**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

**x****                          ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended March 31, 2007**

**o****                             ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For theTransition Period From                      To                              **

**Commissionfile number 000-50645**

**THE BANK HOLDINGS**

(Exact name ofRegistrant as specified in its charter)

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

 

| **9990 Double R Boulevard, Reno, Nevada** |   | **89521**  |
|-------------------------------------------|--------|------------|
| (Address of  principal 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 the registrantwas required to file such reports) and (2) has been subject to such filingrequirements 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**      Accelerated Filer**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 May 14, 2007**

 

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**Table of Contents**
| PART I. FINANCIAL  INFORMATION |
|--------------------------------|
| Item 1.                        | Financial  Statements |
|                           | 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                     |   |
| Appendices                     |   |
|                                |  |  |

 

2

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**PART I —FINANCIAL STATEMENTS**

**Item 1**

THE BANK HOLDINGS ANDSUBSIDIARIES

CONSOLIDATEDSTATEMENT OF CONDITION

(Dollars in thousands, except per share data) 
| ** **                                                                                                                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                | ** ** | **2007 (1)**  | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                |       |               |       |                  |       |
| Cash and due from banks                                                                                                                   |       | $                  | 30,436     |                  | $          | 31,851 |   |
| Liquid money market funds                                                                                                                 |       | 766                |       | 1,337                 |       |
| Federal funds sold                                                                                                                        |       | 615                |       | 535                   |       |
| Cash and cash equivalents                                                                                                                 |       | 31,817             |       | 33,723                |       |
| Securities available for sale, at fair value                                                                                              |       | 14,624             |       | 16,337                |       |
| Securities held to maturity, at amortized cost                                                                                            |       | 75,920             |       | 76,590                |       |
| Securities - trading, at market value                                                                                                     |       | 4,569              |       | 4,299                 |       |
| Other equity securities, at cost                                                                                                          |       | 3,890              |       | 4,750                 |       |
| USDA/SBA loans (at fair value, unpaid principal  $14,305)                                                                                 |       | 13,615             |       | —                |       |
| Loans, gross                                                                                                                              |       | 450,638            |       | 463,858               |       |
| Allowance for loan losses                                                                                                                 |       | (5,502             | )          | (5,430                | )          |
| Deferred loan fees, net                                                                                                                   |       | (960               | )          | (997                  | )          |
| Loans, net                                                                                                                                |       | 457,791            |       | 457,431               |       |
| Premises and equipment, net                                                                                                               |       | 7,718              |       | 7,857                 |       |
| Bank Owned Life Insurance                                                                                                                 |       | 12,626             |       | 11,868                |       |
| Intangible assets                                                                                                                         |       | 1,712              |       | 2,373                 |       |
| Goodwill                                                                                                                                  |       | 29,602             |       | 28,344                |       |
| Other assets                                                                                                                              |       | 7,149              |       | 7,968                 |       |
| **TOTAL ASSETS**                                                                                                                          |       | $                  | 647,418    |                  | $          | 651,540 |   |
|                                                                                                                                      |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                             |       |               |       |                  |       |
| Deposits:                                                                                                                                 |       |               |       |                  |       |
| Non-interest bearing demand                                                                                                               |       | $                  | 60,853     |                  | $          | 73,748 |   |
| Interest bearing demand                                                                                                                   |       | 11,670             |       | 10,921                |       |
| Savings                                                                                                                                   |       | 74,644             |       | 77,767                |       |
| Money Market                                                                                                                              |       | 104,233            |       | 107,107               |       |
| IRA’s                                                                                                                                |       | 4,446              |       | 4,398                 |       |
| Time deposits < $100,000                                                                                                               |       | 191,743            |       | 155,903               |       |
| Time deposits > $100,000                                                                                                               |       | 67,252             |       | 67,153                |       |
| Total deposits                                                                                                                            |       | 514,841            |       | 496,997               |       |
| Short term borrowed funds                                                                                                                 |       | 7,765              |       | 31,265                |       |
| Long term borrowed funds                                                                                                                  |       | 8,000              |       | 8,265                 |       |
| Junior subordinated debt                                                                                                                  |       | 20,619             |       | 20,619                |       |
| Exchange liabilities                                                                                                                      |       | 15,924             |       | 13,290                |       |
| Minority shareholder interest in subsidiaries                                                                                             |       | 1,015              |       | 1,427                 |       |
| Accrued interest payable and other liabilities                                                                                            |       | 5,475              |       | 6,109                 |       |
| Total Liabilities                                                                                                                         |       | 573,639            |       | 577,972               |       |
|                                                                                                                                      |       |               |       |                  |       |
| Commitments and contingencies (Notes 1)                                                                                                   |       |               |       |                  |       |
|                                                                                                                                      |       |               |       |                  |       |
| 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 March 31, 2007 and  December 31, 2006 |       | 58                 |       | 58                    |       |
| Surplus                                                                                                                                   |       | 73,341             |       | 73,345                |       |
| Accumulated earnings                                                                                                                      |       | 871                |       | 878                   |       |
| Accumulated other comprehensive loss                                                                                                      |       | (671               | )          | (709                  | )          |
| Total stockholders’ equity                                                                                                           |       | 73,779             |       | 73,568                |       |
| **TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                      |       | $                  | 647,418    |                  | $          | 651,540 |   |

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(1)The March 31, 2007 information is unaudited.

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, except per share data)
| ** **                                                                      | ** ** | **For the Three-Month Period** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                      | ** ** | **Ended March 31, (1)**        | ** ** |
| ** **                                                                      | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| **Interest  and dividend income:**                                              |       |                                          |       |   |   |
| Federal funds sold and other                                                    |       | $                                             | 300        |   | $ | 126 |   |
| Debt securities, taxable                                                        |       | 862                                           |       | 851 |   |
| Debt securities, non-taxable                                                    |       | 176                                           |       | 31 |   |
| Dividends                                                                       |       | 50                                            |       | 27 |   |
| Loans, including fees                                                           |       | 9,954                                         |       | 5,149 |   |
| **Total  interest and dividend income**                                         |       | 11,342                                        |       | 6,184 |   |
|                                                                            |       |                                          |       |   |   |
| **Interest  expense:**                                                          |       |                                          |       |   |   |
| Deposits                                                                        |       | 5,080                                         |       | 2,640 |   |
| Other borrowed funds, notes payable and debt                                    |       | 912                                           |       | 427 |   |
| **Total  interest expense**                                                     |       | 5,992                                         |       | 3,067 |   |
|                                                                            |       |                                          |       |   |   |
| **Net  interest income**                                                        |       | 5,350                                         |       | 3,117 |   |
|                                                                            |       |                                          |       |   |   |
| Provision for  loan losses                                                      |       | 180                                           |       | 473 |   |
| Net interest  income, after provision for loan losses                           |       | 5,170                                         |       | 2,644 |   |
|                                                                            |       |                                          |       |   |   |
| **Non-interest  income:**                                                       |       |                                          |       |   |   |
| Service charges on deposit accounts                                             |       | 77                                            |       | 52 |   |
| Other service charges, commissions and fees                                     |       | 79                                            |       | 33 |   |
| Pre-underwriting fees                                                           |       | —                                        |       | 9 |   |
| Income on bank owned life insurance                                             |       | 109                                           |       | 69 |   |
| Exchange fee income                                                             |       | 14                                            |       | 12 |   |
| Unrealized gain on trading securities                                           |       | 80                                            |       | 48 |   |
| Unrealized gain on fair value loans                                             |       | 45                                            |       | — |   |
| Realized gain on sale of fixed assets                                           |       | 14                                            |       | — |   |
| Realized gain (loss) on the sale of investments, net                            |       | 4                                             |       | (2 | ) |
| **Total  non-interest income**                                                  |       | 422                                           |       | 221 |   |
|                                                                            |       |                                          |       |   |   |
| **Non-interest  expense:**                                                      |       |                                          |       |   |   |
| Salaries and employee benefits                                                  |       | 2,645                                         |       | 1,640 |   |
| Occupancy and equipment                                                         |       | 807                                           |       | 412 |   |
| Marketing                                                                       |       | 220                                           |       | 90 |   |
| Data processing                                                                 |       | 166                                           |       | 189 |   |
| Deposit and loan servicing costs                                                |       | 254                                           |       | 91 |   |
| Accounting, legal and tax                                                       |       | 152                                           |       | 129 |   |
| Other professional services                                                     |       | 180                                           |       | 125 |   |
| Telephone and data communications                                               |       | 121                                           |       | 44 |   |
| Other                                                                           |       | 388                                           |       | 162 |   |
| **Total  non-interest expense**                                                 |       | 4,933                                         |       | 2,882 |   |
| **Net  income before income tax provision and minority shareholder allocation** |       | 659                                           |       | (17 | ) |
|                                                                            |       |                                          |       |   |   |
| **Provision  for income taxes**                                                 |       | 226                                           |       | 7 |   |
|                                                                            |       |                                          |       |   |   |
| **Gain/(Loss)  attributable to minority shareholders**                          |       | (24                                           | )          | — |   |
|                                                                            |       |                                          |       |   |   |
| **NET  INCOME**                                                                 |       | $                                             | 457        |   | $ | (24 | ) |
|                                                                            |       |                                          |       |   |   |
| Net earnings per  share:                                                        |       |                                          |       |   |   |
| Basic                                                                           |       | 0.08                                          |       | (0.01 | ) |
| Diluted                                                                         |       | 0.08                                          |       | (0.01 | ) |

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(1)The period ending data for March 31, 2007 and 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 three month periods ending March 31, 2007, and March 31, 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                                                               |       |                           |       | —                            |       | —            |       | —                                |       | —                              |       | —                                             |       | —    |       |
| Stock Dividend February 15, 2007                                                      |       |                           |       | 156,213                           |       |              |       |                                  |       |                                |       |                                               |       |      |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net Income                                                                            |       | $                              | (24        | )                                 | —     |              | —     |                                  | —     |                                | (24        | )                                                  | —     |      | (24        | ) |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Compensation expense related to stock options                                         |       |                           |       | —                            |       | —            |       | 393                                   |       | —                              |       | —                                             |       | 393       |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Other comprehensive income:                                                           |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Unrealized holding gains on  securities available for sale arising during the period  |       | 191                            |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Less reclassification  adjustment for gains included in net income                    |       | 2                              |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net unrealized holding  gains                                                         |       | 193                            |       |                              |       | —            |       | —                                |       | —                              |       | 193                                                |       | 193       |       |
| Comprehensive Income                                                                  |       | $                              | 169        |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance at March 31, 2006**                                                         |       |                           |       | 3,280,479                         |       | $                 | 30         |                                  | $          | 30,824                              |       | $                                                  | (1,229     | )         | $          | (361 | ) | $ | 29,264 |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **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                                                                            |       | $                              | 457        |                              | —     |              | —     |                                  | —     |                                | 457        |                                               | —     |      | 457        |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Compensation expense related to stock options                                         |       |                           |       | —                            |       | —            |       | 180                                   |       | —                              |       | —                                             |       | 180       |       |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Other comprehensive income:                                                           |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Unrealized holding losses  on securities available for sale arising during the period |       | 56                             |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Less reclassification  adjustment for losses included in net income                   |       | (18                            | )          |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| Net unrealized holding  losses                                                        |       | 38                             |       |                              |       | —            |       | —                                |       | —                              |       | 38                                                 |       | 38        |       |
| Comprehensive Income                                                                  |       | $                              | 495        |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |   |
|                                                                                  |       |                           |       |                              |       |              |       |                                  |       |                                |       |                                               |       |      |       |
| **Balance  at March 31, 2007**                                                        |       |                           |       | 5,831,099                         |       | $                 | 58         |                                  | $          | 73,341                              |       | $                                                  | 871        |      | $          | (671 | ) | $ | 73,779 |   |

----

(1)The periods ending March 31, 2007 and 2006 are unaudited.

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

5

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THEBANK HOLDINGS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)
| ** **                                                            | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **March 31, (1)**      | ** ** |
| ** **                                                            | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                            |       |                             |       |   |   |
| Net Income (loss)                                                     |       | $                                | 457        |   | $ | (24 | ) |
| Adjustments to  reconcile net income (loss) to cash                   |       |                             |       |   |   |
| Provided by  (used in) operating activities:                          |       |                             |       |   |   |
| Provision for  loan losses                                            |       | 180                              |       | 473 |   |
| Stock option  compensation expense                                    |       | 180                              |       | 286 |   |
| Net amortization  of securities                                       |       | 52                               |       | 41 |   |
| Depreciation                                                          |       | 343                              |       | 97 |   |
| Unrealized  (gain) on trading securities                              |       | (80                              | )          | (48 | ) |
| Activity of  trading securities, net                                  |       | (270                             | )          | 22 |   |
| Loss  attributable to minority shareholders                           |       | 24                               |       | — |   |
| Realized (gain)  on sales of fixed assets, net                        |       | (14                              | )          | — |   |
| Realized (gain) loss  on sales of available for sale investments, net |       | (4                               | )          | 2 |   |
| Net change in:                                                        |       |                             |       |   |   |
| Other assets and  liabilities, net                                    |       | 1,466                            |       | (387 | ) |
| **Net cash provided by operating activities**                         |       | 2,334                            |       | 462 |   |
| ** **                                                            |       |                             |       |   |   |
| **Cash  flows from investing activities:**                            |       |                             |       |   |   |
| Activity in  available for sale securities:                           |       |                             |       |   |   |
| Proceeds from  sales, maturities, prepayments and calls               |       | 2,292                            |       | 311 |   |
| Purchases                                                             |       | (500                             | )          | (1028 | ) |
| Activity in  securities held to maturity:                             |       |                             |       |   |   |
| Proceeds from  maturities, prepayments and calls                      |       | 5,164                            |       | 4,478 |   |
| Purchases                                                             |       | (4,535                           | )          | (11,034 | ) |
| Activity of  equity securities, net                                   |       | (860                             | )          | (645 | ) |
| Investment in  non-bank subsidiaries, net                             |       | —                           |       | (3,280 | ) |
| Increase in bank  owned life insurance                                |       | (109                             | )          | (69 | ) |
| Loan  originations and principal collections, net                     |       | 432                              |       | (28,586 | ) |
| Purchases of  premises and equipment                                  |       | (203                             | )          | (246 | ) |
| **Net  cash provided by (used in) investing activities**              |       | 1,681                            |       | (40,100 | ) |
| ** **                                                            |       |                             |       |   |   |
| **Cash  flows from financing activities:**                            |       |                             |       |   |   |
| Net increase in  deposits                                             |       | 17,844                           |       | (20,995 | ) |
| (Repayment)/  proceeds from other borrowed funds, net                 |       | (23,765                          | )          | 34,500 |   |
| Proceeds from  the exercise of stock warrants                         |       | —                           |       | 97 |   |
| Proceeds from  the exercise of stock options                          |       | —                           |       | 10 |   |
| **Net  cash provided by (used in) financing activities**              |       | (5,921                           | )          | 13,612 |   |
| ** **                                                            |       |                             |       |   |   |
| **Net  change in cash and cash equivalents**                          |       | (1,906                           | )          | (26,025 | ) |
| ** **                                                            |       |                             |       |   |   |
| **Cash  and cash equivalents at beginning of the period**             |       | 33,723                           |       | 42,271 |   |
| **Cash and cash equivalents at  end of the period**                   |       | $                                | 31,817     |   | $ | 16,246 |   |

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(1) The periods endingMarch 31, 2007 and 2006 are unaudited.

The accompanying notesare an integral part of these unaudited consolidated financial statements.

6

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**THE BANK HOLDINGS ANDSUBSIDIARIES**

**Notes toConsolidated Financial Statements (Unaudited)**

**March 31,2007**

**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 one open office in California with one scheduled to open in May2007.  The California branches areseparately 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 and has a location inHawaii and Las Vegas, Nevada.  Qualifiedintermediaries select the financial institution to hold the depositor accountscreated as part of the exchange transactions. These subsidiaries have been 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 a subsidiaryof NNB Holdings, Inc., and was acquired by the Company in the merger with NNBHoldings, Inc.  NNB Holdings StatutoryTrust I is a Delaware Statutory Trust also formed to facilitate the issuance ofcapital trust pass through securities. Pursuant to FASB Interpretation No. 46R *Consolidationof Variable Interest Entities* (FIN 46R), The Bank Holdings StatutoryTrust I and NNB Holdings Statutory Trust I are not reflected on a consolidatedbasis 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 financialstatements.  The information furnished inthese interim statements reflects all adjustments which are, in the opinion ofmanagement, necessary for a fair statement of the results for each respectiveperiod 

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presented.  Such adjustments are of a normal recurringnature, unless otherwise disclosed in this Form 10-Q.

Operating resultsfor the three month period ended March 31, 2007 are not necessarily indicativeof the results that may be expected in future periods. The balance sheet atDecember 31, 2006 is from the audited financial statements at that date, butthis document does not include all of the information and footnotes required bygenerally accepted accounting principles for complete annual financialstatements.  The interim financialinformation should be read in conjunction with the Company’s 2006 Annual Reporton 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 manageour operations and prepare management reports and other information with aprimary focus on lines of business.  Asof March 31, 2007, we operated one bank located in two distinctive regionalmarkets in two states, and two qualified intermediary companies in fourdistinct geographic areas.  The operatingsegments are separated into parent, bank, and non-bank financial services.  Such segment reporting eliminatestransactions between noted operating areas, and the accounting policies of theindividual segments are the same as those of the Company.  Transactions between operating segments areprimarily conducted at fair value, resulting in profits that are eliminated forreporting consolidated results of operations. Operating segments pay for centrally provided services based uponestimated or actual usage of those services.

Table 12presents selected operating segment information for the three months endedMarch 31, 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”*and FAS 157 *“Fair ValueMeasurements”* for those SBA/USDA loans which were purchased by theCompany during 2003 and 2004 when the loan portfolio was smaller than theinvestment portfolio.  The Company took acharge of $464,000 to retained earnings on January 1, 2007 when the loans wereinitially marked to market.  The Companyrecorded $45,000 of mark to market gains on these loans during the firstquarter of 2007.

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***IncomeTaxes***

The Company filesits income taxes on a consolidated basis with its subsidiaries.  The allocation of income tax expense representseach entity’s proportionate share of the consolidated provision for taxes.  Deferred income tax assets and liabilitiesare determined using the liability (or balance sheet) method.  Under this method, the net deferred tax assetor liability is determined based on the tax effects of the temporarydifferences between the book and tax bases of the various balance sheet assetsand liabilities and gives current recognition to changes in tax rates andlaws.  Therefore, deferred taxes arerecognized for the tax consequences of temporary differences by applyingenacted statutory tax rates applicable to future years to differences betweentax financial statement carrying amounts and the basis of existing assets andliabilities.  The effect on deferredtaxes of a change in tax rates would be recognized in income in the period thatincludes 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 March 31, 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 anddisclosure requirements designed to improve comparability between entities thatelect different measurement attributes for similar assets and liabilities.  The Company has elected early adoption of FAS159 effective January 1, 2007 concurrent with the early adoption of FAS 157 forUSDA/SBA loans purchased during 2003 and early 2004.

The Companybelieves its adoption of FAS 159 will have a positive impact on its ability to bettermanage the balance sheet and interest rate risks which were associated withthis group of specifically acquired assets while potentially benefiting the netinterest margin, net interest income, net income and earning per common shareduring 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 

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acquisition, theCompany’s cost basis of the purchased loans recorded on the statement ofcondition does not properly reflect 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 Company identified characteristics that distinguish marketparticipants generally, and considered factors specific to (a) the asset type,(b) the principal (or most advantageous) market for the asset group, and (c)market participants with whom the reporting entity would transact in thatmarket.  These loans may be sold in asecondary market with 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 March 31, 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 March 31, 2007.
| **Description of Financial Instrument** | ** ** | **March 31,  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                         |       | $                                    | 14,624     |                                                                                           | $          | 14,624                                                   |       | $                                                       | —     |   | $ | — |   |
| USDA/SBA Loans                                         |       | 13,615                               |       | —                                                                                         |       | 13,615                                                   |       | —                                                  |       |
|                                                   |       |                                 |       |                                                                                           |       |                                                     |       |                                                    |       |
| Total                                                  |       | $                                    | 28,239     |                                                                                           | $          | 14,624                                                   |       | $                                                       | 13,615     |   | $ | — |   |

 

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 firstquarter of 2007, a pre-tax unrealized gain of $45,000 was recorded in earnings,representing the change in fair value of these loans from the fair valueelection date of January 1, 2007.  

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The fair value atMarch 31, 2007 was calculated using fair value hierarchy level two and in thesame manner as the valuation at January 1, 2007.

**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 three months ended March 31, 2007 includes: a)compensation cost for all share-based awards granted prior to, but not yetvested as of January 1, 2006, and b) compensation cost for all share-basedawards granted subsequent to January 1, 2006. The results for prior periods have not been restated.
| ** **                                  | ** ** | **Quarter Ended March 31, 2007** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **Number  of Shares**                           | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Weighted Average  Remaining  Contractual Term** | ** ** |
| Options  outstanding at beginning of period |       | 630,717                                              |       | 12.68 |   |   |   |   |   |
| Granted                                     |       | 96,400                                               |       | 18.83 |   |   |   |   |   |
| Cancelled/Forfeited                         |       | —                                               |       | — |   |   |   |   |   |
| Exercised                                   |       | —                                               |       | — |   |   |   |   |   |
| Options  outstanding at end of period       |       | 727,117                                              |       | 13.62 |   | $ | 3,444,968 |   | 7.37 Years |   |
|                                        |       |                                                 |       |   |   |   |   |   |   |
| Exercisable (vested) at  end of period      |       | 573,837                                              |       | 12.52 |   | $ | 3,319,291 |   | 6.87 Years |   |

 

|                                                                  | ** ** | **Three Months  Ended  March 31, 2007** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Weighted average  grant-date fair value of stock options granted |       | $                                                      | 6.71       |   |
| Total fair value of  stock options vested                        |       | $                                                      | 3,429,332  |   |

 

For the quarter ending March 31, 2007 the Company recognized $180,000 ofcompensation expense related to stock options. As of the period ending March 31, 2007, there was $765,000 inunrecognized compensation expense related to non-vested stock options.

|                            | ** ** | **Quarter Ended March 31, 2007** | ** ** |
|----------------------------|------------|------------------------------------------------------|------------|
| Risk free  interest rate   |       | 4.68                                                 | %          |
| Expected  dividend yield   |       | 0.0                                                  | %          |
| Expected life in  years    |       | 7.0                                                  |       |
| Expected price  volatility |       | 21.6                                                 | %          |

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(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.

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**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 March 31, 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** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                        | ** ** | **March 31,**      | ** ** |
| ** **                                                                                        | ** ** | **2007**                | ** ** | **2006(1)** | ** ** |
| Average number  of common shares outstanding                                                      |       | 5,831,099               |       | 3,281,171 |   |
| Effect of  dilutive options                                                                       |       | 171,025                 |       | 122,483 |   |
| Effect of  dilutive warrants                                                                      |       | —                  |       | 145,031 |   |
| Average number  of common shares outstanding used to calculate diluted earnings per common  share |       | 6,002,124               |       | 3,548,685 |   |
|                                                                                              |       |                    |       |   |   |
| Net income                                                                                        |       | $                       | 457        |   | $ | (24 | ) |
| Basic net income  per share                                                                       |       | $                       | 0.08       |   | $ | (0.01 | ) |
| Diluted net income per  share                                                                     |       | $                       | 0.08       |   | $ | (0.01 | ) |

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

**NOTE 6 — INCOME TAXES**

FASBStatement 109, FIN 48 provides guidance for the recognition, derecognition andmeasurement in financial statements of tax positions taken in previously filedtax returns or tax positions expected to be taken in tax returns. FIN 48requires an entity to recognize the financial statement impact of a taxposition when it is more likely than not that the position will be sustainedupon 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.

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TheCompany has not been previously examined by any income tax authority. Otherthan the above comments Management does not believe that there are otheruncertain tax positions.  Managementbelieves that in the event of an examination the taxing authority that it ismore likely than not that the reported tax positions will be upheld.Accordingly, because management expects the taxing authority to allow thereported positions when and if examined, the more-likely-than-not recognitionthreshold has been met.

**NOTE 7 — OTHER BORROWED FUNDS**

The Company has enteredinto two agreements with correspondent banks under which it can purchasefederal funds up to $11.5 million.  Theinterest charged on borrowings is determined by the lending institution at thetime of the borrowing.  These lines ofcredit are for short-term use, are unsecured and are renewed on an annualbasis.  There were no balancesoutstanding under these agreements at March 31, 2007, and December 31, 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 notepaid off during the quarter ended March 31, 2007 leaving total short termborrowed funds at $265,000.

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 and additional $5.1 million in debentures were acquiredin 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 FHLB.  Under such agreements there were overnightadvances of $7.5 million and $31.0 million outstanding as of March 31, 2007,and December 31, 2006, respectively.  Inaddition to the overnight advances there were term advances in the amount of$8.0 million outstanding as of March 31, 2007 and December 31, 2006.  There were $47.8 million in securitiescollateral and $13.3 million in loan collateral available for this source as ofMarch 31, 2007 as compared to $64.0 million 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 issued for fiscal years beginning afterNovember 15, 2007. Early adoption is permitted under certaincircumstances. Management has adopted FAS 159 and FAS 157 concurrently as ofJanuary 1, 2007 for certain USDA/SBA loans that were purchased in 2003 andearly 2004.  Management is evaluating theimpact this Statement may have on the rest of the Company’s financialstatements.

**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 

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through comprehensive income.  Public companies are required to initiallyrecognize the funded status of a defined benefit postretirement plan and toprovide the required disclosures as of the end of the fiscal year ending afterDecember 15, 2006.

**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 thevaluation. SFAS 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years. Early adoption is permitted. FAS 157 must be adopted concurrentlywith FAS 159.  The Company adopted FAS157 on 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 afterDecember 15, 2007. The banking subsidiary of the Company has lifeinsurance arrangements.  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. Management does not believe that the implementation willhave a material effect on the Company’s financial position, results ofoperations or cash flows.  The Companyadopted FIN 48 as of January 1, 2007.

**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 income, however, no absoluteassurance can be given that this in fact, will occur.

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

During the quarterended March 31, 2007 and 2006, cash paid for interest expense on interestbearing liabilities was $4.6 million and $3.3 million, respectively.  There was no real estate acquired in thesettlement of loans for the three month periods ending March 31, 2007 or 2006.

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**SummarySelected Consolidated Financial Data**
| ** **                                  | ** ** | **Quarter Ended March 31,**                                      | ** ** | **Year Ended** | ** ** |
|---------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------|------------|
| ** **                                  | ** ** | **2007**                                                                        | ** ** | **2006 (3)**   | ** ** | **December 31, 2006** | ** ** |
| ** **                                  | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| **Condensed  Statement of Operations**      |       |                                                                            |       |                |       |   |   |
| Interest Income                             |       | $                                                                               | 11,342     |                | $          | 6,184 |   | $ | 31,039 |   |
| Interest Expense                            |       | 5,992                                                                           |       | 3,067               |       | 15,083 |   |
| Net Interest Income                         |       | 5,350                                                                           |       | 3,117               |       | 15,956 |   |
| Provision for  Loan Losses                  |       | 180                                                                             |       | 473                 |       | 771 |   |
| Non-interest  income                        |       | 422                                                                             |       | 221                 |       | 1,682 |   |
| Non-interest  expense                       |       | 4,993                                                                           |       | 2,882               |       | 13,582 |   |
| Loss  attributable to minority shareholders |       | (24                                                                             | )          | —              |       | 127 |   |
| Provision for  income taxes                 |       | 226                                                                             |       | 7                   |       | 1,075 |   |
| Net Income                                  |       | $                                                                               | 457        |                | $          | (24 | ) | $ | 2,083 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Period  End Data**                        |       |                                                                            |       |                |       |   |   |
| Assets                                      |       | 647,418                                                                         |       | 400,986             |       | 651,540 |   |
| Loans, gross                                |       | 464,253                                                                         |       | 273,735             |       | 463,858 |   |
| Securities                                  |       | 90,544                                                                          |       | 91,369              |       | 92,927 |   |
| Deposits                                    |       | 514,841                                                                         |       | 317,203             |       | 496,997 |   |
| Other borrowed  funds                       |       | 36,384                                                                          |       | 50,681              |       | 60,149 |   |
| Shareholders’  Equity                  |       | 73,779                                                                          |       | 29,264              |       | 73,568 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Average  Balance Sheet**                  |       |                                                                            |       |                |       |   |   |
| Assets                                      |       | 660,874                                                                         |       | 378,187             |       | 452,179 |   |
| Loans, gross                                |       | 469,549                                                                         |       | 258,086             |       | 308,411 |   |
| Securities                                  |       | 92,966                                                                          |       | 87,806              |       | 91,736 |   |
| Deposits                                    |       | 511,910                                                                         |       | 318,914             |       | 359,932 |   |
| Shareholders’  Equity                  |       | 73,398                                                                          |       | 28,819              |       | 41,256 |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Asset  Quality**                          |       |                                                                            |       |                |       |   |   |
| Non-performing  assets (1)                  |       | 913                                                                             |       | —              |       | 549 |   |
| Allowance for  loan loss                    |       | 5,502                                                                           |       | 3,128               |       | 5,430 |   |
| Net Charge-offs                             |       | 108                                                                             |       | —              |       | — |   |
| Non-performing  assets to total assets      |       | 0.14                                                                            | %          | —              |       | 0.08 | % |
| Allowance for  loan loss to loans           |       | 1.19                                                                            | %          | 1.14                | %          | 1.17 | % |
| Net Charge-offs  to average loans           |       | 0.02                                                                            | %          | —              |       | — |   |
|                                        |       |                                                                            |       |                |       |   |   |
| **Per  Common Share (3)**                   |       |                                                                            |       |                |       |   |   |
| Basic income per  share                     |       | 0.08                                                                            |       | (0.01               | )          | 0.51 |   |
| Diluted income  per share                   |       | 0.08                                                                            |       | (0.01               | )          | 0.49 |   |
| Book value per  share                       |       | 12.65                                                                           |       | 8.89                |       | 12.62 |   |
| Period end  common shares outstanding       |       | 5,831,099                                                                       |       | 3,290,229           |       | 5,831,099 |   |
| Average shares  outstanding - basic         |       | 5,831,099                                                                       |       | 3,281,171           |       | 4,117,351 |   |
| Average shares  outstanding - diluted       |       | 6,002,124                                                                       |       | 3,548,685           |       | 4,290,122 |   |
| ** **                                  |       |                                                                            |       |                |       |   |   |
| **Financial  Ratios**                       |       |                                                                            |       |                |       |   |   |
| Return on  average assets                   |       | 0.28                                                                            | %          | (0.03               | )%         | 0.46 | % |
| Return on  average equity                   |       | 2.53                                                                            | %          | (0.34               | )%         | 5.05 | % |
| Net interest  margin (2)                    |       | 3.72                                                                            | %          | 3.51                | %          | 3.81 | % |
| Tier 1 leverage capital  ratio              |       | 9.30                                                                            | %          | 8.05                | %          | 9.85 | % |

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(1) Non-performing assetsconsists of loans 90 days or more delinquent and still accruing interest, investmentsor loans placed on non-accrual status, and other real estate owned.

(2) Net interest incomecalculated on a fully-taxable equivalent basis divided by average interest-earningassets. 

(3) Reflects 5% stock dividend declared on February 15, 2007.

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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 our control),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 and accountingprinciples, policies or guidelines, as well as other economic, competitive,governmental, regulatory and technological factors affecting the Company’soperations.  We do not undertake, andspecifically disclaim any obligation, to publicly release the result of anyrevisions which may be made to any forward-looking statements to reflect theoccurrence of events or circumstances after the date of such statements.

**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 assumptionsrequired to 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 $5.5million and $3.1 million at March 31, 2007 and 2006, respectively. Theprovision for loan losses was $180,000 for the quarter ended March 31, 2007 and$473,000 for the quarter ended March 31, 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.  Table 8 sets forth the allocationof the allowance for loan losses as of March 31, 2007, and December 31, 2006.

**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 our customers.  Pre-underwriting loan fees, gains on sale ofsecurities, exchange fees on real estate 1031 transactions, increase in cashsurrender value of bank owned life insurance and unrealized gains or losses onthe Company’s trading account comprise other areas of non-interest income.

**SUMMARY:Results of Operations — 1st Quarter**

Net income for the quarter ended March 31, 2007 was $457,000 ascompared with net loss of $24,000 for the quarter ended March 31, 2006.  Basic and diluted earnings per share for thefirst quarter of 2007 were $0.08 and $0.08 compared with basic and dilutedlosses per share of $0.01 and $0.01, respectively for the same quarter of2006.  The Company’s quarterly return onaverage equity was 2.53% and quarterly return on average assets was 0.28% forthe quarter ended March 31, 2007, compared to a loss on average equity of 0.34%and loss on average assets of 0.03% for the quarter ended March 31, 2006.  The primary drivers behind the variance innet income for the first quarter of 2007 relative to the same quarter of 2006are as follows:

·                  Net interest income increased by $2.2million, or 72% due primarily to an increase of $227.4 million in averageearning assets.

·                  Income on service charges, fees andcommissions was $156,000 an increase of $71,000 or 84% compared to the firstquarter of 2006.

·                  Cash surrender value increase amounted to$109,000 for the first quarter of 2007 an increase of $40,000 or 58% over thesame period in 2006.

·                  Unrealized gains on trading equities amountedto $80,000 for the quarter ending March 31, 2007 as compared to $48,000 for thesame period in 2006 an increase of $32,000 or 67%.

·                  Salaries and benefits increased $1.0 millionor 61% as compared to the same period in 2006. These increases reflect the doubling in FTE from period to period.

·                  Occupancy expense increased $395,000 or 96%largely due to the addition of de novo branches opened by the Company alongwith the locations acquired in the merger with NNB Holdings, Inc., and the 1031operating companies for March 31, 2007 as compared to March 31, 2006.

·                  The Company recorded $110,000 in amortizationcosts for intangible assets that were acquired during the merger during thequarter ending March 31, 2007 and had no corresponding expenses for the sameperiod of 2006.

Quarterly Average balances and rates are provided in Table 1.

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**SUMMARY: Financial Condition**

The Company’s total assets were slightly over $647 million at March 31,2007 a decrease of $4 million or 1%, over total assets of $652 million atDecember 31, 2006.  The most significantcharacteristics of and changes in the company’s balance sheet during the firstthree months of 2007 are outlined below:

·                  For the three months ended March 31, 2007investment securities decreased $2.4 million from December 31, 2006 or 3%.Average investment securities increased $5.2 million to $93.0 million or 6% atMarch 31, 2007 compared to the same period ended 2006.  The Company didn’t acquire any investmentsecurities in the merger with NNB Holdings, Inc.

·                  Gross loans were unchanged at $464 million atMarch 31, 2007 and December 31, 2006. Average gross loans as of March 31, 2007 of $469 million compared withMarch 31, 2006 showed an increase of $211 million or 82%.  The Company acquired $120 million in loansduring the merger with NNB Holdings, Inc. Without the acquired loans, average gross loans increased $91 million or35%.

·                  For the quarter ended March 31, 2007 totalassets decreased $4.1 million or 1% to $647 million.  Compared with March 31, 2006 average assetsincreased $283 million or 75%.  TheCompany acquired $150 million in assets during the merger with NNB Holdings,Inc.  Without those acquired assets,average assets increased $133 million or 35%.

·                  Total deposits increased by $18 million or 4%during the three month period ending March 31, 2007 to $515 million.  Average deposits increased $193 million to$512 million or 61% at March 31, 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 $67 million or 21%.

·                  Short term borrowings from FHLB decreased by$24 million.

·                  Exchange deposits at non-affiliated financialinstitutions amounted to $15.9 million.

**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 is affectedby the level of interest rates, changes in interest rates and by changes in theamount and composition of interest-earning assets and interest-bearingliabilities.

***Quarterly Analysis***

Net interest income for the first quarter of 2007 was $5.4 million, anincrease of $2.2 million or about 71.6% compared to the first quarter of2006.  This increase was primarily due tothe increases in the volume of interest earning assets.  Average earning assets increased $227.4 millionor 63.1% for the quarter ended March 31, 2007 compared to an increase of $119.6million or 49.6% for the same period in the prior year. Average loans increasedby $211.5 million or 81.9% during the first quarter of 2007 compared to theincrease of $70.9 million or 37.9% for the first quarter 2006. The growth forthe first quarter of 2007 and 2006 was primarily due to internal growth andparticipations purchased, however growth comparisons from 2007 to 2006 alsoreflects the acquisition and merger with NNB Holdings, Inc. and its subsidiarybank. Average gross loans as a percent of average earning assets was 79.9% and71.6% for the quarters ended March 31, 2007 and 2006, respectively.

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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 rate spread; and (v) net interest margin (netinterest income divided by average interest-earning assets).  Average balances are based on average dailybalances during the indicated periods and rates are annualized based on thenumber of days in the period subject to review, and the number of days in theyear.

The Company’s net interest margin, which represents net interest incomeas a percentage of average interest earning assets, increased to 3.69% from3.51% during the three months ended March 31, 2007 as compared to the sameperiod in 2006, respectively, an increase of eighteen basis points or 5.1%.

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 mix changes.  Whileearning asset growth was greater than the interest bearing liability growth,changes in the interest rate environment impacted both the asset and liabilityside of the balance sheet.  The magnitudeof the $227.4 million change in average earning asset volumes over the periodsreported resulted in a $5.2 million change in the Company’s interest income, asnoted 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 $170.6 millioncompared to $42.5 million for the quarter ended March 2006.  The Company also had $15.9 million ofexchange deposits with subsidiaries as of March 31, 2007 and none during thefirst quarter of 2006.  The changes inliability mix along with the $210.4 million increase in average interestbearing liabilities over the period resulted in a $2.9 million change in theCompany’s interest expense, as noted in Table 2.

**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 is determinedbased on management’s ongoing evaluation. As discussed under “Critical Accounting Policies”, we believe that themethods we utilize to determine the allowance for loan losses constitute acritical accounting policy.  Although weutilize judgment in providing for losses, for the reasons discussed under “CriticalAccounting Policies” and “Credit Risk Management” there can be no assurancethat we will not have to increase the amount of our historical provisions forloan losses in future periods.  Pleasesee Table 7.

***Quarterly Analysis***

We provided $180,000 and $473,000 for probable loan losses in thequarters ended March 31, 2007, and 2006, respectively.  The Company had six non-accrual loansamounting to $913,000 at the end of the quarter 2007, and none at March 31,2006.  The Company charged-off $133,000in loans, at March 31, 2007 and none for the first quarter of 2006.  Including the non-accrual loans, there wereeight 30 day or more past due loans as of March 31, 2007, and none during thesame period of 2006.  The Company alsoestimates an allowance for potential losses associated with off-balance-sheetloan commitments and standby letters of credit. This allowance is included with other liabilities on the Company’sbalance-sheet and any related increases or decreases in the allowance are includedin other expense.  The provision for theoff-balance-sheet reserve reflected a reduction of $38,000 and a provision of$11,000 for the quarters ending March 31, 2007 and 2006, respectively.  The Company continues to believe thatalthough loan 

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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.

**Non-interest Income**

***Quarterly Analysis***

First quarter non-interest income (excluding realized securities gainsand losses) totaled $422,000, an increase of $201,000 or 90.9% from the samequarter of 2006.  The Company recorded$109,000 of cash surrender value increases on bank owned life insurance anincrease of $40,000.  The Company’sunrealized gains in trading securities were $80,000; an increase of $32,000over the same period in 2006.

Service charges on deposit accounts and other service charges,commissions and fees increased $28,000 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 first quarter of 2007 the Company recognized $14,000 in netgains from the sales of assets and $4,000 of recognized net gains on the saleof securities as compared with losses on the sale of securities of $2,000 andno asset sales during the first 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 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 $4.9 million and $2.9 million for the quartersended March 31, 2007 and 2006, respectively, which represented an increase ofapproximately $2.1 million or 73.3%. Expense categories that increased the most include salaries andbenefits, which represented $1.0 million or 49% of the total non-interestexpense increase, occupancy, deposit servicing, and marketing costs.  These increases were primarily driven by theacquisition of NNB Holdings, Inc., and its subsidiary Northern Nevada Bank,additional staffing for the new branch office in northern California, and theaddition of new facilities (the addition of two exchange company offices).  The efficiency ratio was 85.7% and 86.3% forthe quarters ended March 31, 2007 and 2006, respectively.  For a description of the methodology we usedto calculate the efficiency ratio, please see Note (a) to Table 3.

Salary and employee benefit expense for the quarter ended March 31,2007 was $2.6 million, an increase of $1.0 million or 61.3% from the samequarter 2006.  The increase in salariesand benefits was primarily due to additional employees being hired inanticipation of the new branch offices, along with the employees gained in theacquisitions.  The full time equivalent(FTE) staffing level is 122 at March 31, 2007 and was 60 as of March 31, 2006,an increase of 103%.  Of this increase instaffing levels, 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 anticipated new branch openings for the northern Californiamarkets.  For the quarter ended March 31,2007, such costs approximated 1.82% of average earning assets, as compared to1.84% for the same period in 2006.

Occupancy and equipment expense amounted to $807,000 for the quarterended March 31, 2007, an increase of $395,000 or 95.9% from the same quarter in2006, primarily due to the increase in new facilities housing the subsidiaryexchange company offices, and the addition of NNB Holding, Inc. locations.  The Company now has six Nevada bankingoffices, one existing banking office and one about to open in California, a dataoperations center and four exchange company offices.  Occupancy expenses for the quarter endedMarch 31, 2007 approximated 0.56% of average earning assets, as compared to0.46% for the same period in 2006.

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Deposit and loan servicing costs amounted to $254,000 for the quarterending March 31, 2007 compared to $91,000 for the same period in 2006 anincrease of $163,000 or 179.1%.  With theacquisition of NNB Holdings, Inc. the Company converted its data processingfrom a service bureau environment to in-house processing system andconsequently a lower rate of data processing costs has been experienced incomparing 2007 with 2006.  Deposit andloan servicing costs represent 0.20% of average earning assets for the quarterending March 31, 2007 compared with 0.08% for the same period in 2006.

Marketing expenses amounted to $220,000 for the quarter ended March 31,2007 an increase of $130,000 or 144.4% 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 twodistinct regional markets.  Marketing andadvertising represented 0.15% of average assets for the quarter ended March 31,2007 compared with 0.10% for the same period in 2006.

Other professional services expense totaled $180,000 and $125,000 atMarch 31, 2007 and 2006, respectively, an increase of $55,000 or 44.0%.  Other professional service costs represent0.12% of average earning assets compared with 0.14% for the same period in2006.

The remainder of expenses which were not noted separately aboveamounted to $933,000 and $693,000, a $240,000 increase or 34.6% during thequarter ended March 31, 2007 as compared to 2006.  These increases are primarily due to growthof the Company, costs related to the acquisition of the exchange companies, andthe acquisition of NNB Holdings, Inc. For the quarter ended March 31, 2007 these other expenses represented0.64% of average earning assets, as compared to 0.78% for the same period of2006.

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

**Provision for Income Taxes**

For the quarter ending March 31, 2007 the Company had a net provisionfor income taxes in the amount of $226,000 and $7,000 for the same period in2006.

**Comprehensive Income**

***Quarterly Analysis***

Our available for sale investment portfolio had net unrealized lossesof $149,000 at March 31, 2007 and $187,000 at December 31, 2006.  At March 31, 2007 the net unrealized loss netof deferred taxes represented 1.2% of securities available for sale.  Comprehensive income or loss differs from ournet income during the respective periods as a result of changes in the amountof unrealized gains and losses on our portfolio of securities available forsale.  However, the change in value ofour liabilities, which tend to fall in rising interest rate environments andrise in falling interest rate environments, is not included in “othercomprehensive income”.  We quantify,monitor, and actively manage the interest rate risk of interest earning assetswith interest bearing liabilities based on budgetary assumptions, anticipatedbalance sheet modifications and changes in rates earned and rates paid.  The Company believes that the comprehensiveloss for FAS 115 reported in the financial statements are due to changes ininterest rates and does not reflect an impairment in the quality of thesecurities contained in the investment portfolio.  As financial rates flatten over the termbased on expectations of Federal Open Market Committee (FOMC) actions, it isentirely possible that the AFS investment portfolio may depreciate in value over the remainder of theyear.

A other 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.

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**FINANCIALCONDITION**

Our consolidated total assets were $647 million and $652 million atMarch 31, 2007 and December 31, 2006, respectively.  Total average assets were $661 million and$378 million for the three months ended March 31, 2007 and 2006, respectively,an increase of 75%.  This change reflectsthe continuing internal growth and acquisitions of the Company.

**Securities and Other Earning Assets**

***Quarterly Analysis***

The securities portfolio was $90.5 million at March 31, 2007 andaveraged $92.7 million during the first quarter of 2007 as compared to $91.4million and an average of $105.2 million in the first quarter of 2006.  The securities portfolio consists primarilyof Mortgage-backed securities and U.S. Government agency securities.  The average yield on investments was 4.76%for the quarter ended March 31, 2007 and 4.10% for the quarter ended March 31,2006.  Securities available for sale hada net unrealized loss of $149,000 at March 31, 2007 as compared to the netunrealized loss of $187,000 at December 31, 2006.  These unrealized gains and losses do notimpact net income or regulatory capital but are recorded as adjustments toshareholders’ equity.  Unrealized gainsand losses are a component of “Comprehensive Income”.  The Company has $4.6 million in an equity tradingportfolio which is being accounted for as trading securities.  The Company adjusts the value of thisportfolio monthly through the Consolidated Statement of Operations.  For the quarter ending March 31, 2007 theCompany had unrealized gains of $80,000 from these trading equities as comparedto $48,000 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 March 31, 2007 is 2.58, ascompared with 2.50 as of March 31, 2006.  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 93% of the Company’s securities portfolio is held in thesubsidiary bank.

The ratio of average total investments to average total assets was17.9%, 26.2% and 27.1% at the quarter ended March 31, 2007, the year endedDecember 31, 2006 and the quarter ended March 31, 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 March 31, 2007 debt securities have an aggregate depreciation ofabout 0.7% from the Company’s amortized cost basis as compared to 1.1% atDecember 31, 2006.  In the available forsale portfolio nineteen securities have an unrealized loss as of March 31,2007.  In sixteen of those securities the

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unrealized loss has exceeded one year. There are one hundred and eight securities in the held to maturityportfolio that have an unrealized loss as of March 31, 2007.  For eighty four of those securities, the losshas exceeded one year.  In analyzing anissuer’s financial condition, management considers whether the securities areissued by the federal government or its agencies, whether downgrades by bondrating 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.

**Loans**

***Quarterly Analysis***

Total gross loans amounted to $464.3 million, at March 31, 2007, $463.9million at December 31, 2006, and $273.7 million at March 31, 2007,respectively.  Gross loans averaged$469.5 million for the first quarter of 2006, an increase of $211.5 million or81.9% from the average amount of such loans during the first quarter of 2006.

As noted in Table 6 “Composition of the Loan Portfolio”, real estateconstruction loans amounted to $169.1 million and $95.3 million at March 31,2007 and March 31, 2006, respectively. These loans increased $73.8 million or 77.4% from the amount of suchloans at March 31, 2006.  Commercialconstruction loans increased $46.3 million, while single and multi-familyresidential construction increased $27.5 million.  These items taken together represents themajority of the increases over March 31, 2006 balances.  These increases are due to internal growthand loans acquired in the acquisition of NNB Holdings, Inc.

Term real estate loans amounted to $204.3 million as of March 31, 2007compared to $119.6 million for the quarter ending March 31, 2006 an increase of$84.7 million or 70.8%.  Commercial termloans which increased $96.1 million or 86.8% to $206.8 million over the firstquarter of 2006 represents the majority of the quarter to quarter comparison.

Commercial and industrial loans approximated $68.2 million and $35.8million at March 31, 2007 and March 31, 2006, respectively.  Commercial loans increased about $32.4million or 90.5% over the balances at March 31, 2006.  Revolving lines of credit increased $27.2million or 168.9% to $43.3 million and represents the majority of the increaseover the first quarter of 2006.

Consumer loans amounted to $10.3 million and $8.6 million at March 31,2007 and March 31, 2006, respectively. Consumer loans increased $1.7 million or 19.8% from the balancesoutstanding as of March 31, 2006.

The ratio of average gross loans to average total assets for thequarter was 71.05% and 68.2% at March 31, 2007 and March 31, 2006,respectively.

**Deposits**

Total deposits were $515 million and $497 million as of March 31, 2007and December 31, 2006 respectively, an increase of $18 million or 3.6%.  Core deposits (deposits, excludingcertificates of deposit greater than $100,000), have increased about $17.8million or 4.1% since December 31, 2006. The ratio of gross loans to deposits was 90.2% and 93.3% at March 31,2007 and December 31, 2006, respectively.

***Quarterly Analysis***

Non-interest bearing deposits amounted to approximately $60.9 millionat March 31, 2007, $73.7 million at December 31, 2006, and $40.9 million atMarch 31, 2006, respectively.  Averagenon-interest bearing deposits totaled $63.2 million during the first quarter of2007, which represented 12.3% of average total deposits and $40.3 millionduring the first quarter of 2006.  Thisis an increase of $22.9 million or 56.8% 

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for the 12 month period ending March 31, 2007.  The increase in non-interest bearing depositsreflected growth in commercial and personal accounts, including those acquiredin the merger with NNB Holdings, Inc.

Interest bearing deposits amounted to approximately $454.0 million,$423.2 million and $276.3 million at March 31, 2007, December 2006, and March31, 2006, respectively.  Averageinterest-bearing deposits were $448.7 million, an increase of approximately$170.1 million during the quarter ended March 31, 2007, as compared to theaverage of $278.6 million in interest-bearing deposits during the quarter endedMarch 31, 2006.

Included in the deposit categories above are public deposits, whichaveraged $7.3 million for the quarter ending March 31, 2007 and $6.5 millionfor the quarter ending March 31, 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.

**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 $7.7 million at March 31, 2007 and $31.3 million at December 31, 2006,respectively.  The Company has availablefederal funds borrowing lines amounting to $11.5 million as of March 31,2007.  The Company has a Federal HomeLoan Bank (FHLB) advance line of credit the amount of which is predicated onthe value of collateral held.  March 31,2007, the gross amount of all collateral was about $61 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 March 31, 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$15.9 million as of March 31, 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 $97.1 million at March 31, 2007 ascompared to $107.5 million at December 31, 2006.  These commitments represented 21% 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 March 31, 2007 and $1.7 million 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.

**RISKMANAGEMENT**

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 and 

25

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transaction risk.  Each riskcategory is viewed from a quantity of risk perspective (high, medium or low)coupled with a quality of risk perspective review.  In addition, an aggregate level of risk isassigned as a whole, and the direction of risk (stable, increasing or decreasing)is determined.  Each risk category andthe overall risk level is compared to regulatory views, and internal criteria,on a regular basis and then reported to the board with an accompanyingexplanation as to the existence of any differences.   The risk program includes riskidentification, 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 geographic, (to the extent possible), industryand customer level, regular credit examinations and quarterly management reviewof large loans and loans with a deterioration of credit quality.  We maintain an internal rating system thatprovides a mechanism to regularly monitor the credit quality of our loanportfolio.  The rating system is intendedto identify and measure 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 80.6% of the total loanportfolio as of March 31, 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 14.7% of the total loanportfolio as of March 31, 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 $11.5 million and $14.0 million respectively, asof March 31, 2007 and December 31, 2006.

Consumer loans accounted for 2.2% of our total loan portfolio as ofMarch 31, 2007 as compared to 1.7% at December 31, 2006.

***RiskFactors***

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:

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

·                  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 couldsubject us 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 at levelsor within time frames originally anticipated and may result in unforeseenintegration 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 coststructures and 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 and thatof 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 

27

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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).

**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 sixnon-accrual loans totaling $913,000 at March 31, 2007, and two non-accrualloans totaling $549,000 in December 31, 2006 and none as of March 31, 2006,respectively.

**ASSETLIABILITY MANAGEMENT**

The goal of asset liability management is the prudent control of marketrisk, liquidity and capital.  Asset-liabilitymanagement is governed by policies reviewed and approved annually by our boardof directors and monitored periodically by a board committee.  The board delegates responsibility forasset-liability management to the Asset Liability Management Committee (“ALCO”),which sets strategic directives that guide the day-to-day asset-liabilitymanagement of our activities.  The ALCOalso reviews and approves all major interest rate risk, liquidity and capitalmanagement 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 attempt to control interest-rate risk by identifying, quantifyingand, 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 month period. Simulated scenarios include deliberately extreme interest rate “shocks”and more gradual interest rate “ramps”. Key assumptions in these simulation analyses relate to behavior ofinterest rates and spreads, increases or decreases of product balances and thebehavior of our deposit and loan customers. The most material assumptions relate to the prepayment of mortgageassets (including mortgage loans and mortgage-backed securities).  The risk of prepayment tends to increase wheninterest rates fall.  Since futureprepayment behavior of loan customers is uncertain, the resultant interest ratesensitivity of loan assets cannot be precisely determined.  Complicating our efforts to measure interestrate risk is the uncertainty of the maturity, repricing and/or runoff of someof our assets and liabilities.

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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. Table 9 sets forth the estimated effects on our net interest income overa 12 month period following the indicated dates in the event of the indicatedincreases or decreases in market interest rates.

The results presented in Table 9 indicate estimated changes insimulated net interest income for the subsequent 12 months assuming a shift upor down in market rates of 100 and 200 basis points across the entire yieldcurve.  It should be emphasized, however,that the results are dependent on material assumptions.  For instance, asymmetrical rate behavior canhave a material impact on the simulation results.

**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.

As of March 31, 2007 the Company had about $95 million of immediatelyaccessible liquidity, defined as cash that could be raised within 1-3 daysthrough available cash, securities and borrowings.  This represented approximately 19% 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 March 31, 2007, shareholders’ equity amounted to $73.8 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 Table10.  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 to different categories of assets andoff-balance-sheet exposures.  There aretwo categories of capital under the guidelines. The first is Tier 1 Capital which includes common stockholders’ equityand qualifying minority interest in consolidated subsidiaries, less goodwill andcertain other deductions, notably the unrealized net gains or losses (after taxadjustments) on available for sale investment securities carried at fair marketvalue.  The second is Tier 2 Capitalwhich includes preferred stock, certain types of debt equity, and the allowancefor loan losses, subject to certain limitations.

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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 toensure that 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 adequately capitalized, which is the second highest rating of thecategories defined under 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 recently acquired have not been evaluated in either of these areas.Such complete assessments as have been initiated have been documented and madea part of the permanent record of Sarbanes-Oxley Act Section 404 compliance.

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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 inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns in controls or procedures can occur because of simple error ormistake.  Additionally, controls can becircumvented 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 controlprocedure, misstatements due to error of fraud may occur and not be detected.

32

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**FINANCIAL TABLES**

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

Thefollowing table sets forth, for the periods indicated, information regarding(i) the total dollar amount of interest income and the interest-earning assetsresultant average yields; (ii) the total dollar amount of interest expense oninterest-bearing liabilities and the resultant average cost; (iii) net interestincome; (iv) interest rate spread; and (v) net interest margin.
| ** **                                          | ** ** | **For the Quarter Ended March 31,** | ** ** | **For the Quarter Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007 (a,b,c)**                                        | ** ** | **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    |       | $                                                            | 21,551     |                                                         | $          | 300 |   | 5.65 | % | $ | 10,865 |   | $ | 126 |   | 4.70 | % |
| Securities                                          |       | 92,966                                                       |       | 1,038                                                        |       | 4.53 | % | 87,806 |   | 882 |   | 4.07 | % |
| Equity                                              |       | 3,869                                                        |       | 50                                                           |       | 5.24 | % | 3,826 |   | 27 |   | 2.86 | % |
| Total Investments                                   |       | 118,386                                                      |       | 1,388                                                        |       | 4.75 | % | 102,497 |   | 1,035 |   | 4.10 | % |
|                                                |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Loans: (c)                                          |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Agriculture                                         |       | 12,319                                                       |       | 141                                                          |       | 4.64 | % | 13,464 |   | 208 |   | 6.27 | % |
| Commercial                                          |       | 73,651                                                       |       | 1,535                                                        |       | 8.45 | % | 37,319 |   | 695 |   | 7.55 | % |
| Real Estate Construction                            |       | 164,289                                                      |       | 4,289                                                        |       | 10.59 | % | 89,481 |   | 2,169 |   | 9.83 | % |
| Real Estate Term                                    |       | 209,161                                                      |       | 3,781                                                        |       | 7.33 | % | 115,764 |   | 2,032 |   | 7.12 | % |
| Consumer                                            |       | 8,658                                                        |       | 191                                                          |       | 8.95 | % | 1,845 |   | 40 |   | 8.79 | % |
| Credit Card and Overdraft Protection                |       | 395                                                          |       | 17                                                           |       | 17.45 | % | 120 |   | 5 |   | 16.90 | % |
| Other                                               |       | 1,076                                                        |       | —                                                       |       | 0.00 | % | 93 |   | — |   | 0.00 | % |
| Total Loans                                         |       | 469,549                                                      |       | 9,954                                                        |       | 8.60 | % | 258,086 |   | 5,149 |   | 8.09 | % |
| Total Earning  Assets                               |       | 587,935                                                      |       | 11,342                                                       |       | 7.82 | % | 360,583 |   | 6,184 |   | 6.96 | % |
| Non-Earning  Assets                                 |       | 72,939                                                       |       |                                                         |       |   |   | 17,604 |   |   |   |   |   |
| **Total Assets**                                    |       | $                                                            | 660,874    |                                                         |       |   |   |   | $ | 378,187 |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity**       |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Interest Bearing  Deposits:                         |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| NOW                                                 |       | $                                                            | 11,739     |                                                         | $          | 24 |   | 0.83 | % | $ | 8,124 |   | $ | 13 |   | 0.65 | % |
| Savings Accounts                                    |       | 78,807                                                       |       | 994                                                          |       | 5.12 | % | 11,591 |   | 86 |   | 3.01 | % |
| Money Market                                        |       | 109,490                                                      |       | 1,097                                                        |       | 4.06 | % | 165,263 |   | 1,542 |   | 3.78 | % |
| IRA’s                                          |       | 4,482                                                        |       | 50                                                           |       | 4.52 | % | 1,146 |   | 9 |   | 3.18 | % |
| Certificates of Deposit<$100,000                 |       | 177,319                                                      |       | 2,190                                                        |       | 5.01 | % | 53,628 |   | 603 |   | 4.56 | % |
| Certificates of Deposit>$100,000                 |       | 66,885                                                       |       | 725                                                          |       | 4.40 | % | 38,876 |   | 387 |   | 4.04 | % |
| Total Interest Bearing Deposits                     |       | 448,722                                                      |       | 5,080                                                        |       | 4.59 | % | 278,628 |   | 2,640 |   | 3.84 | % |
| Borrowed Funds:                                     |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Short term debt                                     |       | 26,271                                                       |       | 317                                                          |       | 4.89 | % | 14,445 |   | 195 |   | 5.47 | % |
| Long term debt                                      |       | 44,027                                                       |       | 595                                                          |       | 5.48 | % | 15,507 |   | 232 |   | 6.07 | % |
| Total Borrowed Funds                                |       | 70,298                                                       |       | 912                                                          |       | 5.26 | % | 29,952 |   | 427 |   | 5.78 | % |
| Total Interest Bearing Liabilities                  |       | 519,020                                                      |       | 5,992                                                        |       | 4.68 | % | 308,580 |   | 3,067 |   | 4.03 | % |
| Demand Deposits                                     |       | 63,188                                                       |       |                                                         |       |   |   | 40,286 |   |   |   |   |   |
| Other  Liabilities                                  |       | 5,268                                                        |       |                                                         |       |   |   | 502 |   |   |   |   |   |
| Shareholders’  Equity                          |       | 73,398                                                       |       |                                                         |       |   |   | 28,819 |   |   |   |   |   |
| **Total Liabilities and Shareholders’ Equity** |       | $                                                            | 660,874    |                                                         |       |   |   |   | $ | 378,187 |   |   |   |   |   |
| ** **                                          |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| **Interest  Rate Spread (d)**                       |       |                                                         |       |                                                         |       | 3.14 | % |   |   |   |   | 2.92 | % |
|                                                |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |
| Interest  Income/Earning Assets                     |       |                                                         |       |                                                         |       | 7.82 | % |   |   |   |   | 6.96 | % |
| Interest  Expense/Earning Assets                    |       |                                                         |       |                                                         |       | 4.13 | % |   |   |   |   | 3.45 | % |
| **Net  Interest Income and Margin (f)**             |       |                                                         |       | $                                                            | 5,350      |   | 3.69 | % |   |   | $ | 3,117 |   | 3.51 | % |

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(a) Average balances are obtained from the best available daily or monthlydata.

(b) Yields are reflected on a tax equivalent basis.

(c) Loans are gross of the allowance for possible loan losses, deferred feesand related direct costs.

(d) Represents the difference between the yield on interest-earning assets andthe cost of interest-bearing liabilities.

(e) Annualized.

(f) Net interest margin represents net interest income as a percentage ofaverage interest-earning assets.

 

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

The following table presents certain informationregarding changes in our interest income and interest expense for the periodsindicated.

Foreach category of interest-earning assets and interest-bearing liabilities,information is provided with respect to changes attributable to (i) changes involume (change in volume multiplied by prior year rate), (ii) changes in rate(change in rate multiplied by prior year volume) and (iii) changes inrate/volume (Change in rate multiplied by change in volume).

|                                                     | ** ** | **For the Quarter Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2007 vs. 2006**                                  | ** ** |
| ** **                                          | ** ** | **Increase (Decrease) Due to**                | ** ** |
| ** **                                          | ** ** | ** **                                                   | ** ** | ** ** | ** ** | **Rate and** | ** ** | **Total** | ** ** |
| ** **                                          | ** ** | **Volume**                                                   | ** ** | **Rate** | ** ** | **Volume (1)** | ** ** | **Change** | ** ** |
| ** **                                          | ** ** | **(Dollars in thousands)**                         | ** ** |
| **Interest Income**                                 |       |                                                         |       |   |   |   |   |   |   |
| Investments:                                        |       |                                                         |       |   |   |   |   |   |   |
| Federal funds sold and other short term investments |       | $                                                       | 124        |   | $  | 25 |   | $  | 25 |   | $  | 174 |   |
| Securities                                          |       | 52                                                           |       | 100 |   | 4 |   | 156 |   |
| Equity                                              |       | —                                                       |       | 22 |   | 1 |   | 23 |   |
| Total Investment Income                             |       | 176                                                          |       | 147 |   | 30 |   | 353 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| Loans:                                              |       |                                                         |       |   |   |   |   |   |   |
| Agriculture                                         |       | (18                                                          | )          | (54 | ) | 5 |   | (67 | ) |
| Commerical                                          |       | 676                                                          |       | 83 |   | 81 |   | 840 |   |
| Real Estate Construction                            |       | 1,813                                                        |       | 168 |   | 139 |   | 2,120 |   |
| Real Estate Term                                    |       | 1,640                                                        |       | 60 |   | 49 |   | 1,749 |   |
| Consumer                                            |       | 148                                                          |       | 1 |   | 2 |   | 151 |   |
| Credit Card and Overdraft Protection                |       | 11                                                           |       | — |   | 1 |   | 12 |   |
| Other                                               |       | —                                                       |       | — |   | — |   | — |   |
| Total Loan Income                                   |       | 4,270                                                        |       | 258 |   | 277 |   | 4,805 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| **Total  Interest Income**                          |       | 4,446                                                        |       | 405 |   | 307 |   | 5,158 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| **Interest Expense**                                |       |                                                         |       |   |   |   |   |   |   |
| Interest Bearing  Deposits:                         |       |                                                         |       |   |   |   |   |   |   |
| Now Accounts                                        |       | 5                                                            |       | 4 |   | 2 |   | 11 |   |
| Savings                                             |       | 499                                                          |       | 60 |   | 349 |   | 908 |   |
| Money market                                        |       | (520                                                         | )          | 114 |   | (39 | ) | (445 | ) |
| IRA’s                                          |       | 26                                                           |       | 4 |   | 11 |   | 41 |   |
| Certificates of deposit<$100,000                 |       | 1,391                                                        |       | 60 |   | 136 |   | 1,587 |   |
| Certificates of deposit>$100,000                 |       | 279                                                          |       | 35 |   | 24 |   | 338 |   |
| Total  interest-bearing deposits                    |       | 1,680                                                        |       | 277 |   | 483 |   | 2,440 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| Borrowed Funds                                      |       | 575                                                          |       | (38 | ) | (52 | ) | 485 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| **Total  interest expense**                         |       | 2,255                                                        |       | 239 |   | 431 |   | 2,925 |   |
|                                                |       |                                                         |       |   |   |   |   |   |   |
| **Net  Interest Income**                            |       | $                                                            | 2,191      |   | $ | 166 |   | $ | (124 | ) | $ | 2,233 |   |

----

(1)Includes changes in interest income and expense not due solely to volume orrate changes.

34

----

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

The following table setsforth the various components of the Company’s non-interest income and expense for the periods indicated. 
| ** **                                                                 | ** ** | **For the Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                                     | ** ** | **% of Total** | ** ** | **2006** | ** ** | **% of Total** | ** ** |
| ** **                                                                 | ** ** | **(Dollars in thousands)**                         | ** ** |
| **Other  Operating Income**                                                |       |                                                         |       |   |   |   |   |   |   |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| Service charges on deposit accounts                                        |       | $                                                            | 77         |   | 18.25 | % | $ | 52 |   | 23.53 | % |
| Other service charges, commissions and fees                                |       | 14                                                           |       | 3.32 | % | 33 |   | 14.93 | % |
| Loan Charges and Fees                                                      |       | 65                                                           |       | 15.40 | % | — |   | 0.00 | % |
| Pre-underwriting fees                                                      |       | —                                                       |       | 0.00 | % | 9 |   | 4.07 | % |
| Income on bank owned life insurance                                        |       | 109                                                          |       | 25.83 | % | 69 |   | 31.22 | % |
| Exchange fee income                                                        |       | 14                                                           |       | 3.32 | % | 12 |   | 5.43 | % |
| Unrealized gains on trading securities                                     |       | 80                                                           |       | 18.96 | % | 48 |   | 21.72 | % |
| Unrealized gains on fair value loans                                       |       | 45                                                           |       | 10.66 | % | — |   | 0.00 | % |
| Gain on sale of Fixed Assets                                               |       | 14                                                           |       | 3.32 | % | — |   | 0.00 | % |
| Gain/(loss) on sale of investments                                         |       | 4                                                            |       | 0.95 | % | (2 | ) | -0.90 | % |
| Total non-interest income                                                  |       | 422                                                          |       | 100.00 | % | 221 |   | 100.00 | % |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| As a percentage  of average earning assets                                 |       |                                                         |       | 0.29 | % |   |   | 0.25 | % |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| **Other  Operating Expense:**                                              |       |                                                         |       |   |   |   |   |   |   |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| Salaries and employee benefits                                             |       | 2,645                                                        |       | 53.62 | % | 1,640 |   | 56.90 | % |
| Occupancy costs                                                            |       | 807                                                          |       | 16.36 | % | 412 |   | 14.30 | % |
| Advertising and marketing costs                                            |       | 220                                                          |       | 4.46 | % | 90 |   | 3.12 | % |
| Data processing costs                                                      |       | 166                                                          |       | 3.37 | % | 189 |   | 6.56 | % |
| Deposit services costs                                                     |       | 291                                                          |       | 5.90 | % | 69 |   | 2.39 | % |
| Loan servicing costs                                                       |       | (37                                                          | )          | -0.75 | % | 22 |   | 0.76 | % |
| Provision for undisbursed loan commitments                                 |       | (38                                                          | )          | -0.77 | % | 11 |   | 0.38 | % |
| Telephone and data communication costs                                     |       | 121                                                          |       | 2.45 | % | 44 |   | 1.53 | % |
| Postage                                                                    |       | 46                                                           |       | 0.93 | % | 17 |   | 0.59 | % |
| Legal and accounting costs                                                 |       | 152                                                          |       | 3.08 | % | 129 |   | 4.48 | % |
| Other professional services                                                |       | 180                                                          |       | 3.65 | % | 125 |   | 4.34 | % |
| Directors fees                                                             |       | 72                                                           |       | 1.46 | % | 53 |   | 1.84 | % |
| Travel and education costs                                                 |       | 62                                                           |       | 1.26 | % | 22 |   | 0.76 | % |
| Stationery and supplies                                                    |       | 76                                                           |       | 1.54 | % | 36 |   | 1.25 | % |
| Other                                                                      |       | 170                                                          |       | 3.45 | % | 23 |   | 0.80 | % |
| Total non-interest expense                                                 |       | $                                                            | 4,933      |   | 100.00 | % | $ | 2,882 |   | 100.00 | % |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| As a percentage of average earning assets                                  |       |                                                         |       | 3.40 | % |   |   | 3.24 | % |
| Net non-interest  income/expense as a percentage of average earning assets |       |                                                         |       | 3.11 | % |   |   | 2.99 | % |
|                                                                       |       |                                                         |       |   |   |   |   |   |   |
| Efficiency  ratio (a)                                                      |       |                                                         |       | 85.73 | % |   |   | 86.29 | % |

----

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

35

----

**Table 4 - Securities Available forSale,  Held to Maturity and Trading**

The following table setsforth our investment securities as of the dates indicated.
| ** **                                                          | ** ** | **March 31,**                   | ** ** | **March 31,**   | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2007**                             | ** ** | **2006**             | ** ** | **2006**              | ** ** |
| ** **                                                          | ** ** | **Amortized**                        | ** ** | **Fair Market** | ** ** | **Amortized**         | ** ** | **Fair Market** | ** ** | **Amortized** | ** ** | **Fair Market** | ** ** |
| ** **                                                          | ** ** | **Cost**                             | ** ** | **Value**            | ** ** | **Cost**              | ** ** | **Value** | ** ** | **Cost** | ** ** | **Value** | ** ** |
| ** **                                                          | ** ** | **(Dollars in thousands)** | ** ** |
| Available for  Sale                                                 |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| US Gov’t agencies                                              |       | $                                    | 8,343      |                 | $          | 8,137                 |       | $ | 16,468 |   | $ | 16,014 |   | $ | 10,347 |   | $ | 10,105 |   |
| Corporate bonds                                                     |       | 3,416                                |       | 3,409                |       | 1,996                 |       | 1,968 |   | 3,611 |   | 3,599 |   |
| State & political subdivisions                                  |       | 1,000                                |       | 997                  |       | 500                   |       | 486 |   | 500 |   | 494 |   |
| Preferred Stock                                                     |       | 404                                  |       | 407                  |       | 154                   |       | 154 |   | 404 |   | 408 |   |
| SBA Loan Pools                                                      |       | —                               |       | —               |       | 1,991                 |       | 1,921 |   | — |   | — |   |
| Mortgage-backed securities                                          |       | 1,698                                |       | 1,674                |       | —                |       | — |   | 1,758 |   | 1,731 |   |
| Subtotal, Available for Sale                                        |       | $                                    | 14,861     |                 | $          | 14,624                |       | $ | 21,109 |   | $ | 20,543 |   | $ | 16,620 |   | $ | 16,337 |   |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| Held to Maturity                                                    |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| US Treasury and Government Agency Securities                        |       | $                               | 23,437     |                 | $     | 23,429                |       | $  | 20,980 |   | $  | 20,736 |   | $  | 25,338 |   | $  | 25,293 |   |
| Mortgage-backed securities                                          |       | 33,585                               |       | 32,922               |       | 43,695                |       | 41,286 |   | 35,821 |   | 35,016 |   |
| Corporate bonds                                                     |       | 790                                  |       | 809                  |       | 1,035                 |       | 1,306 |   | 789 |   | 809 |   |
| State & political subdivisions                                  |       | 18,108                               |       | 18,161               |       | 5,116                 |       | 4,080 |   | 14,642 |   | 14,699 |   |
| Subtotal, Held to Maturity                                          |       | $                                    | 75,920     |                 | $          | 75,321                |       | $ | 70,826 |   | $ | 67,408 |   | $ | 76,590 |   | $ | 75,817 |   |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| Fair value as a %  of amortized cost of Held to Maturity Securities |       |                                 |       | 99.2                 | %          |                  |       | 95.2 | % |   |   | 99.0 | % |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| Trading  Securities                                                 |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| Equity Investments                                                  |       | 3,926                                |       | 4,569                |       | 1,120                 |       | 1,293 |   | 3,648 |   | 4,299 |   |
|                                                                |       |                                 |       |                 |       |                  |       |   |   |   |   |   |   |
| Total Securities                                                    |       | $                                    | 94,707     |                 | $          | 94,514                |       | $ | 93,055 |   | $ | 89,244 |   | $ | 96,858 |   | $ | 96,453 |   |

 

36

----

**Table 5 - Maturities of Securities**

The following table setsforth the contractual maturities and tax equivalent weighted average yields ofour debt securities as of March 31, 2007. Actual maturities will differ from contractual maturities because borrowersmay have the right to call or prepay obligations with or without call orprepayment penalties. 
| ** **                          | ** ** | **Carrying Value Maturing in** | ** ** |
|-------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **More Than 5** | ** ** | **More Than** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Less than 1 Year**           | ** ** | **1 to 5 Years** | ** ** | **to 10 Years** | ** ** | **10 years** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | **Amount**                                    | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** |
| ** **                          | ** ** | **(Dollars in thousands)**          | ** ** |
| Available for Sale Securities       |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government Agencies              |       | $                                             | —     |   | — |   | $ | 4,640 |   | 3.95 | % | $ | 3,497 |   | 4.81 | % | $ | — |   | — |   | $ | 8,137 |   | 4.32 | % |
| Corporate Bonds                     |       | —                                        |       | — |   | — |   | — |   | 28 |   | 6.71 | % | 3,381 |   | 3.45 | % | 3,409 |   | 3.48 | % |
| State & Political  subdivisions |       | 497                                           |       | 2.57 | % | — |   | — |   | — |   | — |   | 500 |   | 3.24 | % | 997 |   | 2.91 | % |
| Preferred Stock                     |       | —                                        |       | — |   | — |   | — |   | — |   | — |   | 407 |   | 2.89 | % | 407 |   | 2.89 | % |
| Mortgage-backed Securities          |       | —                                        |       | — |   | — |   | — |   | — |   | — |   | 1,674 |   | 5.20 | % | 1,674 |   | 5.19 | % |
| Total Available for Sale Securities |       | $                                             | 497        |   |   |   | $ | 4,640 |   |   |   | $ | 3,525 |   |   |   | $ | 5,962 |   |   |   | $ | 14,624 |   | 3.98 | % |
|                                |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Held to Maturity Securities         |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US Government Agencies              |       | $                                             | 8,997      |   | 3.50 | % | $ | 10,464 |   | 5.11 | % | $ | 3,976 |   | 5.89 | % | $ | — |   | — |   | $ | 23,437 |   | 4.65 | % |
| Mortgage-backed Securities          |       | 259                                           |       | 2.79 | % | 2,795 |   | 3.54 | % | 13,280 |   | 4.16 | % | 17,251 |   | 4.40 | % | 33,585 |   | 4.22 | % |
| State & Political  subdivisions |       | —                                        |       | — |   | 386 |   | 5.15 | % | 4,662 |   | 5.67 | % | 13,060 |   | 6.12 | % | 18,108 |   | 5.76 | % |
| Corporate Bonds                     |       | —                                        |       | — |   | 790 |   | 6.51 | % | — |   | — |   | — |   | — |   | 790 |   | 6.51 | % |
| Total Held to Maturity Securities   |       | $                                             | 9,256      |   |   |   | $ | 14,435 |   |   |   | $ | 21,918 |   |   |   | $ | 30,311 |   |   |   | $ | 75,920 |   | 4.80 | % |
|                                |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  Investment Securities        |       | $                                             | 9,753      |   |   |   | $ | 19,075 |   |   |   | $ | 25,443 |   |   |   | $ | 36,273 |   |   |   | $ | 90,544 |   | 4.66 | % |

 

37

----

**Table 6 -Composition of Loan Portfolio**

Thefollowing table sets forth the composition of our loan portfolio at the datesindicated.
| ** **                            | ** ** | **As of**                       | ** ** | **As of**     | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|--------------------|------------|
| ** **                            | ** ** | **March 31,**                   | ** ** | **March 31,** | ** ** |
| ** **                            | ** ** | **2007 (1)**                    | ** ** | **2006 (1)**  | ** ** |
| ** **                            | ** ** | ** **                           | ** ** | **% of**      | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **                            | ** ** | **Amount**                           | ** ** | **Loans**          | ** ** | **Amount** | ** ** | **Loans** | ** ** |
| ** **                            | ** ** | **(Dollars in thousands)** | ** ** |
| USDA Agriculture  Loans               |       | $                                    | 11,479     |               | 2.48       | % | $ | 13,964 |   | 5.11 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Commercial and  Industrial            |       |                                 |       |               |       |   |   |   |   |
| Revolving Lines of Credit             |       | 43,295                               |       | 9.35               | %          | 16,113 |   | 5.89 | % |
| Other Collateral                      |       | 16,117                               |       | 3.48               | %          | 14,632 |   | 5.35 | % |
| Unsecured                             |       | 11,224                               |       | 2.42               | %          | 5,096 |   | 1.86 | % |
| Participations                        |       | (2,540                               | )          | -0.55              | %          | — |   | 0.00 | % |
| Total Commerical and Industrial Loans |       | 68,096                               |       | 14.70              | %          | 35,841 |   | 13.11 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Real Estate  Construction:            |       |                                 |       |               |       |   |   |   |   |
| Acquisition and Land                  |       | 48,167                               |       | 10.40              | %          | 42,956 |   | 15.71 | % |
| Single Family Residences              |       | 53,743                               |       | 11.60              | %          | 26,756 |   | 9.79 | % |
| Multi-family                          |       | 6,881                                |       | 1.49               | %          | 6,373 |   | 2.33 | % |
| Commerical                            |       | 70,727                               |       | 15.27              | %          | 24,361 |   | 8.91 | % |
| Government Guaranteed                 |       | 3,750                                |       | 0.81               | %          | 256 |   | 0.09 | % |
| Participations                        |       | (14,134                              | )          | -3.05              | %          | (5,383 | ) | -1.97 | % |
| Total Real Estate Construction        |       | 169,134                              |       | 36.51              | %          | 95,319 |   | 34.86 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Real Estate  Term:                    |       |                                 |       |               |       |   |   |   |   |
| Single Family Residences              |       | 875                                  |       | 0.19               | %          | 4,376 |   | 1.60 | % |
| Multi-family                          |       | 6,700                                |       | 1.45               | %          | 6,477 |   | 2.37 | % |
| Commerical                            |       | 206,814                              |       | 44.64              | %          | 110,688 |   | 40.48 | % |
| Government Guaranteed                 |       | 779                                  |       | 0.17               | %          | 494 |   | 0.18 | % |
| Participations                        |       | (10,876                              | )          | -2.35              | %          | (2,390 | ) | -0.87 | % |
| Total Real Estate Term                |       | 204,292                              |       | 44.10              | %          | 119,645 |   | 43.76 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Consumer Loans:                       |       |                                 |       |               |       |   |   |   |   |
| Consumer                              |       | 4,869                                |       | 1.05               | %          | 3,421 |   | 1.25 | % |
| Home Equity Lines of Credit           |       | 4,668                                |       | 1.01               | %          | 5,044 |   | 1.84 | % |
| Credit Cards and Overdraft Protection |       | 360                                  |       | 0.08               | %          | 120 |   | 0.04 | % |
| Other                                 |       | 395                                  |       | 0.09               | %          | 61 |   | 0.02 | % |
| Total Consumer Loans                  |       | 10,292                               |       | 2.22               | %          | 8,646 |   | 3.16 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Loans before  reserve for loan loss   |       | 463,293                              |       | 100.00             | %          | 273,415 |   | 100.00 | % |
|                                  |       |                                 |       |               |       |   |   |   |   |
| Less:                                 |       |                                 |       |               |       |   |   |   |   |
| Allowance for Loan Losses             |       | 5,502                                |       | 1.19               | %          | 3,128 |   | 1.14 | % |
| Net Loans                             |       | $                                    | 457,791    |               |       |   | $ | 270,287 |   |   |   |

----

(1)Deferred fees and costs have been deducted from loan totals 

38

----

**Table 7 - Table of Activity in theAllowance for Loan Losses**

The following table setsforth information concerning the activity in our allowance for loan lossesduring the periods indicated. 

|                                                                     | ** ** | **For the Quarters Ended** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                          | ** ** | **March 31,**                        | ** ** | **March 31,** | ** ** |
| ** **                                                          | ** ** | **2007**                                  | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | **(Dollars in thousands)**      | ** ** |
| **Allowance  at the beginning of the period**                       |       | $                                         | 5,430      |   | $ | 2,655 |   |
|                                                                |       |                                      |       |   |   |
| **Charge-offs:**                                                    |       |                                      |       |   |   |
| Agricultural                                                        |       | —                                    |       | — |   |
| Commercial & industrial loans                                   |       | 128                                       |       | — |   |
| Real estate construction                                            |       | —                                    |       | — |   |
| Real estate term                                                    |       | —                                    |       | — |   |
| Consumer loans                                                      |       | 5                                         |       | — |   |
| Total Loans Charged-Off                                             |       | 133                                       |       | — |   |
|                                                                |       |                                      |       |   |   |
| **Recoveries:**                                                     |       |                                      |       |   |   |
| Agricultural                                                        |       | —                                    |       | — |   |
| Commercial & industrial loans                                   |       | 25                                        |       | — |   |
| Real estate construction                                            |       | —                                    |       | — |   |
| Real estate term                                                    |       | —                                    |       | — |   |
| Consumer loans                                                      |       | —                                    |       | — |   |
| Total Loans Recovered                                               |       | 25                                        |       | — |   |
|                                                                |       |                                      |       |   |   |
| Net loan charge  offs                                               |       | (108                                      | )          | — |   |
|                                                                |       |                                      |       |   |   |
| Provision  (recapture) charged to expense                           |       | 180                                       |       | 473 |   |
|                                                                |       |                                      |       |   |   |
| Balance                                                             |       | $                                         | 5,502      |   | $ | 3,128 |   |
|                                                                |       |                                      |       |   |   |
| Average gross  loans outstanding during period *                    |       | $                                         | 469,549    |   | $ | 258,086 |   |
| Gross loans  outstanding at end of period *                         |       | $                                         | 463,293    |   | $ | 273,415 |   |
|                                                                |       |                                      |       |   |   |
|                                                                |       |                                      |       |   |   |
| **RATIOS**                                                          |       |                                      |       |   |   |
| Net Charge-offs  to Average Loans (annualized)                      |       | 0.09                                      | %          | n/a |   |
| Allowance for  Loan Losses to Gross Loans at End of Period          |       | 1.19                                      | %          | 1.14 | % |
| Net Loan  Charge-offs to Allowance for Loan Losses at End of Period |       | 1.96                                      | %          | n/a |   |
| Net Loan Charge-offs to  Provision for Loan Losses                  |       | 60.00                                     | %          | n/a |   |

----

*Deferred fees and costs have been deducted from loan totals 

39

----

**Table 8 -Allocation of the Allowance for Loan Losses**

Thefollowing table sets forth information concerning the allocation of ourallowance for loan losses by loan categories at the dates indicated. Theallowance for loan losses is available for offsetting credit losses inconnection with any loan, but is internally allocated to various loancategories as part of our process for evaluating the adequacy of the allowancefor loan losses. 

|                                      | ** ** | **As of March 31**    | ** ** | **As of December 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|
| ** **                           | ** ** | **2007**                             | ** ** | **2006**                              | ** ** |
| ** **                           | ** ** | ** **                           | ** ** | **% Total**                      | ** ** | ** ** | ** ** | **% Total** | ** ** |
| ** **                           | ** ** | **Amount**                           | ** ** | **Loans(1)**                          | ** ** | **Amount** | ** ** | **Loans(1)** | ** ** |
| ** **                           | ** ** | **(Dollars in thousands)** | ** ** |
| USDA Agriculture Loans               |       | $                                    | —     |                                  | 2.48       | % | $ | — |   | 2.74 | % |
| ** **                           |       |                                 |       |                                  |       |   |   |   |   |
| Commercial and  Industrial           |       |                                 |       |                                  |       |   |   |   |   |
| Revolving Lines of Credit            |       | 522                                  |       |                                  |       | 427 |   |   |   |
| Unsecured and Other Collateral       |       | 489                                  |       |                                  |       | 444 |   |   |   |
| Total Commerical Loans               |       | 1,011                                |       | 14.70                                 | %          | 871 |   | 16.03 | % |
|                                 |       |                                 |       |                                  |       |   |   |   |   |
| Real Estate  Construction:           |       |                                 |       |                                  |       |   |   |   |   |
| Acquisition and Land                 |       | 1,419                                |       |                                  |       | 1,711 |   |   |   |
| SFR, Commercial and Multifamily      |       | 1,508                                |       |                                  |       | 1,379 |   |   |   |
| Government Guaranteed                |       | 316                                  |       |                                  |       | 259 |   |   |   |
| Total Real Estate Construction Loans |       | 3,243                                |       | 36.51                                 | %          | 3,349 |   | 33.15 | % |
|                                 |       |                                 |       |                                  |       |   |   |   |   |
| Real Estate  Term:                   |       |                                 |       |                                  |       |   |   |   |   |
| SFR and Multifamily                  |       | 217                                  |       |                                  |       | 193 |   |   |   |
| Commercial                           |       | 949                                  |       |                                  |       | 1,003 |   |   |   |
| Total Real Estate Term Loans         |       | 1,166                                |       | 44.10                                 | %          | 1,196 |   | 46.36 | % |
|                                 |       |                                 |       |                                  |       |   |   |   |   |
| Consumer loans                       |       | 80                                   |       | 2.22                                  | %          | 13 |   | 1.72 | % |
| Unallocated                          |       | 2                                    |       | 0.00                                  | %          | 1 |   | 0.00 | % |
|                                 |       | $                                    | 5,502      |                                  | 100.00     | % | $ | 5,430 |   | 100.00 | % |

----

(1)Represents percentage of loans in category to total loans.

40

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**Table 9 -Estimated Net Interest Income Sensitivity Profile**

Thefollowing table sets forth the estimated effects on our net interest income overa 12 month period following March 31, 2007 in the event of a ramping up  or down in the indicated market interestrates. 

|                                      | ** ** | **Change in**    | ** ** | ** **     | ** ** |
|--------------------------------------|------------|-----------------------|------------|----------------|------------|
| ** **                           | ** ** | **Net Interest** | ** ** | **Percentage** | ** ** |
| **(Dollars in thousands)** | ** ** | **Income**            | ** ** | **Change**     | ** ** |
| Scenario                             |       |                  |       |           |       |
|                                 |       |                  |       |           |       |
| Up 200 basis points                  |       | $                     | 1,135      |           | 0.19       | % |
| Up 100 basis points                  |       | $                     | 608        |           | 0.10       | % |
| Down 100 basis points                |       | $                     | (915       | )              | -0.15      | % |
| Down 200 basis  points               |       | $                     | (2,445     | )              | -0.40      | % |

 

41

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**Table 10 - 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** | ** ** |
| **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 | % |

 

42

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**Table 11 -QUARTERLY DATA (UNAUDITED)**
| ** ** | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** ** | ** ** | **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** | ** ** |
|       |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Income                                                                              |   | $      | 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                                                                             |   | 5,992  |   | 4,887  |   | 3,855  |   | 3,274  |   | 3,067  |   | 2,631  |   | 1,964  |   | 1,533  |   | 1,216  |   | 1,080  |   | 947    |   | 825    |   | 817    |   |
| Net interest income                                                                          |   | 5,350  |   | 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                                                                    |   | 180    |   | 175    |   | 247    |   | (124   | )      | 473    |   | 377    |   | 292    |   | 186    |   | 214    |   | 167    |   | 207    |   | 170    |   | 220    |   |
| Net interest income after  Provision for Loan Losses                                         |   | 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                                                                          |   | 422    |   | 677    |   | 535    |   | 249    |   | 221    |   | 153    |   | 376    |   | 97     |   | 146    |   | 98     |   | 45     |   | 122    |   | 155    |   |
| Non-interest expenses                                                                        |   | 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                                                                   |   | 659    |   | 1,716  |   | 919    |   | 667    |   | (17    | )      | (131   | )      | 381    |   | 275    |   | 177    |   | 332    |   | (142   | )      | 86     |   | 5      |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income/Losses attributable  to Minority Shareholders                                         |   | (24    | )      | 159    |   | 3      |   | (35    | )      | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision (Benefit) for  taxes                                                               |   | 226    |   | 653    |   | 382    |   | 33     |   | 7      |   | (710   | )      | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Income (Loss)                                                                            |   | $      | 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 |   | 38     |   | (563   | )      | 186    |   | (83    | )      | 193    |   | (144   | )      | (88    | )      | 266    |   | (225   | )      | (117   | )      | 1,005  |   | (1,409 | )      | 419    |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income (Loss)                                                                  |   | $      | 495    |   | $      | 341    |   | $      | 720    |   | $      | 586    |   | $      | 169    |   | $      | 435    |   | $      | 293    |   | $      | 541    |   | $      | (48    | )      | $ | 215   |   | $ | 863   |   | $ | (1,323 | )      | $ | 424   |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per common share:                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                        |   | $      | 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                                                                                      |   | $      | 0.08   |   | $      | 0.18   |   | $      | 0.13   |   | $      | 0.19   |   | $      | (0.01  | )      | $      | 0.18   |   | $      | 0.11   |   | $      | 0.09   |   | $      | 0.06   |   | $ | 0.11  |   | $ | (0.05 | )      | $ | 0.03   |   | $ | 0.00  |   |

 

43

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**Table 12 -Operating Segment Information**

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

Non-banksegments includes the Company’s 1031 qualified intermediary companies. 
| ** **                                           | ** ** | **For the Three Months Ending** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **March 31, 2007**                        | ** ** |
| ** **                                           | ** ** | **Bank**                                            | ** ** | **1031** | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                           | ** ** | **(in thousands - unaudited)**       | ** ** |
| **Condensed  Income Statement**                      |       |                                                |       |   |   |   |   |   |   |   |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest Income                                      |       | 11,027                                              |       | 352 |   | 137 |   | (129 | ) | 11,387 |   |
| Interest Expense                                     |       | 5,604                                               |       | 160 |   | 357 |   | (129 | ) | 5,992 |   |
| Provision for  Loan Losses                           |       | 180                                                 |       | — |   | — |   | — |   | 180 |   |
| Non-interest  Income                                 |       | 280                                                 |       | 14 |   | 83 |   |   |   | 377 |   |
| Non-interest  Expense                                |       | 3,834                                               |       | 453 |   | 646 |   |   |   | 4,933 |   |
| Net  Income/(Loss) before taxes and other            |       | 1,689                                               |       | (248 | ) | (782 | ) |   |   | 659 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Income/(Loss)  attributable to minority shareholders |       | —                                              |       | — |   | — |   | 24 |   | 24 |   |
| Income  Taxes/(Benefit)                              |       | 587                                                 |       | (97 | ) | (264 | ) |   |   | 226 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| NET INCOME/(LOSS)                                    |       | 1,103                                               |       | (150 | ) | (520 | ) | 24 |   | 457 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| **Statement  of Condition**                          |       |                                                |       |   |   |   |   |   |   |   |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| ASSETS                                               |       |                                                |       |   |   |   |   |   |   |   |   |
| Cash and Due  from Banks                             |       | 13,291                                              |       | 45,930 |   | 3,103 |   | (30,507 | ) | 31,817 |   |
| Investments                                          |       |                                                |       |   |   |   |   |   |   |   |   |
| Investments in subsidiaries                          |       | —                                              |       | — |   | 70,821 |   | (70,202 | ) | 619 |   |
| Investment Portfolio                                 |       | 84,837                                              |       | — |   | 5,707 |   |   |   | 90,544 |   |
| Loans                                                |       | 457,791                                             |       | — |   | — |   |   |   | 457,791 |   |
| Fixed Assets                                         |       | 7,431                                               |       | 128 |   | 158 |   |   |   | 7,717 |   |
| Intangibles                                          |       | 21,173                                              |       | — |   | 10,141 |   |   |   | 31,314 |   |
| Other Assets                                         |       | 21,742                                              |       | 179 |   | 5,694 |   |   |   | 27,615 |   |
| Total Assets                                         |       | 606,266                                             |       | 46,236 |   | 95,624 |   | (100,708 | ) | 647,418 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| LIABILITIES                                          |       |                                                |       |   |   |   |   |   |   |   |   |
| Deposits                                             |       | 515,405                                             |       | 29,943 |   | — |   | (30,507 | ) | 514,841 |   |
| Borrowing                                            |       | 15,500                                              |       | — |   | 20,884 |   |   |   | 36,384 |   |
| Other  Liabilities                                   |       | 5,820                                               |       | 15,633 |   | 962 |   |   |   | 22,415 |   |
| Total  Liabilities                                   |       | 536,725                                             |       | 45,576 |   | 21,847 |   | (30,507 | ) | 573,640 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Shareholders’  equity                           |       | 69,541                                              |       | 660 |   | 73,778 |   | (70,201 | ) | 73,778 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Total Liabilities and  Shareholders’ Equity     |       | 606,266                                             |       | 46,236 |   | 95,624 |   | (100,708 | ) | 647,418 |   |

 

44

----

**TABLE 12 CONTINUED**
| ** **                                           | ** ** | **For the Three Months Ending** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **March 31, 2006 (a)**               | ** ** |
| ** **                                           | ** ** | **Bank**                                            | ** ** | **1031** | ** ** | **Parent** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                           | ** ** | **(in thousands - unaudited)**       | ** ** |
| **Condensed  Income Statement**                      |       |                                                |       |   |   |   |   |   |   |   |   |
| ** **                                           |       |                                                |       |   |   |   |   |   |   |   |   |
| Interest Income                                      |       | 6,077                                               |       | — |   | 107 |   | — |   | 6,184 |   |
| Interest Expense                                     |       | 2,835                                               |       | — |   | 232 |   | — |   | 3,067 |   |
| Provision for  Loan Losses                           |       | 473                                                 |       | — |   | — |   | — |   | 473 |   |
| Non-interest  Income                                 |       | 175                                                 |       | — |   | 46 |   |   |   | 221 |   |
| Non-interest  Expense                                |       | 2,492                                               |       | — |   | 390 |   |   |   | 2,882 |   |
| Net  Income/(Loss) before taxes and other            |       | 452                                                 |       | — |   | (469 | ) |   |   | (17 | ) |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Income/(Loss)  attributable to minority shareholders |       | —                                              |       | — |   | — |   | — |   | — |   |
| Income  Taxes/(Benefit)                              |       | 7                                                   |       | — |   | — |   |   |   | 7 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| NET  INCOME/(LOSS)                                   |       | 445                                                 |       | — |   | (469 | ) | — |   | (24 | ) |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| **Statement  of Condition**                          |       |                                                |       |   |   |   |   |   |   |   |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| ASSETS                                               |       |                                                |       |   |   |   |   |   |   |   |   |
| Cash and Due  from Banks                             |       | 15,234                                              |       | — |   | 1,674 |   | (662 | ) | 16,246 |   |
| Investments                                          |       |                                                |       |   |   |   |   |   |   |   |   |
| Investments in subsidiaries                          |       | (945                                                | )          | — |   | 32,842 |   | (31,433 | ) | 464 |   |
| Investment Portfolio                                 |       | 85,215                                              |       | — |   | 6,154 |   |   |   | 91,369 |   |
| Loans                                                |       | 270,286                                             |       | — |   | — |   |   |   | 270,286 |   |
| Fixed Assets                                         |       | 2,743                                               |       | — |   | 269 |   |   |   | 3,012 |   |
| Intangibles                                          |       | 500                                                 |       | — |   | 5,298 |   |   |   | 5,798 |   |
| Other Assets                                         |       | 12,333                                              |       | — |   | 1,478 |   |   |   | 13,811 |   |
| Total Assets                                         |       | 385,366                                             |       | — |   | 47,715 |   | (32,095 | ) | 400,986 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| LIABILITIES                                          |       |                                                |       |   |   |   |   |   |   |   |   |
| Deposits                                             |       | 317,865                                             |       | — |   | — |   | (662 | ) | 317,203 |   |
| Borrowing                                            |       | 34,500                                              |       | — |   | 16,181 |   |   |   | 50,681 |   |
| Other  Liabilities                                   |       | 1,568                                               |       | — |   | 2,270 |   |   |   | 3,838 |   |
| Total Liabilities                                    |       | 353,933                                             |       | — |   | 18,451 |   | (662 | ) | 371,722 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Shareholders’  equity                           |       | 31,433                                              |       | — |   | 29,264 |   | (31,433 | ) | 29,264 |   |
|                                                 |       |                                                |       |   |   |   |   |   |   |   |   |
| Total Liabilities and  Shareholders’ Equity     |       | 385,366                                             |       | — |   | 47,715 |   | (32,095 | ) | 400,986 |   |

----

(a)  The 1031 qualified financial intermediarieswere acquired at the end of the first quarter and there is no meaningfullinformation 

45

----

**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.

**Item 1A.  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.

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

**—   None**

**Item 3.  Defaults Upon SeniorSecurities**

**—   not applicable.**

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

**—   None**

**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 11      |       | Computation of Per Share Earnings (1)                                                                                                 |
| 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 (2)    |
| 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 (2) |
| Exhibit No.32.1 |       | Certification of Hal Giomi Pursuant to 18 U.S.C. §  1350 (2)                                                                     |
| Exhibit No.32.2 |       | Certification of Jack Buchold Pursuant to 18 U.S.C.  § 1350 (2)                                                                  |

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(1)                                  Data required by Statement of FinancialAccounting Standards No 128, *Earnings per Share,*is provided in Note 4 to the condensed, consolidated financial statements inthis report.

 (2)                               Filed herewith.

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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: May 15,  2007 | by:               | /s/ Harold G. Giomi |
|                |              | Harold G. Giomi |
|                |              | Chief Executive Officer |
|                |              |   |
| Date: May 15,  2007 | by:               | /s/ Jack B. Buchold |
|                |              | Jack B. Buchold |
|                |              | Chief Financial Officer |
|                |              | (principal financial and |
|                |              | accounting officer) |

 

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