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Cascade Financial (CASB) Earns $1.6 Million in Third Quarter; Reports Strong Checking Deposit Growth

Cascade Financial Corporation (Nasdaq:CASB), parent company of Cascade Bank, today reported net income of $1.6 million for the third quarter of 2009. After adjustments for the preferred stock dividend and accretion of the issuance discount on the U.S. Treasury preferred stock, the Bank earned $1.0 million, or $0.09 per diluted share, in the third quarter of 2009, compared to a net loss of $6.6 million, or $0.55 per diluted share, in the third quarter a year ago. Dividends on preferred stock issued to the U.S. Treasury under the Capital Purchase Program for the quarter totaled $487,125, and the accretion of the issuance discount on preferred stock for the quarter was $105,000. In the third quarter last year, Cascade recorded an Other Than Temporary Impairment (OTTI) charge of $17.3 million on Fannie Mae and Freddie Mac preferred shares after the U.S. Government placed these companies into conservatorship. Excluding the OTTI charge, third quarter 2008 net income would have been $4.7 million.

“Cascade posted a solid quarter, returning to profitability with record checking deposit growth, controlled operating costs and a stable net interest margin, in spite of the drag of nonperforming loans,” stated Carol K. Nelson, President and CEO. “Checking deposits were up 89% year-over-year and 14% from the prior quarter, and the net interest margin expanded slightly from the previous quarter as core deposit growth helped lower our cost of funds. We continue to operate in a challenging lending environment and are taking every opportunity to strengthen our capital levels and have increased our total risk based capital to 13.01% from 12.62% in the second quarter.”

 3Q09 Highlights:  (compared to 3Q08)

 * Net income of $1.6 million, with income available to common
   shareholders of $1.0 million, or $0.09 per diluted common share
 * Compensation expense down 11% in spite of adding one new branch
 * Deposit mix improved with total checking account balances
   representing 32% of total deposits versus 17%
 * Total checking account balances increased 89%
   * Personal checking account balances grew 119%
   * Business checking account balances grew 56%
 * Loan portfolio mix improved with a 29% reduction in real estate
   construction loans
 * Total allowance for loan losses to total loans increased to
   2.02%, up from 1.21%
 * Tier 1 capital ratio improved to 9.05% from 7.87%
 * Risk weighted capital ratio increased to 13.01% from 10.40%

Year to date, Cascade reported a net loss of $24.6 million, and a loss attributable to common stockholders of $26.4 million, or $2.18 per diluted share, compared to a net loss of $372,000 for the first nine months of 2008. During the second quarter of 2009, Cascade recorded an impairment charge of $11.7 million against its goodwill based upon an impairment analysis. The non-cash goodwill impairment charge represented the write-off of a portion of the goodwill recorded from a prior bank acquisition. The goodwill charge does not impact liquidity, operations, tangible capital or the Corporation’s regulatory capital ratios. The loan loss provision for the first nine months of 2009 was $36.2 million versus $4.8 million in the first nine months of 2008.

Credit Quality

“Asset quality trends are beginning to show signs of stabilization,” said Rob Disotell, Chief Credit Officer. “During the third quarter, Cascade had lower charge-offs, which have moderated after we aggressively wrote down the value of loans during the first half of 2009. Additionally, the pace of nonperforming loan growth has slowed. While Nonperforming Loans (NPLs) were up $11.2 million, Real Estate Owned (REO) and other repossessed assets were down $905,000 compared to the previous quarter.”

Nonperforming loans increased during the quarter to $125.7 million, or 10.21% of total loans, at September 30, 2009, compared to $114.4 million or 9.33% of total loans three months earlier.

The following table shows nonperforming loans versus total loans in each category:

                                                 Nonper
                                    Balance at   -forming   NPL as a %
 LOAN PORTFOLIO ($ in 000's)         9/30/2009  Loans (NPL)  of Loans
 ---------------------------        ----------  ----------  ----------
 Business                           $  473,546  $    8,624          2%
 R/E construction
  Spec construction                     70,325      17,760         25%
  Land acquisition and development     129,345      56,835         44%
  Land                                  35,416      19,679         56%
  Multifamily and
   custom construction                  17,594          --          0%
  Commercial construction               32,208       6,364         20%
                                    ----------  ----------
 Total R/E construction                284,888     100,638         35%
 Commercial R/E                        193,652      13,459          7%
 Multifamily                            84,029       2,100          2%
 Home equity/consumer                   31,455         458          1%
 Residential                           163,151         408          0%
                                    ----------  ----------
 Total                              $1,230,721  $  125,687         10%
                                    ==========  ==========

“During the quarter we saw good migration of nonperforming loans through the loan portfolio,” added Disotell. While $20.9 million in loans were placed on nonaccrual status, $6.0 million were paid off during the quarter, and $3.4 million were charged off. Additions to nonperforming loans were centered in:

 * $8.1 million in loans to one business banking client secured by
   real estate
 * $6.4 million in commercial real estate construction loans on a
   retail building
 * $2.6 million in advances on existing spec construction loans to
   fund the completion of single family homes, with over
   $4.1 million in paydowns during the quarter
 * $1.9 million in net additions to multifamily loans

 Paydowns on loans on nonaccrual status during the quarter were
 centered in:
 * $4.1 million in spec construction loans through the sale of
   completed homes
 * $1.9 million in land acquisition and development through the
   sale of completed homes

Net additions to nonaccrual loans were $11.2 million for the quarter.

The following table shows the migration of nonperforming loans through the portfolio in each category: (9/30/09 compared to 6/30/09)

 NONPER
  -FORMING
  LOANS     Balance   Additions Paydowns Charge-offs           Balance
 ($ in         at      during    during    during  Transfers     at
  000's)   9/30/2009   quarter   quarter   quarter   to REO  6/30/2009
 -------------------  --------  --------  --------  --------  --------
 Business   $  8,624  $  8,098  $    (24) $     --  $     --  $    550
 R/E
  construc
  -tion
  Spec
   construc
   -tion      17,760     2,640    (4,138)     (986)       --    20,244
  Land
   acqui
   -sition
   and
   develop
   -ment      56,835        --    (1,870)   (1,140)     (239)   60,084
  Land        19,679       788        --    (1,204)       --    20,095
  Commercial
   R/E         6,364     6,364        --        --        --        --
            --------  --------  --------  --------  --------  --------
 Total R/E
  construc
  -tion      100,638     9,792    (6,008)   (3,330)     (239)  100,423
 Commercial
  R/E         13,459       724        --        --        --    12,735
 Multifamily   2,100     1,850        --        --        --       250
 Home equity
  /consumer      458       307        --       (55)      (10)      216
 Residential     408       140        (7)       --        --       275
            --------  --------  --------  --------  --------  --------
 Total      $125,687  $ 20,911  $ (6,039) $ (3,385) $   (249) $114,449
            ========  ========  ========  ========  ========  ========

“Despite increased levels of home sales in the Puget Sound Region in recent months, the housing market remains fragile and continues to present challenges,” said Disotell. “We continue to build our allowance for loan losses with a year-to-date provision expense of $36.2 million compared to net charge-offs of $27.2 million and a third quarter provision expense of $4.0 million compared to net charge-offs of $3.4 million.” Net charge-offs were $18.5 million in the preceding quarter and $43,000 in the third quarter a year ago. At September 30, 2009, REO and other repossessed assets decreased to $7.0 million from $7.9 million at June 30, 2009.

The following table shows the change in REO and other repossessed assets during the quarter:

 REO and other repossessed assets ($ in 000's)
 ---------------------------------------------
 Balance at 6/30/09                                 $  7,872
 Additions                                               457
 Sales                                                (1,293)
 Write-downs                                              --
 Loss on sales                                           (69)
                                                    --------
 Balance at 9/30/09                                 $  6,967
                                                    ========

Nonperforming assets were 8.05% of total assets at September 30, 2009, compared to 7.59% at the end of the preceding quarter, and 1.10% a year ago. The total allowance for loan losses, which includes the $75,000 allowance for off-balance sheet loan commitments, was $24.8 million at quarter-end, equal to 2.02% of total loans compared to 2.00% at June 30, 2009, and 1.21% as of September 30, 2008.

Loans delinquent 31-90 days totaled $1.1 million, or 0.09% of total loans at September 30, 2009, compared to $23.7 million, or 1.93% of total loans at June 30, 2009 and $171,000, or 0.01% of total loans at September 30, 2008. The bank had seven loans totaling $2.5 million that were 90 days or more past due and still accruing interest at September 30, 2009.

Loan Portfolio

“The modest increase in total loans was attributed to our builder loan program,” said Lars Johnson, Chief Financial Officer. “We continue to be reticent to lend on construction projects and commercial real estate in this economic environment.” Total loans increased 1%, or $17.7 million, on a year-over-year basis to $1.23 billion as of September 30, 2009. Total loans, however, remained relatively unchanged from the end of the previous quarter as Cascade further reduced its real estate construction concentrations.

The following table shows the changes in the loan portfolio in each category: (9/30/09 compared to 6/30/09 and 9/30/08)

                         Sept. 30,   June 30,    Sept. 30,   One Year
 LOANS ($ in 000's)        2009        2009        2008       Change
 Business               $  473,546  $  467,923   $ 473,213          0%
 R/E construction          284,888     296,931     403,569        -29%
 Commercial R/E            193,652     192,886     119,787         62%
 Multifamily                84,029      91,554      74,535         13%
 Home equity/consumer       31,455      30,919      29,659          6%
 Residential               163,151     146,231     112,283         45%
                        ----------  ----------  ----------
 Total loans            $1,230,721  $1,226,444  $1,213,046          1%
                        ==========  ==========  ==========

Construction loans outstanding decreased 29% to $285 million at September 30, 2009, compared to $404 million a year ago. Commercial real estate loans increased 62% from year ago levels to $194 million, which includes $66.0 million in loans reclassified into that category as construction projects were completed and hit their lease up targets. Multifamily loans increased 13% from year ago levels to $84.0 million and business loans were unchanged compared to a year ago at $474 million. Home equity and consumer loans increased 6% to $31.5 million, while residential loans grew 45% to $163 million, compared to a year ago.

Further details on changes during the third quarter are as follows:

                                     Net new
                        Balance at    loans-   Reclassifi-   Transfers
 LOANS ($ in 000's)      9/30/2009   payments    cations      to REO
 ------------------     ----------  ----------  ----------  ----------
 Business               $  473,546  $    5,623  $       --  $       --
 R/E construction          284,888      (6,128)     (2,346)       (239)
 Commercial R/E            193,652       1,326        (560)         --
 Multifamily                84,029      (7,525)         --          --
 Home equity/consumer       31,455         601          --         (10)
 Residential               163,151      14,014       2,906          --
                        ----------  ----------  ----------  ----------
 Total loans             1,230,721       7,911          --        (249)
 Deferred loan fees         (3,204)         94        (370)         --
 Allowance for
  loan losses              (24,749)     (4,000)        373          --
                        ----------  ----------  ----------  ----------
 Loans, net             $1,202,768  $    4,005  $        3  $     (249)
                        ==========  ==========  ==========  ==========

                                    Charge-offs Balance at
 LOANS ($ in 000's)                     (1)      6/30/2009     Change
 ------------------                 ----------  ----------  ----------
 Business                           $       --  $  467,923          1%
 R/E construction                       (3,330)    296,931         -4%
 Commercial R/E                             --     192,886          0%
 Multifamily                                --      91,554         -8%
 Home equity/consumer                      (55)     30,919          2%
 Residential                                --     146,231         12%
                                    ----------  ----------
 Total loans                            (3,385)  1,226,444          0%
 Deferred loan fees                         --      (2,928)         9%
 Allowance for loan losses               3,368     (24,490)         1%
                                    ----------  ----------
 Loans, net                         $      (17) $1,199,026          0%
                                    ==========  ==========

 (1) Excludes negative now accounts totaling $61,000 and recoveries
     of $78,000

Investment Portfolio and Liquidity

Total assets increased by $36.3 million, or 2%, in the third quarter from the end of the second quarter and grew by $95.2 million, or 6%, year-over-year to $1.65 billion at September 30, 2009. The increase in interest-bearing deposits was $43.4 million on a sequential basis and $69.2 million on a year-over-year comparison. The investment portfolio increased $2.9 million over the preceding quarter and $26.1 million over the past twelve months to $281 million at September 30, 2009. “The mix of Available For Sale (AFS) securities compared to Held To Maturity (HTM) securities continued to shift as HTM securities have been called and replaced with securities designated as AFS,” added Johnson. “The primary motivation for this shift is to provide more flexibility in managing the securities portfolio.” All debt securities held in the investment portfolio are rated AAA.

Deposit Growth

Total deposits were up $31.4 million, or 3% from the prior quarter-end and up $40.2 million, or 4% compared to a year ago. Total checking account balances were up $41.0 million, or 14% from the prior quarter and up $154 million, or 89% compared to a year ago. Personal checking account balances grew by 119% or $108 million over the last twelve months and business checking balances grew 56% or $46.4 million during the same time period. “The robust growth in core deposits over the past twelve months has lowered our funding costs and demonstrates the effectiveness of our strong sales culture as well as continued success of the High Performance Checking Program,” said Nelson. The growth in business checking balances resulted from a combination of new accounts, higher business escrow account balances and the movement of public funds previously in money market accounts and CDs into insured checking accounts. CDs were down $5.8 million during the third quarter but were up $23.4 million on a year-over-year basis and brokered CDs were down $10.0 million at the quarter-end to $180 million.

The following table shows deposits in each category: (9/30/09 compared to 6/30/09 and 9/30/08)

                         Sept. 30,   June 30,    Sept. 30,   One Year
 DEPOSITS ($ in 000's)     2009        2009        2008       Change
 Personal checking
  accounts              $  198,766   $ 146,310  $   90,772        119%
 Business checking
  accounts                 128,846     140,345      82,485         56%
                        ----------  ----------  ----------
 Total checking accounts   327,612     286,655     173,257         89%
 Savings and MMDA          128,918     132,704     266,560        -52%
 CDs                       576,133     581,937     552,688          4%
                        ----------  ----------  ----------
 Total deposits         $1,032,663  $1,001,296  $  992,505          4%
                        ==========  ==========  ==========

Capital Management

Cascade remains well capitalized for regulatory purposes with a Risk Based Capital Ratio of 13.01% and Tier 1 Capital Ratio of 9.05% as of September 30, 2009. Tangible book value was $7.11 per common share at quarter-end, compared to $7.79 a year ago. Cascade’s tangible capital to assets ratio was 5.29% at quarter-end compared to 6.16% twelve months earlier.

In June 2009, Cascade announced that it would temporarily suspend its regular quarterly cash dividend on common stock to preserve capital.

Operating Results

Third quarter net interest income was down 15% to $10.9 million compared to $12.8 million for the third quarter of 2008, due primarily to the reversal of previously accrued interest on nonperforming loans as well as the increase in nonperforming loans compared to the third quarter a year ago.

Total other income increased 36% to $3.2 million for the quarter, compared to $2.3 million for the third quarter a year ago. Gain on securities sales was up $939,000.

Total other expenses were $7.9 million in the third quarter of 2009, compared to $7.2 million, excluding the $17.3 million OTTI charge, in the third quarter of 2008. There was an 11% reduction in compensation expense, even with one new branch, but this reduction was more than offset by a $319,000 increase in FDIC insurance, higher legal expenses associated with loan workouts, and an increase in REO expense.

For the first nine months of 2009, net interest income was $32.9 million, compared to $34.8 million for the first nine months of 2008. The impact of the increase in nonperforming assets is the primary cause for the lower year-to-date net interest income. Other income increased 29% to $9.1 million for the first nine months of 2009 compared to $7.0 million in the first nine months of 2008. The increase is primarily due to the $800,000 increase in gain on sale of securities and the $1.3 million increase in fair value gain on junior subordinated debentures. For the first nine months of the year, total other expenses excluding the 2Q09 goodwill impairment increased to $26.6 million compared to $21.4 million, excluding the 3Q08 OTTI, in the first nine months of 2008. The increase was largely due to the increase in FDIC insurance premiums, the FDIC special assessment, the loss on REO and REO expense.

The efficiency ratio, excluding the 2Q09 goodwill charge and 3Q08 OTTI charge, was 56.4% in the third quarter of 2009 compared to 76.6% in the preceding quarter and 47.3% in the third quarter a year ago. For the first nine months of 2009, the efficiency ratio, excluding the 2Q09 goodwill charge and 3Q08 OTTI charge, was 61.3% compared to 51.1% in the first nine months of 2008. This ratio was impacted by costs associated with REO, legal expenses and the FDIC special assessment.

Net Interest Margin

Cascade’s net interest margin was 3.03% for the third quarter of 2009, compared to 3.01% in the immediate prior quarter and 3.52% for the third quarter a year ago. “The drag from nonperforming loans, including the reversal of previously accrued interest, continues to weigh on net interest income. Our net interest margin improved slightly during the third quarter compared to the preceding quarter as the reduction in our deposit costs more than offset the drag from nonperforming loans,” said Johnson. “Our yield on earning assets declined by three basis points compared to the preceding quarter, while the cost of interest-bearing liabilities decreased by eleven basis points driven by a decline in the cost of deposits by the same amount. This eight basis point improvement in the interest spread only translated into a two basis point improved margin because earning assets were a smaller percentage of total assets due to the increase in nonperforming assets.” For the first nine months of 2009, the net interest margin was 3.02%, compared to 3.24% for the first nine months of 2008.

The following table depicts Cascade’s yield on assets, its cost of funds and the resulting spread and margin:

                  3Q09  2Q09  1Q09  4Q08  3Q08  2Q08  1Q08  4Q07  3Q07
                 -----------------------------------------------------
 Asset yield     5.60% 5.63% 5.83% 6.07% 6.67% 6.31% 6.62% 7.20% 7.29%
 Liability cost  2.63% 2.74% 3.02% 3.33% 3.44% 3.51% 4.03% 4.32% 4.42%

 Spread          2.97% 2.89% 2.81% 2.74% 3.23% 2.80% 2.59% 2.88% 2.87%
 Margin          3.03% 3.01% 3.03% 3.01% 3.52% 3.17% 3.02% 3.38% 3.37%

Regulatory Matters

Cascade Bank recently received notice from the FDIC that based on an off-site review of its financial information, the Bank will be subject to a corrective action program based upon the finalization of a full scope examination completed in June 2009. The concern was primarily focused on the deterioration of asset quality, concentration of credit in the real estate area, and liquidity. In light of the concern, the Bank was instructed to take steps to preserve capital; provide prior notice to the FDIC of certain management changes; seek prior regulatory approval of any severance or any golden parachute payments; and obtain a non-objection from the regulators before paying any cash dividend.

Conference Call

Cascade’s management team will host an analyst call on Wednesday, October 21, 2009, at 11:00 a.m. PDT (2:00 p.m. EDT) to discuss third quarter results. Interested investors may listen to the call live or via replay at www.cascadebank.com under shareholder information. Investment professionals are invited to dial (480) 629-9818, using access code 4164643 to participate in the live call. A replay will be available for a week at (303) 590-3030, using access code 4164643.

About Cascade Financial

Established in 1916, Cascade Bank, the only operating subsidiary of Cascade Financial Corporation, is a state chartered commercial bank headquartered in Everett, Washington. Cascade Bank has proudly served the Puget Sound region for over 90 years and operates 22 full service branches in Everett, Lynnwood, Marysville, Mukilteo, Shoreline, Smokey Point, Issaquah, Clearview, Woodinville, Lake Stevens, Bellevue, Snohomish, North Bend, Burlington and Edmonds.

In June 2009, Cascade was ranked #55 on the Seattle Times’ Northwest 100 list of public companies. In April 2009, Cascade was ranked #5 on the Puget Sound Business Journal’s list of largest bank companies headquartered in the Puget Sound area.

Non-GAAP Financial Measures

This news release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (GAAP). These measures include tangible book value per share, efficiency ratio and tangible capital/assets ratio. These measures should not be construed as a substitute for GAAP measures; they should be read and used in conjunction with Cascade’s GAAP financial information. A reconciliation of the included non-GAAP financial measures to GAAP measures is included elsewhere in this release.

Forward-Looking Statements

Certain of the statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Reform Act. CASB’s actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “intend,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” These forward-looking statements involve risks and uncertainties including, but not limited to, economic conditions, portfolio growth, the credit performance of the portfolios, including bankruptcies, and seasonal factors; changes in general economic conditions including the performance of financial markets, prevailing inflation and interest rates, realized gains from sales of investments, gains from asset sales, and losses on commercial lending activities; results of various investment activities; the effects of competitors’ pricing policies, of changes in laws and regulations on competition and of demographic changes on target market populations’ savings and financial planning needs; industry changes in information technology systems on which we are highly dependent; failure of acquisitions to produce revenue enhancements or cost savings at levels or within the time frames originally anticipated or unforeseen integration difficulties; the adoption by CASB of an FFIEC policy that provides guidance on the reporting of delinquent consumer loans and the timing of associated credit charge-offs for financial institution subsidiaries; and the resolution of legal proceedings and related matters. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Federal Deposit Insurance Corporation, and state regulators, whose policies and regulations could affect CASB’s results. These statements are representative only on the date hereof, and CASB undertakes no obligation to update any forward-looking statements made.

 BALANCE SHEET
 (Dollars in
  thousands                              Three
  except per     Sept. 30,   June 30,    Month     Sept. 30,  One Year
  share amounts)   2008        2009      Change      2008      Change
                ----------  ----------  --------  ----------  --------
 (Unaudited)

 ASSETS

 Cash and due
  from banks    $    4,401  $   13,976      -69%  $   12,822      -66%
 Interest
  -bearing
  deposits          69,838      26,403      165%         611        NM

 Securities
  available-for
  -sale            242,136     227,924        6%     102,313      137%
 Federal Home
  Loan Bank
  (FHLB) stock      11,920      11,920        0%      11,920        0%
 Securities held
  -to-maturity      26,912      38,243      -30%     140,615      -81%
                ----------  ----------            ----------
 Total
  securities       280,968     278,087        1%     254,848       10%
 Loans
  Business         473,546     467,923        1%     473,213        0%
  R/E
   construction    284,888     296,931       -4%     403,569      -29%
  Commercial R/E   193,652     192,886        0%     119,787       62%
  Multifamily       84,029      91,554       -8%      74,535       13%
  Home equity
   /consumer        31,455      30,919        2%      29,659        6%
  Residential      163,151     146,231       12%     112,283       45%
                ----------  ----------            ----------
  Total loans    1,230,721   1,226,444        0%   1,213,046        1%
  Deferred
   loan fees        (3,204)     (2,928)       9%      (3,248)      -1%
  Allowance for
   loan losses     (24,749)    (24,490)       1%     (14,531)      70%
                ----------  ----------            ----------
 Loans, net      1,202,768   1,199,026        0%   1,195,267        1%
 Real estate
  owned (REO)
  and other
  repossessed
  assets             6,967       7,872      -11%       1,446      382%
 Premises and
  equipment         15,009      15,319       -2%      15,676       -4%
 Bank owned life
  insurance         24,275      24,052        1%      23,388        4%
 Deferred tax
  asset              6,426       7,167      -10%       8,437      -24%
 Other assets       23,062      25,486      -10%      14,173       63%
 Goodwill           12,885      12,885        0%      24,585      -48%
 Core deposit
  intangible,
  net                  388         423       -8%         529      -27%
                ----------  ----------            ----------
  Total assets  $1,646,987  $1,610,696        2%  $1,551,782        6%
                ==========  ==========            ==========

 LIABILITIES
  AND EQUITY
 Liabilities:
 Deposits
  Personal
   checking
   accounts     $  198,766  $  146,310       36%  $   90,772      119%
  Business
   checking
   accounts        128,846     140,345       -8%      82,485       56%
                ----------  ----------            ----------
  Total checking
   accounts        327,612     286,655       14%     173,257       89%
  Savings and
   money market
   accounts        128,918     132,704       -3%     266,560      -52%
  Certificates
   of deposit      576,133     581,937       -1%     552,688        4%
                ----------  ----------            ----------
 Total deposits  1,032,663   1,001,296        3%     992,505        4%
 FHLB advances     239,000     239,000        0%     255,000       -6%
 Securities sold
  under
  agreement to
  repurchase       147,455     146,600        1%     120,983       22%
 Federal Reserve
  borrowings        60,000      60,000        0%      30,000      100%
 Other
  liabilities        7,489       7,307        2%       8,194       -9%
 Jr. Sub. Deb.
  (Trust
  Preferred
  Securities)       15,465      15,465        0%      15,465        0%
 Jr. Sub. Deb.
  (Trust
  Preferred
  Securities),
  at fair value      8,357       8,708       -4%      10,535      -21%
                ----------  ----------            ----------
  Total
   liabilities   1,510,429   1,478,376        2%   1,432,682        5%
                ----------  ----------            ----------

 Stockholders'
  equity:
 Preferred stock    36,931      36,826        0%          --        NM
 Common stock
  and paid in
  capital           41,129      41,054        0%      40,857        1%
 Retained
  earnings          54,503      53,430        2%      79,753      -32%
 Warrants issued
  to U.S.
  Treasury           2,389       2,389        0%          --        NM
 Accumulated
  other
  comprehensive
  gain (loss),
  net                1,606      (1,379)       NM      (1,510)       NM
                ----------  ----------            ----------
  Total
   stockholders'
   equity          136,558     132,320        3%     119,100       15%
                ----------  ----------            ----------
 Total
  liabilities
  and
  stockholders'
  equity        $1,646,987  $1,610,696        2%  $1,551,782        6%
                ==========  ==========            ==========

 STATEMENT OF
  OPERATIONS
 (Dollars in     Quarter     Quarter               Quarter
  thousands       Ended       Ended      Three      Ended
  except per     Sept. 30,   June 30,    Month     Sept. 30,  One Year
  share amounts)   2009        2009      Change      2008      Change
 (Unaudited)    ----------  ----------  --------  ----------  --------

 Interest
  income        $   20,189  $   20,215        0%  $   24,345      -17%
 Interest
  expense            9,271       9,392       -1%      11,508      -19%
                ----------  ----------            ----------
 Net interest
  income            10,918      10,823        1%      12,837      -15%
 Provision for
  loan losses        4,000      18,300      -78%       1,250      220%
                ----------  ----------            ----------
 Net interest
  income (loss)
  after
  provision for
  loan losses        6,918      (7,477)       NM      11,587      -40%
 Other income:
  Checking fees      1,342       1,270        6%       1,328        1%
  Service fees         237         286      -17%         280      -15%
  Bank owned
   life
   insurance           239         208       15%         271      -12%
  Gain on sales
   /calls of
   securities          852         226      277%         (87)       NM
  Gain on sale
   of loans             23          98      -77%          36      -36%
  Fair value
   gains               351          12        NM         389      -10%
  Other                123         120        2%         109       13%
                ----------  ----------            ----------
 Total other
  income             3,167       2,220       43%       2,326       36%

 Total income
  (loss)            10,085      (5,257)       NM      13,913      -28%
                ----------  ----------            ----------
 Other expenses:
  Compensation
   expense           3,382       3,587       -6%       3,789      -11%
  Other
   operating
   expenses          3,989       3,942        1%       3,187       25%
  FDIC insurance
   and WPDPC
   assessment          505       1,241      -59%         186      172%
  Loss on sale
   of REO               69       1,225      -94%           3        NM
  OTTI charge           --          --        NM      17,338        NM
                ----------  ----------            ----------
  Other expenses
   excluding
   goodwill
   impairment        7,945       9,995      -21%      24,503      -68%
  Goodwill
   impairment           --      11,700        NM          --        NM
                ----------  ----------            ----------
 Total other
  expenses           7,945      21,695      -63%      24,503      -68%
                ----------  ----------            ----------

 Net income
  (loss) before
  provision
  (benefit) for
  income tax         2,140     (26,952)       NM     (10,590)       NM

 Provision
  (benefit) for
  income tax           507      (5,552)       NM      (3,971)       NM
                ----------  ----------            ----------

 Net income
  (loss)             1,633     (21,400)       NM      (6,619)       NM

 Dividends on
  preferred
  stock                487         487        0%          --        NM
 Accretion of
  issuance
  discount on
  preferred
  stock                105         105        0%          --        NM
                ----------  ----------            ----------

 Income (loss)
  available for
  common
  stockholders  $    1,041  $  (21,992)       NM  $   (6,619)       NM
                ==========  ==========            ==========
 EARNINGS PER
  SHARE
  INFORMATION

 Earnings per
  share, basic  $     0.09  $    (1.82)       NM  $    (0.55)       NM
 Earnings per
  share,
  diluted       $     0.09  $    (1.82)       NM  $    (0.55)       NM

 Weighted
  average number
  of shares
  outstanding
 Basic          12,128,257  12,110,434            12,059,480
 Diluted        12,128,257  12,110,434            12,140,168

                                         Nine        Nine
                                        Months      Months
 STATEMENT OF OPERATIONS                 Ended       Ended      Nine
 (Dollars in thousands except per      Sept. 30,   Sept. 30,   Month
  share amounts)                         2009        2008      Change
                                      ----------  ----------  --------
 (Unaudited)
 Interest income                      $   61,814  $   70,152      -12%
 Interest expense                         28,954      35,395      -18%
                                      ----------  ----------
 Net interest income                      32,860      34,757       -5%
 Provision for loan losses                36,175       4,840      647%
                                      ----------  ----------
 Net interest (loss) income after
  provision for loan losses               (3,315)     29,917     -111%
 Other income:
  Checking fees                            3,724       3,640        2%
  Service fees                               772         825       -6%
  Bank owned life insurance                  687         790      -13%
  Gain on sales/calls of securities        1,196         396      202%
  Gain on sale of loans                      160         119       34%
  Fair value gains                         2,153         887      143%
  Other                                      359         340        6%
                                      ----------  ----------
 Total other income                        9,051       6,997       29%

 Total income                              5,736      36,914      -84%
                                      ----------  ----------
 Other expenses:
  Compensation expense                    10,575      11,039       -4%
  Other operating expenses                11,281       9,923       14%
  FDIC insurance and WPDPC assessment      2,505         385      551%
  Loss on sale of REO                      1,348           3        NM
  OTTI charge                                858      17,338      -95%
                                      ----------  ----------
  Other expenses excluding
   goodwill impairment                    26,567      38,688      -31%
  Goodwill impairment                     11,700          --        NM
                                      ----------  ----------
 Total other expenses                     38,267      38,688       -1%
                                      ----------  ----------

 Net loss before benefit
  for income tax                         (32,531)     (1,774)       NM

 Benefit for income tax                   (7,947)     (1,402)     467%
                                      ----------  ----------

 Net loss                                (24,584)       (372)       NM

 Dividends on preferred stock              1,456          --        NM
 Accretion of issuance discount
  on preferred stock                         315          --        NM
                                      ----------  ----------     

 Loss attributable to common
  stockholders                        $  (26,355) $     (372)       NM
                                      ==========  ==========

 EARNINGS PER SHARE INFORMATION

 Earnings per share, basic            $    (2.18) $    (0.03)       NM
 Earnings per share, diluted          $    (2.18) $    (0.03)       NM

 Weighted average number of
  shares outstanding
 Basic                                12,113,623  12,047,700
 Diluted                              12,113,623  12,168,009

 (Dollars in thousands except per share amounts)(Unaudited)

                                                   Nine        Nine
              Quarter     Quarter     Quarter     Months      Months
 PERFORMANCE   Ended       Ended       Ended       Ended       Ended
  MEASURES   Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
  AND RATIOS   2009        2009        2008        2009        2008
            ----------  ----------  ----------  ----------  ----------
 Return on
  average
  common
  equity         6.77%     -80.68%     -20.69%     -30.08%      -0.39%
 Return on
  average
  assets         0.40%      -5.33%      -1.69%      -2.02%      -0.03%
 Efficiency
  ratio*        56.41%      76.63%      47.25%      61.34%      51.13%
 Net
  interest
  margin         3.03%       3.01%       3.52%       3.02%       3.24%

 *Excludes goodwill and OTTI charges for 6/30/09
  and 9/30/08 respectively

                                                   Nine        Nine
              Quarter     Quarter     Quarter     Months      Months
               Ended       Ended       Ended       Ended       Ended
 AVERAGE     Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
  BALANCES     2009        2009        2008        2009        2008
            ----------  ----------  ----------  ----------  ----------
 Average
  assets    $1,634,855  $1,611,721  $1,556,771   1,626,966   1,519,073
 Average
  earning
  assets     1,430,829   1,440,316   1,452,526   1,453,728   1,430,815
 Average
  total
  loans      1,231,888   1,247,475   1,201,676   1,246,130   1,168,611
 Average
  deposits   1,024,489     986,945     988,905     995,071     961,859
 Average
  equity
  (including
  preferred
  stock)       133,375     142,861     127,936     145,728     126,369
 Average
  common
  equity
  (excluding
  preferred
  stock)        96,513     106,102     127,936     108,961     126,369
 Average
  tangible
  common
  equity
  (excluding
  pref stock
  and good
  will)         83,223      92,776     102,804      91,778     101,202

                                     Sept. 30,    June 30,   Sept. 30,
 EQUITY ANALYSIS                       2009        2009        2008
                                    ----------  ----------  ----------
 Total equity                       $  136,558  $  132,320  $  119,100
 Less: senior preferred stock           36,931      36,826          --
                                    ----------  ----------  ----------
 Total common equity                    99,627      95,494     119,100
 Less: goodwill and intangibles         13,273      13,308      25,114
                                    ----------  ----------  ----------
 Tangible common equity             $   86,354  $   82,186  $   93,986

 Common stock outstanding           12,146,080  12,110,434  12,071,032
 Book value per common share        $     8.20  $     7.89  $     9.87
 Tangible book value
  per common share                  $     7.11  $     6.79  $     7.79

                                     Sept. 30,   June 30,    Sept. 30,
 ASSET QUALITY                         2009        2009        2008
                                    ----------  ----------  ----------
 Nonperforming loans (NPLs)         $  125,687  $  114,449  $   15,697
 Nonperforming loans/total loans        10.21%       9.33%       1.29%
 REO and other repossessed assets   $    6,967  $    7,872  $    1,446
 Nonperforming assets               $  132,654  $  122,321  $   17,143
 Nonperforming assets/total assets       8.05%       7.59%       1.10%
 Net loan charge-offs in
  the quarter                       $    3,368  $   18,512  $       43
 Net charge-offs in the quarter
  /total loans                           0.27%       1.51%       0.00%

 Allowance for loan losses          $   24,749  $   24,490  $   14,531
 Plus: Allowance for off-balance
  sheet commitments                         75          72         107
                                    ----------  ----------  ----------
 Total allowance for loan losses    $   24,824  $   24,562  $   14,638
 Total allowance for loan losses
  /total loans                           2.02%       2.00%       1.21%
 Total allowance for loan losses
  /nonperforming loans                     20%         21%         93%

 Capital/asset ratio (inc.
  Jr. Sub. Deb.)                         9.81%       9.77%       9.29%
 Capital/asset ratio (Tier 1, inc.
  Jr. Sub. Deb.)                         9.05%       9.10%       7.87%
 Tangible cap/asset ratio
  (ex. Jr. Sub. Deb. and preferred
  stock)                                 5.29%       5.15%       6.16%
 Risk based capital/risk
  weighted asset ratio                  13.01%      12.62%      10.40%

                                      Quarter    Quarter     Quarter
                                       Ended       Ended       Ended
                                     Sept. 30,   June 30,    Sept. 30,
 INTEREST SPREAD ANALYSIS              2009        2009        2008
                                    ----------  ----------  ----------
 Yield on total loans                    5.51%       5.57%       6.82%
 Yield on investments                    4.38%       4.49%       5.38%
 Yield on earning assets                 5.60%       5.63%       6.67%

 Cost of deposits                        1.51%       1.62%       2.59%
 Cost of FHLB advances                   4.35%       4.33%       4.30%
 Cost of Federal Reserve borrowings      0.25%       0.30%       2.37%
 Cost of securities sold under
  agreement to repurchase                5.89%       5.74%       5.32%
 Cost of Jr. Sub. Debentures             8.70%       8.79%       8.00%
 Cost of interest-bearing
  liabilities                            2.63%       2.74%       3.44%

 Net interest spread                     2.97%       2.89%       3.23%
 Net interest margin                     3.03%       3.01%       3.52%

 RECONCILIATION TO NON-GAAP FINANCIAL MEASURES*
 (Dollars in thousands)
 (Unaudited)

                       Quarter Ended              Nine Months Ended
             Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
               2009        2009        2008        2009        2008
            ----------  ----------  ----------  ----------  ----------

 AVERAGE
  TANGIBLE
  COMMON
  EQUITY

 Income
  (loss)
  available
  for common
  stock
  -holders  $    1,041  $  (21,992) $   (6,619) $  (26,355) $     (372)
 Less
  goodwill
  impairment        --      11,700          --      11,700          --
            ----------  ----------  ----------  ----------  ----------
 Income
  (loss)
  available
  for common
  stock
  -holders
  excluding
  goodwill
  impair
  -ment     $    1,041  $  (10,292) $   (6,619) $  (14,655) $     (372)

 Average
  tangible
  common
  equity
  (excluding
  preferred
  stock)    $   83,223  $   92,776  $  102,804  $   91,778  $  101,202

 EFFICIENCY
  RATIO

 Net
  interest
  income    $   10,918  $   10,823  $   12,837  $   32,860  $   34,757
 Other
  income         3,167       2,220       2,326       9,051       6,997
            ----------  ----------  ----------  ----------  ----------
 Total
  income    $   14,085  $   13,043  $   15,163  $   41,911  $   41,754

 Total other
  expenses  $    7,945  $   21,695  $   24,503  $   38,267  $   38,688
 OTTI       $       --  $       --  $   17,338  $      858  $   17,338
 Goodwill
  impair
  -ment     $       --  $   11,700  $       --  $   11,700  $       --
            ----------  ----------  ----------  ----------  ----------
 Total other
  expenses
  (excluding
  OTTI and
  goodwill
  impair
  -ment)    $    7,945  $    9,995  $    7,165  $   25,709  $   21,350

 Efficiency
  ratio         56.41%      76.63%      47.25%      61.34%      51.13%

 TANGIBLE
  COMMON
  EQUITY
  RATIO

 Total
  assets    $1,646,987  $1,610,696  $1,551,782
 Less
  goodwill
  and
  intang
  -ibles        13,273      13,308      25,114
            ----------  ----------  ----------
 Total
  tangible
  assets    $1,633,714  $1,597,388  $1,526,668

 Tangible
  common
  equity    $   86,354  $   82,186  $   93,986
 Tangible
  cap/asset
  ratio (ex.
  Jr. Sub
  Deb and
  preferred
  stock)         5.29%       5.15%       6.16%

 *Management believes that the presentation of non-GAAP results
  provides useful information to investors regarding the effects on
  the Company's reported results of operations.
Wednesday, October 21st, 2009 Uncategorized
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