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 to 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

Statements made by the Chairman of the Federal Reserve during the third quarter of 2009 indicated that the recession may be coming to an end from a technical perspective, but that the economy could be weak for some time. The unemployment rate increased from 4.9% in December 2007 to 9.8% in September 2009, the highest rate since September 1983. The high unemployment rate is one of the driving factors that could prolong a weak economy. In the second quarter of 2009, FDIC insured commercial banks reported a combined net loss of $3.7 billion. Net charge-offs for the industry set a record high at 2.55% of loans. During 2008, 26 banks failed and went into receivership with the FDIC compared to 10 bank failures in the previous five years. Between January and October 30, 2009, 115 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 second quarter of 2009 to an all time high. Through June 30, 2009, noncurrent loans have increased for 13 consecutive quarters. However,

some positive signs were also registered in the second quarter. While troubled loans increased, the rate of increase slowed during the second quarter. In addition, FDIC-insured institutions on average improved the net interest margin and overall capital levels.

Financial and Operational Highlights

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

† During the third quarter, the Company successfully completed a common equity offering of $55.8 million, net of expenses.

† Net loss for the three and nine months ended September 30, 2009, was $15.7 million and $78.5 million, respectively, compared to $4.2 million and $9.9 million in net income for the same periods in 2008.

† Diluted earnings (loss) per share for the three and nine months ended September 30, 2009, were $(0.50) and $(3.05), respectively, compared to $0.18 and $0.43 for the same periods in 2008.

† Earnings for the third quarter of 2009 were negatively impacted by a $12.5 million noncash goodwill impairment charge and a $0.9 million loss related to valuation adjustments and losses on the sale of OREO and an OTTI on two investment securities. Valuation adjustments and losses for the nine months ended September 30, 2009 total $4.0 million.

† Net interest income on a tax-equivalent basis for the three and nine months ended September 30, 2009, increased to $25.8 million and $78.9 million, respectively, compared to $24.4 million and $70.2 million for the same periods in 2008.

† The net interest margin on a tax-equivalent basis was 4.40% and 4.39% for the three and nine months ended September 30, 2009, respectively, compared to 4.10% and 4.06% for the same periods in 2008.

† Provision for loan and credit losses for the three and nine months ended September 30, 2009, was $20.2 million and $89.2 million, compared to $5.4 million and $16.0 million for the same periods in 2008.

† Gross loans decreased $151.3 million from December 31, 2008, or
(10.0)% on an annualized basis.

† Net loan charge-offs totaled $14.0 million for the three months ended September 30, 2009, or 1.0% annualized of average loans during the period, compared to 0.2% annualized for the same period in 2008.

† Nonperforming assets increased to $98.2 million or 3.9% of total assets at September 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 4.35% of total loans at September 30, 2009, compared to 1.40% for the same period in 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 fair value measurements and deferred taxes 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.

Fair Value Measurements. The Company measures or monitors certain assets and liabilities on a fair value basis in accordance with GAAP. ASC 820 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, ASC 820 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 ASC 820 to determine the instrument's fair value. At September 30, 2009, 19.3% or $490.5 million of total assets, represented assets recorded at fair value on a recurring basis. At September 30, 2009, 0.2% or $4.9 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 $77.9 million or 3.1% of total assets.

At September 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 September 30, 2009, using Level 1 and 2 inputs was $481.0 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 $2.6 million at September 30, 2009. At September 30, 2009, investments incorporating Level 3 inputs as part of their valuation represent 0.1% of total assets. The Company recognized a loss of $0.5 million on the private label MBS for the three months ended September 30, 2009. Unrealized losses of $3.1 million were recorded in other comprehensive income relating to private label MBS for the three months ended September 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 ASC 820, 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 September 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.

Deferred Tax Assets. At September 30, 2009, the Company has recorded a net deferred tax asset of $31.5 million which relates primarily to expected future deductions arising from the allowance for loan losses. Since there is no absolute assurance that these assets will be realized, the Company evaluates its ability to carryback losses, tax planning strategies and forecasts of future earnings to evaluate the need for a valuation allowance on these assets. At September 30, 2009, the Company believes that it is more likely than not that it will be able to fully realize its deferred tax assets and has not recorded a valuation allowance. Should the timing of deductibility of expenses or expectations for future earnings change, the Company could conclude that a valuation allowance is necessary. If this were to occur, tax expense could be materially increased in the period that a valuation allowance is established.

Financial Condition

Total assets at September 30, 2009 were $2.5 billion, a decrease of $146.6 million or 5.5% from December 31, 2008, due primarily to a decrease in the loan portfolio of $151.3 million, an increase in the allowance for loan losses of $38.6 million and a goodwill impairment of $46.2 million, offset by increases in Fed Funds Sold of $50.4 million, and an increase in OREO of $16.5 million and deferred taxes of $14.6 million. Through the third quarter of 2009, loan pay downs and maturities coupled with the increase in the allowance for loan losses from December 31, 2008, have outpaced new credit extensions of $173.9 million and loan advances of $295.8 million.

Interest-bearing Deposits and Federal Funds Sold. Interest-bearing deposits and federal funds sold can fluctuate from period to period based on the Company's liquidity and cash management activities. At September 30, 2009, the balance of federal funds sold was at $56.8 million. The funds were being held in short-term interest-earning positions in anticipation of the October 8, 2009 maturity of $100.0 million borrowed under the U.S. Treasury's Term Auction Facility lending program (TAF).

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. The overall increase in the investment portfolio of $0.2 million during the first nine months of 2009 to $500.3 million was the result of purchases totaling $79.7 million offset by paydowns and maturities of $83.6 million and a $14.1 million increase in unrealized gains. Also factoring into the change was the sale of $7.9 million in Federal Home Loan Bank (FHLB) stock and net losses of $1.9 million related to OTTI and security sales. Purchases during the first three quarters of 2009 consisted of: $35.9 million in mortgage-backed securities; $25.0 million in short-term U.S. government agency debentures; $18.5 million in corporate debt securities issued by publicly traded companies; and, $0.3 million in a municipal bond. Maturing investments were largely high-grade government-backed mortgage-backed securities (MBS) but also included $7.5 million in calls of corporate debt securities.

Investments comprised 19.7% of total assets at September 30, 2009, an increase from 18.6% at December 31, 2008. Our investment portfolio is mainly composed 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 September 30, 2009.

                                     September 30, 2009           % of         Unrealized         % of total
(in thousands)                   Book value      Fair value     Portfolio     gain / (loss)     unrealized gain
Mortgage-backed securities       $   391,582    $    405,693         83.9 %  $        14,111              123.9 %
U.S. agency debentures                25,000          25,000          5.2 %                -                0.0 %
Trust preferred securities            21,834          21,621          4.5 %             (213 )             -1.9 %
Obligations of states and
political subdivisions                 2,636           2,686          0.6 %               50                0.4 %
Corporate debt securities             25,460          25,958          5.4 %              498                4.4 %
Private label mortgage-backed
securities                             5,652           2,600          0.5 %           (3,052 )            -26.8 %
Total available for sale
securities                       $   472,164    $    483,558        100.0 %  $        11,394              100.0 %

Loans. The Company has seen a decline in loan demand from qualifying prospective borrowers as well as current clients through the first three quarters of 2009. Gross loans held for investment decreased by $153.1 million or 7.5% to $1.88 billion at September 30, 2009 compared to December 31, 2008. The decrease was fairly distributed on a dollar-basis between our two markets, Arizona (48%) and Colorado (52%). The decrease in our loan portfolio through the first nine months of 2009 is mainly attributed to our Commercial loans, accounting for $69.4 million or 45.4% of the change but also contributing to the year to date change were the Real Estate - term and Real Estate - construction loans, decreasing by $37.1 million and $43.1 million, respectively, from December 31, 2008. Management has worked to reduce exposure in the real estate construction portfolio by actively working with borrowers, proceeding with foreclosure actions and recording charge-offs for uncollectible credits. Management continues to be cautious in extending new credit to that portion of the portfolio and has tightened credit standards on new credits. Since September 30, 2008, the real estate construction portfolio has declined by $82.0 million to $223.9 million or 12% of the total loan portfolio.

                      September 30, 2009          December 31, 3008         September 30, 2008
                                    % of                       % of                       % of
(in thousands)        Amount      Portfolio      Amount      Portfolio      Amount      Portfolio
LOANS
Commercial          $   579,524        32.2 %  $   648,968        32.6 %  $   621,128        31.5 %
Real Estate -
mortgage                980,345        54.5 %    1,017,444        51.2 %      982,084        49.8 %
Real Estate -
construction            223,856        12.4 %      266,928        13.4 %      305,819        15.5 %
Consumer                 82,021         4.6 %       86,701         4.4 %       80,336         4.1 %
Other                    12,379         0.7 %       11,212         0.6 %       12,318         0.6 %
Gross loans           1,878,125       104.4 %    2,031,253       102.2 %    2,001,685       101.4 %
Less allowance
for loan losses         (81,499 )      (4.5 )%     (42,851 )      (2.2 )%     (27,703 )      (1.4 )%
Net loans held
for investment        1,796,626        99.9 %    1,988,402       100.0 %    1,973,982       100.0 %
Loans held for
sale                      1,844         0.1 %            -         0.0 %            -         0.0 %
Total net loans     $ 1,798,470       100.0 %  $ 1,988,402       100.0 %  $ 1,973,982       100.0 %

Loans Held for Sale. Management may from time to time determine that certain loans can be sold and will designate those loans as held for sale. At September 30, 2009, the Company had a single $1.8 million loan held for sale.

Goodwill. Goodwill decreased by $46.2 million from December 31, 2008 to $0 at September 30, 2009 wholly due to impairment charges recognized year-to-date. The impairment of goodwill was the result of an analysis of the Company's reporting units conducted at the end of the first and third quarters of 2009. The analyses used discounted cash flows and market comparison approaches which ultimately concluded that the carrying value of goodwill exceeded its implied value.

Deferred Income Taxes. Deferred income taxes increased $14.6 million to $31.5 million at September 30, 2009, from $16.9 million at December 31, 2008. The increase was primarily related to the $14.7 million tax effect of the provision for loan and credit losses (net of charge-offs and recoveries), $4.8 million relating to the deductible portion of the goodwill impairment offset by the $4.8 million tax effect of a net increase in the fair market value of our available for sale securities and interest rate swaps.

Other Real Estate Owned. OREO increased by $16.5 million to $22.5 million at September 30, 2009 from $5.9 million at December 31, 2008. During the first three quarters of 2009, the Company took possession of an additional $28.9 million in OREO and disposed of $11.9 million in OREO. At September 30, 2009, $7.8 million or 35% of OREO was in Arizona while the remaining $14.6 million or 65% was in Colorado. The Company held a total of 14 properties at September 30, 2009, of which 10 were located in Arizona and four in Colorado.

Other Assets. Other Assets increased by $5.5 million to $32.2 million at September 30, 2009, from $26.7 million at December 31, 2008. The increase was primarily attributed to a $9.1 million increase in taxes receivable offset by decreases of $2.2 million in the fair value of derivative instruments, $0.8 million in the value of private equity partnership investments and $0.7 million in accrued fees receivable.

Deposits. Deposit growth has been accelerated in the first three quarters of 2009 with total deposits increasing by $294.4 million to $1.93 billion at September 30, 2009 from $1.64 billion at December 31, 2008. Customer funding, which includes customer repurchase agreements (Customer repo's) and excludes wholesale brokered deposits, increased $317.8 million from December 31, 2008. Certificates of deposit increased $220.7 million (excluding brokered deposits) largely attributable to a higher FDIC limit and our attractive deposit rates. Brokered deposits declined $31.2 million through the first three quarters of 2009 to $35.4 million and was attributable to the general growth in deposits and overall paydown on the loan portfolio, reducing the Company's need for wholesale funding.

                        September 30, 2009          December 31, 3008         September 30, 2008
                                      % of                       % of                       % of
(in thousands)          Amount      Portfolio      Amount      Portfolio      Amount      Portfolio
DEPOSITS AND
CUSTOMER REPURCHASE
AGREEMENTS
NOW and money
market                $   583,877        28.4 %  $   565,948        31.9 %  $   528,272        28.1 %
Savings                     9,952         0.5 %        9,274         0.5 %       10,617         0.6 %
Eurodollar                113,936         5.5 %       88,025         5.0 %      101,723         5.4 %
Certificates of
deposits under
$100,000                   53,942         2.6 %       76,559         4.3 %       97,017         5.2 %
Certificates of
deposits $100,000
and over                  420,962        20.4 %      287,039        16.2 %      312,053        19.2 %
Reciprocal CDARS          191,211         9.3 %       91,844         5.2 %      125,951         6.7 %
Brokered deposits          35,367         1.7 %       66,611         3.8 %      122,093         1.2 %
Total
interest-bearing
deposits                1,409,247        68.4 %    1,185,300        66.9 %    1,297,726        69.1 %
Noninterest-bearing
demand deposits           524,171        25.5 %      453,731        25.6 %      439,536        23.4 %
Customer repurchase
agreements                125,662         6.1 %      133,478         7.5 %      140,264         7.5 %
Total deposits and
customer repurchase
agreements            $ 2,059,080       100.0 %  $ 1,772,509       100.0 %  $ 1,877,526       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. Customer repo's declined slightly to $125.7 million at September 30, 2009 from $133.5 million at December 31, 2008, a change primarily driven by the more attractive yield available to our client's in the comparable treasury management Eurodollar product.

Other Short-Term Borrowings. Other short-term borrowings decreased by $443.1 million to $100.0 million at September 30, 2009, from $543.1 million at December 31, 2008. Other short-term borrowings may consist of federal funds purchased, overnight and term borrowings from the FHLB and short-term borrowings from the U.S. Treasury. The decrease in other short-term borrowings is primarily due to the overall increase in deposits and paydowns on the loan portfolio. 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 nine months ended September 30, 2009 and 2008.



                        Three months ended September 30,                    Nine months ended September 30,
                                          Increase/(decrease)                                 Increase/(decrease)
(in thousands)     2009        2008        Amount          %          2009        2008         Amount          %
INCOME
STATEMENT DATA
Interest
income           $  32,102   $ 36,052   $     (3,950 )    -11.0 %   $  98,477   $ 109,088   $    (10,611 )     -9.7 %
Interest
expense              6,515     11,814         (5,299 )    -44.9 %      20,085      39,376        (19,291 )    -49.0 %
NET INTEREST
INCOME BEFORE
PROVISION           25,587     24,238          1,349        5.6 %      78,392      69,712          8,680       12.5 %
Provision for
. . .