UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number: 0-21231

UNITED WESTERN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-1233716
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

700 17th Street, Suite 2100  Denver, Colorado	80202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 595-9898

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ Ö ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [  ]  Accelerated filer [Ö ]  Non-accelerated filer [  ] Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act).  Yes [  ] No [ Ö ]

Number of shares of Common Stock ($0.0001 par value) outstanding at the close of business on May 8, 2009 was 7,260,871shares.

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PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements – (Unaudited)
	Consolidated Balance Sheets
		March 31, 2009 and December 31, 2008	3
	Consolidated Statements of Income
		Three months ended March 31, 2009 and 2008	4
	Consolidated Statements of Shareholders’ Equity
		Three months ended March 31, 2009	5
	Consolidated Statements of Cash Flows
		Three months ended March 31, 2009 and 2008	6
	Notes to Consolidated Financial Statements		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		50
ITEM 4.	Controls and Procedures		51
PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings		51
ITEM 1A.	Risk Factors		51
ITEM 1B.	Unresolved Staff Comments		52
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		52
ITEM 4.	Submission of Matters to a Vote of Security Holders		52
ITEM 5.	Other Information		52
ITEM 6.	Exhibits		53
SIGNATURES			54

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Part I – Financial Information

Item 1. Financial Statements – (Unaudited)

United Western Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except share information)

	March 31,			December 31,
	2009			2008
Assets
Cash and due from banks	$	87,920		$	22,332
Interest-earning deposits		374			548
Total cash and cash equivalents		88,294			22,880
Investment securities – available for sale, at fair value		59,149			59,573
Investment securities – held to maturity (fair value March 31, 2009 – $403,901, December 31, 2008 – $429,526)		479,321			498,464
Loans held for sale – at lower of cost or fair value		292,851			291,620
Loans held for investment		1,227,518			1,249,484
Allowance for credit losses		(20,084	)		(16,183	)
Loans held for investment, net		1,207,434			1,233,301
FHLBank stock, at cost		29,140			29,046
Mortgage servicing rights, net		8,714			9,496
Accrued interest receivable		7,778			8,973
Other receivables		16,966			15,123
Premises and equipment, net		27,088			25,960
Bank owned life insurance		25,467			25,233
Other assets, net		10,174			11,243
Deferred income taxes		23,381			23,324
Foreclosed real estate		3,752			4,417
Total assets	$	2,279,509		$	2,258,653
Liabilities and shareholders’ equity
Liabilities:
Deposits	$	1,735,642		$	1,724,672
Custodial escrow balances		44,090			29,697
FHLBank borrowings		216,693			226,721
Borrowed money		117,413			119,265
Junior subordinated debentures owed to unconsolidated  subsidiary trusts		30,442			30,442
Income tax payable		2,558			364
Other liabilities		25,651			25,543
Total liabilities		2,172,489			2,156,704
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock, par value $0.0001; 5,000,000 shares authorized;
no shares outstanding		–			–
Common stock, par value $0.0001; 50,000,000 shares authorized; issued and
7,253,113 shares at March 31, 2009 and
7,253,391 shares at December 31, 2008 outstanding, respectively		1			1
Additional paid-in capital		24,200			23,856
Retained earnings		103,191			100,348
Accumulated other comprehensive loss		(20,372	)		(22,256	)
Total shareholders’ equity		107,020			101,949
Total liabilities and shareholders’ equity	$	2,279,509		$	2,258,653
See accompanying notes to consolidated financial statements.

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United Western Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except share information)

	Quarter Ended
	March 31,
	2009			2008
Interest and dividend income:
Community bank loans	$	14,341		$	13,425
Wholesale residential loans		4,699			5,645
Other loans		70			1,188
Investment securities		6,901			8,652
Deposits and dividends		113			570
Total interest and dividend income		26,124			29,480
Interest expense:
Deposits		3,282			3,712
FHLBank borrowings		2,381			3,793
Other borrowed money		1,786			1,765
Total interest expense		7,449			9,270
Net interest income before provision for credit losses		18,675			20,210
Provision for credit losses		4,181			1,891
Net interest income after provision for credit losses		14,494			18,319
Noninterest income:
Custodial, administrative and escrow services		2,622			2,560
Loan administration		1,157			1,456
Gain on sale of loans held for sale		48			182
Gain on sale of investment in Matrix Financial Solutions, Inc.		3,567			–
Other		811			625
Total noninterest income		8,205			4,823
Noninterest expense:
Compensation and employee benefits		8,076			7,707
Subaccounting fees		3,440			5,215
Amortization of mortgage servicing rights		795			709
Lower of cost or fair value adjustment on loans held for sale		(577	)		412
Occupancy and equipment		1,021			810
Postage and communication		388			342
Professional fees		1,182			601
Mortgage servicing rights subservicing fees		368			441
Other general and administrative		3,284			2,096
Total noninterest expense		17,977			18,333
Income before income taxes		4,722			4,809
Income tax provision		1,446			1,445
Net income	$	3,276		$	3,364
Net income per share – basic	$	0.45		$	0.46
Net income per share – assuming dilution	$	0.45		$	0.46
Weighted average shares – basic		7,257,431			7,264,471
Weighted average shares – assuming dilution		7,257,431			7,264,471
Dividends declared per share	$	0.06		$	0.06

See accompanying notes to consolidated financial statements.

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United Western Bancorp, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(Unaudited)

(Dollars in thousands, except share information)

											Accumulated
											Other
						Additional					Comprehensive
	Common Stock					Paid-In		Retained			Income						Comprehensive
	Shares			Amount		Capital		Earnings			(Loss)			Total			Income
Three months Ended
March 31, 2009
Balance at January 1, 2009		7,253,391		$	1	$	23,856	$	100,348		$	(22,256	)	$	101,949
Dividends paid ($0.06 per share)		-			-		-	$	(433	)		-		$	(433	)
Issuance of stock to directors		4,085			-		38		-			-		$	38
Restricted stock grants, net		(4,363	)		-		-		-			-			-
Share-based compensation expense		-			-		306		-			-		$	306
Comprehensive income:
Net income		-			-		-	$	3,276			-		$	3,276		$	3,276
Net unrealized holding gains, net of income tax provision of $1,176		-			-		-		-		$	1,884		$	1,884		$	1,884
Comprehensive income		-			-		-		-			-			-		$	5,160
Balance at March 31, 2009		7,253,113		$	1	$	24,200	$	103,191		$	(20,372	)	$	107,020

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See accompanying notes to consolidated financial statements.

United Western Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities
Net Income	$	3,276		$	3,364
Adjustments to reconcile income to net cash from operating activities:
Share-based compensation expense		344			279
Depreciation and amortization		574			398
Provision for credit losses		4,181			1,891
Amortization of mortgage servicing rights		795			709
Lower of cost or fair value adjustment on loans held for sale		(577	)		412
Gain on sale of loans held for sale		(48	)		(182	)
Gain on sale of investment in Matrix Financial Solutions, Inc.		(3,567	)		–
Net loss on sale of assets, equipment and foreclosed real estate		238			34
Changes in assets and liabilities:
Loans originated and purchased for sale		(10,421	)		(10,129	)
Principal payments on, and proceeds from sale of loans held for sale		9,292			32,133
Originated mortgage servicing rights, net		–			(37	)
Increase in other receivables, other assets, deferred income taxes		(1,890	)		(3,343	)
Increase(decrease) in other liabilities and income tax payable		2,302			(2,509	)
Net cash from operating activities		4,499			23,020
Cash flows from investing activities
Loans originated and purchased for investment		(131,924	)		(191,494	)
Principal repayments on loans held for investment		152,664			101,257
Proceeds from sale of cost method investment		4,317			–
Proceeds from maturity and prepayment of available for sale securities		3,462			3,478
Purchase of held to maturity securities		–			(1,463	)
Proceeds from the maturity and prepayment of held to maturity securities		19,143			19,263
Purchases of premises and equipment		(1,693	)		(2,330	)
Proceeds from sale of foreclosed real estate		1,896			994
Net cash from investing activities		47,865			(70,295	)
Continued

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United Western Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows – continued

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2009			2008
Cash flows from financing activities
Net increase in deposits	$	10,970		$	42,390
Net increase in custodial escrow balances		14,393			17,309
Net decrease in FHLBank borrowings		(10,028	)		(7,326	)
Borrowed money – proceeds from repurchase agreements		(1,852	)		773
Repurchase of common stock		–			(226	)
Dividends paid		(433	)		(436	)
Net cash from financing activities		13,050			52,484
Increase in cash and cash equivalents		65,414			5,209
Cash and cash equivalents at beginning of the period		22,880			40,806
Cash and cash equivalents at end of the period	$	88,294		$	46,015
Supplemental disclosure of non-cash activity
Loans transferred to foreclosed real estate and other assets	$	1,469		$	2,143
Loans securitized and transferred to securities available for sale	$	–		$	18,003
Issuance of common stock to directors	$	38		$	–
Supplemental disclosure of cash flow information
Cash paid for interest	$	7,001		$	9,120
Cash paid for income taxes	$	290		$	35

   See accompanying notes to consolidated financial statements.

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United Western Bancorp, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

March 31, 2009

1. Basis of Presentation and Significant Accounting Policies

United Western Bancorp, Inc. (the “Company”) is a unitary thrift holding company and, through its subsidiaries, a diversified financial services company headquartered in Denver, Colorado. The Company’s operations are conducted primarily through United Western Bank® (the “Bank”), Sterling Trust Company (“Sterling”), Matrix Financial Services Corporation (“Matrix Financial”), and UW Investment Services, Inc. (“UW Investment”) all of which are wholly owned subsidiaries of the Company.

Through the Bank, we are focused on expanding our community-based banking network across Colorado’s Front Range market and selected mountain communities by strategically positioning banking offices in those locations. The Colorado Front Range area spans the Eastern slope of Colorado’s Rocky Mountains – from Pueblo to Fort Collins, and includes the metropolitan Denver marketplace. At March 31, 2009 the Bank had seven branches in the Colorado Front Range marketplace (downtown Denver, Boulder, Cherry Creek, Loveland, Fort Collins, Longmont, and South Denver) and a loan production office serving Aspen and the Roaring Fork Valley. We opened a banking office in Centennial in April 2009. We plan to grow the Bank network to an estimated ten to twelve community bank locations over the next three to five years. We originate SBA loans on a national basis. In addition to the community-based banking operations of the Bank, we also offer deposit services to institutional customers, as well as custodial, administration and escrow services through Sterling.

From time-to-time in this document we refer to certain assets, for example, one-to-four family residential mortgage loans (“residential loans”), purchased SBA loans and mortgage-backed securities and certain other assets of United Western Bank that existed as of December 9, 2005, as “wholesale” assets.

The consolidated financial statements of the Company and its subsidiaries in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and serve to update the Company’s 2008 Annual Report on Form 10-K (“Form 10-K”). These financial statements do not include all of the information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods. Accordingly, they should be read in conjunction with the financial information contained in the Form 10-K. In the opinion of management, all adjustments (consisting of only normal recurring accruals unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of results that may be expected for the full year or any future period.

Significant Accounting Estimates

The Company has established various accounting estimates that govern the application of GAAP in the preparation and presentation of the Company’s consolidated financial statements. Certain accounting estimates involve significant judgments, assumptions and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of income and expenses during the reporting period which management considers to be critical accounting estimates. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, knowledge of the accounts and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company.

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The Company views the allowance for credit losses, the fair values of financial instruments, lower of cost or fair value adjustment on loans held for sale, and the determination of temporary vs. other-than-temporary impairment of securities as critical accounting estimates that require significant judgments, assumptions and estimates be used in preparation of its consolidated financial statements. See further detail in this Note for a detailed description of the Company’s process and methodology related to these critical accounting estimates.

Allowance for Credit Losses

The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of probable credit losses inherent in the loan held for investment portfolio (“loan portfolio’). The allowance, in the judgment of management, is necessary to reserve for estimated losses inherent in the loan portfolios. The allowance for credit losses includes allowance allocations calculated in accordance with SFAS 5, “Accounting for Contingencies,” and SFAS 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS 118. The level of the allowance reflects management’s continuing evaluation of loan loss experience, specific credit risks, current loan portfolio quality, industry and loan type concentrations, economic and regulatory conditions and unidentified losses inherent in the loan portfolios, as well as trends in the foregoing.

The allowance for credit losses consists of four components: pools of homogeneous residential loans with similar risk characteristics, commercial loans with similar risk characteristics (e.g., multifamily, construction and development, commercial real estate and commercial), individual loans that are measured for impairment, and a component representing an estimate of inherent, probable but undetected losses, which also contemplates the imprecision in the credit risk models utilized to calculate the allowance.

Pools of homogeneous residential loans with similar risk characteristics are assessed for probable losses based on loss migration analysis where loss factors are updated regularly based on actual experience. The analysis examines historical loss experience and the related internal gradings of loans charged off. The loss migration analysis also considers inherent but undetected losses within the portfolio.

Commercial loans with similar risk characteristics (e.g., multifamily, construction and development, commercial real estate and commercial) are assessed for probable losses based on loss migration analysis where loss factors are updated regularly based on our own loss experience, the collective experience of our credit risk management team, and industry data. The analysis also incorporates the related internal gradings of loans charged off and other factors, including our asset quality trends and national and local economic conditions.

The portion of the allowance established for loans measured for impairment reflects expected losses resulting from analyses developed through specific allocations for individual loans. The Company considers a loan impaired when, based on current information and events, it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan. Loss on impaired loans is typically measured using the fair value of collateral, as such loans are usually collateral dependent, but may be measured using either the present value of expected future cash flows discounted using loan rate, or the market price of the loan. All loans considered impaired are included in nonperforming loans. The Company generally evaluates its residential loans collectively due to their homogeneous nature; however, individual residential loans may be considered for impairment based on the facts and circumstances of the loan. Accordingly, potentially impaired loans of the Company may include residential loans, commercial loans, real estate construction loans, commercial real estate mortgage loans and multifamily loans classified as nonperforming loans.

The last component of the allowance for credit losses is a portion which represents the estimated inherent but undetected probable losses and the imprecision in the credit risk models utilized to calculate the allowance. This component of the allowance is primarily associated with commercial loans (i.e., multifamily, construction and development, commercial real estate and commercial). The unallocated portion of the allowance for credit losses reflects the growing Colorado concentration in commercial real estate, construction and development loans, national multifamily and certain commercial real estate loans for which the migration analysis does not yet reflect a complete credit cycle due to the overall seasoning of such loans and ongoing uncertainty with respect to other loans in our community bank and wholesale lending portfolios.

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Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Loan losses are charged against the allowance when management considers the loan uncollectible. While management uses its professional judgment and the information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolios, national and Colorado economic conditions, changes in interest rates and other factors.

Loans Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are classified as loans held for investment. These loans are reported at the principal balance outstanding net of unearned discounts and purchase premiums. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs and purchase premiums, are deferred and recognized in interest income using the level-yield method without anticipating prepayments and includes amortization of deferred loan fees, purchase premiums and costs over the loan term. Net loan commitment fees or costs for commitments are deferred and amortized into fee income or other expense on a straight-line basis over the commitment period in accordance with FIN45.

Loans Held for Sale

Loans originated or purchased without the intent to hold for the foreseeable future or until maturity are carried at the lower of net cost or fair value on an aggregate portfolio basis. The amount, by which cost exceeds fair value, if any, is accounted for as a loss through a valuation allowance. Changes in the valuation allowance are included in the determination of income in the period in which those changes occur and are reported in the Consolidated Statements of Income - Noninterest expense as lower of cost or fair value adjustment.

Loans are considered sold when the Company surrenders control over the transferred assets to the purchaser, with standard representations and warranties, and when the risks and rewards inherent in owning the loans have been transferred to the buyer. At such time, the loan is removed from the general ledger and a gain or loss is recorded on the sale. Gains and losses on loan sales are determined based on the difference between the allocated cost basis of the assets sold and the proceeds, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Losses related to recourse provisions are accrued as a liability at the time such additional losses are determined, and recorded as part of noninterest expense.

Community Bank Loans

Community bank loans include commercial real estate loans, construction and development loans, commercial loans, multifamily loans and consumer loans. Within this population are loans originated by the Bank’s SBA division. The majority of community bank loans are originated as assets held for investment. Currently, we intend to hold for the foreseeable future or to maturity all community bank loans, except SBA 504 loans and the guaranteed portions of originated SBA 7a loans. We generally elect to sell certain SBA 504 loans and the guaranteed portions of SBA 7a loans. These sales assist the Company in managing industry concentrations and interest rate risk, and are a normal part of our operations. At March 31, 2009 and December 31, 2008 community bank loans included multifamily and SBA originated loans totaling $89.9 million and $83.7 million respectively that were classified as held for sale.

Wholesale Loans.  Wholesale loans include purchased residential loans and purchased guaranteed portions of SBA 7a loans. We did not acquire any wholesale loans in 2009 or 2008 other than loans we are required to repurchase from our GNMA mortgage servicing portfolio. Such loans are government guaranteed as to principal and interest. At March 31, 2009 and December 31, 2008, wholesale loans included residential loans totaling $206.4 million and $212.1 million, respectively, that were classified as loans held for sale. See Note 5 Loans for a break out of all wholesale loans.

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Temporary vs. Other-Than-Temporary Impairment

The Company views the determination of whether an investment security is temporarily or other-than-temporarily impaired as a critical accounting policy, as the estimate is susceptible to significant change from period to period because it requires management to make significant judgments, assumptions and estimates in the preparation of its consolidated financial statements. We assess individual securities in our investment securities portfolio for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant. An investment is impaired if the fair value of the security is less than its carrying value at the financial statement date. When a security is impaired, we then determine whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure: e.g., the Company’s position within the structure, the aggregate, near term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, discounted cash flows; and (iv) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Management considers whether an investment security is within the scope of Emerging Issues Task Force (EITF”) 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” and EITF 99-20-1 “Amendments to the Impairment Guidance of EITF Issue No. 99-20” at the time of purchase by review of the rating assigned. To date, all securities acquired by the Company have been agency securities or had an assigned rating of AA or higher at the time of acquisition and thus such securities were excluded from the scope of EITF 99-20.

Management considers whether an investment security is other-than-temporarily impaired under the guidance promulgated in FSP SFAS 115 and SFAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” and the guidance from the Securities and Exchange Commission found in Staff Accounting Bulletin Topic 5M. If impairment is determined to be other-than-temporary, an impairment loss is recognized by reducing the amortized cost basis to fair value in accordance with that guidance.

Income Taxes

The Company and its subsidiaries file consolidated federal and state income tax returns. The subsidiaries are charged for the taxes applicable to their profits calculated on the basis of filing separate income tax returns. The Bank qualifies as a savings and loan association for income tax purposes. The consolidated effective tax rate is affected by the resolution of uncertain tax positions identified under FIN 48, the level of utilization of New Markets Tax Credits and the level of tax-exempt interest income in proportion to the level of net income.

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At March 31, 2009 and December 31, 2008, management believed it was more likely than not that the deferred taxes would be realized and, accordingly, there was no valuation allowance. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would ultimately be sustained.The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is morelikelythannot that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits are classified as income tax expense in the consolidated statement of income and accrued in other liabilities.

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Fair Value Measurements

In general, fair value of financial instruments is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that use as inputs, to the extent available, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect unobservable parameters, among other things. Any such valuation adjustments are applied consistently over time. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements and related notes for prior quarters to conform to the current quarter’s presentation. In prior years’ financial statements, the Company presented the valuation allowance to reduce loans held for sale to the lower of cost or fair value in two components, one an allowance for credit losses that separately considered credit loss exposure and one valuation allowance that separately considered market risk factors. Management has reclassified prior period financial statements to reflect the valuation allowance to reduce loans held for sale at the lower of cost or fair value as one valuation allowance balance. Also, included in these reclassifications was a retrospective change in the presentation of loans held for sale. In prior years we presented community bank loans and wholesale loans on the face of the balance sheet, with details of the components of loans held for sale and loans held for investment in the footnotes. In the March 31, 2009 financial statements we presented loans held for sale and loans held for investment on the face of the balance sheet. In Notes 4 and 5, we provide a break down of community bank loans and wholesale loans within loans held for investment and loans held for sale.

In the financial statement for the quarter ended March 31, 2008 the provision for credit losses was presented as $1,536,000. In the financial statement for the quarter ended March 31, 2009 the provision for credit losses for the quarter ended March 31, 2008 is presented on the face of the income statement as $1,891,000, which is reflective of the allowance for loan losses for loans held for investment.

In the financial statement for the quarter ended March 31, 2008, the lower of cost or fair value adjustment was disclosed in the Noninterest expense footnote as $767,000. In the financial statement for the quarter ended March 31, 2009 the lower of cost or market adjustment for the quarter ended March 31, 2008 is presented on the face of the income statement as $412,000.

Impact of Recently Issued Accounting Standards

SFAS 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51.” SFAS 160 amends Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 was effective for the Company on January 1, 2009 and the impact of this was not material to the Company’s financial statements.

SFAS 141R, “Business Combination (Revised 2007).” SFAS 141R replaces SFAS 141, “Business Combinations,” and applies to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any noncontrolling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under SFAS 141, whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. SFAS 141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under SFAS 141. SFAS 141R also identifies related disclosure requirements for business combinations. This Statement is effective for business combinations closing on or after January 1, 2009.

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SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the “GAAP hierarchy”). The hierarchical guidance provided by SFAS 162 did not have a significant impact on the Company’s financial statements.

FASB Staff Position (FSP) no. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 was effective on January 1, 2009. All previously reported earnings per share data are retrospectively adjusted to conform to the provisions of FSP EITF 03-6-1. FSP EITF 03-6-1, which is presented in Note 2.

FSP SFAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP SFAS 157-4 affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. FSP SFAS 157-4 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence.  FSP SFAS 157-4 also amended SFAS 157, Fair Value Measurements,” to expand certain disclosure requirements.  The Company intends to adopt the provisions of FSP SFAS 157-4 during the second quarter of 2009.  The adoption of FSP SFAS 157-4 is not expected to significantly impact the Company’s financial statements.

FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP SFAS 115-2 and SFAS 124-2 (i) change existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis.  Under FSP SFAS 115-2 and SFAS 124-2, 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 are required to be reflected in earnings as realized losses to the extent the impairment is related to credit losses.  The amount of the impairment related to other factors is recognized in other comprehensive income.  The Company intends to adopt the provisions of FSP SFAS 115-2 and SFAS 124-2 during the second quarter of 2009.  The Company has not completed its evaluation of the impact the adoption of FSP SFAS 115-2 and SFAS 124-2 will have on its financial statements.

FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP SFAS 107-1 and APB 28-1 amend SFAS 107, “Disclosures about Fair Value of Financial Instruments,” to require an entity to provide disclosures about fair value of financial instruments in interim financial information and amends Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods.  Under FSP SFAS 107-1 and APB 28-1, a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods.  In addition, entities must disclose, in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the consolidated balance sheet, as required by SFAS 107.  The new interim disclosures required by FSP SFAS 107-1 and APB 28-1 will be included in the Company’s interim financial statements beginning with the second quarter of 2009.

FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.”  FSP SFAS 141R-1 amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS 5.  FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS 141R.  FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Company acquires in business combinations occurring after January 1, 2009.

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2. Net Income Per Share

The following table sets forth the amounts used in the computation of net income per share and net income per share assuming dilution:

	Quarter Ended March 31,
	2009		2008
	(Dollars in thousands)
Numerator:
Net income	$	3,276	$	3,364
Denominator:
Weighted average common shares outstanding		7,156,234		7,217,399
Effect of participating securities:		101,197		47,072
Denominator for net income per share basic and diluted assuming dilution		7,257,431		7,264,471

On January 1, 2009, we adopted FSP EITF 03-6-1, which states that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities that require calculation of earnings per share under the “two-class” method as specified in SFAS No. 128, Earnings Per Share. The two-class method is an earnings allocation methodology that determines earnings per share separately for each class of stock and participating security.   Participants in our equity compensation plan who are granted restricted stock are allowed to retain cash dividends paid on nonvested shares.  Therefore, our nonvested restructured stock awards qualify as participating securities under FSP EITF 03-6-1, and we are required to calculate earnings per share using the two-class method.  The application of the two-class method resulted in a $0.01 per share reduction in our basic and diluted earnings per share for the quarter ended March 31, 2009, and a $0.01 per share reduction in basic earnings per share for the quarter ended March 31, 2008.

Stock options for 1,018,490 and 1,034,187, shares of common stock were not considered in computing diluted earnings per common share for March 31, 2009 and December 31, 2008, respectively, because they were antidilutive.

3. Investment Securities

Investment securities available for sale were as follows:

	March 31, 2009									December 31, 2008
	Amortized  Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Carrying Value
	(Dollars in thousands)
Mortgage-backed securities – agency	$	14,194	$	127	$	(91	)	$	14,230	$	15,804	$	47	$	(223	)	$	15,628
Mortgage-backed securities – private		47,375		–		(29,048	)		18,327		47,386		–		(31,452	)		15,934
Collateralized mortgage obligations-private		30,183		–		(3,806	)		26,377		32,017		–		(4,229	)		27,788
SBA securities		218		–		(3	)		215		226		–		(3	)		223
Total	$	91,970	$	127	$	(32,948	)	$	59,149	$	95,433	$	47	$	(35,907	)	$	59,573

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Investment securities held to maturity were as follows:

	March 31, 2009									December 31, 2008
	Amortized Cost and Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost and Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Mortgage-backed securities – private	$	161,836	$	1,798	$	(35,343	)	$	128,291	$	166,733	$	2,535	$	(30,664	)	$	138,604
Collateralized mortgage  obligations-private		266,501		–		(39,299	)		227,202		278,633		–		(38,252	)		240,381
SBA securities		50,984		–		(2,576	)		48,408		53,098		–		(2,557	)		50,541
Total	$	479,321	$	1,798	$	(77,218	)	$	403,901	$	498,464	$	2,535	$	(71,473	)	$	429,526

At March 31, 2009 and December 31, 2008, substantially all of the Company’s investment securities were pledged to secure public deposits, FHLBank borrowings, repurchase agreements and for other purposes, as required or permitted by law.

The following table presents information pertaining to securities available for sale and held to maturity with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position as follows:

	March 31, 2009										December 31, 2008
	Less than 12 months					12 months or more					Less than 12 months					12 months or more
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(Dollars in thousands)
Mortgage-backed securities - agency, available for sale	$	4,241	$	(50	)	$	3,652	$	(41	)	$	9,826	$	(146	)	$	2,543	$	(77	)
Mortgage-backed securities - private, available for sale		–		–			18,327		(29,048	)		–		–			15,934		(31,452	)
Collateralized mortgage obligations-private, available for sale		3,928		(60	)		22,449		(3,746	)		23,018		(3,497	)		4,769		(732	)
SBA securities, available for sale		–		–			175		(4	)		147		(3	)		–		–
Mortgage-backed securities-private, held to maturity		19,703		(5,735	)		81,116		(29,608	)		54,236		(11,104	)		55,793		(19,560	)
Collateralized mortgage obligations-private, held to maturity		41,198		(13,123	)		186,136		(26,176	)		71,450		(21,519	)		169,069		(16,733	)
SBA securities, held to maturity		–		–			48,408		(2,576	)		–		–			50,541		(2,557	)
Total	$	69,070	$	(18,968	)	$	360,263	$	(91,199	)	$	158,677	$	(36,269	)	$	298,649	$	(71,111	)

Management evaluates all of the investment securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. In estimating other-than-temporary impairments losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value and (iv) the expected future cash flows based on various modeling techniques. See further discussion at Note 1. “Basis of Presentation and Significant Accounting Policies – Temporary vs. Other-than-Temporary Impairment.”

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Management has the intent and ability to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Furthermore, at March 31, 2009, management also had the intent and ability to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost.

At March 31, 2009, the gross unrealized loss in the securities portfolio was $110.2 million.  At March 31, 2009, based on the carrying value and the lowest rating assigned, the securities portfolio consisted of 57% securities rated A or higher, 4% BBB rated securities and 39% securities rated below investment grade. Based on the highest rating assigned, approximately 90% of the portfolio is investment grade.

Included in mortgage-backed securities – private, available for sale were securities that are collateralized by payment-option-adjustable-rate-mortgages. These securities have an amortized cost of $47.4 million, and have received one or more ratings declines by the ratings agency since acquisition. Payments continue to be made for each of these securities. Management has analyzed these instruments, and our approach to that analysis is further documented in Note 15 “Fair Value of Financial Assets.” Based on our analysis and our review of the independent analyses performed by third parties on these securities and other securities in our portfolio, the Company believes the decline in fair value of securities deemed temporarily impaired is due to current temporary conditions in the marketplace. At March 31, 2009, management expects full recovery as the securities approach their maturity date, or repricing date or if market yield for such investments decline.

Included in mortgage-backed securities – private, held to maturity were securities that are collateralized primarily by prime hybrid mortgages. These securities have a total amortized cost of $162 million, of which $96 million, or 59%, have received one or more ratings declines by the ratings agency since acquisition. This category includes five securities collateralized by Alt-A mortgages totaling $21 million. Of these securities $66 million remain AAA rated. Payments continue to be made for all of these securities. Based on our analysis and our review of the independent analyses performed by third parties on these securities and other securities in our portfolio, the Company believes the decline in fair value of securities deemed temporarily impaired is due to current temporary conditions in the marketplace. While $81.1 million of these securities has had a fair value price estimate below amortized cost for twelve months or more, current credit support levels have increased from 5.9% at origination to 7.0% at March 31, 2009.  Within this category, management previously recognized in the quarter ended September 30, 2008, an other-than-temporary impairment charge on two securities where it was deemed appropriate due to various factors in our analysis.  At March 31, 2009, management expects full recovery of the remaining securities as the securities approach their maturity date, or repricing date or if market yield for such investments decline.

Included in collateralized mortgage obligations – private, held to maturity were securities that are collateralized by prime CMO securities. These securities have an amortized cost of $266.5 million, of which $110.9 million, included in six securities has received one or more ratings declines by rating agencies since acquisition. The remainder of this category remains AAA rated by at least one agency, and a lowest rating of AA. Payments continue to be made for each of these securities. Based on our analysis and our review of the independent analyses performed by third parties on these securities and other securities in our portfolio, the Company believes the decline in fair value of securities deemed temporarily impaired is due to current temporary conditions in the marketplace. For the $186.1 million of securities in this category with fair value price estimates below amortized cost for twelve months or more, no cumulative losses have been realized to date. The vast majority of this category consists of prime loans, with a weighted average loan-to-value at the time of origination of 68.6%, and only 2.7% of loans with a loan-to-value ratio in excess of 80%.  At March 31, 2009, management expects full recovery as the securities approach their maturity date, or repricing date or if market yield for such investments decline.

In the event securities demonstrate additional deterioration through an increase in defaults or loss severity that indicate the Company will not recover its anticipated cash flows or if the duration of relatively significant impairments in these securities does not reverse, the Company will incur other-than-temporary impairments, which may result in material charges to earnings in future periods.

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4. Loans Held for Sale

Loans held for sale consist of the following:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
Community bank loans:
Commercial real estate	$	53,345	$	49,031
Multifamily		29,083		29,074
SBA originated, guaranteed portions		7,290		5,370
Purchase premiums, net		169		177
Wholesale loans:
Residential		206,451		212,083
Repurchase premiums, net		1,312		1,352
		297,650		297,087
Less valuation allowance to reduce loans held for sale to the lower of cost or fair value		4,799		5,467
Loans held for sale, net	$	292,851	$	291,620

Activity in the valuation allowance to carry loans held for sale at the lower of cost or fair value is summarized as follows:

	Three months Ended
		March 31, 2009			March 31, 2008
	(Dollars in thousands)
Balance at beginning of period		$	5,467		$	3,021
Provision/(benefit) to reduce/(increase) the carrying value of loans held for sale to the lower of cost or fair value			(577	)		412
Charge-offs			(91	)		(55	)
Balance at end of period		$	4,799		$	3,378

5. Loans Held for Investment

Loans held for investment consist of the following:

	March 31, 2009			December 31, 2008
	(Dollars in thousands)
Community bank loans:
Commercial real estate	$	411,296		$	434,399
Construction and development		410,515			401,009
Commercial		118,377			134,435
Multifamily		19,431			20,381
Consumer		73,396			49,440
Premium, net		200			216
Unearned fees, net		(3,491	)		(3,565	)
Wholesale loans:
Residential		117,809			125,630
SBA purchased, guaranteed portions		73,112			80,110
Premium on SBA purchased, guaranteed portions		6,542			7,084
Premium, discount, net		331			345
		1,227,518			1,249,484
Less allowance for credit losses		20,084			16,183
Loans held for investment, net	$	1,207,434		$	1,233,301

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Activity in the allowance for credit losses on loans held for investment is summarized as follows:

	Three months Ended
	March 31, 2009			March 31, 2008
	(Dollars in thousands)
Balance at beginning of period	$	16,183		$	8,000
Provision for credit losses		4,181			1,891
Charge-offs		(289	)		(198	)
Recoveries		9			–
Balance at end of period	$	20,084		$	9,693

The following lists information related to nonperforming loans held for investment and held for sale:

	March 31, 2009		March 31, 2008
	(Dollars in thousands)
Loans on nonaccrual status in the held for investment portfolio	$	23,799	$	8,647
Loans on nonaccrual status in the held for sale portfolio		14,629		13,252
Total nonperforming loans	$	38,428	$	21,899

The aggregate unpaid principal balance of government-sponsored accruing loans that were past due 90 or more days was $6.4 million and $6.5 million at March 31, 2009 and December 31, 2008, respectively. These accruing loans are not included in the balances of nonperforming loans above.

Impaired loans, as defined under SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” totaled $28.5 million and $3.3 million at March 31, 2009 and December 31, 2008, respectively.  The related allowance allocated to impaired loans was $4.4 million and $1.7 million at March 31, 2009 and December 31, 2008, respectively. There was no interest recognized in the periods on loans while they were considered impaired. Included in impaired loans was one loan totaling $11.2 million, which was deemed impaired due to a concessionary rate granted to the borrower during the first quarter of 2009.  This loan is performing under its revised terms and remains on accrual at March 31, 2009.

6. Mortgage Servicing Rights

The activity in the mortgage servicing rights is summarized as follows:

	Three months Ended
	March 31, 2009			March 31, 2008
	(Dollars in thousands)
Balance at beginning of period	$	10,356		$	12,831
Originations		13			37
Amortization		(795	)		(709	)
Balance before valuation allowance at end of period		9,574			12,159
Valuation allowance for impairment of mortgage servicing rights
Balance at beginning of period		(860	)		(860	)
Balance at end of period		(860	)		(860	)
Mortgage servicing rights, net	$	8,714		$	11,299

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The estimated fair value of mortgage servicing rights at March 31, 2009, was $8.7 million.  The Company determined fair value in accordance with SFAS 157.  See Note 15 “Fair Value of Financial Assets” for a discussion of the fair value determination.

During the three months ended March 31, 2009 and March 31, 2008, the Company recognized originated mortgage servicing rights of $13,000 and $37,000, respectively.  The amounts of originated mortgage servicing rights recognized in 2009 and 2008 were the result of the sale of the guaranteed portions of originated SBA 7a loans collateralized by mortgages.  The mortgage servicing rights were determined based upon the relative fair value of the servicing asset in comparison to the guaranteed portion of the loan sold, the unguaranteed portion retained, and the servicing asset.

The Company’s servicing portfolio (excluding subserviced loans), is comprised of the following:

	March 31, 2009					December 31, 2008
			Principal					Principal
	Number		Balance			Number		Balance
	of Loans		Outstanding			of Loans		Outstanding
	(Dollars in thousands)
Freddie Mac		1,569		$	60,510		1,666		$	63,205
Fannie Mae		5,557			294,608		5,842			308,019
Ginnie Mae		4,382			237,580		4,747			251,435
VA, FHA, conventional and other oans		3,479			271,473		3,550			279,091
Total servicing portfolio		14,987		$	864,171		15,805		$	901,750

The Company’s custodial escrow balances shown in the accompanying consolidated balance sheets at March 31, 2009 and December 31, 2008 pertain to payments held in escrow in respect of taxes and insurance and the float on principal and interest payments on loans serviced and owned by the Company. The custodial accounts are maintained at the Bank in noninterest-bearing accounts. The balance of custodial accounts fluctuates from month to month based on the pass-through of the principal and interest payments to the ultimate investors and the timing of taxes and insurance payments.

7. Deposits

Deposit account balances are summarized as follows:

	March 31, 2009								December 31, 2008
						Weighted								Weighted
						Average								Average
	Amount		Percent			Rate			Amount		Percent			Rate
	(Dollars in thousands)
Savings accounts	$	332		0.02	%		0.25	%	$	299		0.02	%		0.25	%
NOW and DDA accounts		606,782		34.96			0.17			624,064		36.18			0.17
Money market accounts		953,743		54.95			0.69			958,837		55.6			0.79
Subtotals		1,560,857		89.93			0.49			1,583,200		91.8			0.55
Certificate accounts		174,785		10.07			3.3			141,472		8.2			3.53
Total deposits	$	1,735,642		100	%		0.77	%	$	1,724,672		100	%		0.79	%

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The following table presents concentrations of deposits at the Bank for the periods presented:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
Sterling Trust Company	$	327,754	$	350,655
Matrix Financial Solutions, Inc.		231,015		203,329
Legent Clearing, LLC		115,886		120,178
Other Deposit Concentrations		788,492		812,120

Sterling Trust Company – represents fiduciary assets under administration by Sterling, a wholly owned subsidiary of the Company, that are in NOW, demand and money market accounts. Included in this balance at Sterling is a series of accounts for one life settlement agent for special asset acquisitions and administration with a balance of $488,000 and $30.4 million at March 31, 2009 and December 31, 2008, respectively. Management elected to restructure this relationship and terminate certain elements of business with respect to this large life settlement agent account. The restructured relationship will now allow the Company to pursue business in the same industry on a non-exclusive basis. During the three months of 2009, approximately $30 million of these deposits were withdrawn. Through Sterling’s marketing efforts, growth in new accounts and the increase in uninvested cash in existing accounts offset $7 million of the withdrawn deposits.  See additional information concerning Sterling, in Note 17, Subsequent Events.

Matrix Financial Solutions, Inc. (“MFSI”) – represents customer assets under administration by MFSI that are in NOW and money market accounts. The Company sold its approximate 7% interest in MFSI, on March 27, 2009.

Legent Clearing, LLC – represents institutional deposits received through Legent Clearing, LLC, that are in NOW and money market accounts. The Company’s Chairman of the Board holds an indirect minority interest in Legent Clearing, LLC.

Other Deposit Concentrations – represents deposit funds from three institutional relationships maintained by the Bank as of March 31, 2009 and December 31, 2008. Included in other deposit concentrations is one institutional relationship with balances of $501.3 million and $504.1 million at March 31, 2009 and December 31, 2008, respectively.

Included in certificate accounts are approximately $39.4 million and $35.0 million of brokered deposits as of March 31, 2009 and December 31, 2008, respectively.

The aggregate amount of certificate accounts with a balance of $100,000 or more (excluding brokered deposits) was approximately $40.1 million and $40.1 million at each of March 31, 2009 and December 31, 2008, respectively.

8. FHLBank Borrowings

The Bank obtains FHLBank borrowings from FHLBank of Topeka, which is the FHLBank that serves Denver, Colorado, and utilizes FHLBank of Topeka as its primary correspondent bank. Prior to the Bank’s change of domicile in 2002, borrowings were obtained from FHLBank of Dallas. Certain long-term borrowings that existed at that time with FHLBank of Dallas are still outstanding under their original terms.

The balances of FHLBank borrowings are as follows:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
FHLBank of Topeka borrowings	$	190,000	$	200,000
FHLBank of Dallas borrowings		26,693		26,721
	$	216,693	$	226,721

Available unused borrowings from FHLBank of Topeka totaled $246.5 million at March 31, 2009.

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9. Borrowed Money

Borrowed money is summarized as follows:

	March 31,  2009		December 31, 2008
	(Dollars in thousands)
Borrowed Money
Revolving line of credit to a third-party financial institution, through June 29, 2009, renewable annually, collateralized by the common stock of the Bank; interest at 30 day LIBOR plus 1.50%; (2.03% at March 31, 2009), $2 million available at March 31, 2009	$	28,000	$	28,000
Subordinated debt securities, interest payments due quarterly at three-month LIBOR plus 2.75% (4.02% at March 31, 2009), maturing February 13, 2014		10,000		10,000
Assets sold under agreements to repurchase:
Company structured repurchase agreements		75,000		75,000
Customer repurchase agreements		4,413		6,265
Total	$	117,413	$	119,265

The Company’s $30 million revolving line of credit to a third-party financial institution is for general corporate purposes. The Company must comply with certain financial and other covenants contained in the credit agreement including, among other things, the maintenance by the Bank of specific asset quality ratios, and “well capitalized” regulatory capital ratios. Also, the credit agreement limits the Company’s ability to incur additional debt above specified levels.  The Company was in compliance with the covenants as of March 31, 2009.

Assets sold under agreements to repurchase are agreements in which the Company acquires funds by selling securities to another party under a simultaneous agreement to repurchase the same securities at a specified price and date. The Company’s structured repurchase agreements each contain an option that is held by the counterparty to terminate the agreement on the call date or quarterly thereafter. The Company enters into repurchase agreements and also offers a demand deposit account product to customers that sweeps their balances in excess of an agreed upon target amount into overnight repurchase agreements.

The Company structured repurchase agreements at March 31, 2009 are as follows:

Counterparty	JP Morgan			JP Morgan			Citigroup
Principal balance	$	25,000,000		$	25,000,000		$	25,000,000
Base interest rate		4.97	%		4.91	%		4.49	%
Stated maturity date	September 28, 2011			November 21, 2011			February 21, 2012
Call date	June 29, 2009			May 21, 2009			May 21, 2009

The two structured repurchase agreements with JP Morgan Chase Bank, N.A. contain embedded floor options. These options result in a cost of this debt for the first two years of the lesser of the base interest rate of the borrowing, or the base interest rate of the borrowing minus the amount, if any, by which three-month LIBOR is less than the strike price set forth in the agreements; however, the rate may not fall below zero.

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10. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts

Under prior management, the Company sponsored three trusts that have outstanding balances as of March 31, 2009. These trusts were formed for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the “capital securities”) to third-party investors and investing the proceeds from the sale of such capital securities exclusively in junior subordinated debt securities of the Company (the “debentures”). The debentures held by each trust are the sole assets of that trust. Distributions on the capital securities issued by each trust are payable semiannually or quarterly at a rate per annum equal to the interest rate being earned by the trust on the debentures held by that trust. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees.

The following table presents details on the junior subordinated debentures owed to unconsolidated subsidiary trusts at March 31, 2009.

	Trust II			Trust VI			Trust VIII
	(Dollars in thousands)
Date of issue	March 28, 2001			August 30, 2004			June 30, 2005
Amount of trust preferred  securities issued	$	12,000		$	10,000		$	7,500
Rate on trust preferred  securities		10.18	%		6.43	%		5.86	%
Maturity	June 8, 2031			October 18, 2034			July 7, 2035
Date of first redemption	June 8, 2011			October 18, 2009			July 7, 2010
Common equity securities  issued	$	400		$	310		$	232
Junior subordinated deferrable interest debentures owed	$	12,400		$	10,310		$	7,732
Rate on junior subordinated deferrable interest debentures		10.18	%		6.43	%		5.86	%

11. Regulatory Matters

The Company. The Company is a unitary thrift holding company and, as such, is subject to the regulation, examination and supervision of the Office of Thrift Supervision (“OTS”).

United Western Bank.The Bank is subject to various regulatory capital requirements administered by the OTS. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s and the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet commitments as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier 1 capital (as defined in the regulations) to total assets (as defined in the regulations). The Bank’s Tier 1 capital consists of shareholder’s equity excluding unrealized gains and losses on securities available for sale, less a portion of the Bank’s mortgage servicing asset that is disallowed for capital.

The Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, allocated by risk weight category and certain off-balance-sheet items (primarily loan commitments). The leverage ratio is calculated by dividing Tier 1 capital by adjusted total assets.

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The Bank has been notified by the OTS that, as of its most recent regulatory examination, it is regarded as well capitalized under the regulatory framework for prompt corrective action. Such determination has been made based on the Bank’s Tier 1, total capital, and leverage ratios. There have been no conditions or events since this notification that management believes would change the Bank’s categorization as well capitalized under the aforementioned ratios.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of March 31, 2009
Total Capital (to Risk Weighted Assets)	$	201,229		10.5	%	$	153,906		8.0	%	$	192,382		10.0	%
Core Capital (to Adjusted Tangible Assets)		184,993		8.1			91,786		4.0			113,117		5.0
Tier 1 Capital (to Risk Weighted Assets)		184,993		9.6			N/A		N/A			115,429		6.0
As of December 31, 2008
Total Capital (to Risk Weighted Assets)	$	189,536		10.6	%	$	143,719		8.0	%	$	179,648		10.0	%
Core Capital (to Adjusted Tangible Assets)		174,034		7.7			91,049		4.0			113,812		5.0
Tier 1 Capital (to Risk Weighted Assets)		174,034		9.7			N/A		N/A			107,811		6.0

12. Stock-Based Compensation

Stock Options

A summary of the Company’s stock option and non-vested stock awards activity, and related information is as follows:

	Three months Ended March 31, 2009
				Non-Vested Restricted Stock Awards Outstanding					Stock Options Outstanding
	Shares Available for Grant			Number of Shares			Weighted-Average Grant Date Fair Value		Number of Shares			Weighted-Average Exercise Price
Balance January 1, 2009		1,027,307			104,248		$	19.84		1,034,535		$	19.37
Granted		(1,500	)		-			-		1,500			7.89
Forfeited		21,909			(4,364	)		19.92		(17,545	)		19.59
Director shares		(4,085	)		-			-		-			-
Stock awards vested		-			(21,126	)		20.20		-			-
Balance March 31, 2009		1,043,631			78,758		$	19.74		1,018,490		$	19.35

Fully vested and shares expected to vest total approximately 920,000 at March 31, 2009.

The shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) at the 2007 annual meeting, which the Board of Directors subsequently amended on December 17, 2008, to make minor revisions for purposes of complying with Section 409A of the internal Revenue Code of 1986, as amended.  The 2007 Plan provides a variety of long-term equity based incentives to officers, directors, employees and other persons providing services to the Company and authorizes the Compensation Committee to grant options as well as other forms of equity based incentive compensation, such as restricted stock awards, stock appreciation rights, performance units and supplemental cash payments. At March 31, 2009, there were 78,758 non-vested restricted stock awards outstanding. These awards vest 20% annually on the anniversary date of the grant over a five-year period. Unrecognized stock-based compensation expense related to non-vested stock awards was $ 1.5 million as of March 31, 2009. At such date, the weighted average period over which this unrecognized expense was expected to be recognized was 3.6 years.

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In light of the approval of the 2007 Plan by the Company’s shareholders on May 17, 2007, the Company does not intend to grant any additional stock options under the Company’s prior stock option plan. At March 31, 2009, grants of 118,907 options, 62,641 restricted stock units and 13,513 shares to outside directors have been issued under the 2007 Plan, net of forfeitures.  Thus, of the 1,000,000 shares authorized under the 2007 Plan, there were 655,041 shares available for future grants.

The fair value of each stock option award is estimated on the date of grant using the Hull-White model, an enhanced trinomial lattice-based model, which takes into account certain dynamic assumptions about interest rates, expected volatility, expected dividends, employee exercise patterns, forfeitures and other factors. Expected volatility is based primarily on historical volatility of the closing price of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with a term equal to the life of the option. The expected term of options granted is derived using the lattice-based model and represents the period of time that options granted are expected to be outstanding and post-vesting employee behavior by group of employee. Forfeitures are estimated outside of the Hull-White model based on attrition studies performed annually. As the Board has declared regular $0.06 quarterly dividends, these are considered in the option valuation. The weighted-average fair value of options granted during the three months ended March 31, 2009 was $1.98 per share. The intrinsic value of outstanding options at March 31, 2009, was $0. Outstanding stock options have a weighted average remaining contractual term of 7.5 years, and future compensation expense associated with those options is approximately $1.9 million. The remaining expense is expected to be recognized over the weighted average period of 2.7 years. Options outstanding and exercisable were granted at stock option prices that were not less than the fair market value of the common stock on the date the options were granted and no option has a term in excess of ten years. Employee options vest ratably over a five year period.

The following weighted-average assumptions were used to estimate the fair value of options granted during the periods:

	Three months Ended
	March 31, 2009			March 31, 2008
Expected volatility		57.80	%		25.20 % - 32.80	%
Expected dividend yield		3.04	%		1.27 % - 2.01	%
Risk-free interest rate		2.90	%		3.55 % - 3.99	%
Expected term (in years)		6.19			6.10 - 7.20
Weighted average grant date fair value	$	1.98		$	2.34 - $ 4.27

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (“ESPP”). As of March 31, 2009, there were 145,005 ESPP Shares available for future issuance. The price at which ESPP Shares are sold under the ESPP is 85% of the lower of the fair market value per share of common stock on the enrollment date or the purchase date. It is presently estimated that 30,891 shares will be issued through the ESPP for 2009. The expenses associated with such share-based payments were $22,000 and $24,000, for the quarters ended March 31, 2009 and March 31, 2008, respectively,

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13. Income Taxes

Income tax expense was as follows:

	Three months Ended March 31,
		2009			2008
	(Dollars in thousands)
Current income tax expense		$	2,561		$	1,875
Deferred income tax (benefit)			(1,115	)		(430	)
Income tax expense as reported		$	1,446		$	1,445
Effective tax rate			30.6	%		30.1	%

The Company’s effective tax rate for the three months ended March 31, 2009 and 2008 is below the statutory tax rate due to: (i) realization of New Markets Tax Credits, which have been deployed at a subsidiary of the Bank, which were $327,000 and $296,000 for the three months ended March 31, 2009 and March 31, 2008, respectively; and (ii) by tax exempt earnings, which principally relate to income from bank owned life insurance.

At March 31, 2009 and December 31, 2008, the Company had accrued $348,000 related to unrecognized tax benefits. This amount is accrued in other liabilities in the consolidated balance sheet.

Interest and penalties associated with the liability for unrecognized benefits is approximately $245,000 at March 31, 2009 and December 31, 2008, and is included in other liabilities in the consolidated balance sheet.
 

14. Segment Information

Under SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company has four reportable segments: (i) a community banking subsidiary; (ii) a custodial and advisory services subsidiary, and (iii) a mortgage banking subsidiary.  The remaining subsidiaries are included in the “all others” category and consist primarily of the parent company operations. The Company’s segments are more fully described in Note 2 to the audited financial statements in the Company’s Form 10-K for the year ended December 31, 2008.

			Custodial
			and
	Community		Advisory		Mortgage			All
	Banking		Services		Banking			Others			Total
	(Dollars in thousands)
Quarter ended March 31, 2009:
Revenues from external customers:
Interest income	$	25,886		–	$	211		$	27		$	26,124
Noninterest income		534	$	2,622		1,060			3,989			8,205
Intersegment revenues		47		536		39			(7	)		615
Segment income (loss) before income taxes		3,431		100		(256	)		1,447			4,722
Segment assets		2,258,898		4,496		5,567			10,548			2,279,509
Quarter ended March 31, 2008:
Revenues from external customers:
Interest income		29,017		–		357			106			29,480
Noninterest income		699		2,387		1,511			226			4,823
Intersegment revenues		327		642		37			(75	)		931
Segment income (loss) before income taxes		6,439		658		15			(2,303	)		4,809
Segment assets		2,117,200		3,575		8,648			16,466			2,145,889

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15. Fair Value of Financial Assets

SFAS 157 “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The application of SFAS 157 in situations where the market for a financial asset is not active was clarified by the issuance of FSP No. SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” in October 2008. FSP No. 157-3 became effective immediately and did not significantly impact the methodology by which the Company determines the fair values of its financial assets.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

SFAS 157 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, SFAS 157 establishes a fair value hierarchy that gives the highest priority to quoted prices in active markets for asset or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets carried at fair value or the lower of cost or fair value.

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In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models or obtained from third parties that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments may include unobservable parameters. Any such valuation adjustments have been applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein.

Financial asset and financial liabilities measured at fair value on a recurring basis include the following:

Available for sale securities. Securities available for sale are comprised of agency securities, nonagency securities (private label) collateralized mortgage obligations, and nonagency securities collateralized by payment option adjustable rate mortgages.

·   Agency securities are reported at fair value using Level 1 inputs. Management believes Level 1 is appropriate for agency securities due to the relative availability of pricing transparency for such securities in the marketplace.

·   Nonagency securities (private label) collateralized mortgage obligations are reported at fair value using Level 2 inputs. Management believes Level 2 is appropriate for these securities because the Company obtains fair value measurements from four primary sources. Two are widely known pricing services including an independent pricing service that was utilized by the FHLBank Topeka to determine the collateral value of such securities in the borrowings obtained by the Bank. The other two are independent consultants that perform fair market valuation for securities identified by management as requiring additional analysis in order to ascertain fair value in accordance with SFAS 157. Generally, if the pricing services value of the security are reasonably comparable and appears reasonable given the characteristics of the underlying loan pool that determine the fair value of the security, that price is utilized as estimated fair value. Management believes such prices represent observable market data per se, and are based, in part, upon dealer quotes. Generally, if there are significant disparities in the prices between the pricing services, and the security has an unpaid principal balance of over $2 million, and there is an unrealized loss of over $1 million, we consider whether the pricing service fair value estimate is based on sufficient market activity, the performance characteristics of the loan pool underlying the particular security and conclude whether the pricing service has provided an estimate that represents fair value in accordance with FAS 157. Management has direct observable data for these securities based on this pricing service and based on other market data that is available. This data that is available includes market research of various well know firms and includes information on yield, duration, repayment, defaults, delinquency and other factors. Management is comfortable with the data utilized by the pricing service based on our review of documentation and discussion with personnel from these entities.

·   Nonagency securities collateralized by payment option adjustable rate mortgages are reported at fair value using Level 3 inputs. The fair value of payment-option-adjustable-rate mortgages are determined through an independent third party using cash flow models and assumptions as to the future performance of the underlying loan pools. Management concludes that this value is based on unobservable market data because the fair value is determined through proprietary cash flow models. While management believes the assumptions used by the third party are reasonable; since the cash flow models are based on assumptions about future events and future performance of the underlying collateral they are based on unobservable market data. Further, management believes the valuation of payment-option-adjustable-rate mortgage backed securities is less certain due to the age of the securities as these are a 2006 vintage origination and the behavior of these instruments is comparatively unknown as compared to other mortgage-backed securities that do not have performance history in stressed markets.

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Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis. These instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in circumstances (for example, when there is evidence of impairment).  Financial assets and liabilities measured at fair value on a non-recurring basis include the following:

Loans held for sale. Loans held for sale include residential, multifamily and SBA originated loans are reported in the aggregate at the lower of cost or fair value using Level 3 inputs. For these loans the Company obtains fair value using a cash flow model. The fair value measurements consider observable data that may include loan type, spreads for other similar whole loans and mortgage-backed securities, prepayment speeds, servicing values, index values, and when applicable outstanding investor commitments. Management makes certain adjustments to the data inputs that we believe other market participants would in estimating the fair value of the Company’s residential held for sale portfolio including: delinquency, existence of government guarantees, seasoning, loan to value ratios, and FICO scores, among other factors. For residential loans the Company obtains fair value using a cash flow model. The fair value measurements consider observable data that may include loan type, spreads for other whole loans and mortgage-backed securities, prepayment speeds, servicing values, and index values. Management makes certain adjustments to the data inputs that we believe other market participants would in estimating the fair value of the Company’s residential held for sale portfolio including: delinquency, existence of government guarantees, seasoning, loan to value ratios, and FICO scores, among other factors. During the first quarter of 2009 interest rates and spreads on loans held for sale contracted, which favorably impacted valuations of residential loans held for sale.  The Company recorded a recovery to its previously established valuation allowance of $577,000 that increased the carrying value of residential loans held for sale to reflect fair value. The remaining change in value from December 31, 2008, when the balance was $212,083, was due to repayments of $5.2 million and $438,000 transferred to real estate owned.

Mortgage servicing rights. Mortgage servicing rights are reported at the lower of cost or fair value using Level 3 inputs. Management engages an independent third party to perform a valuation of its mortgage servicing rights periodically. Mortgage servicing rights are valued in accordance with SFAS 140 using discounted cash flow modeling techniques that require management to make estimates regarding future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors. Certain adjustments to inputs are made to reflect the specific characteristics of the Company's portfolio.  . During the first quarter ended March 31, 2009, the change in value of the asset versus December 31, 2008, was due to amortization.

Impaired securities. Held to Maturity securities deemed other-than-temporarily impaired are reported at the estimated fair value of the security using Level 3 inputs. Level 3 is appropriate for these securities as there is very little trading volume of such securities and as a result the Company relies upon a valuation of these securities using a cash flow forecast model that incorporates elements of market participants prepared by an independent third party. The methodology used to determine estimated fair value is identical to the methodology discussed above in Available for sale securities and that is subject to the same levels of review.

Impaired loans. Certain impaired loans are reported at the fair value of the underlying collateral if management concludes repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria. During the quarter ended March 31, 2009, impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for credit losses based upon the fair value of the underlying collateral. Impaired loans with a carrying value of $17.3 million were reduced by specific valuation allowance allocations totaling $4.4 million to a total reported fair value of $12.9 million utilizing Level 3 valuation inputs.  The provision for loan losses on impaired loans made during the quarter ended March 31, 2009 totaled $2 million.

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The following represents assets measured at fair value on a recurring basis as of March 31, 2009 and December 31, 2008.  The valuation methodology used to measure the fair value of these securities is described earlier in the Note. (There are no liabilities measured at fair value):

	Quoted Prices		Significant		Significant
	in Active Markets		Other		Unobservable
	for Identical Assets		Observable Inputs		Inputs		Total
Description	(Level 1)		(Level 2)		(Level 3)		Fair Value
	(Dollars in thousands)
Assets at March 31, 2009:
Available for sale securities	$	14,230	$	26,592	$	18,327	$	59,149
Assets at December 31, 2008:
Available for sale securities	$	15,628	$	28,011	$	15,934	$	59,573

The table below presents a reconciliation of the securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2009.

	Available for sale securities
	(Dollars in thousands)
Balance December 31, 2008	$	15,934
Transfers into Level 3		–
Included in other comprehensive income		3,060
Settlements		(667	)
Balance March 31, 2009	$	18,327

The following represents assets measured at fair value on a nonrecurring basis as of March 31, 2009 and December 31, 2008.  The valuation methodology used to measure the fair value of these assets is described earlier in the Note.

	Quoted Prices		Significant		Significant
	in Active Markets		Other		Unobservable
	for Identical Assets		Observable Inputs		Inputs		Total
Description	(Level 1)		(Level 2)		(Level 3)		Fair Value
	(Dollars in thousands)
Assets at March 31, 2009:
Loans held for sale		–		–	$	292,851	$	292,851
Impaired loans		–		–		12,910		12,910
Mortgage Servicing Rights		–		–		8,714		8,714
Other-than-temporarily impaired securities		–		–		5,850		5,850
Assets at December 31, 2008:
Loans held for sale		–		–	$	291,620	$	291,620
Impaired loans		–		–		1,658		1,658
Mortgage Servicing Rights		–		–		9,496		9,496
Other-than-temporarily impaired securities		–		–		6,581		6,581

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Nonfinancial assets measured on a nonrecurring basis are summarized below:

	Quoted Prices		Significant		Significant
	in Active Markets		Other		Unobservable
	for Identical Assets		Observable Inputs		Inputs		Total
Description	(Level 1)		(Level 2)		(Level 3)		Fair Value
	(Dollars in thousands)
Assets at March 31, 2009:
Foreclosed real estate		–		–	$	3,752	$	3,752

Foreclosed real estate consists of residential or commercial assets acquired through loan foreclosure or deed in lieu of loan foreclosure.  When assets are transferred to foreclosed real estate such assets are held for sale and are initially recorded at fair value, less estimated selling costs when acquired, establishing a new cost basis. Fair value is generally determined via appraisal.  Costs after acquisition are generally expensed. If the fair value of the asset declines, a write-down is recorded through expense.

During the three months ended March 31, 2009 there were no transfers out of Level 3 financial assets.

16. Commitments and Contingencies

Commitments

The Company is a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to a varying degree, elements of credit and interest- rate risk in excess of the amount recognized in the consolidated balance sheets.

A summary of the contractual amount of significant commitments follows:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
Commitments to extend credit:
Loans secured by mortgages	$	51,186	$	110,249
Construction and development loans		130,172		151,195
Commercial loans and lines of credit		58,135		65,362
Consumer loans		808		340
Total commitments to extend credit	$	240,301	$	327,146
Standby letters of credit	$	10,141	$	12,077

The Company’s exposure to credit loss, in the event of nonperformance by the other party, to off-balance sheet financial instruments with credit risk is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments with credit risk.

Commitments to extend credit are agreements to lend to, or provide a credit guarantee for, a customer as long as there is no violation of any condition established in the contract. Such instruments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Because many of these instruments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis, and the amount of collateral or other security obtained is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

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Contingencies – Legal

The Company and its subsidiaries are from time to time party to various litigation matters, in most cases involving ordinary and routine claims incidental to the Company’s business. The Company accrues liabilities when it is probable future costs will be incurred and such costs can be reasonably estimated. Such accruals are based upon developments to date, the Company’s estimates of the outcome of these matters and its experience in contesting, litigating and settling other matters. Because the outcome of most litigation matters is inherently uncertain, the Company will accrue a loss for a pending litigation matter if the loss is probable and can be reasonably estimated. Based on evaluation of the Company’s litigation matters and discussions with external legal counsel, management believes that an adverse outcome on the matters noted in the Company’s Annual Report on Form 10-K, against which no accrual for loss has been made at March 31, 2009, is reasonably possible but not probable, and that the outcome with respect to one or more of these matters, if adverse, is reasonably likely to have a material adverse impact on the consolidated financial position, results of operations or cash flows of the Company.

The legal contingencies of the Company are more fully described in the Company’s Form 10-K for the year ended December 31, 2008 under Item 3. Legal Proceedings and in Note 16 to the audited financial statements. During the three months ended March 31, 2009, there were no material changes to the information previously reported except as disclosed below and in Part II, Item 1, Legal Proceedings.

United Western Bancorp, Inc.  United Heritage Financial Group, Inc. and United Heritage Life Insurance Company v. First Matrix Investment Services et al.,On October 27, 2006, a complaint was filed against the Company and First Matrix, along with two former employees of First Matrix, in Idaho State District Court alleging violations of state securities laws, the Idaho Consumer Protection Act and fraud arising the sale of an approximately $1.70 million mortgage backed bond from First Matrix to one of the plaintiffs. The case, which was subsequently removed to the U.S. District Court in Idaho on December 12, 2006, is based on the plaintiffs’ claims that First Matrix should have made certain disclosures regarding the risk of the withdrawal of a USDA government guarantee of the bond, which withdrawal subsequently occurred and the bond went into default. In June of 2007, the court dismissed the underwriter, Duncan Williams, from the lawsuit based on lack of personal jurisdiction; however, based on the testimony of certain depositions in this matter, an evidentiary hearing was held in April 2009 to determine whether the court does have personal jurisdiction over Duncan Williams. The Company and First Matrix may seek indemnification for the claims made against them in this case from the underwriter or from other potentially responsible parties. While the defendants’ liability, if any, to the plaintiffs in this case is uncertain at this time, the Company believes that the defendants have meritorious defenses to the plaintiffs’ claims.

United Western Bank.  Ward Enterprises, LLC v. Daniel E .McCabe et. al. including United Western Bank. In February 2008, the plaintiff filed a complaint in Colorado District Court for the City and County of Denver seeking damages from the holders of an institutional account at the Bank, the Bank, and a former employee of the Bank, for breach of fiduciary duties due to the plaintiff and aiding and abetting the conversion of approximately $1.84 million of plaintiff’s funds by the holder of the institutional account maintained at the Bank.  This litigation is presently stayed pending the outcome of related proceedings filed in the United States Bankruptcy Court for Southern District of New York.  While the defendants’ liability, if any, to the plaintiff in this case is uncertain at this time, the Company believes that the defendants have meritorious defenses to the plaintiff’s claims.

Contingencies – Guarantees

The Company maintains a liability related to its legacy mortgage banking operations at Matrix Financial for estimated losses on mortgage loans expected to be repurchased or on which indemnification is expected to be provided. The Company regularly evaluates the adequacy of this repurchase liability based on trends in repurchase and indemnification requests, actual loss experience, and other relevant factors including economic conditions. Total loans repurchased during the three months ended March 31, 2009 and 2008 were $16,000 and $34,000, respectively. Loans indemnified that remain outstanding at March 31, 2009 totaled $6.1 million, of which $2.4 million were guaranteed as to principal by FHA. Losses net of recoveries charged against the liability for estimated losses on repurchase and indemnification were $16,000 and $34,000 for the three months ended March 31, 2009 and 2008, respectively. At March 31, 2009 and December 31, 2008, the liability for estimated losses on repurchase and indemnification was $1.1 million and $1.2 million, respectively, and was included in other liabilities in the consolidated balance sheets.

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In connection with the May 2006 sale of ABS School Services, LLC, the Company and Equi-Mor Holdings, Inc., a wholly owned subsidiary of the Company, guaranteed, for a five year period, the repayment of the loans sold to the purchaser up to an aggregate amount of $1.65 million, creating a recourse obligation for the Company. During the first quarter of 2009, the Company incurred $0 of losses against its guarantee. The balance of the estimated liability at March 31, 2009 and December 31, 2008, was $445,000, and is included in other liabilities in the consolidated balance sheets.

17. Subsequent Event

On April 8, 2009, the Company announced that its wholly owned subsidiary, Sterling has agreed to sell certain of its assets to Equity Trust Company and a newly formed administrative services company affiliated with Equity Trust Company (together, the “Buyer”) for $61,200,000 -- $60,900,000 net of estimated direct expenses associated with the transaction – subject to certain adjustments as provided for in the definitive purchase agreement, and the assumption by Buyer of certain liabilities of Sterling.  The consummation of the transaction is subject to regulatory approval by Sterling’s principal regulator as well as other conditions and contingencies.  The Buyer will pay 25% of the purchase price in cash at closing and the remainder through financing to the Buyer from seller.  The seller financing will have a term of seven years, will bear interest at the prime rate, as adjusted from time to time, and is subject to certain floors and ceilings on the rate.  The seller financing calls for equal monthly payments of principal plus accrued interest for the next seven years.  The after tax gain from the asset sale transaction is estimated to be $35.6 million.  Sterling expects to dividend the instruments evidencing the seller financing and after tax cash proceeds to the Company following closing.  The Company anticipates contributing a portion of the proceeds to the Bank over time.  Management anticipates the transaction will close in the second quarter of 2009. In addition, at the closing of the transaction, the Buyer will agree to maintain an amount of customer custodial deposits at the Bank in a minimum amount equal to the amount of customer custodial deposits transferred to the Buyer at the closing of this transaction for five years or until the seller financing is paid in full, whichever is later.  The amount of custodial deposits that Sterling had on deposit at the bank at March 31, 2009 that are associated with the customer accounts to be transferred to the Buyer as part of this transaction was approximately $316,000,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis of United Western Bancorp, Inc.’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. The words “us,” “we,” the “Company” or similar terms refer to United Western Bancorp, Inc. and its wholly owned subsidiaries unless we indicate otherwise. The “Bank” refers to United Western Bank.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning our future results, interest rates, loan and deposit growth, operations, community bank implementation and business strategy. These statements often include terminology such as “may,” “will,” “expect,” “anticipate,” “predict,” “believe,” “plan,” “estimate,” “continue,” “could,” “should,” “would,” “believe,” “intend,” “projects,” or the negative thereof or other variations thereon or comparable terminology and similar expressions.  As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results.  They involve risks, uncertainties and assumptions that could cause actual results to differ materially from those in the forward-looking statements.  These factors include, but are not limited to: the successful implementation of our community banking strategies; the ability to secure, timing of, and any conditions imposed thereon of any, regulatory approvals or consents for new branches or other contemplated actions; the availability of suitable and desirable locations for additional branches; the continuing strength of our existing business, which may be affected by various factors, including but not limited to interest rate fluctuations, level of delinquencies, defaults and prepayments, increased competitive challenges, and expanding product and pricing pressures among financial institutions; changes in financial market conditions, either internationally, nationally or locally in areas in which we conduct our operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development, real estate prices and other recent problems in the commercial and residential real estate markets; demand for loan products and financial services; unprecedented fluctuations in markets for equity, fixed-income, commercial paper and other securities, including availability, market liquidity levels, and pricing; increases in the levels of losses, customer bankruptcies, claims and assessments; the extreme levels of volatility and limited credit currently being experiencedin the financial markets; changes in political and economic conditions, including the economic effects of terrorist attacks against the United States and related events; legal and regulatory developments, such as changes in fiscal, monetary, regulatory, trade and tax policies and laws, including policies of the U.S. Department of Treasury and the Federal Reserve Board; our participation, or lack thereof, in governmental programs implemented under the Emergency Economic Stabilization Act (the “EESA”), including without limitation the Troubled Asset Relief Program (“TARP”), and the Capital Purchase Program (the “CPP”), and the impact of such programs and related regulations on our business and on international, national, and local economic and financial markets and conditions; and the risks and uncertainties discussed elsewhere and/or set forth from time to time in our other periodic reports filings, and public statements.   There can be no assurance that the EESA or other programs aimed at economic recovery, such as the American Recovery and Reinvestment Act of 2009, will have a beneficial impact on the financial markets, including current extreme levels of volatility. To the extent the markets do not respond favorably to the TARP or CPP or the TARP or CPP do not function as intended, our business may not receive the anticipated positive impact from the legislation.  In addition, the U.S. Government, Federal Reserve and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis.  We cannot predict whether or when such actions may occur or what impact, if any, such actions could have on our business, results of operations and financial condition and we may become subject to new or heightened legal standards and regulatory requirements, practices or expectations which may impede our profitability or affect our financial condition. Additional information concerning these and other factors that may cause actual results to differ materially from those anticipated in forward-looking statements is contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and in the Company’s other periodic reports and filings with the Securities and Exchange Commission. The Company cautions investors not to place undue reliance on the forward-looking statements contained in this Quarterly Report.

Any forward-looking statements made by the Company speak only as of the date on which the statements are made and are based on information known to us at that time. We do not intend to update or revise the forward-looking statements made in this Quarterly Report after the date on which they are made to reflect subsequent events or circumstances, except as required by law. Our risk factors are discussed in greater detail in Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2008, and in Item 1A. “Risk Factors” in this report.

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Overview

For the quarter ended March 31, 2009, net income was $3.3 million, a decrease of $88,000 as compared to the quarter ended March 31, 2008. Diluted earnings per share were $.45 for the first quarter of 2009 compared to $.46 for the first quarter of 2008.

Net interest income before provision for credit losses decreased by $1.5 million, or 7.6%, from the first quarter of 2008 to the first quarter of 2009 as a result of lower yields on interest-earning assets.  The Company has principally originated loans tied to the prime rate of interest, which has declined 200 basis points from March 31, 2008 to March 31, 2009.  As a result, net interest margin decreased 57 basis points to 3.48% for the first quarter of 2009, compared to 4.05% for the first quarter of 2008.

Included in earnings for the first quarter of 2009 was the gain on sale from our investment in our former joint venture, Matrix Financial Solutions, Inc.  We sold our approximate 7% interest, which consisted of 269,792 shares, for $16.00 per share resulting in aggregate proceeds to us of $4.3 million.  The Company realized a pre-tax gain of $3.6 million during the quarter ended March 31, 2009 from this sale.

Total assets at March 31, 2009 were $2.28 billion, which represents an increase of $21 million from December 31, 2008. The increase in assets was the result of our decision to maintain additional balance sheet liquidity during the quarter.  At March 31, 2009, cash was $88 million, a $65 million increase over December 31, 2008 when cash balances were $23 million.  Total loans, before the allowance for credit losses, declined $21 million including a decline of $7 million from our community bank held for investment portfolio.  This was the result of repayments and balance sheet management efforts to monitor overall loan growth.  Total shareholders’ equity increased by $5.1 million, to $107.0 million at March 31, 2009, compared to $101.9 million at December 31, 2008 due to net income and a $1.9 million increase in the value of available for sale securities, which impacted other comprehensive income. Our leverage ratio increased to 4.69% at March 31, 2009 compared to 4.51% at December 31, 2008 and our book value per share increased to $14.76 at March 31, 2009, from $14.06, at December 31, 2008.

Asset quality in the Company’s loan portfolio declined during the first quarter of 2009 due to two loans measured for impairment and other loans that demonstrated weakening conditions. Total nonperforming assets were $42.2 million at March 31, 2009 or 1.85% of total assets, compared to $26.3 million, or 1.17%, of total assets at December 31, 2008. At March 31, 2009, nonperforming community bank loans held for investment were $19.2 million or 1.87% of the community bank portfolio vs. $4.6 million or .45% at December 31, 2008.  The increase was principally caused by two loans. Nonperforming residential loans increased from year end, and were $11.7 million at March 31, 2009, compared to $9.7 million at December 31, 2008.

In addition to the discussion below, readers may also want to review our earnings release for the quarter ended March 31, 2009, dated May 11, 2009, which is posted on the Investor Relations section of our website at www.uwbancorp.com.

Comparison of Results of Operations for the Quarters Ended March 31, 2009 and March 31, 2008

Net Income. For the quarter ended March 31, 2009, we earned $3.3 million, or $.45 per basic and diluted share, as compared to $3.4 million, or $.46 per basic and diluted share, for the quarter ended March 31, 2008.

Net Interest Income. The following table sets forth, for the periods and as of the dates indicated, information regarding our average balances of assets and liabilities, as well as the dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate information is based on average daily balances where available; otherwise, average monthly balances have been used. Nonperforming loans are included in the calculation of average balances for loans for the periods indicated.

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	Quarter ended March 31,
	2009								2008
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Assets
Interest-earning assets:
Community bank loans:
Commercial real estate loans	$	389,495		$	5,613		5.85	%	$	229,310		$	4,010		7.03	%
Construction and development loans		385,996			4,631		4.87			280,984			4,786		6.85
Originated SBA loans		137,979			1,890		5.56			99,213			2,096		8.50
Multifamily loans		49,628			631		5.09			49,153			817		6.65
Commercial loans		113,517			1,546		5.52			91,257			1,644		7.25
Consumer and other loans		22,399			30		0.54			5,042			72		5.74
Total community bank loans		1,099,014			14,341		5.29			754,959			13,425		7.15
Wholesale assets:
Residential loans		362,265			4,699		5.19			419,904			5,645		5.38
Purchased SBA loans and securities		136,348			336		1.00			174,181			1,970		4.55
Mortgage-backed securities		498,120			6,635		5.33			598,677			7,870		5.26
Total wholesale assets		996,733			11,670		4.68			1,192,762			15,485		5.19
Interest-earning deposits		41,477			20		0.18			19,298			156		3.20
FHLBank stock		29,047			93		1.30			39,917			414		4.17
Total interest-earning assets		2,166,271			26,124		4.86	%		2,006,936			29,480		5.89	%
Noninterest-earning assets:
Cash		24,890								18,029
Allowance for credit losses		(20,109	)							(10,618	)
Premises and equipment		26,473								18,324
Other assets		95,828								81,079
Total noninterest-earning assets		127,082								106,814
Total assets	$	2,293,353							$	2,113,750
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Passbook accounts	$	327			–		0.25	%	$	235			–		0.85	%
Money market and NOW accounts		1,399,274			1,965		0.57			1,154,089			3,383		1.18
Certificates of deposit		150,809			1,317		3.54			31,439			329		4.21
FHLBank borrowings		224,392			2,381		4.24			392,179			3,793		3.83
Repurchase agreements		80,201			905		4.51			76,673			848		4.38
Borrowed money and junior subordinated debentures		68,442			881		5.15			51,442			917		7.05
Total interest-bearing liabilities		1,923,445			7,449		1.56	%		1,706,057			9,270		2.17	%
Noninterest-bearing liabilities:
Demand deposits (including custodial escrow balances)		243,815								271,210
Other liabilities		22,015								20,519
Total noninterest-bearing liabilities		265,830								291,729
Shareholders’ equity		104,078								115,964
Total liabilities and shareholders’ equity	$	2,293,353							$	2,113,750
Net interest income before provision for credit losses				$	18,675							$	20,210
Interest rate spread							3.30	%							3.72	%
Net interest margin							3.48	%							4.05	%
Ratio of average interest-earning assets to average interest-bearing liabilities							112.62	%							117.64	%

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Volume and Rate Analysis of Net Interest Income

The following table presents the extent to which changes in volume and interest rates of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior period rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior period volume) and (iii) changes attributable to a combination of changes in rate and volume (change in rates multiplied by the changes in volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Quarter Ended March 31,
	2009 vs. 2008
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Community bank loans:
Commercial real estate loans	$	2,384		$	(780	)	$	1,604
Construction and development loans		1,481			(1,636	)		(155	)
Originated SBA loans		664			(870	)		(206	)
Multifamily loans		8			(194	)		(186	)
Commercial loans		349			(447	)		(98	)
Consumer and other loans		71			(113	)		(42	)
Wholesale assets:
Residential loans		(753	)		(193	)		(946	)
Purchased SBA loans and securities		(356	)		(1,278	)		(1,634	)
Mortgage-backed securities		(1,339	)		104			(1,235	)
Interest-earning deposits		85			(222	)		(137	)
FHLBank stock		(91	)		(230	)		(321	)
Total interest-earning assets		2,503			(5,859	)		(3,356	)
Interest-bearing liabilities:
Money market and NOW accounts		612			(2,030	)		(1,418	)
Certificates of deposit		1,050			(62	)		988
FHLBank borrowings		(1,773	)		361			(1,412	)
Repurchase agreements		35			22			57
Borrowed money and junior subordinated debentures		249			(285	)		(36	)
Total interest-bearing liabilities		173			(1,994	)		(1,821	)
Change in net interest income before provision for credit losses	$	2,330		$	(3,865	)	$	(1,535	)

As detailed in the foregoing tables, net interest income before provision for credit losses declined $1.5 million, or 8%, to $18.7 million for the quarter ended March 31, 2009, as compared to $20.2 million for the quarter ended March 31, 2008. Net interest margin decreased 57 basis points to 3.48% for the quarter ended March 31, 2009 from 4.05% for the same period a year ago. The compression of the net interest margin was principally due to the 200 basis point decline in prime rate that impacted the yield on the majority of our community bank loans. Interest income declined $3.4 million to $26.1 million for the quarter ended March 31, 2009, as compared to $29.5 million for the quarter ended March 31, 2008. Average community bank loans increased to $1.1 billion for the quarter ended March 31, 2009, compared to $755 million for the same quarter in 2008. The yield on those assets declined to 5.29% for the first quarter of 2009, as compared to 7.15% in 2008. The decline in the yield on community bank loans is consistent with the decline in the prime rate of interest, to which many of our community bank loans are indexed. At March 31, 2009, the prime rate was 3.25% compared to 5.25% at March 31, 2008.

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During the same first quarter periods, for 2009 and 2008, respectively, the average balance of wholesale assets declined by $196 million to $997 million for the quarter ended March 31, 2009, as compared to $1.19 billion for the quarter ended March 31, 2008. This decline in the balance of wholesale assets is consistent with management’s strategy to reduce them and is principally the result of repayments from borrowers. The wholesale assets, which in total have a negative impact on our net interest margin, did perform relatively well in the first quarter of 2009. The yield on wholesale assets declined 51 basis points for the first quarter of 2009 as compared to the first quarter of 2008, significantly less than the 186 basis point decline in the community banking assets. Generally, this was the result of SBA purchased loans and securities, which yielded 1.00% in the first quarter of 2009 compared to 4.55% for the first quarter of 2008.  These assets are impacted directly by the change in the prime rate of interest and the level of premium amortization.

Overall, the cost of liabilities declined 61 basis points in the comparable quarters to 1.56% for the quarter ended March 31, 2009, versus 2.17% for the quarter ended March 31, 2008, which contributed $1.8 million of interest expense savings. The average balance of interest-bearing liabilities increased by $217 million, principally in money market and NOW accounts as well as certificates of deposit, which increased $245 million and $119 million, respectively, between the first quarter of 2009 and the first quarter of 2008.  The growth in deposits was partially offset by a $168 million decline in FHLBank borrowings. The overall growth in interest-bearing liabilities was primarily related to the growth in earning assets. The increase in the average balances was more than offset by declines in the related costs, as the costs of money market and NOW accounts declined by 61 basis points and the cost of certificates of deposits declined 67 basis points between the periods. The decline in cost was consistent with the decline in market interest rates between the periods. The majority of average noninterest-bearing deposits and a significant portion of money market and NOW accounts are primarily institutional deposits that are subject to subaccounting fees.

For the quarter ended March 31, 2009, community bank loans accounted for 55% of our interest income compared to 46% in the same period for the prior year. We expect that community bank loans will continue to increase over time and that wholesale assets will continue to run off through repayment. Management would also consider possible sales of wholesale assets to accelerate the transition of our balance sheet once the marketplace for financial instruments stabilizes. The Federal Open Market Committee has reduced short-term interest rates 200 basis points since mid-March 2008 through March 2009.  Through our Asset Liability Management Committee we have maintained modest asset sensitivity to prospective changes in interest rates. Accordingly, without the continuing balance sheet transition, we expect our net interest income could decline further if the Federal Open Market Committee maintains interest rates at the current level.  To mitigate this, we have implemented floor rates of interest on many of our new and renewed loans.

Provision for Credit Losses. The provision for credit losses was $4.2 million for the quarter ended March 31, 2009, compared to $1.9 million for the quarter ended March 31, 2008. The provision for credit losses in the first quarter of 2009 included $2.0 million for specific impairment on two loans, $1.8 million for other loans that demonstrated signs of weakness for which the loan grade was reduced and an increase of approximately $367,000 attributed to our construction and development lending portfolio. The provision for credit losses for the first quarter 2008 reflected the growth of $114.3 million of community bank loans, the $2.9 million loan added to nonperforming assets and a $100,000 increase in the unallocated portion of the allowance for various economic factors that impact our loan portfolio. For a discussion of the Company’s allowance for credit loss methodology see “Significant Accounting Estimates – Allowance for Credit Losses,” and, as it relates to nonperforming assets, see “Asset Quality.”

Noninterest Income.An analysis of the components of noninterest income is presented in the table below:

	Quarter Ended March 31,
	2009		2008		Dollar Change			Percentage Change
	(Dollars in thousands)
Noninterest income:
Custodial, administrative and escrow services	$	2,622	$	2,560	$	62			2	%
Loan administration		1,157		1,456		(299	)		-21	%
Gain on sale of loans held for sale		48		182		(134	)		-74	%
Gain on sale of investment in Matrix Financial Solutions, Inc.		3,567		–		3,567		NM
Other income		811		625		186			30	%
Total noninterest income	$	8,205	$	4,823	$	3,382			70	%

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Custodial, Administrative and Escrow Services. Service fees increased $62,000, or 2%, to $2.62 million for the quarter ended March 31, 2009, as compared to $2.56 million for the quarter ended March 31, 2008. The increase is due to continued growth generated by Sterling. Total accounts under administration increased 24% to 75,255 accounts at March 31, 2009, as compared to 60,885 accounts at March 31, 2008, and total assets under administration increased to $4.92 billion at March 31, 2009, from $4.62 billion at March 31, 2008. Management announced that it was selling the majority of the assets of Sterling and we anticipate this sale to close in the second quarter of 2009.  We thus expect that revenues from custodial, administrative and escrow services will decline materially on a prospective basis.

Loan Administration. Loan administration income represents service fees earned from servicing loans for various investors, which are based on a contractual percentage of the outstanding principal balance plus late fees and other ancillary charges. Loan administration fees decreased $299,000, or 21%, to $1.2 million for the quarter ended March 31, 2009, as compared to $1.5 million for the same quarter in 2008. This decrease is consistent with the decline in our mortgage loan servicing portfolio. Our mortgage loan servicing portfolio decreased to an average balance of $884 million for the quarter ended March 31, 2009, as compared to an average balance of $1.04 billion for the quarter ended March 31, 2008. In addition, our average service fee rate (including all ancillary income) of 0.48% for the first quarter of 2009 was four basis points lower than the first quarter of 2008. The Company anticipates loan administration fees will continue to decrease as its servicing portfolio decreases through normal amortization and prepayments.

Gain on Sale of Loans Held for Sale. Gain on sale of loans held for sale was $48,000 for the quarter ended March 31, 2009, as compared to $182,000 for the quarter ended March 31, 2008. During the first quarter of 2009, the Company sold $3.4 million of SBA-originated loans. The loan sales were part of our management of industry concentrations, interest rate risk, and regular sales of the guaranteed portion of SBA-originated loans. For the quarter ended March 31, 2008, the Company sold $6.2 million of SBA-originated loans, which generated gains of $182,000. We expect such gains may fluctuate significantly from quarter to quarter based on a variety of factors, such as the current interest rate environment, the supply and mix of loans available in the market, the particular loan portfolios we elect to sell, and market conditions.

Gain on sale of Investment.  During the first quarter of 2009, the Company completed the sale of 269,792 shares of Matrix Financial Solutions, Inc for $16.00 per share resulting in aggregate proceeds of $4.317 million.  The transaction was negotiated between the Company and the purchaser and the Company believes the exchange value per share represented the fair market value of such shares as of the sale date.  The Company’s basis in the shares was $750,000, resulting in a gain on the sale of $3.567 million.  Matrix Financial Solutions, Inc. is the successor to the Company’s former joint venture interest in Matrix Settlement and Clearance Services.  The Company and Matrix Financial Solutions, Inc. have ongoing business relationships pursuant to which certain cash accounts under the control of Matrix Financial Solutions, Inc. are placed on deposit at the Bank.

Other Income. Other income was $811,000 for the first quarter of 2009 and principally included income earned on bank-owned life insurance of $233,000, and other miscellaneous items that totaled $578,000. This compares to the first quarter of 2008 when other income was $625,000 and included income earned on bank owned life insurance of $238,000, and other miscellaneous items that totaled $387,000.

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Noninterest Expense. Noninterest expense decreased $356,000, or 1.9%, to $18.0 million for the quarter ended March 31, 2009, as compared to $18.3 million for the quarter ended March 31, 2008. The following table details the components of noninterest expense for the periods indicated:

	Quarter Ended March 31,
	2009			2008		Dollar Change			Percentage Change
Noninterest expense:	(Dollars in thousands)
Compensation and employee benefits	$	8,076		$	7,707	$	369			5	%
Subaccounting fees		3,440			5,215		(1,775	)		-34	%
Amortization of mortgage servicing rights		795			709		86			12	%
Lower of cost or fair value adjustment on loans held for sale		(577	)		412		(989	)		-240	%
Occupancy and equipment		1,021			810		211			26	%
Postage and communication		388			342		46			13	%
Professional fees		1,182			601		581			97	%
Mortgage servicing rights subservicing fees		368			441		(73	)		-17	%
Other general and administrative		3,284			2,096		1,188			57	%
Total noninterest expense	$	17,977		$	18,333	$	(356	)		-2	%

Compensation and employee benefits expense increased $369,000, to $8.1 million for the quarter ended March 31, 2009, as compared to $7.7 million for the quarter ended March 31, 2008. At March 31, 2009, the Company had 367 employees compared to 345 employees at March 31, 2008. This increase includes twelve employees at the Bank and nine at Sterling. The increase of employees at the Bank was due to the implementation of our business plan and included the staff for the banking offices opened during the past twelve months and additions to our infrastructure in loan and deposit operations and credit administration. The additions at Sterling were hired to support our continuing growth in custodial, administrative and escrow services. Included in compensation and employee benefits were costs of $306,000 and $248,000 for the Company’s stock-based compensation plans for the quarter ended March 31, 2009 and 2008, respectively. The increase in stock-based compensation expense is reflective of the additional employees hired to implement our business strategy.

Subaccounting fees, which represent fees paid to third parties to service depository accounts on our behalf, are incurred at the Bank in respect of custodial and institutional deposits. Such fees declined $1.8 million, or 34%, to $3.4 million for the quarter ended March 31, 2009, compared to $5.2 million for the quarter ended March 31, 2008. This decrease was caused by lower short-term interest rates. Subaccounting fees are generally tied to the Federal Open Market Committee target rate for overnight deposits. The average target rate for the first quarter of 2009 was 0% to .25% compared to 3.22% for the first quarter of 2008. Additionally, the average balances subject to subaccounting fees decreased $31.0 million between the quarter ended March 31, 2009 to $1.12 billion from $1.15 billion for the quarter ended March 31, 2008.

Amortization of mortgage servicing rights increased $86,000, or 12%, to $795,000 for the quarter ended March 31, 2009, as compared to $709,000 for the quarter ended March 31, 2008. Amortization of mortgage servicing rights increased in the first quarter of 2009 compared to the first quarter of 2008 due to an acceleration of repayments from certain tranches of the mortgage servicing portfolio. The average balance in our mortgage servicing rights portfolio decreased to $884 million at March 31, 2009, as compared to $1.04 billion at March 31, 2008. Although prepayment speeds on our servicing portfolio were 16.4% for both the quarter ended March 31, 2009 and March 31, 2008, portions of the portfolio with higher costs prepaid more rapidly in the first quarter of 2009 as compared to the same quarter in 2008.

Lower of cost or fair value adjustment on loans held for sale. The lower of cost or fair value on loans held for sale resulted in a recovery of $577,000 for the quarter ended March 31, 2009 compared to a charge of $412,000 for the quarter ended March 31, 2008.  In the quarter ended March 31, 2009 interest rates declined which resulted in an increase in the value of certain assets.  There also were approximately $7 million of payoffs of the residential held for sale portfolio that eliminated the valuation associated with such loans.  For the quarter ended March 31, 2008 the charge of $412,000 was the result of deteriorating conditions in the marketplace for held for sale assets.

Occupancy and equipment expense increased $211,000, or 26%, to $1.02 million for the quarter ended March 31, 2009, as compared to $810,000 for the quarter ended March 31, 2008. The increase in occupancy was associated with the continued expansion of our business in accordance with our plans and the opening of regional banking offices. The Company recognized $284,000 and $283,000 of amortization of deferred gain as a reduction of occupancy expense for the quarter ended March 31, 2009 and 2008, respectively. This amount represents a reduction in our occupancy expense for the period from the recognition of the deferred gain resulting from the sale-leaseback of the United Western Financial Center, which is being amortized into income over the ten-year term of the lease.

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The remainder of noninterest expense, which includes postage and communication expense, professional fees, mortgage servicing rights, subservicing fees, and other general and administrative expenses increased approximately $1.7 million to $5.2 million for the quarter ended March 31, 2009, as compared to $3.5 million for the quarter ended March 31, 2008. Professional fees increased $581,000 as a result of approximately $200,000 related to the Sterling asset sale, other routine legal matters that contributed approximately $85,000 to professional fees, and costs to complete the 2008 audit of approximately $300,000.  Other general and adminstrative expenses increased $1.2 million in between the first quarter of 2009 and 2008; the largest component of the increase was higher FDIC insurance premiums which increased to $688,000 for the first quarter of 2009 compared to $231,000 for the first quarter of 2008.  We also incurred costs associated with loan collection efforts which increased approximately $100,000 between the periods.  During the first quarter of 2009 we recorded a valuation allowance on a receivable balance of $246,000 at a non-core subsidiary.

As discussed above, deposit insurance expense totaled $688,000 for the three months ended March 31, 2009, an increase of $457,000 from the $231,000 of deposit insurance expense incurred in the first quarter of 2008. The increases were partly due to the FDIC finalizing a rule in December 2008 that raised the then current assessment rates uniformly by 7 basis points for the first quarter of 2009 assessment. The new rule resulted in annualized assessment rates for Risk Category 1 institutions ranging from 12 to 14 basis points. The increase in deposit insurance was also partly related to the additional 10 basis point assessment paid on covered transaction accounts exceeding $250,000 under the Temporary Liquidity Guaranty Program.

In February 2009, the FDIC issued final rules to amend the deposit insurance fund restoration plan, change the risk-based assessment system and set assessment rates for Risk Category 1 institutions to begin in the second quarter of 2009. Effective April 1, 2009, the methodology for establishing assessment rates for institutions such as the Bank will determine the initial base assessment rate using an equally-weighted combination of weighted-average CAMELS component ratings, and certain financial ratios.  The new initial base assessment rates for Risk will range from 7 to 78 basis points, on an annualized basis, depending upon various factors. Additionally, the FDIC issued an interim rule that may result in a 20 basis point emergency special assessment on June 30, 2009 with the potential for additional emergency special assessments of up to 10 basis points at the end of any calendar quarter thereafter. The Company cannot provide any assurance as to the ultimate amount or timing of any such emergency special assessments, should such special assessments occur, as such special assessments are dependent upon a variety of factors which are beyond the Company’s control.

Income Taxes. The income tax expense for the quarter ended March 31, 2009, was $1.446 million as compared to income tax expense of $1.445 million for the quarter ended March 31, 2008. Our effective tax rate was 30.6% for the 2009 quarterly period compared to 30.1% for the same 2008 period.  For the quarter ended March 31, 2009, New Markets Tax Credits favorably impacted the effective tax rate due to utilization of $327,000 of such credits, as compared to a $296,000 favorable impact for the first quarter of 2008.

Balance Sheet

Total assets increased $21 million, or 1%, to $2.28 billion at March 31, 2009 from $2.26 billion at December 31, 2008. Community bank loans held for investment decreased by $7 million to $1.03 billion at March 31, 2009, compared to $1.04 billion at December 31, 2008. The Company’s loan portfolio declined based on repayments of existing loan commitments and lack of quality loan demand.  Wholesale loans held for investment declined $15.4 million to $197.8 million at March 31, 2009 compared to $213.2 million at March 31, 2008 as repayments of residential loans and purchased SBA loans increased in the first quarter of 2009.  Loans held for sale increased approximately $1.2 million to $292.8 million at March 31, 2009 as compared to December 31, 2008 due to originations of SBA 504 and 7a loans.  Asset quality declined in the period principally due to two loans, with a aggregate principal balance of $13.0 million, which were placed on nonperforming classification and for which the Company established specific valuation allowances.  Investment securities declined by $20 million in the first quarter to $538 million at March 31, 2009, compared to $558 million at December 31, 2008. This decline was the result of repayments.

Total liabilities increased by $16 million to $2.17 billion at March 31, 2009 from $2.16 billion at December 31, 2008. The increase in liabilities was the result of an increase of $42 million in community banking deposits, and was partially offset by a $10 million decline in FHLBank borrowings, and a $17 million decline in institutional deposits.

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Investment Securities

See Note 3 to the consolidated financial statements in this report for detailed information related to the Company’s investment securities portfolio.

At March 31, 2009, the Company’s mortgage-backed investment security portfolio had an amortized cost of $520 million and consisted of four classes of securities: agency securities, prime collateralized mortgage obligations (CMO), Alt-A CMOs, and CMOs collateralized by payment option adjustable rate mortgages. The Company’s available for sale mortgage-backed investment security portfolio was comprised of instruments with an estimated fair value of $59 million and the held to maturity portfolio was comprised of securities with an amortized cost of $429 million, both as shown in the table below:

	Based on lowest rating assigned by credit rating agency at March 31, 2009
Available for sale	Total		Agency/AAA		AA			A	BBB		<BBB
	(Dollars in thousands)
Agency mortgage-pass through	$	14,230	$	14,230		-		-		-		-
CMO – Prime		22,449		14,473		-	$	3,535	$	3,811	$	630
CMO - Alt – A		3,928		-		-		-		-		3,928
CMO - Option Arm		18,327		-		-		-		-		18,327
	$	58,934	$	28,703		-	$	3,535	$	3,811	$	22,885

	Based on lowest rating assigned by credit rating agency at March 31, 2009
Held to maturity	Total		Agency/AAA		AA			A	BBB		<BBB
	(Dollars in thousands)
Agency mortgage-pass through	$	17,111	$	17,111		-		-		-		-
Mortgage pass through		3,734		-		-	$	3,734		-		-
CMO – Prime		345,855		175,673	$	21,284		30,324	$	8,239	$	110,335
CMO - Alt – A		61,861		1,517		-		-		5,372		54,972
	$	428,561	$	194,301	$	21,284	$	34,058	$	13,611	$	165,307

During the quarter ended March 31, 2009 the change in rating of the securities as compared to December 31, 2008 was principally based on the actions of Moody’s.  In late February, Moody’s downgraded several of the securities owned by the Bank.  While Standard & Poor’s and Fitch rate approximately 20% of certain securities as below investment grade, Moody’s rated approximately 75% of these same securities below investment grade. Based on the highest rating assigned, approximately 90% of the portfolio is investment grade.

Available for sale agency mortgage pass through is comprised of substantially all securities issued through FNMA and includes a mix of both variable rate and fixed rate securities that were acquired principally to collateralize public deposits and certain sweep accounts.

Available for sale CMO-Prime is comprised of securities with underlying hybrid adjustable rate mortgages, which interest rates initially reset in mid 2010. These securities have 9.9% credit support at March 31, 2009.  Of this population approximately 95% was AAA rated by at least one agency, and management believes this population has sufficient credit support for observed delinquency trends. On a weighted average basis, for tranches subordinated to those owned by the Company, cumulative losses to date were 0.63%.

Available for sale CMO – Alt – A is comprised of one fixed rate security with 6.3% credit support at March 31, 2009. This security is the most senior tranche in the issue, and there were no cumulative losses in the security to date.

Available for sale CMO – Option Arm is comprised of five variable rate securities with 5.8% credit support. Each of these securities has received at least one ratings downgrade and two securities have two ratings below investment grade. Delinquency levels among this asset class have been trending upwards. Our analyses of the modeled cash flows from each of these securities continues to indicate that it is probable all scheduled principal and interest payments due to the security we hold will be received.

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Held to maturity agency mortgage pass through is comprised of securities issued through FHLMC and FNMA and are all fixed rate securities acquired to assist the Bank in fulfilling its Community Reinvestment Act responsibilities.

Held to maturity mortgage pass through is comprised of four securities issued through the Colorado Housing and Finance Authority and are fixed rate securities acquired to assist the Bank in fulfilling its Community Reinvestment Act responsibilities.

Held to maturity CMO – Prime is comprised of securities with 7.0 % credit support at March 31, 2009 and moderate levels of delinquencies in total.  Overall delinquencies for this subcategory remain very modest and stable at this time.  Management expects these delinquency levels to remain stable based on their performance to date, and the expected effects of loan restructuring programs underway.  Credit support is expected to increase as senior tranches of these securities pay off. Two of the securities in this population were subject to an other-than-temporary impairment charge in the third quarter of 2008 due to the extent and duration of the decline in market value below amortized cost, given consideration to current illiquidity in the marketplace and uncertainty of a recovery of expected future cash flows.

Held to maturity CMO Alt-A is comprised of securities with 9.4% credit support at March 31, 2009 and moderate and stable levels of delinquencies. We expect delinquency statistics in all classes of these securities to level off, and transition rates from the class of delinquency to foreclosure to REO to be reduced by private industry loan restructuring programs, as well as the Homeowner Affordability and Stability Plan recently signed into federal law.  Cumulative losses to date on these securities average 0.52%.  Cumulative losses remain well below credit support coverage levels.

For all CMO categories, support tranches are expected to continue to increase as tranches superior to these pay off and cash flows are allocated in the CMO structure.  Management expects delinquency levels to level off and improve as private loan restructuring programs and the Homeowners Affordability and Stability Plan are implemented.  In addition other actions of the Federal Reserve have resulted in lower mortgage interest rates which may result in an increase in the constant repayment rate of mortgages, and will lower interest costs for homeowners with adjustable rate mortgages that do not prepay their loan or refinance.

The available for sale portfolio is comprised of the securities shown above and includes five securities with an estimated fair value of $18.3 million, and an amortized cost of $47.4 million that represent all of the CMOs collateralized by payment option adjustable rate mortgages. Of these securities, all have received a downgrade from one or more of the rating agencies to below investment grade based on the lowest rating assigned to the security at March 31, 2009. The securities that have been downgraded are the same securities that comprise the overwhelming majority of the decline in fair value of the available for sale securities. At March 31, 2009, the fair value of the available for sale securities was $20.4 million less than the cost, net of tax. This loss is an unrealized loss recognized in other comprehensive income. Based on management’s review of analyses performed by independent third parties and consideration of other information, we believe the decline in fair value represents a temporary impairment due to current economic conditions.

The held to maturity portfolio is comprised of the securities shown above and based on the lowest rating assigned 50% of this portfolio continues to be rated AA or higher and 61% investment grade or higher. Based on internal analyses and analyses performed by independent third parties, we believe the decline in fair value on the remaining securities is a temporary impairment due to inactive markets.

Loan Portfolio

Our major interest-earning asset is our loan portfolio. A significant part of our asset and liability management involves monitoring the composition of our loan portfolio. The following table sets forth the composition of our held for investment loan portfolio by loan type as of the dates indicated. The amounts in the table below are shown net of premiums, discounts and other deferred costs and fees.

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		March 31, 2009			December 31, 2008			March 31, 2008
		(Dollars in thousands)
Community bank loans:
	Commercial real estate	$	411,296		$	434,399		$	294,993
	Construction and development		410,515			401,009			293,923
	Commercial		118,377			134,435			116,701
	Multifamily		19,431			20,381			18,303
	Consumer and mortgage loans		73,396			49,440			8,630
	Premium, net		200			216			211
	Unearned fees		(3,491	)		(3,565	)		(2,734	)
Total community bank loans			1,029,724			1,036,315			730,027
Wholesale loans:
	Residential		117,809			125,630			143,088
	SBA purchased loans - guaranteed		73,112			80,110			98,884
	Premium on SBA purchased, guaranteed portions		6,542			7,084			8,814
	(Discount) premium, net		331			345			(20	)
Total wholesale loans			197,794			213,169			250,766
	Total loans	$	1,227,518		$	1,249,484		$	980,793

At March 31, 2009, total community bank loans held for investment declined $7 million to $1.03 billion as compared to $1.04 billion at December 31, 2008 (but increased $300 million when compared to the $730 million of such loans lend at March 31, 2008). Commercial real estate loans decreased to $411 million, which represents a decrease of $23 million since year-end 2008. Commercial loans decreased $16 million in 2009 to $118 million and are now 11% of our community bank portfolio. The commercial loan portfolio growth is diversified in several industries and includes cash flow loans, equipment, borrowing base and other commercial credits. The Company continued to expand its national footprint through its SBA division with both SBA 504 and 7a lending activities. In addition, management is making a continuing effort to diversify the portfolio into less risky components, including owner-occupied commercial real estate.

The following table presents the details of the construction and development (“C&D”) portfolio for the periods indicated:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
Construction type breakdown:
Construction - 1-4 family	$	98,953	$	89,434
Construction - commercial		125,142		100,402
Construction - multifamily		49,601		63,693
Construction - 1-4 (consumer)		24,993		24,085
Total construction		298,689		277,614
Land type breakdown:
Land development		88,547		100,823
Undeveloped land		22,193		21,480
Undeveloped land (consumer)		1,086		1,092
Total development		111,826		123,395
Total construction and development	$	410,515	$	401,009

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In the first three months of 2009, the C&D portfolio grew $9.5 million to $411 million and represented 27.0% of our entire loan portfolio and 36.7% of our entire community bank portfolio. At year end 2008, the C&D portfolio comprised 35.8% of the community bank portfolio. Within the construction portfolio the loan breakdown is approximately 41% single family, 42% commercial, and 17% multifamily. The majority of the land development loans are for land that is under development and is generally intended to either be sold to contractors or end users as lot loans for commencement of construction.  Prospectively, we anticipate a reduction in our overall C&D exposure as existing commitments are completed.

The Bank has no exposure to production builders and no warehouse lines to single-family mortgage lenders. The Bank’s construction portfolio is located throughout Colorado, including several resort markets, (e.g., Aspen, Steamboat Springs, and Breckenridge.) Our land and construction lending is to well-qualified borrowers, the vast majority of which include personal guarantees, and have loan to value averages of approximately 75%.

As of March 31, 2009, we have defined nine geographic regions for our C&D portfolio: eight in Colorado and one region for loans outside Colorado. Within Colorado, four of the defined geographic regions account for $324 million, or 79%, of the C&D portfolio, as shown in the table below.

	March 31, 2009					December 31, 2008
	Outstanding		Percent			Outstanding		Percent
Area	(Dollars in thousands)
Denver Metro	$	175,584		42.7	%	$	181,505		45.2	%
Northeastern Colorado - Fort Collins		53,974		13.2	%		52,062		13.0	%
Mountain communities - Aspen, Roaring Fork Valley		66,823		16.3	%		62,726		15.6	%
North Central Colorado - Steamboat Springs		27,264		6.6	%		25,159		6.3	%
Other Colorado areas		43,777		10.7	%		44,043		11.0	%
Outside Colorado		43,093		10.5	%		35,514		8.9	%
Total	$	410,515		100.0	%	$	401,009		100.0	%

The C&D loans located outside of Colorado include $8.0 million originated from our SBA division located in Texas. Also included in C&D loans outside of Colorado are two loans totaled $14.7 million located in Arizona, and one loan for $3.7 million located in California. There were no C&D loans located in Florida or Nevada.

SBA originated loans consist of the following and are included in the community bank loan totals above:

	March 31, 2009		December 31, 2008
	(Dollars in thousands)
Commercial real estate	$	116,321	$	109,969
Commercial		3,730		3,462
Construction and development		27,077		21,003
Total	$	147,128	$	134,434

The Bank’s SBA division is a participant in the national preferred lenders program (“PLP”) of the United States Small Business Administration. At March 31, 2009, SBA originated loans consist of $53.3 million of SBA 504 loans, $7.3 million of guaranteed portions of SBA 7a loans, $17.7 million of unguaranteed portions of SBA 7a loans, $27.1 million of construction loans and $41.7 million of conventional commercial real estate loans. These loans are included in the totals discussed above. Generally, SBA department construction loans will become a SBA 504 loan upon completion of construction.

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Asset Quality

As part of our asset quality function, we monitor nonperforming assets on a regular basis. Loans are placed on nonaccrual when full payment of principal or interest is in doubt or when they are 90 days past due as to either principal or interest. During the ordinary course of business, management may become aware of borrowers that may not be able to meet the contractual requirements of loan agreements. These loans are placed under close supervision, with consideration given to placing the loan on nonaccrual status, increasing the allowance for credit losses and (if appropriate) partial or full charge-off. Nonaccrual loans are further classified as impaired when the underlying collateral and other originally identified sources of repayment are considered insufficient to cover principal and interest and management concludes it is probable that we will not fully collect all principal and interest according to contractual terms. After a loan is placed on nonaccrual status, any interest previously accrued but not yet collected is reversed against current income. If interest payments are received on nonaccrual loans, these payments are applied to principal and not taken into income. We do not place loans back on accrual status unless back interest and principal payments are made. For certain government-sponsored loans, such as FHA-insured and VA-guaranteed loans, we continue to accrue interest when the loan is past due 90 or more days, if and to the extent that the interest on these loans is insured by the federal government. The aggregate unpaid principal balance of government-sponsored accruing loans that were past due 90 or more days was $6.4 million, $6.5 million and $5.9 million at March 31, 2009, December 31, 2008 and March 31, 2008, respectively. Substantially all of these loans were originated by our subsidiary Matrix Financial prior to February 2003. GNMA programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. These guaranteed accruing loans are not included in the table of nonperforming loans or in the discussion of delinquent loans below.

The following table sets forth our nonperforming held for investment loans and assets as of the dates indicated:

	March 31,		December 31,		March 31,
	2009		2008		2008
	(Dollars in thousands)
Residential	$	3,804	$	3,238	$	1,396
SBA purchased, guaranteed portions		791		791		767
Commercial real estate		5,547		1,311		1,035
Construction and development		12,207		2,900		2,900
Commercial		1,151		283		2
SBA originated, guaranteed portions		299		124		327
Total nonperforming loans		23,799		8,647		6,427
REO		3,752		4,417		3,808
Total	$	27,551	$	13,064	$	10,235

At March 31, 2009, total nonperforming loans were $23.8 million, compared to $8.6 million at December 31, 2008 and $6.4 million at March 31, 2008. Management analyzes and reviews nonperforming loans by loan type. Residential nonperforming loans represent wholesale assets acquired through purchase by prior management. The balance of nonperforming residential loans increased $566,000 at March 31, 2009, compared to December 31, 2008, and increased $2.4 million versus March 31, 2008. Overall, nonperforming residential loans totaled $3.8 million, $3.2 million, and $1.4 million, at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. This represents 3.23%, 2.58%, and 0.98% of the residential portfolio for those respective periods. The increase in nonperforming residential loans as a percentage of the residential portfolio is due to continued repayments of the remaining performing portion of the portfolio. The Company’s level of nonperforming residential loans is generally consistent with the national marketplace based on information published by the Mortgage Bankers Association. The Company’s wholesale residential portfolio is geographically dispersed. The average loan size of the wholesale residential loan portfolio is approximately $138,000 and consists of loans that on average are approximately 8.2 years seasoned, were rigorously underwritten at the time of acquisition, and bore average FICO scores over 700 with reasonable loan-to-value and debt-to-income ratios. We believe the risk of loss associated with this portfolio is considerably lower than losses associated with other types of lending, which is evidenced by our historical loss experience from the residential portfolio. We expect future levels of nonperforming loans in the residential portfolio to be generally consistent within the national and regional economic markets in which the loans are located.

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Nonperforming community bank loans totaled $19.2 million, $4.6 million, and $4.3 million at March 31, 2009,   December 31, 2008, and March 31, 2008, respectively. Nonperforming community bank loans increased in 2009 due primarily to two loans that have been placed on nonaccrual and for which a specific valuation allowance was established. In total, nonperforming held for investment community bank loans represent 1.86% of the community bank portfolio at March 31, 2009, compared to 0.45% and 0.58% at December 31, 2008 and March 31, 2008, respectively.

The following table sets forth our nonperforming held for sale assets as of the dates indicated:

		March 31,		December 31,		March 31,
		2009		2008		2008
	(Dollars in thousands)
Residential		$	7,870	$	6,493	$	5,567
Multifamily			6,759		6,759		-
Total		$	14,629	$	13,252	$	5,567

Allowance for Credit Losses

Management believes the allowance for credit losses is critical to the understanding of our financial condition and results of operations. Selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to occur and depending upon the severity of such differences, a materially different financial condition or results of operations is a reasonable possibility.

We maintain our allowance for credit losses at a level that management believes is adequate to absorb probable losses inherent in the existing loan portfolio based on an evaluation of the collectibility of loans, underlying collateral, geographic and other concentrations, and prior loss experience. We use a risk rating system to evaluate the adequacy of the allowance for credit losses. With this system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is risk rated between one and ten by the originating loan officer, credit administration, loan review or loan committee, with one being the best case and ten being a loss or the worst case. Estimated loan default factors are multiplied against loan balances and then multiplied by a historical loss given default rate by loan type to determine an appropriate level for the allowance for credit losses. A specific reserve may be needed on a loan-by-loan basis. Loans with risk ratings between six and nine are monitored more closely by the loan officer, credit administration, and the asset quality committee, and may result in specific reserves. The allowance for credit losses also includes an element for estimated probable but undetected losses and for imprecision in the loan loss models discussed above.

The following table sets forth information regarding changes in our allowance for credit losses for the periods indicated. The table includes the allowance for both wholesale and community bank loans:

	Quarter Ended March 31,
	2009			2008
	(Dollars in thousands)
Balance, beginning of period	$	16,183		$	8,000
Charge-offs:
Residential		–			(146	)
Commercial real estate		(54	)		(50	)
Construction		(235	)		–
Consumer and other		–			(2	)
Total charge-offs		(289	)		(198	)
Recoveries:
Commercial real estate		9			–
Total recoveries		9			–
Net charge-offs		(280	)		(198	)
Provision for credit losses		4,181			1,891
Balance, end of period	$	20,084		$	9,693

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Net charge offs in the held for investment community bank portfolio of $280,000 represent an 11 basis points annualized level compared to the first quarter of 2008 when community bank portfolio net charge offs were $52,000 or one basis point.  Net residential loan charge-offs were $0 and $146,000, for the quarters ended March 31, 2009 and 2008, respectively. On an annualized basis, this represents losses of 0 basis points and 14 basis points for those same periods, respectively.

The table below provides a breakout of the allowance for credit losses by loan type:

	March 31,		December 31,		March 31,
	2009		2008		2008
	(Dollars in thousands)
Residential	$	893	$	909	$	641
Guaranteed SBA purchased premium		39		42		53
Commercial real estate		6,054		4,821		2,964
Construction and development		9,476		7,820		3,434
Commercial and industrial		1,930		1,394		1,305
Multifamily		186		195		448
Consumer		706		202		48
Unallocated		800		800		800
Total allowance	$	20,084	$	16,183	$	9,693

The following table presents a summary of significant asset quality ratios for the period indicated:

	March 31,			December 31,			March 31,
	2009			2008			2008
Total nonperforming residential loans to total residential loans		3.23	%		2.58	%		0.98	%
Total nonperforming community bank loans to total community bank loans		2.32	%		1.02	%		0.52	%
Total residential allowance to nonperforming residential loans		23.48	%		28.07	%		45.89	%
Total community bank allowance to nonperforming community bank loans		99.73	%		329.84	%		211.08	%
Total residential allowance to residential loans		0.76	%		0.72	%		0.45	%
Total community bank allowance to community bank loans		1.86	%		1.47	%		1.23	%
Total allowance for credit losses to total loans		1.64	%		1.30	%		0.99	%
Total allowance for credit losses to total nonperforming loans		84.39	%		187.15	%		150.83	%
Total nonaccrual loans and REO to total assets		1.85	%		1.17	%		0.74	%

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The percentage of the allowance for credit losses to nonperforming loans varies due to the nature of our portfolio of loans. We analyze the allowance for credit losses related to the nonperforming loans by loan type, historical loss experience and loans measured for impairment. In conjunction with other factors, this loss exposure contributes to the overall assessment of the adequacy of the allowance for credit losses.

The allowance for credit losses allocated to community bank loans to total nonperforming community bank loans was 100%, 330%, and 211%, at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. The allowance for credit losses to nonperforming community bank loans is both asset dependent, and is based on anticipated losses inherent in such loans.  The allowance for credit losses allocated to residential loans to nonperforming residential loans was 23%, 28%, and 46%, at March 31, 2009, December 31, 2008, and March 31, 2008, respectively.

The total allowance for credit losses to total loans increased to 1.64% at March 31, 2009, compared to 1.30% at December 31, 2008 and .99% at March 31, 2008. The overall increase in the allowance is related to the overall increase nonperforming loans, the growth in the community bank portfolio, certain loan grading changes and allowance related to impairments. The total allowance for residential loans was .76% at March 31, 2009, compared to .72% at December 31, 2008 and .45% at March 31, 2008.

The increase in the allowance for credit losses is related primarily to the balance sheet transformation and is reflective of the higher allowance attributable to community bank loans in general as compared to residential loans. The allowance for community bank loans was 1.86% at March 31, 2009, 1.47% at December 31, 2008, and 1.23% at March 31, 2008. The level of the allowance at March 31, 2009 relative to December 31, 2008 is reflective of two impaired loans with an associated allowance of $2.0 million. The increase in the percentage of the community bank allowance at March 31, 2009, compared to March 31, 2008 was generally due to the impairments, and a few larger loans that were reduced in loan grade by our credit administration team to reflect current conditions of those loans.

Liquidity

The Bank is focused on generating traditional deposits from its expansion of community banking services through the opening of branch locations along the Colorado Front Range and selected mountain communities. These deposits are anticipated to fund a significant portion of our liquidity needs for our community banking strategy.

The following table sets forth the balances for each major category of the Company’s deposit accounts and the weighted-average interest rates paid for interest-bearing deposits for the periods indicated:

	March 31, 2009					December 31, 2008					March 31, 2008
			Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Savings accounts	$	332		0.25	%	$	299		0.25	%	$	269		0.81	%
NOW and DDA accounts		606,782		0.17			624,064		0.17			681,151		0.30
Money market accounts		953,743		0.69			958,837		0.79			712,663		1.14
Subtotals		1,560,857		0.49			1,583,200		0.55			1,394,083		0.73
Certificate accounts		174,785		3.30			141,472		3.53			33,788		3.99
Total deposits	$	1,735,642		0.77	%	$	1,724,672		0.79	%	$	1,427,871		0.80	%

Total deposits increased $11 million between March 31, 2009 and December 31, 2008, which consists of a decline in institutional deposits and an increase in community banking deposits.  Our community banking deposits increased approximately $42.1 million in the first quarter of 2009. This growth includes $28.8 million in certificate accounts offered through the Certificate of Deposit Account Registry Service® ("CDARS") program.  The CDARS program provides full FDIC insurance on deposit balances greater than posted FDIC limits by exchanging larger depository relationships with other CDARS members.  Depositor’s funds are broken into amounts below FDIC insurance limits and placed with other banks that are member of the CDARS network.

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The following table sets forth the balances for categories of deposits and custodial escrow balances of the Company by source for the periods indicated:

	March 31, 2009		December 31, 2008		March 31, 2008
	(Dollars in thousands)
Community bank deposits	$	234,074	$	191,966	$	104,263
Brokered deposits		39,408		35,000		12,974
Sterling Trust Company		327,754		350,655		392,649
Matrix Financial Services Corp.		18,848		14,083		25,682
Matrix Financial Solutions, Inc.		231,015		203,329		249,948
Legent Clearing, LLC		115,886		120,178		185,371
Deposit concentrations		788,492		812,120		478,706
Other wholesale deposits		24,255		27,038		29,759
Deposits and custodial escrow balances	$	1,779,732	$	1,754,369	$	1,479,352

Community bank deposits represent deposits attracted by our regional banking teams as discussed above.  Sterling and Matrix Financial are our wholly owned subsidiaries. The decline in balance at Sterling is related to an account for one life settlement agent for special asset acquisitions and administration with a balance of $488 thousand and $30 million at March 31, 2009 and December 31, 2008, respectively. Management elected to restructure this relationship and terminate certain elements of business with respect to this large life settlement agent account. The restructured relationship will now allow the Company to pursue business in the same industry on a non-exclusive basis. During the three months of 2009, approximately $30 million of these deposits were withdrawn. Through Sterling’s successful marketing efforts, growth in new accounts and the increase in uninvested cash in existing accounts offset $7 million of the withdrawn deposits. The increase at Matrix Financial at March 31, 2009, compared with year end 2008 is a seasonal fluctuation because many jurisdictions require tax payments in the fourth quarter of the year, which reduces escrow balances near year end. Prospectively, we expect this balance to decline consistent with the declining mortgage servicing business and our decision to reduce that activity. Matrix Financial Solutions, Inc. (“MFSI”) are deposits that represent customer assets under administration by MFSI. The Company sold its approximate 7% interest in MFSI during the first quarter of 2009. The balance of these deposits increased approximately $28 million since December 31, 2008 due to timing of cash flows. Legent Clearing, LLC are deposits that represent institutional deposits received through Legent Clearing, LLC. The Company’s chairman owns an indirect financial interest in Legent Clearing.  Deposit concentrations are deposits that represent deposit funds from three, three and five institutional relationships maintained by the Bank as of March 31, 2009, December 31, 2008, and March 31, 2008, respectively. Included in deposit concentrations is one institutional relationship with balances of $501.2 million, $504.1 million and $453.5 million at March 31, 2009, December 31, 2008, and March 31, 2008, respectively. See further discussion of deposit concentrations in our Form 10-K for December 31, 2008, Item 1A. “Risk Factors – Risk Related to Our Business” and Note 8 – “Deposits” to our consolidated financial statements included in this report.

Bank Liquidity. Liquidity management is monitored by an Asset Liability Management Committee (“ALCO”), consisting of members of management and the board of directors of the Bank, which reviews historical funding requirements, current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.

Our primary sources of funds are retail, commercial and institutional deposits, advances from the FHLBank and other borrowings and funds generated from operations. Funds from operations include principal and interest payments received on loans and securities. While maturities and scheduled amortization of loans and securities provide an indication of the timing of the receipt of funds, changes in interest rates, economic conditions and competition strongly influence mortgage prepayment rates and deposit flows, reducing the predictability of the timing on sources of funds.

The Bank has an internal policy that requires certain liquidity ratios to be met. That current policy requires that we maintain a set amount of liquidity on the Bank’s balance sheet at all times and that we have off balance sheet liquidity readily available to the Bank to meet the day-to-day liquidity requirements of the Bank and its customers. The Bank is a member of the FHLBank of Topeka and has the ability to borrow up to 40% of the assets of the Bank.

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At March 31, 2009, the Bank had unused borrowing capacity at FHLBank of approximately $246 million.  The Bank maintains a contingent liquidity facility with the Federal Reserve Bank, and at March 31, 2009, there was no amount outstanding and $21.0 million of unused borrowing capacity.

At March 31, 2009, the Bank had outstanding letters of credit, loan origination commitments and unused commercial and retail lines of credit of approximately $240 million. Management anticipates that we will have sufficient funds available to meet current origination and other lending commitments.

Company Liquidity.Our main sources of liquidity at the holding company level are cash, notes receivable, dividends and tax payments from our subsidiaries, as well as a revolving line of credit maintained with a large money center correspondent bank in the total amount of $30 million. As of March 31, 2009, we had $28 million drawn under this facility. Management is in the process of renewing this facility, which is scheduled to mature June 29, 2009.

The Company is reliant on dividend and tax payments from its subsidiaries in order to fund operations, meet debt and tax obligations and grow new or developing lines of business. A long-term inability of a subsidiary to make dividend payments could significantly impact the Company’s liquidity. Historically, the Bank has made the majority of the dividend payments received by the Company. As a result of the liquidity generated through various divestitures and other activities at the Company, the Bank did not pay a dividend to the Company in the years 2004 through 2006. The Bank made dividend payments to the Company effective with the Bank’s earnings of the first quarter of 2007, which have totaled $14.2 million. Prospectively, based on capital ratios and other factors, management expects the Bank will pay dividends at the rate of approximately 33% to 40% of the Bank’s net income. If dividends and tax payments from subsidiaries are not sufficient to fund the cash requirements of the Company, the Company will utilize the credit facility discussed above, as needed, and excess cash resources of other non-core subsidiaries.  In addition, the Company expects the sale of the Sterling assets to close in the second quarter of 2009, which will supply additional liquidity to the Company.

The Company commenced a quarterly cash dividend program in 2007 and paid quarterly cash dividends in the amount of $.06 per share since commencing such program.  On May 7, 2009, a cash dividend was declared for shareholders of record on June 5, 2009, payable on June 15, 2009. The ability of the Company to declare and pay a dividend prospectively will depend on a number of factors, including future earnings, dividends received from the Bank, capital requirements, financial condition and future prospects and such other factors that our Board of Directors may deem relevant. See further discussion of liquidity risk in our Form 10-K for December 31, 2008, Item 1A. “Risk Factors – Risk Related to Our Business” and Part II, “Other Information” Item 1A, “Risk Factors” included in this report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The disclosures set forth in this item are qualified by the section captioned “Forward-Looking Statements” included in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report and other cautionary statements set forth elsewhere in this report.

See the discussion of market risks included in Item 7A. Quantitative and Qualitative Disclosures About Market Risks in the 2008 Form 10-K. There has been no significant change in the types of market risks faced by the Company since December 31, 2008.

At March 31, 2009, management believes the Company’s interest rate risk position is neutral with a modest asset sensitivity. This means the results of the Company’s net interest income and net income would be expected to improve modestly if interest rates increased from current levels. Management also believes that continued interest rate declines from the Federal Open Market Committee would have a negative impact on the results of operations. The continued execution of our business plan is expected to mitigate the impact of the current interest rate environment if rates remain stable or decline further.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”)) was carried out as of March 31, 2009 under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and several other members of our senior management. Our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that, as of March 31, 2009, the Company’s disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Act is (i) accumulated and communicated to our management (including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting for the quarter ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, such controls.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Part II - Other Information

Item 1. Legal Proceedings

Legal proceedings of the Company are more fully described in Note 16 to the audited financial statements in the Company’s Form 10-K for the year ended December 31, 2008. During the three months ended March 31, 2009, there were no material changes to the information previously reported, except as disclosed in Note 16 Commitments and Contingencies – Contingencies – Legal to the consolidated financial statements included in Part I of this Form 10-Q and which are incorporated herein by reference.

Item 1A. Risk Factors

During the three months of 2009, there were no material changes to the quantitative and qualitative disclosures of our Risk Factors previously reported in the Annual Report contained in the Company’s Form 10-K for the year ended December 31, 2008, except as follows:

Sale of Sterling Assets.  On April 8, 2009, the Company announced that its wholly owned subsidiary, Sterling, has agreed to sell certain of its assets to Equity Trust Company and a newly formed administrative services company affiliated with Equity Trust Company (together, the “Buyer”) for $61.2 million – subject to certain adjustments as provided for in the definitive purchase agreement.  The Buyer will maintain the deposits that are currently on deposit at the Bank.  The sale of the Sterling assets will increase the Company’s reliance of institutional deposits placed on deposit at the Bank by third parties.  Additionally, the cost of the deposits will increase to a market rate, including amounts paid in the form of subaccounting fees.  Previously the amounts paid to Sterling by United Western Bank for these deposits were eliminated in the consolidated financial statements of the Company.  Accordingly, subaccounting fees will increase substantially as a result of this sale.  Assuming an interest rate environment unchanged from March 31, 2009, and $300 million of deposits, subaccounting fees will increase $7.8 million over the next twelve month period.  This increase in subaccounting fees will have a negative impact on the Company’s results from operations.

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See Item 1A. “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2008 for a detailed discussion of additional Company “Risk Factors.”

Item 1B. Unresolved Staff Comments

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

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Item 6. Exhibits

(a) Exhibits

10.1	Asset Purchase Agreement, dated April 7, 2009, by and among the Company, Sterling Trust Company, Equity Trust Company, and Sterling Administrative Services, LLC, filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on April 7, 2009.
31.1	Certification by Scot T. Wetzel pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by William D. Snider pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification by Benjamin C. Hirsh pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by Scot T. Wetzel pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by William D. Snider pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3	Certification by Benjamin C. Hirsh pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED WESTERN BANCORP, INC.

Dated:	May 11, 2009	/s/ Scot T. Wetzel
		Scot T. Wetzel
		President and
		Chief Executive Officer
		(Principal Executive Officer)

Dated:	May 11, 2009	/s/ William D. Snider
		William D. Snider
		Chief Financial Officer
		(Principal Financial Officer)

Dated:	May 11, 2009	/s/ Benjamin C. Hirsh
		Benjamin C. Hirsh
		Chief Accounting Officer
		(Principal Accounting Officer)

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 INDEX TO EXHIBITS

Exhibit Number	Description
10.1	Asset Purchase Agreement, dated April 7, 2009, by and among the Company, Sterling Trust Company, Equity Trust Company, and Sterling Administrative Services, LLC, filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on April 7, 2009.
31.1*	Certification by Scot T. Wetzel pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by William D. Snider pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*	Certification by Benjamin C. Hirsh pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification by Scot T. Wetzel pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification by William D. Snider pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3*	Certification by Benjamin C. Hirsh pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith.

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