**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**
| **x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**FOR THE QUARTERLY PERIODENDED JUNE 30, 2007**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15  (d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|-------------------------------------------------------------------------------------------------|

 

**For the Transition Period From**                            **To**                   

**Commissionfile number 000-50645**

**THE BANK HOLDINGS**

(Exact name of Registrantas specified in its charter)

| **NEVADA**                |   | **90-0071778**                    |
|---------------------------|--------|-----------------------------------|
| (State of  Incorporation) |   | (IRS Employer  Identification No) |

 

**9990Double R Boulevard, Reno, Nevada  89521**

(Address ofprincipal executive offices)   (Zip Code)

**775-853-8600**

(Registrant’stelephone number, including area code)

**Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.**
|  | **YES** | **x** | **NO** | **o** |
|--|---------|-------|--------|-------|

 

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Act.**

**Largeaccelerated filer   ****o****           AcceleratedFiler   ****o****           Non-acceleratedfiler   ****x**

**Indicateby check mark whether the registrant is an Shell Company (as defined in Rule12b-2 of the Act)**
|  | **YES** | **o** | **NO** | **x** |
|--|---------|-------|--------|-------|

 

**Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.**

**Commonstock, $0.01 par value, 5,831,099 shares outstanding as of August 10, 2007**

 

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Table of Contents
| PART I. FINANCIAL  INFORMATION |
|--------------------------------|
|                           | Item 1. | Financial Statements  (unaudited) |
|                           | Consolidated  Balance Sheets |
|                           | Consolidated  Statements of Operations |
|                           | Consolidated  Statements of Changes in Shareholders’ Equity and Comprehensive Income |
|                           | Consolidated  Statements of Cash Flows |
|                           | Notes  to Consolidated Financial Statements |
|                           |   |
|                           | Item 2. | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                           | Summary |
|                           | Results  of Operations |
|                           |   | Net Interest Income |
|                           |   | Provision and  Allowance for Loan Losses |
|                           |   | Non-interest Income |
|                           |   | Non-Interest Expense |
|                           |   | Provision for Income  Taxes |
|                           |   | Comprehensive Income |
|                           | Financial  Condition |
|                           |   | Securities and  Other Earning Assets |
|                           |   | Loans |
|                           |   | Deposits |
|                           |   | Other  Funding Sources |
|                           |   | Off Balance Sheet  Arrangements |
|                           | Risk Management |
|                           |   | Credit  Risk Management |
|                           |   | Nonperforming  Assets |
|                           | Asset Liability  Management |
|                           |   | Interest Rate Risk |
|                           |   | Market  Risk |
|                           | Liquidity |
|                           | Capital  Resources |
|                           |   |
|                           | Item 3. | Quantitative  and Qualitative Disclosures about Market Risk |
|                           |   |   |
|                           | Item  4. | Controls  and Procedures |
|                           |   |
| PART II. OTHER  INFORMATION    |
|                           |
|                           | Item 1. | Legal Proceedings |
|                           | Item  1A. | Risk  Factors |
|                           | Item 2. | Unregistered  Sales of Equity Securities and Use of Proceeds - not applicable |
|                           | Item 3. | Defaults Upon  Senior Securities - not applicable |
|                           | Item 4. | Submission of  Matters to a Vote of Security Holders |
|                           | Item 5. | Other Information - not  applicable |
|                           | Item  6. | Exhibits |
|                           |   |
| Signatures                     |   |
| Exhibits                       |   |
|                                |  |  |  |  |

 

2

----

**PART I – FINANCIALSTATEMENTS**

**Item 1**

THE BANK HOLDINGS ANDSUBSIDIARIES

CONSOLIDATEDBALANCE SHEETS

(Dollars in thousands) 
| ** **                                                                                                                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                               | ** ** | **2007 (1)** | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                               |       |              |       |                  |       |
| Cash and due  from banks                                                                                                                 |       | $                 | 28,797     |                  | $          | 31,851 |   |
| Liquid money  market funds                                                                                                               |       | 1,175             |       | 1,337                 |       |
| Federal funds  sold                                                                                                                      |       | 13,900            |       | 535                   |       |
| Cash and cash equivalents                                                                                                                |       | 43,872            |       | 33,723                |       |
| Securities  available for sale, at fair value                                                                                            |       | 12,081            |       | 16,337                |       |
| Securities held  to maturity, at amortized cost                                                                                          |       | 71,000            |       | 76,590                |       |
| Securities -  trading, at market value                                                                                                   |       | 4,903             |       | 4,299                 |       |
| Other equity  securities, at cost                                                                                                        |       | 4,396             |       | 4,750                 |       |
| USDA/SBA loans  (at fair value, unpaid principal $10,683)                                                                                |       | 10,064            |       | —                |       |
| Loans, gross                                                                                                                             |       | 466,872           |       | 463,858               |       |
| Allowance for  loan losses                                                                                                               |       | (5,584            | )          | (5,430                | )          |
| Deferred loan  fees, net                                                                                                                 |       | (832              | )          | (997                  | )          |
| Loans, net                                                                                                                               |       | 470,520           |       | 457,431               |       |
| Premises and  equipment, net                                                                                                             |       | 7,558             |       | 7,857                 |       |
| Bank Owned Life  Insurance                                                                                                               |       | 9,290             |       | 11,868                |       |
| Intangible  assets                                                                                                                       |       | 1,652             |       | 2,373                 |       |
| Goodwill                                                                                                                                 |       | 29,781            |       | 28,344                |       |
| Other assets                                                                                                                             |       | 6,947             |       | 7,968                 |       |
| **TOTAL ASSETS**                                                                                                                         |       | $                 | 662,000    |                  | $          | 651,540 |   |
|                                                                                                                                     |       |              |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                           |       |              |       |                  |       |
| Deposits:                                                                                                                                |       |              |       |                  |       |
| Non-interest  bearing demand                                                                                                             |       | $                 | 59,026     |                  | $          | 73,748 |   |
| Interest bearing  demand                                                                                                                 |       | 10,776            |       | 10,921                |       |
| Savings                                                                                                                                  |       | 73,081            |       | 77,767                |       |
| Money Market                                                                                                                             |       | 109,690           |       | 107,107               |       |
| IRA’s                                                                                                                               |       | 4,180             |       | 4,398                 |       |
| Time deposits  < $100,000                                                                                                             |       | 162,730           |       | 155,903               |       |
| Time deposits  > $100,000                                                                                                             |       | 64,224            |       | 67,153                |       |
| Total deposits                                                                                                                           |       | 483,707           |       | 496,997               |       |
| Short term  borrowed funds                                                                                                               |       | 50,000            |       | 31,265                |       |
| Long term  borrowed funds                                                                                                                |       | 8,000             |       | 8,265                 |       |
| Junior  subordinated debt                                                                                                                |       | 20,619            |       | 20,619                |       |
| Exchange  liabilities                                                                                                                    |       | 18,434            |       | 13,290                |       |
| Minority  shareholder interest in subsidiaries                                                                                           |       | 1,000             |       | 1,427                 |       |
| Accrued interest  payable and other liabilities                                                                                          |       | 5,736             |       | 6,109                 |       |
| Total Liabilities                                                                                                                        |       | 587,496           |       | 577,972               |       |
| Shareholders’ equity:                                                                                                               |       |              |       |                  |       |
| Preferred stock, $.01  par value, 20,000,000 shares authorized; no shares issued or outstanding                                          |       | —            |       | —                |       |
| Common stock, $.01 par  value, 10,000,000 shares authorized; 5,831,099 issued and outstanding as of  June 30, 2007 and December 31, 2006 |       | 58                |       | 54                    |       |
| Surplus                                                                                                                                  |       | 73,600            |       | 73,345                |       |
| Accumulated  earnings                                                                                                                    |       | 1,671             |       | 878                   |       |
| Accumulated  other comprehensive loss                                                                                                    |       | (825              | )          | (709                  | )          |
| Total shareholders’  equity                                                                                                         |       | 74,504            |       | 73,568                |       |
| **TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                      |       | $                 | 662,000    |                  | $          | 651,540 |   |

 

----

(1) The June 30, 2007 information isunaudited.

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

3

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THEBANK HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)
| ** **                                                                      | ** ** | **For the Three-Month Period** | ** ** | **For the Six Month Period** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                      | ** ** | **Ended June 30, (1)**         | ** ** | **Ended June 30, (1)**            | ** ** |
| ** **                                                                      | ** ** | **2007**                                      | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                      | ** ** | ** **                                    | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest income:**                                                            |       |                                          |       |                                             |       |   |   |   |   |
| Federal funds  sold and other                                                   |       | $                                             | 165        |                                             | $          | 219 |   | $ | 465 |   | $ | 345 |   |
| Debt securities,  taxable                                                       |       | 694                                           |       | 920                                              |       | 1,556 |   | 1,771 |   |
| Debt securities,  non-taxable                                                   |       | 184                                           |       | 59                                               |       | 360 |   | 90 |   |
| Dividends                                                                       |       | 57                                            |       | 23                                               |       | 107 |   | 50 |   |
| Loans, including  fees                                                          |       | 10,122                                        |       | 5,695                                            |       | 20,076 |   | 10,844 |   |
| **Total interest and dividend  income**                                         |       | 11,222                                        |       | 6,916                                            |       | 22,564 |   | 13,100 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Interest expense:**                                                           |       |                                          |       |                                             |       |   |   |   |   |
| Deposits                                                                        |       | 4,496                                         |       | 2,810                                            |       | 9,576 |   | 5,450 |   |
| Other borrowed  funds, notes payable and debt                                   |       | 1,088                                         |       | 464                                              |       | 2,000 |   | 891 |   |
| **Total interest expense**                                                      |       | 5,584                                         |       | 3,274                                            |       | 11,576 |   | 6,341 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Net interest income**                                                         |       | 5,638                                         |       | 3,642                                            |       | 10,988 |   | 6,759 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| Provision (recapture)  for loan losses                                          |       | 234                                           |       | (124                                             | )          | 414 |   | 349 |   |
| Net interest income,  after provision for loan losses                           |       | 5,404                                         |       | 3,766                                            |       | 10,574 |   | 6,410 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Non-interest income:**                                                        |       |                                          |       |                                             |       |   |   |   |   |
| Service charges  on deposit accounts                                            |       | 83                                            |       | 56                                               |       | 160 |   | 108 |   |
| Other service  charges, commissions and fees                                    |       | 127                                           |       | 36                                               |       | 206 |   | 69 |   |
| Pre-underwriting  fees                                                          |       | —                                        |       | —                                           |       | — |   | 9 |   |
| Income on bank  owned life insurance                                            |       | 101                                           |       | 63                                               |       | 210 |   | 132 |   |
| Exchange fee  income                                                            |       | 65                                            |       | 40                                               |       | 79 |   | 52 |   |
| Unrealized gain on  trading securities                                          |       | 356                                           |       | 53                                               |       | 436 |   | 101 |   |
| Unrealized loss on  loans at fair value                                         |       | (130                                          | )          | —                                           |       | (85 | ) | — |   |
| Realized gain on  sale of fixed assets                                          |       | (3                                            | )          | 2                                                |       | 11 |   | 2 |   |
| Realized gain  (loss) on sale of investments, net                               |       | 6                                             |       | (1                                               | )          | 10 |   | (3 | ) |
| **Total non-interest income**                                                   |       | 605                                           |       | 249                                              |       | 1,027 |   | 470 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Non-interest expense:**                                                       |       |                                          |       |                                             |       |   |   |   |   |
| Salaries and  employee benefits                                                 |       | 2,333                                         |       | 1,750                                            |       | 4,978 |   | 3,390 |   |
| Occupancy and  equipment                                                        |       | 709                                           |       | 494                                              |       | 1,516 |   | 906 |   |
| Marketing                                                                       |       | 264                                           |       | 126                                              |       | 484 |   | 216 |   |
| Data processing                                                                 |       | 146                                           |       | 195                                              |       | 312 |   | 384 |   |
| Deposit  servicing costs                                                        |       | 275                                           |       | 76                                               |       | 528 |   | 145 |   |
| Accounting,  legal and tax                                                      |       | 240                                           |       | 134                                              |       | 392 |   | 263 |   |
| Other  professional services                                                    |       | 153                                           |       | 136                                              |       | 333 |   | 261 |   |
| Telephone and  data communications                                              |       | 182                                           |       | 58                                               |       | 303 |   | 102 |   |
| Other                                                                           |       | 377                                           |       | 379                                              |       | 766 |   | 563 |   |
| **Total non-interest expense**                                                  |       | 4,679                                         |       | 3,348                                            |       | 9,612 |   | 6,230 |   |
| **Net income before income tax  provision and minority shareholder allocation** |       | 1,330                                         |       | 667                                              |       | 1,989 |   | 650 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Loss attributable to minority  shareholders**                                 |       | (15                                           | )          | (35                                              | )          | (39 | ) | (35 | ) |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **Provision for income taxes**                                                  |       | 541                                           |       | 33                                               |       | 767 |   | 40 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| **NET INCOME**                                                                  |       | $                                             | 804        |                                             | $          | 669 |   | $ | 1,261 |   | $ | 645 |   |
|                                                                            |       |                                          |       |                                             |       |   |   |   |   |
| Net earnings per share:                                                         |       |                                          |       |                                             |       |   |   |   |   |
| Basic                                                                           |       | 0.14                                          |       | 0.19                                             |       | 0.22 |   | 0.19 |   |
| Diluted                                                                         |       | 0.13                                          |       | 0.18                                             |       | 0.21 |   | 0.18 |   |

 

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(1) The period ending data for June 30, 2007and 2006 are unaudited.

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

4

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THEBANK HOLDINGS AND SUBSIDIARIES

Consolidated Statement of Shareholders’ Equity andComprehensive Income

For the Six Month Periods Ending June 30, 2007 and June 30, 2006 (1)
| ** **                                                                            | ** ** | **Comprehensive  Income/Loss** | ** ** | **Shares of  Common  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid in  Capital** | ** ** | **Accumulated  Earnings/  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income/Loss** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|-------------------|------------|---------------------------------------|------------|-------------------------------------|------------|----------------------------------------------------|------------|-----------|------------|
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance at December 31, 2005**                                                      |       |                           |       | 3,124,266                         |       | $                 | 30         |                                  | $          | 30,431                              |       | $                                                  | (1,205     | )         | $          | (554 | ) | $ | 28,702 |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Stock options exercised                                                               |       |                           |       | 1,000                             |       | —            |       | 10                                    |       | —                              |       | —                                             |       | 10        |       |
| Warrants exercised                                                                    |       |                           |       | 323,738                           |       | 3                 |       | 3,386                                 |       |                                |       |                                               |       | 3,389     |       |
| Stock Dividend February  15, 2007                                                     |       |                           |       | 172,450                           |       |              |       |                                  |       |                                |       |                                               |       |      |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net Income                                                                            |       | $                              | 645        |                              | —     |              | —     |                                  | —     |                                | 645        |                                               | —     |      | 645        |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Compensation expense  related to stock options                                        |       |                           |       | —                            |       | —            |       | 329                                   |       | —                              |       | —                                             |       | 329       |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Other comprehensive  income:                                                          |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Unrealized  holding gains on securities available for sale arising during the period  |       | 108                            |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Less  reclassification adjustment for gains included in net income                    |       | 2                              |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net unrealized  holding gains                                                         |       | 110                            |       |                              |       | —            |       | —                                |       | —                              |       | 110                                                |       | 110       |       |
| Comprehensive Income                                                                  |       | $                              | 755        |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance at June 30, 2006**                                                          |       |                           |       | 3,621,454                         |       | $                 | 33         |                                  | $          | 34,156                              |       | $                                                  | (560       | )         | $          | (444 | ) | $ | 33,185 |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance at December 31, 2006**                                                      |       |                           |       | 5,831,099                         |       | 54                |       | 73,345                                |       | 878                                 |       | (709                                               | )          | 73,568    |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Stock dividend February  15, 2007                                                     |       |                           |       |                              |       | 4                 |       |                                  |       | (4                                  | )          |                                               |       | —    |       |
| Cumulative adjustment  effect of FAS 159 adoption                                     |       |                           |       |                              |       |              |       |                                  |       | (464                                | )          |                                               |       | (464      | )          |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net Income                                                                            |       | $                              | 1,261      |                              | —     |              | —     |                                  | —     |                                | 1,261      |                                               | —     |      | 1,261      |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Compensation expense  related to stock options                                        |       |                           |       | —                            |       | —            |       | 255                                   |       | —                              |       | —                                             |       | 255       |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Other comprehensive  income:                                                          |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Unrealized  holding losses on securities available for sale arising during the period |       | (106                           | )          |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Less  reclassification adjustment for losses included in net income                   |       | (10                            | )          |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net unrealized  holding losses                                                        |       | (116                           | )          |                              |       | —            |       | —                                |       | —                              |       | (116                                               | )          | (116      | )          |
| Comprehensive Income                                                                  |       | $                              | 1,145      |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance at June 30, 2007**                                                          |       |                           |       | 5,831,099                         |       | $                 | 58         |                                  | $          | 73,600                              |       | $                                                  | 1,671      |      | $          | (825 | ) | $ | 74,504 |   |

 

----

(1)The periods ending June 30, 2007 and 2006 are unaudited.

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

5

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THEBANK HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)
| ** **                                                            | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                                        | ** ** | **2006** | ** ** |
| **Cash Flows from operating activities:**                             |       |                                                            |       |   |   |
| **Net Income**                                                        |       | $                                                               | 1,261      |   | $ | 645 |   |
| Adjustments to  reconcile net income to cash                          |       |                                                            |       |   |   |
| provided (used)  by operating activities:                             |       |                                                            |       |   |   |
| Provision for  loan losses                                            |       | 414                                                             |       | 349 |   |
| Stock option  compensation expense                                    |       | 255                                                             |       | 329 |   |
| Net amortization  of securities                                       |       | 215                                                             |       | 86 |   |
| Depreciation                                                          |       | 724                                                             |       | 233 |   |
| Unrealized  (gain) loss on trading account                            |       | (436                                                            | )          | (101 | ) |
| Activity of  trading account, net                                     |       | (168                                                            | )          | (2,709 | ) |
| Unrealized loss  on loans carried at fair value                       |       | 85                                                              |       | — |   |
| Loss  attributable to minority shareholders                           |       | (39                                                             | )          | (35 | ) |
| Activity of  exchange assets, net                                     |       | 5,144                                                           |       | — |   |
| Realized (gain)  loss on sales of fixed assets, net                   |       | (11                                                             | )          | — |   |
| Realized (gain)  loss on sales of available for sale investments, net |       | (10                                                             | )          | 3 |   |
| Net change in:                                                        |       |                                                            |       |   |   |
| Other assets and  liabilities, net                                    |       | (739                                                            | )          | (720 | ) |
| **Net  cash provided by operating activities**                        |       | 6,695                                                           |       | (1,920 | ) |
|                                                                  |       |                                                            |       |   |   |
| **Cash flows from investing  activities:**                            |       |                                                            |       |   |   |
| Activity in the  available for sale securities:                       |       |                                                            |       |   |   |
| Proceeds from  sales, maturities, prepayments and calls               |       | 5,406                                                           |       | 3,514 |   |
| Purchases                                                             |       | (1,684                                                          | )          | (1,340 | ) |
| Activity in held to  maturity securities:                             |       |                                                            |       |   |   |
| Proceeds from  maturities, prepayments, and calls                     |       | 12,325                                                          |       | 8,241 |   |
| Purchases                                                             |       | (6,814                                                          | )          | (16,626 | ) |
| Activity of  non-marketable securities, net                           |       | 354                                                             |       | (224 | ) |
| Investment in non-bank  subsidiaries, net                             |       | (370                                                            | )          | (3,722 | ) |
| (Decrease) Increase in  bank owned life insurance                     |       | 2,578                                                           |       | (132 | ) |
| Loan originations and  principal collections, net                     |       | (13,242                                                         | )          | (35,560 | ) |
| Purchases of premises  and equipment                                  |       | (279                                                            | )          | (409 | ) |
| **Net  cash provided by (used in) investing activities**              |       | (1,726                                                          | )          | (46,258 | ) |
|                                                                  |       |                                                            |       |   |   |
| **Cash flows from financing  activities:**                            |       |                                                            |       |   |   |
| Net (decrease) increase  in deposits                                  |       | (13,290                                                         | )          | 4,068 |   |
| (Repayment)/ proceeds  from other borrowed funds, net                 |       | 18,470                                                          |       | 22,530 |   |
| Proceeds from exercise  of stock warrants                             |       | —                                                          |       | 3,389 |   |
| Proceeds from exercise  of stock options                              |       | —                                                          |       | 10 |   |
| **Net  cash provided by (used in) financing activities**              |       | 5,180                                                           |       | 29,997 |   |
|                                                                  |       |                                                            |       |   |   |
| **Net change in cash and cash  equivalents**                          |       | 10,149                                                          |       | (18,181 | ) |
|                                                                  |       |                                                            |       |   |   |
| **Cash and cash equivalents at  beginning of the period**             |       | 33,723                                                          |       | 42,271 |   |
| **Cash and cash equivalents at  end of the period**                   |       | $                                                               | 43,872     |   | $ | 24,090 |   |

 

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(1) The periods ending June 30, 2007 and 2006are unaudited.

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

6

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**THE BANK HOLDINGS ANDSUBSIDIARIES**

**Notes toConsolidated Financial Statements (Unaudited)**

**June 30,2007**

**NOTE – 1 THE BUSINESS OF THE BANKHOLDINGS**

***Natureof Banking Activities***

The Bank Holdingsis a bank holding company, which provides a full range of banking services tocommercial and consumer customers through its wholly owned subsidiary, NevadaSecurity Bank (“the Bank”).  The Bank hassix banking offices in northern Nevada and two offices in California. The California branches are separately branded as Silverado Bank.

The Company,during the first quarter of 2006 acquired two qualified intermediary companiesRocky Mountain Exchange (formerly known as Big Sky Property Exchange) andGranite Exchange, Inc. which facilitate tax-deferred real estate transactionsunder Section 1031 of the Internal Revenue Code.  Rocky Mountain is located in Bozeman Montana,and Granite is headquartered in Roseville, California.  Qualified intermediaries select the financialinstitution to hold the depositor accounts created as part of the exchangetransactions.  These subsidiaries havebeen consolidated on the Company’s books.

The Company’sother direct subsidiaries are The Bank Holdings Statutory Trust I, aConnecticut statutory trust which was formed in November 2005 to solelyfacilitate the issuance of variable rate capital trust pass through securitiesand NNB Holdings Statutory Trust I which was formed in June 2005 as asubsidiary of NNB Holdings, Inc., and was acquired by the Company in the mergerwith NNB Holdings, Inc.  NNB HoldingsStatutory Trust I is a Delaware Statutory Trust also formed to facilitate theissuance of capital trust pass through securities.  Pursuant to FASB Interpretation No. 46R *Consolidation of Variable Interest Entities* (FIN 46R), TheBank Holdings Statutory Trust I and NNB Holdings Statutory Trust I are notreflected on a consolidated basis in the financial statements of the Company.

These entities arecollectively referred to herein as the Company. The accounting and reporting policies of the Company conform toaccounting principles generally accepted in the United States of America andgeneral practices within the banking industry.

**NOTE 2 – BASIS OF PRESENTATION**

***Principlesof Consolidation and Basis of Presentation***

On July 9, 2003,the stockholders of Nevada Security Bank approved the exchange of their commonstock in Nevada Security Bank for common stock in the newly formed holdingcompany, The Bank Holdings.  Thistransaction was consummated on August 29, 2003 and was accounted for athistorical cost. Nevada Security Bank was organized on February 26, 2001 andopened for business on December 27, 2001. The consolidated financial statements include the accounts of The BankHoldings and its wholly-owned subsidiaries, Nevada Security Bank and RockyMountain Exchange, and its majority owned subsidiary Granite Exchange. Allsignificant inter-company balances and transactions have been eliminated inconsolidation.

***Useof Estimates***

The accompanyingunaudited consolidated financial statements of the Bank Holding and itsmajority-owned subsidiaries have been prepared in a condensed format, andtherefore do not include all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements.  The information furnished in these interimstatements reflects all adjustments which are, in the opinion of management,necessary for a fair statement of the results for each respective periodpresented.  Such adjustments are of anormal recurring nature, unless otherwise disclosed in this Form 10-Q.

7

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Operating resultsfor the three and six month periods ended June 30, 2007 are not necessarilyindicative of the results that may be expected in future periods. The balancesheet at December 31, 2006 is from the audited financial statements at thatdate, but this document does not include all of the information and footnotesrequired by generally accepted accounting principles for complete annualfinancial statements.  The interimfinancial information should be read in conjunction with the Company’s 2006Annual Report on Form 10-K.

Analysis ofcertain interim financial information has been presented for both end-of-periodand reporting period average balances. It is anticipated that for historical review, average balances may bemore pertinent to eliminate seasonality, quarter-end growth anomalies, andcomputational rounding.

In preparingconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America and general practices withinthe banking industry, management is required to make estimates and assumptionsthat affect the reported amount of assets and liabilities as of the date of thebalance sheet and reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.  Materialestimates that are particularly susceptible to significant change in the nearterm relate to the determination of the allowance for loan losses.

***OperatingSegment Information***

We manage our operations and prepare management reports and otherinformation with a primary focus on lines of business.  As of June 30, 2007, we operated one banklocated in two distinctive regional markets in two states, and two qualifiedintermediary companies in two distinct geographic areas.  The operating segments are separated intobank, non-bank financial services and parent. Such segment reporting eliminates transactions between noted operatingareas, and the accounting policies of the individual segments are the same asthose of the Company.  Transactionsbetween operating segments are primarily conducted at fair value, resulting inprofits that are eliminated for reporting consolidated results of operations.  Operating segments pay for centrally providedservices based upon estimated or actual usage of those services.

Table 8presents selected operating segment information for the six and three monthperiods ended June 30, 2007 and 2006.

***Loans***

The Company grantsreal estate, commercial, and consumer loans to customers.  A substantial portion of the loan portfoliois represented by real estate loans throughout northern Nevada and northernCalifornia.  The ability of the Company’sborrowers to honor their contracts is dependent upon the real estate andgeneral economic conditions in these areas.

Loans are reportedat their outstanding unpaid principal balances reduced by the allowance forloan losses, and any deferred fees or costs on originated loans.  Interest income is accrued on the unpaidprincipal balance.  The Company hasadopted FAS 159 *“Fair Value Option of Financial Assets andFinancial Liabilities”*for those USDA/SBA loans which were purchasedby the Company during 2003 and 2004 when the loan portfolio was smaller thanthe investment portfolio.  The Companytook a charge of $464,000 to retained earnings on January 1, 2007 when theloans were initially marked to market. The Company recorded $85,000 of mark to market losses on these loansduring the first half of 2007.  TheCompany includes these fair value loans in its gross loan totals.

***IncomeTaxes***

The Company filesits income taxes on a consolidated basis with its subsidiaries.  The allocation of income tax expenserepresents each entity’s proportionate share of the consolidated provision fortaxes.  Deferred income tax assets andliabilities are determined using the liability (or balance sheet) method.

8

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Under this method,the net deferred tax asset or liability is determined based on the tax effectsof the temporary differences between the book and tax bases of the variousbalance sheet assets and liabilities and gives current recognition to changesin tax rates and laws.  Therefore,deferred taxes are recognized for the tax consequences of temporary differencesby applying enacted statutory tax rates applicable to future years todifferences between tax financial statement carrying amounts and the basis ofexisting assets and liabilities.  Theeffect on deferred taxes of a change in tax rates would be recognized in incomein the period that includes the enactment date.

The Company setsaside a provision for income taxes on a monthly basis.  The amount of the tax provision is determinedby applying the Company’s statutory income tax rates to pre-tax book income,adjusted for permanent differences between pre-tax book income and actualtaxable income.  Such permanentdifferences include but are not limited to tax-exempt interest income;increases in the cash surrender value of bank-owned life insurance, certainexpenses that are not allowed as tax deductions, and tax credits.

***Reclassification***

Variousreclassifications may have been made in the prior periods in order to beconsistent with the presentation as of June 30, 2007.  Further, certain captions may have had minorrevisions to more accurately reflect activities of the Company.  There were no changes to previously reportedshareholders’ equity or net income.

**NOTE 3 –FAIR VALUE MEASUREMENT**

Effective January1, 2007, the Company adopted FAS 157 “*Fair Value Measurements,”*concurrent with its early adoption of FAS 159 *“The FairValue Option for Financial Assets and Financial Liabilities.”*   FAS 157 clarifies the definition of fairvalue and describes methods available to appropriately measure fair value inaccordance with generally accepted accounting principles.  This statement applies whenever otheraccounting pronouncements require or permit fair value measurements.  FAS 159 allows entities to irrevocably electfair value as the initial and subsequent measurement attribute for certainfinancial assets and financial liabilities that are not otherwise required tobe measured at fair value, with changes in fair value recognized in earnings asthey occur.  FAS 159 also requiresentities to report those financial assets and liabilities that are measured atfair value in a manner that separates those reported fair values from thecarrying amounts of similar assets and liabilities measured using anothermeasurement attribute on the face of the statement of financial condition.  FAS 159 establishes presentation and disclosurerequirements designed to improve comparability between entities that electdifferent measurement attributes for similar assets and liabilities.  The Company has elected early adoption of FAS159 effective January 1, 2007 for USDA/SBA loans purchased during late 2003 andearly 2004.

The Companybelieves its adoption of FAS 159 will have a positive impact on its ability tobetter manage the balance sheet and interest rate risks which were associatedwith this group of specifically acquired assets while potentially benefitingthe net interest margin, net interest income, net income and earning per commonshare during the remainder of 2007, as well as in future periods.  These loan purchases were initiated when theCompany’s sole subsidiary Nevada Security Bank was just two years old andsuffered from a lack of substantive loan growth.  Further, interest rates were at a very lowebb and these loans were purchased at a yield of approximately 5%.  While this yield was approximately 150 basispoints greater than the Bank’s investment portfolio yield, current loanportfolio yields for internally generated loans are in the range of 8%.  As a result, purchased loans are available inthe market at narrower spreads and higher interest rates.  With a lower than market coupon rate, andsubstantial premiums paid at acquisition, the Company’s cost basis of thepurchased loans recorded on the statement of condition does not properlyreflect the true opportunity costs to the Company.

FAS 157 requiresthe fair value of the assets or liabilities to be determined based on theassumptions that market participant’s use in pricing the financialinstrument.  In developing thoseassumptions, the

9

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Company identifiedcharacteristics that distinguish market participants generally, and consideredfactors specific to (a) the asset type, (b) the principal (or mostadvantageous) market for the asset group, and (c) market participants with whomthe reporting entity would transact in that market.  These loans may be sold in a secondary marketwith a limited number of active market participants.  An active market quote to determine pricingand the current market value of these loans in the secondary market wascompleted as of December 31, 2006 and June 30, 2007 and obtained from arecognized investment brokerage house. These factors met the definition of the most advantageous market andform the basis of the determination of a precise method for determining thevalue of these loans.

The Companyperforms fair-market valuations on certain assets as the result of theapplication of accounting guidelines that were in effect prior to the adoptionof FAS 157.  These assets includesecurities that are available for sale and are valued based upon open-marketquotes obtained from reputable third-party brokers.  Market pricing is based upon specific CUSIPidentification for each individual security. Changes in fair value are recorded in other comprehensive income.

The followingtable summarizes the Company’s financial instruments that were measured at fairvalue as of June 30, 2007.
| **Description of Financial Instrument** | ** ** | **June 30,  2007**              | ** ** | **Quoted Prices  in Active  Markets for  Individual  Assets Level 1** | ** ** | **Significant  Other  Observable  Inputs  Level 2** | ** ** | **Significant  Unobservable  Inputs Level 3** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                             | ** ** | **(Dollars in thousands)** | ** ** |
|                                                   |       |                                 |       |                                                                                           |       |                                                     |       |                                                    |       |
| Securities Available  for Sale                         |       | $                                    | 12,081     |                                                                                           | $          | 12,081                                                   |       | $                                                       | —     |   | $ | — |   |
| USDA/SBA Loans                                         |       | 10,064                               |       | —                                                                                         |       | 10,064                                                   |       | —                                                  |       |
|                                                   |       |                                 |       |                                                                                           |       |                                                     |       |                                                    |       |
| Total                                                  |       | $                                    | 22,145     |                                                                                           | $          | 12,081                                                   |       | $                                                       | 10,064     |   | $ | — |   |

 

The followingtable presents a reconciliation of retained earnings at the initial adoption ofFAS 159 for the Company’s USDA/SBA loan portfolio.
| **January 1, 2007 Prior to Adoption**                        | ** ** | **January 1,  2007 Prior to  Adoption** | ** ** | **Net Gain  (Loss) upon  Adoption** | ** ** | **January 1,  2007 After  Adoption** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                            | ** ** | **(Dollars in thousand)**                    | ** ** |
| USDA/SBA Loans                                                                        |       | $                                                      | 14,448     |                                          | $          | (736                                           | )          | $ | 13,712 |   |
|                                                                                  |       |                                                   |       |                                          |       |                                           |       |
| Pre-tax cumulative  effect of adoption of the fair value option                       |       | (736                                                   | )          |                                          |       |                                           |       |
| Increase in deferred  tax asset                                                       |       | 272                                                    |       |                                          |       |                                           |       |
|                                                                                  |       |                                                   |       |                                          |       |                                           |       |
| Cumulative effect of adoption of the fair value option (charge to  retained earnings) |       | (464                                                   | )          |                                          |       |                                           |       |
|                                                                                       |            |                                                        |            |                                               |            |                                                |            |  |  |  |

 

During the firstsix months of 2007, a pre-tax unrealized loss of $85,000 was recorded inearnings, representing the change in fair value of these loans from the fairvalue election date of January 1, 2007. The fair value at June 30, 2007 was calculated using fair valuehierarchy level two and in the same manner as the valuation at January 1, 2007.

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**NOTE 4 – SHARE BASED COMPENSATION**

***StockOption Plan***

The Company has astock-based employee compensation plan, which is more fully described in Note14 of The Company’s 2006 Annual Report on Form 10-K.  On January 1, 2006 the Company adopted theFinancial Accounting Standards Board (“FASB”) Statement No. 123(R), *Accounting for Share Based Payments.*  FAS 123(R) requires all share-based paymentsto employees, including grants of employee stock options to be recognized inthe financial statements based on the grant-date fair value of the award.  The fair value is amortized over the impliedservice period (generally the vesting period). The Company previously accounted for stock-based awards to employeesunder the intrinsic value provisions of APB 25 in which no compensation costwas required to be recognized for options granted that had an exercise priceequal to the market value of the underlying common stock on the date of thegrant.

The Company hasadopted FAS 123(R) using the modified-prospective-transition method.  Under that transition method, compensationcost recognized in the six months ended June 30, 2007 includes: a) compensationcost for all share-based awards granted prior to, but not yet vested as ofJanuary 1, 2006, and b) compensation cost for all share-based awards grantedsubsequent to January 1, 2006.  Theresults for prior periods have not been restated.
| ** **                                  | ** ** | **Quarter Ended June 30, 2007** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **Number  of Shares**                          | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** |
| Options  outstanding at beginning of period |       | 727,117                                             |       | 13.62 |   |   |   |   |   |
| Granted                                     |       | —                                              |       | — |   |   |   |   |   |
| Cancelled/Forfeited                         |       | —                                              |       | — |   |   |   |   |   |
| Exercised                                   |       | —                                              |       | — |   |   |   |   |   |
| Options  outstanding at end of period       |       | 727,117                                             |       | 13.62 |   | $ | 2,190,900 |   | 7.11 Years |   |
|                                        |       |                                                |       |   |   |   |   |   |   |
| Exercisable  (vested) at end of period      |       | 573,837                                             |       | 12.52 |   | $ | 2,185,405 |   | 6.62 Years |   |

 
| ** **                                  | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                  | ** ** | **Number  of Shares**                                  | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** |
| Options  outstanding at beginning of period |       | 630,717                                                     |       | 12.83 |   |   |   |   |   |
| Granted                                     |       | 96,400                                                      |       | 18.83 |   |   |   |   |   |
| Cancelled/Forfeited                         |       | —                                                      |       | — |   |   |   |   |   |
| Exercised                                   |       | —                                                      |       | — |   |   |   |   |   |
| Options  outstanding at end of period       |       | 727,117                                                     |       | 13.62 |   | $ | 2,190,900 |   | 7.12 Years |   |
|                                        |       |                                                        |       |   |   |   |   |   |   |
| Exercisable  (vested) at end of period      |       | 573,837                                                     |       | 12.52 |   | $ | 2,185,405 |   | 6.62 Years |   |
|                                        |       |                                                        |       |   |   |   |   |   |   |

 

11

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|                                                                  | ** ** | **Six Months Ended  June 30, 2007** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Weighted average  grant-date fair value of stock options granted |       | $                                                       | 6.71       |   |
| Total fair value of  stock options vested                        |       | $                                                       | 4,103,810  |   |

 

For the six months ending June 30, 2007 the Company recognized $255,000of compensation expense related to stock options.  As of the period ending June 30, 2007, therewas $821,000 in unrecognized compensation expense related to non-vested stockoptions with a weighted average life of 6.74 years.
|                            | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|----------------------------|------------|-------------------------------------------------------------|------------|
| Risk free  interest rate   |       | 4.98                                                        | %          |
| Expected  dividend yield   |       | 0.0                                                         | %          |
| Expected life in  years    |       | 7.0                                                         |       |
| Expected price  volatility |       | 21.1                                                        | %          |

 

(1)The Black Scholes option valuation model requires the input of highlysubjective assumptions, including the expected life of the stock based awardand stock price volatility.  Theassumptions listed above represent management’s best estimates, but theseestimates involve inherent uncertainties and the application of managementjudgment.  As a result, if otherassumptions had been used, the Company’s recorded compensation expense couldhave been materially different from that depicted above.  In addition, the Company is required toestimate the expected forfeiture rate and only recognize expense for thoseshares expected to vest.  If the Company’sactual forfeiture rate is materially different from the estimate, theshare-based compensation expense could be materially different.

**NOTE 5 – EARNINGS PER SHARE**

Income per sharefor all periods presented in the unaudited Consolidated Statements ofOperations and Comprehensive Income are computed based on the weighted averagenumber of shares outstanding during each period.  Options outstanding as of June 30, 2007totaled 727,117. Warrants were exercisable during the period beginning March23, 2006 and ending June 30, 2006. Unexercised warrants expired.  Thecomputation of basic and diluted earnings per weighted average shareoutstanding is as follows:
| ** **                                                                                        | ** ** | **Quarter Ending  June 30,** | ** ** | **Six Months Ending**June 30, | ** ** |
|---------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2007**                               | ** ** | **2006 (1)**                            | ** ** | **2007** | ** ** | **2006 (1)** | ** ** |
|                                                                                              |       |                                   |       |                                         |       |   |   |   |   |
| Average number  of common shares outstanding                                                      |       | 5,831,099                              |       | 3,444,489                                    |       | 5,831,099 |   | 3,363,531 |   |
| Effect of  dilutive options                                                                       |       | 163,064                                |       | 119,927                                      |       | 155,066 |   | 121,295 |   |
| Effect of  dilutive warrants                                                                      |       | —                                 |       | 75,349                                       |       | — |   | 109,841 |   |
| Average number  of common shares outstanding used to calculate diluted earnings per common  share |       | 5,994,163                              |       | 3,639,765                                    |       | 5,986,165 |   | 3,594,667 |   |
|                                                                                              |       |                                   |       |                                         |       |   |   |   |   |
| Net income                                                                                        |       | $                                      | 804        |                                         | $          | 669 |   | $ | 1,261 |   | $ | 645 |   |
| Basic net income  per share                                                                       |       | $                                      | 0.14       |                                         | $          | 0.19 |   | $ | 0.22 |   | $ | 0.19 |   |
| Diluted net income per  share                                                                     |       | $                                      | 0.13       |                                         | $          | 0.18 |   | $ | 0.21 |   | $ | 0.18 |   |

 

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(1) Adjusted for 5% stockdividend declared February 15, 2007.

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**NOTE 6 – INCOME TAXES**

FASB Statement 109, FIN 48 provides guidance for the recognition,derecognition and measurement in financial statements of tax positions taken inpreviously filed tax returns or tax positions expected to be taken in taxreturns. FIN 48 requires an entity to recognize the financial statement impactof a tax position when it is more likely than not that the position will besustained upon examination. If the tax position meets the more-likely-than-notrecognition threshold, the tax effect is recognized at the largest amount ofthe benefit that is greater than fifty percent likely of being realized uponultimate settlement. FIN 48 requires that a liability created for unrecognizedtax benefits shall be presented as a liability and not combined with deferredtax liabilities or assets. The application of FIN 48 may also affect the taxbasis of assets and liabilities and therefore may change or create deferred taxliabilities or assets.

The Company has not been previously examined by any income taxauthority. Management believes that in the event of an examination by a taxingauthority, that it is more likely than not that the reported tax positions willbe upheld. Accordingly, because management expects the taxing authority toallow the reported positions when and if examined, the more-likely-than-notrecognition threshold has been met.

**NOTE 7 – OTHER BORROWED FUNDS**

The Company hasentered into two agreements with correspondent banks under which it canpurchase federal funds up to $11.5 million. The interest charged on borrowings is determined by the lendinginstitution at the time of the borrowing. These lines of credit are for short-term use, are unsecured and arerenewed on an annual basis.  There wereno balances outstanding under these agreements at June 30, 2007, and December31, 2006.

As part of thepurchase price of the Company’s two exchange intermediaries, the Company issuedtwo notes payable in the amount of $265,000 each, with one and two yearmaturities payable at prime.  One notewas paid off during the quarter ended March 31, 2007 and the other was paidduring the quarter ended June 30, 2007.

Other borrowedfunds include $20.6 million of subordinated debentures. The Company originallyissued $15.5 million of these debentures and $4.2 million of such funds wereinvested in the Bank to maintain adequate capital levels in line withregulatory guidelines.  An additional$5.1 million in debentures were acquired in the merger with NNB Holdings, Inc.

The Company alsohas an agreement with the Federal Home Loan Bank of San Francisco (FHLB) toborrow funds.  Advances arecollateralized by qualifying assets pursuant to collateral agreements with theFHLB.  Under such agreements there wereovernight advances of $50.0 million and $31.0 million outstanding as of June30, 2007, and December 31, 2006, respectively. In addition to the overnight advances there were term advances in theamount of $8.0 million outstanding as of June 30, 2007 and December 31, 2006pursuant to previous agreements with Northern Nevada Bank, which was purchasedin November 2006.  There were $44.3million in securities collateral and $57.8 million borrowing capacity in loancollateral available for this source as of June 30, 2007 as compared to $64.0million available as of December 31, 2006.

**NOTE 8 –RECENT ACCOUNTING PRONOUNCEMENTS**

**FASB159**

InFebruary 2007, the FASB issued SFAS No. 159, *Fair Value Option for Financial Assets and Financial Liabilities,including an amendment of FASB Statement No. 115.* SFAS 159permits entities to choose to measure many financial instruments and certainother items at fair value at specified election dates. The fair value optionmay be applied instrument by instrument with certain exceptions and is appliedgenerally on an irrevocable basis to the entire instrument. SFAS 159 iseffective for financial statements

13

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issuedfor fiscal years beginning after November 15, 2007. Early adoption is permittedunder certain circumstances. Management has adopted FAS 159 and FAS 157concurrently as of January 1, 2007 for certain USDA/SBA loans that werepurchased in late 2003 and early 2004. Management is evaluating the impact this Statement may have on the restof the Company’s financial statements.

**FASB 158**

In September 2006, the FASB issued Statementof Accounting Standards No. 158 (“FAS 158”) *Employers Accounting forDefined Benefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87,88,106 and 132(R).* This statement improves financial reporting by requiring an employer torecognize the over-funded or under-funded status of a defined benefitpostretirement plan as an asset or liability and to recognize changes in thatfunded status in the year in which the changes occur through comprehensiveincome.  Public companies are required toinitially recognize the funded status of a defined benefit postretirement planand to provide the required disclosures as of the end of the fiscal year endingafter December 15, 2006.

Inthe Company’s Form 10-K for the fiscal year ended December 31, 2006, a FAS 158transition adjustment in the amount of $522,000 net of tax, was recognized as acomponent of the ending balance of Accumulated Other Comprehensive Income /(Loss).  This adjustment was misappliedas a component of Comprehensive Income. The table below reflects the misapplication of this adjustment atDecember 31, 2006:
| ** **                            | ** ** | **As Reported** | ** ** | **Misapplied** | ** ** | **As Revised** | ** ** |
|---------------------------------------|------------|----------------------|------------|----------------|------------|---------------------|------------|
|                                  |       |                 |       |           |       |                |       |
| Other  Comprehensive Loss, Net of Tax |       | $                    | (155       | )              | $          | (522                | )          | $ | 367 |   |
|                                  |       |                 |       |           |       |                |       |
| Comprehensive Income                  |       | $                    | 1,928      |           | $          | (522                | )          | $ | 2,450 |   |

 

TheCompany will correct the Other Comprehensive Loss and Comprehensive Incomepresentations in the Form 10-K for the fiscal year ending December, 31 2007.

**FASB157**

InSeptember 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*. The statement defines fair value,establishes a framework for measuring fair value and expands disclosures aboutfair value measurements. The statement emphasizes that fair value is amarket-based measurement, not an entity-specific measurement and establishes afair value hierarchy. This statement also clarifies how the assumptions of riskand the effect of restrictions on sales or use of an asset effect the valuation.SFAS 157 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears. Early adoption is permitted. FAS 157 must be adopted concurrently withFAS 159.  The Company adopted FAS 157 asof January 1, 2007.

**EITF06-04**

InSeptember 2006, the Emerging Issues Task Force (“EITF”) of the FASB ratifiedEITF Issue No. 06-4, *Accounting forDeferred Compensation and Postretirement Benefit Aspects of EndorsementSplit-Dollar Life Insurance Arrangements*, and EITF IssueNo. 06-5, *Accounting for Purchases ofLife Insurance – Determining the Amount That Could Be Realized in Accordancewith FASB Technical Bulletin No. 85-4, Accounting for Purchases of LifeInsurance*. EITF 06-4 provides that an employer should recognize aliability for future benefits based on the substantive agreement with theemployee. The Issue should be applied to fiscal years beginning afterDecember 15, 2007, with earlier application permitted. EITF 06-5 providesthat in determining the amount recognized as an asset, a policyholder shouldconsider the cash surrender value as well as any additional amounts included inthe contractual terms of the policy that will be paid upon surrender. Theamount that could be realized should be calculated at the individual policylevel and consider any probable contractual limitations, including theexclusion of any additional amounts paid for the surrender of an entire groupof policies. The Issue is effective for fiscal years beginning after

14

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December 15,2007. The banking subsidiary of the Company has life insurancearrangements.  We are currentlyevaluating the impact of adoption of this rule on the Company’s financialstatements and results of operations.

**FASB FIN 48**

InJune 2006, the FASB issued Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes*, which provides clarification foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109, *Accounting for IncomeTaxes*. This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also provides guidance on de-recognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. The Interpretation is effective for fiscal years beginning afterDecember 31, 2006.  The adoption of FIN48 as of January 1, 2007 did not have a material affect on the Company’sfinancial positions, results of operations or cash flows.

**Summary**

The list of recent accounting pronouncements noted above, while not anexhaustive list, includes those which we believe will, or may, have thegreatest likelihood of application to the Company’s consolidated balance sheetsand/or consolidated statements of income. We believe that adoption of these standards will not have a materialimpact on our financial condition or results of operations, however, no absoluteassurance can be given that this in fact, will occur.

**NOTE 9 – SUPPLEMENTAL DISCLOSUREOF CASH FLOW INFORMATION**

During the sixmonths ended June 30, 2007 and 2006, cash paid for interest expense on interestbearing liabilities was $12.1 million and $6.4 million, respectively.  There was no real estate acquired in thesettlement of loans for the periods ending June 30, 2007 or 2006.

15

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**SummarySelected Consolidated Financial Data**
| ** **                                  | ** ** | **Six Months Ended June 30,**                               | ** ** | **Year Ended** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                  | ** ** | **2007**                                                                        | ** ** | **2006 (3)**   | ** ** | **December 31, 2006** | ** ** |
| ** **                                  | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| **Condensed  Statement of Operations**      |       |                                                                            |       |                |       |   |   |
| Interest Income                             |       | $                                                                               | 22,564     |                | $          | 13,100 |   | $ | 31,039 |   |
| Interest Expense                            |       | 11,576                                                                          |       | 6,341               |       | 15,083 |   |
| Net Interest Income                         |       | 10,988                                                                          |       | 6,759               |       | 15,956 |   |
| Provision for  Loan Losses                  |       | 414                                                                             |       | 349                 |       | 771 |   |
| Non-interest  income                        |       | 1,027                                                                           |       | 470                 |       | 1,682 |   |
| Non-interest  expense                       |       | 9,612                                                                           |       | 6,230               |       | 13,582 |   |
| Loss  attributable to minority shareholders |       | (39                                                                             | )          | (35                 | )          | 127 |   |
| Provision for  income taxes                 |       | 767                                                                             |       | 40                  |       | 1,075 |   |
| Net Income                                  |       | $                                                                               | 1,261      |                | $          | 645 |   | $ | 2,083 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Period  End Data**                        |       |                                                                            |       |                |       |   |   |
| Assets                                      |       | 662,000                                                                         |       | 418,548             |       | 651,540 |   |
| Loans, gross (4)                            |       | 476,936                                                                         |       | 280,890             |       | 463,858 |   |
| Securities                                  |       | 83,082                                                                          |       | 89,827              |       | 92,927 |   |
| Deposits                                    |       | 483,707                                                                         |       | 342,266             |       | 496,997 |   |
| Other borrowed  funds                       |       | 78,619                                                                          |       | 37,994              |       | 60,149 |   |
| Shareholders’  Equity                  |       | 74,504                                                                          |       | 33,185              |       | 73,568 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Average  Balance Sheet**                  |       |                                                                            |       |                |       |   |   |
| Assets                                      |       | 651,972                                                                         |       | 391,145             |       | 452,179 |   |
| Loans, gross                                |       | 471,789                                                                         |       | 266,127             |       | 308,411 |   |
| Securities                                  |       | 90,389                                                                          |       | 92,573              |       | 91,736 |   |
| Deposits                                    |       | 495,063                                                                         |       | 325,825             |       | 359,932 |   |
| Shareholders’  Equity                  |       | 74,133                                                                          |       | 30,011              |       | 41,256 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Asset  Quality**                          |       |                                                                            |       |                |       |   |   |
| Non-performing  assets (1)                  |       | 1,881                                                                           |       | —              |       | 549 |   |
| Allowance for  loan loss                    |       | 5,584                                                                           |       | 3,004               |       | 5,430 |   |
| Net Charge-offs                             |       | 260                                                                             |       | —              |       | — |   |
| Non-performing  assets to total assets      |       | 0.28                                                                            | %          | —              |       | 0.08 | % |
| Allowance for  loan loss to loans           |       | 1.17                                                                            | %          | 1.07                | %          | 1.17 | % |
| Net Charge-offs  to average loans           |       | 0.06                                                                            | %          | —              |       | — |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Per  Common Share (3)**                   |       |                                                                            |       |                |       |   |   |
| Basic income per  share                     |       | 0.22                                                                            |       | 0.19                |       | 0.51 |   |
| Diluted income  per share                   |       | 0.21                                                                            |       | 0.18                |       | 0.49 |   |
| Book value per  share                       |       | 12.78                                                                           |       | 9.62                |       | 12.62 |   |
| Period end  common shares outstanding       |       | 5,831,099                                                                       |       | 3,621,454           |       | 5,831,099 |   |
| Average shares  outstanding - basic         |       | 5,831,099                                                                       |       | 3,363,531           |       | 4,117,351 |   |
| Average shares  outstanding - diluted       |       | 5,997,156                                                                       |       | 3,594,667           |       | 4,290,122 |   |
| ** **                                  |       |                                                                            |       |                |       |   |   |
| **Financial  Ratios**                       |       |                                                                            |       |                |       |   |   |
| Return on  average assets                   |       | 0.39                                                                            | %          | 0.33                | %          | 0.46 | % |
| Return on  average equity                   |       | 3.43                                                                            | %          | 4.33                | %          | 5.05 | % |
| Net interest  margin (2)                    |       | 3.77                                                                            | %          | 3.62                | %          | 3.81 | % |
| Tier 1 leverage  capital ratio              |       | 10.41                                                                           | %          | 8.39                | %          | 9.85 | % |

 

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(1)  Non-performingassets consists of loans 90 days or more delinquent and still accruinginterest, investments or loans placed on non-accrual status, and other realestate owned.

(2)  Netinterest income calculated on a fully-taxable equivalent basis divided byaverage interest-earning assets. 

(3)  Reflects5% stock dividend declared on February 15, 2007.

(4)  IncludesUSDA/SBA loans carried at fair value.

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**THE BANK HOLDINGS ANDSUBSIDIARIES**

**Item 2**

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**FORWARD LOOKING STATEMENTS**

Certain statements contained herein are not based on historical factsand are “forward-looking statements” within the meaning of Section 21A of theSecurities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions, maybe identified by reference to a future period or periods, or by the use offorward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,”“anticipate,” “continue” or similar terms or variations on those terms or thenegative of those terms.  Forward-lookingstatements are subject to various factors (some of which are beyond ourcontrol), which could cause actual results to differ materially from theseestimates.  These factors include, butare not limited to, changes in general economic conditions, interest rates,deposit flows, loan demand, competition, legislation or regulation andaccounting principles, policies or guidelines, as well as other economic,competitive, governmental, regulatory and technological factors affecting theCompany’s operations.  We do notundertake, and specifically disclaim any obligation, to publicly release theresult of any revisions which may be made to any forward-looking statements toreflect the occurrence of events or circumstances after the date of suchstatements.

**CRITICALACCOUNTING POLICIES**

The Company’s financial statements are prepared in accordance withaccounting principles generally accepted in the United States.  The financial information contained withinthese statements is, to a significant extent, based on approximate measures ofthe financial effects of transactions and events that have alreadyoccurred.  Critical accounting policiesare those that involve the most complex and subjective decision andassessments, and have the greatest potential impact on the Company’s statedresults of operations.  We consider thefollowing allowance for loan losses to be our critical accounting policy due tothe potential impact on our results of operations and the carrying value ofcertain of our assets based on any changes in judgments and assumptions requiredto be made by us in the application of these policies.  The Company has made no substantive changesin its critical accounting policies and assumptions compared to the disclosuresmade in The Bank Holdings Annual Report on Form 10-K for the year endedDecember 31, 2006.

***Allowance for Loan Losses***

We maintain an allowance for loan losses at a level which we believe issufficient to cover probable charge-offs on loans deemed to be uncollectiblebased on continuous review of a variety of factors.  These factors consist of the character andsize of the loan portfolio, business and economic conditions, loan growth,delinquency trends, nonperforming loan trends, portfolio migration data (whenappropriate), historical charge-offs, peer data, and other asset qualityfactors.  The primary means of adjustingthe level of this allowance is through the provision for loan losses, which isestablished and charged to income on a monthly basis.  Although we use available information toestablish the appropriate level of the allowance for loan losses, futureadditions to the allowance may be necessary because our estimates of thepotential losses in our loan portfolio are susceptible to change as a result ofchanges in the factors noted above.  Anysuch increase would adversely affect our results of operations.  Our allowance for loan losses was $5.6million and $3.0 million at June 30, 2007 and 2006, respectively. The provisionfor loan losses was $234,000 for the quarter ended June 30, 2007 and a reversalof $124,000 for the quarter ended June 30, 2006.

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For the commercial and real estate loan portfolios, we evaluatespecific loan status reports on all loans, including certain loans which mayhave been classified as impaired.  On anongoing basis an independent loan review function reviews all new loans as wellas “watch” and any classified loans to ensure the accuracy of the loanclassifications.  Estimated reserves foreach of these credits are determined by reviewing current collateral value,financial information, cash flow, payment history and trends and other relevantfacts surrounding the particular credit. Provisions for losses on any remaining loans are based on pools ofsimilar loans using a combination of historical loss from the Bank and itspeers.

**OVERVIEW**

The Company earns income from two primary sources; net interest incomegenerated by the successful employment of earning assets less the costs ofinterest-bearing liabilities, and net non-interest income, which is generatedby service charges on deposit accounts and other service charges, commissionsand fees charged for other services provided, less the operating costs ofproviding the full range of banking and exchange services to ourcustomers.  Pre-underwriting loan fees,gains on sale of securities, exchange fees on real estate 1031 transactions,increase in cash surrender value of bank owned life insurance and unrealizedgains or losses on the Company’s trading account comprise other areas ofnon-interest income.

**SUMMARY:Results of Operations – 2nd Quarter**

Net income for the quarter ended June 30, 2007 was $804,000 as comparedwith $669,000 for the quarter ended June 30, 2006.  Basic and diluted earnings per share for thesecond quarter of 2007 were $0.14 and $0.13 compared with basic and dilutedearnings per share of $0.19 and $0.18, respectively for the same quarter of2006.  The Company’s quarterly return onaverage equity was 4.40% and quarterly return on average assets was 0.51% forthe quarter ended June 30, 2007, compared to a return on average equity of8.70% and average assets of 0.67% for the quarter ended June 30, 2006.  The primary drivers behind the variance innet income for the second quarter of 2007 relative to the second quarter of2006 are as follows:

·                  Net income was $804,000, an increase of 20%over the second quarter of 2006.

·                  Non-interest income was $605,000, an increaseof 143% over the second quarter of 2006.

·                  Total loans outstanding increased to a record$477 million, a 70% increase over the second quarter of 2006.

·                  Core earnings, (income from continuingoperations before income taxes) were $1.345 million, an increase of 92% fromthe same quarter of last year.

·                  Net interest margin was 3.94%, a 12 basispoint increase over the same period last year.

·                  Net interest income increased by $2.0million, or 55% due primarily to an increase of $194.3 million in averageearning assets along with a 12 basis point increase in net interest margin.

·                  Bank owned life insurance cash surrendervalue increase amounted to $101,000 for the second quarter of 2007, an increaseof $38,000 or 60% over the same period in 2006.

·                  Unrealized gains on trading securitiesamounted to $356,000 for the quarter ending June 30, 2007 as compared to$53,000 for the same period in 2006, an increase of $303,000 or 572%.

·                  Salaries and benefits increased $583,000 or33% as compared to the same period in 2006. These increases reflect the 54% increase in FTE from period to period.

·                  Occupancy expense increased $215,000 or 44%for June 30, 2007 as compared to June 30, 2006 largely due to the addition ofde novo branches opened by the Company along with the locations acquired in themerger with NNB Holdings, Inc.

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·                  The Company recorded $110,000 in amortizationcosts for intangible assets that were acquired in the merger, during thequarter ending June 30, 2007 and had no corresponding expenses for the sameperiod of 2006.

Quarterly Average balances and rates are provided in Table 1.

**SUMMARY:Results of Operations – YTD**

Net income for the six months ended June 30, 2007 was $1.3 million ascompared with $645,000 for the same period ending June 30, 2006, an increase of$616,000 or 96%.  Basic and dilutedearnings per share for the six months of 2007 were $0.22 and $0.21respectively, compared with basic and diluted earnings per share of $0.19 and$0.18, respectively, for the same period of 2006 based on a substantially lowernumber of shares outstanding.  TheCompany’s YTD return on average equity was 3.43% and YTD return on averageassets was 0.39% for the six months ended June 30, 2007, compared to a returnon average equity of 4.33% and average assets of 0.33% for the same periodended June 30, 2006.  The primary driversbehind the variance in net income for the first half of 2007 relative to thesame period of 2006 are as follows:

·                  Net income was $1.261 million for the firstsix months of 2007, and was an increase of 96% over the same period in 2006.

·                  Non-interest income was $1.027 million, anincrease of 119% for the six months ended June 30, 2007 compared to the sameperiod in 2006.

·                  Core earnings (income from continuingoperations before income taxes) were $1.989 million, an increase of 206% overthe first six months of 2006.

·                  Net interest margin was 3.77% for the firstsix months of 2007, a 15 basis point increase over the same period in 2006.

·                  Net interest income increased by $4.2million, or 63% due primarily to an increase of $212.0 million in averageearning assets along with a 15 basis point increase in net interest margin.

·                  Bank owned life insurance cash surrendervalue increase amounted to $210,000 for the first six months of 2007, anincrease of $78,000 or 59% over the same period in 2006.

·                  Unrealized gains on trading equities amountedto $436,000 for the six months ending June 30, 2007 as compared to $101,000 forthe same period in 2006, an increase of $335,000 or 332%.

·                  Salaries and benefits increased $1.6 millionor 47% as compared to the same period in 2006. These increases reflect the 54% increase in FTE from period to period.

·                  Occupancy expense increased $610,000 or 67%for June 30, 2007 as compared to June 30, 2006 largely due to the addition ofde novo branches opened by the Company along with the locations acquired in themerger with NNB Holdings, Inc.

·                  The Company recorded $220,000 in amortizationcosts for intangible assets that were acquired during the merger during the sixmonths ending June 30, 2007 and had no corresponding expenses for the sameperiod of 2006.

YTD Average balances and rates are provided in Table 1a.

**SUMMARY: Financial Condition**

The Company’s total assets were slightly over $662 million at June 30,2007, an increase of $10 million or 2%, over total assets of $652 million atDecember 31, 2006.  The most significantcharacteristics of and changes in the company’s balance sheet during the firstsix months of 2007 are outlined below:

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·                  For the six months ended June 30, 2007investment securities decreased $9.8 million from December 31, 2006 or 11%.Average investment securities decreased $2.2 million to $90.4 million or 2% atJune 30, 2007 compared to the same period ended 2006.  The Company did not acquire any investmentsecurities in the merger with NNB Holdings, Inc.

·                  Gross loans including USDA/SBA loans at fairvalue were $477 million at June 30, 2007 compared with $464 million at December31, 2006.  Average gross loans as of June30, 2007 of $472 million when compared with June 30, 2006 showed an increase of$206 million or 77%.  The Companyacquired $120 million in loans during the merger with NNB Holdings, Inc.  Without the acquired loans, average grossloans increased $86 million or 32%.

·                  For the YTD period ended June 30, 2007 totalassets increased $10 million or 2% to $662 million from December 31, 2006.  Compared with June 30, 2006 average assetsincreased $261 million or 67%.  TheCompany acquired $150 million in assets during the merger with NNB Holdings,Inc.  Without those acquired assets,average assets increased $111 million or 28%.

·                  The Company sold, during the quarter, $3.3million of bank owned life insurance acquired in the merger with NNB Holdings,Inc. and its subsidiary Northern Nevada Bank.

·                  Total deposits decreased by $13 million or 3%during the six month period ending June 30, 2007 to $484 million.  Average deposits increased $169 million to$495 million or 52% at June 30, 2007 compared with the same period in2006.  The Company acquired $126 millionin deposits during the merger with NNB Holdings, Inc.  Without the acquired deposits, averagedeposits increased $43 million or 13%.

·                  Short term borrowings increased by $19million between December 31, 2006 and June 30, 2007.

**RESULTSOF OPERATIONS**

**Net Interest Income**

Net interest income is the difference between interest income onearning assets such as loans and securities, and interest expense paid onliabilities such as deposits and borrowings, and continues to be our largestrevenue source.  Net interest income isaffected by the level of interest rates, changes in interest rates and bychanges in the amount and composition of interest-earning assets andinterest-bearing liabilities.

***Quarterly Analysis***

Net interest income for the second quarter of 2007 was $5.6 million, anincrease of $2.0 million or about 54.8% compared to the same quarter of2006.  This increase was primarily due tothe increases in the volume of interest earning assets.  Average earning assets decreased $6.8 millionor 1.2% for the quarter ended June 30, 2007 compared to an increase of $126.8million or 48.8% for the same period in the prior year. Average loans increasedby $4.4 million or 0.9% during the second quarter of 2007 compared to theincrease of $16.0 million or 6.2% for the second quarter 2006. The growth forthe second quarter of 2007 as well as 2006 was primarily due to internal growthand participations purchased, however growth comparisons from 2007 to 2006 alsoreflect the acquisition and merger with NNB Holdings, Inc. and its subsidiarybank. Average gross loans as a percent of average earning assets was 81.6% and70.9% for the quarters ended June 30, 2007 and 2006, respectively.

Continued quality loan growth has been the primary focus of theBank.  Although we have seen substantialgains in loan volumes over prior periods, the Bank still has relatively fewdelinquencies and a minimal number and amount of loan losses to date.  These increased loan volumes have beensupported by deposit growth and borrowed funds.

Table 1 sets forth, for the periods indicated, information regarding,(i) the total dollar amount of interest income from interest earning assets andthe resultant average yields, (ii) the total dollar amount of interest expenseon interest bearing liabilities and the resultant average cost; (iii) netinterest income; (iv) interest

20

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rate spread; and (v) net interest margin (net interest income dividedby average interest-earning assets). Average balances are based on average daily balances during theindicated periods and rates are annualized based on the number of days in theperiod subject to review, and the number of days in the year.

The Company’s net interest margin, which represents net interest incomeas a percentage of average interest earning assets, increased to 3.94% from3.82% during the three months ended June 30, 2007 as compared to the sameperiod in 2006, respectively, an increase of twelve basis points or 3.1%.

The increase in the Company’s net interest margin is largely a resultof increases in volumes of interest earning assets and interest bearingliabilities and rate and volume mix changes. While earning asset growth was greater than the interest bearingliability growth, changes in the interest rate environment impacted both theasset and liability side of the balance sheet. The magnitude of the $194.3 million change in average earning asset volumesover the periods reported resulted in a $4.3 million change in the Company’sgross interest income, as noted in Table 1.

The change in the mix of liability funding had an impact on the Company’snet interest margin.  The Companyincreased its use of brokered certificates of deposit to $141.0 millioncompared to $42.5 million for the quarter ended June 30, 2006.  The Company also had $18.4 million ofexchange deposits with subsidiaries as of June 30, 2007 on deposit withnon-affiliated financial institutions and $9.9 million during the second quarterof 2006.  The changes in liability mixalong with the $172.2 million increase in average interest bearing liabilitiesover the period resulted in a $2.3 million increase in the Company’s interestexpense, as noted in Table 2.

***YTD Analysis***

Net interest income for the first half of 2007 was $11.0 million, anincrease of $4.2 million or about 62.6% compared to the same period of2006.  This increase was primarily due tothe increases in the volume of interest earning assets.  Average earning assets increased $111.3million or 23.3% for the six month period ended June 30, 2007 compared to anincrease of $125.5 million or 50.0% for the same period in the prior year.Average loans increased by $163.4 million or 53.0% during the first half of2007 compared to the increase of $89.7 million or 51.0% for the same period in2006. The growth for the first half of 2007 as well as 2006 was primarily dueto internal growth and participations purchased, however growth comparisonsfrom 2007 to 2006 also reflects the acquisition and merger with NNB Holdings,Inc. and its subsidiary bank. Average gross loans as a percent of averageearning assets was 80.2% and 70.8% for the six months ended June 30, 2007 and2006, respectively.

The Company’s net interest margin, which represents net interest incomeas a percentage of average interest earning assets, increased to 3.77% from3.62% during the six months ended June 30, 2007 as compared to the same periodin 2006, respectively, an increase of fifteen basis points or 4.1%.

**Provision and Allowance for Loan Losses**

The allowance for loan losses is maintained at a level determined to beadequate by management to absorb losses inherent in the loan portfolio.  This allowance is increased by the provisioncharged to income and by recoveries on loans previously charged off.  Arriving at an appropriate level of allowancefor loan losses necessarily involves a high degree of judgment and isdetermined based on management’s ongoing evaluation.  As discussed under “Critical AccountingPolicies”, we believe that the methods we utilize to determine the allowancefor loan losses constitute a critical accounting policy.  Although we utilize judgment in providing forlosses, for the reasons discussed under “Critical Accounting Policies” and “CreditRisk Management” there can be no assurance that we will not have to increasethe amount of our historical provisions for loan losses in future periods.  Please see Table 5.

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***Quarterly Analysis***

We provided $234,000 and a reversal of $124,000 for probable loanlosses in the quarters ended June 30, 2007, and 2006, respectively.  The Company had four non-accrual loansamounting to $1.9 million at the end of the second quarter 2007, and none atJune 30, 2006.  The Company charged-off$152,000 in loans, during the quarter ending June 30, 2007 and none for thesecond quarter of 2006.  Including thenon-accrual loans, there were six 30 day or more past due loans as of June 30,2007, and none during the same period of 2006. The Company also estimates an allowance for potential losses associatedwith off-balance-sheet loan commitments and standby letters of credit.  This allowance is included with otherliabilities on the Company’s balance-sheet and any related increases ordecreases in the allowance are included in other expense.  The provision for the off-balance-sheetreserve reflected a reduction of $21,000 and a provision of $88,000 for thequarters ending June 30, 2007 and 2006, respectively.  The Company continues to believe thatalthough loan quality remains high, at some point we may experience increaseddelinquencies and more loan charge-offs. For that reason, we believe that maintaining an adequate loan lossreserve and provision is essential to the proactive management of the Company’sloan portfolio.

***YTD Analysis***

We provided $414,000 and $349,000 for probable loan losses in the sixmonths ended June 30, 2007, and 2006, respectively.  The Company had four non-accrual loansamounting to $1.9 million at June 30, 2007, and none at June 30, 2006.  The Company charged-off $285,000 in loansduring the six months ending June 30, 2007 and none for the same period of2006.  The Company has recovered $25,000in previously charged off loans during the six month period ending June 30,2007 and none during the same period in 2006. The provision for the off-balance-sheet reserve reflected a reduction of$59,000 and a provision of $99,000 for the six months ending June 30, 2007 and2006, respectively.

**Non-interest Income**

***Quarterly Analysis***

Second quarter non-interest income (excluding realized fixed asset andsecurities gains and losses) totaled $602,000, an increase of $354,000 or142.7% from the same quarter of 2006. The Company recorded $101,000 of cash surrender value increases on bankowned life insurance during the second quarter, an increase of $38,000 comparedto the same period of the prior year. The Company’s unrealized gains in trading securities were $356,000, anincrease of $303,000 over the same period in 2006.

Service charges on loan and deposit accounts and other service charges,commissions and fees increased $119,000 from the same period in 2006.  At the current time the Company is reviewingvarious initiatives to enhance companywide non-interest income including incomeon deposit accounts.

During the second quarter of 2007 the Company recognized $130,000 innet unrealized losses stemming from the mark to market for the loans that arecarried at fair value.  The Company hadno such losses during the second quarter of 2006.

During the second quarter of 2007 the Company recognized $3,000 in netlosses from the sales of assets and $6,000 of recognized net gains on the saleof securities as compared with losses on the sale of securities of $1,000 and$2,000 in gains on asset sales during the second quarter of 2006.  Gains and losses from the sale of securitiesare subject to market and economic conditions and, as a result, there can be noassurance that gains reported in any period will be achievable in the future.  Such gains or losses are not a factor in thecomputation of the Company’s efficiency ratio.

***YTD Analysis***

First half non-interest income (excluding realized fixed asset andsecurities gains and losses) totaled $1.0 million, an increase of $535,000 or113.6% from the same period of 2006. During the same period the Company recorded $210,000 of cash surrendervalue increases on bank owned life insurance, an increase

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of $78,000.  The Company’sunrealized gains in trading securities were $436,000, an increase of $335,000over the same period in 2006.

Service charges on loan and deposit accounts and other service charges,commissions and fees increased $181,000 from the same period in 2006.

The Company has YTD recognized $85,000 in net unrealized lossespertaining to the USDA/SBA loans which are being carried at fair value pursuantto FAS 159.  The Company had no suchlosses for the same period in 2006.

During the first half of 2007 the Company recognized $11,000 in netgains from the sales of assets and $10,000 of recognized net gains on the saleof securities as compared with losses on the sale of securities of $3,000 and$2,000 in gains on asset sales during the same period of 2006.  Gains and losses from the sale of securitiesare subject to market and economic conditions and, as a result, there can be noassurance that gains reported in any period will be achievable in thefuture.  Such gains or losses are not afactor in the computation of the Company’s efficiency ratio.

**Non-interest Expense**

***Quarterly Analysis***

Non-interest expense was $4.7 million and $3.3 million for the quartersended June 30, 2007 and 2006, respectively, which represented an increase ofapproximately $1.4 million or 42.4%. Expense categories that increased the most include salaries andbenefits, which represented $583,000 or 43.8% of the total non-interest expenseincrease, occupancy, deposit servicing, and marketing costs.  These increases were primarily driven by theacquisition of NNB Holdings, Inc., and its subsidiary Northern Nevada Bank, withits two branches and data processing center, and additional staffing for thenew branch office in northern California. The efficiency ratio was 75.0% and 86.1% for the quarters ended June 30,2007 and 2006, respectively.  For adescription of the methodology we used to calculate the efficiency ratio,please see Note (a) to Table 3.

Salary and employee benefit expense for the quarter ended June 30, 2007was $2.3 million, an increase of $583,000 or 33.3% from the same quarter2006.  The increase in salaries andbenefits was primarily due to additional employees being hired in the newbranch offices, along with the employees gained in the acquisitions.  The full time equivalent (FTE) staffing levelis 122 at June 30, 2007 and was 79 as of June 30, 2006, an increase of54%.  Of this increase in staffinglevels, 40 individuals were added with the acquisition of NNB Holdings,Inc.  The remainder of the increase inpersonnel was added to support the larger Company, and increases in the lendingstaff for the new branch opening in the northern California market.  For the quarter ended June 30, 2007, suchcosts approximated 1.61% of average earning assets, as compared to 1.81% forthe same period in 2006.

Occupancy and equipment expense amounted to $709,000 for the quarterended June 30, 2007, an increase of $215,000 or 43.5% from the same quarter in2006, primarily due to the addition of NNB Holding, Inc. locations and the newCalifornia branch.  The Company now hassix northern Nevada banking offices, two existing banking offices inCalifornia, a data operations center and two exchange company offices.  Occupancy expenses for the quarter ended June30, 2007 approximated 0.49% of average earning assets, as compared to 0.51% forthe same period in 2006.

Deposit and loan servicing costs amounted to $333,000 for the quarterending June 30, 2007 compared to $86,000 for the same period in 2006 anincrease of $247,000 or 287.2%.  Theincrease in those costs primarily reflect the new account charges related tothe acquisition of deposit and loan accounts held by Northern Nevada Bank.  Deposit and loan servicing costs represent0.19% of average earning assets for the quarter ending June 30, 2007 comparedwith 0.08% for the same period in 2006.

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Marketing expenses amounted to $264,000 for the quarter ended June 30,2007 an increase of $138,000 or 109.5% over the same period in 2006.  The Company heavily marketed its purchase ofNNB and is spending more on marketing and advertising to support the exchangecompanies and the bank which exist in three distinct regional markets.  Marketing and advertising represented 0.18%of average assets for the quarter ended June 30, 2007 compared with 0.13% forthe same period in 2006.

Accounting, legal and other professional services expense totaled$393,000 and $270,000 at June 30, 2007 and 2006, respectively, an increase of$123,000 or 45.6%.  These costs represent0.28% of average earning assets compared with 0.28% for the same period in2006.

The remainder of expenses which were not noted separately aboveamounted to $647,000 and $622,000, a $25,000 increase or 4.0% during thequarter ended June 30, 2007 as compared to 2006.  These increases are primarily due to growthof the Company, costs related to the exchange companies, and the acquisition ofNNB Holdings, Inc.  For the quarter endedJune 30, 2007 these other expenses represented 0.45% of average earning assets,as compared to 0.64% for the same period of 2006.

Table 3 sets forth the various non-interest income and expense itemsfor the periods indicated.

***YTD Analysis***

Non-interest expense was $9.6 million and $6.2 million for the sixmonths ended June 30, 2007 and 2006, respectively, which represented anincrease of approximately $3.4 million or 54.8%.  Expense categories that increased the mostinclude salaries and benefits, which represented $586,000 or 44% of the totalnon-interest expense increase, occupancy, deposit servicing, and marketingcosts.  These increases were primarilydriven by the acquisition of NNB Holdings, Inc., and its subsidiary NorthernNevada Bank, additional staffing for the new branch office in northernCalifornia, and the addition of new facilities (the addition of two exchangecompany offices).  The efficiency ratiowas 80.1% and 86.2% for the six months ended June 30, 2007 and 2006,respectively.

Salary and employee benefit expense for the YTD period ended June 30,2007 was $5.0 million, an increase of $1.6 million or 46.8% from the sameperiod 2006.  The increase in salariesand benefits was primarily due to additional employees being hired for the newbranch office, along with the employees gained in the acquisitions.  For the YTD period ended June 30, 2007, suchcosts approximated 1.81% of average earning assets, as compared to 1.82% forthe same period in 2006.

Occupancy and equipment expense amounted to $1.5 million for the sixmonths ended June 30, 2007, an increase of $610,000 or 67.3% from the sameperiod in 2006, primarily due to the addition of NNB Holding, Inc. locationsand the new California branch.  The Companynow has six Nevada banking offices, two banking offices in California, a dataoperations center and four exchange company offices.  Occupancy expenses for the six months endedJune 30, 2007 approximated 0.52% of average earning assets, as compared to0.49% for the same period in 2006.

Deposit and loan servicing costs amounted to $587,000 for the sixmonths ending June 30, 2007 compared to $166,000 for the same period in 2006,an increase of $421,000 or 253.6%.  Theincrease in those costs primarily reflect the new account charges related tothe acquisition of deposit and loan accounts held by Northern Nevada Bank.  Deposit and loan servicing costs represent0.20% of average earning assets for the YTD period ending June 30, 2007compared with 0.09% for the same period in 2006.

Marketing expenses amounted to $484,000 for the six months ended June30, 2007, an increase of $268,000 or 124.1% over the same period in 2006.  The Company is spending more on marketing andadvertising to support the exchange companies and the bank which exists in threedistinct regional markets.  Marketing andadvertising represented 0.17% of average assets for the YTD period ended June30, 2007 compared with 0.12% for the same period in 2006.

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Accounting, legal and other professional services expense totaled$725,000 and $525,000 at June 30, 2007 and 2006, respectively, an increase of$201,000 or 38.4%.  These costs represent0.24% of average earning assets compared with 0.28% for the same period in2006.

The remainder of expenses which were not noted separately aboveamounted to $1.3 million and $1.0 million, a $294,000 increase or 28.6% duringthe six months ended June 30, 2007 as compared to 2006.  These increases are primarily due to growth ofthe Company, costs related to the acquisition of the exchange companies, andthe acquisition of NNB Holdings, Inc. For the YTD period ended June 30, 2007 these other expenses represented0.45% of average earning assets, as compared to 0.55% for the same period of2006.

**Provision for Income Taxes**

For the quarter ending June 30, 2007 the Company had a net provisionfor income taxes in the amount of $541,000 and $33,000 for the same period in2006.  The Company has provided $767,000in net tax provisions for the first six months of 2007 as compared to $40,000for the same period in 2006.

**Comprehensive Income**

Our available for sale investment portfolio had net unrealized lossesof $303,000 at June 30, 2007, $444,000 at June 30, 2006 and $187,000 atDecember 31, 2006.  At June 30, 2007 thenet unrealized loss net of deferred taxes represented 2.5% of securitiesavailable for sale.  Comprehensive incomeor loss differs from our net income during the respective periods as a resultof changes in the amount of unrealized gains and losses on our portfolio ofsecurities available for sale.  However,the change in value of our liabilities, which tend to fall in rising interestrate environments and rise in falling interest rate environments, is notincluded in “other comprehensive income”. We quantify, monitor, and actively manage the interest rate risk ofinterest earning assets with interest bearing liabilities based on budgetaryassumptions, anticipated balance sheet modifications and changes in ratesearned and rates paid.  The Companybelieves that the comprehensive loss for FAS 115 reported in the financialstatements are due to changes in interest rates and does not reflect animpairment in the quality of the securities contained in the investmentportfolio.  As financial rates flattenover the term based on expectations of Federal Open Market Committee (FOMC)actions, it is entirely possible that the AFS investment portfolio may depreciate in valueover the remainder of the year.

Another component of comprehensive income is the result of the adoptionof FAS 158 *“Employers Accounting for Defined Benefit Pensionand Other Postretirement Plans”* by the Company in 2006.  As part of the Company’s Plan the Companyrecognized a prior service cost which is amortized over an estimated 11 yearlife from the date of the Plan in 2005. This service cost resulted in a charge to other comprehensive income of$522,000 net of deferred taxes and is adjusted annually as of December of eachyear.  In the Company’s Form 10-K for thefiscal year ended December 31, 2006, the FAS-158 transition adjustment of $522,000net of tax, was recognized as a component of the ending balance of OtherComprehensive Income.  This adjustmentwas misapplied as a component of Comprehensive Income.  The Company will correct the OtherComprehensive Loss and Comprehensive Income presentations in the Form 10-K forthe fiscal year ending December 31, 2007.

**FINANCIALCONDITION**

Our consolidated total assets were $662 million and $652 million atJune 30, 2007 and December 31, 2006, respectively.  Total average assets were $652 million and$391 million for the six months ended June 30, 2007 and 2006, respectively, anincrease of 67%.  This change reflectsthe continuing internal growth and acquisitions of the Company.

**Securities and Other Earning Assets**

***Quarterly Analysis***

The securities portfolio was $83.1 million at June 30, 2007 andaveraged $87.4 million during the second quarter of 2007 as compared to $89.8million and an average of $91.2 million in the second quarter of 2006.  The securities portfolio consists primarilyof Mortgage-backed securities and U.S. Government agency securities.  The average yield on investments was 4.17%for the quarter ended June 30, 2007 and 

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4.39% for the quarter ended June 30, 2006.  Securities available for sale had a netunrealized loss of $303,000 at June 30, 2007 as compared to the net unrealizedloss of $187,000 at December 31, 2006. These unrealized gains and losses do not impact net income or regulatorycapital but are recorded as adjustments to shareholders’ equity.  Unrealized gains and losses are a componentof “Comprehensive Income”.  The Companyhas $4.9 million in an equity trading portfolio which is being accounted for astrading securities.  The Company adjuststhe value of this portfolio monthly through the Consolidated Statement ofOperations.  For the quarter ending June30, 2007 the Company had unrealized gains of $356,000 from these tradingequities as compared to $53,000 for the same period in 2006.

Effective duration is a measure of duration which considers changes incash flows and is based on the expected price volatility of a security.  Generally the greater the duration of thesecurity, the greater will be its percentage price volatility.  The effective duration is presented in yearsand is equal to the approximate percentage change in price per 100 basis pointchange in rates.  The effective durationof the Bank’s investment securities portfolio at June 30, 2007 is 3.05, ascompared with 2.50 as of June 30, 2006. This change is due to the addition of longer term tax free municipalbonds in the Company’s investment portfolio over the last year, to mitigatesome of the tax liability of the Company. At December 31, 2006 the portfolio’s effective duration was 2.53.  The Company’s investment securities portfolioduration does not substantially differ from that of the Bank, sinceapproximately 94% of the Company’s securities portfolio is held in thesubsidiary bank.

The ratio of average total investments to average total assets was16.6%, 26.2% and 27.9% at the quarter ended June 30, 2007, the year endedDecember 31, 2006 and the quarter ended June 30, 2006, respectively.

Management evaluates securities for other-than-temporary impairment ona quarterly basis, or more frequently when economic or market concerns warrantsuch evaluation.  Consideration is givento (1) the length of time and the extent to which the fair value has been lessthan cost, (2) the financial condition and near-term prospects of the issuer,and (3) the intent and ability of the Company to retain its investment in theissuer for a period of time sufficient to allow for any anticipated recovery infair value.

At June 30, 2007 debt securities have an aggregate depreciation ofabout 1.9% from the Company’s amortized cost basis as compared to 1.1% atDecember 31, 2006.  In the available forsale portfolio twenty-three securities have an unrealized loss as of June 30,2007.  In thirteen of those securitiesthe unrealized loss has exceeded one year. There are one hundred and forty-nine securities in the held to maturityportfolio that have an unrealized loss as of June 30, 2007.  For seventy-eight of those securities, theloss has exceeded one year.  In analyzingan issuer’s financial condition, management considers whether the securitiesare issued by the federal government or its agencies, whether downgrades bybond rating agencies have occurred, and industry analysts’ reports.  As management has the ability and intent tohold debt securities until maturity, or for the foreseeable future ifclassified as available for sale, no declines are deemed to be other thantemporary, and there are no declines in value that are not related to thecurrent interest rate environment.

***YTD Analysis***

The securities portfolio averaged $90.4 million during the first sixmonths of 2007 as compared to an average of $92.6 million in the same period of2006.  The average yield on investmentswas 4.32% for the six month period ended June 30, 2007 and 4.14% for the sameperiod ended June 30, 2006.  The Companyhas $4.9 million in an equity trading portfolio which is being accounted for astrading securities.  The Company adjuststhe value of this portfolio monthly through the Consolidated Statement ofOperations.  For the YTD period endingJune 30, 2007 the Company had unrealized gains of $436,000 from these tradingequities as compared to $101,000 for the same period in 2006.

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The ratio of average total investments to average total assets was17.8%, 26.2% and 28.1% at the six month period ended June 30, 2007, the yearended December 31, 2006 and the six month period ended June 30, 2006,respectively.

During the secondquarter ending June 30, 2007, the Company sold $3.3 million in bank owned lifeinsurance that it acquired in the merger with NNB Holdings, Inc. and itssubsidiary Northern Nevada Bank.  TheCompany recorded a tax expense of $63,800 related to this sale.

**Loans**

***Quarterly Analysis***

Gross loans amounted to $466.9 million and UDSA/SBA loans carried atfair value amounted to $9.2 million for total gross loans of $476.9 million, atJune 30, 2007, $463.9 million at December 31, 2006, and $280.9 million at June30, 2006, respectively.  Gross loansaveraged $474.0 million for the second quarter of 2007, an increase of $199.9million or 73.0% from the average amount of such loans during the secondquarter of 2006.

As noted in Table 4 “Composition of Loan Portfolio”, real estateconstruction loans amounted to $172.6 million and $104.4 million at June 30,2007 and June 30, 2006, respectively. These loans increased $68.4 million or 65.9% from the amount of suchloans at June 30, 2006.  Commercialconstruction loans increased $35.4 million, while single and multi-familyresidential construction increased $16.7 million.  These items taken together represents themajority of the increases over June 30, 2006 balances.  These increases are due to internal growthand loans acquired in the acquisition of NNB Holdings, Inc. and Northern NevadaBank.

The yield on average gross loans for the quarter ending June 30, 2007was 8.66% as compared to 8.43% for the same period in 2006.   This twenty three basis point improvement inyield was primarily a result of the volume increase as noted in Table 2.

Term real estate loans amounted to $216.2 million as of June 30, 2007compared to $120.3 million for the quarter ending June 30, 2006 an increase of$95.5 million or 79.7%.  Commercial termloans which increased $103.1 million or 90.6% to $217.0 million over the secondquarter of 2006 represents the majority of the quarter to quarter comparison.

Commercial and industrial loans approximated $66.8 million and $37.0million at June 30, 2007 and June 30, 2006, respectively.  Commercial loans increased about $29.9million or 80.8% over the balances at June 30, 2006.  Revolving lines of credit increased $23.2million or 134.3% to $40.4 million and represents the majority of the increaseover the second quarter of 2006.

Consumer loans amounted to $12.3 million and $6.8 million at June 30,2007 and June 30, 2006, respectively. Consumer loans increased $5.5 million or 80.9% from the balancesoutstanding as of June 30, 2006.

The ratio of average gross loans to average total assets for thequarter was 73.5% and 67.7% at June 30, 2007 and 2006, respectively.

***YTD Analysis***

Total gross loans averaged $471.8 million for the first six months of2007, an increase of $205.7 million or 77.3% from the average amount of suchloans during the first six months of 2006.

The yield on average loans for the six months ending June 30, 2007 was8.58% as compared to 8.22% for the same period in 2006.   This thirty six basis point improvement inyield was primarily a result of the volume increase as noted in Table 2.

The ratio of average gross loans to average total assets for the YTDperiod was 72.4% and 68.0% at June 30, 2007 and 2006, respectively, reflectingthe continuing change in the overall asset portfolio distribution of theCompany.

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**Deposits**

Total deposits were $484 million and $497 million as of June 30, 2007and December 31, 2006 respectively, a decrease of $13 million or 2.6%.  Core deposits (deposits, excludingcertificates of deposit greater than $100,000), have decreased about $10.4million or 2.47% since December 31, 2006. The ratio of gross loans to deposits was 98.6% and 93.3% at June 30,2007 and December 31, 2006, respectively.

***Quarterly Analysis***

Non-interest bearing deposits amounted to approximately $59.0 millionat June 30, 2007, $73.7 million at December 31, 2006, and $40.0 million at June30, 2006, respectively.  Averagenon-interest bearing deposits totaled $57.7 million during the second quarterof 2007, which represented 12.0% of average total deposits and $38.3 millionduring the second quarter of 2006.  Thisis an increase of $19.4 million or 50.7% for the 12 month period ending June30, 2007.  The increase in non-interestbearing deposits reflected growth in commercial and personal accounts,including those acquired in the merger with NNB Holdings, Inc.

Interest bearing deposits amounted to approximately $424.7 million,$423.2 million and $302.3 million at June 30, 2007, December 31, 2006, and June30, 2006, respectively.  Averageinterest-bearing deposits were $422.2 million, an increase of approximately$126.8 million during the quarter ended June 30, 2007, as compared to theaverage of $295.4 million in interest-bearing deposits during the quarter endedJune 30, 2006.

The cost of interest bearing deposits for the quarter ended June 30,2007 was 4.32% as compared to 3.86% for the same period in 2006.  This forty six basis point increase was theresult of volume, rate and volume/rate mix changes as noted in Table 2.

Included in the deposit categories above are public deposits, whichaveraged $7.0 million for the quarter ending June 30, 2007 and $8.0 million forthe quarter ending June 30, 2006.  Publicdeposits include deposits received from state and local governments, schooldistricts, and other public entities in our market area.  Many of these deposits exceed the FDICinsurance coverage amounts and require us to pledge specific collateral ormaintain private insurance to support such deposit accounts.

***YTD Analysis***

Average non-interest bearing deposits totaled $59.7 million during thefirst six months of 2007, which represented 12.0% of average total deposits and$38.8 million during same period of 2006. This is an increase of $20.9 million or 53.9% for the 12 month periodending June 30, 2007.  The increase innon-interest bearing deposits reflected growth in commercial and personalaccounts, including those acquired in the merger with NNB Holdings, Inc. andNorthern Nevada Bank.

Average interest-bearing deposits were $435.4 million, an increase ofapproximately $148.4 million during the six months ended June 30, 2007, ascompared to the average of $287.0 million in interest-bearing deposits duringthe six months ended June 30, 2006.

The cost of interest bearing deposits for the six months ended June 30,2007 was 4.44% as compared to 3.83% for the same period in 2006.  This sixty one basis point increase was the resultof volume changes as noted in Table 2.

Included in the deposit categories above are public deposits, whichaveraged $7.2 million for the six months ending June 30, 2007 and $7.3 millionfor the six months ending June 30, 2006. Public deposits include deposits received from state and localgovernments, school districts, and other public entities in our marketarea.  Many of these deposits exceed theFDIC insurance coverage amounts and require us to pledge specific collateral ormaintain private insurance to support such deposit accounts.

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**Other Funding Sources**

We use short-term and long-term borrowings to fund the growth ofearning assets in excess of deposit growth. Short-term borrowings, which include federal funds purchased, othershort term borrowings, short term notes payable and lease obligations, amountedto $50.0 million at June 30, 2007 and $31.3 million at December 31, 2006,respectively.  The Company has availablefederal funds borrowing lines amounting to $11.5 million as of June 30, 2007.  The Company has a Federal Home Loan Bank(FHLB) advance line of credit the amount of which is predicated on the value ofcollateral held at June 30, 2007, the gross amount of all collateral was about$102 million.

Long term other borrowed funds includes FHLB advances, subordinateddebt, capital lease obligations and other debt with terms greater than oneyear.  The Company had $8.0 million inFHLB term advances, and $20.6 million in subordinated debt as of June 30, 2007and December 31, 2006.

The Company’s financial intermediaries during their course of businessplace exchange liability deposits with non-affiliated financialinstitutions.  Those deposits amounted to$18.4 million as of June 30, 2007 and $13.3 million as of December 31, 2006.

***Off-Balance Sheet Arrangements***

In the usual course of business, the Company makes commitments toextend credit as long as there are no violations of any conditions establishedin the outstanding contractual arrangement. Commitments to extend credit were $91.7 million at June 30, 2007 ascompared to $107.5 million at December 31, 2006.  These commitments represented 19% and 23% ofoutstanding gross loans at each of the periods noted, respectively.  The Company’s stand-by letters-of-credittotaled $1.8 million as of June 30, 2007 and $545,000 at December 31, 2006.

The importance to and effect on the Company’s revenues, expenses, cashflows, liquidity, capital resources and market risk support from the unusedportion of the commitments to provide credit cannot be reasonably predictedbecause there is no guarantee that the lines of credit will ever be used.  The unused portion of such commitments hasdeclined over the last year, however.

**RISK MANAGEMENT**

The primary goal of our risk management program is to determine howcertain existing or emerging issues in the financial services industry affectthe nature and extent of the risks faced by the Company.  Based on a periodic self-evaluation, wedetermine key issues and develop plans and/or objectives to address risk.  Our board of directors and management believethat the nine applicable “risk categories” consist of compliance, credit,foreign exchange, interest rate, liquidity, price, strategic, reputation andtransaction risk.  Each risk category isviewed from a quantity of risk perspective (high, medium or low) coupled with aquality of risk perspective review.  Inaddition, an aggregate level of risk is assigned as a whole, and the directionof risk (stable, increasing or decreasing) is determined.  Each risk category and the overall risk levelis compared to regulatory views, and internal criteria, on a regular basis andthen reported to the board with an accompanying explanation as to the existenceof any differences.   The risk programincludes risk identification, measurement, control and monitoring.

Our board of directors has established the overall strategic directionof the Company.  It approves our overallrisk policies and oversees our overall risk management process.  The board has established an asset/liabilitymanagement committee which has been charged with overseeing certain keyinterest rate risks.  In addition, thereis a management risk committee comprised of senior officers which identify andmonitor key operational risks.

**Credit Risk Management**

Our strategy for credit risk management includes stringent, centralizedpolicies and uniform underwriting criteria for all loans, based on certaincategorizations.  The strategy alsoincludes diversification on a 

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geographic, (to the extent possible), industry and customer level,regular credit examinations and quarterly management review of large loans andloans with a deterioration of credit quality. We maintain an internal rating system that provides a mechanism toregularly monitor the credit quality of our loan portfolio.  The rating system is intended to identify andmeasure the credit quality of lending relationships.  For consumer loans, we utilize standardcredit scoring systems to access consumer credit risks and to price consumerproducts accordingly.  We strive toidentify potential problem loans early, take any necessary charge-offs promptlyand maintain adequate reserve levels.

Our real estate loan portfolio accounted for 81.4% of the total loanportfolio as of June 30, 2007 and 79.5% at December 31, 2006.  This portfolio consists primarily of loanssecured by commercial property and construction and land development loans.

Commercial business loans accounted for 14.1% of the total loanportfolio as of June 30, 2007 as compared to 16.0% at December 31, 2006.  Commercial business loans are generally madeto small and medium size businesses located within our market areas.  These loans are not concentrated in anyparticular industry, but reflect the economy of our market area.  Commercial loans consist primarily of loanssecured by various pieces of equipment or machinery and other corporate assetsincluding real property.  USDA purchasedloans outstanding were about $9.0 million and $12.7 million respectively, as ofJune 30, 2007 and December 31, 2006.

Consumer loans accounted for 2.6% of our total loan portfolio as ofJune 30, 2007 as compared to 1.7% at December 31, 2006.

**ASSETLIABILITY MANAGEMENT**

The goal of asset liability management is the prudent control of marketrisk, liquidity and capital. Asset-liability management is governed by policies reviewed and approvedannually by our board of directors and monitored periodically by a boardcommittee.  The board delegatesresponsibility for asset-liability management to the Asset Liability ManagementCommittee (“ALCO”), which sets strategic directives that guide the day-to-dayasset-liability management of our activities. The ALCO also reviews and approves all major interest rate risk,liquidity and capital management programs.

**Market Risk**

Market risk is the sensitivity of income to changes in interest rates,commodity prices and other market driven rates or prices.  We have a small equity trading portfolio, andtherefore we are primarily exposed to non-trading market risk in our investmentand loan portfolios.

**Interest Rate Risk**

Interest rate risk, including mortgage prepayment risk, is by far themost significant non-credit risk to which we are exposed.  Interest rate risk is the sensitivity ofincome to changes in interest rates. Changes in interest rates as well as fluctuations in the level andduration of assets and liabilities, affect net interest income, our primarysource of revenue.  This risk arisesdirectly from our core banking activities — lending and deposit gathering.  In addition to directly impacting netinterest income, changes in the level of interest rates can also affect (i) theamount of loans originated and sold by us, (ii) the ability of borrowers torepay adjustable or variable rate loans, (iii) the average maturity of loans,(iv) the rate of amortization of premiums paid on securities, (v) the fairvalue of our saleable assets, (vi) the amount of unrealized gains and losses onsecurities available for sale under the requirements of  SFAS 115, and (vii) the early withdrawallikelihood of customer originated certificates of deposit.

The primary objective of interest-rate risk management is to controlour exposure to interest-rate risk both within limits approved by our board andguidelines established by the ALCO. These limits and guidelines reflect our tolerance for interest-rate riskover both short-term and long-term horizons. We 

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attempt to control interest-rate risk by identifying, quantifying and,where appropriate, changing our exposure.

We quantify and measure interest-rate exposure using an outsourcedBancWare model to dynamically simulate net interest income under variousinterest rate scenarios over a 12 and 24 month period.  Simulated scenarios include deliberatelyextreme interest rate “shocks” and more gradual interest rate “ramps”.  Key assumptions in these simulation analysesrelate to behavior of interest rates and spreads, increases or decreases ofproduct balances and the behavior of our deposit and loan customers.  The most material assumptions relate to theprepayment of mortgage assets (including mortgage loans and mortgage-backedsecurities).  The risk of prepaymenttends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, theresultant interest rate sensitivity of loan assets cannot be preciselydetermined.  Complicating our efforts tomeasure interest rate risk is the uncertainty of the maturity, repricing and/orrunoff of some of our assets and liabilities.

To cope with these uncertainties, we give careful attention to ourassumptions.  For example, in the case ofprepayment of mortgage assets, the majority of assumptions are derived fromvendor supported models that are periodically tested using observed loanprepayment behavior.

Our policy on interest-rate risk simulation specifies that if interestrates were to shift gradually up or down 100 basis points and 200 basis points,estimated net interest income for the subsequent 12 months should decline byless than 7% and 14%, respectively.

**LIQUIDITY**

Liquidity represents the ability to fund asset growth and accommodatedeposit withdrawals and meet other funding requirements.  Liquidity risk is the danger that the Companycannot meet anticipated or unexpected funding requirements or can meet themonly at excessive cost.  Liquidity ismeasured by the ability to raise cash when needed at a reasonable cost.  Many factors affect a company’s ability tomeet liquidity needs, including variations in the markets served, itsasset-liability mix, its reputation and credit standing in the market andgeneral economic conditions.

In addition to traditional retail deposits, the Company has variousother liquidity sources, including proceeds from maturities of securities andloans, the use of borrowed funds such as FHLB advances and brokereddeposits.  We continually monitor andforecast our liquidity position.  Thereare several methods we use for this purpose, including daily review of cash anddue from balances, federal funds sold or borrowed positions, monthly review ofbalance sheet changes, liquidity ratios, periodic liquidity forecasts andreview of contingent funding plans.

At the currenttime, the short and long term liquidity needs of the Bank primarily relate tofunds required to support loan commitments and lease obligations.  These needs can currently be met by cashflows from investment payments and maturities, and investment sales if need be.

As of June 30, 2007 the Company had about $117 million of immediatelyaccessible liquidity, defined as cash that could be raised within 1-3 daysthrough available cash, securities and borrowings.  This represented approximately 24% ofdeposits.  We believe that the level ofour liquidity is sufficient to meet current and future fundingrequirements.  Further, should loangrowth outstrip local deposit acquisition activities, out-of-area depositscould be acquired from external sources.

**CAPITALRESOURCES**

At June 30, 2007, shareholders’ equity amounted to $74.5 million orapproximately 11% of total assets. Capital guidelines issued by the FDIC and Federal Reserve Board requireus and our banking subsidiary to maintain certain ratios, as set forth in Table6.  As indicated in such table, wecurrently exceed all regulatory capital requirements.

The Federal Deposit Insurance Corporation (FDIC) has promulgatedrisk-based capital guidelines for all state non-member banks such as theBank.  These guidelines establish arisk-adjusted ratio relating capital 

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to different categories of assets and off-balance-sheet exposures.  There are two categories of capital under theguidelines.  The first is Tier 1 Capitalwhich includes common stockholders’ equity and qualifying minority interest inconsolidated subsidiaries, less goodwill and certain other deductions, notablythe unrealized net gains or losses (after tax adjustments) on available forsale investment securities carried at fair market value.  The second is Tier 2 Capital which includespreferred stock, certain types of debt equity, and the allowance for loan losses,subject to certain limitations.

The Company uses a variety of measures to evaluate its capitaladequacy, with risk-based capital ratios calculated separately for the Companyand the Bank.  Management reviews thesecapital measurements on a quarterly basis and takes appropriate action to ensurethat they are within established internal and external guidelines.  We believe that the Company has an adequatelevel of capital in relation to its balance sheet size, business mix and levelsof risk and, as a result, we do not presently anticipate that the capitalratios will materially change from their present levels.  The Company’s current capital positionexceeds minimum thresholds established by industry regulators.  Based on current regulatory definitions, theBank is well capitalized, which is the highest rating of the categories definedunder Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991.

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**TheBANK HOLDING AND SUBSIDIARIES**

**Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Referto the discussion on “Market Risk” contained in Management’s Discussion andAnalysis section of this 10-Q.

**Item 4.CONTROLS AND PROCEDURES**

**Evaluationof Disclosure Controls and Procedures**

The Company’s Chief Executive Officer and its Chief Financial Officer,after evaluating the effectiveness of the Company’s disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of theend of the period covered by this report have concluded that, the Company’sdisclosure controls and procedures were adequate and effective to ensure thatmaterial information relating to the Company and its consolidated subsidiarieswould be made known to them by others within those entities, particularlyduring the period in which this quarterly report was being prepared.

To assure that financial information is reliable and assets aresafeguarded, management maintains an effective system of internal controls andprocedures, important elements of which include:  careful selection, training and developmentof operating and financial managers; an organization that provides appropriatedivision of responsibility; and communications aimed at ensuring that Companypolicies and procedures are understood throughout the organization.  In establishing internal controls, managementweighs the costs of such systems against the benefits it believes such systemswill provide.

It should be noted that in designing and evaluating the disclosurecontrols and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.  The Company has designed its disclosurecontrols and procedures to reach a level of reasonable assurance of achievingdesired control objectives and, based on the evaluation described above, theCompany’s Chief Executive Officer and Chief Financial Officer (PrincipalAccounting Officer) concluded that the Company’s disclosure controls andprocedures were effective at reaching that level of reasonable assurance.

Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed by us in the reports that we file orsubmit under the Exchange Act is recorded, processed, summarized and reported,within the time periods specified in the Securities and Exchange Commission’srules and forms.  Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by us in the reports that wefile under the Exchange Act is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

The Company’s assessment of the effectiveness of its internal controlover financial reporting has been initiated, starting with entity controls inthe holding company, and information technology controls in both the holdingcompany and the Bank.  Subsidiarycompanies acquired last year utilize the Bank’s internal data system, which hasbeen evaluated. Entity controls are currently being evaluated in thesesubsidiary organizations.  Such completeassessments as have been initiated have been documented and made a part of thepermanent record of Sarbanes-Oxley Act Section 404 compliance.

33

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**Changesin Internal Controls**

There were no substantive changes in the Company’s internal controls orin other factors that could significantly affect the Company’s internalcontrols subsequent to the end of the period covered by this report.  While the Company believes the present designof its disclosure controls and procedures are effective to achieve its goal,future events affecting its business may cause the Company to modify itsdisclosure controls and procedures.

The Company does not expect that its disclosure controls and proceduresand internal control over financial reporting will prevent all error andfraud.  A control procedure, no matterhow 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 allcontrol procedures, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within the Company havebeen detected.  These inherentlimitations include the realities that judgments in decision-making can be faulty,and that breakdowns in controls or procedures can occur because of simple erroror mistake.  Additionally, controls canbe circumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the control.  The design of any control procedure is basedin part upon certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions; over time, controls becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure,misstatements due to error or fraud may occur and not be detected.

**Part II – Other Information**

**Item 1.  Legal Proceedings**

Inthe normal course of business, the Company is involved in various legalproceedings.  In the opinion ofmanagement, any liability resulting from such proceeding would not have amaterial adverse effect on the Company’s financial condition or results ofoperations.

**Item1A.  Risk Factors**

TheCompany believes there have been no significant changes in risk factors to thedisclosures contained in The Bank Holdings Annual Report on Form 10-K for theyear ended December 31, 2006.

***Risk Factors***

This Quarterly Report on Form 10-Q includesforward-looking statements and information and is subject to the “safe harbor”provisions of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.  Theseforward-looking statements (which involve The Bank Holdings’ (the “Company’s”)plans, beliefs and goals, refer to estimates or use similar terms) involvecertain risks and uncertainties that could cause actual results to differmaterially from those in the forward-looking statements.

Our business exposes us to certainrisks.  The factors contained below,among others, could cause our financial condition and results of operations tobe materially and adversely affected.  Ifthis were to happen, the value of our common stock could decline, perhapssignificantly.  The factors that couldcause actual results to differ from forward-looking statements include, but arenot limited to the following, as well as those discussed elsewhere herein:

·                  changes in the extensive laws, regulationsand policies governing financial institution holding companies and theirsubsidiaries could alter our business environment or affect our operations;

34

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·                  general economic or industry conditions couldbe less favorable than expected, resulting in a deterioration in creditquality, a change in the allowance for loan losses or a reduced demand forcredit or fee-based products and services;

·                  concentrations of real estate loans could subjectus to increased risk in the event of a real estate recession or naturaldisaster;

·                  changes in the domestic interest rateenvironment could reduce net interest income and could increase credit losses;

·                  the conditions of the securities marketscould change, which could adversely affect, among other things, the value orcredit quality or our assets, the availability and terms of funding necessaryto meet our liquidity needs and our ability to originate loans and leases;

·                  competitive pressures could intensify andaffect our profitability, including as a result of continued industryconsolidation, the increased availability of financial services from non—banks,technological developments such as the internet, or bank regulatory reform;

·                  loss of key personnel, social or demographicdisplacements;

·                  the potential need to adapt to industrychanges in information technology systems, on which we are highly dependent,could present operational issues or require significant capital spending;

·                  operational risks and interruptions includingdata processing systems failure or fraud;

·                  our investments in our businesses and inrelated technology could require additional incremental spending, and might notproduce expected deposit and loan growth and anticipated contributions to ourearnings;

·                  acquisitions may result in large one—timecharges to income, may not produce revenue enhancements or cost savings atlevels or within time frames originally anticipated and may result inunforeseen integration difficulties;

·                  we may have difficulty managing our growth,which depends on monitoring and managing expanded operations, staffing, andcustomer relations;

·                  we operate in a competitive environmentdominated by larger financial service providers which have lower cost structuresand offer a wider panoply of services;

·                  acts or threats of terrorism or actions takenby the United States or other governments as a result of such acts or threats,including possible military action, could further adversely affect business andeconomic conditions in the United States generally and in our principalmarkets, which could have an adverse effect on our financial performance andthat of our borrowers and on the financial markets and the price of our commonstock;

You should not place undue reliance on anyforward-looking statements. Forward-looking statements speak only as of the date they are made, andwe undertake no obligation to update them in light of new information or futureevents except to the extent required by federal securities laws.  Additional factors that could cause actualresults to differ materially from those expressed in the forward-lookingstatements are discussed in the 2006 Annual Report on Form 10-K of The BankHoldings filed with the Securities and Exchange Commission (“SEC”) andavailable at the SEC’s internet site (http://www.sec.gov).

35

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**Nonperforming Assets**

Nonperforming assets consists of nonperforming loans, (which does notinclude accruing loans 90 days or more overdue, none for all periods underreview), other real estate owned, repossessed assets and certain securitiesavailable for sale.  The Company had fournon-accrual loans totaling $1.9 million at June 30, 2007, and two non-accrualloans totaling $549,000 in December 31, 2006 and none as of June 30, 2006,respectively.

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

**–  None**

**Item3.  Defaults Upon Senior Securities**

**–  not applicable.**

36

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**Item 4.  Submission of Matters toa Vote of Security Holders**

**–****                                                           **On June 14, 2007 the Annual Meeting of Shareholderswas held.  Proxies were solicited by theCompany’s management pursuant to Regulation 14 under the Securities ExchangeAct of 1934.  There was no solicitationin opposition to management’s nominees for directorship as listed in the proxystatement, and all such nominees were duly elected pursuant to the vote ofshareholders.  The directors noted belowwere elected to serve a one year term. The votes tabulated were:
|                 | ** ** | **Authority Given** | ** ** | **Authority Withheld** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
| Edward Allison  |       | 4,762,621                |       | 77,387                      |       |
| Marybel Batjer  |       | 4,672,959                |       | 167,049                     |       |
| Joseph Bourdeau |       | 4,675,420                |       | 164,588                     |       |
| Edward Coppin   |       | 4,829,724                |       | 10,284                      |       |
| Lance Faulstich |       | 4,833,192                |       | 6,560                       |       |
| David A. Funk   |       | 4,673,215                |       | 166,793                     |       |
| Harold Giomi    |       | 4,673,215                |       | 166,793                     |       |
| Jesse Haw       |       | 4,833,192                |       | 6,816                       |       |
| Mark Knobel     |       | 4,833,448                |       | 6,560                       |       |
| Kelvin Moss     |       | 4,692,362                |       | 147,646                     |       |
| James Pfrommer  |       | 4,762,877                |       | 77,131                      |       |

 

**Item 5.  Other Information**

–                 **None**

**Item 6.  Exhibits**

(a)          The following documents are included or incorporated by reference inthis Quarterly Report on Form 10-Q.
| Exhibit Number  | ** ** | **Description**                                                                                                                            |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                       |
| Exhibit No.31.1 |       | Certification of Hal Giomi Pursuant to Rules  13a-14(a) and 15d – 14(a) under the Securities Exchange Act of 1934, as  amended (1)    |
| Exhibit No.31.2 |       | Certification of Jack Buchold Pursuant to Rules  13a-14(a) and 15d – 14(a) under the Securities Exchange Act of 1934, as  amended (1) |
| Exhibit No.32.1 |       | Certification of Hal Giomi Pursuant to 18 U.S.C. §  1350 (1)                                                                          |
| Exhibit No.32.2 |       | Certification of Jack Buchold Pursuant to 18 U.S.C.  § 1350 (1)                                                                       |

 

----

(1)                                  Filed herewith.

37

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**FINANCIAL TABLES**

**Table 1 - QUARTERLY Average Balances and Rates**

The following table sets forth, for the periods indicated, informationregarding (i) the total dollar amount of interest income and theinterest-earning assets resultant average yields; (ii) the total dollar amountof interest expense on interest-bearing liabilities and the resultant averagecost; (iii) net interest income; (iv) interest rate spread; and (v) netinterest margin.  
| ** **                                           | ** ** | **For the Quarter Ended June 30,** | ** ** | **For the Quarter Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                           | ** ** | **2007 (a),(b),(e)**                                   | ** ** | **2006 (a),(b),(e)**                                   | ** ** |
| ** **                                           | ** ** | **Average**                                                 | ** ** | ** **                                                  | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                           | ** ** | **Balance**                                                 | ** ** | **Interest**                                                | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                           | ** ** | **(Dollars in thousands)**                        | ** ** |
| **Assets**                                           |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Investments:                                         |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Federal Funds  Sold and Interest Bearing Deposits    |       | $                                                           | 15,175     |                                                        | $          | 165 |   | 4.41 | % | $ | 16,174 |   | $ | 219 |   | 5.49 | % |
| Securities                                           |       | 87,413                                                      |       | 878                                                         |       | 4.07 | % | 91,222 |   | 979 |   | 4.35 | % |
| Equity                                               |       | 4,514                                                       |       | 57                                                          |       | 5.12 | % | 5,371 |   | 23 |   | 1.74 | % |
| Total  Investments                                   |       | 107,102                                                     |       | 1,100                                                       |       | 4.17 | % | 112,767 |   | 1,221 |   | 4.39 | % |
|                                                 |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Loans: (c)                                           |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Agriculture                                          |       | 10,173                                                      |       | 137                                                         |       | 5.46 | % | 13,199 |   | 209 |   | 6.42 | % |
| Commercial                                           |       | 70,431                                                      |       | 1,414                                                       |       | 8.14 | % | 36,268 |   | 750 |   | 8.39 | % |
| Real Estate  Construction                            |       | 171,532                                                     |       | 4,030                                                       |       | 9.53 | % | 95,945 |   | 2,279 |   | 9.63 | % |
| Real Estate Term                                     |       | 210,340                                                     |       | 4,283                                                       |       | 8.26 | % | 120,522 |   | 2,297 |   | 7.73 | % |
| Consumer                                             |       | 10,396                                                      |       | 244                                                         |       | 9.53 | % | 7,950 |   | 155 |   | 7.93 | % |
| Credit Card and  Overdraft Protection                |       | 371                                                         |       | 14                                                          |       | 15.30 | % | 135 |   | 5 |   | 15.02 | % |
| Other                                                |       | 767                                                         |       | —                                                      |       | 0.00 | % | 61 |   | — |   | 0.00 | % |
| Total Loans                                          |       | 474,010                                                     |       | 10,122                                                      |       | 8.66 | % | 274,080 |   | 5,695 |   | 8.43 | % |
| Total Earning Assets                                 |       | 581,112                                                     |       | 11,222                                                      |       | 7.83 | % | 386,847 |   | 6,916 |   | 7.25 | % |
| Non-Earning Assets                                   |       | 63,455                                                      |       |                                                        |       |   |   | 18,035 |   |   |   |   |   |
| **Total  Assets**                                    |       | $                                                           | 644,567    |                                                        |       |   |   |   | $ | 404,882 |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity**       |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:                          |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| NOW                                                  |       | $                                                           | 11,463     |                                                        | $          | 27 |   | 0.96 | % | $ | 7,147 |   | $ | 12 |   | 0.68 | % |
| Savings Accounts                                     |       | 66,629                                                      |       | 679                                                         |       | 4.13 | % | 103,882 |   | 1,020 |   | 3.98 | % |
| Money Market                                         |       | 105,313                                                     |       | 1,056                                                       |       | 4.07 | % | 92,043 |   | 763 |   | 3.36 | % |
| IRA’s                                           |       | 4,292                                                       |       | 50                                                          |       | 4.72 | % | 1,172 |   | 10 |   | 3.46 | % |
| Certificates of  Deposit<$100,000                 |       | 168,546                                                     |       | 1,934                                                       |       | 4.65 | % | 53,330 |   | 612 |   | 4.65 | % |
| Certificates of  Deposit>$100,000                 |       | 65,966                                                      |       | 751                                                         |       | 4.62 | % | 37,804 |   | 393 |   | 4.22 | % |
| Total Interest  Bearing Deposits                     |       | 422,209                                                     |       | 4,497                                                       |       | 4.32 | % | 295,378 |   | 2,810 |   | 3.86 | % |
| Borrowed Funds:                                      |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Short term debt                                      |       | 44,957                                                      |       | 825                                                         |       | 7.44 | % | 15,725 |   | 219 |   | 5.65 | % |
| Long term debt                                       |       | 31,934                                                      |       | 262                                                         |       | 3.33 | % | 15,793 |   | 245 |   | 6.29 | % |
| Total Borrowed  Funds                                |       | 76,891                                                      |       | 1,087                                                       |       | 5.73 | % | 31,518 |   | 464 |   | 5.97 | % |
| Total Interest  Bearing Liabilities                  |       | 499,100                                                     |       | 5,584                                                       |       | 4.54 | % | 326,896 |   | 3,274 |   | 4.06 | % |
| Demand Deposits                                      |       | 57,678                                                      |       |                                                        |       |   |   | 38,346 |   |   |   |   |   |
| Other Liabilities                                    |       | 13,718                                                      |       |                                                        |       |   |   | 8,450 |   |   |   |   |   |
| Shareholders’ Equity                            |       | 74,071                                                      |       |                                                        |       |   |   | 31,190 |   |   |   |   |   |
| **Total  Liabilities and Shareholders’ Equity** |       | $                                                           | 644,567    |                                                        |       |   |   |   | $ | 404,882 |   |   |   |   |   |
| ** **                                           |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Interest Rate Spread (d)**                         |       |                                                        |       |                                                        |       | 3.29 | % |   |   |   |   | 3.19 | % |
|                                                 |       |                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest Income/Earning  Assets                      |       |                                                        |       |                                                        |       | 7.83 | % |   |   |   |   | 7.25 | % |
| Interest  Expense/Earning Assets                     |       |                                                        |       |                                                        |       | 3.90 | % |   |   |   |   | 3.43 | % |
| **Net Interest Income and Margin  (f)**              |       |                                                        |       | $                                                           | 5,638      |   | 3.94 | % |   |   | $ | 3,642 |   | 3.82 | % |

 

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(a)  Average balances areobtained from the best available daily or monthly data.

(b)  Yields are reflected on atax equivalent basis.

(c)  Loans are gross of the allowance for possibleloan losses, deferred fees and related direct costs.

(d)  Represents the difference between the yieldon interest-earning assets and the cost of interest-bearing liabilities.

(e)  Annualized.

(f)  Net interest margin represents net interestincome as a percentage of average interest-earning assets.

38

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**FINANCIALTABLES**

**Table 1a - YTD Average Balances and Rates**

The following table sets forth, for theperiods indicated, information regarding (i) the total dollar amount ofinterest income onand the interest-earning assets resultant average yields;(ii) the total dollar amount of interest expense on interest-bearingliabilities and the resultant average cost; (iii) net interest income; (iv)interest rate spread; and (v) net interest margin.
| ** **                                          | ** ** | **For the Six Months Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007 (a),(b),(e)**                                           | ** ** | **2006 (a),(b),(e)**                                           | ** ** |
| ** **                                          | ** ** | **Average**                                                         | ** ** | ** **                                                          | ** ** | **Yield/** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yield/** | ** ** |
| ** **                                          | ** ** | **Balance**                                                         | ** ** | **Interest**                                                        | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| ** **                                          | ** ** | **(Dollars in thousands)**                                | ** ** |
| **Assets**                                          |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Investments:                                        |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Federal Funds Sold and Interest Bearing Deposits    |       | $                                                                   | 21,329     |                                                                | $          | 465 |   | 4.40 | % | $ | 12,758 |   | $ | 345 |   | 5.45 | % |
| Securities                                          |       | 90,389                                                              |       | 1,916                                                               |       | 4.27 | % | 92,573 |   | 1,861 |   | 4.05 | % |
| Equity                                              |       | 4,548                                                               |       | 107                                                                 |       | 4.74 | % | 4,600 |   | 50 |   | 2.19 | % |
| Total Investments                                   |       | 116,266                                                             |       | 2,488                                                               |       | 4.32 | % | 109,931 |   | 2,256 |   | 4.14 | % |
|                                                |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Loans: (c)                                          |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Agriculture                                         |       | 11,237                                                              |       | 278                                                                 |       | 4.99 | % | 13,331 |   | 417 |   | 6.31 | % |
| Commercial                                          |       | 72,032                                                              |       | 2,949                                                               |       | 8.26 | % | 36,790 |   | 1,444 |   | 7.92 | % |
| Real Estate Construction                            |       | 167,930                                                             |       | 8,319                                                               |       | 9.99 | % | 91,216 |   | 4,207 |   | 9.30 | % |
| Real Estate Term                                    |       | 209,754                                                             |       | 8,064                                                               |       | 7.75 | % | 116,590 |   | 4,427 |   | 7.66 | % |
| Consumer                                            |       | 9,532                                                               |       | 435                                                                 |       | 9.20 | % | 7,995 |   | 336 |   | 8.46 | % |
| Credit Card and Overdraft Protection                |       | 383                                                                 |       | 31                                                                  |       | 16.32 | % | 128 |   | 13 |   | 20.48 | % |
| Other                                               |       | 921                                                                 |       | —                                                              |       | 0.00 | % | 77 |   | — |   | 0.00 | % |
| Total Loans                                         |       | 471,789                                                             |       | 20,076                                                              |       | 8.58 | % | 266,127 |   | 10,844 |   | 8.22 | % |
| Total Earning  Assets                               |       | 588,055                                                             |       | 22,564                                                              |       | 7.74 | % | 376,058 |   | 13,100 |   | 7.02 | % |
| Non-Earning  Assets                                 |       | 63,917                                                              |       |                                                                |       |   |   | 15,087 |   |   |   |   |   |
| **Total Assets**                                    |       | $                                                                   | 651,972    |                                                                |       |   |   |   | $ | 391,145 |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity**       |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:                         |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| NOW                                                 |       | $                                                                   | 11,600     |                                                                | $          | 51 |   | 0.89 | % | $ | 7,633 |   | $ | 25 |   | 0.66 | % |
| Savings Accounts                                    |       | 72,684                                                              |       | 1,673                                                               |       | 4.64 | % | 57,991 |   | 1,106 |   | 3.85 | % |
| Money Market                                        |       | 107,390                                                             |       | 2,153                                                               |       | 4.04 | % | 128,451 |   | 2,305 |   | 3.62 | % |
| IRA’s                                          |       | 4,386                                                               |       | 100                                                                 |       | 4.60 | % | 1,159 |   | 19 |   | 3.31 | % |
| Certificates of Deposit<$100,000                 |       | 172,909                                                             |       | 4,124                                                               |       | 4.81 | % | 53,478 |   | 1,215 |   | 4.58 | % |
| Certificates of Deposit>$100,000                 |       | 66,424                                                              |       | 1,476                                                               |       | 4.48 | % | 38,337 |   | 780 |   | 4.10 | % |
| Total Interest Bearing Deposits                     |       | 435,393                                                             |       | 9,577                                                               |       | 4.44 | % | 287,049 |   | 5,450 |   | 3.83 | % |
| Borrowed Funds:                                     |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Short term debt                                     |       | 35,665                                                              |       | 1,142                                                               |       | 6.46 | % | 15,085 |   | 414 |   | 5.53 | % |
| Long term debt                                      |       | 37,947                                                              |       | 857                                                                 |       | 4.55 | % | 15,634 |   | 477 |   | 6.15 | % |
| Total Borrowed Funds                                |       | 73,612                                                              |       | 1,999                                                               |       | 5.48 | % | 30,719 |   | 891 |   | 5.85 | % |
| Total Interest Bearing Liabilities                  |       | 509,005                                                             |       | 11,576                                                              |       | 4.59 | % | 317,768 |   | 6,341 |   | 4.02 | % |
| Demand Deposits                                     |       | 59,670                                                              |       |                                                                |       |   |   | 38,776 |   |   |   |   |   |
| Other  Liabilities                                  |       | 9,164                                                               |       |                                                                |       |   |   | 4,590 |   |   |   |   |   |
| Shareholders’  Equity                          |       | 74,133                                                              |       |                                                                |       |   |   | 30,011 |   |   |   |   |   |
| **Total Liabilities and Shareholders’ Equity** |       | $                                                                   | 651,972    |                                                                |       |   |   |   | $ | 391,145 |   |   |   |   |   |
| ** **                                          |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| **Interest  Rate Spread (d)**                       |       |                                                                |       |                                                                |       | 3.15 | % |   |   |   |   | 3.00 | % |
|                                                |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Interest  Income/Earning Assets                     |       |                                                                |       |                                                                |       | 7.74 | % |   |   |   |   | 7.02 | % |
| Interest  Expense/Earning Assets                    |       |                                                                |       |                                                                |       | 3.97 | % |   |   |   |   | 3.40 | % |
| **Net  Interest Income and Margin (f)**             |       |                                                                |       | $                                                                   | 10,988     |   | 3.77 | % |   |   | $ | 6,759 |   | 3.62 | % |

 

----

(a)  Average balances areobtained from the best available daily or monthly data.

(b)  Yields are reflected on atax equivalent basis.

(c)  Loans are gross of theallowance for possible loan losses, deferred fees and related direct costs.

(d)  Represents the difference between the yieldon interest-earning assets and the cost of interest-bearing liabilities.

(e)  Annualized.

(f)  Net interest marginrepresents net interest income as a percentage of average interest-earning assets.

39

----

**Table 2 - Changes in Net Interest Income**

Thefollowing table presents certain information regarding changes in our interestincome and interest expense for the periods indicated. For each category ofinterest-earning assets and interest-bearing liabilities, information isprovided with respect to changes attributable to (i) changes in volume (changein volume multiplied by prior year rate), (ii) changes in rate (change in ratemultiplied by prior year volume) and (iii) changes in rate/volume (Change inrate multiplied by change in volume).
| ** **                                          | ** ** | **For the Quarter Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007 vs. 2006**                                 | ** ** | **2007 vs. 2006**                                         | ** ** |
| ** **                                          | ** ** | **Increase (Decrease) Due to**               | ** ** | **Increase (Decrease) Due to**                       | ** ** |
| ** **                                          | ** ** | ** **                                                  | ** ** | ** **                                                          | ** ** | **Rate and** | ** ** | **Total** | ** ** | ** ** | ** ** | ** ** | ** ** | **Rate and** | ** ** | **Total** | ** ** |
| ** **                                          | ** ** | **Volume**                                                  | ** ** | **Rate**                                                            | ** ** | **Volume (1)** | ** ** | **Change** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Volume (1)** | ** ** | **Change** | ** ** |
| ** **                                          | ** ** | **(Dollars in thousands)**                        | ** ** | **(Dollars in thousands)**                                | ** ** |
| **Interest Income**                                 |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Investments:                                        |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold and other short term investments |       | $                                                           | (14        | )                                                                   | $          | (43 | ) | $ | 3 |   | $ | (54 | ) | $ | 232 |   | $ | (66 | ) | $ | (46 | ) | $ | 120 |   |
| Securities                                          |       | (41                                                         | )          | (63                                                                 | )          | 3 |   | (101 | ) | (44 | ) | 101 |   | (2 | ) | 55 |   |
| Equity                                              |       | (4                                                          | )          | 45                                                                  |       | (7 | ) | 34 |   | (1 | ) | 58 |   | — |   | 57 |   |
| Total Investment Income                             |       | (59                                                         | )          | (61                                                                 | )          | (1 | ) | (121 | ) | 187 |   | 93 |   | (48 | ) | 232 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans:                                              |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Agriculture                                         |       | (48                                                         | )          | (31                                                                 | )          | 7 |   | (72 | ) | (66 | ) | (87 | ) | 14 |   | (139 | ) |
| Commerical                                          |       | 707                                                         |       | (22                                                                 | )          | (21 | ) | 664 |   | 1,384 |   | 62 |   | 59 |   | 1,505 |   |
| Real Estate Construction                            |       | 1,795                                                       |       | (24                                                                 | )          | (20 | ) | 1,751 |   | 3,538 |   | 312 |   | 262 |   | 4,112 |   |
| Real Estate Term                                    |       | 1,712                                                       |       | 158                                                                 |       | 116 |   | 1,986 |   | 3,539 |   | 52 |   | 46 |   | 3,637 |   |
| Consumer                                            |       | 48                                                          |       | 31                                                                  |       | 10 |   | 89 |   | 64 |   | 29 |   | 6 |   | 99 |   |
| Credit Card and Overdraft Protection                |       | 9                                                           |       | —                                                              |       | — |   | 9 |   | 26 |   | (3 | ) | (5 | ) | 18 |   |
| Other                                               |       | —                                                      |       | —                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total Loan Income                                   |       | 4,223                                                       |       | 112                                                                 |       | 92 |   | 4,427 |   | 8,485 |   | 365 |   | 382 |   | 9,232 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  Interest Income**                          |       | 4,164                                                       |       | 51                                                                  |       | 91 |   | 4,306 |   | 8,672 |   | 458 |   | 334 |   | 9,464 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest Expense**                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:                         |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Now Accounts                                        |       | 7                                                           |       | 5                                                                   |       | 3 |   | 15 |   | 13 |   | 9 |   | 4 |   | 26 |   |
| Savings                                             |       | (366                                                        | )          | 38                                                                  |       | (13 | ) | (341 | ) | 281 |   | 227 |   | 59 |   | 567 |   |
| Money market                                        |       | 110                                                         |       | 161                                                                 |       | 22 |   | 293 |   | (378 | ) | 267 |   | (41 | ) | (152 | ) |
| IRA’s                                          |       | 27                                                          |       | 4                                                                   |       | 9 |   | 40 |   | 53 |   | 7 |   | 21 |   | 81 |   |
| Certificates of deposit<$100,000                 |       | 1,322                                                       |       | —                                                              |       | — |   | 1,322 |   | 2,713 |   | 61 |   | 135 |   | 2,909 |   |
| Certificates of deposit>$100,000                 |       | 293                                                         |       | 37                                                                  |       | 28 |   | 358 |   | 571 |   | 72 |   | 53 |   | 696 |   |
| Total  interest-bearing deposits                    |       | 1,393                                                       |       | 245                                                                 |       | 49 |   | 1,687 |   | 3,253 |   | 643 |   | 231 |   | 4,127 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed Funds                                      |       | 668                                                         |       | (19                                                                 | )          | (26 | ) | 623 |   | 1,244 |   | (56 | ) | (80 | ) | 1,108 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  interest expense**                         |       | 2,061                                                       |       | 226                                                                 |       | 23 |   | 2,310 |   | 4,497 |   | 587 |   | 151 |   | 5,235 |   |
|                                                |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net  Interest Income**                            |       | $                                                           | 2,103      |                                                                | $          | (175 | ) | $ | 68 |   | $ | 1,996 |   | $ | 4,175 |   | $ | (129 | ) | $ | 183 |   | $ | 4,229 |   |

 

----

(1) Includes changes in interest income and expense not due solely tovolume or rate changes.

40

----

 

** Table 3 - Non-Interest Income and Non-InterestExpense**

 The following table sets forth the variouscomponents of the Company’s non-interest income and expense for the periods indicated. 
| ** **                                                                       | ** ** | **For the Quarter Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2007**                                                    | ** ** | **% of Total**                                            | ** ** | **2006** | ** ** | **% of Total** | ** ** | **2007** | ** ** | **% of Total** | ** ** | **2006** | ** ** | **% of Total** | ** ** |
| ** **                                                                       | ** ** | **(Dollars in thousands)**                        | ** ** | ** **                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** Other Operating Income**                                                 |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service charges on deposit accounts                                              |       | $                                                           | 83         |                                                                | 13.72      | % | $ | 56 |   | 22.49 | % | $ | 160 |   | 15.58 | % | $ | 108 |   | 22.98 | % |
| Other service charges, commissions and fees                                      |       | 11                                                          |       | 1.82                                                                | %          | 36 |   | 14.46 | % | 25 |   | 2.43 | % | 69 |   | 14.68 | % |
| Loan Charges and Fees                                                            |       | 117                                                         |       | 19.34                                                               | %          | — |   | 0.00 | % | 182 |   | 17.72 | % | — |   | 0.00 | % |
| Pre-underwriting fees                                                            |       | —                                                      |       | 0.00                                                                | %          | — |   | 0.00 | % | — |   | 0.00 | % | 9 |   | 1.91 | % |
| Income on bank owned life insurance                                              |       | 101                                                         |       | 16.69                                                               | %          | 63 |   | 25.30 | % | 210 |   | 20.45 | % | 132 |   | 28.09 | % |
| Exchange fee income                                                              |       | 65                                                          |       | 10.74                                                               | %          | 40 |   | 16.06 | % | 79 |   | 7.69 | % | 52 |   | 11.06 | % |
| Unrealized gains on trading securities                                           |       | 356                                                         |       | 58.84                                                               | %          | 53 |   | 21.29 | % | 436 |   | 42.45 | % | 101 |   | 21.49 | % |
| Unrealized (loss) on fair value loans                                            |       | (130                                                        | )          | -21.49                                                              | %          | — |   | 0.00 | % | (85 | ) | -8.28 | % | — |   | 0.00 | % |
| (Loss)/gain on sale of Fixed Assets                                              |       | (3                                                          | )          | -0.50                                                               | %          | 2 |   | 0.80 | % | 11 |   | 1.07 | % | 2 |   | 0.43 | % |
| Gain/(loss) on sale of investments                                               |       | 5                                                           |       | 0.83                                                                | %          | (1 | ) | -0.40 | % | 9 |   | 0.88 | % | (3 | ) | -0.64 | % |
|  Total  non-interest income                                                 |       | 605                                                         |       | 100.00                                                              | %          | 249 |   | 100.00 | % | 1,027 |   | 100.00 | % | 470 |   | 100.00 | % |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|  As a percentage of average earning assets                                  |       |                                                        |       | 0.42                                                                | %          |   |   | 0.26 | % |   |   | 0.35 | % |   |   | 0.25 | % |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ** Other Operating Expense:**                                               |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                                                   |       | 2,333                                                       |       | 49.86                                                               | %          | 1,750 |   | 52.27 | % | 4,978 |   | 51.79 | % | 3,390 |   | 54.41 | % |
| Occupancy costs                                                                  |       | 709                                                         |       | 15.15                                                               | %          | 494 |   | 14.76 | % | 1,516 |   | 15.77 | % | 906 |   | 14.54 | % |
| Advertising and marketing costs                                                  |       | 264                                                         |       | 5.64                                                                | %          | 126 |   | 3.76 | % | 484 |   | 5.04 | % | 216 |   | 3.47 | % |
| Data processing costs                                                            |       | 146                                                         |       | 3.12                                                                | %          | 195 |   | 5.82 | % | 312 |   | 3.25 | % | 384 |   | 6.16 | % |
| Deposit services costs                                                           |       | 275                                                         |       | 5.88                                                                | %          | 76 |   | 2.27 | % | 566 |   | 5.89 | % | 145 |   | 2.33 | % |
| Loan servicing costs                                                             |       | 58                                                          |       | 1.24                                                                | %          | 10 |   | 0.30 | % | 21 |   | 0.22 | % | 21 |   | 0.34 | % |
| Provision for undisbursed loan commitments                                       |       | (21                                                         | )          | -0.45                                                               | %          | 88 |   | 2.63 | % | (59 | ) | -0.61 | % | 99 |   | 1.59 | % |
| Telephone and data communication costs                                           |       | 126                                                         |       | 2.69                                                                | %          | 58 |   | 1.73 | % | 247 |   | 2.57 | % | 102 |   | 1.64 | % |
| Postage                                                                          |       | 10                                                          |       | 0.21                                                                | %          | 24 |   | 0.72 | % | 56 |   | 0.58 | % | 41 |   | 0.66 | % |
| Legal and accounting costs                                                       |       | 240                                                         |       | 5.13                                                                | %          | 134 |   | 4.00 | % | 392 |   | 4.08 | % | 263 |   | 4.22 | % |
| Other professional services                                                      |       | 153                                                         |       | 3.27                                                                | %          | 136 |   | 4.06 | % | 333 |   | 3.46 | % | 261 |   | 4.19 | % |
| Directors fees                                                                   |       | 76                                                          |       | 1.62                                                                | %          | 59 |   | 1.76 | % | 148 |   | 1.54 | % | 112 |   | 1.80 | % |
| Travel and education costs                                                       |       | 106                                                         |       | 2.27                                                                | %          | 98 |   | 2.93 | % | 168 |   | 1.75 | % | 120 |   | 1.93 | % |
| Stationery and supplies                                                          |       | 69                                                          |       | 1.47                                                                | %          | 68 |   | 2.03 | % | 145 |   | 1.51 | % | 104 |   | 1.67 | % |
| Other                                                                            |       | 135                                                         |       | 2.89                                                                | %          | 32 |   | 0.96 | % | 305 |   | 3.17 | % | 66 |   | 1.06 | % |
|  Total  non-interest expense                                                |       | $                                                           | 4,679      |                                                                | 100.00     | % | $ | 3,348 |   | 100.00 | % | $ | 9,612 |   | 100.00 | % | $ | 6,230 |   | 100.00 | % |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|  As a percentage of average earning assets                                  |       |                                                        |       | 3.23                                                                | %          |   |   | 3.47 | % |   |   | 3.30 | % |   |   | 3.34 | % |
|  Net non-interest income/expense as a percentage  of average earning assets |       |                                                        |       | 2.81                                                                | %          |   |   | 3.21 | % |   |   | 2.94 | % |   |   | 3.09 | % |
|                                                                             |       |                                                        |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|  Efficiency ratio (a)                                                       |       |                                                        |       | 74.97                                                               | %          |   |   | 86.06 | % |   |   | 80.13 | % |   |   | 86.17 | % |

 

----

 (a)  Represents non-interest expense as apercentage of net interest income and non-interest income excluding realizedsecurities gains and losses. 

41

----

**Table 4 -Composition of Loan Portfolio**

Thefollowing table sets forth the composition of our loan portfolio at the datesindicated.

 
| ** **                            | ** ** | **As of**                            | ** ** | **As of**         | ** ** | **As of**             | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **June 30,**                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
| ** **                            | ** ** | **2007**                             | ** ** | **2006**          | ** ** | **2006**              | ** ** |
| ** **                            | ** ** | ** **                           | ** ** | **% of**     | ** ** | ** **            | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **                            | ** ** | **Amount **                     | ** ** | **Loans**         | ** ** | **Amount **      | ** ** | **Loans** | ** ** | **Amount** | ** ** | **Loans** | ** ** |
| ** **                            | ** ** | **(Dollars in thousands)** | ** ** |
|  USDA Agriculture Loans          |       | $                                    | 9,026      |              | 1.89       | %                     | $          | 12,939 |   | 4.61 | % | $ | 12,698 |   | 2.74 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Commercial and Industrial       |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
| Revolving Lines of Credit             |       | 40,443                               |       | 8.48              | %          | 17,265                |       | 6.15 | % | 38,271 |   | 8.25 | % |
| Other Collateral                      |       | 22,131                               |       | 4.64              | %          | 15,835                |       | 5.64 | % | 21,212 |   | 4.57 | % |
| Unsecured                             |       | 9,145                                |       | 1.92              | %          | 3,927                 |       | 1.40 | % | 16,885 |   | 3.64 | % |
| Participations                        |       | (4,916                               | )          | -1.03             | %          | —                |       | 0.00 | % | (2,000 | ) | -0.43 | % |
| Total Commerical and Industrial Loans |       | 66,803                               |       | 14.01             | %          | 37,027                |       | 13.18 | % | 74,368 |   | 16.03 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Real Estate Construction:       |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
| Acquisition and Land                  |       | 57,676                               |       | 12.09             | %          | 42,171                |       | 15.01 | % | 50,826 |   | 10.96 | % |
| Single Family Residences              |       | 47,339                               |       | 9.93              | %          | 37,395                |       | 13.31 | % | 63,255 |   | 13.64 | % |
| Multi-family                          |       | 6,757                                |       | 1.42              | %          | —                |       | 0.00 | % | — |   | 0.00 | % |
| Commerical                            |       | 65,013                               |       | 13.63             | %          | 29,691                |       | 10.57 | % | 49,099 |   | 10.58 | % |
| Government Guaranteed                 |       | 9,146                                |       | 1.92              | %          | 1,079                 |       | 0.38 | % | 3,000 |   | 0.65 | % |
| Participations                        |       | (13,310                              | )          | -2.79             | %          | (5,945                | )          | -2.12 | % | (12,419 | ) | -2.68 | % |
| Total Real Estate Construction        |       | 172,621                              |       | 36.20             | %          | 104,391               |       | 37.16 | % | 153,761 |   | 33.15 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Real Estate Term:               |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
| Single Family Residences              |       | 2,065                                |       | 0.43              | %          | 2,305                 |       | 0.82 | % | 878 |   | 0.19 | % |
| Multi-family                          |       | 7,001                                |       | 1.47              | %          | 5,956                 |       | 2.12 | % | 6,729 |   | 1.45 | % |
| Commerical                            |       | 217,895                              |       | 45.69             | %          | 114,394               |       | 40.73 | % | 217,465 |   | 46.88 | % |
| Government Guaranteed                 |       | 1,254                                |       | 0.26              | %          | —                |       | 0.00 | % | 916 |   | 0.20 | % |
| Participations                        |       | (12,052                              | )          | -2.53             | %          | (2,380                | )          | -0.85 | % | (10,936 | ) | -2.36 | % |
| Total Real Estate Term                |       | 216,163                              |       | 45.32             | %          | 120,275               |       | 42.82 | % | 215,052 |   | 46.36 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Total Real Estate Loans         |       | 388,784                              |       | 81.52             | %          | 224,666               |       | 79.98 | % | 368,813 |   | 79.51 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Consumer Loans:                 |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
| Consumer                              |       | 6,265                                |       | 1.31              | %          | 1,819                 |       | 0.65 | % | 1,848 |   | 0.40 | % |
| Home Equity Lines of Credit           |       | 5,632                                |       | 1.18              | %          | 4,276                 |       | 1.52 | % | 5,710 |   | 1.23 | % |
| Credit Cards and Overdraft Protection |       | 377                                  |       | 0.08              | %          | 148                   |       | 0.05 | % | 364 |   | 0.08 | % |
| Other                                 |       | 49                                   |       | 0.01              | %          | 14                    |       | 0.00 | % | 57 |   | 0.01 | % |
| Total Consumer Loans                  |       | 12,323                               |       | 2.58              | %          | 6,257                 |       | 2.23 | % | 7,979 |   | 1.72 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Gross Loans                     |       | 476,936                              |       | 100.00            | %          | 280,889               |       | 100.00 | % | 463,858 |   | 100.00 | % |
|                                  |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
|  Less:                           |       |                                 |       |              |       |                  |       |   |   |   |   |   |   |
| Deferred Fees and Costs               |       | 832                                  |       | 0.17              | %          | 501                   |       | 0.18 | % | 997 |   | 0.21 | % |
| Allowance for Loan Losses             |       | 5,584                                |       | 1.17              | %          | 3,003                 |       | 1.07 | % | 5,430 |   | 1.17 | % |
|  Net Loans                       |       | $                                    | 470,520    |              |       |                  | $          | 277,385 |   |   |   | $ | 457,431 |   |   |   |

 

 

42

----

** Table 5 - Table of Activity in the Allowancefor Loan Losses**

 The following table sets forth informationconcerning the activity in our allowance for loan losses during the periodsindicated. 
| ** **                                                                | ** ** | **For the Quarters Ended** | ** ** | **For the Six Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                | ** ** | **June 30,**                         | ** ** | **June 30,**                                | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                | ** ** | **2007**                                  | ** ** | **2006**                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                | ** ** | **(Dollars in thousands)**      | ** ** | **(Dollars in thousands)**             | ** ** |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
| ** Allowance at the beginning of the period**                        |       | $                                         | 5,502      |                                             | $          | 3,128 |   | $ | 5,430 |   | $ | 2,655 |   |
| ** **                                                                | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** Charge-offs:**                                                    | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Agricultural                                                              |       | —                                    |       | —                                           |       | — |   | — |   |
| Commercial & industrial loans                                         |       | 150                                       |       | —                                           |       | 278 |   | — |   |
| Real estate construction                                                  |       | —                                    |       | —                                           |       | — |   | — |   |
| Real estate term                                                          |       | —                                    |       | —                                           |       | — |   | — |   |
| Consumer loans                                                            |       | 2                                         |       | —                                           |       | 7 |   | — |   |
|  Total Loans  Charged-Off                                            |       | 152                                       |       | —                                           |       | 285 |   | — |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
| ** Recoveries:**                                                     | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Agricultural                                                              |       | —                                    |       | —                                           |       | — |   | — |   |
| Commercial & industrial loans                                         |       | —                                    |       | —                                           |       | 25 |   | — |   |
| Real estate construction                                                  |       | —                                    |       | —                                           |       | — |   | — |   |
| Real estate term                                                          |       | —                                    |       | —                                           |       | — |   | — |   |
| Consumer loans                                                            |       | —                                    |       | —                                           |       | — |   | — |   |
|  Total Loans  Recovered                                              |       | —                                    |       | —                                           |       | 25 |   | — |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
|  Net loan charge offs                                                |       | (152                                      | )          | —                                           |       | (260 | ) | — |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
|  Provision (recapture) charged to expense                            |       | 234                                       |       | (124                                             | )          | 414 |   | 349 |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
|  Balance                                                             |       | $                                         | 5,584      |                                             | $          | 3,004 |   | $ | 5,584 |   | $ | 3,004 |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
|  Average gross loans outstanding during  period                      |       | $                                         | 474,010    |                                             | $          | 274,080 |   | $ | 471,789 |   | $ | 266,127 |   |
|  Gross loans outstanding at end of period                            |       | $                                         | 476,936    |                                             | $          | 280,889 |   | $ | 476,936 |   | $ | 280,889 |   |
|                                                                      |       |                                      |       |                                             |       |   |   |   |   |
| ** RATIOS**                                                          | ** ** | ** **                                | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
|  Net Charge-offs to Average Loans  (annualized)                      |       | 0.13                                      | %          | n/a                                              |       | 0.11 | % | n/a |   |
|  Allowance for Loan Losses to Gross Loans at  End of Period          |       | 1.17                                      | %          | 1.07                                             | %          | 1.17 | % | 1.07 | % |
|  Net Loan Charge-offs to Allowance for Loan  Losses at End of Period |       | 2.72                                      | %          | n/a                                              |       | 4.66 | % | n/a |   |
|  Net Loan Charge-offs to Provision for Loan  Losses                  |       | 64.96                                     | %          | n/a                                              |       | 62.80 | % | n/a |   |

 

43

----

 

**Table 6 - Capital Adequacy - Risk-based Ratios**
| ** **                              | ** ** | ** ** | ** ** | ** **      | ** ** | ** **                 | ** ** | ** **                            | ** ** | **Minimum to**    | ** ** |
|-----------------------------------------|------------|------------|------------|-----------------|------------|----------------------------|------------|---------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Minimum**                | ** ** | **be Well Capitalized**     | ** ** |
| ** **                              | ** ** | ** ** | ** ** | ** **      | ** ** | **Capital**                | ** ** | **Under Prompt Corrective** | ** ** |
| ** **                              | ** ** | **Actual** | ** ** | **Requirement** | ** ** | **Action Provisions** | ** ** |
| **(Dollars in thousands)**    | ** ** | **Amount** | ** ** | **Ratio**       | ** ** | **Amount**                 | ** ** | **Ratio**                             | ** ** | ** Amount ** | ** ** | **Ratio** | ** ** |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| **June  30, 2007**                      |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Total Capital to  Risk Weighted Assets  |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 69,667     |            | 12.46      | %                          | $          | 44,727                                |       | 8.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 55,604     |            | 10.74      | %                          | $          | 41,401                                |       | 8.00                   | %          | $ | 51,752 |   | 10.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Risk Weighted Assets |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 63,797     |            | 11.41      | %                          | $          | 23,934                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 49,734     |            | 9.61       | %                          | $          | 20,701                                |       | 4.00                   | %          | 31,051 |   | 6.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Average Assets       |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 63,797     |            | 10.41      | %                          | $          | 24,522                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 49,734     |            | 8.46       | %                          | $          | 23,511                                |       | 4.00                   | %          | $ | 29,389 |   | 5.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| **March  31, 2007**                     |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Total Capital to  Risk Weighted Assets  |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 68,567     |            | 13.06      | %                          | $          | 41,998                                |       | 8.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 53,598     |            | 10.73      | %                          | $          | 39,966                                |       | 8.00                   | %          | $ | 49,957 |   | 10.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Risk Weighted Assets |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 58,370     |            | 11.12      | %                          | $          | 20,999                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 47,790     |            | 9.57       | %                          | $          | 19,983                                |       | 4.00                   | %          | 29,974 |   | 6.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Average Assets       |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 58,370     |            | 9.30       | %                          | $          | 26,435                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 47,790     |            | 8.02       | %                          | $          | 23,848                                |       | 4.00                   | %          | $ | 29,811 |   | 5.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| **December  31, 2006**                  |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Total Capital to  Risk Weighted Assets  |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 67,001     |            | 12.98      | %                          | $          | 41,527                                |       | 8.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 53,084     |            | 10.74      | %                          | $          | 39,545                                |       | 8.00                   | %          | $ | 49,431 |   | 10.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Risk Weighted Assets |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 51,431     |            | 9.97       | %                          | $          | 20,763                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security Bank                    |       | $          | 47,310     |            | 9.57       | %                          | $          | 17,372                                |       | 4.00                   | %          | 29,659 |   | 6.00 | % |
|                                    |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| Tier 1 Capital  to Average Assets       |       |       |       |            |       |                       |       |                                  |       |                   |       |   |   |
| The Bank Holdings                       |       | $          | 51,431     |            | 9.85       | %                          | $          | 22,221                                |       | 4.00                   | %          | NA |   | NA |   |
| Nevada Security  Bank                   |       | $          | 47,310     |            | 8.04       | %                          | $          | 19,973                                |       | 4.00                   | %          | $ | 26,240 |   | 5.00 | % |

 

44

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**Table 7 -QUARTERLY DATA (UNAUDITED)**
| ** ** | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | **Second**  | ** ** | **First**   | ** ** | **Fourth**  | ** ** | **Third**   | ** ** | **Second** | ** ** | **First** | ** ** | **Fourth** | ** ** | **Third** | ** ** | **Second** | ** ** | **First** | ** ** | **Fourth** | ** ** | **Third** | ** ** | **Second** | ** ** | **First** | ** ** |
| ** ** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|       |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest  Income                                                                             |   | $      | 11,222 |   | $      | 11,342 |   | $      | 10,203 |   | $      | 7,736  |   | $      | 6,916  |   | $      | 6,184  |   | $      | 5,293  |   | $      | 4,643  |   | $      | 3,864  |   | $      | 3,366 |   | $ | 3,256 |   | $ | 2,683 |   | $ | 2,458  |   | $ | 2,139 |   |
|----------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|---|-------|--------|---|-------|--------|---|--------|--------|---|-------|--------|
|  Interest Expense                                                                       |   | 5,584  |   | 5,992  |   | 4,887  |   | 3,855  |   | 3,274  |   | 3,067  |   | 2,631  |   | 1,964  |   | 1,533  |   | 1,216  |   | 1,080  |   | 947    |   | 825    |   | 817    |   |
|  Net interest income                                                                    |   | 5,638  |   | 5,350  |   | 5,316  |   | 3,881  |   | 3,642  |   | 3,117  |   | 2,662  |   | 2,679  |   | 2,331  |   | 2,150  |   | 2,176  |   | 1,736  |   | 1,633  |   | 1,322  |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Provision for Loan Losses                                                              |   | 234    |   | 180    |   | 175    |   | 247    |   | (124   | )      | 473    |   | 377    |   | 292    |   | 186    |   | 214    |   | 167    |   | 207    |   | 170    |   | 220    |   |
| Net  interest income after Provision for Loan Losses                                         |   | 5,404  |   | 5,170  |   | 5,141  |   | 3,634  |   | 3,766  |   | 2,644  |   | 2,285  |   | 2,387  |   | 2,145  |   | 1,936  |   | 2,009  |   | 1,529  |   | 1,463  |   | 1,102  |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Non-interest income                                                                    |   | 605    |   | 422    |   | 677    |   | 535    |   | 249    |   | 221    |   | 153    |   | 376    |   | 97     |   | 146    |   | 98     |   | 45     |   | 122    |   | 155    |   |
|  Non-interest expenses                                                                  |   | 4,679  |   | 4,933  |   | 4,102  |   | 3,250  |   | 3,348  |   | 2,882  |   | 2,569  |   | 2,382  |   | 1,967  |   | 1,905  |   | 1,775  |   | 1,716  |   | 1,499  |   | 1,252  |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Income (Loss) before taxes                                                             |   | 1,330  |   | 659    |   | 1,716  |   | 919    |   | 667    |   | (17    | )      | (131   | )      | 381    |   | 275    |   | 177    |   | 332    |   | (142   | )      | 86     |   | 5      |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Income/(losses) attributable to                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority  Shareholders                                                                       |   | (15    | )      | (24    | )      | 159    |   | 3      |   | (35    | )      | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Provision (Benefit) for taxes                                                          |   | 541    |   | 226    |   | 653    |   | 382    |   | 33     |   | 7      |   | (710   | )      | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  Income (Loss)                                                                           |   | $      | 804    |   | $      | 457    |   | $      | 904    |   | $      | 534    |   | $      | 669    |   | $      | (24    | )      | $      | 579    |   | $      | 381    |   | $      | 275    |   | $      | 177   |   | $ | 332   |   | $ | (142  | )      | $ | 86     |   | $ | 5     |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other  Comprehensive income (loss), unrealized gains/losses on securities available-for-sale |   | (116   | )      | 38     |   | 71     |   | 186    |   | (83    | )      | 193    |   | (144   | )      | (88    | )      | 266    |   | (225   | )      | (117   | )      | 1,005  |   | (1,409 | )      | 419    |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive  Income (Loss)                                                                 |   | $      | 688    |   | $      | 495    |   | $      | 975    |   | $      | 720    |   | $      | 586    |   | $      | 169    |   | $      | 435    |   | $      | 293    |   | $      | 541    |   | $      | (48   | )      | $ | 215   |   | $ | 863   |   | $ | (1,323 | )      | $ | 424   |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings  (loss) per common share:                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                        |   | $      | 0.14   |   | $      | 0.08   |   | $      | 0.18   |   | $      | 0.14   |   | $      | 0.20   |   | $      | (0.01  | )      | $      | 0.19   |   | $      | 0.12   |   | $      | 0.09   |   | $      | 0.06  |   | $ | 0.11  |   | $ | (0.05 | )      | $ | 0.03   |   | $ | 0.00  |   |
| Diluted                                                                                      |   | $      | 0.13   |   | $      | 0.08   |   | $      | 0.18   |   | $      | 0.13   |   | $      | 0.19   |   | $      | (0.01  | )      | $      | 0.18   |   | $      | 0.11   |   | $      | 0.09   |   | $      | 0.06  |   | $ | 0.11  |   | $ | (0.05 | )      | $ | 0.03   |   | $ | 0.00  |   |

 

45

----

 

** Table 8 - Operating Segment Information**

 Segmentinformation is divided into the Parent, Bank and non-bank segments. 

 Non-bank segments includes the Company’s 1031qualified intermediary companies. 
| ** **                                                 | ** ** | **For the Six Months Ending** | ** ** | **For the Six Months Ending** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** Condensed Income Statement**             | ** ** | **June 30, 2007**                       | ** ** | **June 30, 2006**                       | ** ** |
| ** (in thousands - unaudited)**        | ** ** | **Bank**                                          | ** ** | **1031**                                          | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** | **Bank** | ** ** | **1031** | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                                 | ** ** | ** **                                        | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Interest Income                                      |       | $                                                 | 22,073     |                                              | $          | 763 |   | $ | 170 |   | $ | (442 | ) | $ | 22,564 |   | $ | 12,776 |   | $ | 115 |   | $ | 209 |   | $ | — |   | $ | 13,100 |   |
|  Interest Expense                                     |       | 10,954                                            |       | 370                                               |       | 694 |   | (442 | ) | 11,576 |   | 5,851 |   | — |   | 490 |   | — |   | 6,341 |   |
|  Provision for Loan Losses                            |       | 414                                               |       | —                                            |       | — |   |   |   | 414 |   | 349 |   | — |   | — |   |   |   | 349 |   |
|  Non-interest Income                                  |       | 502                                               |       | 79                                                |       | 446 |   |   |   | 1,027 |   | 319 |   | 52 |   | 99 |   |   |   | 470 |   |
|  Non-interest Expense                                 |       | 7,530                                             |       | 904                                               |       | 1,178 |   |   |   | 9,612 |   | 4,877 |   | 467 |   | 886 |   |   |   | 6,230 |   |
|  Net Income/(Loss) before taxes and other             |       | 3,677                                             |       | (432                                              | )          | (1,256 | ) | — |   | 1,989 |   | 2,018 |   | (300 | ) | (1,068 | ) | — |   | 650 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Income/(Loss) attributable to minority  shareholders |       | —                                            |       | —                                            |       | (39 | ) |   |   | (39 | ) | — |   | — |   | (35 | ) |   |   | (35 | ) |
|  Income Taxes/(Benefit)                               |       | 1,303                                             |       | (147                                              | )          | (389 | ) |   |   | 767 |   | 505 |   | (102 | ) | (363 | ) |   |   | 40 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** NET INCOME/(LOSS)**                                |       | $                                                 | 2,374      |                                              | $          | (285 | ) | $ | (828 | ) | $ | — |   | $ | 1,261 |   | $ | 1,513 |   | $ | (198 | ) | $ | (670 | ) | $ | — |   | $ | 645 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| ** Statement of Condition**                           | ** ** | ** **                                        | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  ASSETS                                               |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Cash and Due from Banks                              |       | $                                                 | 9,005      |                                              | $          | 34,348 |   | $ | 1,865 |   | $ | (16,421 | ) | $ | 28,797 |   | $ | 10,531 |   | $ | 10,088 |   | $ | 2,955 |   | $ | (3,185 | ) | $ | 20,388 |   |
|  Investments                                          |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investments in subsidiaries                                |       | —                                            |       | —                                            |       | 71,983 |   | (71,366 | ) | 617 |   | — |   | — |   | 33,473 |   | (32,777 | ) | 696 |   |
| Investment Portfolio                                       |       | 95,918                                            |       | —                                            |       | 10,920 |   |   |   | 106,838 |   | 91,502 |   | — |   | 8,311 |   |   |   | 99,813 |   |
|  Loans                                                |       | 470,520                                           |       | —                                            |       | — |   |   |   | 470,520 |   | 277,385 |   | — |   | — |   |   |   | 277,385 |   |
|  Fixed Assets                                         |       | 7,286                                             |       | 121                                               |       | 151 |   |   |   | 7,558 |   | 2,762 |   | 120 |   | 157 |   |   |   | 3,039 |   |
|  Intangibles                                          |       | 21,662                                            |       | —                                            |       | 9,771 |   |   |   | 31,433 |   | — |   | — |   | 5,320 |   |   |   | 5,320 |   |
|  Other Assets                                         |       | 14,968                                            |       | 102                                               |       | 1,167 |   |   |   | 16,237 |   | 10,720 |   | 303 |   | 884 |   |   |   | 11,907 |   |
|  Total Assets                                         |       | $                                                 | 619,359    |                                              | $          | 34,571 |   | $ | 95,857 |   | $ | (87,787 | ) | $ | 662,000 |   | $ | 392,900 |   | $ | 10,511 |   | $ | 51,100 |   | $ | (35,962 | ) | $ | 418,548 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  LIABILITIES                                          |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Deposits                                             |       | 484,258                                           |       | 15,870                                            |       | — |   | (16,421 | ) | 483,707 |   | 335,593 |   | — |   | — |   | (3,185 | ) | 332,408 |   |
|  Borrowing                                            |       | 58,000                                            |       | —                                            |       | 20,619 |   |   |   | 78,619 |   | 22,000 |   | — |   | 15,994 |   |   |   | 37,994 |   |
|  Other Liabilities                                    |       | 6,353                                             |       | 18,083                                            |       | 734 |   |   |   | 25,170 |   | 3,013 |   | 10,028 |   | 1,920 |   |   |   | 14,961 |   |
|  Total Liabilities                                    |       | 548,611                                           |       | 33,953                                            |       | 21,353 |   | (16,421 | ) | 587,496 |   | 360,606 |   | 10,028 |   | 17,914 |   | (3,185 | ) | 385,363 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Shareholders’ equity                            |       | 70,748                                            |       | 618                                               |       | 74,504 |   | (71,366 | ) | 74,504 |   | 32,294 |   | 483 |   | 33,185 |   | (32,777 | ) | 33,185 |   |
|                                                       |       |                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Total Liabilities and Shareholders’ Equity      |       | $                                                 | 619,359    |                                              | $          | 34,571 |   | $ | 95,857 |   | $ | (87,787 | ) | $ | 662,000 |   | $ | 392,900 |   | $ | 10,511 |   | $ | 51,099 |   | $ | (35,962 | ) | $ | 418,548 |   |

 

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**TABLE 8 CONTINUED**
| ** **                                           | ** ** | **For the Three Months Ending** | ** ** | **For the Three Months Ending** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **June 30, 2007**                         | ** ** | **June 30, 2006**                         | ** ** |
| **(in thousands - unaudited)**        | ** ** | **   Bank   **        | ** ** | **  1031  **                    | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** | **  Bank  ** | ** ** | **  1031  ** | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                 |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Condensed Income Statement                 |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Income                                      |       | $                                                   | 11,046     |                                                | $          | 411 |   | $ | 33 |   | $ | (268 | ) | $ | 11,222 |   | $ | 6,699 |   | $ | 115 |   | $ | 102 |   | $ | — |   | $ | 6,916 |   |
| Interest Expense                                     |       | 5,305                                               |       | 210                                                 |       | 337 |   | (268 | ) | 5,584 |   | 3,016 |   | — |   | 258 |   | — |   | 3,274 |   |
| Provision for Loan  Losses                           |       | 234                                                 |       | —                                              |       | — |   |   |   | 234 |   | (124 | ) | — |   | — |   |   |   | (124 | ) |
| Non-interest Income                                  |       | 177                                                 |       | 65                                                  |       | 363 |   |   |   | 605 |   | 141 |   | 52 |   | 56 |   |   |   | 249 |   |
| Non-interest Expense                                 |       | 3,696                                               |       | 451                                                 |       | 532 |   |   |   | 4,679 |   | 2,385 |   | 467 |   | 496 |   |   |   | 3,348 |   |
| Net Income/(Loss) before  taxes and other            |       | 1,988                                               |       | (185                                                | )          | (473 | ) | — |   | 1,330 |   | 1,563 |   | (300 | ) | (596 | ) | — |   | 667 |   |
|                                                 |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income/(Loss)  attributable to minority shareholders |       | —                                              |       | —                                              |       | (15 | ) |   |   | (15 | ) | — |   | — |   | (35 | ) |   |   | (35 | ) |
| Income Taxes/(Benefit)                               |       | 715                                                 |       | (50                                                 | )          | (124 | ) |   |   | 541 |   | 502 |   | (102 | ) | (367 | ) |   |   | 33 |   |
|                                                 |       |                                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **NET INCOME/(LOSS)**                                |       | $                                                   | 1,273      |                                                | $          | (135 | ) | $ | (334 | ) | $ | — |   | $ | 804 |   | $ | 1,061 |   | $ | (198 | ) | $ | (194 | ) | $ | — |   | $ | 669 |   |

 

 

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|   |            | THE BANK HOLDINGS |
|--------|-----------------|-------------------|
|   |            |              |
| Date:  | August 14, 2007 |              | by: |   | /s/ Harold G. Giomi |   |
|   |            |              |   | Harold G. Giomi |
|   |            |              |   | Chief Executive  Officer |
|   |            |              |   |   |
| Date:  | August 14, 2007 |              | by: |   | /s/ Jack B. Buchold |   |
|   |            |              |   | Jack B. Buchold |
|   |            |              |   | Chief Financial  Officer |
|   |            |              |   | (principal  financial and |
|   |            |              |   | accounting  officer) |
|        |                 |                   |  |  |  |  |  |

 

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