Forward-Looking Statements

Certain statements in this Form 10-Q are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on management's current expectations or predictions of future results or events. We make these forward-looking statements in reliance on the safe harbor provisions provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical fact, included in this Form 10-Q which relate to performance, development or activities that we expect or anticipate will or may happen in the future, are forward looking statements. The discussions regarding our growth strategy, expansion of operations in our markets, acquisitions, dispositions, competition, loan and deposit growth, timing of new branch openings, capital expectations, and response to consolidation in the banking industry include forward-looking statements. Other forward-looking statements may be identified by the use of forward-looking words such as "believe," "expect," "may," "might," "will," "should," "seek," "could," "approximately," "intend," "plan," "estimate," or "anticipate" or the negative of those words or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties and are based on numerous assumptions. They are not guarantees of future performance. A number of important factors could cause actual results to differ materially from those in the forward-looking statement. Some factors include changes in interest rates, local business conditions, government regulations, loss of key personnel or inability to hire suitable personnel, faster or slower than anticipated growth, economic conditions, our competitors' responses to our marketing strategy or new competitive conditions, and competition in the geographic and business areas in which we conduct our operations. Forward-looking statements contained herein are made only as of the date made, and we do not undertake any obligation to update them to reflect events or circumstances after the date of this report to reflect the occurrence of unanticipated events.

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. These factors are included in our Form 10K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission.

Consolidated Condensed Balance Sheets

Our total assets increased by $135 million from $3.415 billion as of December 31, 2008 to $3.550 billion as of March 31, 2009. The increase in total assets is primarily due to a $179.4 million increase in interest-bearing deposits with other banks, partially offset by a $62 million decrease in net loans. The increase in interest-bearing cash is a result of an increase in deposits, including a $45.7 million increase in brokered deposits. Money market savings accounts and non-interest bearing demand accounts increased by $91 million and $43.9 million, respectively, but were partially offset by the decrease in securities sold under agreements to repurchase of $48.6 million. Although we experienced a significant increase in total deposits, FHLB advances were maintained at a level consistent with December 31, 2008, to strengthen our liquidity position by keeping cash on hand. Also, see "Liquidity" below.

The following table presents the amounts of our loans, by category, at the dates indicated.

                                          March 31, 2009         December 31, 2008         March 31, 2008
                                          Amount        %          Amount        %         Amount        %
                                                               (Dollars in thousands)
Commercial                              $   342,963    12.7 %   $    356,769    13.0 %   $   354,723    13.6 %
Real estate - commercial                  1,146,975    42.5 %      1,172,952    42.6 %       963,664    36.9 %
Real estate - one- to four-family           270,114    10.0 %        270,613     9.8 %       242,302     9.3 %
Real estate - construction                  882,733    32.6 %        896,117    32.5 %       982,847    37.6 %
Consumer and other                           38,732     1.4 %         41,474     1.5 %        45,905     1.8 %
Mortgage loans available for sale            22,531     0.8 %         16,664     0.6 %        20,751     0.8 %

Total                                   $ 2,704,048   100.0 %   $  2,754,589   100.0 %   $ 2,610,192   100.0 %

Of the $2.7 billion in total loans, $406.6 million are held for sale as they are included in the anticipated sale of our Colorado branches.

The following table represents customer deposits, by category, at the dates indicated.

                                          March 31, 2009         December 31, 2008         March 31, 2008
                                          Amount        %          Amount        %         Amount        %
                                                               (Dollars in thousands)
Non-interest-bearing                    $   497,226    18.2 %   $    453,319    18.0 %   $   466,447    18.1 %
Interest-bearing demand                     302,056    11.1 %        296,732    11.8 %       331,072    12.8 %
Money market savings accounts               562,060    20.6 %        471,011    18.6 %       471,704    18.3 %
Regular savings                             103,952     3.8 %        100,691     4.0 %       109,610     4.3 %
Certificates of deposit less than
$100,000                                    328,136    12.0 %        325,110    12.9 %       372,136    14.4 %
Certificates of deposit greater than
$100,000                                    485,527    17.9 %        471,826    18.7 %       712,726    27.6 %
CDARS Reciprocal deposits                   210,920     7.7 %        212,249     8.4 %        64,307     2.5 %
Brokered deposits                           237,292     8.7 %        191,604     7.6 %        52,599     2.0 %

Total                                   $ 2,727,169   100.0 %   $  2,522,542   100.0 %   $ 2,580,601   100.0 %

Of the $2.7 billion in total deposits, $85.8 million of non-interest bearing deposits and $394.2 million of interest-bearing deposits are held for sale as they are included in the anticipated sale of our Colorado branches.

Consolidated Results of Operations For the Three Months Ended March 31, 2009

Our net loss for the three months ended March 31, 2009 was $24.4 million, or $(1.19) per diluted share, compared to net income of $3.9 million or $0.19 per diluted share for the same period in 2008. The net loss for the three months ended March 31, 2009 resulted primarily from the level of provision for loans losses due to increased non-performing assets and charge-offs.

Our net interest income decreased approximately $5.0 million to $26.4 million for the three months ended March 31, 2009, compared to $31.4 million for the same period in 2008. This decrease was composed of an $11.7 million decrease in total interest income, partially offset by a $6.7 million decrease in total interest expense.

The decrease in total interest income was composed of a decrease of $15.1 million due to a 1.83% decrease in the yield on average interest-earning assets, partially offset by an increase of $3.4 million due to increased average interest earning assets of $199.1 million. The increase in average earning assets occurred primarily in loans, due to the organic growth that occurred from March 31, 2008 to March 31, 2009.

The decrease in total interest expense was composed of a decrease of $10.0 million due to a 1.16% decrease in the cost of interest-bearing liabilities, partially offset by an increase of $3.3 million due to increased average interest-bearing liabilities of $174.9 million. The increase in average interest-bearing liabilities was primarily due to an increase in average interest-bearing deposits of $38.4 million, an increase in average short-term borrowings of $67.9 million, and an increase in long-term debt of $149.0 million, partially offset by a decrease in federal funds purchased and securities sold under agreement to repurchase of $80.2 million. Average short-term and long-term borrowings increased as the overall growth in our loan portfolio from March 31, 2008 to March 31, 2009 exceeded our ability to generate deposits. The decrease in average federal funds purchased and securities sold under agreements to repurchase was primarily due to a general decrease in securities sold under agreements to repurchase, caused primarily by a shift in depositors' funds into higher rate deposit products including money market savings accounts, interest-bearing demand accounts, and certificates of deposit.

Our net interest margin was 3.27% and 4.12% for the first quarter of 2009 and 2008, respectively. The decrease in the net interest margin is primarily due to the decrease in the federal funds target rate that began in September 2007 and continued through December 2008. The Federal Reserve Bank has lowered the federal funds target rate by 500 basis points since September 2007, leading to an equal decrease in the prime lending rate. A significant portion of our loan portfolio is tied directly to the prime lending rate and adjusts daily when there is a change in the prime lending rate. The rates paid on customer deposits are influenced more by competition in our markets and tend to lag behind Federal Reserve Bank action in both timing and magnitude, particularly in this very low rate environment. In conjunction with the Federal Reserve Bank's lower target rates, we have lowered selected deposit rates, but remain competitive in the markets we serve. Our asset sensitivity combined with the fact that deposit repricing is slow and minimal because of the low rate environment has had a negative impact on the margin. The increase in the level of non-accrual loans has also negatively impacted the net interest margin. Over the last year, and due to overall market conditions, our overall balance sheet mix has changed. We are currently targeting a loan to deposit ratio below 100%, but due to the strong loan growth in the first half of 2008, combined with a difficult deposit generating environment, the total amount of loans that exceed our deposits has grown, requiring us to utilize additional funding sources beginning in the second half of 2008. These circumstances have resulted in an increase in average borrowings of approximately $217 million since March 31, 2008, and contributed to the compression in our net interest margin. Although our borrowing rates have decreased, our core deposits, including non-interest bearing accounts provide for a lower overall funding source. In addition, in the first quarter of 2009, in order to strengthen our liquidity position, we issued additional brokered deposits and borrowed additional funds from the FHLB, resulting in an increase in lower yielding cash on the balance sheet. We have also lengthened the maturities of our newly issued brokered deposits and FHLB borrowings over the next two to three years to further strengthen our liquidity position. Although these activities may cause further margin compression, we believe that the improvement in our current liquidity position clearly outweighs the potential margin compression that could occur over the next few quarters. The extent of future changes in our net interest margin will depend on the amount and timing of any Federal Reserve rate changes, our overall liquidity position, our non-performing asset levels, our ability to manage the cost of interest-bearing liabilities, and our ability to stay competitive in the markets we serve.

Given current economic conditions and trends, we may continue to experience asset quality deterioration and higher levels of nonperforming loans in the near-term, as well as continued compression in our net interest margin, which would result in continued negative earnings and financial condition pressures.

Non-interest Income

An analysis of the components of non-interest income is presented in the table
below.



                                                   First Quarter Ended
(Dollars in thousands)                                  March 31,
                                                    2009          2008         $ Change       % Change
Service charges                                  $     3,763    $  2,992      $      771            26 %
Credit and debit card transaction fees                   952         937              15             2
Gain (loss) on investment securities                   2,754        (236 )         2,990         1,267
Gain on sale of mortgage loans                         1,365       1,247             118            10
Other                                                    800       1,272            (472 )         (37 )

                                                 $     9,634    $  6,212      $    3,422            55 %

The increase in service charges on deposit accounts is primarily due to an increase in NSF fees charged per occurrence, a reduction in fees waived from deposit accounts, and an increase in account analysis fees.

The increase in gain on investment securities is due to an increase in sales of investment securities during the period. During the first quarter of 2009, certain securities were sold at a gain as part of our continued efforts to bolster capital. The 2008 loss on investment securities includes an other-than-temporary charge of $333,000 on FHLMC preferred stock, held in the available for sale portfolio and acquired as part of the acquisition of Front Range Capital Corporation in March 2007.

The decrease in other non-interest income is primarily due to a decrease in official check outsourcing fee income as official check processing was brought in-house in the fourth quarter of 2008. The decrease is also attributable to the redemption of VISA stock that occurred in the first quarter of 2008.

Non-interest Expenses

An analysis of the components of non-interest expense is presented in the table
below.



                                         First Quarter Ended
   (Dollars in thousands)                     March 31,
                                          2009          2008     $ Change      % Change
   Salaries and employee benefits      $    11,522    $ 13,517   $  (1,995 )        (15 )%
   Occupancy                                 3,818       4,025        (207 )         (5 )
   Data processing                           1,477       1,549         (72 )         (5 )
   Equipment                                 1,915       2,144        (229 )        (11 )
   Legal, accounting, and consulting         1,354         576         778          135
   Marketing                                   659         747         (88 )        (12 )
   Telephone                                   371         493        (122 )        (25 )
   Other real estate owned                     960         502         458           91
   FDIC insurance premiums                   1,486         465       1,021          220
   Amortization of intangibles                 602         640         (38 )         (6 )
   Other                                     2,895       3,103        (208 )         (7 )

                                       $    27,059    $ 27,761   $    (702 )         (3 )%

The decrease in salaries and benefits is primarily due to a decrease in headcount. At March 31, 2009, full time equivalent employees totaled 775, compared to 873 at March 31, 2008. The decrease is also due to a decrease in share-based compensation expense, a decrease in incentive bonus expense, a decrease in self-insured medical and dental claims, and a decrease in expenses related to temporary help.

The increase in legal, accounting, and consulting is primarily due to legal and investment banking costs incurred in connection with the pending sale of our Colorado branches, and consultation costs related to a staffing model that was prepared in connection with our continued efforts to control non-interest expenses.

The increase in other real estate owned is primarily due to an increase in write-downs of properties to reflect their estimated fair values and an increase in losses on sales of properties.

The increase in FDIC insurance premiums is due to new FDIC assessment rates that took effect on January 1, 2009, as well as an increase in deposits. In February 2009, the FDIC adopted an additional final rule which includes an additional uniform two basis point increase as well as other adjustments that will take effect on April 1, 2009. In conjunction with the February ruling, the FDIC also adopted an interim rule, imposing a twenty basis point emergency special assessment on June 30, 2009, to be collected on September 30, 2009. The interim rule also permits the imposition of an additional emergency special assessment after June 30, 2009, of up to ten basis points. In May 2009, the U.S. Senate passed a bill that will increase the FDIC's Treasury borrowing authority from $30 billion to $100 billion, allowing the FDIC to cuts its planned special assessment from twenty basis points to ten basis points. Based on the above, we expect our 2009 FDIC insurance premiums to be approximately $10 million, including the ten basis point emergency assessment. This estimate could change, depending on our level of deposits or further rulemaking.

Allowance for Loan Losses

We use a systematic methodology, which is applied monthly to determine the amount of allowance for loan losses and the resultant provisions for loan losses we consider adequate to provide for anticipated loan losses. The allowance is increased by provisions charged to operations, and reduced by loan charge-offs, net of recoveries. The following table sets forth information regarding changes in our allowance for loan losses for the periods indicated.

                                           Three months ended              Year ended               Three months ended
ALLOWANCE FOR LOAN LOSSES:                   March 31, 2009             December 31, 2008             March 31, 2008
                                                                     (Dollars in thousands)
Balance beginning of period               $             79,707         $            31,712         $             31,712
Allowance related to other loans
held for sale                                           (8,469 )                        -                            -
Provision for loan losses                               33,300                      71,618                        3,900
Net charge-offs                                        (13,261 )                   (23,623 )                     (1,116 )

Balance end of period                     $             91,277         $            79,707         $             34,496

Allowance for loan losses to total
loans held for investment                                 4.01 %                      2.91 %                       1.33 %
Allowance for loan losses to
non-performing loans                                        56 %                        67 %                         69 %




NON-PERFORMING ASSETS:                    March 31, 2009         December 31, 2008        March 31, 2008
                                                              (Dollars in thousands)
Accruing loans - 90 days past due        $              2       $             4,139       $           553
Non-accrual loans                                 163,585                   114,138                49,748

Total non-performing loans                        163,587                   118,277                50,301
Other real estate owned                            17,754                    18,894                16,551

Total non-performing assets              $        181,341       $           137,171       $        66,852

Potential problem loans                  $        246,200       $           130,884       $        71,862
Total non-performing assets to total
assets                                               5.11 %                    4.02 %                1.93 %

Our provision for loan losses was $33.3 million for the first quarter of 2009, compared to $3.9 million for the first quarter of 2008. The increase is primarily a result of an increase in net charge-offs, an increase in non-performing loans, and growth of the portfolio. The allowance for loan losses to non-performing loans decreased from 67% at December 31, 2008 to 56% at March 31, 2009, partially due to the offset of the $8.5 million allowance attributable to the loans available for sale included in the anticipated sale of our Colorado branches, all of which are performing credits. Non-performing loans increased by $45.3 million since December 31, 2008, while the $33.3 million provision for loan losses for the three months ended March 31, 2009 exceeded the net charge-offs for the quarter by approximately $20 million, further contributing to the decrease in the ratio of the allowance for loan losses to non-performing loans. In addition, approximately 95% of our non-performing loans are secured by real estate, where fair value is determined based on appraisals, mitigating our loss exposure compared to commercial and industrial or consumer loans where the collateral is less tangible. Approximately 40% of our non-performing loans are in New Mexico, approximately 28% are in Colorado, approximately 26% are in Utah, and approximately 6% are in Arizona. In assessing the adequacy of the allowance, management reviews the size, quality, and risks of loans in the portfolio, and considers factors such as specific known risks, past experience, the status and amount of non-performing assets, and economic conditions.

Our loan portfolio remains heavily concentrated in real estate at 86%. Our market exposure in the real-estate construction industry at March 31, 2009 was approximately $882.7 million. Of the $882.7 million of real estate construction loans, approximately 46% of these loans are related to residential construction and approximately 54% are for commercial purposes or vacant land. Approximately 53% of our real estate construction loans are in New Mexico, approximately 20% are in Colorado, approximately 19% are in Utah, and approximately 8% are in Arizona.

Given current economic conditions and trends, we may continue to experience asset quality deterioration and higher levels of nonperforming loans in the near-term, which would result in continued negative earnings and financial condition pressures.

We sell virtually all of the residential mortgage loans that we originate and we have no securities that are backed by sub-prime mortgages.

Potential problem loans are loans not included in non-performing loans that we have doubts as to the ability of the borrowers to comply with present loan repayment terms.

Liquidity

Our liquidity management objective is to ensure our ability to satisfy cash flow requirements of depositors and borrowers, and to allow us to sustain our operations. Our primary sources of funds are customer and brokered deposits, loan repayments, maturities of and cash flow from investment securities, and borrowings. Borrowings may include federal funds purchased, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank, the Federal Reserve Bank discount window, the Term Auction Facility ("TAF") from the Federal Reserve Bank, and any other borrowing arrangement that we are eligible to participate in. Investment securities may be used as a source of liquidity either through sale of investment securities available for sale or pledging for qualified deposits, as collateral for Federal Home Loan Bank or Federal Reserve Bank borrowings, or as collateral for other liquidity sources.

In March 2009, the FHLB, which is a significant component of our overall liquidity structure, replaced our blanket lien with a custody arrangement, whereby the FHLB has custody and endorsement of the loans that collateralize the FHLB borrowings. Management is in the process of delivering loans to be held as collateral for the outstanding borrowings with FHLB under the custody arrangement. Management expects to deliver commercial real estate and one to four family real estate loan collateral with approximately $900 million in par value as collateral to the FHLB. While management believes these loans will be sufficient to fully secure existing borrowings, the FHLB determines the collateral values and therefore there is no assurance that the FHLB will not require additional collateral or repayment of existing borrowings. Based on our current status with the FHLB, we do not have the ability to draw down additional advances. Based on our agreement with the FHLB and the FHLB's credit policy, as the existing borrowings mature, they will be allowed to continuously renew for like amounts, but for terms not to exceed thirty days.

Under the terms of the Bank's agreement with the FHLB, the FHLB may at its own option call the outstanding debt due and payable if any of the following have occurred: the Bank has suspended payment to any creditor or there has been an acceleration of the maturity of any indebtedness of the Bank to others; the FHLB reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Bank; or the FHLB reasonably and in good faith deems itself insecure in the collateral even though the Bank is not otherwise in default. We have not received any notice from the FHLB regarding a call of our outstanding debt.

We are focused on managing our liquidity exposure by decreasing our overall risk weighted assets and utilizing the various liquidity sources available to us and are currently working to establish additional borrowing capacity with the Federal Reserve discount window which we anticipate will provide additional liquidity in the form of additional borrowing capacity of approximately $100 million, subject to a subordination agreement with the FHLB.

Our wholesale funding sources include FHLB borrowings, securities sold under agreements to repurchase, non CDARS reciprocal brokered deposits, and subordinate debentures. These wholesale funding sources totaled $898.4 million, $899.9 million, and $589.9 million at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. The increase from March 31, 2008 is primarily due to FHLB advances which increased by $247.6 million

and non CDARS reciprocal brokered deposits which increased by $184.7 million, partially offset by a reduction in securities sold under agreements to repurchase of $123.7 million. As our FHLB borrowings increased, management expanded our utilization of other wholesale funding sources which resulted in . . .