UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q/A


Amendment
No. 1


(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, 2009





OR





£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR
15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934





For the
Transition Period from _____ to _____


Commission
File Number 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 has submitted electronically and
      posted on its corporate Web site, if any, every Interactive Data File
      required to be submitted and posted pursuant to Rule 405 of Regulation S-T
      (§ 232.405 of this chapter) during the preceding 12 months (or for such
      shorter period that the registrant was required to submit and post such
      files).  Yes £  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 £Non-Accelerated
      Filer £ (Do not
      check if a smaller reporting company)   Smaller reporting
      company RIndicate
      by check mark whether the Registrant is a shell company(as
      defined in Rule 12b-2 of the Exchange Act).  Yes £   No
      RNumber
      of shares of common stock of the registrant: 5,428,760 outstanding as of
      May 8, 2009.









Explanatory Note





We filed
our Form 10-Q for the quarter ended March 31, 2009 (the “Original Filing”) with
the Securities and Exchange Commission on May 15, 2009. The Original Filing
reported that both Imperial Capital Bancorp, Inc. (the “Company”) and its
subsidiary bank, Imperial Capital Bank (the “Bank”) were “adequately
capitalized” for regulatory purposes. On June 30, 2009, the Federal Deposit
Insurance Corporation (‘FDIC”) notified the Bank that it had determined during
the course of a recent examination of the Bank that the risk-weighting of
certain loans secured by multifamily properties were misreported in the Bank’s
March 31, 2009 call report.  This misreporting occurred primarily
because the Bank did not have current financial information related to certain
borrowers, resulting in a higher risk weighting being assigned to these
loans.  As a result, the FDIC informed the Bank that based on the
revised capital ratios the Bank was “undercapitalized” as of March 31, 2009
because the Bank’s total risk-based capital ratio was below the adequately
capitalized level. This Amendment No. 1 to the Original Filing amends Note 1 to
Item 1 of Part I and Item 2 of Part I solely to reflect the revised
capital ratios and their effect on the Bank. These changes, appear in Item 1 of
Part I of this Amendment No. 1 under Note 1 to the Notes to the Consolidated
Financial Statements and Item 2 of Part I of this Amendment No. 1
under the caption “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Capital Resources.” The changes decrease the reported
amounts of regulatory capital ratios at March 31, 2009, but do not result in any
changes to reported net loss or loss per share for such period or otherwise
affect the financial statements as of or for the period ended March 31,
2009.





For
purposes of this Amendment No. 1, and in accordance with Rule 12b-15 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), each item of
the Original Filing that was affected by the restatement described above has
been amended to the extent affected and restated in its entirety. However, only
the changes necessary to reflect the change in regulatory capital ratios and
that the Bank is now considered undercapitalized described above have been made
in this Amendment No. 1 to the Original Filing; it does not reflect events
occurring after the filing of the Original Filing or modify or update any other
disclosures contained in the Original Filing. Accordingly, this Amendment No. 1
to the Original Filing should be read in conjunction with the Company’s SEC
filings made subsequent to the filing of the Original Filing, including any
amendments of those filings.





Rule 12b-15
under the Exchange Act provides that any amendment to a report that was required
to be accompanied by the certifications of the principal executive officer and
principal financial officer of the registrant specified in the applicable rules
under the Securities Exchange Act of 1934, as amended  must be
accompanied by new certifications of such officers. Accordingly, these
certifications, which are unchanged from the certifications originally filed
with the Original Filing, are included as Exhibits 31.1, 31.2, 31.3, 31.4 and 32
in Item 6 of Part II of this Amendment No. 1 to the Original Filing, and are
also amended hereby.





-2-




IMPERIAL CAPITAL BANCORP, INC.


FORM
10-Q


FOR
THE THREE MONTHS ENDED MARCH 31, 2009





TABLE
OF CONTENTS





PART I – FINANCIAL INFORMATIONItem 1.
                Financial StatementsConsolidated Balance Sheets – March 31, 2009 (Unaudited) and
      December 31, 2008
                5Consolidated Statements of Operations – Three Months
      Ended March 31, 2009 and 2008 (Unaudited)
                6Consolidated Statements of Cash Flows – Three Months
      Ended March 31, 2009 and 2008 (Unaudited)
                7Notes to the Unaudited Consolidated Financial
      Statements
                8Item 2.
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                18Item 3.
                Quantitative and Qualitative Disclosures about Market
      Risk
                32Item 4.
                Controls and Procedures
                32PART II – OTHER INFORMATIONItem 1.
                Legal Proceedings
                34Item 1A.
                Risk Factors
                34Item 2.
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                34Item 3.
                Defaults Upon Senior Securities
                34Item 4.
                Submission of Matters to a Vote of Security
      Holders
                34Item 5.
                Other Information
                34Item 6.
                Exhibits
                34Signatures
                35




-3-
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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,
either nationally or in our market areas; fluctuations in loan demand, the
number of unsold homes, other properties and real estate values; the quality or
composition of our loan or investment portfolios; our ability to manage loan
delinquency rates, which may be impacted by  deterioration in the
housing and commercial real estate markets that may lead to increased losses and
non-performing assets in our loan portfolios, and may result in our allowance
for loan losses not being adequate to cover actual losses and may require us to
materially increase our reserves; fluctuations in interest rates, and changes in
the relative differences between short- and long-term interest rates; results of
examinations by the California Department of Financial Institutions (the “DFI”),
the Federal Deposit Insurance Corporation (the “FDIC”) or other regulatory
authorities, including the possibility that any such regulatory authority may,
among other things, require us to increase our reserve for loan losses,
write-down assets, change our regulatory capital position or affect our ability
to borrow funds or maintain or increase deposits, which could adversely affect
our liquidity and earnings; the possibility that we will be unable to comply
with the conditions imposed upon us by the Order to Cease and Desist issued by
the DFI and the FDIC, which could result in the imposition of additional
restrictions on our operations; our ability to control operating costs and
expenses; the use of estimates in determining fair value of certain of our
assets, which estimates may prove to be incorrect and result in significant
declines in valuation; difficulties in reducing risk associated with the loans
on our balance sheet; staffing fluctuations in response to product demand or the
implementation of corporate strategies that affect our work force and potential
associated charges; computer systems on which we depend could fail or experience
a security breach; our ability to retain key members of our senior management
team; costs and effects of litigation, including settlements and judgments;
increased competitive pressures among financial services companies; changes in
consumer spending, borrowing, and savings habits; legislative or regulatory
changes that adversely affect our business, including changes in regulatory
policies and principles, including the interpretation of regulatory capital or
other rules; the availability of resources to address changes in laws, rules, or
regulations or to respond to regulatory actions; adverse changes in the
securities markets; the inability of key third-party providers to perform their
obligations to us; changes in accounting policies,  principles or
guidance, as may be adopted by the financial institution regulatory agencies or
the Financial Accounting Standards Board, or their application to our business
or audit adjustments; the economic impact of any terrorist actions; other
economic, competitive, governmental, regulatory, and technological factors
affecting our operations, pricing, products, and services. 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 2009 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 unless the
context indicates otherwise.


-4-
 Table of Contents





PART I – FINANCIAL INFORMATION







IMPERIAL
      CAPITAL BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSMarch
      31,2009
                
                
                December
      31,(unaudited)
                
                
                2008(in
      thousands, except share data)AssetsCash
      and cash equivalents
                
                $
                325,438
                
                
                $
                403,119Investment
      securities available-for-sale, at fair value
                
                
                404,041
                
                
                
                146,799Investment
      securities held-to-maturity, at amortized cost
                
                
                905,565
                
                
                
                942,686Stock
      in Federal Home Loan Bank
                
                
                63,498
                
                
                
                63,498Loans,
      net (net of allowance for loan losses of $62,938 and $50,574as
      of March 31, 2009 and December 31, 2008, respectively)
                
                
                2,680,832
                
                
                
                2,748,956Interest
      receivable
                
                
                20,772
                
                
                
                21,305Other
      real estate and other assets owned, net
                
                
                49,947
                
                
                
                38,031Premises
      and equipment, net
                
                
                7,139
                
                
                
                7,701Deferred
      income taxes
                
                
                18,774
                
                
                
                22,338Goodwill
                
                
                3,118
                
                
                
                3,118Other
      assets
                
                
                40,979
                
                
                
                42,287Total
      assets
                
                $
                4,520,103
                
                
                $
                4,439,838Liabilities
      and Shareholders’ EquityLiabilities:Deposit
      accounts
                
                $
                3,109,142
                
                
                $
                2,931,040Federal
      Home Loan Bank advances and other borrowings
                
                
                1,124,794
                
                
                
                1,205,633Accounts
      payable and other liabilities
                
                
                28,904
                
                
                
                26,996Junior
      subordinated debentures
                
                
                86,600
                
                
                
                86,600Total
      liabilities
                
                
                4,349,440
                
                
                
                4,250,269Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock, 5,000,000 shares authorized, none issued
                
                
                —
                
                
                
                —Contributed
      capital - common stock, $.01 par value; 20,000,000 shares authorized,
      9,146,256 and 9,146,256 issued as of March 31, 2009 and December 31, 2008,
      respectively
                
                
                85,129
                
                
                
                85,407Retained
      earnings
                
                
                204,749
                
                
                
                222,483Accumulated
      other comprehensive loss, net
                
                
                (4,031
                )
                
                
                (2,682
                )285,847
                
                
                
                305,208Less
      treasury stock, at cost 4,074,834 and 4,126,116 shares as ofMarch
      31, 2009 and December 31, 2008, respectively
                
                
                (115,184
                )
                
                
                (115,639
                )Total
      shareholders' equity
                
                
                170,663
                
                
                
                189,569Total
      liabilities and shareholders' equity
                
                $
                4,520,103
                
                
                $
                4,439,838




See
accompanying notes to the unaudited consolidated financial
statements.


-5-
 Table of Contents





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





For
      the Three Months Ended March 31,2009
                
                
                2008(in
      thousands, except per share data)Interest
      income:Loans,
      including fees
                
                $
                41,463
                
                
                $
                54,835Cash
      and investment securities
                
                
                20,329
                
                
                
                4,249Total
      interest income
                
                
                61,792
                
                
                
                59,084Interest
      expense:Deposit
      accounts
                
                
                28,439
                
                
                
                25,083Federal
      Home Loan Bank advances and other borrowings
                
                
                12,787
                
                
                
                11,918Junior
      subordinated debentures
                
                
                1,637
                
                
                
                2,005Total
      interest expense
                
                
                42,863
                
                
                
                39,006Net
      interest income before provision for loan losses
                
                
                18,929
                
                
                
                20,078Provision
      for loan losses
                
                
                19,175
                
                
                
                4,250Net
      interest income (expense) after provision for loan losses
                
                
                (246
                )
                
                
                15,828Non-interest
      income:Late
      and collection fees
                
                
                210
                
                
                
                219Other
                
                
                403
                
                
                
                49Total
      non-interest income
                
                
                613
                
                
                
                268Non-interest
      expense:Compensation
      and benefits
                
                
                6,049
                
                
                
                6,864Occupancy
      and equipment
                
                
                1,743
                
                
                
                1,942Other
                
                
                6,562
                
                
                
                4,684Total
      general and administrative
                
                
                14,354
                
                
                
                13,490Real
      estate and other assets owned expense, net
                
                
                3,747
                
                
                
                1,455Total
      non-interest expense
                
                
                18,101
                
                
                
                14,945(Loss)
      income before provision for income taxes
                
                
                (17,734
                )
                
                
                1,151Provision
      for income taxes
                
                
                —
                
                
                
                454NET
      (LOSS) INCOME
                
                $
                (17,734
                )
                
                $
                697Basic
      (losses) earnings per share
                
                $
                (3.27
                )
                
                $
                0.13Diluted
      (losses) earnings per share
                
                $
                (3.27
                )
                
                $
                0.13Dividends
      declared per share of common stock
                
                $
                —
                
                
                $
                0.16





See
accompanying notes to the unaudited consolidated financial
statements.


-6-
 Table of Contents


IMPERIAL CAPITAL BANCORP, INC. AND
      SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)For
      the Three Months EndedMarch
      31,2009
                
                
                2008(in
      thousands)Cash
      Flows From Operating Activities:Net
      (Loss) Income
                
                $
                (17,734
                )
                
                $
                697Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activities:Depreciation
      and amortization of premises and equipment
                
                
                640
                
                
                
                719Amortization
      of premium on purchased loans
                
                
                352
                
                
                
                1,095Accretion
      of deferred loan origination fees, net of costs
                
                
                (596
                )
                
                
                (800
                )Accretion
      of discounts on investment securities, net
                
                
                (4,213
                )
                
                
                (298
                )Provision
      for loan losses
                
                
                19,175
                
                
                
                4,250Provision
      for losses on other real estate owned
                
                
                2,507
                
                
                
                627Deferred
      income tax expense (benefit)
                
                
                4,463
                
                
                
                (10
                )Other,
      net
                
                
                (954
                )
                
                
                (228
                )Decrease
      in interest receivable
                
                
                533
                
                
                
                126Decrease
      in other assets
                
                
                1,308
                
                
                
                184Increase
      (decrease) in accounts payable and other liabilities
                
                
                1,908
                
                
                
                (5,671
                )Net cash provided by operating
      activities
                
                
                7,389
                
                
                
                691Cash
      Flows From Investing Activities:Purchases
      of investment securities available-for-sale
                
                
                (301,756
                )
                
                
                (10,143
                )Proceeds
      from sales, maturities and calls of investment securities
      available-for-sale
                
                
                43,881
                
                
                
                10,125Purchases
      of investment securities held-to-maturity
                
                
                —
                
                
                
                (57,576
                )Proceeds
      from the maturity and redemption of investment securities
      held-to-maturity
                
                
                41,112
                
                
                
                8,046Decrease
      in loans, net
                
                
                32,785
                
                
                
                46,658Proceeds
      from sale of other real estate owned
                
                
                1,742
                
                
                
                4,400Cash
      paid for capital expenditures
                
                
                (97
                )
                
                
                (817
                )Net cash (used in) provided by
      investing activities
                
                
                (182,333
                )
                
                
                693Cash
      Flows From Financing Activities:Proceeds
      and excess tax benefits from exercise of employee stock
      options
                
                
                —
                
                
                
                56Cash
      paid to acquire treasury stock
                
                
                —
                
                
                
                (1,114
                )Cash
      dividends paid
                
                
                —
                
                
                
                (828
                )Increase
      (decrease) in deposit accounts
                
                
                178,102
                
                
                
                (115,312
                )Net
      proceeds from short-term borrowings
                
                
                —
                
                
                
                153,000Proceeds
      from long-term borrowings
                
                
                —
                
                
                
                40,500Repayments
      of long-term borrowings
                
                
                (80,839
                )
                
                
                (78,952
                )Net cash provided by (used in)
      financing activities
                
                
                97,263
                
                
                
                (2,650
                )Net decrease in cash and cash
      equivalents
                
                
                (77,681
                )
                
                
                (1,266
                )Cash and cash equivalents,
      beginning of period
                
                
                403,119
                
                
                
                8,944Cash and cash equivalents, end
      of period
                
                $
                325,438
                
                
                $
                7,678Supplemental
      Cash Flow Information:Cash
      paid during the period for interest
                
                $
                39,750
                
                
                $
                38,716Cash
      paid during the period for income taxes
                
                $
                117
                
                
                $
                73Non-Cash
      Investing and Financing Transactions:Loans
      transferred to other real estate owned
                
                $
                16,408
                
                
                $
                4,469Cash
      dividends declared but not yet paid
                
                $
                —
                
                
                $
                868





See
accompanying notes to the unaudited consolidated financial
statements.


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 Table of Contents




IMPERIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES






NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS







NOTE
1 – BASIS OF PRESENTATION AND ORGANIZATION




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, 2009 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, 2008.





The Bank
is currently operating under a Cease and Desist Order (the “Order”) with the
Federal Deposit Insurance Corporation (“FDIC”) and the California Department of
Financial Institutions (“DFI”).  Among other things, the Order
requires the Bank to take certain measures in the areas of management, capital,
loan loss allowance determination, risk management, liquidity management, board
oversight and monitoring of compliance, and restricts payment of dividends and
the opening of branch or other Bank offices.  The Order further
requires the Company to increase and hold the Bank’s Tier 1 leverage ratio above
nine percent and the Bank’s Total Risk-Based Capital ratio above thirteen
percent by August 11, 2009 and for the life of the Order.  As of March
31, 2009, the Bank had a Tier 1 leverage ratio of 5.2% and the Bank’s Total
Risk-Based Capital ratio was 7.8%.  The Bank must also submit to the
regulators within prescribed time periods a revised policy for determining the
allowance for loan losses, plans for reducing commercial real estate loan
concentrations and brokered deposits, a liquidity plan, strategic business plan
and profitability plan. The Order will remain in effect until modified or
terminated by the FDIC and the DFI.





The
Bank’s regulatory capital position has fallen below the level necessary to be
considered “well capitalized” and is now categorized as “undercapitalized” under
the applicable regulatory framework.  Undercapitalized banks may not
accept, renew or rollover brokered deposits or solicit deposits yielding more
than 75 basis points over prevailing rates in either the Bank’s market area or
the area where deposits are solicited.  As of March 31, 2009, the
Company had brokered deposits of $739.2 million.




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 Table of Contents




In
addition, as a result of being undercapitalized the Bank is subject to certain
regulatory restrictions.  These restrictions are generally consistent
with the restrictions identified within the Order and include, among others,
that the Bank generally may not make any capital distributions, must submit an
acceptable capital restoration plan to the FDIC, may not increase its average
total assets during a calendar quarter in excess of its average total assets
during the preceding calendar quarter unless any increase in total assets is
consistent with the capital restoration plan approved by the FDIC and the Bank’s
ratio of tangible equity to total assets increases during the calendar quarter
at a rate sufficient to enable the Bank to become adequately capitalized within
a reasonable time, and may not acquire a business, establish or acquire a branch
office or engage in a new line of business without regulatory approval. In
addition, as part of the required capital restoration plan, the Company must
guarantee that the Bank will return to adequately capitalized status and provide
appropriate assurances of performance of that guarantee. If a capital
restoration plan is not approved by the FDIC or if the Bank fails to implement
the plan in any material respect, the undercapitalized institution is treated as
if it were “significantly undercapitalized”.





In
addition, the Federal Reserve Bank of San Francisco (“FRB San Francisco”)
notified the Company that it may not appoint any new director or senior
executive officer or change the responsibilities of any current senior executive
officers without notifying the FRB.The Company also
may not make indemnification and severance payments without complying with
certain statutory restrictions, including prior written approval of the Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”) and
concurrence from the FDIC.  Further, the Company is generally
prohibited from receiving dividends from the Bank, making any dividend payments
(including distributions on its trust preferred securities) and increasing or
renewing any debt, without receiving prior approval from the FRB San Francisco
of such payments.





The above
factors, and, in particular, the Company’s ability to comply with the terms of
the Order requiring increased capital requirements raise substantial doubt about
the Company's ability to continue as a going concern.  The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts or classifications of liabilities that might result from the outcome
of this uncertainty.





Management’s
strategic plan in connection with addressing the going concern matters discussed
above, focuses on four primary objectives including: (1) improving the Bank’s
asset quality, (2) reducing the Bank’s asset base and improving regulatory
capital ratios, (3) continuing to control and reduce the Company’s expenses, and
(4) reducing the Bank’s reliance on wholesale funding sources.





Management
is also evaluating various strategic options and continues to act upon both
tactical and strategic alternatives to raise capital and restructure our balance
sheet.  While considerable risks to the Company’s future financial
performance exist, management believes that the Company can effectively respond
to these risks and carry on its operations, while it implements this strategic
plan and evaluates opportunities with respect to capital resources.





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 Table of Contents




If
management is not successful in its efforts to raise sufficient additional
capital and restructure the balance sheet, the Bank will not be fully compliant
with the provisions of the Order. As a result, the Federal Reserve, the FDIC
and/or the DFI may take further enforcement or other actions and ultimately
could place the Bank into FDIC receivership.  If a receivership were
to occur, the Bank’s assets would likely be liquidated, including a sale to
another institution, and it would be unlikely that any assets would be
distributed to the Company’s common stock and trust preferred
holders.





For
additional information regarding regulatory actions, refer to Note 15 –
“Regulatory Requirements” and Note 20 – “Subsequent Events” in the Notes to
Consolidated Financial Statements and the section captioned “Regulatory Action”
in Item 1. Business included in the Company’s Form 10-K for the year ended
December 31, 2008.







NOTE
2 – ACCOUNTING FOR STOCK-BASED COMPENSATION




In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123
(revised 2004), “Share-Based Payment”, total stock-based compensation expense
included in our consolidated statements of income for the three months ended
March 31, 2009 and 2008 was approximately $75,000 ($65,000, net of tax or $0.01
per diluted share) and $83,000 ($73,000, net of tax or $0.01 per diluted share),
respectively.  Unrecognized stock-based compensation expense related
to stock options was approximately $342,000 and $710,000, respectively, at March
31, 2009 and 2008.  The weighted-average period over which the
unrecognized expense was expected to be  recognized was 1.2 years and
2.2 years at March 31, 2009 and 2008, respectively.





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, 2009 and 2008.







NOTE
3 – EARNINGS (LOSSES) PER SHARE




Basic
Earnings (Losses) Per Share (“Basic EPS”) is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding for the
period.  Diluted Earnings (Losses) 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, 2009 and 2008
were 494,149 and 565,650, respectively.  Of these options outstanding
as of March 31, 2009 and 2008, 494,149 and 494,450, respectively, were excluded
from the diluted EPS computation as their effect was
anti-dilutive.


-10-
 Table of Contents





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




Net
      Income (Loss)
              
              
              Weighted-
                Average
      Shares
                Outstanding
              
              
              Per
                Share
                Amount(in
      thousands, except per share data)For
      the Three Months Ended March 31,2009Basic
      EPS
              
              $
              (17,734
              )
              
              
              5,429
              
              
              $
              (3.27
              )Effect
      of dilutive stock options
              
              
              —
              
              
              
              —
              
              
              
              —Diluted
      EPS
              
              $
              (17,734
              )
              
              
              5,429
              
              
              $
              (3.27
              )2008Basic
      EPS
              
              $
              697
              
              
              
              5,426
              
              
              $
              0.13Effect
      of dilutive stock options
              
              
              —
              
              
              
              22
              
              
              
              —Diluted
      EPS
              
              $
              697
              
              
              
              5,448
              
              
              $
              0.13







NOTE
4 – COMPREHENSIVE INCOME (LOSS)




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





Three
      Months EndedMarch 31,2009
                  
                  
                  2008(in
      thousands)Net
      (Loss) Income
                  
                  $
                  (17,734
                  )
                  
                  $
                  697Other
      comprehensive income:Change
      in net unrealized (losses) gains on investment securities
      available-for-sale, net of tax benefit (expense) of $1,265 and $(33) for
      the three months ended March 31, 2009 and 2008,
    respectively.
                  
                  
                  (1,898
                  )
                  
                  
                  49Reclassification
      for net gains included in losses, net of tax provisions of $366 for the
      three months ended March31,
      2009.
                  
                  
                  549
                  
                  
                  
                  —Comprehensive
      (Loss) Income
                  
                  $
                  (19,083
                  )
                  
                  $
                  746







NOTE
5 – IMPAIRED LOANS RECEIVABLE




As of
March 31, 2009 and December 31, 2008, the recorded investment in impaired loans
was $195.4 million and $162.6 million, respectively.  The average
recorded investment in impaired loans was $186.4 million and $64.3 million,
respectively, for the three months ended March 31, 2009 and 2008. Interest
income recognized on impaired loans totaled $134,000 and
$192,000 respectively, for the three months ended March 31, 2009 and
2008.







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.





The
Company also adopted FASB Staff Position No. 157-2, "Effective Date of FASB
Statement No. 157," which deferred the application of SFAS No. 157 for
non-financial assets and non-financial liabilities, until January 1,
2009.  Items impacted by this deferral included goodwill and other
real estate and other assets owned (REO), all of which require fair value
measurements as a part of any necessary impairment analysis.





-11-
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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.





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




Assets
      and Liabilities Measured at Fair Value on a Recurring
BasisQuoted
      Prices in Active Markets for Identical Assets
                  (Level
      1)
                
                
                Significant
      Other Observable Inputs (Level 2)
                
                
                Significant
      Unobservable Inputs (Level 3)
                
                
                Ending
      Balance(dollars
      in thousands)AssetsMarch
      31, 2009Investment
      securities – available-for-sale
                
                $
                38
                
                
                $
                403,380
                
                
                $
                623
                
                
                $
                404,041December
      31, 2008Investment
      securities – available-for-sale
                
                $
                59
                
                
                $
                146,045
                
                
                $
                695
                
                
                $
                146,799




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 Table of Contents




Changes
      in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring
      BasisBeginning
      Balance
                
                
                Total
      Realized and Unrealized Gains Included in Income
                
                
                Total
      Realized and Unrealized Gains
                
                
                Purchases,
      Sales, Other Settlements and Issuances, net
                
                
                Net
      Transfers In and/or Out of Level 3
                
                
                Ending
      BalanceNet
      Revaluation of Retained Interests(dollars
      in thousands)AssetsMarch
      31, 2009Investment
      securities – available-for-sale
                
                $
                695
                
                
                $
                —
                
                
                $
                —
                
                
                $
                (72
                )
                
                $
                —
                
                
                $
                623December
      31, 2008Investment
      securities – available-for-sale
                
                $
                1,318
                
                
                $
                —
                
                
                $
                —
                
                
                $
                (623
                )
                
                $
                —
                
                
                $
                695




Certain
financial assets and financial liabilities are measured at fair value on a
non-recurring basis.  These instruments are not measured at fair value
on an ongoing basis but are subject to fair value adjustments in certain
circumstances, such as when there is evidence of impairment. Financial assets
and liabilities measured at fair value on a non-recurring basis during the
quarter ended March 31, 2009 include certain impaired loans reported at the fair
value of the underlying collateral if repayment is expected solely from the
collateral.  Collateral values are estimated using Level 3 inputs
based on limited observable market data and customized discounting
criteria.  During the current period, certain impaired loans were
remeasured and written down to their fair values through a specific valuation
allowance allocation of the allowance for loan losses based upon the fair value
of the underlying collateral.  Impaired loans with a carrying value of
$50.6 million were written down by $6.2 million during the quarter ended March
31, 2009 to a total reported fair value of $44.4 million.





Certain
non-financial assets measured at fair value on a non-recurring basis include
REO, non-financial assets and non-financial liabilities measured at fair value
in the second step of a goodwill impairment test, and intangible assets and
other non-financial long-lived assets measured at fair value for impairment
assessment.  During the current period, certain other real estate
owned, upon initial recognition, were remeasured and reported at fair value
through a charge-off of $650,000 to the allowance for loan losses based upon the
fair value of the foreclosed asset less estimated selling
costs.  During the current period, REO valued subsequent to its
initial recognition, were remeasured and reported at fair value through a
charge-off of $2.5 million to the provision for losses on REO.  The
fair value of REO is estimated using Level 3 inputs based on limited observable
market data and customized discounting criteria.  REO measured at fair
value totaled $49.9 million during the three months ended March 31,
2009.


-13-
 Table of Contents





The
Company’s assets measured at fair value on a non-recurring basis were as
follows:




Assets
      and Liabilities Measured at Fair Value on a Non-Recurring
      BasisQuoted
      Prices in Active Markets for Identical Assets
                  (Level
      1)
                
                
                Significant
      Other Observable Inputs (Level 2)
                
                
                Significant
      Unobservable Inputs (Level 3)
                
                
                Ending
      Balance(dollars
      in thousands)AssetsMarch
      31, 2009Impaired
      loans
                
                $
                —
                
                
                $
                —
                
                
                $
                195,391
                
                
                $
                195,391Other
      real estate and other assets owned
                
                $
                —
                
                
                $
                —
                
                
                $
                49,947
                
                
                $
                49,947December
      31, 2008Impaired
      loans
                
                $
                —
                
                
                $
                —
                
                
                $
                161,793
                
                
                $
                161,793Other
      real estate and other assets owned
                
                $
                —
                
                
                $
                —
                
                
                $
                38,031
                
                
                $
                38,031




NOTE
7 – INCOME TAXES




The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes”, which requires an asset and liability approach for the
financial accounting and reporting of income taxes.  Under this
method, deferred income taxes are recognized for the expected future tax
consequences of differences between the tax bases of assets and liabilities and
their reported amounts in the consolidated financial
statements.  These balances are measured using the enacted tax rates
expected to apply in the year(s) in which these temporary differences are
expected to reverse.  The effect on deferred income taxes of a change
in tax rates is recognized in income in the period when the change is
enacted.





As of
March 31, 2009, the Company recognized an income tax benefit of $4.5 million in
connection with the net operating losses incurred during the quarter ended March
31, 2009.  This benefit was entirely offset by a valuation allowance
established due to uncertainty related to our ability to realize the Company’s
remaining deferred tax assets.  As of March 31, 2009, the Company had
an aggregate valuation allowance of $6.6 million recorded against these deferred
tax assets.  Management will continue to evaluate the potential
realizability of these deferred tax assets and will establish an additional
valuation allowance to the extent it is determined that it is more likely than
not that these assets will not be realized.





NOTE
8 – NEW ACCOUNTING PRONOUNCEMENTS




In
December 2007, the Financial Accounting Standards Board (“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 was effective for the Company on January 1, 2009 and did not have a
significant impact on the Company’s financial condition or results of
operations.





-14-
 Table of Contents




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
was effective for the Company on January 1, 2009 and did not have a significant
impact on the Company's financial condition or results of
operations.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States (the GAAP hierarchy). The hierarchical guidance provided by SFAS
No. 162 did not have a significant impact on the Company’s financial condition
or results of operation.





In April
2009, the FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.”  FSP FAS 157-4 provides additional guidance for estimating
fair value in accordance with SFAS 157 when the volume and level of activity for
the asset or liability have significantly decreased. The FSP also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009, and shall be applied prospectively.  Earlier adoption
is permitted for periods ending after March 15, 2009. The Company does not
expect the adoption of FSP FAS 157-4 to have a material impact on its financial
condition or results of operation.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 amends SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements.  In addition, the FSP amends APB Opinion No. 28, “Interim
Financial Reporting,” to require those disclosures in summarized financial
information at interim reporting periods.  The FSP is effective for
interim periods ending after June 15, 2009, with earlier adoption permitted for
periods ending after March 15, 2009.  The Company does not expect the
adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its
financial condition or results of operation.





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 Table of Contents




In April
2009, the FASB issued FSP FAS 115-1 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments.” FSP FAS 115-1 and FAS 124-2 amends
other-than-temporary impairment guidance for debt securities to make guidance
more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities. The FSP does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities.  FSP FAS 115-1
and FAS 124-2 is effective for interim and annual periods ending after June 15,
2009, with earlier adoption permitted for periods ending after March 15, 2009.
The Company does not expect the adoption of FSP FAS 115-1 and FAS 124-2 to have
a material impact on its financial condition or results of
operation.







NOTE
9 – BUSINESS SEGMENT INFORMATION




SFAS No.
131, “Disclosures About Segments of an Enterprise and Related Information”,
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.





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.


-16-
 Table of Contents




LendingOperations
                
                
                All
      Other
                
                
                Consolidated(in
      thousands)For
      the three months ended March 31,2009Revenues
      from external customers
                
                $
                62,532
                
                
                $
                (127
                )
                
                $
                62,405Total
      interest income
                
                
                61,745
                
                
                
                47
                
                
                
                61,792Total
      interest expense
                
                
                41,226
                
                
                
                1,637
                
                
                
                42,863Net
      loss
                
                
                (15,516
                )
                
                
                (2,218
                )
                
                
                (17,734
                )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
                )
                
                
                697


-17-
 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, 2009.





Regulatory
Action





In
connection with the Cease and Desist Order (the Order) issued on February 17,
2009, management was required to provide its regulators within 60 days of the
date of the Order a detailed capital plan to address how the Bank will remain
“adequately capitalized” and is required to increase the Bank’s Tier 1 leverage
above nine percent and total risk-based capital ratios above thirteen percent
within 180 days from the date of the Order.  The Bank must also submit
to the regulators within prescribed time periods a revised policy for
determining the allowance for loan losses, plans for reducing commercial real
estate loan concentrations and brokered deposits, a liquidity plan, strategic
business plan and profitability plan.  The Order will remain in effect
until modified or terminated by the FDIC and the DFI.  To date,
management has responded to the requirements of the Order within the timeframes
set forth within the Order.





For
additional information regarding regulatory actions, refer to Note 15 –
“Regulatory Requirements” and Note 20 – “Subsequent Events” in the Notes to
Consolidated Financial Statements and the section captioned “Regulatory Action”
in Item 1. Business included in the Company’s Form 10-K for the year ended
December 31, 2008.





Operating
Strategy





Our
financial performance continues to be negatively impacted by national economic
conditions and the deterioration of real estate and credit related
markets.  During the quarter ended March 31, 2009, we recorded a net
loss of $17.7 million, primarily related to a $19.2 million provision for loan
losses that was recorded in connection with a $33.0 million and $148.8 million
increase during the quarter in our non-performing loans and other loans of
concern, respectively.





In
response to these financial challenges and increased regulatory supervision, we
have taken and are continuing to take a number of tactical actions aimed at
preserving existing capital, reducing our lending exposures and associated
capital requirements and increasing liquidity. The tactical actions taken
include, but are not limited to the following: slowing loan originations,
growing retail deposits, reducing brokered deposits, seeking commercial loan
participation and sales arrangements with other lenders or private equity
sources, and reducing personnel and other operating costs. Our goal is to return
to profitability by reducing our size, stabilizing our losses, managing our
problematic assets and reducing overall expenses.





-18-
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We are
currently focused on the following four primary objectives as a basis for
long-term success of our franchise including improving our asset quality,
reducing our asset base and improving our regulatory capital ratios, continuing
our expense control, and reducing our reliance on wholesale funding
sources.  With respect to these initiatives, during the quarter, we’ve
reduced our loan portfolio by $55.8 million, or 2.0%, as well as our Federal
Home Loan Bank (“FHLB”) advances and other borrowings by $80.8 million, or
6.7%.  The decline in borrowings was offset by an increase in deposits
of $178.1 million, or 6.1%, despite a $671,000, or 0.1% decline in brokered
deposits.  During the quarter, we utilized the increased liquidity to
acquire U.S. Treasury and Government National Mortgage Association (“GNMA”)
securities.





We are
also evaluating various strategic options and are seeking the assistance of
investment banking services to evaluate and potentially pursue the prospects of
private equity investment or other capital raising alternatives. While we
continue to act upon both tactical and strategic alternatives to raise capital
and restructure our balance sheet, as has been widely publicized, access to
capital markets is extremely limited in the current economic environment, and we
can give no assurances that in the current financial environment our efforts
will be successful and will result in sufficient capital preservation or
infusion. Our ability to decrease our levels of non-performing assets is also
dependent upon market conditions as many of our borrowers rely on an active real
estate market as a source of repayment, particularly our construction loan
borrowers, and the sale of loans in this market is difficult. If the real estate
market does not improve, our level of non-performing assets may continue to
increase.





For
further discussion, refer to the section captioned “Operating Strategy” within
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,
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 policies related to the allowance for loan
losses and investments accounted for under Statement of Position 03-3 are
considered to be critical, as these policies involve considerable subjective
judgment and estimation by management.  We also consider our
accounting polices related to REO to be critical due to the potential
significance of these activities and the estimates involved.





-19-
 Table of Contents




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, 2008.  There have
been no significant changes in the Company's application of accounting policies
since December 31, 2008.





RESULTS
OF OPERATIONS





Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008




Executive
Summary




Consolidated
net loss was $17.7 million, or $3.27 per diluted share, for the three months
ended March 31, 2009, compared to net income of $697,000, or $0.13 per diluted
share for the same period last year.  The decline in net income during
the current period was primarily caused by a $14.9 million increase in provision
for loan losses recorded in connection with the increase in our non-performing
loans and other loans of concern.





Net
interest income before provision for loan losses decreased 5.7% to $18.9 million
for the quarter ended March 31, 2009, compared to $20.1 million for the same
period last year.  The decrease was primarily due to a decline in
interest earned on our loan portfolio and an increase in interest expense
incurred on our deposits and FHLB and other borrowings.  These
declines were partially offset by an increase in interest earned on our
investment portfolio.





The
provision for loan losses was $19.2 million and $4.3 million, respectively, for
the quarters ended March 31, 2009 and 2008.  The provision for loan
losses recorded during the 2009 first quarter was primarily due to the increase
in our non-performing loans and other loans of concern.  Other loans
of concern consist of performing loans which have known information that has
caused management to be concerned about the borrower’s ability to comply with
present loan repayment terms.  Non-performing loans as of March 31,
2009 were $187.9 million, compared to $154.9 million at December 31,
2008.  The increase in non-performing loans was caused by increases of
$17.1 million in multi-family loans, $9.0 million in commercial real estate
loans and $10.8 million in commercial and multi-family construction loans,
partially offset by decreases of $2.6 million in residential and condominium
conversion construction loans and $783,000 in land development related
loans.  Other loans of concern as of March 31, 2009 were $263.4
million, compared to $114.6 million at December 31, 2008.  The
increase during the current period was primarily caused by the addition of $47.6
million of multi-family real estate loans, $45.2 million of commercial real
estate loans and $41.9 million of construction and land related
loans.





The
(loss) return on average assets was (1.56%) for the three months ended March 31,
2009, compared to 0.08% for the same period last year.  The (loss)
return on average shareholders’ equity was (38.05%) for the three months ended
March 31, 2009, compared to 1.22% for the same period last year.





-20-
 Table of Contents




Loan
originations were $6.4 million for the quarter ended March 31, 2009, compared to
$88.5 million for the same period last year.  During the current
quarter, the Bank originated $6.4 million of small balance multi-family real
estate loans.  Loan originations for the same period last year
consisted of $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.  The decrease in loan production during the current
period related to a decline in customer demand, as well as the Bank’s strategic
objective to reduce our asset base and the concentration of our real estate loan
portfolio.





Net
Interest Income and Margin





The
following table presents for the three months ended March 31, 2009 and 2008, 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 31,2009
                
                
                2008Average
      Balance
                
                
                Income/Expense
                
                
                Yield/Rate
                
                
                Average
      Balance
                
                
                Income/Expense
                
                
                Yield/Rate(dollars
      in thousands)AssetsCash
      and investment securities
                
                $
                1,765,819
                
                
                $
                20,329
                
                
                
                4.67
                %
                
                $
                339,443
                
                
                $
                4,249
                
                
                
                5.03
                %Loans
      receivable
                
                
                2,779,212
                
                
                
                41,463
                
                
                
                6.05
                %
                
                
                3,149,996
                
                
                
                54,835
                
                
                
                7.00
                %Total
      interest earning assets
                
                
                4,545,031
                
                
                $
                61,792
                
                
                
                5.51
                %
                
                
                3,489,439
                
                
                $
                59,084
                
                
                
                6.81
                %Non-interest
      earning assets
                
                
                130,122
                
                
                
                
                
                
                
                
                
                
                
                84,394Allowance
      for loan losses
                
                
                (50,400
                )
                
                
                
                
                
                
                
                
                
                
                (47,436
                )Total
      assets
                
                $
                4,624,753
                
                
                
                
                
                
                
                
                
                
                $
                3,526,397Liabilities
      and Shareholders’ EquityInterest
      bearing deposit accounts:Interest
      bearing demand
                
                $
                55,349
                
                
                $
                305
                
                
                
                2.23
                %
                
                $
                27,951
                
                
                $
                235
                
                
                
                3.38
                %Money
      market and passbook
                
                
                491,360
                
                
                
                3,349
                
                
                
                2.76
                %
                
                
                248,829
                
                
                
                2,459
                
                
                
                3.97
                %Time
      certificates
                
                
                2,580,315
                
                
                
                24,785
                
                
                
                3.90
                %
                
                
                1,802,247
                
                
                
                22,389
                
                
                
                5.00
                %Total interest bearing deposit
      accounts
                
                
                3,127,024
                
                
                
                28,439
                
                
                
                3.69
                %
                
                
                2,079,027
                
                
                
                25,083
                
                
                
                4.85
                %FHLB
      advances and other borrowings
                
                
                1,171,481
                
                
                
                12,787
                
                
                
                4.43
                %
                
                
                1,083,609
                
                
                
                11,918
                
                
                
                4.42
                %Junior
      subordinated debentures
                
                
                86,600
                
                
                
                1,637
                
                
                
                7.67
                %
                
                
                86,600
                
                
                
                2,005
                
                
                
                9.31
                %Total
      interest bearing liabilities
                
                
                4,385,105
                
                
                $
                42,863
                
                
                
                3.96
                %
                
                
                3,249,236
                
                
                $
                39,006
                
                
                
                4.83
                %Non-interest
      bearing demand accounts
                
                
                10,450
                
                
                
                
                
                
                
                
                
                
                
                9,740Other
      non-interest bearing liabilities
                
                
                40,180
                
                
                
                
                
                
                
                
                
                
                
                38,263Shareholders’
      equity
                
                
                189,018
                
                
                
                
                
                
                
                
                
                
                
                229,158Total liabilities andshareholders’
      equity
                
                $
                4,624,753
                
                
                
                
                
                
                
                
                
                
                $
                3,526,397Net
      interest spread (1)
                
                
                
                
                
                
                
                
                
                
                1.55
                %
                
                
                
                
                
                
                
                
                
                
                1.98
                %Net
      interest income before provisionfor
      loan losses
                
                
                
                
                
                $
                18,929
                
                
                
                
                
                
                
                
                
                
                $
                20,078Net
      interest margin (2)
                
                
                
                
                
                
                
                
                
                
                1.69
                %
                
                
                
                
                
                
                
                
                
                
                2.31
                %


____________


(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.





-21-
 Table of Contents




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.





For
      the Three Months EndedMarch
      31, 2009 and 2008Increase
      (Decrease) Due to:Rate
                
                
                Volume
                
                
                Total(in
      thousands)Interest
      and fees earned from:Cash
      and investment securities
                
                $
                (323
                )
                
                $
                16,403
                
                
                $
                16,080Loans
                
                
                (7,161
                )
                
                
                (6,211
                )
                
                
                (13,372
                )Total
      (decrease) increase in interest income
                
                
                (7,484
                )
                
                
                10,192
                
                
                
                2,708Interest
      paid on:Deposit
      accounts
                
                
                (6,986
                )
                
                
                10,342
                
                
                
                3,356FHLB
      advances and other borrowings
                
                
                24
                
                
                
                845
                
                
                
                869Junior
      subordinated debentures
                
                
                (368
                )
                
                
                —
                
                
                
                (368
                )Total
      (decrease) increase in interest expense
                
                
                (7,330
                )
                
                
                11,187
                
                
                
                3,857Decrease
      in net interest income
                
                $
                (154
                )
                
                $
                (995
                )
                
                $
                (1,149
                )





Total
interest income increased $2.7 million to $61.8 million for the
current quarter as compared to $59.1 million for the same period last year.
The increase in interest income was primarily attributable to a $1.4 billion
increase in the average balance of our cash and investment securities, partially
offset by a 95 basis point decrease in the average yield earned on total loans
receivable and a $370.8 million decrease in the average balance of total
loans receivable.





The
average balance of cash and investment securities increased to $1.8 billion
during the quarter compared to $339.4 million during the same period last
year.  The increase in average cash and investment securities was
primarily due to an increase in the average balance of investments
held-to-maturity and cash and cash equivalents.  Investments
held-to-maturity were primarily impacted by the purchase of approximately $861.8
million of corporate sponsored collateralized mortgage obligations (CMOs) during
the second and third quarters of 2008.  At the time of acquisition,
these securities were AAA-rated.  As of March 31, 2009, approximately
92.4% of the securities had been downgraded by the investment rating agencies to
a level below investment grade.  Despite these downgrades, we have
experienced no disruption in our expected cash flows on these
securities.  The average balance of cash and cash equivalents was
primarily impacted by the increased liquidity maintained on our balance sheet
compared to the same period last year.  The average yield earned on
cash and investments decreased to 4.67% during the current quarter as compared
to 5.03% for the same period last year.  This decrease was primarily
due to the increase in lower yielding cash and cash equivalents maintained
during the quarter as compared to the same period last year, partially offset by
an increase in the yield earned on our investment securities
held-to-maturity.  To a lesser extent, net interest income before
provision for loan losses was positively impacted by a $257.2 million increase
in securities available-for-sale.  As discussed below in the
“Financial Condition” section, this increase primarily consisted of the
acquisition of U.S. Treasury and GNMA securities during the current
period.





-22-
 Table of Contents




The
average aggregate balance of our loan portfolio was $2.8 billion and $3.1
billion for the three months ended March 31, 2009 and 2008,
respectively.  Commercial real estate loans had an average aggregate
balance of $564.3 million during the quarter ended March 31, 2009 compared to
$618.5 million during the same period last year.  Construction and
land loans had an average aggregate balance of $395.6 million during the quarter
ended March 31, 2009 compared to $420.2 million during the same period last
year.  Multi-family real estate loans had an average aggregate balance
of $1.7 billion during the quarter ended March 31, 2009 compared to $2.0 billion
during the same period last year.  Single-family residential loans had
an average aggregate balance of $11.1 million during the quarter ended March 31,
2009 compared to $14.2 million during the same period last year.  The
average aggregate balance of entertainment finance loans was $52.1 million and
$70.5 million during the quarters ended March 31, 2009 and 2008,
respectively.





The
average yield earned on total loans decreased to 6.05% during the quarter ended
March 31, 2009 as compared to 7.00% during the same period last
year.  The decrease in yield was primarily due to adjustable rate
loans repricing to lower current market interest rates and an increase in the
average balance of non-performing loans.  The accrual of interest has
been suspended on all of our non-performing loans.  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 53.5% of our loan portfolio was adjustable at
March 31, 2009, and approximately 37.6% 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, 2009, our hybrid loans had a weighted average
of 2.5 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, 2009,
approximately $2.4 billion, or 85.9%, 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, 2009, the weighted average floor interest rate of these loans was
6.84%.  At that date, approximately $741.3 million, or 26.2%, of these
loans were at the floor interest rate.  At March 31, 2009, 48.8% 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 11.92% at that date.  At March 31, 2009, none of these
loans were at their cap rate.





Total
interest expense increased by $3.9 million to $42.9 million during the current
quarter, compared to $39.0 million for the same period last year.  The
increase in interest expense was primarily attributable to a $1.0 billion and
$87.9 million increase in the average balance of deposits and FHLB advances and
other borrowings, respectively, partially offset by an 87 basis point decline in
our average cost of funds, which was primarily caused by deposits repricing to
lower current market interest rates.





-23-
 Table of Contents




Our
average cost of funds decreased to 3.96% during the three months ended March 31,
2009, compared to 4.83% 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 3.69% during the three months ended March 31, 2009
as compared to 4.85% for the same period last year.  The average
balance of deposit accounts increased to $3.1 billion for the three months ended
March 31, 2009 as compared to $2.1 billion for the same period last
year.  The average rate paid on FHLB advances and other borrowings was
4.43% during the three months ended March 31, 2009 compared to 4.42% for the
same period last year.  FHLB advances and other borrowings averaged
$1.2 billion during the current quarter, compared to $1.1 billion for the same
period last year.





Net
interest margin decreased to 1.69% for the three months ended March 31, 2009 as
compared to 2.31% for the same period last year.  This decrease was
primarily caused by a $574.4 million increase in the average balance of lower
yielding cash and cash equivalents, as well as the decline in the yield earned
on our loans.





Provision
for Loan Losses





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





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;





•
            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.


-24-
 Table of Contents





Accordingly,
the calculation of the adequacy of the allowance for loan losses is not based
solely on the level of nonperforming 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 loan with similar
characteristics).  We base the allocation for individual loans on the
estimated collateral value if the loan is collateral dependent, as well as the
risk rating grades assigned to each of these loans as a result of our loan
management and review processes.  Loans evaluated individually
(primarily loans considered impaired or substandard) are allocated reserves
based on the estimated collateral values.  Homogenous groups of loans
are allocated reserves based on the loss ratio assigned to the pool based on its
collateral type and risk grade.  The loss ratio 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.





Loss
ratios for all categories of loans are evaluated on a quarterly basis and are
primarily determined based on historical loss experience.  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.





-25-
 Table of Contents




Management
believes that our allowance for loan losses as of March 31, 2009 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
provision for loan losses was $19.2 million and $4.3 million, respectively, for
the quarters ended March 31, 2009 and 2008.  The provision for loan
losses recorded during the 2009 first quarter was primarily due to the increase
in our non-performing loans and other loans of concern.  The provision
for loan losses was recorded based on an analysis of the factors referred to
above.  Non-performing loans as of March 31, 2009 were $187.9 million,
compared to $154.9 million at December 31, 2008.  The increase in
non-performing loans was caused by increases of $17.1 million in multi-family
loans, $9.0 million in commercial real estate loans and $10.8 million in
commercial and multi-family construction loans, partially offset by decreases of
$2.6 million in residential and condominium conversion construction loans and
$783,000 in land development related loans.  Other loans of concern as
of March 31, 2009 were $263.4 million, compared to $114.6 million at December
31, 2008.  The increase during the current period was primarily caused
by the addition of $47.6 million of multi-family real estate loans, $45.2
million of commercial real estate loans and $41.9 million of construction and
land related loans.  As a percentage of our total loan portfolio, the
amount of non-performing loans was 6.85% and 5.53% at March 31, 2009 and
December 31, 2008, respectively.





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 construction and land loan
portfolio.  Our construction and land loan portfolio at March 31, 2009
totaled $377.2 million, of which $175.4 million were residential and condominium
conversion construction loans and $34.0 million were land development loans,
representing 6.4% and 1.2%, respectively, of our total loan
portfolio.  Within these portfolios, approximately 55.8%, 26.6%, 5.1%
and 5.1% of the underlying collateral was located in California, New York,
Florida and Arizona, respectively.  At March 31, 2009, we had $68.3
million and $13.5 million of non-performing lending relationships within our
residential and condominium conversion construction loans and land development
loans, respectively.  Of these non-performing construction and land
development loans, 12 relationships, with an aggregate balance of $62.7 million,
were located in California (primarily in Los Angeles, Orange County and the
Inland Empire).


-26-
 Table of Contents




The
allowance for loan losses as a percentage of our total loans was 2.29% at March
31, 2009 compared to 1.81% at December 31, 2008.  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, 2009 and December 31,
2008, 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.





During
the quarter ended March 31, 2009, we had net loan charge-offs of $6.8 million as
compared to $3.8 million during the same period last year.  The
current period charge-offs consisted of $6.2 million charge-offs related to
construction and land development loans.  The charge-offs taken have
reduced the balances on the loans to the estimated value of the underlying real
estate collateral based upon recent appraisals.  See also – “Credit
Risk”.





Non-Interest
Income





Non-interest
income increased to $613,000 during the quarter ended March 31, 2009 as compared
to $268,000 for the same period last year.  During the quarter, we
recognized a $1.4 million gain on the sale of investment securities
available-for-sale, which was partially offset by a $1.1 million fee incurred in
connection with the early settlement of our $30 million other
borrowing.  Non-interest income typically consists of late fees and
other miscellaneous fees earned on customer accounts.





Non-Interest
Expense





Non-interest
expense totaled $18.1 million for the current quarter, compared to $14.9 million
for the same period last year.  The increase in non-interest expense
primarily related to a $1.9 million increase in charge-offs for real estate and
other assets owned during the current period and a $1.9 million increase in
other general and administrative costs primarily related to additional FDIC
insurance premiums incurred.  This increase was partially offset by an
$815,000 decline in compensation and benefits, which was primarily related to a
23% workforce reduction incurred during the current quarter.  Our
efficiency ratio (defined as general and administrative expenses as a percentage
of net revenue) was 73.5% for the quarter ended March 31, 2009, as compared to
66.3% for the same period last year.  Our efficiency ratio was
primarily impacted by an $864,000 increase in general and administrative
expenses, as well as the $1.1 million decrease in net interest
income.





Provision
for Income Taxes





Provision
for income taxes was $454,000 for the quarter ended March 31,
2008.  During the current period, the Company recognized a $4.5
million tax benefit in connection with the net loss incurred.  This
benefit was entirely offset by a valuation allowance established due to
uncertainty related to our ability to realize the Company’s remaining deferred
tax assets.  Management will continue to evaluate the potential
realizability of these deferred tax assets and will establish an additional
valuation allowance to the extent it is determined that it is more likely than
not that these assets will not be realized.





-27-
 Table of Contents




FINANCIAL
CONDITION




Total
assets increased $80.3 million to $4.5 billion at March 31, 2009, compared to
$4.4 billion at December 31, 2008.  The increase in total assets was
primarily due to an increase in our liquidity caused by a $178.1 million
increase in retail deposit accounts.  The increase in deposits of
$178.1 million during the quarter primarily related to a $94.4 million increase
in savings accounts and an $83.7 million increase in certificates of
deposit.  We utilized this increased liquidity to reduce FHLB advances
and other borrowings, as part of our strategy to retire wholesale funding at
their maturities, and to acquire U.S. Treasury and GNMA
securities.  FHLB advances and other borrowings declined by $80.8
million during the current period and investment securities available-for-sale
increased by $257.2 million.  The increase in total assets was
partially offset by a $77.7 million decrease in cash and cash equivalents, a
$68.1 million decline in our loan portfolio and a $37.1 million decrease in our
investment securities held-to-maturity.  Additionally, brokered
deposits decreased to $739.2 million at March 31, 2009, compared to $739.9
million at December 31, 2008.  We expect these deposits to decline
further as they continue to mature in the future.  Management believes
that a significant portion of non-brokered time deposits will remain with us
upon maturity based on our historical experience regarding retention of
deposits.  At March 31, 2009, gross loans totaled $2.7 billion,
including approximately $2.7 billion of real estate loans, $52.5 million of
entertainment finance loans, and $9.3 million of other loans.





As of
March 31, 2009 and December 31, 2008, investment securities held-to-maturity had
gross unrealized losses of $217.0 million and $235.8 million,
respectively.  Management has the ability and intent to hold the
securities classified as held-to-maturity until they mature, at which time the
Company expects to receive the face or par value of the securities or, in the
case of securities accounted for under SOP 03-3, the contractually required
payments less the nonaccretable difference.  Furthermore, management
also had the ability and intent to hold the securities classified as
available-for-sale for a period of time sufficient for a recovery of cost. The
unrealized losses are largely due to increases in market interest rates over the
yields available at the time the underlying securities were purchased. The fair
value is expected to recover as these securities approach their maturity date or
repricing date or if market yields for such investments
decline.  Management does not believe any of our securities, with the
exception of the nonaccretable difference identified at acquisition with respect
to the investments accounted for under SOP 03-3, are impaired due to reasons of
credit quality. Accordingly, management believes the investment impairments are
temporary.


-28-
 Table of Contents




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,
                  2009
                
                
                December
      31,
                  2008(dollars
      in thousands)Nonaccrual
      loans:Real
      estate
                
                $
                79,134
                
                
                $
                53,034Construction
      and land
                
                
                108,770
                
                
                
                101,357Entertainment
      finance
                
                
                —
                
                
                
                6Other
                
                
                —
                
                
                
                463Total
      nonaccrual loans
                
                
                187,904
                
                
                
                154,860Other
      real estate and other assets owned, net
                
                
                49,947
                
                
                
                38,031Total
      non-performing assets
                
                
                237,851
                
                
                
                192,891Performing
      troubled debt restructurings
                
                
                7,872
                
                
                
                7,965Total
      non-performing assets and performing troubled debt
      restructurings
                
                $
                245,723
                
                
                $
                200,856Nonaccrual
      loans to total loans
                
                
                6.85
                %
                
                
                5.53
                %Allowance
      for loan losses to nonaccrual loans
                
                
                33.49
                %
                
                
                32.66
                %Non-performing
      assets to total assets
                
                
                5.26
                %
                
                
                4.34
                %





Non-performing
assets were $237.9 million and $192.9 million, representing 5.26% and 4.34% of
total assets as of March 31, 2009 and December 31, 2008,
respectively.  As of March 31, 2009, non-performing loans consisted of
$68.3 million residential and condominium conversion construction real estate
loans, $13.5 million of land development loans, $27.0 million of other
construction projects, $58.8 million of multi-family loans and $20.3 million in
commercial real estate loans.  The allowance for loan loss coverage
ratio (defined as the allowance for loan losses divided by non-accrual loans)
was 33.5% at March 31, 2009 as compared to 32.7% at December 31,
2008.  In addition, our other real estate and other assets owned
increased to $49.9 million at March 31, 2009, as compared to $38.0 million at
December 31, 2008.  As of March 31, 2009, other real estate and other
assets owned consisted of $20.6 million of multi-family real estate, $18.2
million of commercial and multi-family construction projects, $7.6 million of
residential land development, $874,000 of residential and condominium conversion
construction projects, $1.6 million of commercial real estate and $1.0 million
of other assets owned.


-29-
 Table of Contents





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
      31,2009
                
                
                For
      the
                  YearEnded
                  December
      31,2008
                
                
                For
      the Three
                  Months
      Ended
                  March
      31,2008(dollars
      in thousands)Balance
      at beginning of period
                
                $
                50,574
                
                
                $
                47,783
                
                
                $
                47,783Provision
      for loan losses
                
                
                19,175
                
                
                
                77,965
                
                
                
                4,250Charge-offs
                
                
                (6,989
                )
                
                
                (75,923
                )
                
                
                (3,944
                )Recoveries
                
                
                178
                
                
                
                749
                
                
                
                182Net
      charge-offs
                
                
                (6,811
                )
                
                
                (75,174
                )
                
                
                (3,762
                )Balance
      at end of period
                
                $
                62,938
                
                
                $
                50,574
                
                
                $
                48,271Allowance
      for loan losses as a percentageof
      loans, net
                
                
                2.29
                %
                
                
                1.81
                %
                
                
                1.55
                %





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, 2009, we held $325.4 million of cash and cash
equivalents (consisting primarily of short-term investments with original
maturities of 90 days or less) and $404.0 million of investment securities
classified as available-for-sale.





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 March
2009, our credit facility with the FHLB of San Francisco was suspended until
further notice.  As a result, the Bank is prohibited from receiving
any additional FHLB advances until this suspension is
lifted.  Additionally, in March 2009, the Bank’s $30 million
repurchase agreement borrowing was called by the lender prior to its
maturity.  The Bank incurred a $1.1 million penalty expense in 2009 in
connection with the early settlement of this borrowing.  As of March
31, 2009, we had an available borrowing capacity under the Federal Reserve Bank
of San Francisco credit facility of $30.6 million.  During the quarter
ended March 31, 2009, our $68.0 million of uncommitted, unsecured lines of
credit with three unaffiliated financial institutions were cancelled. We do,
however, believe although these credit facilities are not presently available to
us, that our current liquidity position, on-going cashflow from operations, and
retail deposits will meet our anticipated funding needs.


-30-
 Table of Contents





Capital
Resources





The Bank
had Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios at
March 31, 2009 of 5.15%, 6.56% and 7.81%, respectively, which represents $52.9
million, $92.4 million and ($6.8) million, respectively, of capital in excess
(deficit) of the amount required to be “adequately capitalized” for regulatory
purposes.  Capital in excess (deficit) of the amount required to be
“well capitalized” for regulatory purposes was $6.8 million, $20.1 million and
($79.1) million, respectively.  These ratios were 6.04%, 8.04% and
9.30% as of December 31, 2008, respectively.





The
Company, the Bank’s holding company, had Tier 1 leverage, Tier 1 risk-based and
total risk-based capital ratios at March 31, 2009 of 4.63%, 5.90% and 7.90%,
respectively.  These ratios were 5.63%, 7.50% and 9.41% as of December
31, 2008, respectively.





Based on
the Bank’s total risk-based capital ratio, the Bank was undercapitalized at
March 31, 2009. As a result of not being “well capitalized,” the Bank’s
borrowing costs and terms from the Federal Reserve Bank, the FHLB of San
Francisco and other financial institutions, as well as the Bank’s premiums to
the Deposit Insurance Fund, may increase.





During
2008, the Bank formed a wholly-owned subsidiary, Imperial Capital Bank
Resecuritization Trust 2008-1 (the “Trust”), for the purpose of re-securitizing
its portfolio of corporate sponsored CMOs.  The Bank transferred all
of its right, title and other ownership interests in the CMOs to the Trust in
exchange for notes issued by the Trust (the “Notes”). These re-securitized bonds
were rated by independent rating agencies giving consideration to the purchase
discounts and credit enhancements associated with each specific
bond.  The Notes issued by the Trust were then rated.  As of
March 31, 2009, 25.1% of the Notes were rated below investment grade by the
investment rating agencies.  These Note ratings were risk-weighted in
accordance with the Bank’s reading of applicable regulatory capital guidance.
This guidance, however, does not contemplate the specific type of
re-securitization transaction undertaken by the Bank.  After discussions
with the FDIC, the Bank was told to file its December 31, 2008 call report based
on the Bank’s understanding of the risk-based capital treatment of the
re-securitized portfolio of CMOs.  In April 2009 the FDIC informed the
Bank that because it had not sold any of the Notes, it could not rely on its
interpretation of the applicable regulatory guidance.





Accordingly,
the current investment ratings for the underlying CMOs were utilized in
calculating the capital ratios disclosed above.  Because of the
investment rating downgrades associated with our portfolio of CMOs, the Bank is
required to maintain higher levels of regulatory risk-based capital for these
securities due to the greater perceived risk of default.





At March
31, 2009, shareholders' equity totaled $170.7 million, or 3.8% of total
assets.  Our book value per share of common stock was $33.65 as of
March 31, 2009, as compared to $37.76 as of December 31, 2008, and $44.38 as of
March 31, 2008.


-31-
 Table of Contents




Item3. 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, 2008.







Item 4. 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,
2009 under the supervision and with the participation of the Company’s Executive
Committee of the Board of Directors, 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 Executive Committee of the Board of
Directors  and Chief Financial Officer concluded that, as of March 31,
2009, 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
Executive Committee of the Board of Directors 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, 2009, 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.





-32-
 Table of Contents




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.


-33-
 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.




Item 1A. 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,
2008.




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, 2009.




Period
              
              Total
      Number of Shares Purchased
              
              
              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(1)January
      1, 2009 toJanuary
      31, 2009
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              
              110,486February
      1, 2009 toFebruary
      29, 2009
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              110,486March
      1, 2009 toMarch
      31, 2009
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              110,486Total
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              
              110,486


____________


(1)
      There were no repurchases under the twelfth extension of our stock
      repurchase program during the three months ended March 31,
      2009.  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, 2009, 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.




-34-
 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:
      July 7,
      2009
            /s/ Norval L. BruceNorval
      L. BruceMember
      of the Executive Committee ofthe
      Board of Directors





Date:
      July 7,
      2009
            /s/ Hirotaka OribeHirotaka
      OribeMember
      of the Executive Committee ofthe
      Board of Directors





Date:
      July 7,
      2009
            /s/ Robert R. ReedRobert
      R. ReedMember
      of the Executive Committee ofthe
      Board of Directors





Date:
      July 7,
      2009
            /s/ Timothy M. DoyleTimothy
      M. DoyleExecutive
      Managing Director andChief
      Financial Officer




-35-
 Table of Contents


EXHIBIT
INDEX


Regulation
      S-K
                  Exhibit
      Number
                
                Document
                
                Reference
      to Prior Filing 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
                
                ********10.5c
                
                Amendment
      to Amended and Restated Employment Agreement with George W.
      Haligowski
                
                **************10.6
                
                Change
      in Control Severance Agreement with Norval L. Bruce
                
                ********10.6a
                
                Amendment
      to Change in Control Severance Agreement with Norval L.
    Bruce
                
                **************10.7
                
                Change
      in Control Severance Agreement with Timothy M. Doyle
                
                ********10.7a
                
                Amendment
      to Change in Control Severance Agreement with Timothy M.
    Doyle
                
                **************10.8
                
                Change
      in Control Severance Agreement with Lyle C. Lodwick
                
                ********10.8a
                
                Amendment
      to Change in Control Severance Agreement with Lyle C.
    Lodwick
                
                **************10.9
                
                Change
      in Control Severance Agreement with Phillip E. Lombardi
                
                ***********10.9a
                
                Amendment
      to 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
      2009
                
                **************10.19
                
                Description
      of Director Fee Arrangements
                
                **************10.20
                
                Split
      Dollar Agreement
                
                ************10.21
                
                Stipulation
      and Consent to the Issuance of an Order to Cease and
Desist
                
                *************10.22
                
                Order
      to Cease and Desist dated February 17, 2009 issued by the Federal Deposit
      Insurance Corporation and the California Department of Financial
      Institutions
                
                *************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
                
                None24
                
                Power
      of Attorney
                
                None31.1
                
                Rule
      13a-14(a)/15d-14(a) Certification of Co-Principal Executive
      Officer
                
                31.131.2
                
                Rule
      13a-14(a)/15d-14(a) Certification of Co-Principal Executive
      Officer
                
                31.231.3
                
                Rule
      13a-14(a)/15d-14(a) Certification of Co-Principal Executive
      Officer
                
                31.331.4
                
                Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer
                
                31.432
                
                Section
      1350 Certifications of Chief Executive Officer and Chief Financial
      Officer
                
                3299
                
                Press
      release dated May 15, 2009
                
                ***************





*
                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.* *
      * * * * * * * * * *
                Filed
      as an exhibit to the Company’s Form 10-K for the year ended December 31,
      2007.* *
      * * * * * * * * * * *
                Filed
      as an exhibit to the Company’s Current Report on Form 8-K filed on
      February 20, 2009.* *
      * * * * * * * * * * * *
                Filed
      as an exhibit to the Company’s Form 10-K for the year ended December 31,
      2008.* *
      * * * * * * * * * * * * *
                Filed
      as an exhibit to the original filing of the Company’s Form 10-Q for the
      quarter ended March 31,
2009.




-36-