UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q








(Mark
One)


R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR
15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
Quarterly Period Ended March 31, 2008





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 1-33199





IMPERIAL
      CAPITAL BANCORP, INC.(Exact Name
      of Registrant as Specified in its Charter)





Delaware
            
            95-4596322(State or
      Other Jurisdiction of Incorporation or
Organization)
            
            (IRS
      Employer Identification No.)888
      Prospect St., Suite 110, La Jolla, California
            
            92037(Address of
      Principal Executive Offices)
            
            (Zip
      Code)





(858)
      551-0511(Registrant’s
      Telephone Number, Including Area
Code)





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 R   No
      £.Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See definitions of “larger accelerated filer,” “accelerated filer” and
      “small reporting company” in Rule 12b-2 of the Exchange Act.
              Large
      Accelerated Filer £   Accelerated
      Filer RNon-Accelerated
      Filer £ (Do not
      check if a smaller reporting company)   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
      R.Number
      of shares of common stock of the registrant: 5,428,760 outstanding as of
      May 2, 2008.







IMPERIAL CAPITAL BANCORP, INC.


FORM
10-Q


FOR
THE THREE MONTHS ENDED MARCH 31, 2008





TABLE
OF CONTENTS





PART I – FINANCIAL INFORMATIONItem 1.
            Financial StatementsConsolidated Balance Sheets – March 31, 2008 (Unaudited)
      and December 31, 2007
            3Consolidated Statements of Income – Three Months Ended
      March 31, 2008 and 2007 (Unaudited)
            4Consolidated Statements of Cash Flows – Three Months
      Ended March 31, 2008 and 2007 (Unaudited)
            5Notes to the Unaudited Consolidated Financial
      Statements
            6Item 2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            13Item 3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            23Item 4.
            Controls and Procedures
            24PART II – OTHER INFORMATIONItem 1.
            Legal Proceedings
            25Item 1A.
            Risk Factors
            25Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            25Item 3.
            Defaults Upon Senior Securities
            25Item 4.
            Submission of Matters to a Vote of Security
      Holders
            25Item 5.
            Other Information
            25Item 6.
            Exhibits
            25Signatures
            26











Forward
Looking Statements




“Safe
Harbor” statement under the Private Securities Litigation Reform Act of 1995:
This Form 10-Q contains forward-looking statements that are subject to risks and
uncertainties, including, but not limited to, changes in economic conditions in
our market areas, changes in policies by regulatory agencies, the impact of our
competitors’ loan and other products, loan demand risks, the quality or
composition of our loan or investment portfolios, increased costs from pursuing
the national expansion of our lending platform and operational challenges
inherent in implementing this expansion strategy, fluctuations in interest
rates, and changes in the relative differences between short- and long-term
interest rates, conditions in the commercial and residential real estate
markets, levels of non-performing assets and other loans of concern, and
operating results, the economic impact of any terrorist actions and other risks
detailed from time to time in our filings with the Securities and Exchange
Commission. We caution readers not to place undue reliance on any
forward-looking statements. We do not undertake and specifically disclaim any
obligation to revise any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements. These risks could cause our actual results for 2008 and beyond to
differ materially from those expressed in any forward-looking statements by, or
on behalf of, us, and could negatively affect the Company’s operating and stock
price performance.





As used
throughout this report, the terms “we”, “our”, “us”, or the “Company” refer to
Imperial Capital Bancorp, Inc. and its consolidated
subsidiaries.


-2-
 Table of Contents





PART I – FINANCIAL INFORMATION







IMPERIAL CAPITAL BANCORP, INC. AND
      SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSMarch
      31,2008
            
            
            December
      31,(unaudited)
            
            
            2007(in
      thousands, except share data)AssetsCash
      and cash equivalents
            
            $
            7,678
            
            
            $
            8,944Investment
      securities available-for-sale, at fair value
            
            
            118,348
            
            
            
            117,924Investment
      securities held-to-maturity, at amortized cost
            
            
            208,527
            
            
            
            159,023Stock
      in Federal Home Loan Bank
            
            
            54,208
            
            
            
            53,497Loans,
      net (net of allowance for loan losses of $48,271 and $47,783as
      of March 31, 2008 and December 31, 2007, respectively)
            
            
            3,069,400
            
            
            
            3,125,072Interest
      receivable
            
            
            20,715
            
            
            
            20,841Other
      real estate and other assets owned, net
            
            
            18,438
            
            
            
            19,396Premises
      and equipment, net
            
            
            8,648
            
            
            
            8,550Deferred
      income taxes
            
            
            12,125
            
            
            
            12,148Goodwill
            
            
            3,118
            
            
            
            3,118Other
      assets
            
            
            22,522
            
            
            
            22,706Total
      assets
            
            $
            3,543,727
            
            
            $
            3,551,219Liabilities
      and Shareholders’ EquityLiabilities:Deposit
      accounts
            
            $
            2,066,546
            
            
            $
            2,181,858Federal
      Home Loan Bank advances and other borrowings
            
            
            1,135,783
            
            
            
            1,021,235Accounts
      payable and other liabilities
            
            
            28,288
            
            
            
            33,959Junior
      subordinated debentures
            
            
            86,600
            
            
            
            86,600Total
      liabilities
            
            
            3,317,217
            
            
            
            3,323,652Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock, 5,000,000 shares authorized, none issued
            
            
            —
            
            
            
            —Contributed
      capital - common stock, $.01 par value; 20,000,000 shares authorized,
      9,145,256 and 9,142,256 issued as of March 31, 2008 and December 31, 2007,
      respectively
            
            
            85,188
            
            
            
            85,009Retained
      earnings
            
            
            255,776
            
            
            
            255,947Accumulated
      other comprehensive income, net
            
            
            316
            
            
            
            267341,280
            
            
            
            341,223Less
      treasury stock, at cost 4,041,824 and 3,995,634 shares as ofMarch
      31, 2008 and December 31, 2007, respectively
            
            
            (114,770
            )
            
            
            (113,656
            )Total
      shareholders' equity
            
            
            226,510
            
            
            
            227,567Total
      liabilities and shareholders' equity
            
            $
            3,543,727
            
            
            $
            3,551,219




See
accompanying notes to the unaudited consolidated financial
statements.


-3-
 Table of Contents




IMPERIAL CAPITAL BANCORP, INC. AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF INCOME(Unaudited)





For
      the Three Months Ended March 31,2008
            
            
            2007(in
      thousands, except per share data)Interest
      income:Loans,
      including fees
            
            $
            54,835
            
            
            $
            58,763Cash
      and investment securities
            
            
            4,249
            
            
            
            4,569Total
      interest income
            
            
            59,084
            
            
            
            63,332Interest
      expense:Deposit
      accounts
            
            
            25,083
            
            
            
            26,588Federal
      Home Loan Bank advances and other borrowings
            
            
            11,918
            
            
            
            10,677Junior
      subordinated debentures
            
            
            2,005
            
            
            
            2,078Total
      interest expense
            
            
            39,006
            
            
            
            39,343Net
      interest income before provision for loan losses
            
            
            20,078
            
            
            
            23,989Provision
      for loan losses
            
            
            4,250
            
            
            
            750Net
      interest income after provision for loan losses
            
            
            15,828
            
            
            
            23,239Non-interest
      income:Late
      and collection fees
            
            
            219
            
            
            
            303Other
            
            
            49
            
            
            
            413Total
      non-interest income
            
            
            268
            
            
            
            716Non-interest
      expense:Compensation
      and benefits
            
            
            6,864
            
            
            
            6,182Occupancy
      and equipment
            
            
            1,942
            
            
            
            1,943Other
            
            
            4,684
            
            
            
            4,296Total
      general and administrative
            
            
            13,490
            
            
            
            12,421Real
      estate and other assets owned expense, net
            
            
            1,455
            
            
            
            163Total
      non-interest expense
            
            
            14,945
            
            
            
            12,584Income
      before provision for income taxes
            
            
            1,151
            
            
            
            11,371Provision
      for income taxes
            
            
            454
            
            
            
            4,634NET
      INCOME
            
            $
            697
            
            
            $
            6,737Basic
      earnings per share
            
            $
            0.13
            
            
            $
            1.22Diluted
      earnings per share
            
            $
            0.13
            
            
            $
            1.19Dividends
      declared per share of common stock
            
            $
            0.16
            
            
            $
            0.16





See
accompanying notes to the unaudited consolidated financial
statements.


-4-
 Table of Contents




IMPERIAL CAPITAL BANCORP, INC. AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)For
      the Three Months EndedMarch
      31,2008
            
            
            2007(in
      thousands)Cash
      Flows From Operating Activities:Net
      Income
            
            $
            697
            
            
            $
            6,737Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization of premises and equipment
            
            
            719
            
            
            
            742Amortization
      of premium on purchased loans
            
            
            1,095
            
            
            
            1,311Accretion
      of deferred loan origination fees, net of costs
            
            
            (800
            )
            
            
            (1,214
            )Provision
      for loan losses
            
            
            4,250
            
            
            
            750Provision
      for losses on other real estate owned
            
            
            627
            
            
            
            —Other,
      net
            
            
            (536
            )
            
            
            (801
            )Decrease
      (increase) in interest receivable
            
            
            126
            
            
            
            (229
            )Decrease
      (increase) in other assets
            
            
            184
            
            
            
            (1,620
            )Decrease
      in accounts payable and other liabilities
            
            
            (5,671
            )
            
            
            (739
            )Net cash provided by operating
      activities
            
            
            691
            
            
            
            4,937Cash
      Flows From Investing Activities:Purchases
      of investment securities available-for-sale
            
            
            (10,143
            )
            
            
            (32,371
            )Proceeds
      from maturity and calls of investment securities
      available-for-sale
            
            
            10,125
            
            
            
            12,702Purchases
      of investment securities held-to-maturity
            
            
            (57,576
            )
            
            
            —Proceeds
      from the maturity and redemption of investment securities
      held-to-maturity
            
            
            8,046
            
            
            
            8,625Purchase
      of loans
            
            
            —
            
            
            
            (17,664
            )Other
      decreases (increases) in loans, net
            
            
            46,658
            
            
            
            (16,644
            )Proceeds
      from sale of other real estate owned
            
            
            4,400
            
            
            
            —Cash
      paid for capital expenditures
            
            
            (817
            )
            
            
            (1,337
            )Net cash provided by (used in)
      investing activities
            
            
            693
            
            
            
            (46,689
            )Cash
      Flows From Financing Activities:Proceeds
      and excess tax benefits from exercise of employee stock
      options
            
            
            56
            
            
            
            169Cash
      paid to acquire treasury stock
            
            
            (1,114
            )
            
            
            (929
            )Cash
      paid for dividends
            
            
            (828
            )
            
            
            (790
            )(Decrease)
      increase in deposit accounts
            
            
            (115,312
            )
            
            
            49,655Net
      proceeds (repayments) from short-term borrowings
            
            
            153,000
            
            
            
            (70,498
            )Proceeds
      from long-term borrowings
            
            
            40,500
            
            
            
            100,000Repayments
      of long-term borrowings
            
            
            (78,952
            )
            
            
            (37,999
            )Net cash (used in) provided by
      financing activities
            
            
            (2,650
            )
            
            
            39,608Net decrease in cash and cash
      equivalents
            
            
            (1,266
            )
            
            
            (2,144
            )Cash and cash equivalents at
      beginning of period
            
            
            8,944
            
            
            
            30,448Cash and cash equivalents at
      end of period
            
            $
            7,678
            
            
            $
            28,304Supplemental
      Cash Flow Information:Cash
      paid during the period for interest
            
            $
            38,716
            
            
            $
            39,878Cash
      paid during the period for income taxes
            
            $
            73
            
            
            $
            837Non-Cash
      Investing and Financing Transactions:Loans
      transferred to other real estate owned
            
            $
            4,469
            
            
            $
            —Cash
      dividends declared but not yet paid
            
            $
            868
            
            
            $
            849





See
accompanying notes to the unaudited consolidated financial
statements.


-5-
 Table of Contents




IMPERIAL
CAPITAL BANCORP, INC. AND SUBSIDIARIES






NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS







NOTE
1 – BASIS OF PRESENTATION




The
unaudited consolidated financial statements of Imperial Capital Bancorp, Inc.
and subsidiaries (the “Company”) included herein reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present fairly
the results of operations and financial position of the Company, as of the dates
and for the interim periods indicated.  The unaudited consolidated
financial statements include the accounts of Imperial Capital Bancorp, Inc. and
its wholly-owned subsidiaries, Imperial Capital Bank (the “Bank”) and Imperial
Capital Real Estate Investment Trust (“Imperial Capital REIT”).





All
intercompany transactions and balances have been eliminated.  Certain
information and disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to the rules and regulations of the U.S.
Securities and Exchange Commission.  Certain amounts in prior periods
have been reclassified to conform to the presentation in the current
periods.  The results of operations for the three months ended March
31, 2008 are not necessarily indicative of the results of operations for the
remainder of the year.





These
unaudited consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in our annual
report on Form 10-K for the year ended December 31, 2007.







NOTE
2 – ACCOUNTING FOR STOCK-BASED COMPENSATION




Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123 (revised 2004), “Share-Based Payment”, which requires the
recognition of the expense related to the fair value of stock-based compensation
awards within the consolidated statement of income.  The Company
elected the modified prospective transition method as permitted by SFAS No.
123(R), and accordingly, results from prior periods were not
restated.  Under this transition method, stock-based compensation
expense for the three months ended March 31, 2008 and 2007 includes compensation
expense for stock-based compensation awards for which the requisite service was
performed during the period.  Compensation expense for unvested
stock-based compensation awards granted prior to January 1, 2006 are based on
the grant date fair value estimated in accordance with the original provisions
of SFAS No. 123, “Accounting for Stock-Based
Compensation”.  Compensation expense for all stock-based compensation
awards granted subsequent to January 1, 2006 are based on the grant date fair
value estimated in accordance with the provisions of SFAS No.
123(R).





Total
stock-based compensation expense included in our consolidated statements of
income for the three months ended March 31, 2008 and 2007 was approximately
$83,000 ($73,000, net of tax or $0.01 per diluted share) and $19,000 ($12,000,
net of tax or $0.00 per diluted share), respectively.  Unrecognized
stock-based compensation expense related to stock options was approximately
$710,000 and $402,000, respectively, at March 31, 2008 and 2007.  The
weighted-average period over which the unrecognized expense was expected to be
recognized was 2.2 years and 2.8 years at March 31, 2008 and 2007,
respectively.





-6-
 Table of Contents




The fair
value of each option grant is estimated on the date of grant using a
Black-Scholes option pricing model.  No options were granted during
the three months ended March 31, 2008.  The weighted-average
assumptions for option grants during the three months ended March 31, 2007
were:





Weighted-Average
      Assumptions for
      Option Grants2007Dividend
      Yield
            
            1.18%Expected
      Volatility
            
            23.83%Risk-Free
      Interest Rates
            
            4.72%Expected
      Lives
            
            Five
      YearsWeighted-Average
      Fair Value
            
            $14.49







NOTE
3 – EARNINGS PER SHARE




Basic
Earnings Per Share (“Basic EPS”) is computed by dividing net income by the
weighted-average number of common shares outstanding for the
period.  Diluted Earnings Per Share (“Diluted EPS”) reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock which shared in the Company’s
earnings.  Stock options outstanding as of March 31, 2008 and 2007
were 565,650 and 566,984, respectively.  Of these options outstanding
as of March 31, 2008 and 2007, 494,450 and 32,000, respectively, were excluded
from the diluted EPS computation as their effect was anti-dilutive.




The
following is a reconciliation of the calculation of Basic EPS and Diluted
EPS:




Net
      Income
            
            
            Weighted-
              Average
      Shares
              Outstanding
            
            
            Per
              Share
              Amount(in
      thousands, except per share data)For
      the Three Months Ended March 31,2008Basic
      EPS
            
            $
            697
            
            
            
            5,426
            
            
            $
            0.13Effect
      of dilutive stock options
            
            
            —
            
            
            
            22
            
            
            
            —Diluted
      EPS
            
            $
            697
            
            
            
            5,448
            
            
            $
            0.132007Basic
      EPS
            
            $
            6,737
            
            
            
            5,528
            
            
            $
            1.22Effect
      of dilutive stock options
            
            
            —
            
            
            
            154
            
            
            
            (0.03
            )Diluted
      EPS
            
            $
            6,737
            
            
            
            5,682
            
            
            $
            1.19




-7-
 Table of Contents


NOTE
4 – COMPREHENSIVE INCOME




Comprehensive
income, which encompasses net income and the net change in unrealized gains
(losses) on investment securities available-for-sale, is presented
below:





Three
      Months Ended March
      31,2008
            
            
            2007(in
      thousands)Net
      Income
            
            $
            697
            
            
            $
            6,737Other
      comprehensive income:Change
      in net unrealized gains on investment securities available-for-sale, net
      of tax expense of $33 and $242 for the three months ended March 31, 2008
      and 2007, respectively.
            
            
            49
            
            
            
            366Comprehensive
      Income
            
            $
            746
            
            
            $
            7,103







NOTE
5 – IMPAIRED LOANS RECEIVABLE




As of
March 31, 2008 and December 31, 2007, the recorded investment in impaired loans
was $100.4 million and $47.0 million, respectively.  The average
recorded investment in impaired loans was $64.3 million and $37.9 million,
respectively, for the three months ended March 31, 2008 and 2007. Interest
income recognized on impaired loans totaled $192,000 and
$193,000 respectively, for the three months ended March 31, 2008 and
2007.







NOTE
6 – FAIR VALUE




The
Company adopted the provisions of SFAS No. 157 as of January 1, 2008, for
financial instruments.  Although the adoption of SFAS No. 157 did not
materially impact its financial condition or results of operations, the Company
is now required to provide additional disclosures as part of its financial
statements.  In accordance with FASB Staff Position No. 157-2,
"Effective Date of FASB Statement No. 157," the Company will delay application
of SFAS No. 157 for non-financial assets and non-financial liabilities, until
January 1, 2009.




SFAS No.
157 establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value.  These tiers include: Level 1, defined
as observable inputs such as quoted prices in active markets; Level 2, defined
as inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions.




Investment
securities available-for sale are reported at fair value utilizing Level 1
inputs with respect to valuing equity securities with quoted prices on an active
market, Level 2 inputs for investment and debt securities, and Level 3 inputs
related to the valuation of the Company’s residual interest in securitized
loans.  The valuation for investment and debt securities utilizing
Level 2 inputs were primarily determined by an independent pricing service using
matrix pricing, which is a mathematical technique widely used in the industry to
value securities without relying exclusively on quoted market prices for the
specific securities, but rather by relying on the securities’ relationship to
other benchmark quoted securities.




-8-
 Table of Contents




The
Company’s assets measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS No. 157 at March 31, 2008, were as
follows:




Assets
      and Liabilities Measured at Fair Value on a Recurring Basis at March 31,
      2008Quoted Prices in
                Active
      Markets
                for
      Identical
                Assets
      (Level 1)
              
              Significant
                Other
                Observable
                Inputs (Level 2)
              
              Significant
                Unobservable
                Inputs (Level 3)
              
              Balance
      at
                March
      31,2008(dollars
      in thousands)AssetsInvestment
      securities—available-for-sale
              
              $
              153
              
              
              $
              117,306
              
              
              $
              889
              
              
              $
              118,348
   Changes
      in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring
      BasisBalance
      at
                December
      31,2007
              
              Total Realizedand Unrealized
      Gains
      Includedin
      Income
              
              TotalRealized andUnrealizedGains
              
              Purchases,
                Sales, Other
                Settlements and
                Issuances,
      net
              
              Net Transfers
                In and/or Outof
      Level 3
              
              Balance
      at
                March
      31, 2008Net Revaluation
      of
      RetainedInterests(dollars
      in thousands)AssetsInvestment
      securities—available-for-sale
              
              $
              1,318
              
              $
              —
              
              $
              —
              
              
              $
              (429
              )
              
              $
              —
              
              
              $
              889




The
Company’s assets measured at fair value on a non-recurring basis subject to the
disclosure requirements of SFAS No. 157 at March 31, 2008, were as
follows:




Assets
      and Liabilities Measured at Fair Value on a Non-Recurring Basis atMarch
      31, 2008Quoted Prices in
                Active
      Markets
                for
      Identical
                Assets
      (Level 1)
              
              Significant
                Other
                Observable
                Inputs (Level 2)
              
              Significant
                Unobservable
                Inputs (Level 3)
              
              Balance
      at
                March
      31,2008(dollars
      in thousands)AssetsImpaired
      Loans
              
              $
              —
              
              
              $
              —
              
              
              $
              91,914
              
              
              $
              91,914


Impaired
loans, which are measured for impairment using the fair value of the collateral,
for collateral dependent loans, had a carrying amount $100.4 million, with a
valuation allowance of $8.5 million.




-9-
 Table of Contents




Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test.  Certain non-financial assets measured
at fair value on a non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, as well as intangible assets and other non-financial
long-lived assets measured at fair value for impairment
assessment.  As stated above, SFAS No. 157 will be applicable to these
fair value measurements beginning January 1, 2009.







NOTE
7 – NEW ACCOUNTING PRONOUNCEMENTS




In June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 establishes a
single model to address accounting for uncertainty in tax
positions.  FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken, or
expected to be taken, in a tax return. The interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition requirements. FIN 48 was effective for the
Company on January 1, 2007.  The adoption of FIN 48 did not have a
material impact on the Company’s financial condition or results of
operations.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.”  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS No. 157 is effective
for the Company on January 1, 2008.  The adoption of SFAS No. 157 did
not have a material impact on the Company’s financial condition or results of
operations.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities."  SFAS No. 159 provides
companies with an option to report selected financial assets and liabilities at
fair value.  The objective of SFAS No. 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. SFAS No. 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. SFAS No. 159 is effective for us on
January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on
the Company’s financial condition or results of operations.





-10-
 Table of Contents




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB Statement No.
51.”  SFAS No. 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 No. 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 No. 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 No. 160 is
effective for the Company on January 1, 2009 and is not expected to have a
significant impact on the Company’s financial condition or results of
operations.





In March
2008, the FASB issued SFAS No. 161, "Disclosures About Derivative Instruments
and Hedging Activities, an Amendment of FASB Statement No.133."  SFAS
No. 161 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to amend and expand the disclosure requirements of SFAS No. 133 to
provide greater transparency about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedge items are
accounted for under SFAS No. 133 and its related interpretations, and (iii) how
derivative instruments and related hedged items affect an entity's financial
position, results of operations and cash flows.  To meet those
objectives, SFAS No. 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
is effective for the Company on January 1, 2009 and is not expected to have a
significant impact on the Company's financial condition or results of
operations.







NOTE
8 – BUSINESS SEGMENT INFORMATION




SFAS No.
131, “Disclosures About Segments of an Enterprise and Related Information”
(“SFAS No. 131”), requires disclosure of segment information in a manner
consistent with the “management approach”.  The management approach is
based on the way the chief operating decision-maker organizes segments within a
company for making operating decisions and assessing performance.





-11-
 Table of Contents




The main
factors used to identify operating segments are the specific product and
business lines of the various operating segments of the Company. Operating
segments are organized separately by product and service offered. We have
identified one operating segment that meets the criteria of being a reportable
segment in accordance with the provisions of SFAS No. 131. This reportable
segment is the origination and purchase of loans, which by its legal form, is
identified as operations of the Bank and Imperial Capital REIT. This segment
derives the majority of its revenue by originating and purchasing loans. Other
operating segments of the Company that did not meet the criteria of being a
reportable segment in accordance with SFAS No. 131 have been aggregated and
reported as “All Other”. Substantially all of the transactions from the
Company’s operating segments occur in the United States.





Transactions
between the reportable segment of the Company and its other operating segments
are made at terms which approximate arm’s-length transactions and in accordance
with accounting principles generally accepted in the United States. There is no
significant difference between the measurement of the reportable segments
profits and losses disclosed below and the measurement of profits and losses in
the Company’s consolidated statements of income. Accounting allocations are made
in the same manner for all operating segments.








LendingOperations
            
            
            All
      Other
            
            
            Consolidated(in
      thousands)For
      the three months ended March 31,2008Revenues
      from external customers
            
            $
            59,811
            
            
            $
            (459
            )
            
            $
            59,352Total
      interest income
            
            
            59,026
            
            
            
            58
            
            
            
            59,084Total
      interest expense
            
            
            37,001
            
            
            
            2,005
            
            
            
            39,006Net
      income (loss)
            
            
            2,731
            
            
            
            (2,034
            )
            
            
            6972007Revenues
      from external customers
            
            $
            63,698
            
            
            $
            350
            
            
            $
            64,048Total
      interest income
            
            
            63,067
            
            
            
            265
            
            
            
            63,332Total
      interest expense
            
            
            37,265
            
            
            
            2,078
            
            
            
            39,343Net
      income (loss)
            
            
            8,567
            
            
            
            (1,830
            )
            
            
            6,737


-12-
 Table of Contents


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





The
following discussion and analysis is intended to identify the major factors that
affected our financial condition and results of operations as of and for the
three months ended March 31, 2008.





Application
of Critical Accounting Policies and Accounting Estimates





The
accounting and reporting policies followed by us conform, in all material
respects, to accounting principles generally accepted in the United States
(“GAAP”) and to general practices within the financial services
industry.  The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. While we
base our estimates on historical experience, current information and other
factors deemed to be relevant, actual results could differ from those
estimates.





We
consider accounting estimates to be critical to reported financial results if
(i) the accounting estimate requires management to make assumptions about
matters that are highly uncertain and (ii) different estimates that management
reasonably could have used for the accounting estimate in the current period, or
changes in the accounting estimate that are reasonably likely to occur from
period to period, could have a material impact on our financial
statements.  Accounting polices related to the allowance for loan
losses are considered to be critical, as these policies involve considerable
subjective judgment and estimation by management.  We also consider
our accounting polices related to other real estate and other assets owned to be
critical due to the potential significance of these activities and the estimates
involved.





For
additional information regarding critical accounting policies, refer to
Note 1 – “Organization and Summary of Significant Accounting Policies” in
the Notes to Consolidated Financial Statements and the sections captioned
“Application of Critical Accounting Policies and Accounting Estimates” and
“Allowance for Loan Losses and Non-performing Assets” in Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company’s Form 10-K for the year ended December 31, 2007.  There have
been no significant changes in the Company's application of accounting policies
since December 31, 2007.




-13-
 Table of Contents


RESULTS
OF OPERATIONS





Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007







Executive
Summary




Consolidated
net income and diluted EPS were $697,000 and $0.13, respectively, for the three
months ended March 31, 2008, compared to $6.7 million and $1.19 for the same
period last year.  The decline in net income during the current period
was primarily caused by a $3.9 million reduction in net interest income before
provision for loan losses and a $3.5 million increase in provision for loan
losses recorded.





Net
interest income before provision for loan losses decreased 16.3% to $20.1
million for the quarter ended March 31, 2008, compared to $24.0 million for the
same period last year.  The decrease was primarily due to the decline
in the yield earned on our loan portfolio, as higher yielding loans have
paid-off and were replaced by loan production that was originated at lower
spreads over our cost of funds due to competitive pricing
pressures.  This decline was partially offset by a decrease in our
average cost of funds, as deposits have repriced to current market interest
rates.





The
provision for loan losses was $4.3 million and $750,000, respectively, for the
quarters ended March 31, 2008 and 2007.  The increase in provision for
loan losses during the quarter was primarily due to the increase in our
non-performing loans.  Non-performing loans as of March 31, 2008 were
$91.5 million, compared to $38.0 million at December 31, 2007.  The
increase in non-performing loans was primarily related to the addition of four
construction and land development lending relationships that in the aggregate
represented approximately $54.4 million of the total of $64.2 million of loans
transferred to non-performing status during the quarter.





The
return on average assets was 0.08% for the three months ended March 31, 2008,
compared to 0.80% for the same period last year.  The return on
average shareholders’ equity was 1.22% for the three months ended March 31,
2008, compared to 12.20% for the same period last year.





Loan
originations were $88.5 million for the quarter ended March 31, 2008, compared
to $339.4 million for the same period last year. During the current quarter, we
originated $43.8 million of commercial real estate loans, $19.0 million of small
balance multi-family real estate loans, and $25.7 million of entertainment
finance loans.  Loan originations for the same period last year
consisted of $237.2 million of commercial real estate loans, $74.0 million of
small balance multi-family real estate loans, and $28.2 million of entertainment
finance loans. In addition, our wholesale loan operations acquired $17.7 million
of commercial and multi-family real estate loans during the quarter ended March
31, 2007.  We did not purchase any loans during the current
period.




-14-
 Table of Contents




Net
Interest Income and Margin





The
following table presents for the three months ended March 31, 2008 and 2007, our
condensed average balance sheet information, together with interest income and
yields earned on average interest earning assets and interest expense and rates
paid on average interest bearing liabilities.  Average balances are
computed using daily average balances.  Nonaccrual loans are included
in loans receivable.





For
      the Three Months Ended March 31,2008
            
            
            2007Average
      Balance
            
            
            Income/
              Expense
            
            
            Yield/
              Rate
            
            
            Average
      Balance
            
            
            Income/
              Expense
            
            
            Yield/
              Rate(dollars
      in thousands)AssetsCash
      and investment securities
            
            $
            339,443
            
            
            $
            4,249
            
            
            
            5.03
            %
            
            $
            373,205
            
            
            $
            4,569
            
            
            
            4.97
            %Loans
      receivable
            
            
            3,149,996
            
            
            
            54,835
            
            
            
            7.00
            %
            
            
            3,004,189
            
            
            
            58,763
            
            
            
            7.93
            %Total
      interest earning assets
            
            
            3,489,439
            
            
            $
            59,084
            
            
            
            6.81
            %
            
            
            3,377,394
            
            
            $
            63,332
            
            
            
            7.60
            %Non-interest
      earning assets
            
            
            84,394
            
            
            
            
            
            
            
            
            
            
            
            74,905Allowance
      for loan losses
            
            
            (47,436
            )
            
            
            
            
            
            
            
            
            
            
            (46,579
            )Total
      assets
            
            $
            3,526,397
            
            
            
            
            
            
            
            
            
            
            $
            3,405,720Liabilities
      and Shareholders’ EquityInterest
      bearing deposit accounts:Interest
      bearing demand
            
            $
            27,951
            
            
            $
            235
            
            
            
            3.38
            %
            
            $
            24,400
            
            
            $
            188
            
            
            
            3.12
            %Money
      market and passbook
            
            
            248,829
            
            
            
            2,459
            
            
            
            3.97
            %
            
            
            222,793
            
            
            
            2,718
            
            
            
            4.95
            %Time
      certificates
            
            
            1,802,247
            
            
            
            22,389
            
            
            
            5.00
            %
            
            
            1,821,519
            
            
            
            23,682
            
            
            
            5.27
            %Total interest bearing deposit
      accounts
            
            
            2,079,027
            
            
            
            25,083
            
            
            
            4.85
            %
            
            
            2,068,712
            
            
            
            26,588
            
            
            
            5.21
            %FHLB
      advances and other borrowings
            
            
            1,083,609
            
            
            
            11,918
            
            
            
            4.42
            %
            
            
            977,608
            
            
            
            10,677
            
            
            
            4.43
            %Junior
      subordinated debentures
            
            
            86,600
            
            
            
            2,005
            
            
            
            9.31
            %
            
            
            86,600
            
            
            
            2,078
            
            
            
            9.73
            %Total
      interest bearing liabilities
            
            
            3,249,236
            
            
            $
            39,006
            
            
            
            4.83
            %
            
            
            3,132,920
            
            
            $
            39,343
            
            
            
            5.09
            %Non-interest
      bearing demand accounts
            
            
            9,740
            
            
            
            
            
            
            
            
            
            
            
            11,641Other
      non-interest bearing liabilities
            
            
            38,263
            
            
            
            
            
            
            
            
            
            
            
            37,212Shareholders’
      equity
            
            
            229,158
            
            
            
            
            
            
            
            
            
            
            
            223,947Total liabilities andshareholders’
      equity
            
            $
            3,526,397
            
            
            
            
            
            
            
            
            
            
            $
            3,405,720Net
      interest spread (1)
            
            
            
            
            
            
            
            
            
            
            1.98
            %
            
            
            
            
            
            
            
            
            
            
            2.51
            %Net
      interest income before provisionfor
      loan losses
            
            
            
            
            
            $
            20,078
            
            
            
            
            
            
            
            
            
            
            $
            23,989Net
      interest margin (2)
            
            
            
            
            
            
            
            
            
            
            2.31
            %
            
            
            
            
            
            
            
            
            
            
            2.88
            %


____________


(1)
            Average
      yield on interest earning assets minus average rate paid on interest
      bearing liabilities.


(2)
            Net
      interest income divided by total average interest earning
      assets.





The
following table sets forth a summary of the changes in interest income and
interest expense resulting from changes in average interest earning asset and
interest bearing liability balances and changes in average interest
rates.  The change in interest due to both volume and rate has been
allocated to change due to volume and rate in proportion to the relationship of
absolute dollar amounts of each.




-15-
 Table of Contents




For
      the Three Months EndedMarch
      31, 2008 and 2007Increase
      (Decrease) Due to:Rate
              
              
              Volume
              
              
              Total(in
      thousands)Interest
      and fees earned from:Cash
      and investment securities
              
              $
              61
              
              
              $
              (381
              )
              
              $
              (320
              )Loans
              
              
              (6,845
              )
              
              
              2,917
              
              
              
              (3,928
              )Total
      (decrease) increase in interest income
              
              
              (6,784
              )
              
              
              2,536
              
              
              
              (4,248
              )Interest
      paid on:Deposit
      accounts
              
              
              (1,653
              )
              
              
              148
              
              
              
              (1,505
              )FHLB
      advances and other borrowings
              
              
              (22
              )
              
              
              1,263
              
              
              
              1,241Junior
      subordinated debentures
              
              
              (73
              )
              
              
              —
              
              
              
              (73
              )Total
      (decrease) increase in interest expense
              
              
              (1,748
              )
              
              
              1,411
              
              
              
              (337
              )(Decrease)
      increase in net interest income
              
              $
              (5,036
              )
              
              $
              1,125
              
              
              $
              (3,911
              )


Total
interest income decreased $4.2 million to $59.1 million for the
current quarter as compared to $63.3 million for the same period last year.
The decrease in interest income was primarily attributable to a 93 basis point
decrease in the average yield earned on total loans receivable, partially offset
by a $145.8 million increase in the average balance of total loans
receivable.





The
average balance of cash and investment securities decreased to $339.4 million
during the quarter compared to $373.2 million during the same period last
year.  The decrease in average cash and investment securities was
primarily due to a decline in cash and cash equivalents, as well as a decrease
in the average balance of investment securities held-to-maturity, partially
offset by an increase in investment securities
available-for-sale.  The average yield earned on cash and investments
increased to 5.03% during the current quarter as compared to 4.97% for the same
period last year.





The
average aggregate balance of our loan portfolio was $3.1 billion and $3.0
billion for the three months ended March 31, 2008 and 2007,
respectively.  Commercial real estate and construction and land loans
had an average aggregate balance of $1.0 billion during the quarter ended March
31, 2008 compared to $917.9 million during the same period last
year.  Multi-family real estate loans had an average aggregate balance
of $2.0 billion during each of the quarters ended March 31, 2008 and
2007.  Single-family residential loans had an average aggregate
balance of $14.2 million during the quarter ended March 31, 2008 compared to
$37.6 million during the same period last year.  The average aggregate
balance of entertainment finance loans was $70.5 million and $73.6 million
during the quarters ended March 31, 2008 and 2007, respectively.





-16-
 Table of Contents




The
average yield earned on total loans decreased to 7.00% during the quarter ended
March 31, 2008 as compared to 7.93% during the same period last
year.  The decrease in yield was primarily due to higher yielding
loans continuing to pay-off and being replaced by our current loan production,
which is originated at lower spreads over our cost of funds due to competitive
pricing pressures.  A significant portion of our loan portfolio is
comprised of adjustable rate loans indexed to either six month LIBOR or the
Prime Rate, most with interest rate floors and caps below and above which the
loan’s contractual interest rate may not adjust.  Approximately 48.8%
of our loan portfolio was adjustable at March 31, 2008, and approximately 45.9%
of the loan portfolio was comprised of hybrid loans, which after an initial
fixed rate period of three or five years, will convert to an adjustable interest
rate for the remaining term of the loan.  As of March 31, 2008, our
hybrid loans had a weighted average of 2.7 years remaining until conversion to
an adjustable rate loan.  Our adjustable rate loans generally reprice
on a quarterly or semi-annual basis with increases generally limited to maximum
adjustments of 2% per year up to 5% for the life of the loan.  At
March 31, 2008, approximately $2.7 billion, or 86.1%, of our adjustable and
hybrid loan portfolio contained interest rate floors, below which the loans’
contractual interest rate may not adjust.  The inability of our loans
to adjust downward can contribute to increased income in periods of declining
interest rates, and also assists us in our efforts to limit the risks to
earnings resulting from changes in interest rates, subject to the risk that
borrowers may refinance these loans during periods of declining interest
rates.  At March 31, 2008, the weighted average floor interest rate of
these loans was 7.30%.  At that date, approximately $452.8 million, or
14.5%, of these loans were at the floor interest rate.  At March 31,
2008, 40.9% of the adjustable rate loans outstanding had a lifetime interest
rate cap. The weighted-average lifetime interest rate cap on our adjustable rate
loan portfolio was 11.87% at that date.  At March 31, 2008, none of
these loans were at their cap rate.





Total
interest expense decreased by $337,000 to $39.0 million during the current
quarter, compared to $39.3 million for the same period last year.  The
decrease in interest expense was primarily attributable to a 36 basis point
decrease in the rate paid on interest bearing deposits, which was caused by
deposits repricing to lower current market interest rates, partially offset by
an increase of $106.0 million in the average balance of FHLB advances and other
borrowings.





Our
average cost of funds decreased to 4.83% during the three months ended March 31,
2008, compared to 5.09% for the same period last year.  As discussed
above, the decrease in the average funding costs was primarily due to deposits
repricing to lower current market interest rates.  The average rate
paid on deposit accounts was 4.85% during the three months ended March 31, 2008
as compared to 5.21% for the same period last year.  The average
balance of deposit accounts increased slightly by $10.3 million to $2.1 billion
for the three months ended March 31, 2008 as compared to $2.1 billion for the
same period last year.  The average rate paid on FHLB advances and
other borrowings was 4.42% during the three months ended March 31, 2008 compared
to 4.43% for the same period last year.  FHLB advances and other
borrowings averaged $1.1 billion during the current quarter, compared to $977.6
million for the same period last year.





Net
interest margin decreased to 2.31% for the three months ended March 31, 2008 as
compared to 2.88% for the same period last year.  This decrease was
caused by a 53 basis point decline in our net interest spread and a $112.0
million increase in our average interest earning assets.




-17-
 Table of Contents


Provision
for Loan Losses





Management
periodically assesses the adequacy of the allowance for loan losses by reference
to many quantitative and qualitative factors that may be weighted differently at
various times depending on prevailing conditions. These factors include, among
other elements:





•
            the
      risk characteristics of various classifications of
  loans;


•
            general
      portfolio trends relative to asset and portfolio
  size;


•
            asset
      categories;


•
            collateral
      values;


•
            potential
      credit and geographic
concentrations;


•
            delinquency
      trends within the loan portfolio;


•
            changes
      in the volume and severity of past due loans, classified loans and other
      loans of concern;


•
            historical
      loss experience and risks associated with changes in economic, social and
      business conditions; and


•
            the
      underwriting standards in effect when the loan was
  made.





Accordingly,
the calculation of the adequacy of the allowance for loan losses is not based
solely on the level of non-performing assets.  The quantitative
factors, included above, are utilized by our management to identify two
different risk groups (1) individual loans (loans with specifically identifiable
risks); and (2) homogeneous loans (groups of loans with similar
characteristics). The allocation for individual loans is based on either a
specific reserve analysis, which is performed on impaired loans and our other
loans of concern, or on risk rating grades assigned to each loan as a result of
our loan management and review processes. Other loans of concern consist of
loans with respect to which known information concerning possible credit
problems with the borrowers or the cash flows of the collateral securing the
respective loans has caused management to be concerned about the ability of the
borrowers to comply with present loan repayment terms, which may result in the
future inclusion of such loans in the nonaccrual category.





Our
specific review is based on estimated cash flows discounted at the loan’s
original effective interest rate or, for collateral dependent loans, based on
the underlying collateral value. Individual loans that are assigned a
risk-rating grade are then assigned a loss ratio, which is determined based on
historical loss experience, augmented by the experience of management with
similar assets and our independent loan review process.  The loan
review process begins at the loan’s origination where we obtain information
about the borrower and the real estate collateral, such as personal financial
statements, FICO scores, property rent rolls, property operating statements,
appraisals, market assessments, and other pertinent data.  Throughout
the loan life, we obtain updated information such as rent rolls, property cash
flow statements, personal financial statements, and for certain loans, updated
property inspection reports.  This information, at the individual
borrower and loan level, provides input into our risk profile of our borrowers,
and serves as the primary basis for each loan’s risk grade. We also assign loss
ratios to groups of loans.  These loss ratios are assigned to the
various homogenous categories of the portfolio.





-18-
 Table of Contents




Loss
ratios and specific reserves for all categories of loans are evaluated on a
quarterly basis.  Loss ratios associated with historical loss
experience are determined based on a rolling migration analysis of each loan
category within our portfolio.  This migration analysis estimates loss
factors based on the performance of each loan category over a five year time
period.  These loss factors are then adjusted for other identifiable
risks specifically related to each loan category or risk grade.  We
utilize market and other economic data, which we accumulate on a quarterly
basis, to evaluate and identify the economic and real estate related trends
within each regional market that we operate.  In addition to the
information gathered from this data, we also typically consider other risk
factors, such as specific risks within a loan category, peer analysis reports,
and any other relevant trends or data, in determining any necessary adjustments
to our historical loss factors.  To the extent that known risks or
trends exist, the loss ratios are adjusted accordingly, and incorporated into
our assessment of the adequacy of our allowance for loan losses.





The
qualitative factors, included above, are also utilized to identify other risks
inherent in the portfolio and to determine whether the estimated credit losses
associated with the current portfolio might differ from historical loss trends
or the loss ratios discussed above.  We estimate a range of exposure
for each applicable qualitative factor and evaluate the current condition and
trend of each factor.  Based on this evaluation, we assign a positive,
negative or neutral grade to each factor to determine whether the portion of the
qualitative reserve is in the high, middle or low end of the range for each
factor.  Because of the subjective nature of these factors and the
judgments required to determine the estimated ranges, the actual losses incurred
can vary significantly from the estimated amounts.





Management
believes that our allowance for loan losses as of March 31, 2008 was adequate to
absorb the known and inherent risks of loss in the loan portfolio at that date.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be required
will not adversely impact our financial condition and results of operations. In
addition, the determination of the amount of the Bank’s allowance for loan
losses is subject to review by bank regulators, as part of the routine
examination process, which may result in the establishment of additional
reserves based upon their judgment of information available to them at the time
of their examination.





The
consolidated provision for loan losses was $4.3 million and $750,000 for the
quarters ended March 31, 2008 and 2007, respectively.  The provision
for loan losses was recorded based on an analysis of the factors referred to
above.  The increase in provision for loan losses during the quarter
was primarily due to the increase in our non-performing
loans.  Non-performing loans as of March 31, 2008 were $91.5 million,
compared to $38.0 million at December 31, 2007.  As a percentage of
our total loan portfolio, the amount of non-performing loans was 2.94% and 1.20%
at March 31, 2008 and December 31, 2007, respectively.  The increase
in non-performing loans was primarily related to the addition of four
construction and land development lending relationships that in aggregate
represented approximately $54.4 million of the total of $64.2 million of loans
transferred to non-performing status during the quarter.




-19-
 Table of Contents


With the
housing and secondary mortgage markets continuing to deteriorate and showing no
signs of stabilizing in the near future, we continue to aggressively monitor our
real estate loan portfolio, including our commercial and residential
construction loan portfolio.  Our construction and land loan portfolio
totaled $425.4 million as of March 31, 2008, and included $277.4 million of
residential and condominium conversion construction loans and land development
loans, representing 8.9% of our total loan portfolio.  At March 31,
2008, we had $40.3 million of non-performing lending relationships within our
residential and condominium conversion construction loan portfolio, consisting
of three projects located in California (Huntington Beach, Corona and Indio) and
one project located in Portland, Oregon.  In addition, we had a $17.7
million non-performing residential land development loan located in Cathedral
City, California.





The
allowance for loan losses as a percentage of our total loans was 1.55% at March
31, 2008 compared to 1.51% at December 31, 2007.  We believe that
these reserves levels were adequate to support known and inherent losses in our
loan portfolio and for specific reserves as of March 31, 2008 and December 31,
2007, respectively.  The allowance for loan losses is impacted by
inherent risk in the loan portfolio, including the level of our non-performing
loans and other loans of concern, as well as specific reserves and charge-off
activity.  Other loans of concern increased from $27.4 million at
December 31, 2007 to $115.7 million at March 31, 2008.  The increase
was primarily caused by the addition of $44.8 million of single-family and
condominium construction and land development loans, $15.7 million of commercial
and retail construction projects, and $28.0 million of commercial and
multi-family real estate loans.





During
the quarter ended March 31, 2008, we had net loan charge-offs of $3.8 million as
compared to net recoveries of $380,000 during the same period last
year.  The charge-offs taken during the current period were previously
specifically reserved for under our allowance for loan loss methodology
discussed above.  See also – “Financial Condition – Credit
Risk”.





Non-Interest
Income





Non-interest
income decreased to $268,000 during the quarter ended March 31, 2008 as compared
to $716,000 for the same period last year.  The decrease in
non-interest income primarily related to a decline in the cash surrender value
of a life insurance policy in connection with the Company’s Salary Continuation
Plan.  Non-interest income typically consists of late fees and other
miscellaneous fees earned on customer accounts.





Non-Interest
Expense





Non-interest
expense totaled $14.9 million for the current quarter, compared to $12.6 million
for the same period last year.  The increase in non-interest expense
primarily related to a decline in the deferral of general and administrative
costs incurred related to the origination of loans.  As the volume of
our loan production decreased during the current quarter as compared to the same
period last year, the deferrable portion of these loan costs has also
declined.  Our efficiency ratio (defined as general and administrative
expenses as a percentage of net revenue) was 66.3% for the quarter ended March
31, 2008, as compared to 50.3% for the same period last year.  The
increase in our efficiency ratio was primarily caused by a $1.1 million increase
in general and administrative expenses, as well as the $3.9 million decrease in
net interest income, which was primarily caused by the decrease in our net
interest spread.





-20-
 Table of Contents




FINANCIAL
CONDITION




Total
assets decreased $7.5 million to $3.5 billion at March 31, 2008 as compared to
$3.6 billion at December 31, 2007.  The decrease in total assets was
primarily due to a $55.2 million decrease in our loan portfolio, partially
offset by a $49.5 million increase in investment securities
held-to-maturity.  During the quarter, we purchased approximately
$57.6 million of triple-A rated corporate sponsored collateralized mortgage
obligations, which we classified as held-to-maturity.  At March 31,
2008, gross loans totaled $3.1 billion, including approximately $3.0 billion of
real estate loans, $71.3 million of entertainment finance loans, and $13.1
million of other loans.  Total deposit accounts decreased to $2.1
billion at March 31, 2008 compared to $2.2 billion at December 31,
2007.  The decline in deposits of $115.3 million during the quarter
primarily related to callable brokered deposits, as well as other time deposits
that matured during the period.  Management believes that a
significant portion of time deposits will remain with us upon maturity based on
our historical experience regarding retention of deposits. FHLB advances and
other borrowings increased to $1.1 billion as of March 31, 2008 compared to $1.0
billion at December 31, 2007, as we replaced higher interest bearing deposits
with these advances.







CREDIT
RISK





Non-performing
Assets, Other Loans of Concern and Allowance for Loan Losses





The
following table sets forth our non-performing assets by category and troubled
debt restructurings as of the dates indicated.





March
      31,
              2008
            
            
            December
      31,
              2007(dollars
      in thousands)Nonaccrual
      loans:Real
      estate
            
            $
            29,527
            
            
            $
            29,145Construction
      and land
            
            
            61,983
            
            
            
            8,804Entertainment
      finance
            
            
            13
            
            
            
            13Total
      nonaccrual loans
            
            
            91,523
            
            
            
            37,962Other
      real estate and other assets owned, net
            
            
            18,438
            
            
            
            19,396Total
      non-performing assets
            
            
            109,961
            
            
            
            57,358Performing
      troubled debt restructurings
            
            
            7,748
            
            
            
            7,802Total
      non-performing assets and performing troubled debt
      restructurings
            
            $
            117,709
            
            
            $
            65,160Nonaccrual
      loans to total loans
            
            
            2.94
            %
            
            
            1.20
            %Allowance
      for loan losses to nonaccrual loans
            
            
            52.74
            %
            
            
            125.87
            %Non-performing
      assets to total assets
            
            
            3.10
            %
            
            
            1.62
            %





Non-performing
assets were $110.0 million and $57.4 million, representing 3.10% and 1.62% of
total assets as of March 31, 2008 and December 31, 2007,
respectively.  At March 31, 2008, non-performing loans consisted of
$62.0 million construction and land loans, $7.4 million of commercial real
estate loans, $22.1 million of multi-family real estate loans, and $13,000 of
entertainment finance loans.  The increase in non-performing assets
during the quarter ended March 31, 2008 consisted of the addition of $64.2
million of non-performing loans, partially offset by paydowns received of $1.9
million, charge-offs of $3.9 million and loan upgrades of $347,000 from
non-performing to performing status.  As of March 31, 2008 as compared
to December 31, 2007, the net increase in non-performing loans primarily
consisted of $32.7 million of residential and condominium construction real
estate loans, representing two lending relationships, a $17.7 million
residential land development loan, and a $4.0 million mixed-use construction
loan.  The allowance for loan loss coverage ratio (defined as the
allowance for loan losses divided by non-accrual loans) was 52.7% at March 31,
2008 as compared to 125.9% at December 31, 2007.  In addition, during
the three months ended March 31, 2008, we foreclosed on four properties
representing $4.5 million, sold four properties representing $4.7 million and
recorded a charge-off on one property of $627,000.





-21-
 Table of Contents




As of
March 31, 2008 and December 31, 2007, other loans of concern totaled $115.7
million and $27.4 million, respectively.  The increase in other loans
of concern for the three months ended March 31, 2008 was primarily due to the
addition of $44.8 million of residential and condominium conversion construction
and land development loans, $15.7 million of commercial and retail construction
projects, and $28.0 million of commercial and multi-family real estate
loans.





The
following table provides certain information with respect to our allowance for
loan losses, including charge-offs, recoveries and selected ratios for the
periods indicated.





For
      the Three
              Months
      Ended
              March
      31,
              2008
            
            
            For
      the Year
              Ended
              December
      31,
              2007
            
            
            For
      the Three Months Ended
              March
      31,
              2007(dollars
      in thousands)Balance
      at beginning of period
            
            $
            47,783
            
            
            $
            46,049
            
            
            $
            46,049Provision
      for loan losses
            
            
            4,250
            
            
            
            11,077
            
            
            
            750Charge-offs
            
            
            (3,944
            )
            
            
            (10,873
            )
            
            
            (39
            )Recoveries
            
            
            182
            
            
            
            1,530
            
            
            
            419Net
      (charge-offs) recoveries
            
            
            (3,762
            )
            
            
            (9,343
            )
            
            
            380Balance
      at end of period
            
            $
            48,271
            
            
            $
            47,783
            
            
            $
            47,179Allowance
      for loan losses as a percentageof
      loans, net
            
            
            1.55
            %
            
            
            1.51
            %
            
            
            1.54
            %





Liquidity





Liquidity
refers to our ability to maintain cash flows adequate to fund operations and
meet obligations and other commitments on a timely basis, including the payment
of maturing deposits and the origination or purchase of new loans.  We
maintain a cash and investment securities portfolio designed to satisfy
operating liquidity requirements while preserving capital and maximizing
yield.  As of March 31, 2008, we held $7.7 million of cash and cash
equivalents (consisting primarily of short-term investments with original
maturities of 90 days or less) and $118.3 million of investment securities
classified as available-for-sale.





-22-
 Table of Contents




Short-term
fixed income investments classified as cash equivalents consisted of interest
bearing deposits at financial institutions, overnight repurchase agreement
investments, government money market funds and short-term government agency
securities, while investment securities available-for-sale consisted primarily
of fixed income instruments, which were rated “AAA”, or equivalent by nationally
recognized rating agencies.  In addition, our liquidity position is
supported by credit facilities with the Federal Home Loan Bank of San Francisco
and the Federal Reserve Bank of San Francisco.  As of March 31, 2008,
we had remaining available borrowing capacity under the Federal Home Loan Bank
of San Francisco credit facility of $296.8 million, net of the $12.3 million of
additional Federal Home Loan Bank stock that we would be required to purchase to
support those additional borrowings.  As of March 31, 2008, we had an
available borrowing capacity under the Federal Reserve Bank of San Francisco
credit facility of $171.9 million.  We also had available $98.0
million of uncommitted, unsecured lines of credit with four unaffiliated
financial institutions, and a $37.5 million revolving credit facility with an
unaffiliated financial institution.





Capital
Resources





The
Company, the Bank’s holding company, had Tier 1 leverage, Tier 1 risk based and
total risk-based capital ratios at March 31, 2008 of 8.44%, 9.81% and 11.38%,
respectively, which represents $121.3 million, $115.5 million and $41.8 million,
respectively, of capital in excess of the amount required to be “well
capitalized.”  These ratios were 8.44%, 9.73% and 11.29% as of
December 31, 2007, respectively.





The Bank
had Tier 1 leverage, Tier 1 risk based and total risk-based capital ratios at
March 31, 2008 of 8.34%, 9.68% and 10.94%, respectively, which represents $116.9
million, $111.0 million and $28.3 million, respectively, of capital in excess of
the amount required to be “well capitalized” for regulatory purposes. These
ratios were 8.31%, 9.60% and 10.85% as of December 31, 2007,
respectively.





At March
31, 2008, shareholders' equity totaled $226.5 million, or 6.4% of total
assets.  Our book value per share of common stock was $44.38 as of
March 31, 2008, as compared to $44.22 as of December 31, 2007, and $43.22 as of
March 31, 2007.





During
the quarter ended March 31, 2008, we announced that our Board of Directors
determined that, following the payment of our cash dividend for that quarter,
our regular quarterly cash dividend would be suspended for the remainder of
2008.  This decision was made in order to preserve our capital during
the extraordinarily difficult current operating environment.  The
Board plans to reassess the dividend when economic conditions and capital
markets normalize.




Item 3. Quantitative and Qualitative Disclosures About Market
Risk





Our
estimated sensitivity to interest rate risk, as measured by the estimated
interest earnings sensitivity profile and the interest sensitivity gap analysis,
has not materially changed from the information disclosed in our annual report
on Form 10-K for the year ended December 31, 2007.




-23-
 Table of Contents




Item4. Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s
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,
2008 under the supervision and with the participation of the Company’s Chief
Executive Officer, Chief Financial Officer and several other members of the
Company’s senior management.  In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met.  Our disclosure controls and procedures
have been designed to meet, and management believes that they meet, reasonable
assurance standards.  Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures 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.  Based on their
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that, as of March 31, 2008, the Company’s disclosure controls and
procedures were effective at the reasonable assurance level in ensuring that the
information required to be disclosed by the Company in the reports it files or
submits under the Act is (i) accumulated and communicated to the Company’s
management (including the Chief Executive Officer and Chief Financial 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.





(b)
Changes in Internal Control over Financial Reporting:  During the
quarter ended March 31, 2008, no change occurred in the Company’s internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





The
Company does not expect that its 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 can occur
because of 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.




-24-
 Table of Contents




PART II - OTHER INFORMATION






Item 1. Legal Proceedings






We are
party to certain legal proceedings incidental to our
business.  Management believes that the outcome of such currently
pending proceedings, in the aggregate, will not have a material effect on our
financial condition or results of operations.




Item1A. Risk Factors






There
have been no material changes to the risk factors set forth in Part I. Item 1A
of the Company’s Annual Report on Form 10-K for the year ended December 31,
2007.




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






The
following table sets forth the repurchases of our common stock for the fiscal
quarter ended March 31, 2008.




Period
            
            Total
      Number of Shares Purchased(1)
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            
            Maximum
      Number of Shares that May Yet Be Purchased Under the Plans or
      Programs(2)January
      1, 2008 toJanuary
      31, 2008
            
            
            2,746
            
            
            $
            16.11
            
            
            
            —
            
            
            
            110,486February
      1, 2008 toFebruary
      29, 2008
            
            
            43,444
            
            
            
            24.63
            
            
            
            —
            
            
            
            110,486March
      1, 2008 toMarch
      31, 2008
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            110,486Total
            
            
            46,190
            
            
            $
            24.12
            
            
            
            —
            
            
            
            110,486


____________


(1)
            Shares
      purchased during the quarter ended March 31, 2008, represent open market
      purchases by the Company’s rabbi trust in connection with our Supplemental
      Executive Retirement Plan and our Nonqualified Deferred Compensation
      Plan.


(2)
            There
      were no repurchases under the twelfth extension of our stock repurchase
      program during the three months ended March 31, 2008.  The
      twelfth extension was announced on March 14, 2006, and authorized the
      repurchase of an additional 5% of the outstanding shares as of the
      authorization date.  At March 31, 2008, a total of 110,486
      shares remained available for repurchase under this
    extension.




Item 3. Defaults Upon Senior Securities




Not
applicable.




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




None.




Item 5. Other Information




None.




Item 6. Exhibits




See
exhibit index.





-25-
 Table of Contents




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.











IMPERIAL
      CAPITAL BANCORP, INC.Date:
      May 12,
      2008
            /s/ George W. HaligowskiGeorge
      W. HaligowskiChairman
      of the Board, President andChief
      Executive Officer





Date:
      May 12,
      2008
            /s/ Timothy M. DoyleTimothy
      M. DoyleExecutive
      Managing Director andChief
      Financial Officer




-26-
 Table of Contents


EXHIBIT
INDEX


Regulation
      S-K Exhibit Number
            
            Document
            
            Reference
      to Prior Filling or Exhibit Number Attached Hereto3.1
            
            Certificate
      of Incorporation
            
            ************3.2
            
            Bylaws,
      as amended
            
            ***4
            
            Instruments
      Defining the Rights of Security Holders, Including
    Indentures
            
            **********10.1
            
            2005
      Re-Designated, Amended and Restated Stock Option Plan For Nonemployee
      Directors (“NEDP”)
            
            *****10.2
            
            2005
      Re-Designated, Amended and Restated Employee Stock Incentive Plan
      (“ESIP”)
            
            ********10.3a
            
            409A
      Consolidated Nonqualified (Employer Securities Only) 2005 Deferred
      Compensation Plan
            
            ***10.3b
            
            409A
      Consolidated Nonqualified (Non-Employer Securities) 2005 Deferred
      Compensation Plan
            
            ***10.3c
            
            Consolidated
      Nonqualified (Employer Securities Only) Deferred Compensation
      Plan
            
            ***10.3d
            
            Consolidated
      Nonqualified (Non-Employer Securities) Deferred Compensation
      Plan
            
            ***10.4
            
            Supplemental
      Salary Savings Plan
            
            *10.5a
            
            Amended
      and Restated Employment Agreement with George W.
Haligowski
            
            ********10.5b
            
            Non-Competition
      and Non-Solicitation Agreement with George W. Haligowski
            
            ********10.6
              10.7
              10.8
              10.9
            
            Change
      in Control Severance Agreement with Norval L. Bruce
              Change
      in Control Severance Agreement with Timothy M. Doyle
              Change
      in Control Severance Agreement with Lyle C. Lodwick
              Change
      in Control Severance Agreement with Phillip E. Lombardi
            
            ********
              ********
              ********
              ***********10.10
            
            Recognition
      and Retention Plan
            
            **10.11
            
            Voluntary
      Retainer Stock and Deferred Compensation Plan for Outside
      Directors
            
            ****10.12
            
            Amended
      and Restated Supplemental Executive Retirement Plan
            
            ********10.13
            
            Amended
      and Restated ITLA Capital Corporation Rabbi Trust
Agreement
            
            *********10.14
            
            Amended
      and Restated Salary Continuation Plan
            
            ********10.15
            
            Form
      of Incentive Stock Option Agreement under ESIP
            
            ******10.16
              10.17
            
            Form
      of Non-Qualified Stock Option Agreement under the ESIP
              Form
      of Non-Qualified Stock Option Agreement under the NEDP
            
            ******
              *******10.18
            
            Description
      of Named Executive Officer Salary, Bonus and Perquisite
      Arrangements     for 2008
            
            *************10.19
            
            Description
      of Director Fee Arrangements
            
            *************10.20
            
            Split
      Dollar Agreement
            
            *************11
            
            Statement
      Regarding Computation of Per Share Earnings
            
            Not
      Required13
            
            Annual
      Report to Security Holders
            
            None18
            
            Letter
      Regarding Change in Accounting Principles
            
            None21
            
            Subsidiaries
      of the Registrant
            
            Not
      Required22
            
            Published
      Report Regarding Matters Submitted to Vote of Security
    Holders
            
            None23.1
            
            Consent
      of Ernst & Young LLP
            
            Not
      Required24
            
            Power
      of Attorney
            
            None31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer
            
            31.131.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer
            
            31.232
            
            Section
      1350 Certifications of Chief Executive Officer and Chief Financial
      Officer
            
            32





*
            Filed
      as an exhibit to Imperial’s Registration Statement on Form S-1 (File No.
      33-96518) filed with the Commission on September 1, 1995, pursuant to
      Section 5 of the Securities Act of 1933.*
      *
            Filed
      as an exhibit to the Company’s Registration Statement on Form S-4 (File
      No. 333-03551) filed with the Commission on May 10, 1996, pursuant to
      Section 5 of the Securities Act of 1933.* *
      *
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on
      December 7, 2007.* *
      * *
            Filed
      as an exhibit to Amendment No. Two to the Company’s Registration Statement
      on Form S-4 (File No. 333-03551) filed with the Commission on June 19,
      1996.* *
      * * *
            Filed
      as an appendix to the Company’s definitive proxy materials filed on June
      27, 2005.* *
      * * * *
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on August
      9, 2005.* *
      * * * * *
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on
      November 4, 2005.* *
      * * * * * *
            Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on
      February 24, 2006.* *
      * * * * * * *
            Filed
      as an exhibit to the Company’s Form 10-Q for the quarter ended June 30,
      2006.* *
      * * * * * * * *
            The
      Company hereby agrees to furnish the SEC, upon request, copies of the
      instruments defining the rights of the holders of each issue of the
      Company's long-term debt.* *
      * * * * * * * * *
            Filed
      as an exhibit to the Company’s Form 10-K for the year ended December 31,
      2006.* *
      * * * * * * * * * *
            Filed
      as an exhibit to the Company’s Form 10-Q for the quarter ended June 30,
      2007 (File No. 01-33199).* *
      * * * * * * * * * * *
            Filed
      as an exhibit to the Company’s Form 10-K for the year ended December 31,
      2007.





-27-