• The interest rate spread decreased to 1.62% for the quarter ended September 30, 2009 compared to 2.59% for the quarter ended September 30, 2008;

• Loans receivable decreased $523.0 million, or 12.9%, since March 31, 2009;

• Deposits and accrued interest decreased $183.8 million, or 4.7%, since March 31, 2009;

• Book value per common share was $(1.34) at September 30, 2009 compared to $4.81 at March 31, 2009 and $14.76 at September 30, 2008;

• The Bank's Risk-based capital and Tier 1 capital are undercapitalized per the target levels of the Order to Cease and Desist dated June 26, 2009. However, the Bank's Tier 1 capital is considered adequately capitalized for regulatory purposes.

• Total non-performing assets increased $173.1 million, or 61.7%, to $453.5 million at September 30, 2009 from $280.4 million at March 31, 2009, and total non-performing loans increased $187.3 million, or 82.2% to $415.1 million at September 30, 2009 from $227.8 million at March 31, 2009; and

• Net loss from the real estate investment segment was $1.4 million and $1.2 million for the six months ended September 30, 2009 and 2008, respectively. These losses were mainly due to the sale of the remaining interest in the real estate developments as of September 30, 2009.

Selected quarterly data are set forth in the following tables.

                                                                                 Three Months Ended
                                                         9/30/2009          6/30/2009          3/31/2009         12/31/2008
(Dollars in thousands - except per share amounts)                          (restated)

Operations Data:
Net interest income                                     $    18,939        $    24,915        $    28,708        $    32,707
Provision for loan losses                                    60,900             70,400             56,385             92,970
Net gain (loss) on sale of loans                              1,062             11,403              7,858               (228 )
Real estate investment partnership revenue                        -                  -                310              1,836
Other non-interest income                                     9,796              8,157              7,794              7,905
Real estate investment partnership cost of sales                  -                  -                545              1,191
Other non-interest expense                                   40,791             37,064             47,399            117,066
Non-controlling interest in income (loss) of real
estate partnership operations                                    85                (85 )             (246 )              150
Loss before income taxes                                    (71,979 )          (62,904 )          (59,413 )         (169,157 )
Income taxes (benefit)                                            -                  -            (16,147 )           (1,899 )
Net loss                                                    (71,979 )          (62,904 )          (43,266 )         (167,258 )

Selected Financial Ratios (1):
Yield on earning assets                                        4.62 %             4.80 %             5.22 %             5.69 %
Cost of funds                                                  3.00               2.79               2.72               2.81
Interest rate spread                                           1.62               2.01               2.50               2.88
Net interest margin                                            1.58               1.99               2.45               2.88
Return on average assets                                      (5.71 )            (4.76 )            (3.44 )           (13.72 )
Return on average equity                                    (222.48 )          (126.04 )           (79.64 )          (242.66 )
Average equity to average assets                               2.57               3.77               4.32               5.66
Non-interest expense to average assets                         3.23               2.80               3.81               9.70

Per Share:

Basic earnings (loss) per common share                  $     (3.56 )      $     (2.97 )      $     (2.05 )      $     (7.96 )
Diluted earnings (loss) per common share                      (3.56 )            (2.97 )            (2.05 )            (7.96 )
Dividends per common share                                        -                  -                  -               0.01
Book value per common share                                   (1.34 )             1.92               4.81               6.80

Financial Condition:
Total assets                                            $ 4,637,712        $ 5,238,320        $ 5,273,055        $ 4,798,847
Loans receivable, net
Held for sale                                                28,904            115,340            161,964             32,139
Held for investment                                       3,506,464          3,641,708          3,896,439          3,948,065
Deposits and accrued interest                             3,739,997          3,987,906          3,923,827          3,413,449
Other borrowed funds                                        759,479          1,041,049          1,078,392          1,152,112
Stockholders' equity                                         81,075            151,422            213,721            146,662
Allowance for loan losses                                   170,664            139,455            137,165            122,571
Non-performing assets(2)                                    453,510            347,795            280,377            410,695

(1) Annualized when appropriate.

(2) Non-performing assets consist of loans past due more than ninety days, loans past due less than ninety days but placed on non-accrual status due to anticipated probable loss, troubled debt restructurings performing less than twelve months under the modified terms and foreclosed properties and repossessed assets.

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

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

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

Per Share:

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

Financial Condition:
Total assets                                            $ 4,928,074        $ 4,949,335        $ 5,149,557        $ 4,725,773
Loans receivable, net
Held for sale                                                 4,099              6,619              9,669              6,170
Held for investment                                       4,069,369          4,129,075          4,202,833          3,941,891
Deposits and accrued interest                             3,349,335          3,406,975          3,539,994          3,145,551
Other borrowed funds                                      1,210,562          1,147,329          1,206,761          1,150,914
Stockholders' equity                                        317,501            343,599            345,116            341,084
Allowance for loan losses                                    64,614             40,265             38,285             28,761
Non-performing assets(2)                                    184,754            147,036            112,305             87,002

(1) Annualized when appropriate.

(2) Non-performing assets consist of loans past due more than ninety days, loans past due less than ninety days but placed on non-accrual status due to anticipated probable loss, troubled debt restructurings performing less than twelve months under the modified terms and foreclosed properties and repossessed assets.

Critical Accounting Policies
There are a number of accounting policies that require the use of judgment. Some of the more significant policies are as follows:
• Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary due to credit loss are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses on debt securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or
(b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the fair value of the security and its adjusted cost. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of total impairment related to all other factors is included in other comprehensive income (loss). If a security is impaired, and the impairment is deemed other-than-temporary and material, a write down will occur in that quarter.

• The allowance for loan losses is a valuation allowance for probable and inherent losses incurred in the loan portfolio. The allowance is comprised of both a specific and general component. Specific allowances are provided on impaired loans pursuant to ASC 310-10-35. The general allowance is based on historical loss experience, adjusted for qualitative and environmental factors pursuant to ASC 450-2 "Loss Contingencies" and other related regulatory guidance. At least quarterly, we review the assumptions and methodology related to the general allowance in an effort to update and refine the estimate.

In determining the general allowance we have segregated the loan portfolio by collateral type. By doing so we are better able to identify trends in borrower behavior and loss severity. For each collateral type, we compute a historical factor. In determining the appropriate period of activity to use in computing the historical factor we look at trends in quarterly net charge-off ratios. It is our intention to utilize a period of activity that we believe to be most reflective of current experience. Changes in the historical period are made when there is a distinct change in the trend of net charge-off experience.

In addition to the historical factor, we consider the impact of the following qualitative factors: changes in lending policies, procedures and practices, economic and industry trends and conditions, experience, ability and depth of lending management, level of and trends in past dues and delinquent loans, changes in the quality of the loan review system, changes in the value of the underlying collateral for collateral dependent loans, changes in credit concentrations, and other external factors such as legal and regulatory. In determining the impact, if any, of an individual qualitative factor, we compare the current underlying facts and circumstances surrounding a particular factor with those in the historical periods, adjusting the historical factor in a directionally consistent manner with changes in the qualitative factor. For example, current property values in many of our markets have declined when compared to the prior three years. This would indicate to us that the severity of losses may be greater than in the past. Accordingly, we increased the historical factor to account for this. We will continue to analyze the qualitative factors on a quarterly basis, adjusting the historical factor both up and down, to a factor we believe is appropriate for the probable and inherent risk of loss in our portfolio.

Specific allowances are determined as a result of our loan review process. When a loan is identified as impaired it is evaluated for loss using either the fair value of collateral less selling costs or a discounted cash flow analysis as a determinant of fair value. If fair value exceeds the Bank's carrying value of the

loan no loss is anticipated and no specific reserve is established. However, if the Bank's carrying value of the loan is greater than fair value a specific reserve is established. In either situation, loans identified as impaired are excluded from the calculation of the general reserve.

We consider the allowance for loan losses at September 30, 2009 to be at an acceptable level. Although we believe that we have established and maintained the allowance for loan losses at an adequate level, changes may be necessary if future economic and other conditions differ substantially from the current environment. Although we use the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.

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

• The Corporation accounts for federal income taxes in accordance with the provisions of ASC 740-10-25, "Income Taxes." Pursuant to the provisions of ASC 740-10-25, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years' earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. A full valuation allowance has been recorded on the deferred tax asset because the Corporation has exhausted its carryback potential and is in a cumulative loss position.

RESULTS OF OPERATIONS
General. Net income for the three and six months ended September 30, 2009 decreased $48.7 million or 2,089.4% to a net loss of $72.0 million from a net loss of $23.3 million and decreased $117.1 million or 6,583.2% to a net loss of $134.9 million from a net loss of $17.8 million as compared to the same respective periods in the prior year. The decrease in net income for the three-month period compared to the same period last year was largely due to an increase in provision for loan losses of $13.9 million, a decrease in net interest income of $11.0 million and an increase in non-interest expense of $10.6 million, which were partially offset by an increase in non-interest income of $2.6 million and a decrease in income tax expense of $15.6 million. The decrease in net income for the six-month period compared to the same period last year was largely due to an increase in provision for loan losses of $74.9 million, an increase in non-interest expense of $20.9 million and a decrease in net interest income of $19.5 million, which were partially offset by a decrease in income tax expense of $12.1 million and an increase in non-interest income of $10.4 million. A full valuation allowance has been recorded on the deferred tax asset because the Corporation has exhausted its carryback potential and is in a cumulative loss position.
Net Interest Income. Net interest income decreased $11.0 million or 36.8% and $19.5 million or 30.8% for the three and six months ended September 30, 2009, respectively, as compared to the same respective periods in the prior year. Interest income decreased $8.6 million or 13.4% for the three months ended September 30, 2009 as compared to the same period in the prior year. Interest expense increased $2.4 million or 7.1% for the three months ended September 30, 2009 as compared to the same period in the prior year. Interest income decreased $19.0 million or 14.1% for the six months ended September 30, 2009 as compared to the same period in the prior year. Interest expense increased $516,000 or 0.7% for the six months ended September 30, 2009 as compared to the same period in the prior year. The net interest margin decreased to 1.58% for the three-month period ended September 30, 2009 from 2.62% for the three-month period in the prior year and decreased to 1.79% for the six-month period ended September 30, 2009 from 2.74% for the same period in the prior year. The change in the net interest margin reflects the decrease in yield on interest-earning assets from 5.59% to 4.62% during the three months ended September 30, 2009 and 2008, respectively. The decrease in the yield on interest-earning assets is primarily the result of the reversal of interest income on nonaccrual loans as well as the decline in interest rates. The interest rate spread decreased to 1.62% from 2.59% for the three-month period and decreased to 1.82% from 2.71% for the six-month period ended September 30, 2009 as compared to the same respective periods in the prior year.
Interest income on loans decreased $9.9 million or 16.7% and $21.8 million or 17.4%, for the three and six months ended September 30, 2009, as compared to the same respective periods in the prior year. These decreases were primarily attributable to a decrease of 32 basis points in the average yield on loans to 5.44% from 5.76% for the three-month period and a decrease of 61 basis points to 5.42% from 6.03% for the six month period. The decrease in the yield on loans was due to the level of loans on nonaccrual status as well as a modest decline in rates on loans. In addition, the average balances of loans decreased $480.9 million in the three months and decreased $339.6 million in the six months ended September 30, 2009, respectively, as compared to the same periods in the prior year.
Interest income on mortgage-related securities increased $1.5 million or 40.3% and increased $3.4 million or 46.2% for the three- and six-month periods ended September 30, 2009, as compared to the same respective periods in the prior year, primarily due to an increase of $191.9 million in the three-month average balance and an increase of $168.3 million in the six-month average balance of mortgage-related securities. The increase in the average balance of mortgage-related securities is due to the purchase of securities (all of which were rated AAA) at a significant discount. This increase was offset by a decrease of 96 basis points in the average yield on mortgage-related securities to 4.47% from 5.43% for the three-month period and a decrease of 52 basis points in the average yield on mortgage-related securities to 4.87% from 5.39% for the six-month period. Interest income on investment securities (including Federal Home Loan Bank stock) decreased $481,000 or 61.7% and $811,000 or 51.3%, respectively, for the three- and six-month periods ended September 30, 2009 as compared to the same respective periods in the prior year. The decreases for the three- and six-month periods were due to a decrease in the average balances. Interest income on interest-bearing deposits increased $290,000 and $231,000, respectively, for the three and six months ended September 30, 2009 as compared to the same respective periods in 2008, primarily due to decreases in the average yields for the three- and six-month periods offset by an increase in the average balances.
Interest expense on deposits decreased $858,000 or 3.6% and decreased $3.6 million or 7.0%, respectively, for the three and six months ended September 30, 2009, as compared to the same respective periods in 2008. These decreases were primarily attributable to a decrease of 45 basis points in the weighted average cost of deposits to

2.38% from 2.83% and a decrease of 57 basis points in the weighted average cost of deposits to 2.40% from 2.97% for the three and six months ended September 30, 2009, respectively, as compared to the same respective periods in the prior year, partially offset by an increase in the average balance of deposits and accrued interest of $496.7 million and $504.7 million for the respective three- and six-month periods. The decrease in the cost of deposits was due to the fact that certificates are repricing at lower rates and interest rates on demand deposits have declined. Interest expense on other borrowed funds increased $3.3 million or 32.3% and $4.1 million or 20.0%, respectively, during the three and six months ended September 30, 2009, as compared to the same respective periods in the prior year. The weighted average cost of other borrowed funds increased 194 basis points to 5.40% from 3.46% for the three-month period and increased 124 basis points to 4.76% from 3.52% for the six-month period ended September 30, 2009, respectively, as compared to the same respective periods last year due to the fact that borrowings were prepaid and a prepayment fee was incurred. For the three- and six-month periods ended September 30, 2009, the average balance of other borrowed funds decreased $177.8 million and $130.2 million, respectively, as compared to the same respective periods in 2008.
Provision for Loan Losses. Provision for loan losses increased $13.9 million or 29.7% for the three-month period and increased $74.9 million or 133.0% for the six-month period ended September 30, 2009, as compared to the same respective periods last year. Management evaluates a variety of qualitative and quantitative factors when determining the adequacy of the allowance for losses. Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current economic conditions. Due to recent increased charge-offs, declines in real estate values, the amounts of delinquent loans, non-accrual loans (as discussed under "Asset Quality" below), impaired loans and an increase in loans moved to REO, management determined that increased provisions for loan losses were appropriate to reflect the risks . . .