This discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. Certain terms used in this discussion are defined in the notes to these financial statements. For a description of our accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2008. For a discussion of the segments included in our principal activities, see Note 11 to the Notes of the Condensed Consolidated Financial Statements.

Executive Summary

The Company is a financial holding company that offers a broad array of financial service products to its target market of professionals, small and medium-sized businesses, and high-net-worth individuals. Our operating segments include: commercial banking, investment banking, investment advisory and trust and insurance.

Earnings are derived primarily from our net interest income, which is interest income less interest expense, and our noninterest income earned from fee-based business lines and banking service fees, offset by noninterest expense. As the majority of our assets are interest-earning and our liabilities are interest-bearing, changes in interest rates impact our net interest margin, the largest component of our operating revenue (which is defined as net interest income plus noninterest income). We manage our interest-earning assets and interest-bearing liabilities to reduce the impact of interest rate changes on our operating results. We also have focused on reducing our dependency on our net interest margin by increasing our noninterest income.

Our Company has focused on developing an organization with personnel, management systems and products that will allow us to compete effectively and position us for growth. The cost of this process relative to our size has been high. In addition, we have operated with excess capacity during the start-up phases of various projects due to our commitment to technology and expansion of our fee-based businesses. As a result, relatively high levels of noninterest expense have adversely affected our earnings over the past several years. Salaries and employee benefits comprised most of this overhead category. However, we believe that our compensation levels have allowed us to recruit and retain a highly qualified management team capable of implementing our business strategies. We believe our compensation policies, which include the granting of share-based compensation to many employees and the offering of an employee stock purchase plan, have highly motivated our employees and enhanced our ability to maintain customer loyalty and generate earnings. For additional discussion on share-based compensation, see Note 10 to the Condensed Consolidated Financial Statements.

Industry Overview

The impact of decreased values in real estate related assets, a downturn in the financial markets and a significant tightening in the credit market that plagued the U.S. commercial banking industry in 2008 have continued into 2009. During 2008, 28 banks failed and went into receivership with the FDIC compared to 10 bank failures in the previous five years. Between January and July 24, 2009, 64 banks have gone into receivership. The industry continues to be challenged by weakening asset quality as evidenced by the increase in noncurrent loans during the first quarter of 2009 which was the largest quarterly increase in three years. However, equity capital at FDIC-insured institutions also increased significantly in the first quarter of 2009, registering the largest quarterly increase since 2004.

To stimulate the lagging economy, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) into law on February 17, 2009. Included in the ARRA are investments targeted to save or create jobs including, among other things: a $55.5 billion Making Work Pay tax credit to approximately 95% of working families; $144.0 billion in state and local fiscal relief; $111.0 billion in infrastructure and science; and $81.0 billion in protecting the vulnerable. The targeted mission of the ARRA is to:

†          Create or save more than 3.5 million jobs over the next two years;

†          Take a big step toward computerizing Americans' health records,
reducing medical errors and saving billions in health care costs;

†          Revive the renewable energy industry and provide the capital over the
next three years to eventually double domestic renewable energy capacity;

†          Undertake the largest weatherization program in history by
modernizing 75 percent of federal building space and more than one million
homes;

†          Increase college affordability for seven million students by funding

† As part of the $150 billion investment in new infrastructure, enact the largest increase in funding of our nation's roads, bridges, and mass transit systems since the creation of the national highway system in the 1950s;

† Provide an $800 Making Work Pay tax credit for 129 million working households, and cut taxes for the families of millions of children through an expansion of the Child Tax Credit;

† Require unprecedented levels of transparency, oversight and accountability.

Financial and Operational Highlights

Noted below are some of the Company's significant financial performance measures and operational results for the second quarter of 2009:

† Net loss for the three and six months ended June 30, 2009, was $15.8 million and $32.8 million, respectively, compared to $4.2 million and $5.8 million in net income for the same periods in 2008.

† Diluted earnings (loss) per share for the three and six months ended June 30, 2009, were $(0.72) and $(2.79), respectively, compared to $0.18 and $0.25 for the same periods in 2008.

† Earnings for the second quarter of 2009 were negatively impacted by a $1.7 million loss primarily related to valuation adjustments and losses on the sale of OREO and an OTTI on two investment securities. Valuation adjustments and losses for the six months ended June 30, 2009 totaled $3.1 million.

† The FDIC adopted a final rule that imposed special assessment on insured depository institutions. This increased the Company's FDIC assessment expense by $1.2 million for the three months ended June 30, 2009.

† Net interest income on a tax-equivalent basis for the three and six months ended June 30, 2009, increased to $26.4 million and $53.2 million, respectively, compared to $23.7 million and $45.8 million for the same periods in 2008.

† The net interest margin on a tax-equivalent basis was 4.38% for the three and six months ended June 30, 2009, compared to 4.08% and 4.03% for the same periods in 2008.

† Gross loans decreased $79.5 million from December 31, 2008, or (7.9)% on an annualized basis.

† Provision for loan and credit losses for the three and six months ended June 30, 2009, was $35.1 million and $69.0 million, compared to $5.6 million and $10.7 million for the comparable periods in 2008.

† Net loan charge-offs totaled $23.4 million for the three months ended June 30, 2009, or 4.7% annualized of average loans during the period, compared to 0.75% annualized for the same period in 2008.

† Nonperforming assets increased to $93.9 million or 3.7% of total assets at June 30, 2009, compared to $47.0 million or 1.75% of total assets at December 31, 2008.

† The allowance for loan and credit losses increased to 3.87% of total loans at June 30, 2009, compared to 1.32% for the same period in 2008.

† The Company's total risk-based capital ratio decreased to 13.4% at the end the second quarter of 2009 from 14.5% at the end of 2008.

† The Company terminated a $30.0 million revolving line of credit that had not been accessed since the fourth quarter of 2008.

Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In making those critical accounting estimates, we are required to make assumptions about matters that may be highly uncertain at the time of the estimate. Different estimates we could reasonably have used, or changes in the assumptions that could occur, could have a material effect on our financial condition or results of operations. In addition to the discussion on SFAS 157 below, a description of our critical accounting policies was provided in the

Management's Discussion and Analysis of Financial Condition and Results of Operation section of our Annual Report on Form 10-K for the year ended December 31, 2008.

The Company measures or monitors certain assets and liabilities on a fair value basis in accordance with SFAS 157. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Fair value may be used on a recurring basis for certain assets and liabilities such as available for sale securities and derivatives in which fair value is the primary basis of accounting. Similarly, fair value may be used on a nonrecurring basis to evaluate certain assets or liabilities such as impaired loans and other real estate owned. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions in accordance with SFAS 157 to determine the instrument's fair value. At June 30, 2009, 18.0% or $458.3 million of total assets, represented assets recorded at fair value on a recurring basis. At June 30, 2009, 0.2% or $4.0 million of total liabilities represented liabilities recorded at fair value on a recurring basis. Assets (financial and nonfinancial) recorded at fair value on a nonrecurring basis represented $95.8 million or 3.8% of total assets.

At June 30, 2009, the Company holds, as part of its investment portfolio, available for sale securities reported at fair value consisting of MBS, obligations of states and political subdivisions, and trust preferred securities. The fair value of the majority of MBS and obligations of states and political subdivisions are determined using widely accepted valuation techniques, including matrix pricing and broker-quote-based applications, considered Level 2 inputs. The Company also holds trust preferred securities that are recorded at fair value based on quoted market prices, considered by the Company Level 1 inputs. The fair value of available for sale securities at June 30, 2009, using Level 1 and 2 inputs was $446.8 million. Certain private label MBS valued using broker-dealer quotes based on proprietary broker models, which are considered by the Company an unobservable input (Level 3), totaled $2.8 million at June 30, 2009. At June 30, 2009, investments incorporating Level 3 inputs as part of their valuation represent 0.11% of total assets. The Company recognized a loss of $0.4 million on the private label MBS for the three months ended June 30, 2009. Unrealized losses of $3.6 million were recorded in other comprehensive income relating to private label MBS for the three months ended June 30, 2009.

Currently, the Company uses interest rate swaps as part of its cash flow strategy to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. To comply with the provisions of SFAS 157, credit valuation adjustments are incorporated into the valuation to appropriately reflect both the Company's own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs (i.e. estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties). However, at June 30, 2009, the Company has concluded that the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. Therefore, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Certain collateral-dependent impaired loans are reported at the fair value of the underlying collateral. Impairment is measured based on the fair value of the collateral, which is typically derived from appraisals that take into consideration prices in observed transactions involving similar assets and similar locations, in accordance with SFAS 114. The fair value of other impaired loans is measured using a discounted cash flow analysis.

OREO represents real property taken by the Bank either through foreclosure or through a deed in lieu thereof from the borrower. OREO is measured at the lower of cost or fair value, less selling costs. Fair value of OREO is based on property appraisals, considered a Level 2 input by the Company.

Financial Condition

Total assets at June 30, 2009 were $2.5 billion, a decrease of $143.4 million or 5.3% from December 31, 2008, due primarily to a decrease in the loan portfolio of $79.5 million, an increase in the allowance for loan losses of $32.4 million and a goodwill impairment of $33.7 million during the first half of 2009. In 2009, higher level of loan pay downs and maturities and the increase in the allowance for loan losses from December 31, 2008, exceeded new credit extensions of $124.7 million and loan advances of $218.4 million.

Investments. The Company manages its investment portfolio to provide interest income and to meet the collateral requirements for public deposits, our customer repurchase program and wholesale borrowings. Investments decreased by $34.3 million from $500.4 million at December 31, 2008, to $466.1 million at June 30, 2009. The decrease in investments is primarily attributable to a Federal Home Loan Bank (FHLB) stock sale of $7.9 million, maturities of $47.0 million and OTTI of $1.7 million. These changes were offset by purchases of $13.3 million. Purchases during the first half of 2009 consisted of two corporate debt securities issued by publicly traded Companies, a municipal bond and a mortgage-backed security. Maturing investments were largely high-grade government-backed mortgage-backed securities (MBS). Additionally, net unrealized losses on available-for-sale securities decreased by $9.0 million to $6.3 million during the first half of 2009.

Investments comprised 18.3% of total assets at June 30, 2009, a slight decrease from 18.6% at December 31, 2008. Our investment portfolio is mainly comprised of MBS, including MBS issued by U.S. government agencies or government sponsored entities. The portfolio does not hold any securities exposed to sub-prime mortgage loans. The table below summarizes the composition of our available for sale investment portfolio at June 30, 2009.

                                        June 30, 2009              % of         Unrealized         % of total
(in thousands)                    Book value      Fair value     Portfolio     gain / (loss)     unrealized gain
Mortgage-backed securities       $    388,302    $    399,807         88.9 %  $        11,505              181.5 %
Trust preferred securities             23,189          20,952          4.7 %           (2,237 )            -35.3 %
Obligations of states and
political subdivisions                  2,982           2,974          0.7 %               (8 )             -0.1 %
Corporate debt securities              22,397          23,109          5.1 %              712               11.2 %
Private label mortgage-backed
securities                              6,429           2,795          0.6 %           (3,634 )            -57.3 %
Total available for sale
securities                       $    443,299    $    449,637        100.0 %  $         6,338              100.0 %

Loans. Gross loans held for investment decreased by $81.7 million or 4.0% to $1.9 billion at June 30, 2009 from December 31, 2008. The decrease was equally distributed between our two markets Arizona (51%) and Colorado (49%). Overall, at June 30, 2009 the decrease in our loan portfolio is mainly attributed to our Commercial and Real Estate - construction loans decreasing by $45.7 million and $29.3 million, respectively, from December 31, 2008.

                                June 30, 2009            December 31, 3008            June 30, 2008
                                           % of                       % of                       % of
(in thousands)               Amount      Portfolio      Amount      Portfolio      Amount      Portfolio
LOANS
Commercial                 $   603,278        32.1 %  $   648,968        32.6 %  $   618,677        32.0 %
Real Estate - mortgage       1,009,960        53.8 %    1,017,444        51.2 %      929,949        48.0 %
Real Estate -
construction                   237,663        12.7 %      266,928        13.4 %      323,554        16.7 %
Consumer                        85,385         4.6 %       86,701         4.4 %       76,457         4.0 %
Other                           13,304         0.7 %       11,212         0.6 %       12,540         0.6 %
Gross loans                  1,949,590       103.9 %    2,031,253       102.2 %    1,961,177       101.3 %
Less allowance for loan
losses                         (75,256 )      (4.0 )%     (42,851 )      (2.2 )%     (25,727 )      (1.3 )%
Net loans held for
investment                   1,874,334        99.9 %    1,988,402       100.0 %    1,935,450       100.0 %
Loans held for sale              2,185         0.1 %            -         0.0 %            -         0.0 %
Total net loans            $ 1,876,519       100.0 %  $ 1,988,402       100.0 %  $ 1,935,450       100.0 %

Loans Held for Sale. At June 30, 2009, the Company had $2.2 in loans held for sale due to management's intention to sell specific loans in the portfolio.

Goodwill. Goodwill decreased by $33.7 million to $12.5 million at June 30, 2009, from $46.2 million at December 31, 2008 wholly due to an impairment charge. The impairment was the result of an analysis of the Company's reporting units conducted during the first quarter of 2009 that indicated that the carrying value of goodwill exceeded its implied value.

Deferred Income Taxes. Deferred income taxes increased $10.5 million to $27.5 million at June 30, 2009, from $16.9 million at December 31, 2008. The increase was primarily related to the $12.3 million tax effect of the provision for loan and credit losses (net of charge-offs and recoveries) offset by unrealized gains in the securities portfolio and increases in the fair market value of our interest rate swaps.

Other Real Estate Owned. OREO increased by $20.6 million to $26.5 million at June 30, 2009 from $5.9 million at December 31, 2008. During the first half of 2009, the Company disposed of $3.3 million in OREO and took possession of an additional $23.8 million in OREO. At June 30, 2009, $10.1 million or 38% of OREO was in

Arizona while the remaining $16.4 million or 62% was in Colorado. The Company held a total of 17 properties at June 30, 2009, of which 12 were located in Arizona compared to five in Colorado.

Other Assets. Other Assets increased by $5.3 million to $32.0 million at June 30, 2009, from $26.7 million at December 31, 2008. The increase was primarily attributed to a $6.2 million increase in taxes receivable offset by a $0.8 million decrease in the fair value of derivative instruments. The remaining change was attributed to fluctuations in other miscellaneous assets.

Deposits. Total deposits increased by $119.6 million to $1.76 billion at June 30, 2009 from $1.64 billion at December 31, 2008. Customer funding, excluding brokered deposits, increased $120.2 million from December 31, 2008. We continue to see a migration from Money Market and NOW accounts into certificates of deposits offered through the CDARS program. Overall, growth in deposits was primarily attributed to certificates of deposits of $100,000 and over and noninterest-bearing demand deposits.

                                      June 30, 2009            December 31, 3008            June 30, 2008
                                                 % of                       % of                       % of
(in thousands)                     Amount      Portfolio      Amount      Portfolio      Amount      Portfolio
DEPOSITS AND CUSTOMER
REPURCHASE AGREEMENTS
NOW and money market             $   524,622        27.9 %  $   565,948        31.9 %  $   626,500        35.1 %
Savings                                9,432         0.5 %        9,274         0.5 %       10,726         0.6 %
Eurodollar                           103,303         5.5 %       88,025         5.0 %      100,771         5.6 %
Certificates of deposits under
$100,000                              56,657         3.0 %       76,559         4.3 %       89,059         5.0 %
Certificates of deposits
$100,000 and over                    405,888        21.6 %      287,039        16.2 %      340,926        19.2 %
Reciprocal CDARS                     117,408         6.3 %       91,844         5.2 %       16,341         0.9 %
Brokered deposits                     65,972         3.5 %       66,611         3.8 %       21,465         1.2 %
Total interest-bearing
deposits                           1,283,282        68.3 %    1,185,300        66.9 %    1,205,788        67.6 %
Noninterest-bearing demand
deposits                             475,353        25.3 %      453,731        25.6 %      446,145        25.0 %
Customer repurchase agreements       118,958         6.4 %      133,478         7.5 %      131,717         7.4 %
Total deposits and customer
repurchase agreements            $ 1,877,593       100.0 %  $ 1,772,509       100.0 %  $ 1,783,650       100.0 %

Securities Sold Under Agreements to Repurchase. Securities sold under agreement to repurchase are transacted with customers as a way to enhance our customers' interest-earning ability. Management does not consider customer repurchase agreements to be a wholesale funding source, but rather an additional treasury management service provided to our customer base. Our customer repurchase agreements are based on an overnight investment sweep that can fluctuate based on our customers' operating account balances. Securities sold under agreements to repurchase decreased $14.5 million since December 31, 2008, partially due to the migration of funds to the Eurodollar sweep product that offers a higher interest rate.

Other Short-Term Borrowings. Other short-term borrowings decreased by $190.0 million to $353.0 million at June 30, 2009, from $543.1 million at December 31, 2008. Other short-term borrowings consist of federal funds purchased, overnight and term borrowings from the FHLB, advances on a revolving line of credit and short-term borrowings from the U.S. Treasury. The decrease in other short-term borrowings is primarily due to the increase of $119.6 million in deposits and the $34.3 million decrease in investments in the first half of 2009. Other short-term borrowings are used as part of our liquidity management strategy and fluctuate based on the Company's cash position. The Company's wholesale funding needs are largely dependent on core deposit levels, which have proven to be volatile due to increased competition and uncertain economic conditions. If we are unable to maintain deposit balances at a level sufficient to fund our asset growth, our composition of interest-bearing liabilities will shift toward additional wholesale funds, which typically have a higher interest cost than our core deposits.

Results of Operations

Overview

The following table presents the condensed consolidated statements of operations for the three and six months ended June 30, 2009 and 2008.

                                   Three months ended June 30,                       Six months ended June 30,
                                                  Increase/(decrease)                              Increase/(decrease)
(in thousands)              2009        2008        Amount         %         2009        2008        Amount         %
INCOME STATEMENT DATA
Interest income           $  32,841   $ 35,639   $     (2,798 )    (7.9 )% $  66,375   $ 73,036   $     (6,661 )    (9.1 )%
Interest expense              6,615     12,143         (5,528 )   (45.5 )%    13,570     27,562        (13,992 )   (50.8 )%
NET INTEREST INCOME
BEFORE PROVISION             26,226     23,496          2,730      11.6 %     52,805     45,474          7,331      16.1 %
Provision for loan
losses                       35,249      5,986         29,263     488.9 %     68,996     11,017         57,979     526.3 %
NET INTEREST INCOME
(LOSS) AFTER PROVISION       (9,023 )   17,510        (26,533 )  (151.5 )%   (16,191 )   34,457        (50,648 )  (147.0 )%
Noninterest income            8,035     11,610         (3,575 )   (30.8 )%    14,156     19,301         (5,145 )   (26.7 )%
Noninterest expense          24,273     22,477          1,796       8.0 %     81,601     44,382         37,219      83.9 %
INCOME (LOSS) BEFORE
INCOME TAXES                (25,261 )    6,643        (31,904 )  (480.3 )%   (83,636 )    9,376        (93,012 )  (992.0 )%
Provision (benefit) for
income taxes                 (9,740 )    2,420        (12,160 )  (502.5 )%   (20,668 )    3,290        (23,958 )  (728.2 )%