTE employees compared to 409 FTE employees at March 31, 2008.

Occupancy expense for the first quarter 2009 increased by $263 thousand to $2.4 million from $2.2 million for the same quarter of 2008. The increase is primarily due to the opening of new branches during 2008. Other non-interest expense for the first quarter 2009 increased by $1.6 million, or 81.4%, to $3.6 million, compared to $2.0 million for the same quarter of 2008. The increase in other non-interest expense includes increased FDIC insurance premiums and credit related expenses. The FDIC insurance premium increased 143% to $750 thousand for first quarter 2009 from $309 thousand for the same quarter last year, primarily due to an increase in assessment fees charge by the FDIC. The FDIC proposed a one-time assessment of up to 20 basis points for deposits as of June 30, 2009 to be paid in September 2009. If enacted at the full 20 basis points proposal, the . . .