---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

|(Mark One)                                 
|-------------------------------------------
|x
:                                        
|                                           
|For the fiscal year ended December 31, 2006
|                                           
|o                                          
|                                           
|For the transition period
from           to
|                                           
|Commission File No. 333-105991             

|EPIC   BANCORP                                                                    
|----------------------------------------------------------------------------------
|(Exact name of registrant as specified in its charter)                            
|                                                                                  
|California                                                                        
|(State or jurisdiction of incorporation)                                          
|                                                                                  
|630 Las Gallinas Avenue, San Rafael, California  94903                            
|(Address and zip code of principal executive offices)                             
|                                                                                  
|Registrants telephone number: (415) 526-6400                                     
|                                                                                  
|N/A                                                                               
|(Former name, former address and formal fiscal year, if changed since last
report)

Securities registered pursuant to Section 12(b) of the Act: 
Common Stock, no par value

Securities registered pursuant to Section 12(g) of the
Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes
oNo
x

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.  
Yes
oNo
x

Indicate by check mark whether the registrant  (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.   Yes
xNo
o

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
x

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

| | Large accelerated file
o | Accelerated filer
o | Non-accelerated filer
x | 
| | ------------------------ | ------------------- | ----------------------- | 

Indicate by check mark if the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
oNo
x

The aggregate market value of the registrants voting stock held by
non-affiliates computed by reference to the average bid and asked prices of such
stock, as of June 30, 2006 was $46,812,000.

Number of registrants shares of Common Stock outstanding as of
February 28, 2007 was 3,968,853.

The following documents are incorporated by reference in Part III of this
Form 10-K: Items 10 through 14 of registrants definitive Proxy
Statement for its 2007 Annual Meeting of Shareholders.

---





##### 

TABLE OF CONTENTS

|         |                                                                                                              | PAGE
|-------- | ------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                              |     
|PART I   |                                                                                                             
|         |                                                                                                             
|Item 1.  | Business                                                                                                     | 3   
|         |                                                                                                              |     
|Item 1A. | Risk Factors                                                                                                 | 16  
|         |                                                                                                              |     
|Item 1B. | Unresolved Staff Comments                                                                                    | 23  
|         |                                                                                                              |     
|Item 2.  | Properties                                                                                                   | 23  
|         |                                                                                                              |     
|Item 3.  | Legal Proceedings                                                                                            | 25  
|         |                                                                                                              |     
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                          | 25  
|         |                                                                                                              |     
|PART II  |                                                                                                             
|         |                                                                                                             
|Item 5.  | Market for Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity Securities | 25  
|         |                                                                                                              |     
|Item 6.  | Selected Financial Data                                                                                      | 27  
|         |                                                                                                              |     
|Item 7.  | Managements Discussion and Analysis of Financial
Condition and Results of Operation                         | 28  
|         |                                                                                                              |     
|Item 7A. | Quantitative and Qualitative Disclosures About Market
Risk                                                   | 54  
|         |                                                                                                              |     
|Item 8.  | Financial Statements and Supplementary Data                                                                  | 54  
|         |                                                                                                              |     
|Item 9.  | Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure                         | 88  
|         |                                                                                                              |     
|Item 9A. | Controls and Procedures                                                                                      | 88  
|         |                                                                                                              |     
|Item 9B. | Other Information                                                                                            | 88  
|         |                                                                                                              |     
|PART III |                                                                                                             
|         |                                                                                                             
|Item 10. | Directors and Executive Officers of the
Registrant                                                           | 88  
|         |                                                                                                              |     
|Item 11. | Executive Compensation                                                                                       | 89  
|         |                                                                                                              |     
|Item 12. | Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters               | 89  
|         |                                                                                                              |     
|Item 13. | Certain Relationships and Related Transactions                                                               | 89  
|         |                                                                                                              |     
|Item 14. | Principal Accountant Fees and Services                                                                       | 89  
|         |                                                                                                              |     
|PART IV  |                                                                                                             
|         |                                                                                                             
|Item 15. | Exhibits and Financial Statement Schedules                                                                   | 89  

2



---



##### 

Forward-Looking Statements

In addition to the historical information, this Annual Report contains
forward-looking statements with respect to the financial condition, results of
operation and business of Epic Bancorp and its subsidiaries. These include, but
are not limited to, statements that relate to or are dependent on estimates or
assumptions relating to the prospects of loan growth, credit quality, changes in
securities or financial markets, and certain operating efficiencies resulting
from the operations of Tamalpais Bank and Epic Wealth Management.  These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) competitive pressure among financial services companies increases
significantly; (2) changes in the interest rate environment reduce interest
margins; (3) general economic conditions, internationally, nationally or in the
State of California are less favorable than expected; (4) legislation or
regulatory requirements or changes adversely affect the businesses in which the
consolidated organization is or will be engaged; (5)  the ability to
satisfy the requirements of the Sarbanes-Oxley Act and other regulations
governing internal controls; and (6) volatility or significant changes in the
equity and bond markets which can affect overall growth and profitability of the
wealth management business. When relying on forward-looking statements to make
decisions with respect to Epic Bancorp, investors and others are cautioned to
consider these and other risks and uncertainties.  Epic Bancorp disclaims
any obligation to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained in this report
to reflect future events or developments.

Moreover, wherever phrases such as or similar to In Managements
opinion or Management considers are used, such statements are
as of and based upon the knowledge of Management at the time made and are
subject to change by the passage of time and/or subsequent events and,
accordingly, such statements are subject to the same risks and uncertainties
noted above with respect to forward-looking statements.

PART I

ITEM 1.  BUSINESS

Epic Bancorp (Company) was incorporated under the laws of the State
of California on December 20, 1988 and is the parent company for Tamalpais Bank
(the Bank) and Epic Wealth Management (EWM).

As of December 31, 2006, the consolidated Company was comprised of three
entities, Epic Bancorp, the Bank, and EWM.  The Bank, established in 1991,
offers a full range of banking services targeting small-to-medium sized
businesses, individuals and high-net worth consumers.  EWM, established in
January 2005, offers investment advisory services to the general community and
to clients of the Bank.  San Rafael Capital Trust I and II
(Trusts) are wholly owned unconsolidated subsidiaries that were
formed during 2002 and 2006, respectively, for the purpose of enabling the
Company to issue junior subordinated debentures and accordingly, the investment
activities related to the issuance, investment and debt service payments
associated with the $10.3 and $3.1 million, respectively, of junior subordinated
debentures are so reflected.

The Companys principal source of cash flow is dividends from the
Bank.  Legal limitations are imposed on the amount of dividends that may be
paid and loans that may be made by the Bank to the Company.

At December 31, 2006, the Company had $503.5 million in consolidated
assets, $421.3 million in net loans receivable, and $369.8 million in deposits.
At December 31, 2005, the Company had $461.8 million in consolidated
assets, $382.4 million in net loans receivable, and $313.4 million in deposits.

The Companys outstanding equity securities consist of one class of no par
value Common Stock.  The principal executive offices of the Company are
located at 630 Las Gallinas Avenue, San Rafael, California, 94903, telephone
number (415) 526-6400, facsimile number (415) 485-3742.The Company
makes available free of charge on its website at www.epicbancorp.com its
annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments thereto, and reports of insider
transactions on Forms 3, 4, and 5 as soon as reasonably practicable after the
Company files such reports with, or furnishes them to the Securities and
Exchange Commission (SEC). Investors are encouraged to access these
reports and the other information about the Companys business on its
website.  The Company may also be contacted via electronic mail at
info@epicbancorp.com.

3



---



##### 

Tamalpais Bank

The Bank is a California industrial bank and is under the supervision of the
California Department of Financial Institutions (DFI) and the
Federal Deposit Insurance Corporation (FDIC).  The Banks
deposit accounts are insured by the FDIC up to the maximum amount permitted by
law.

The Bank operates seven full service branches in Marin County, located north of
San Francisco, California.  Each branch has been designed to meet the needs
of small-to-medium sized businesses, individuals and high-net worth
consumers.  There is an office of EWM within every branch of Tamalpais
Bank.  There is also a Tamalpais University education center in each Bank
branch where seminars to the public about financial planning and investments are
presented and where local non-profit organizations can hold their board and
committee meetings.  There are high speed Internet Cafes for the
convenience of customers in each Branch.  There is a Childrens Zone
area for small children, as well, in all branches of the Bank.

In addition to its full-service banking
centers, the Bank operates one loan production office located in Santa
Rosa,  California which focuses principally on the origination of SBA
loans.  The Bank intends to open up future loan production offices outside
of Marin County in other high net worth and business markets that have continued
growth and potential for development.

The Bank attracts deposits from individuals, merchants, small-to-medium sized
businesses, not-for-profit organizations, and professionals who live and/or work
in the communities comprising the Banks market areas  by offering a
friendly, non-intimidating, differentiated branch environment, convenience,
competitive interest rate products and providing value-added customer
service.  The Bank offers a broad range of commercial and retail lending
programs, an array of deposit products and investment advice through its
affiliate, EWM, to enable its customers to reach their lifetime personal and
financial goals.  Loan programs include mortgages for multifamily real
estate, commercial and industrial real estate loans, commercial loans to
businesses including SBA loans, revolving lines of credit and term loans,
consumer loans including home equity lines of credit and secured and unsecured
lines of credit, land and construction lending for single family residences and
apartment buildings, and commercial real estate.

The Bank offers an extensive selection of deposit instruments including multiple
checking products for both personal and business accounts, tiered money market
accounts offering a variety of access methods, tax qualified deposits accounts
(e.g., IRAs), and a broad array of certificates of deposit products.  A
valet deposit pick-up service is available to the Banks professional and
business clients.  Automatic teller machines (ATMs) are available at
each branch location and at United Market in San Anselmo and Woodland Market in
Kentfield.  The Banks ATM network is linked to both the STAR and PLUS
networks.  The Bank offers its depositors 24-hour access to their accounts
by telephone and to both consumer and business accounts through its internet
banking products.

In 2007, the Bank became a member of the Money Pass surcharge free ATM network
which provides over 23,000 surcharge ATMs throughout the United States
for depositors to access.

4



---



##### 

The Bank does not offer international banking services, and the Bank holds no
patents, registered trademarks, licenses (other than licenses required by the
appropriate banking regulatory agencies), franchises or concessions.

Epic Wealth Management

As an integral element of its strategic plan to increase market share in Marin
County and to further serve its high-net worth customer base, the Company
established a new subsidiary in 2005, EWM, a registered investment advisor under the the
federal Investment Advisors Act of 1940 which is administered by the SEC. 
EWM provides investment management, financial planning and advice to high-net
worth families through the investment centers of every full-service branch of
the Bank and to the general Marin County marketplace.

An agreement between EWM and the Bank for the Bank to refer investment advisory
clients to EWM was entered into in January 2005.

Market Area

The Company is headquartered in Marin County, California, which has a population
of 252,485, the second highest household income in the state and the highest per
capita income out of the 3,111 counties nationwide, according to data from the
U.S. Census Bureau, Wikipedia and USDA.  In Marin County, the median price
for a single family home is $839,000, per capita income is $44,962, which is the
highest in the nation and household income is $71,306, which is the second
highest in the State according to data from U.S. Census Bureau and
Wikipedia.  Marin County had $7.6 billion in deposits as of June 30, 2006
according to data from the FDIC, the most recent date for which data is
available.

The Companys market area consists of Marin County and the Greater Bay Area
including Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara, Sonoma
and Sacramento counties.  The Banks deposit gathering efforts are
focused primarily in the Marin County communities surrounding its full service
branches.

The Company has no foreign or international activities or operations.

Company Strategy

During the past several years, the Company has adopted a business strategy of
developing a community-based  banking approach as a means of increasing
market share in Marin County and increasing shareholder value.  The
Companys strategy of providing financial services and advice to business
owners and individuals incorporates a relationship-based approach to customer
service and marketing, with an understanding of the balance sheet and income
statement profile of clients to even more effectively present loan and deposit
products and investment management and financial planning to its
constituency.  Directors and employees of the Company maintain a high level
of involvement and visibility within the community and the not-for-profit
sector.  The Company also strives to add value for its shareholders by
optimizing its net interest margin, expanding the volume of its earning assets
and increasing non-interest income.  This strategy, executed primarily
through its expanding retail branch presence, incorporates:

| |  | offering consultation and planning services, delivered in a personalized,
non-intimidating way;                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | tailoring loan and deposit products such as commercial and multifamily
mortgages, business and personal loans and lines of credit, and cash management
services to small-to-medium sized businesses and individuals;
| |  | building relationships through wealth management services in the high-net worth
community of Marin County and the greater San Francisco bay area;                                                                   
| |  | providing fee-based investment advisory, asset management, and financial
planning services;                                                                                                                         
| |  | increasing fee income to a greater portion of total revenue; and,                                                                                                                                                   
| |  | utilizing new technologies to better meet the financial needs of individuals,
families, professionals, and businesses.                                                                                              

5



---



##### 

2006 Accomplishments

The Company has achieved favorable financial performance and has made
significant progress in achieving its strategic goals over the past several
years. The following are among the accomplishments that the Company achieved in
financial performance and executing its strategic plan in 2006:

| |  | Net income for the full year 2006 was $3,928,000 as compared to $4,096,000 for
the same period prior year, a 4.1% decrease.  Net interest income after
provision for loan losses and non interest income increased $826,000 and
$542,000, respectively for the full year 2006 as compared to the same period
prior year.  Excluding the effect of Statement of Financial Standard No.
123R, net income for the full year 2006 would have been $4,252,000, or $1.07 per
diluted share.  Net income increased 14.5% and diluted earnings per share
increased 16% in the fourth quarter 2006 as compared to the same period the
prior year.   The Company was able to increase income sequentially in
each of the last three quarters of 2006 as compared to 2005 despite the 17
consecutive 1⁄4 point increases in interest rates by the Federal Reserve from
June 2004 through June 2006 causing an inverted yield curve and a narrowing of
the Banks net interest margin.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Companys earning asset base increased as net loans receivable
increased 10.2% and deposits increased 18.0% in 2006 as compared to 2005. 
The growth in loans was primarily in commercial real estate and construction
loans.  This growth was accomplished while maintaining the exceptionally
strong asset quality of the Company with no non-performing loans as of quarter
end and no loan losses for ten consecutive years and under $150,000 since the
Bank was opened in 1991.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Bank launched its seventh branch in Tiburon/Belvedere, California in August
2006 thus increasing its market presence from 3.75% in 2005 to 4.52% in 2006 in
Marin County.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Bank received approval and obtained a
national Preferred Lender Program (PLP) status from the U.S. Small
Business Administration (SBA) in 2006.  The Bank was previously approved
for PLP status in the San Francisco District only.  This PLP status,
awarded to only a limited number of financial institutions who have demonstrated
the highest degree of proficiency in processing and servicing SBA-guaranteed
loans, allows the Bank to streamline the processes involved in securing
financial assistance for small businesses.                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company declared its twelfth consecutive quarterly dividend in December
2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Bank demonstrated its commitment to the Marin County community by
establishing and continuing to underwrite the annual Heart of Marin program,
which recognizes outstanding contributions to the Marin non-profit community
through its Community Outreach Program.   The Company has allocated
over $1 million to its Community Outreach Program since 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The SBA division, now in its third year of operations, is the 10th largest 7A
SBA lender by dollar in the San Francisco region (out of 92 reporting banks).
This continues to be a major focus of the Company that positions the Bank for
future loan, deposit and non-interest income growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Company embarked on a key customer service and loyalty strategy in
2006.  The goal of this strategy is to enhance the service culture of the
Company, build customer loyalty, improve internal business workflows and develop
a meaningful measurement system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | In 2006, the Company issued $3.1 million of Trust Preferred
Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | The Companys headquarter facility was awarded Green Business status by the
County of Marin in 2006 which required the Company to meet standards in areas of
energy conservation, water conservation, solid waste reduction and recycling and
pollution prevention.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

6



---



##### 

New Facilities

In order to execute the strategy of rapid expansion for the Companys
retail and high-net worth banking operations, new business development officers
(BDO) including SBA BDOs, relationship managers and branch managers
were hired in 2006. These new employees also enhanced the Companys
capacity to better serve its consumer base.

Management believes that the likelihood of success of its new branches is
increased by placing new branches in proximity to existing branches of other
financial institutions with large deposit bases. Therefore, the Banks
branching strategy focused on opening branches in those geographies in Marin
County that most often had at least one branch with $100 million in
deposits.  The Bank opened one new branch in 2002 (Mill Valley), one new
branch in 2003 (Greenbrae), two new branches in 2004 (San Anselmo and Northgate
- North San Rafael), one new branch in 2005 (Corte Madera), and one new branch
in 2006 (Tiburon/Belvedere).  The Northgate facility also serves the
Companys headquarters.  The Company intends to open additional
branches in its marketplace in the upcoming years.

Competition

The banking and financial services business in California generally, and in the
Companys market area specifically, is highly competitive. The increasingly
competitive environment is a result of many factors including, but not limited
to:

| |  | significant consolidation among financial institutions which has occurred over
the past several years, resulting in a number of substantially larger
competitors with greater resources than the Company; 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                           
| |  | increasing integration among commercial banks, insurance companies, securities
brokers, and investment banks;                                                                                             
| |   |                                                                                                                                                                                                           
| |  | increased   number of denovo banks;                                                                                                                                                                       
| |   |                                                                                                                                                                                                           
| |  | continued growth and increased market share of non-bank financial service
providers that often specialize in a single product line such as credit cards or
residential mortgages;                         
| |   |                                                                                                                                                                                                           
| |  | increased internet based competition causing the Bank to compete more frequently
with remote entities soliciting customers in its primary market area via web
based advertising and product delivery; and,
| |   |                                                                                                                                                                                                           
| |  | introduction of new technologies which may bypass the traditional banking system
for funds settlement.                                                                                                    

The Company competes for loans, deposits, investments, fee based products, and
customers for financial services with commercial banks, savings and loans,
credit unions, industrial banks, mortgage bankers, securities and brokerage
companies, registered investment advisor firms, insurance firms, finance
companies, mutual funds, and other non-bank financial service providers. Many of
these competitors are much larger than the Company in total assets, market
reach, and capitalization and enjoy greater access to capital markets and can
offer a broader array of products and services than the Company currently
offers.

As of June 30, 2006 approximately 83 banking offices with $7.6 billion in total
deposits served the Marin County market.  The four banking institutions
with the greatest market share, Bank of America, Wells Fargo Bank, Westamerica
Bank, and Washington Mutual had deposit market shares of 17.87%, 17.27%, 11.46%
and 11.10%, respectively, as of June 30, 2006, the most recent date for which
data is available, compared with the Banks share of 4.52%.

The Company also competes for depositors funds with money market mutual
funds and with non-bank financial institutions such as brokerage firms,
investment management firms and insurance companies.  Among the competitive
advantages held by certain of these non-bank financial institutions is the
ability to finance extensive advertising campaigns, and to allocate investment
assets to regions of California or other states with areas of highest demand and
often, therefore, highest yield.  Large commercial banks also have
substantially greater lending limits than the Bank and the ability to offer
certain services which are not offered directly by the Company.

7



---



##### 

In order to compete with other financial service providers, the Company uses to
the fullest extent possible the flexibility and rapid response capabilities
which are accorded by its independent status.  This includes an emphasis
on:

| |  | local   community involvement;                                                                       
| | - | -----------------------------------------------------------------------------------------------------
| |   |                                                                                                      
| |  | personal service and the resulting personal relationships of its staff and
customers;                
| |   |                                                                                                      
| |  | referrals from directors, employees, and satisfied customers;                                        
| |   |                                                                                                      
| |  | development and sale of specialized products and services tailored to meet its
customers needs; and,
| |   |                                                                                                      
| |  | local,   flexible, and fast decision making.                                                         

In addition, management considers its approach of placing highly skilled
personal bankers and investment advisors representatives in separate, prominent
areas in its branches with close contact to clients to be a competitive
advantage in attracting and retaining customers within its primary market
area.

Employees

As of December 31, 2006 the Company employed 75 full-time employees. 
The employees are not represented by a union or covered by a collective
bargaining agreement.  The Company believes that its employee relations are
good.

Other Information

The Company went through a data processing conversion in 2005 to improve the
Companys existing services. There were no expenditures made by the
Company, during the last two fiscal years, on material research activities
relating to the development of services.

The Companys business is not seasonal. The Company intends to continue
with the same  banking activities that have characterized the
Companys operations over the last few years and the investment management
activities of EWM that began in 2005.  The Company anticipates continued
profitable growth while maintaining sound credit and management policies and/or
practices.

Effect of Governmental Policies and Legislation

Banking is a business that depends on rate differentials.  In general, the
difference between the interest rate paid by the Bank on its deposits and other
borrowings and the interest rate received by the Bank on loans extended to its
customers and securities held in the Banks portfolio comprise the major
portion of the Banks earnings.  These rates are highly sensitive to
many factors that are beyond control of the Bank.  Accordingly, the
earnings and growth of the Bank are subject to the influence of local, domestic
and foreign economic conditions, including recession, unemployment and
inflation.

The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Board of Governors of the Federal Reserve System (the FRB). 
The FRB implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in United
States Government securities which effect short term rates such as the Fed Funds
rate, by adjusting the required level of reserves for financial institutions
subject to its reserve requirements and by varying the discount rates applicable
to borrowings by depository institutions.  The actions of the FRB in these
areas influence the growth of bank loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits.  The nature
and impact on the Bank of any future changes in monetary policies cannot be
predicted.

EWM, established in 2005, is a registered investment advisor under federal Investment Advisors Act of 1940.

8



---



##### 

From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
intermediaries.  Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, the California legislature and
before various bank regulatory and other professional agencies.

Supervision and Regulation

Industrial banking companies are extensively regulated under both federal and
state law. This regulation is intended primarily for the protection of
depositors and the Bank Insurance Fund (BIF) and not for the benefit
of shareholders.  The following information describes certain aspects of
that regulation applicable to the Company and the Bank, and does not purport to
be complete.  The following discussion is qualified in its entirety by
reference to all particular statutory or regulatory provisions.

Regulation and Supervision of The Company

The Company is not under direct oversight by the FDIC or the California
Department of Financial Institutions (DFI).  However, as a part
of their examinations of the Bank, the FDIC and DFI may review the operating
records of the Company as they review affiliated party transactions and to
determine any obligation that the Bank will have to cover the Companys
operating expenses or funding commitments.

Directors, officers and principal shareholders of the Company have had and will
continue to have banking transactions with the Bank in the ordinary course of
business. Any loans and commitments to lend included in such transactions are
made in accordance with applicable law, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of similar creditworthiness, and on
terms not involving more than the normal risks of collection or presenting other
unfavorable features.

The Companys securities are registered with the SEC under the Securities
Exchange Act of 1934, as amended (the Exchange Act). As such, the
Company is subject to the information, proxy solicitation, insider trading and
other requirements and restrictions of the Exchange Act.

Restrictions on Acquisitions

Federal law generally provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control, as that term is defined in FDIC regulations, of a federally
insured institution without giving at least 60 days written notice to the FDIC
and providing the FDIC an opportunity to disapprove the proposed acquisition. In
addition, no company may acquire control of such an institution in California
without prior DFI approval.

Regulation and Supervision of The Bank

The Bank is licensed under the laws of the
State of California and its deposits are insured by FDIC to the extent provided
by law.  The Bank is subject to the supervision of, and is regularly
examined by, comprehensive reviews of all major aspects of the Banks
business and condition. Various requirements and restrictions under the laws of
the State of California and the United States affect the operations of the
Bank.  State and federal statues and regulations relate to many aspects of
the Banks operations, including reserves against deposits, ownership of
deposit accounts, interest rates payable on deposits, loans, investments,
mergers and acquisitions, borrowings, dividends, locations of banking centers
and capital requirements. Furthermore, the Bank is required to maintain certain
levels of capital.   The Bank is also subject to consumer protection
laws.

9



---



##### 

If, as a result of an examination of the Bank, the FDIC or the DFI should
determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity, or other aspects of the Banks
operations are unsatisfactory or that the Bank or its management is violating or
has violated any law or regulation, various remedies are available to those
regulatory agencies.  Such remedies include the power to enjoin
unsafe or unsound practices, to require affirmative action to
correct any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict the growth of the Bank, to assess civil monetary penalties,
to remove officers and directors and ultimately to terminate the Banks
deposit insurance, which for a California chartered bank would result in a
revocation of the Banks charter.

Regulation of Non-banking Affiliates - EWM

EWM is registered with the SEC and is
subject to various regulations and restrictions imposed by those entities, as
well as by various state authorities. Such regulations cover a broad range of
subject matters. Rules and regulations for registered investment advisors
cover such issues as sales and trading practices; use of client funds and
securities; the conduct of directors, officers, and employees; record-keeping
and recording; supervisory procedures to prevent improper trading on material
non-public information; and qualification and licensing of sales
personnel.  The SECs risk assessment rules also apply to EWM as
a registered investment advisor. These rules require a registered
investment advisor to maintain and preserve records and maintain risk management
policies and procedures.  In addition to federal registration, state
securities commissions require the registration of certain investment
advisors.

Violations of federal, state and NASD rules or regulations may result in
the revocation of investment advisor licenses, imposition of censures or fines,
the issuance of cease and desist orders, and the suspension or expulsion of
officers and employees from the securities business firm.

Dividends and Other Transfer of Funds

Dividends from the Bank constitute the principal source of funds to the Company.
The Company is a legal entity separate and distinct from the Bank. The
Companys ability to pay cash dividends is limited by California law such
that shareholders of the Company may receive dividends when and as declared by
the Board of Directors out of funds legally available for such purpose. With
certain exceptions, a California corporation may not pay a dividend to its
shareholders unless (i) its retained earnings equal at least the amount of the
proposed dividend, or (ii) after giving effect to the dividend, the
corporations assets would equal at least 1.25 times its liabilities and,
for corporations with classified balance sheets, the current assets of the
corporation would be at least equal to its current liabilities or, if the
average of the earnings of the corporation before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the interest expense of the corporation for those fiscal years, at least equal
to 1.25 times its current liabilities.

The FDIC and the DFI have authority to prohibit the Bank from engaging in
activities that, in their opinion, constitute unsafe or unsound practices in
conducting its business. It is possible, depending upon the financial condition
of the bank in question and other factors, that the FDIC and DFI could assert
that the payment of dividends or other payments might, under some circumstances,
be an unsafe or unsound practice. Furthermore, the FDIC has established
guidelines with respect to the maintenance of appropriate levels of capital by
banks under its jurisdiction. Compliance with the standards set forth in such
guidelines and the restrictions that are or may be imposed under the prompt
corrective action provisions of federal law could limit the amount of dividends
which the Bank may pay. An insured depository institution is prohibited from
paying management fees to any controlling persons or, with certain limited
exceptions, making capital distributions if after such transaction the
institution would be undercapitalized. The DFI may impose similar limitations on
the Bank.   Under certain circumstances, dividends could be prohibited
under the Trust Preferred Securities.

10



---



##### 

Capital Adequacy

The FDIC has established risk-based minimum capital guidelines with respect to
the maintenance of appropriate levels of capital by United States banking
organizations. These guidelines are intended to provide a measure of capital
that reflects the degree of risk associated with a banking organizations
operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury securities, to
100% for assets with relatively high credit risk, such as commercial
loans.

The federal banking agencies require a minimum ratio of qualifying total capital
to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount of
Tier 1 capital to average assets, referred to as the leverage ratio.  For a
banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio must be 3%.
In addition to these uniform risk-based capital guidelines and leverage ratios
that apply across the industry, the regulators have the discretion to set
individual minimum capital requirements for specific institutions at rates
significantly above minimum guidelines and ratios.  As of December 31, 2006
the Banks ratios exceeded applicable regulatory requirements.

Prompt Corrective Action and Other Enforcement Mechanisms

The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective federal regulatory agencies to
implement systems for prompt corrective action for insured
depository institutions that do not meet minimum capital requirements within
such categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
undercapitalized institution must develop a capital restoration
plan.

An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized, may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or practice warrants such treatment. At each
successive lower capital category, an insured depository institution is subject
to more restrictions.

Banking agencies have also adopted regulations which mandate that regulators
take into consideration (i) concentrations of credit risk; (ii) interest rate
risk (when the interest rate sensitivity of an institutions assets does
not match the sensitivity of its liabilities or its off-balance-sheet position);
and, (iii) risks from non-traditional activities, as well as an
institutions ability to manage those risks, when determining the adequacy
of an institutions capital. This evaluation will be made as a part of the
institutions regular safety and soundness examination.  In addition,
the banking agencies have amended their regulatory capital guidelines to
incorporate a measure for market risk.  In accordance with the amended
guidelines, the Company and any company with significant trading activities must
incorporate a measure for market risk in its regulatory capital
calculations.

In addition to measures taken under the prompt corrective action provisions,
industrial banking organizations may be subject to potential enforcement actions
by the supervising agencies for unsafe or unsound practices in conducting their
businesses for violations of law, rule, regulation or any condition imposed in
writing by the agency or any written agreement with the agency. Enforcement
actions vary commensurate with the severity of the violation.

11



---



##### 

Safety and Soundness Standards

FDICIA imposes certain specific restrictions on transactions and requires
federal banking regulators to adopt overall safety and soundness standards for
depository institutions related to internal control, loan underwriting and
documentation and asset growth.  Among other things, FDICIA limits the
interest rates paid on deposits by undercapitalized institutions, restricts the
use of brokered deposits, limits the aggregate extensions of credit by a
depository institution to an executive officer, director, principal shareholder
or related interest, and reduces deposit insurance coverage for deposits offered
by undercapitalized institutions for deposits by certain employee benefit
accounts.  The federal banking agencies may require an institution to
submit to an acceptable compliance plan as well as have the flexibility to
pursue other more appropriate or effective courses of action given the specific
circumstances and severity of an institutions noncompliance with one or
more standards.

In December 2006, the FRB and FDIC issued joint guidance relating to
institutions concentrations in commercial real estate lending. These
agencies have observed that commercial real estate concentrations have been
rising over the past several years and have reached levels that could create
safety and soundness concerns in the event of a significant economic
downturn.  While these agencies are not establishing a limit on the amount
of commercial real estate lending that an institution may conduct, they have
established a threshold which examiners may use to identify institutions with
potential concentration risk.  Any institution that 1) has experienced
rapid growth in commercial real estate lending, 2) has notable exposure to a
specific type of commercial real estate, or 3) is approaching or exceeds the
supervisory criteria may be identified for further examination.

Premiums for Deposit Insurance and Assessments for Examinations

The Companys deposit accounts are insured by the Bank Insurance Fund
(BIF), as administered by the FDIC, up to the maximum permitted by
law. Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operation, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC or the
institutions primary regulator.

The Banks deposits are insured by the Bank Insurance Fund
(BIF) administered by the FDIC.  Prior to 2006, the FDIC was required
to maintain insurance fund reserves of $1.25 for each $100 of insured deposits.
The FDIC has authority to levy special assessments against insured financial
institutions based upon insured deposits.

On February 8, 2006, President Bush signed into law the Federal Deposit
Insurance Reform Act of 2005 as part of the Deficit Reduction Act of 2005 and
signed a companion bill, the Federal Deposit Insurance Reform Conforming
Amendments Act of 2005, on February 15, 2006. This legislation provides
for:

| |  | merging the   BIF and SAIF deposit insurance funds;                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | annually adjusting the minimum insurance fund reserve ratio between $1.15 and
$1.50 per $100 of insured deposits;                                                                                                                               
| |  | increasing   deposit coverage for retirement accounts to $250,000,                                                                                                                                                                              
| |  | indexing the insurance level for inflation, with any increases approved by the
FDIC and National Credit Union Administration on a five-year cycle beginning in
2010 after review of the state of the deposit insurance fund and related
factors;
| |  | credits of up to $4.7 billion to offset premiums for banks that were members of the FDIC and paid  deposit insurance premiums prior to 1996; and,                                                                                               
| |  | an historical basis concept for distributing credits and dividends to reflect
past contributions to the insurance funds.                                                                                                                        

In the fourth quarter of 2006, the FDIC adopted two final rules implementing the
Federal Deposit Insurance Reform Act of 2005:

| |  | a rule creating  a new system for risk- based assessments and sets
assessment rates beginning January 1, 2007. Assessment rates are three
basis points above the base rates, ranging from 5 to 7 basis for Risk Category I
institutions, 10 basis points for Risk Category II institutions, 28 basis points
for Risk Category III institutions, and 43 basis points for Risk Category IV
institutions; and,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



---



##### 

| |  | a rule  setting  the designated reserve ratio at 1.25 percent. In
October of 2006, FDICs Board adopted a final rule governing the
distribution and use of the $4.7 billion one-time assessment credit and a
temporary final rule that expires at the end of 2009 governing dividends from
the insurance fund.  The Bank had assessment credits of approximately
$70,000 million as of December 31, 2006.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The FDIC is authorized to terminate a depository institutions deposit
insurance upon a finding by the FDIC that the institutions  financial
condition is unsafe or unsound or that the institution has engaged in unsafe or
unsound practices or has violated any applicable rule, regulation, order or
condition enacted or imposed by the institutions regulatory agency. 
The termination of deposit insurance for the Bank would have a material adverse
effect on the Companys condition since it would result in the revocation
of the Banks charter and the cessation of its operations as a going
concern.

Consumer Protection Laws and Regulations

The bank regulatory agencies are focusing greater attention on compliance with
consumer protection laws and their implementing regulations.  Examination
and enforcement have become more intense in nature, and insured institutions
have been advised to monitor carefully compliance with various consumer
protection laws and their implementing regulations.  The Bank is subject to
many federal consumer protection statutes and regulations, including Community
Reinvestment Act, Equal Credit Opportunity Act, Truth in Lending Act, Fair
Housing Act, Home Mortgage Disclosure Act and Real Estate Settlement Procedures
Act.  Penalties under these statutes may include fines, reimbursements and
other penalties.  Due to heightened regulatory concern related to
compliance with these and other statutes generally, the Bank may incur
additional compliance costs.

The Community Reinvestment Act (CRA) and Fair Lending
Developments

The Bank is subject to certain fair lending requirements and reporting
obligations involving lending, investing and other CRA activities. CRA requires
the Company to identify the communities served by the Companys offices and
to identify the types of credit and investments the Company is prepared to
extend within such communities including low and moderate income neighborhoods.
It also requires the Companys regulators to assess the Companys
performance in meeting the credit needs of its community and to take such
assessment into consideration in reviewing application for mergers,
acquisitions, relocation of existing branches, opening of new branches and other
transactions. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA in consideration when
regulating and supervising other banking activities.

A banks compliance with its CRA obligations is determined based on a
performance-based evaluation system which bases CRA ratings on an
institutions lending, service and investment performance. An
unsatisfactory rating may be the basis for denying a merger application. The
Banks latest CRA examination was completed by the FDIC and received an
overall rating of outstanding in complying with its CRA obligations.

Recent and Proposed Legislation

From time to time, legislation is enacted
which has the effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive balance between
banks and other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in the California legislature and
by various bank regulatory agencies.

In November 1999, the Gramm-Leach-Bliley Act of 1999 (the GLB Act)
was enacted. The GLB Act repeals provisions of the Glass-Steagall Act which
restricted the affiliation of Federal Reserve member banks with firms
engaged principally in specified securities activities, and which
restricted officer, director or employee interlocks between a member bank and
any company or person primarily engaged in specified securities
activities.

13



---



##### 

In addition, the GLB Act contains provisions that expressly preempt any state
law restricting the establishment of financial affiliations, primarily related
to insurance.  The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers by revising
and expanding the BHCA framework to permit a holding company to engage in a full
range of financial activities through a new entity known as a financial
holding company. Financial activities is broadly defined to
include not only banking, insurance and securities activities, but also merchant
banking and additional activities that the FRB, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.

The GLB Act provides that no company may acquire control of an insured savings
association unless that company engages, and continues to engage, only in the
financial activities permissible for a financial holding company, unless the
company is grandfathered as a unitary savings and loan holding company. The GLB
Act grandfathers any company that was a unitary savings and loan holding company
on May 4, 1999 or became a unitary savings and loan holding company pursuant to
an application pending on that date.

The GLB Act also permits national banks to engage in expanded activities through
the formation of financial subsidiaries. A national bank may have a subsidiary
engaged in any activity authorized for national banks directly or any financial
activity, except for insurance underwriting, insurance investments, real estate
investment or development, or merchant banking, which may only be conducted
through a subsidiary of a financial holding company. Financial activities
include all activities permitted under new sections of the BHCA or permitted by
regulation.

To the extent that the GLB Act permits banks, securities firms and insurance
companies to affiliate, the financial services industry may experience further
consolidation. The GLB Act is intended to grant to community banks powers as a
matter of right that larger institutions have accumulated on an ad hoc basis and
which unitary savings and loan holding companies already possess. Nevertheless,
the GLB Act may have the result of increasing the amount of competition that the
Company faces from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources than the Company has.

USA PATRIOT Act of 2001

On October 26, 2001, the President signed the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 2001.  The USA PATRIOT Act also made significant changes to
the Bank Secrecy Act.  Under the USA PATRIOT Act, financial institutions
are subject to prohibitions against specified financial transactions and account
relationships as well as enhanced due diligence and of identifying customers
when establishing new relationships and standards in their dealings with foreign
financial institutions and foreign customers. For example, the enhanced due
diligence policies, procedures, and controls generally require financial
institutions to take reasonable steps:

| |  | to conduct enhanced scrutiny of account relationships to guard against money
laundering and report any suspicious transaction;                                                                              
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to ascertain the identity of the nominal and beneficial owners of, and the
source of funds deposited into, each account as needed to guard against money
laundering and report any suspicious transactions; 
| |  | to ascertain for any foreign bank, the shares of which are not publicly traded,
the identity of the owners of the foreign bank, and the nature and extent of the
ownership interest of each such owner; and,
| |  | to ascertain whether any foreign bank provides correspondent accounts to other
foreign banks and, if so, the identity of those foreign banks and related due
diligence information.                         

14



---



##### 

Under the USA PATRIOT Act, financial institutions are to establish anti-money
laundering programs to enhance their Bank Secrecy Act program.  The USA
PATRIOT Act sets forth minimum standards for these programs,
including:

| |  | the development of internal policies, procedures, and controls;
| | - | ---------------------------------------------------------------
| |  | the   designation of a compliance officer;                     
| |  | an ongoing   employee training program; and,                   
| |  | an independent audit function to test the programs.            

Management believes that the Bank is currently in compliance with the
Act.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (SOX), was signed
into law to address corporate and accounting fraud. SOX establishes a new
accounting oversight board that will enforce auditing standards and restricts
the scope of services that accounting firms may provide to their public company
audit clients. Among other things, SOX also (i) requires chief executive
officers and chief financial officers to certify to the accuracy of periodic
reports filed with the SEC; (ii) imposes new disclosure requirements regarding
internal controls, offbalance-sheet transactions, and pro forma (non-GAAP)
disclosures; (iii) accelerates the time frame for reporting of insider
transactions and periodic disclosures by public companies; and, (iv) requires
companies to disclose whether or not they have adopted a code of ethics for
senior financial officers and whether the audit committee includes at least one
audit committee financial expert.

Under SOX, the SEC is required to regularly and systematically review corporate
filings, based on certain enumerated factors.  To deter wrongdoing, SOX:
(i) subjects bonuses issued to top executives to disgorgement if a restatement
of a companys financial statements was due to corporate misconduct; (ii)
prohibits an officer or director from misleading or coercing an auditor; (iii)
prohibits insider trades during pension fund blackout periods; (iv)
imposes new criminal penalties for fraud and other wrongful acts; and, (v)
extends the period during which certain securities fraud lawsuits can be brought
against a company or its officers. As a public reporting company,  the
Company will be required to provide managements report on internal control over
financial reporting beginning with its 2007 Annual Report on Form 10-K.  The auditors attestation report on internal
controls over financial reporting is not required until 2008.  The Company
has adopted a code of ethics (Code of Ethics) that applies to its
executive officers. A copy of the Code of Ethics is filed as an exhibit
hereto.

California Financial Information Privacy Act/Fair Credit Reporting
Act

In 1970, the Federal Fair Credit Reporting Act (the FCRA) was
enacted to insure the confidentiality, accuracy, relevancy and proper
utilization of consumer credit report information.  Under the framework of
the FCRA, the United States has developed a highly advanced and efficient credit
reporting system.  The information contained in that broad system is used
by financial institutions, retailers and other creditors of every size in making
a wide variety of decisions regarding financial transactions.  Employers
and law enforcement agencies have also made wide use of the information
collected and maintained in databases made possible by the FCRA.  The FCRA
affirmatively preempts state law in a number of areas, including the ability of
entities affiliated by common ownership to share and exchange information
freely, and the requirements on credit bureaus to reinvestigate the contents of
reports in response to consumer complaints, among others.

The California Financial Information Privacy Act, which was enacted in 2003,
requires a financial institution to provide specific information to a consumer
related to the sharing of that consumers nonpublic personal
information.  The Act  would allow a consumer to direct the financial
institution not to share his or her nonpublic personal information with
affiliated or nonaffiliated companies with which a financial institution has
contracted to provide financial products and services, and would require that
permission from each such consumer be acquired by a financial institution prior
to sharing such information.  These provisions are much more restrictive
than the privacy provisions of the Financial Services Modernization
Act.

15



---



##### 

Congress enacted the FACT Act, (Fair and Accurate Credit Transaction
Act) of 2003, which has the effect of avoiding the sunset preemption
provision of the Fair Credit Reporting Act (FCRA) that were due to expire on
December 31, 2003.  The President signed the FACT Act into law on December
4, 2003.  In general, the FACT Act amends the FCRA and, in addition,
provides that, when the implementing regulations have been issued and become
effective, the FACT Act preempts elements of the California Financial
Information Privacy Act. A series of regulations and announcements were
promulgated during 2004, including a joint FTC/Federal Reserve announcement of
effective dates for FCRA amendments, the FTCs Free Credit
Report rule, revisions to the FTCs FACT Act Rules, the FTCs
final rules on identity theft and proof of identity, the FTCs final
regulation on consumer information and records disposal, and the FTCs
final summaries and notices.  On January 24, 2005, the FTC issued a final
rule on prescreen notices.

Check 21 Act

The Check Clearing for the 21st Century Act (Check 21 Act
or the Act), enacted in late 2003, became effective on
October 28, 2004.  The Act creates a new negotiable instrument, called
a substitute check, which banks are required to accept as the legal
equivalent of a paper check if it meets the requirements of the Act.  The
Act is designed to facilitate check truncation, to foster innovation in the
check payment system, and to improve the payment system by shortening processing
times and reducing the volume of paper checks.

Regulation W

Transactions between a bank and its affiliates are governed by
Sections 23A and 23B of the Federal Reserve Act. The Federal Deposit Insurance
Act applies Sections 23A and 23B to insured nonmember banks in the same manner
and to the same extent as if they were members of the Federal Reserve
System.  The FRB has also recently issued Regulation W, which codifies
prior regulations under Sections 23A and 23B of the Federal Reserve Act and
provides interpretative guidance with respect to affiliate transactions. 
Affiliates of a bank include, among other entities, the banks holding
company and companies that are under common control with the bank.  The
Company is considered to be an affiliate of the Bank.  In general, subject
to certain specified exemptions, a bank or its subsidiaries are limited in their
abilities to engage in covered transactions with affiliates:

| |  | to an amount equal to 10% of the banks capital and surplus, in the case of
covered transactions with any one affiliate; and,
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | to an amount equal to 20% of the banks capital and surplus, in the case of
covered transactions with all affiliates.        

In addition, a bank and its subsidiaries may engage in certain transactions only
on terms and under circumstances that are substantially the same, or at least as
favorable to the bank or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies.

ITEM 1A  RISK FACTORS

Readers and prospective investors in the Companys securities should
carefully consider the following risk factors as well as the other information
contained or incorporated by reference in this report.

The risks and uncertainties described below are not the only ones facing the
Company.  Additional risks and uncertainties that management is not aware
of or focused on or that management currently deems immaterial may also impair
the Companys business operations.  This report is qualified in its
entirety by these risk factors.

16



---



##### 

If any of the following risks actually occur, the Companys financial
condition and results of operations could be materially and adversely
affected.  If this were to happen, the value of the Companys
securities could decline significantly, and investors could lose all or part of
their investment in the Companys common stock.

The Companys inability to execute its business strategy could adversely
affect its financial performance.

The Companys financial performance and profitability depends, in large
part, on its ability to favorably execute its business strategy in converting to
a private banking focused financial services firm offering business, high net
worth and community banking and investment management.  This evolution
entails risks in, among other areas, technology implementation, market
segmentation, brand identification, banking and investment management
operations, and capital and human resource investments. Accordingly, there can
be no assurance that the Company will be successful in its business
strategy.

The Companys new business locations could adversely affect its
financial performance.

The Company opened one new branch in 2006, created a new subsidiary offering
registered investment advisory services in January 2005, opened two new
loan production centers outside of Marin County in 2005 and expects to open
additional branches and loan production centers in the near future.  These
new business operations involve up front investments in personnel, facilities,
and technology. Earnings could suffer if these new business segments do not
produce the planned level of revenue. In addition, establishing these new
operations has consumed a significant amount of managements time, and
business activities in other areas of the Company could suffer as a
result.

There is strong competition in the Companys market area and the Company
may be unable to increase its market share.

The Company faces substantial competition for deposits and loans throughout its
market area, and expects to face substantial competition for its other
contemplated products and services. Competition for deposits comes primarily
from 21 other financial institutions that control 95.5% of the market share in
Marin County. These institutions include 8 national banks, 8 regional banks, and
5 community banks, and most of these competitors have greater resources than
does the Company. Competition for loans comes from other commercial banks,
savings institutions, mortgage banking firms, credit unions, and other financial
intermediaries, as well as out-of-state financial intermediaries which have
opened low-end production offices or which solicit deposits in the
Companys market areas.  Additionally, banks and other financial
institutions with larger capitalization and financial intermediaries have larger
lending limits and as a result are able to serve the credit and investment needs
of larger customers.

The Company relies, in part, on external financing to fund its operations and
the unavailability of such funds in the future could adversely affect its growth
strategy and prospects.

The Company relies on customer deposits and on advances from the Federal Home
Loan Bank of San Francisco (FHLB), to fund its operations. The
Company has historically utilized certificates of deposit obtained out of its
market area. As of December 31, 2006, the Company had $86.3 million in FHLB
borrowings, $13.1 million of brokered certificates of deposit, and $28.4 million
of non-brokered wholesale certificates of deposit. While the Company has been
successful in promoting its money market deposit product, brokered and
non-brokered wholesale deposits nevertheless constituted 21.5% of total deposits
as of December 31, 2006 as compared to 16.7% for the same period prior
year. Although management has historically been able to replace such deposits on
maturity if desired, no assurance can be given that the Company would be able to
replace such funds at any given point in time, were its financial condition or
market conditions to change.

17



---



##### 

The Companys investment portfolio includes securities which are
sensitive to interest rates and variations in interest rates may adversely
affect its profitability.

At December 31, 2006, the Companys securities portfolio totaled $48.3
million, of which $26.5 million was classified as available-for-sale and $21.8
million was classified as held-to-maturity, and was comprised of mortgage-backed
securities, U.S. agency securities and collateralized mortgage
obligations.  These securities amounted to 9.6% of total assets and are
sensitive to interest rate fluctuations. The unrealized gains or losses in the
Companys available-for-sale portfolio are reported as a separate component
of shareholders equity until realized upon sale. As a result, future
interest rate fluctuations may affect shareholders equity, causing
material fluctuations from quarter to quarter. Failure to hold these securities
until maturity or until market conditions are favorable for a sale could
adversely affect the Companys financial condition, profitability and
prospects.

The Company may have difficulty managing its growth, which may divert
resources and limit its ability to successfully expand its
operations.

The Company has grown substantially from $109.0 million in total assets and
$99.4 million in total deposits at December 31, 2000 to $503.5 million in
total assets and $369.8 million in total deposits at December 31, 2006. The
Company has expanded the number of full service branches from one as of
December 31, 2001 to seven as of December 31, 2006.  The Company
expects to continue to experience significant growth in the amount of its
assets, the level of its deposits, the number of its clients and the scale of
its operations. The Companys future profitability will depend in part on
its continued ability to grow and the Company can give no assurance that it will
be able to sustain its historical growth rate or even be able to grow at
all.

Deterioration of local economic conditions could hurt the Companys
profitability.

The Companys operations are located in Northern California and its lending
activities are concentrated in San Francisco, Marin, Alameda, Contra Costa,
Santa Clara, Sonoma and San Mateo counties.  Retail deposit generation is
generally limited to Marin County. Although the Company has diversified its loan
portfolio into other California counties, the vast majority of its credits
remain concentrated in the eight primary counties. As a result of this
geographic concentration, the Companys results depend largely upon
economic and real estate market conditions in these areas. A deterioration in
economic or real estate market conditions in the Companys primary market
area could have a material adverse affect on the quality of its loan portfolio,
the demand for its products and services, and its financial condition and
results of operations.

Deterioration of real estate market could hurt the Companys and the
Banks performance.

At December 31, 2006, approximately 93.6% of  the Banks loans were
secured by real estate.  The ability of the Bank to continue to originate
real estate secured loans may be impaired by adverse changes  in local and
regional economic conditions in the real estate market, increasing interest
rates, or by acts of nature, including earthquakes and flooding. Due to the
concentration of real estate collateral, these events could have a material
adverse impact on the value of the collateral resulting in losses to the
Bank.

Environmental liability associated with commercial lending could result in
losses.

In the course of business, the Company has acquired, and  the Company may
in the future acquire, through foreclosure, properties securing loans they have
originated or purchased which are in default.  In commercial real estate
lending, there is a risk that hazardous substances could be discovered on these
properties.  In this event, an affected bank  might be required to
remove these substances from the affected properties at its sole cost and
expense.  The cost of this removal could substantially exceed the value of
affected properties.  The Company or the Bank, as the case may be, may not
have adequate remedies against the prior owner or other responsible parties or
could find it difficult or impossible to sell the affected properties. This
could have a material adverse effect on the Companys and the Banks
business, financial condition and operating results.

18



---



##### 

The Companys business is subject to various lending risks which could
adversely impact its results of operations and financial condition.

The Company originates a wide variety of loan products. Loans originated by the
Company are subject to federal and state law and regulations. Interest rates
charged by the Company on loans are affected by the demand for such loans and
the supply of money available for lending purposes and the rates offered by
competitors. These factors are, in turn, affected by, among other things,
economic conditions, monetary policies of the federal government, including the
FRB, and legislative tax policies. The Company targets certain lending toward
low to moderate income borrowers as part of its commitment to serve its local
communities.

Multifamily Residential Real Estate Loans

The Companys multifamily loans are subject to collateral risk similar to
other real estate secured products.  While the Banks primary lending
markets have experienced strong demand for affordable housing, valuations have
increased significantly over the past several years and could be negatively
impacted by a decrease in investor demand.  The Company seeks to minimize
risks through its underwriting policies, which require such loans to be
qualified at origination in adherence with the Companys underwriting
guidelines.  The Company also attempts to limit its risk exposure by
requiring annual operating statements on the properties and by acquiring
personal guarantees from the borrowers.  At December 31, 2006, 28.5% of the
Companys total loan portfolio consisted of multifamily residential real
estate loans as compared to 32.0% of its total loan portfolio at December 31,
2005.

Commercial and Industrial Real Estate Loans

The Bank originates commercial real estate loans for individuals and businesses
for various purposes and are located primarily in the San Francisco Bay Area and
secured by commercial real estate.  At December 31, 2006,  52.2% of
the Companys total loan portfolio consisted of commercial real estate
loans as compared to 47.4% of its total loan portfolio at December 31,
2005.

The Companys commercial real estate loans involve higher principal amounts
than other loans.  Because payments on loans secured by commercial real
estate properties are often dependent on successful operation or management of
the properties, repayment of these loans may be significantly subject to adverse
conditions in the properties management or real estate markets in general
or particular to a subject property. The Company seeks to mitigate these risks
through its underwriting standards and credit review policy, which requires
annual operating statements for each collateral property. The Company also
participates larger commercial and industrial real estate loans with other
financial institutions as a means of diversifying its credit risk and remaining
below the Banks regulatory limit on loans to one borrower.

Banking regulators have recently issued proposed guidance regarding institutions
that have particularly high concentrations of commercial real estate within
their lending portfolios.  This guidance suggests that institutions that
exceed certain levels of commercial real estate lending may be required, in the
future, to maintain higher capital ratios than institutions with lower
concentrations in commercial real estate lending.  At December 31, 2006,
the Banks commercial real estate level exceeded the threshold for such
concentrations.  If and when this proposed guidance becomes final, the
Company may be subject to enhanced regulatory scrutiny and subject to higher
capital requirements.

Construction Real Estate Loans

The Bank originates construction loans for the acquisition and development of
1-4 unit residential, multifamily, and commercial property.  At December
31, 2006, 11.4% of the Companys total loan portfolio consisted of
construction real estate loans of which there were undisbursed loan funds of
$14.6 million.  At December 31, 2005, the Company had gross construction
loans totaled 5.9% of the Companys total loan portfolio, on which there
were undisbursed loan funds of $12.9 million.

19



---



##### 

Construction financing is generally considered to involve a higher degree of
risk than long-term financing on improved, occupied real estate. The
Companys risk of loss on construction loans depends largely upon the
accuracy of the initial estimate of the propertys value based on the
completion of construction or development and the estimated cost (including
interest) of construction. If the estimate of construction costs proves to be
inaccurate, the Company may have to advance funds beyond the amount originally
committed to permit completion of the development and to protect its security
position. The Company may also be confronted, at or prior to maturity of the
loan, with a project with insufficient value to ensure full repayment. The
Companys underwriting, monitoring, and disbursement practices with respect
to construction financing are intended to ensure that sufficient funds are
available to complete construction projects. The Company attempts to limit its
risk through its underwriting procedures, by using only approved, qualified
appraisers, and by dealing with qualified builders / borrowers. The Company also
participates in larger construction loans with other financial institutions as a
means of diversifying its credit risk and remaining below the Banks
regulatory limit on loans to one borrower.

Land Loans

The Company offers loans secured by land, generally throughout the San Francisco
Bay Area. The types of land generally considered by the Company are suitable for
residential, multifamily, or commercial development or are demarcated
residential lots.  Because land and lots are generally less readily
marketable than residential, multifamily, and commercial real estate, lending on
land presents additional risks not present in other real estate loans. The
market value of land and lots can be more susceptible to changes in interest
rates, economic conditions, or local real estate markets than the market value
for homes. Zoning changes by various government authorities may also affect the
value and marketability of certain types of land. To mitigate these risks, the
Company generally restricts total land loans to 100% of its tier 1 capital and
the Companys underwriting procedures provide that land loans be made in
amounts up to 65% of the appraised value of the property.  At
December 31, 2006, the Companys land loan portfolio totaled 2.0% of
the Companys total loan portfolio as compared to 2.6% of the
Companys total loan portfolio as of December 31, 2005.

Business Loans

The Company offers business loans that are either uncollateralized or
collateralized by business assets or commercial or residential real estate. Most
often, this collateral consists of accounts receivable, inventory or
equipment.  Business lending is generally considered to involve a higher
degree of risk than the financing of real estate, primarily because the
collateral may be difficult to obtain or liquidate following an uncured default.
Business loans typically offer relatively higher yields, shorter maturities, and
variable interest rates.  The Company attempts to reduce the risk of loss
associated with business lending by closely monitoring the financial condition
and performance of its customers.  At December 31, 2006, the Company
had disbursed business loans and lines totaled 5.6% of the Companys total
loan portfolio as compared to 6.4% of the Companys total loan portfolio as
of December 31, 2005.

Consumer Loans

The Company offers consumer loans that are either uncollateralized or
collateralized by personal assets or commercial or personal real estate.
Collateral typically consists of common stock, other securities, or deposits.
Consumer lending is generally considered to involve a higher degree of risk than
the financing of real estate, primarily because security interests in the
collateral are more difficult to perfect and the collateral may be difficult to
obtain or liquidate following an uncured default. Consumer loans typically offer
relatively higher yields, shorter maturities, and variable interest rates. The
Company attempts to reduce the risk of loss associated with consumer lending
through prudent underwriting and periodic financial review of its borrowers. At
December 31, 2006, the Company had disbursed consumer loans and lines
totaled .59% of the Companys total loan portfolio as compared to .73% of
the Companys total loan portfolio as of December 31, 2005.

Small Business Administration (SBA) Loans

In 2004, the Company began its SBA lending division to expand on its commercial
and business banking product lines and in 2005, the Company got approved for the
Preferred Lender Program by the SBA.  The status is awarded to only a
limited number of financial institutions which allows the Company to streamline
the processes involved in securing financial assistance for small
businesses.  The federal government guarantees SBA loans as an incentive
for financial institutions to make loans to small businesses.  In 2006, the
Bank funded $44.1 million, or 10.3% of the Companys total loan portfolio
as compared to $19.4 million, or 5.1% of the Companys total loan portfolio
as of December 31, 2005.

20



---



##### 

The Bank, depending on its current asset/liability strategy, may sell the
guaranteed portion of the SBA loans which are approximately 75% to 85% of the
originated balance at a premium sale price between 108% and 110% and servicing
margins of between 1.00% and 1.8%.   In 2006, the Bank sold $7.8
million of SBA loans, resulting in a gain on sale and broker fee income of
$792,000 and in 2005 the Bank sold $7.2 million of SBA loans, resulting in a
gain on sale and broker fee income of $581,000.  Because both the volume of
sales and the amount of gain recognized on loan sales is subject to market
conditions, there is a risk that the Bank may not be able to generate
significant gain on sale income in the future.

Originations, Purchases, and Sales of Loans

The Companys mortgage lending activities are conducted primarily through
its branch offices and through its list of approved wholesale loan brokers who
deliver completed loan applications to the Company. In addition, the Company has
developed correspondent relationships with a number of financial institutions to
facilitate the origination of real estate loans on a participation basis. Loans
presented to the Company for purchase or participation are generally
underwritten substantially in accordance with the Companys established
lending standards, which consider the financial condition of the borrower, the
location of the underlying property, and the appraised value of the property,
among other factors.

On an ongoing basis, depending on its current asset/liability strategy, the
Company may sell or participate residential, multifamily, and commercial loans
to other financial institutions in the secondary market. Loan sales are
dependent on the level of loan originations and the relative customer demand for
mortgage loans, which is affected by the current and expected future level of
interest rates.  The level and timing of any future loan sales will depend
upon market opportunities and prevailing interest rates.

Because both the volume of sales and the amount of gain recognized on loan sales
is subject to market conditions, there are risks inherent in relying on loan
sales as a source of income and balance sheet management. In general, it is more
difficult to sell loans, and the gain on sale of loans is lower, when interest
rates rise. The Company is exposed to risks to its capital, liquidity, and
earnings if loan sales fail to materialize or if the gain on sale of loans is
lower than specified in the Companys business strategy. To mitigate these
risks, the Company generally would sell adjustable rate mortgages whose prices
are less susceptible to changes in interest rates.

In 2006 loan originations totaled $168.4 million.  Loans and participations
sold in 2006 totaled $7.8 million and consisted of government guaranteed SBA
loans.  During the second quarter of 2006, the Company purchased $16.6
million of participation construction loans and during the third quarter of
2006, the Company purchased a $4.0 million construction loan.  Loans and
participations sold in 2005 totaled $7.6 million and consisted of $.4 million in
construction loans and $7.2 million in government guaranteed SBA
loans.

Loan Servicing

The Company services its own loans as well as loans owned by others. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, contacting delinquent borrowers, and supervising
foreclosures and property dispositions in the event of unremedied defaults. Loan
servicing income includes servicing fees from investors and certain charges
collected from borrowers, such as late payment fees. At December 31, 2006
and 2005, the Company was servicing $29.0 million and $20.7 million of loans for
others, respectively. The Companys strategic plan does not contain a
significant expansion in its loan servicing for others, with the exception of
government guaranteed SBA loans, as management believes that it is more
advantageous to retain the underlying loan assets on its balance sheet to
generate ongoing net interest income rather than selling or participating the
loans and receiving a one time gain on sale.

21



---



##### 

Loan losses could hurt the Companys operating results.

A significant source of risk arises from the possibility that losses could be
sustained because borrowers, guarantors, and related parties may fail to perform
in accordance with the terms of their loans. The Company adopted underwriting
and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for loan losses that management
believes are appropriate to control this risk by assessing the likelihood of
non-performance, tracking loan performance, and diversifying the credit
portfolio. These policies and procedures may not, however, prevent unexpected
losses that could have a material adverse effect on the Companys financial
condition or results of operations. Unexpected losses may arise from a wide
variety of specific or systemic factors, many of which are beyond the
Companys ability to predict, influence, or control.

At December 31, 2006, the Companys allowance for loan losses as a
percentage of gross loans was 1.10%.  Regulatory agencies, as an integral
part of their examination process, review the Companys loans and allowance
for loan losses.  Although management believes the Companys loan loss
allowance is adequate to absorb probable losses in its loan portfolio,
management cannot predict these losses or whether the allowance will be adequate
or that regulators will not require the Company to increase this
allowance.  Any of these occurrences could materially and adversely affect
its business, financial condition, prospects and profitability.

The Company relies heavily on technology and computer systems and computer
failure could result in loss of business and adversely affect its
earnings.

Advances and changes in technology could significantly affect the Companys
business and operations. The Company may face many challenges including the
increased demand for providing computer access to its accounts and the systems
to perform banking transactions electronically. The Companys ability to
compete depends on its ability to continue to adapt technology on a timely and
cost-effective basis to meet these demands. In addition, the Companys
business and operations are susceptible to negative affects from computer system
failures, communication and energy disruption, and unethical individuals with
the technological ability to cause disruptions or failures of the Companys
data processing systems.

Breach of information security and technology dependence could have a
material adverse effect on the Companys business, financial condition,
results of operations or liquidity.

Despite instituted safeguards, the Company cannot be certain that all of its
systems are entirely free from vulnerability to attack or other technological
difficulties or failures.  The Company relies on the services of a variety
of vendors to meet its data processing and communication needs.  If
information security is breached or other technology difficulties or failures
occur, information may be lost or misappropriated, services and operations may
be interrupted and the Company could be exposed to claims from customers. 
Any of these results could have a material adverse effect on the Companys
business, financial condition, results of operations or liquidity.

The Companys business strategy relies upon its Chief Executive Officer
and other key employees.

The Company is dependent upon the services of Mark Garwood, who serves as
President and Chief Executive Officer of the Company and Michael Moulton, who
serves as Chief Financial Officer of the Company, and on the services of other
senior officers retained by the Company. The loss of the services of
Mr. Garwood, Mr. Moulton or other key employees could have a material
adverse effect on the Companys operations.

The Companys ability to service its debt, pay dividends, and otherwise
pay its obligations as they come due is substantially dependent on capital
distributions from the Bank, and these distributions are subject to regulatory
limits and other restrictions.

A substantial source of the Companys funds from which it services its debt
and pays its obligations and dividends is the receipt of dividends from the
Bank. The availability of dividends from the Bank is limited by various statutes
and regulations. It is possible, depending upon the financial condition of the
Bank, and other factors, that the applicable regulatory authorities could assert
that payment of dividends or other payments, including payments to the Company,
is an unsafe or unsound practice. In the event the Bank is unable to pay
dividends to the Company, the Company may not be able to service its debt, pay
its obligations or pay dividends on its outstanding common stock. The inability
to receive dividends from the Bank would adversely affect the Companys
business, financial condition, results of operations and prospects.

22



---



##### 

The Company is subject to extensive regulation which could adversely affect
its business.

The Companys operations are subject to extensive regulation by federal,
state and local governmental authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and restrictions on
part or all of its operations. The Company believes that it is in substantial
compliance in all material respects with applicable federal, state and local
laws, rules and regulations. Because the Companys business is highly
regulated, the laws, rules and regulations applicable to it are subject to
regular modification and change. There are currently proposed various laws,
rules and regulations that, if adopted, would impact the Companys
operations. If these or any other laws, rules or regulations are adopted in
the future, they could make compliance much more difficult or expensive,
restrict the Companys ability to originate or sell loans, further limit or
restrict the amount of commissions, interest or other charges earned on loans
originated or sold by the Company or otherwise materially and adversely affect
its business, financial condition, prospects or profitability.

Natural Disasters

A natural disaster, such as an earthquake or flood, could affect the
Companys loan portfolio by damaging properties pledged as collateral and
by impairing the ability of certain borrowers to repay their loans.  The
ultimate impact of a natural disaster on the Companys future financial
results and condition is difficult to predict and will be affected by a number
of factors, including the extent of damage to the collateral, the extent to
which damaged collateral is not covered by insurance, the extent to which
unemployment and other economic conditions caused by the natural disaster
adversely affect the ability of borrowers to repay their loans, and the cost to
the Company of collection and foreclosure.

Deterioration of bond and equity markets could hurt EWMs
profitability.

Volatility or significant changes in the equity and bond markets could adversely
affect EWMs financial condition, profitability and growth prospects. 
Such deterioration could prevent EWM from growing its client base or retaining
clients at current levels.

ITEM 1B  UNRESOLVED STAFF COMMENTS

None.

ITEM 2  PROPERTIES

The following table sets forth
information relating to each of the Companys offices as of
December 31, 2006:

23



---



##### 

|                                            |  | Leased   Or   Owned |        | Original Date   Leased or   Acquired |  | Date of   Lease   Expiration |  | Square   Footage |           
|------------------------------------------- |  | ------------------- | ------ | ------------------------------------ |  | ---------------------------- |  | ---------------- | ----------
|                                            |  |                     |        |                                      |  |                              |  |                  |           
|Administrative Offices:                     |  |                     | Leased |                                      |  | 6/1/2005                     |  |                  | 6/1/2015  
|630 Las   Gallinas Ave.                     |  |                     |        |                                      |  |                              |  |                  |           
|San Rafael,   California  94903             |  |                     |        |                                      |  |                              |  |                  |           
|Epic Bancorp                                |  |                     | Leased |                                      |  | 3/1/2005                     |  |                  | 10/31/2007
|851 Irwin   St., Suite 301                  |  |                     |        |                                      |  |                              |  |                  |           
|San Rafael,   California  94901             |  |                     |        |                                      |  |                              |  |                  |           
|Full Service Branch Offices Currently Open: |  |                     | Leased |                                      |  | 8/18/1998                    |  |                  | 8/31/2008 
|851 Irwin   St., Suite 100                  |  |                     |        |                                      |  |                              |  |                  |           
|San Rafael,   California  94901             |  |                     |        |                                      |  |                              |  |                  |           
|453-455   Miller Ave.                       |  |                     | Leased |                                      |  | 5/1/2002                     |  |                  | 4/31/2012 
|Mill Valley,   California  94941            |  |                     |        |                                      |  |                              |  |                  |           
|575 Sir   Francis Drake Blvd.               |  |                     | Leased |                                      |  | 7/23/2002                    |  |                  | 7/31/2012 
|Greenbrae,   California  94904              |  |                     |        |                                      |  |                              |  |                  |           
|100 Sir   Francis Drake Blvd.               |  |                     | Leased |                                      |  | 11/15/2002                   |  |                  | 11/15/2017
|San Anselmo,   California  94960            |  |                     |        |                                      |  |                              |  |                  |           
|630 Las   Gallinas Ave., Suite 100          |  |                     | Leased |                                      |  | 6/1/2005                     |  |                  | 6/1/2015  
|San Rafael,   California  94903             |  |                     |        |                                      |  |                              |  |                  |           
|71 Casa   Buena Drive                       |  |                     | Leased |                                      |  | 12/29/2003                   |  |                  | 12/29/2013
|Corte   Madera, California  94925           |  |                     |        |                                      |  |                              |  |                  |           
|1650 Tiburon   Boulevard                    |  |                     | Leased |                                      |  | 8/15/2005                    |  |                  | 8/15/2015 
|Tiburon,   California  94920                |  |                     |        |                                      |  |                              |  |                  |           
|Loan Production Office:                     |  |                     | Leased |                                      |  | 12/13/2005                   |  |                  | 7/31/2007 
|740 4th   Street                            |  |                     |        |                                      |  |                              |  |                  |           
|Santa Rosa,   California  95404             |  |                     |        |                                      |  |                              |  |                  |           
|Epic Wealth Management:                     |  |                     | Leased |                                      |  | 11/1/2002                    |  |                  | 10/31/2007
|851 Irwin   St., Suite 301                  |  |                     |        |                                      |  |                              |  |                  |           
|San Rafael,   California  94901             |  |                     |        |                                      |  |                              |  |                  |           
|Stand Alone ATM Machines:                   |  |                     | Leased |                                      |  | 5/29/2003                    |  |                  | 5/29/2009 
|735 College   Ave.                          |  |                     |        |                                      |  |                              |  |                  |           
|Kentfield,   California  94904              |  |                     |        |                                      |  |                              |  |                  |           
|100 Redhill   Boulevard                     |  |                     | Leased |                                      |  | 9/12/2005                    |  |                  | 9/12/2008 
|San Anselmo,   California  94960            |  |                     |        |                                      |  |                              |  |                  |           

Management believes that its existing facilities are adequate for its present
needs and that the Companys insurance coverage on its properties and
tenant improvements are adequate.

24



---



##### 

ITEM 3  LEGAL PROCEEDINGS

The Company is not a defendant in any material pending legal proceedings and no
such proceedings are known to be contemplated. No director, officer, affiliate,
more than 5% shareholder of the Company or any associate of these persons is a
party adverse to the Company or has a material interest adverse to the Company
in any material legal proceeding.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS

No matter was submitted during the fourth quarter of the fiscal year covered by
this Annual Report to a vote of security holders, through the solicitation of
proxies or otherwise.

PART II

ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY RELATED SHAREHOLDER
MATTERS AND ISSUERS PURCHASE OF EQUITY SECURITIES

The Companys common stock trades on the NASDAQ Capital Market System under
the symbol EPIK.

At February 28, 2007, 3,968,853 shares of the Companys common stock, no
par value, which reflects the 7% stock dividend declared on January 30, 2007,
were outstanding and held by 672 holders of record.  The following table
sets forth, for the periods indicated, the range of high and low trade prices of
the Companys common stock.  The Companys closing price on
December 31, 2006 was $13.55, compared to the closing price one year earlier of
$15.86.

|               |  | Sales Price of   Common Stock |      
|-------------- |  | ----------------------------- | -----
|               |  |                               |      
|               |  | High                          |      
|               |  |                               |      
|2006           |  |                               |      
|First Quarter  |  | $                             | 15.86
|Second Quarter |  |                               | 14.39
|Third Quarter  |  |                               | 14.02
|Fourth Quarter |  |                               | 13.79
|2005           |  |                               |      
|First Quarter  |  | $                             | 14.50
|Second Quarter |  |                               | 14.95
|Third Quarter  |  |                               | 16.65
|Fourth Quarter |  |                               | 16.30

Stock Price Performance

The following graph compares the Companys stock price performance in each
of the years in the five year period ended December 31, 2006 with that of (i),
companies in the Nasdaq Composite Index, which measures all NASDAQ domestic and
international based common type stocks listed on the NASDAQ Stock Market and
(ii) companies included in an index, published by SNL Securities L.C., which is
made up of banks and bank holding companies which shares are traded on the
NASDAQ Stock Market.

25



---



##### 

Message

Dividends

The shareholders of the Company will be entitled to receive dividends when and
as declared by its Board of Directors, out of funds legally available, subject
to the dividend preference, if any, on preferred shares that may be outstanding
and also subject to the restrictions of the California General Corporation
Law.  There are no preferred shares outstanding at this time.  See
Supervision and Regulation  Dividends and Other Transfer of
Funds.

The Company initiated a cash dividend program in 2004. The Company paid four
cash dividends of $0.04 per share in 2006.  In 2005, the Company paid four
cash dividends of $0.03 per share and paid four cash dividends of $0.025 per
share in 2004. It is anticipated that cash dividends will be declared on a
quarterly basis in the future.

The Company also declared a 7% stock dividend to be paid on Feburary 14, 2007 to
shareholders of record on January 31, 2007.

The Board of Directors of the Bank adopted the 1997 Incentive Stock Option
Plan.  More information regarding activity occurring in the Banks
equity compensation plan is contained in the Companys 2007 Proxy
Statement.  The table below summarizes the Corporations Equity
Compensation Plans.

26



---



##### 

|                                                             |  | Number of securities to be issued upon exercise of
outstanding options, warrants, and rights (a) |         | Weighted- average exercise price of outstanding options,
warrants and rights (b) |  | Number of securities remaining available for future issuance
under equity compensation plans (excluding securities reflecting
in column (a) (c) | 
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------ | ------- | -------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                             |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 
|Plan Category                                                |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 
|Equity   compensation plans approved by security holders:    |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 
|1997 Incentive Stock Option Plan                             |  |                                                                                                  | 377,631 |                                                                                  |  | 10.99                                                                                                                                           | 
|2006 Incentive Stock Option Plan                             |  |                                                                                                  | 32,630  |                                                                                  |  | 12.62                                                                                                                                           | 
|2003 Non-Employee Directors Stock Option Plan               |  |                                                                                                  | 100,473 |                                                                                  |  | 12.12                                                                                                                                           | 
|                                                             |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 
|Equity   compensation plans not approved by security holders |  |                                                                                                  |        |                                                                                  |  |                                                                                                                                                | 
|                                                             |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 
|Total                                                        |  |                                                                                                  | 510,733 |                                                                                  |  | 11.36                                                                                                                                           | 
|                                                             |  |                                                                                                  |         |                                                                                  |  |                                                                                                                                                 | 

ITEM 6  SELECTED FINANCIAL DATA

The following table sets forth the results of operations as of December 31,
2006, 2005, 2004, 2003 and 2002.  This information should be read in
conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations included herein and the consolidated
financial statements and notes thereto included herein.

27



---



##### 

|At or For the Year Ended December 31,                |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|---------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | - | ---- | --------- | ---- | - | --------- | - | - | --------- | -
|(Dollars in thousands)                               |  | 2006 |           | 2005 |   | 2004      |   | 2003 |           | 2002 |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Financial Condition Data:                            |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Total assets                                         |  | $    | 503,514   |      | $ | 461,839   |   | $    | 425,610   |      | $ | 301,961   |   | $ | 268,133   |  
|Available-for-sale   securities                      |  |      | 26,516    |      |   | 15,118    |   |      | 22,040    |      |   |          |   |   | 37,657    |  
|Held-to-maturity   securities                        |  |      | 21,823    |      |   | 28,844    |   |      | 40,851    |      |   | 18,907    |   |   | 35,628    |  
|Federal Home   Loan Bank restricted stock            |  |      | 5,892     |      |   | 6,198     |   |      | 6,934     |      |   | 3,609     |   |   | 4,333     |  
|Pacific   Coast Bankers Bank restricted stock       |  |      | 50        |      |   | 50        |   |      | 50        |      |   | 50        |   |   | 50        |  
|Loans   receivable, net of allowance for loan losses |  |      | 421,335   |      |   | 382,424   |   |      | 325,651   |      |   | 246,418   |   |   | 174,947   |  
|Deposits                                             |  |      | 369,805   |      |   | 313,399   |   |      | 274,620   |      |   | 211,626   |   |   | 175,904   |  
|Federal Home   Loan Bank advances                    |  |      | 86,251    |      |   | 107,812   |   |      | 115,781   |      |   | 65,101    |   |   | 69,869    |  
|Junior   Subordinated Debentures                     |  |      | 13,403    |      |   | 10,310    |   |      | 10,310    |      |   | 10,310    |   |   | 10,310    |  
|Other   borrowings                                   |  |      | 3,175     |      |   |          |   |      |          |      |   |          |   |   |          |  
|Total   stockholders equity                         |  |      | 30,881    |      |   | 26,845    |   |      | 23,175    |      |   | 13,874    |   |   | 11,014    |  
|Statement of Operations Data:                        |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Interest   income                                    |  | $    | 35,815    |      | $ | 28,724    |   | $    | 21,602    |      | $ | 17,451    |   | $ | 13,187    |  
|Interest   expense                                   |  |      | 18,185    |      |   | 11,728    |   |      | 7,602     |      |   | 6,303     |   |   | 5,410     |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Net interest   income                                |  |      | 17,630    |      |   | 16,996    |   |      | 14,000    |      |   | 11,148    |   |   | 7,777     |  
|Provision   for loan losses                          |  |      | 439       |      |   | 632       |   |      | 874       |      |   | 784       |   |   | 597       |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Net interest income after provision for loan losses  |  |      | 17,191    |      |   | 16,364    |   |      | 13,126    |      |   | 10,364    |   |   | 7,180     |  
|Noninterest   income                                 |  |      | 2,176     |      |   | 1,634     |   |      | 814       |      |   | 560       |   |   | 1,028     |  
|Noninterest   expenses (4)                           |  |      | 13,036    |      |   | 11,262    |   |      | 8,783     |      |   | 6,405     |   |   | 4,798     |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Income   (loss) before income tax expense (benefit)  |  |      | 6,331     |      |   | 6,736     |   |      | 5,157     |      |   | 4,519     |   |   | 3,410     |  
|Income tax   expense (benefit)                       |  |      | 2,402     |      |   | 2,639     |   |      | 1,709     |      |   | 1,721     |   |   | 1,340     |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Net income   (loss)                                  |  | $    | 3,929     |      | $ | 4,097     |   | $    | 3,448     |      | $ | 2,798     |   | $ | 2,070     |  
|                                                     |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Per Share Data:                                      |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Earnings   (loss) per shareBasic                    |  | $    | 0.99      |      | $ | 1.04      |   | $    | 0.90      |      | $ | 0.83      |   | $ | 0.62      |  
|Earnings (loss)   per shareDiluted                  |  |      | 0.99      |      |   | 1.01      |   |      | 0.87      |      |   | 0.81      |   |   | 0.61      |  
|Common   shares outstanding at end of period         |  |      | 3,960,852 |      |   | 3,937,239 |   |      | 3,922,301 |      |   | 3,356,544 |   |   | 3,347,751 |  
|Book value   per share                               |  | $    | 7.29      |      | $ | 6.37      |   | $    | 5.52      |      | $ | 3.86      |   | $ | 3.29      |  
|Performance Ratios and Other Data:                   |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Return on   average assets                           |  |      | 0.81      | %    |   | 0.92      | % |      | 0.90      | %    |   | 0.97      | % |   | 1.03      | %
|Return on   average stockholders equity              |  |      | 13.8      | %    |   | 16.5      | % |      | 17.2      | %    |   | 22.2      | % |   | 20.5      | %
|Efficiency   ratio                                   |  |      | 65.8      | %    |   | 60.5      | % |      | 59.3      | %    |   | 54.7      | % |   | 54.5      | %
|Tamalpais Bank Capital Ratios:                       |  |      |           |      |   |           |   |      |           |      |   |           |   |   |           |  
|Tier 1 risk   based capital                          |  |      | 9.7       | %    |   | 9.1       | % |      | 10.0      | %    |   | 9.1       | % |   | 11.0      | %
|Total risk   based capital                           |  |      | 10.8      | %    |   | 10.1      | % |      | 11.0      | %    |   | 10.2      | % |   | 12.1      | %
|Tier 1   leverage capital                            |  |      | 8.6       | %    |   | 7.7       | % |      | 8.1       | %    |   | 7.5       | % |   | 7.5       | %

ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion address information pertaining to the financial
condition and results of operations of the Company that may not be otherwise
apparent from a review of the consolidated financial statements and related
footnotes.  It should be read in conjunction with those statements and
notes found therein as well as the other information presented throughout the
report.

28



---



##### 

Critical Accounting Policies

The accounting policies are integral to understanding the results reported. The
most complex accounting policies require managements judgment to ascertain
the valuation of assets, liabilities, commitments and contingencies.  The
Company has established detailed policies and control procedures that are
intended to ensure valuation methods are well controlled and applied
consistently from period to period. In addition, the policies and procedures are
intended to ensure that the process for changing methodologies occurs in an
appropriate manner. The following is a brief description of the current
accounting policies involving significant management valuation
judgments.

Allowance for Loan Losses

The allowance for loan losses represents managements best estimate of
losses inherent in the existing loan portfolio. The allowance for loan losses is
increased by the provision for loan losses charged to expense and reduced by
loans charged-off, net of recoveries.   The Company evaluates the
allowance for loan loss on a monthly basis and believes that the allowance for
loan loss is a critical accounting estimate because it is based upon
managements assessment of various factors affecting the collectibility of
the loans, including current and projected economic conditions, past credit
experience, delinquency status, the value of the underlying collateral, if any,
and a continuing review of the portfolio of loans and commitments.

The Company determines the appropriate level of the allowance for loan losses,
primarily on an analysis of the various components of the loan portfolio,
including all significant credits on an individual basis.  The Company
segments the loan portfolios into as many components as practical. Each
component would normally have similar characteristics, such as risk
classification, past due status, type of loan, industry or collateral.  The
Company analyzes the following components of the portfolio and provides for them
in the allowance for loan losses.

| |  | All significant credits on an individual basis that are classified
doubtful.                                                                                                                                                                                                                                
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                             
| |  | All other significant credits reviewed individually. If no allocation can be
determined for such credits on an individual basis, they shall be provided for
as part of an appropriate pool.                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                             
| |  | All other loans that are not included by the credit grading system in the
population of loans reviewed individually, but are delinquent or are classified
or designated special mention (e.g. pools of smaller delinquent, special mention
and classified commercial and industrial, and real estate loans).
| |   |                                                                                                                                                                                                                                                                                                             
| |  | Homogenous loans that have not been reviewed individually, or are not
delinquent, classified, or designated as special mention (e.g. pools of real
estate mortgages).                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                             
| |  | All other loans that have not been considered or provided for elsewhere (e.g.
pools of commercial and industrial loans that have not been reviewed,
classified, or designated special mention, standby letters of credit, and other
off-balance sheet commitments to lend).                                 

No assurance can be given that the Company will not sustain loan losses that are
sizable in relation to the amount reserved, or that subsequent evaluations of
the loan portfolio will not require an increase in the allowance. 
Prevailing factors in association with the methodology may include improvement
or deterioration of individual improvement or deterioration of individual
commitments or pools of similar loans, or loan concentrations.

Available-for-Sale Securities

Statement of Financial Accounting Standards (SFAS) 115 requires that
available-for-sale securities be carried at fair value. This is a critical
accounting estimate in that the fair value of a security is based on
quoted market prices or if quoted market prices are not available, fair values
are extrapolated from the quoted prices of similar instruments. Adjustments to
the available-for-sale securities fair value impact the consolidated financial
statements by increasing or decreasing assets and stockholders
equity.

29



---



##### 

Servicing Asset

The Company services SBA and non-SBA loans for investors and records a related
mortgage servicing asset.  The servicing calculations contain certain
assumptions such as the expected life of the loan and the discount rate used to
compute the present value of future cash flows.  The exposure of the loan
life assumption is if loans prepay faster than expected.  The exposure to
the discount rate assumption is if prime rate adjusts severely and
permanently.  Such exposures can cause adjustments to the income
statement.

Supplemental Employee Retirement Plan

The Company has entered into supplemental employee retirement agreements with
certain executive officers.  The liability under these agreements is
measured in accordance with SFAS No. 87.  The liability is based on
estimates involving life expectancy, length of time before retirement,
appropriate discount rate, forfeiture rates and expected benefit levels. 
Should these estimates prove materially different from actual results, the
Company could incur additional or reduced future expense.

Deferred Tax Assets

Deferred income taxes reflect the estimated future tax effects of temporary
differences between the reported amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and
regulations.  The Company uses an estimate of future earnings to support
the position that the benefit of the deferred tax assets will be realized. 
If future income should prove non-existent or less than the amount of the
deferred tax assets within the tax years to which they may be applied, the asset
may not be realized and the net income will be reduced.

Accounting Change

From time to time, the Financial Accounting Standards Board issues
pronouncements which govern the accounting treatment for the Companys
financial statements.  For a description of the recent pronouncements
applicable to the Company, see Note 1 to the Consolidated Financial Statements
included in this report.

Overview of Financial Results

Based on historical results and recent investments in branches and EWM
operations, management anticipates that the Company will continue to grow in
2007.  However, due to risk factors that are beyond the control of the
Company, actual results could differ from managements estimates. 
Managements discussion and analysis of financial condition and results of
operations is intended to provide a better understanding of the significant
changes in trends relating to the Companys financial condition, results of
operations, liquidity and interest rate sensitivity. The following discussion
and analysis should be read in conjunction with the Consolidated Financial
Statements of the Company.

Results of Operations

Total assets reached $503,514,000 in 2006, an increase of $41,675,000, or 9.0%
from the prior year.  Total assets increased 8.5% from 2005 as compared to
2004.  Total deposits were $369,805,000 in 2006, an increase of $56,405,000
or 18.0% from the prior year.  Total deposits were $313,399,000 in 2005, an
increase of $38,779,000 or 14.1% from the prior year.  Total loans
receivable, net were $421,335,000 in 2006 as compared to $382,424,000 in 2005,
representing an increase of $38,910,000 or 10.2%.  Total gross loans net of
deferred fees and costs increased $39,350,000 from 2006 as compared to
2005.  The Company reported on a consolidated basis, net income of
$3,928,000 for 2006, or $.99 per diluted share compared with $4,096,000, or
$1.01 per diluted share in 2005.  The year over year change in consolidated
net income represents a decrease of 4.1%.  Consolidated net income
increased $648,000, or 18.8% from 2005 as compared to 2004.

30



---



##### 

The decrease in net income and fully diluted earnings per share as of December
31, 2006 over the prior year period was primarily the result of the
following:

|                                                                                                                                                                              |  | Non-interest expenses increased to $13,036,000 in 2006 as compared to
$11,262,000 in 2005, a $1,774,000, or 15.7% increase.  In 2006, $382,000 of
share-based compensation expense was recorded as compared to 2005 which did not
reflect such an expense.  Additionally, there was an increase in the number
of employees during 2006 as compared to the same period in 2005.  New staff
was added in the Banks retail branches and SBA lending department, and in
Company-wide support functions as a result of growth in the operations of the
Company.  The Company invested significant resources in relatively new
retail branches, enhanced information technology, the operations of Epic Wealth
Management, and other infrastructure investments to position the Company for
anticipated future growth.                                     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Partially offsetting the non-interest expense increases, which had a negative
impact on net income, were increases in net interest income and non-interest
income as follows:
|                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                              |  | Net interest income before provision for loan losses was $17,630,000, an
increase of $634,000, or 3.7% over 2005.  The increase in net interest
income was largely due to the increased earning asset base partially offset by a
decreased net interest margin from 3.89% to 3.71% in 2006 versus 2005 and an
increase in deposit expenses of $5,778,000 or 75.0%, to $13,507,000 in 2006
versus 2005.  The deposit expense increase from 2005 to 2006 is primarily
due to the growth of the Banks deposit portfolio and a rising interest
rate environment.  Average total interest earning assets increased by
$38,860,000, or 8.9% to $475,841,000 in 2006 as compared to the same period
prior year.  Average total interest earning assets increased by
$63,542,000, or 17.0% to $436,981,000 in 2005 as compared to the same period
prior year.
|                                                                                                                                                                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                              |  | In 2006, non-interest income increased $543,000, or 33.2% over 2005.  This
increase is primarily a result of $211,000 increase in the gain on the sale of
loans associated with the sale of the government guaranteed portion of Small
Business Administration loans during 2006.  Loan servicing income increased
$96,000, or 146.4% from the same period prior year.  Additionally, the
gross investment advisory services fee income generated by EWM increased $95,000
as of 2006 when compared to the corresponding period in the prior year. In 2005,
non-interest income was $1,634,000, which is an improvement of $820,000 or
100.7% over 2004.  This increase is primarily attributable to an $238,000
increase in the gain on sale of loans associated with the sale of SBA loans
during 2005                                              

In 2006, the Companys return on average assets (ROA) was 0.81%
as compared to 0.92% in 2005 and 0.90% in 2004.  The Companys return
on average equity (ROE) was 13.81% in 2006 compared to 16.53% in
2005 and 17.19% in 2004.  Management continues to balance the desire to
increase the return ratios with the desire to increase the Banks deposit
penetration in Marin County and loan growth throughout its lending
territories.  For the twelve month period from June 2006 to June 2005 (the
latest date for which the information is available), the Banks market
share of total Marin County deposits increased from 3.75% to 4.52%.

As of December 31, 2006, consolidated total assets were $503,514,000 as compared
to $461,839,000 at December 31, 2005, which represents an increase of
9.0%.   Contributing to the growth of assets in 2006 was an increase
of $39,350,000 or 10.2% in gross outstanding loans.  The increase in loans
was funded in part by a shift of the funds from other earning assets as well as
increases in deposits.  Total investment securities increased by
$4,377,000, or 10.0% in 2006 versus the same period prior year.  Total
deposits were $369,805,000 in 2006, an increase of $56,405,000, or 18.0% from
the prior year.  FHLB advances decreased $21,561,000, or 20.0%  from
2006 as compared to the same period in 2005.  Stockholders equity
increased $4,036,000, or 15.0% to $30,881,000 in 2006 as compared to the same
period prior year.

As of December 31, 2006, EWM had approximately $270 million in assets under
management as compared to $264 million for the same period prior
year.

Summary of Quarterly Results of Operations

The following below sets forth the results of operations for the four quarters of 2006 and 2005.

31



---



##### 

|                                                      |  | 2006 Quarters Ended |       | 2005 Quarters Ended |  
|----------------------------------------------------- |  | ------------------- | ----- | ------------------- | -
|                                                      |  |                     |       |                     |  
|                                                      |  | Dec. 31             |       | Sept. 30            |  
|                                                      |  |                     |       |                     |  
|Interest income                                       |  | $                   | 9,616 |                     | $
|Interest expense                                      |  |                     | 5,206 |                     |  
|                                                      |  |                     |       |                     |  
|Net   interest Income                                 |  |                     | 4,410 |                     |  
|Provision   for loan losses                           |  |                     | 38    |                     |  
|                                                      |  |                     |       |                     |  
|Net   interest income after provision for loan losses |  |                     | 4,372 |                     |  
|                                                      |  |                     |       |                     |  
|Noninterest income                                    |  |                     | 485   |                     |  
|Noninterst expense                                    |  |                     | 3,116 |                     |  
|                                                      |  |                     |       |                     |  
|Income   before provision for income taxes            |  |                     | 1,741 |                     |  
|Provision   for income taxes                          |  |                     | 665   |                     |  
|                                                      |  |                     |       |                     |  
|Net   Income                                          |  | $                   | 1,076 |                     | $
|Net   Income per common share                         |  |                     |       |                     |  
|Basic                                                 |  | $                   | 0.27  |                     | $
|Diluted                                               |  | $                   | 0.27  |                     | $
|                                                      |  |                     |       |                     |  

Net Interest Income

Net interest income is the difference between the interest earned on loans,
investments and other interest earning assets, and its interest expense on
deposits and other interest bearing liabilities.

Net interest income is impacted by changes in general market interest rates and
by changes in the amounts and composition of interest earning assets and
interest bearing liabilities.  Comparisons of net interest income are
frequently made using net interest margin and net interest rate spread. 
Net interest margin is expressed as net interest income divided by average
earning assets.  Net interest rate spread is the difference between the
average rate earned on total interest earning assets and the average rate
incurred on total interest bearing liabilities.   Both of these
measures are reported on a taxable equivalent basis.  Net interest margin
is the higher of the two because it reflects interest income earned on assets
funded with non-interest bearing sources of funds, which includes demand
deposits and stockholders equity.

The following sets forth average daily balances of assets, liabilities, and
shareholders equity during 2006, 2005 and 2004, along with total interest
income earned and expense paid, and the average yields earned or rates paid
thereon and the net interest margin for the years ended December 31, 2006, 2005
and 2004:

32



---



##### 

EPIC BANCORP AND SUBSIDIARIESAverage Balance Sheets (Unaudited)

|                                                          |  | For the   Year Ended December 31, |        
|--------------------------------------------------------- |  | --------------------------------- | -------
|                                                          |  |                                   |        
|                                                          |  | 2006                              |        
|                                                          |  |                                   |        
|(dollars in thousands)                                    |  | Average   Balance                 |        
|                                                          |  |                                   |        
|Assets                                                    |  |                                   |        
|Investment   securities - taxable (1)                     |  | $                                 | 46,893 
|Other   investments                                       |  |                                   | 6,035  
|Interest bearing deposits in other financial institutions |  |                                   | 1,167  
|Federal   funds sold                                      |  |                                   | 6,378  
|Loans   (2)                                               |  |                                   | 415,368
|                                                          |  |                                   |        
|Total   Interest Earning Assets                           |  |                                   | 475,841
|Allowance   for loan losses                               |  |                                   | (4,528 
|Cash   and due from banks                                 |  |                                   | 5,377  
|Net   premises, furniture and equipment                   |  |                                   | 4,927  
|Other   assets                                            |  |                                   | 5,035  
|                                                          |  |                                   |        
|Total   Assets                                            |  | $                                 | 486,652
|                                                          |  |                                   |        
|Liabilities and   Shareholders Equity                    |  |                                   |        
|Interest   bearing checking                               |  | $                                 | 7,301  
|Savings   deposits (3)                                    |  |                                   | 155,426
|Time   deposits                                           |  |                                   | 161,739
|Other   borrowings                                        |  |                                   | 101,051
|Junior   Subordinated Debentures                          |  |                                   | 11,524 
|                                                          |  |                                   |        
|Total   Interest Bearing Liabilities                      |  |                                   | 437,041
|Noninterest   deposits                                    |  |                                   | 17,874 
|Other   liabilities                                       |  |                                   | 3,291  
|                                                          |  |                                   |        
|Total   Liabilities                                       |  |                                   | 458,206
|Shareholders   Equity                                    |  |                                   | 28,446 
|                                                          |  |                                   |        
|Total   Liabilities and Shareholders Equity              |  | $                                 | 486,652
|                                                          |  |                                   |        
|                                                          |  |                                   |        
|Net interest income                                       |  |                                   |        
|                                                          |  |                                   |        
|Net interest spread (4)                                   |  |                                   |        
|Net interest margin (5)                                   |  |                                   |        

|   
|---
|(1)
|(2)
|(3)
|(4)
|(5)

In 2006, the Banks net interest income before the provision for loan
losses increased $634,000, or 3.7% over 2005.  These increases are
attributable to growth in average interest earning assets of $38,860,000 in 2006
and $63,542,000 in 2005 when compared to the same periods prior years.  In
2005, net interest income was positively affected by a shift in the mix of asset
balances from lower yielding interest bearing deposits in other financial
institutions and investment securities to higher-yielding loans.

The Banks yield
on interest earning assets was favorably impacted by the increasing interest
rate environment resulting in a higher yield of 7.53% in 2006 as compared to
6.57% in 2005.  The yield on the loan portfolio increased eighty six basis
points from 7.14% in 2005 to 8.00% in 2006.  The yield on the Banks
Federal funds sold increased to 4.92% in 2006 from 3.22% in 2005.  The
increase in the yield on loans and the Federal funds sold is the result of
interest rate increases implemented by the Federal Reserve Board by increasing
the Federal funds interest rate (the interest rate banks charge each other for
short term borrowings) from June 2004 through June 2006.  The average
balance for investment securities in 2006 of $46,893,000, which represents a
decrease of 16.0% from 2005, had an increase in yield from 3.24% in 2005 to
4.06% in 2006.  Other investments increased ninety eight basis points from
2006 as compared to 2005.

33



---



##### 

The rate paid on interest bearing liabilities increased from 2.91% in 2005 to
4.16% in 2006.  The rate paid on savings deposits increased from 2.58% to
3.97% from 2006 as compared to 2005 and time deposits increased one hundred
thirty two basis points from 3.18% to 4.50% from 2006 as compared to 2005. 
The rate on other borrowings and junior subordinated debentures increased eighty
nine and one hundred eighty two basis points, respectively, from 2005 as
compared to 2006.  These increases are primarily attributable to the result
of the previously discussed changes in market interest rates originating from
actions taken by the Federal Reserve from 2004 through 2006.  In 2006, the
Bank achieved a net interest margin (NIM) of 3.71%, a decrease from
the NIM of 3.89% experienced in 2005.  The decrease in the margin is also
affected by the changes to the market rates as described above.

In 2005, net interest income was positively affected by a shift in the mix of
asset balances from lower yielding Federal funds sold, interest bearing deposits
in other financial institutions and securities to higher-yielding loans. 
The Banks yield on interest earning assets increased in 2005 by seventy
nine basis points to 6.57%, and the yield on its loan portfolio increased from
6.54% in 2004 to 7.14% in 2005.  The yield on the Banks Federal funds
sold increased to 3.22% in 2005 as compared to 1.34% in 2004 and is attributable
to the interest rate increases implemented by the Federal Reserve Board.

The rate paid on interest bearing liabilities increased seventy basis points
from 2.21% in 2004 to 2.91% in 2005.  The increase is primarily
attributable to the previously discussed changes in the market interest
rates.  The Bank achieved a NIM of 3.89%, up from the NIM of 3.75%
experienced in 2004.  The increase was primarily attributable to the higher
loan-to-deposit ratios in 2005 as compared to the same period prior year.

The following sets forth changes in
interest income and interest expense for each major category of average
interest-earning assets and interest-bearing liabilities, and the amount of
change attributable to volume and rate changes for the periods indicated.
Changes not solely attributable to volume or rate have been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the changes in each.

|                                             |  | Year ended December 31, 2006
           Compared to Year ended
           December 31, 2005 |       | Year ended December 31, 2005
   Compared to Year ended
   December 31, 2004 |  
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------- | -
|                                             |  |                                                                                             |       |                                                                             |  
|                                             |  | Volume                                                                                      |       | Rate                                                                        |  
|                                             |  |                                                                                             |       |                                                                             |  
|                                             |  | (Dollars in Thousands)                                                                      |      
|Increase/(decrease)   in Interest Income     |  |                                                                                             |       |                                                                             |  
|Investment securities                        |  | $                                                                                           | (318  | )                                                                           | $
|Other investments                            |  |                                                                                             | (22   | )                                                                           |  
|Interest-bearing deposits                    |  |                                                                                             | 10    |                                                                             |  
|Federal Funds Sold                           |  |                                                                                             | 165   |                                                                             |  
|Loans                                        |  |                                                                                             | 3,357 |                                                                             |  
|                                             |  |                                                                                             |       |                                                                             |  
|                                             |  |                                                                                             | 3,192 |                                                                             |  
|Increase/(decrease)   in Interest Expense    |  |                                                                                             |       |                                                                             |  
|Interest-bearing checking                    |  | $                                                                                           | (1    | )                                                                           | $
|Savings deposits                             |  |                                                                                             | 829   |                                                                             |  
|Time Deposits                                |  |                                                                                             | 869   |                                                                             |  
|FHLB and other borrowings                    |  |                                                                                             | (589  | )                                                                           |  
|Trust Preferred Securities                   |  |                                                                                             | 95    |                                                                             |  
|                                             |  |                                                                                             |       |                                                                             |  
|                                             |  |                                                                                             | 1,203 |                                                                             |  
|                                             |  |                                                                                             |       |                                                                             |  
|Increase/(decrease)   in Net Interest Income |  | $                                                                                           | 1,989 |                                                                             | $
|                                             |  |                                                                                             |       |                                                                             |  

Non-interest Income

Non-interest income is comprised of gain on sale of loans, net loss on sale of
securities, fees generated by EWM and loan servicing and other income. 
Non-interest income for the years ended December 31, 2006, 2005, and 2004 was
$2,176,000 $1,634,000, and $814,000, respectively, for an increase of $542,000
or 33.2% for the year ended December 31, 2006, as compared with the same period
in 2005, and an increase of $820,000 or 100.7% for the year ended December 31,
2005 as compared with the same period in 2004.

34



---



##### 

In 2006, the increase in gain on sale of loans of $211,000 increased due to the
sale of the government guaranteed portions of eighteen SBA
loans.    In 2005, there was a net gain of $581,000 resulting
from the sale of the  government guaranteed portions of thirteen SBA
loans.  Loan servicing in 2006 was $161,000, representing an increase of
$96,000, or 146.4% over the same period the prior year.  This increase is
primarily the result of an increase in the number of loans that the Bank is
servicing.

In 2006, loan fees and other income increased $238,000, or 24.2% from the same
period the prior year.  This increase is primarily attributable to the
Company establishing a new subsidiary in 2005, EWM, a registered investment
advisor under the Securities and Exchange Commission Investment Advisors Act of
1940, which provides wealth management services inclusive of investment
management and financial planning to high-net worth individuals and
families.  In 2006, EWM generated investment and advisory services fee
income of $628,000, an increase of $95,000 from the same period the prior
year.  Partially offsetting this increase was a reduction in Registered
Investment Advisory Services income of $75,000 as a result of the amortization
of the cost of the agreement with EWM and Kit M. Cole, Executive Chairman of the
Company.

As of December 31, 2006, EWM had approximately $270 million in assets under
management of which $48.1 million represents the Banks investment
portfolio.  In 2005, EWM generated investment and advisor services fee
income of $458,000 which was offset by a reduction in Registered Investment
Advisory Services income of $75,000 as a result of the amortization of the cost
of the agreement with EWM and Kit M. Cole.  As of December 31, 2005, EWM
had approximately $264 million in assets under management of which $44 million
represents the Banks investment portfolio.  The Company anticipates
that EWM will grow in 2007; however, due to the uncertainties involved in
staffing, marketing, and growing the client base of the new subsidiary, the
Company makes no assurance that EWM will generate significant revenue in 2007 or
that it will be profitable on a stand-alone basis.   The remaining
increase in loan fees and other income relates primarily to the growth of the
Bank.

On July 19, 2005, EWM entered into an agreement with Kit M. Cole, the Executive
Chairman of the Company. In recognition of services provided to EWM to assist it
in making contacts with prospective clients and in organizing its business, EWM
agreed to pay Ms. Cole $250,000 on August 1, 2005.  In addition, EWM agreed
to pay to Ms. Cole $10,000 on the first day of each month for a period of fifty
months beginning August 1, 2005.  It is anticipated that the cost of the
agreement will be allocated over a period of approximately ten years, beginning
January 1, 2005.  A pre-tax amortization expense of approximately $75,000
was incurred in 2006 and pre-tax expenses of approximately $75,000 will be
incurred annually thereafter until December 31, 2014.

EWM has required capital infusions from the Company.   Capital
infusions for 2005 and 2006 totaled $794,000 and $436,000, respectively.

Non-interest Expense

Non-interest expense consists of salaries and employee benefits, occupancy,
advertising, professional, data processing, equipment and depreciation and other
administrative expenses.  The Companys non-interest expense for the
years ended December 31, 2006, 2005 and 2004 was $13,036,000, 11,262,000 and
$8,783,000, respectively.  The increase for the year ended December 31,
2006 was $1,774,000, or 15.7% as compared with the same period in 2005 and the
increase for the year ended December 31, 2005 was $2,479,000, or 28.2% as
compared with the same period in 2004.

Salaries and benefits are the largest components of non-interest expense. 
In 2006, salaries and benefits increased by $1,485,000, or 23.0% primarily due
to the Bank hiring staff for its retail branches including the opening of one
new full-service branch in 2006, the opening of a loan production center, and
the Company hiring additional staff to support the longer term growth of the
Company.  The number of full time equivalent employees at year end 2006 and
2005 were 75 and 73, respectively.  Additionally, SFAS 123R which was
implemented January 1, 2006 required the Company to expense share-based payments
in 2006 was $381,993.  No expense was recorded in 2005.  Further,
there were regular salary adjustments and higher medical benefits and
workers compensation costs in 2006 versus the same period the prior
year.

35



---



##### 

In 2005, salaries and benefits costs increased by $1,398,000, or 27.7%,
primarily due to the increase in the number of staff which increased to 73, up
from 52 at year end 2004 (partly as a result of the opening of one new
full-service branch in 2005), annual merit increases, and higher medical
benefits and workers compensation costs in 2005.

The 2006 increase of $246,000, or 21.1% in occupancy and equipment costs is
largely due to the Company, Bank and EWM occupying new leased spaces which
includes the addition of the Banks Corte Madera branch which opened in
September 2005, the Tiburon/Belvedere branch which opened in August 2006 and
the  new lease the Company signed which consolidates the loan, executive
and administrative personnel in one facility.  Additionally, there were
annual rent increases in the branch and administrative facilities.  In
2005, the Company incurred an increase in occupancy and equipment of $165,000,
or 16.5%, when compared to the same period prior year and was largely due to the
opening of two new branches in September 2004, one new branch  opened in
September 2005 and annual increases in branch operating leases.

The 2006 increase of $11,000, or 3.0% in
advertising costs is largely due to the growth of the Bank and the different
campaigns that the Bank as well as EWM held during the year.  The 2005
increase of $60,000, or 20.3% in advertising costs is largely due to the growth
of the Bank and the different campaigns that the Bank and EWM held during the
year.  Further, there was a timing difference related to its community
outreach program.  The annual Heart of Marin community outreach
awards ceremony was held in January 2005, whereas the last awards ceremony was
held in the fourth quarter of 2003.

Professional services decreased $151,000, or 30.9% in 2006 compared to the same
period prior year.  The decrease is largely attributable to the Company
going through a data processing conversion in 2005 and more expenses were
incurred in 2005 versus 2006 as a result of this conversion for outside
consulting expenses.  The increase of $41,000, or 9.3% in 2005 as compared
with the same period in the prior year was primarily attributable to increases
in audit fees and outside consulting fees partially offset by lower legal
fees.  The outside consulting fees related primarily to the Companys
data processing conversion in 2005 and the lower legal fees is a result of
one-time legal fees associated with the 2004 public offering.

In 2006 data processing costs were $364,000, a decrease of $334,000, or
47.8%.  The decrease is primarily attributable to the core data processing
systems conversion which occurred in July 2005 from FPS Gold, of Provo, Utah to
OSI, of Glastonbury, Connecticut.  In 2005, data processing costs were
$698,000, an increase over 2004 of $451,000, or 54.8%.  The increase is
largely attributable to the core data processing systems conversion which
occurred in July 2005.  As a part of this conversion, the Bank paid a fee
to FPS Gold of $109,885 for the last two months of data processing services that
FPS Gold provided for de-conversion programming, and for a penalty due to the
early termination of the agreement with FPS Gold.  Of that total amount,
$73,391 represents non-recurring expenses.  Additionally, there was third
party IT support as a result of the system conversion.

The 2006 increase of $279,000, or 48.9% in depreciation and amortization expense
over the same period prior year is primarily attributable to new purchases and
leasehold improvements of the Company.  The 2005 increase of $296,000, or
107.2% for the same period prior year in depreciation and amortization expense
is primarily attributable to the growth of the Company.

Other administrative expenses of $1,771,000 represents a $238,000, or 15.5%
increase over 2005 and a $69,000, or 4.7% increase over 2004.  These
increases are primarily attributable due to the growth in activity of the
Company.

The Companys efficiency ratio (the ratio of non-interest expense divided
by the sum of non-interest income and net interest income) increased over the
prior year and was at 65.8% for 2006.  In 2005, the Companys
efficiency ratio was 60.5%.

36



---



##### 

The following table sets forth information regarding our noninterest expenses for the periods shown.

|                             |  | For the Year Ended     |       
|---------------------------- |  | ---------------------- | ------
|                             |  |                        |       
|                             |  | 2006                   |       
|                             |  |                        |       
|                             |  | (Dollars in thousands) |       
|Salaries and   benefits      |  | $                      | 7,935 
|Occupancy                    |  |                        | 1,410 
|Advertising                  |  |                        | 368   
|Professional                 |  |                        | 337   
|Data   processing            |  |                        | 364   
|Equipment   and depreciation |  |                        | 851   
|Other   administrative       |  |                        | 1,771 
|                             |  |                        |       
|Total                        |  | $                      | 13,036
|                             |  |                        |       

Income Taxes

The Company reported a provision for income taxes of $2,403,000, 2,639,000 and
$1,709,000 for years 2006, 2005 and 2004, respectively resulting in an effective
tax rate of 37.9%, 39.2% and 33.1%, respectively.  The decrease of $236,000
from 2006 as compared to 2005 is primarily attributable to a decreased pre-tax
income in 2006 as compared to 2005.   The increase of $930,000 from
2005 as compared to 2004 is primarily attributable to the Company recognizing a
Federal tax write-off of $369,629 for unamortized deferred costs on all loans
originated in 2005 whereas there were no equivalent recoveries in 2004. 
The Company had also recognized a Federal tax write-off of $352,478 for prepaid
assets as of December 31, 2005 that were scheduled to fully amortize in the next
twelve months and there was no equivalent recoveries in 2004.

The Company has not been subject to an alternative minimum tax (AMT).  See
Note 11 of the Notes to the Consolidated Financial Statements for additional
discussion of Provision for Income Taxes.

FINANCIAL CONDITION

Investment Securities

In order to maintain a reserve of readily saleable assets to meet our liquidity
and loan requirements, the  Company purchases mortgage-backed securities
and other investments. Sales of Federal Funds, short-term loans to
other banks, are regularly utilized. Placement of funds in certificates of
deposit with other financial institutions may be made as alternative investments
pending utilization of funds for loans or other purposes. Securities may be
pledged to meet security requirements imposed as a condition to secure Federal
Home Loan Bank advances, the receipt of public fund deposits and for other
purposes. As of December 31, 2006 and 2005, the carrying values of
securities pledged were $48,339,000 and $43,962,000, respectively, representing
the entire investment securities portfolio. Not all of the securities pledged as
collateral were required to securitize existing borrowings.  The
Companys policy is to stagger the maturities and to utilize the cash flow
of the investments to meet the overall liquidity requirements.

As of December 31, 2006, the investment portfolio consisted of
mortgage-backed securities, U.S. agency securities and collateralized mortgage
obligations.  As of December 31, 2005, the investment portfolio consisted
entirely of mortgage-backed securities. The Company also owned $5,892,000 and
$6,198,000 in Federal Home Loan Bank stock and $50,000 of Pacific Coast
Bankers Bank stock as of December 31, 2006 and December 31,
2005, respectively.  Interest-bearing time deposits in other financial
institutions amounted to $987,000 and $943,000 as of December 31, 2006 and
December 31, 2005, respectively.

37



---



##### 

At December 31, 2006, $21,823,000 of our securities were classified as
held-to-maturity and $26,516,000 of our securities were classified as
available-for-sale. At December 31, 2005, $28,844,000 of the securities
were classified as held-to-maturity and $15,118,000 of the Companys
securities were classified as available-for-sale.  The Federal Home Loan
Bank stock and the Pacific Coast Bankers Bank stock are not classified
since they have no stated maturities. Available-for-sale securities are bonds,
notes, debentures, and certain equity securities that are not classified as
trading securities or as held-to-maturity securities. Unrealized holding gains
and losses, net of tax, on available-for-sale securities are reported as a net
amount in a separate component of capital until realized. Gains and losses on
the sale of available-for-sale securities are determined using the specific
identification method. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity. Held-to-maturity
securities consist of bonds, notes and debentures for which the Company has the
positive intent and the ability to hold to maturity and are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity.

The Company had no trading securities at December 31, 2006, 2005 and
2004.

The following tables summarize the amounts and distribution of the
Companys investment securities, held as of the dates indicated, and the
weighted average yields:

|                                   |  | As of December 30, 2006 |       
|---------------------------------- |  | ----------------------- | ------
|                                   |  |                         |       
|                                   |  | Amortized   Cost        |       
|                                   |  |                         |       
|                                   |  | (Dollars in Thousands)  |       
|Available-for-sale                 |  |                         |       
|Mortgage backed securities         |  | $                       | 13,202
|U.S. Agency Securities             |  |                         | 5,858 
|Collateralized Mortgage Obligation |  |                         | 7,660 
|                                   |  |                         |       
|Total Available-for-sale           |  | $                       | 26,720
|                                   |  |                         |       
|Held-to-maturity                   |  |                         |       
|Mortgage backed securities         |  | $                       | 21,823
|                                   |  |                         |       

|                           |  | As of December 31, 2005 |       
|-------------------------- |  | ----------------------- | ------
|                           |  |                         |       
|                           |  | Amortized   Cost        |       
|                           |  |                         |       
|                           |  | (Dollars in Thousands)  |       
|Available-for-sale         |  |                         |       
|Mortgage backed securities |  | $                       | 15,555
|                           |  |                         |       
|Held-to-maturity           |  |                         |       
|Mortgage backed securities |  | $                       | 28,844
|                           |  |                         |       

|                           |  | As of December 31, 2004 |       
|-------------------------- |  | ----------------------- | ------
|                           |  |                         |       
|                           |  | Amortized   Cost        |       
|                           |  |                         |       
|                           |  | (Dollars in Thousands)  |       
|Available-for-sale         |  |                         |       
|Mortgage backed securities |  | $                       | 22,422
|                           |  |                         |       
|Held-to-maturity           |  |                         |       
|Mortgage backed securities |  | $                       | 40,851
|                           |  |                         |       

38



---



##### 

|                                   |  | As of December 31,     |       
|---------------------------------- |  | ---------------------- | ------
|                                   |  |                        |       
|                                   |  | 2006                   |       
|                                   |  |                        |       
|                                   |  | Balance                |       
|                                   |  |                        |       
|                                   |  | (Dollars in Thousands) |       
|Available   for sale               |  |                        |       
|Mortgage backed securities         |  | $                      | 12,990
|                                   |  |                        |       
|U.S. Agency Securities             |  | $                      | 5,864 
|                                   |  |                        |       
|Collateralized Mortgage Obligation |  | $                      | 7,662 
|                                   |  |                        |       
|Held to   maturity                 |  |                        |       
|Mortgage backed securities         |  | $                      | 21,823
|                                   |  |                        |       

Loans

Loans, net, increased by $38,910,000, or 10.2%  as of December 31, 2006 as
compared to the same period prior year.  During the last three years, the
Company has emphasized the growth of its commercial loan portfolio and has
augmented its traditional commercial and multifamily loans and services with
small business lending and depository services.  The Bank seeks to maintain
a loan portfolio that is well balanced in terms of loan types, borrowers,
collateral, geographies, industries and maturities.

The following table sets forth components of total net loans outstanding in each
category at the dates indicated:

|                                                   |  | At December 31,        |        
|-------------------------------------------------- |  | ---------------------- | -------
|                                                   |  |                        |        
|                                                   |  | 2006                   |        
|                                                   |  |                        |        
|                                                   |  | (Dollars in thousands) |        
|One-to-four   family residential                   |  | $                      | 16,742 
|Multifamily   residential                          |  |                        | 120,287
|Commercial   real estate                           |  |                        | 220,049
|Land                                               |  |                        | 8,316  
|Construction   real estate                         |  |                        | 33,188 
|Consumer   loans                                   |  |                        | 2,545  
|Commercial,   non real estate                      |  |                        | 23,553 
|                                                   |  |                        |        
|Total gross loans                                  |  |                        | 424,680
|Net deferred   loan costs                          |  |                        | 1,327  
|Total loans receivable, net of deferred loan costs |  |                        | 426,007
|                                                   |  |                        |        
|Allowance   for loan losses                        |  |                        | (4,672 
|                                                   |  |                        |        
|Loans receivable, net                              |  | $                      | 421,335
|                                                   |  |                        |        

Real estate construction loans are primarily interim loans to finance the
construction of commercial and single family residential property. These loans
are typically short-term. Other real estate loans consist primarily of loans
made based on the property and/or the borrowers individual and business
cash flows and which are secured by deeds of trust on commercial and residential
property to provide another source of repayment in the event of default.
Maturities on real estate loans other than construction loans are generally
restricted to fifteen years (on an amortization of thirty years with a balloon
payment due in fifteen years). Any loans extended for greater than five years
generally have re-pricing provisions that adjust the interest rate to market
rates at times prior to maturity.

Commercial and industrial loans and lines of credit are made for the purpose of
providing working capital, covering fluctuatins in cash flows, financing the
purchase of equipment, or for other business purposes. Such loans and lines of
credit include loans with maturities ranging from one to five years.

39



---



##### 

Consumer loans and lines of credit are made for the purpose of financing various
types of consumer goods and other personal purposes. Consumer loans and lines of
credits generally provide for the monthly payment of principal and interest or
interest only payments with periodic principal payments.

Outstanding loan commitments at December 31, 2006 and December 31,
2005 primarily consisted of un-disbursed construction loans, lines of credit,
and commitments to originate commercial real estate and multifamily loans. Based
upon past experience, the outstanding loan commitments are expected to grow
throughout the year as loan demand continues to increase, subject to economic
conditions. The Bank does not  have any concentrations in the loan
portfolio by industry or group of industries, however as of December 31,
2006 and December 31, 2005, approximately 93.6% and 92.4%, respectively, of
our loans were secured by real estate. The Bank has pursued a strategy
emphasizing small business lending and commercial real estate loans and seeks
real estate collateral when possible.

During the second quarter of 2006, the Company purchased $16.6 million of
participated construction loans.  These loans consisted of 23 participated
construction loans purchased with balances ranging from $382,000 to
$1,392,000.  All of the loans are residential spec construction loans, and
the majority of the loans are located in the Southern California beach
communities of Manhattan Beach, Hermosa Beach, and Redondo Beach.  The loan
participations were purchased with original terms of twelve to eighteen
months.  The loans have floating interest rates equal to the Prime
rate.  As of December 31, 2006, the remaining balance of the participated
loans was $13.9 million.

During the first quarter of 2005, the Company purchased $33.8 million of
participated construction loans.  These loans consisted of 50 participated
construction loans purchased with balances ranging from $360,000 to
$1,717,000.  All of the loans are residential spec construction loans, and
the majority of the loans are located in the Southern California beach
communities of Manhattan Beach, Hermosa Beach, and Redondo Beach.  The loan
participations were purchased with original terms of twelve to eighteen
months.  The loans have floating interest rates equal to the Prime rate
plus one percent.  As of December 31, 2006, the remaining balance of the
participated loans was $412,000.

As of December 31, 2006, the loan portfolio was primarily comprised of floating
and adjustable interest rate loans.  Of the adjustable rate loans, 56.4%
reprice within one year, 7.8% reprice within one to two years, 5.0% reprice
within two to three years, 10.5% reprice within three to four years, 10.1%
reprice within four to five years, and 10.2% reprice within five to eight
years.  The following table sets forth the maturity distribution of our
loans outstanding as of December 31, 2006 and December 31, 2005. 
At those dates, the Company had no loans with maturity greater than thirty
years.  In addition, the table shows the distribution of such loans between
those loans with predetermined (fixed) interest rates and those with adjustable
(floating) interest rates.  Adjustable interest rates generally fluctuate
with changes in the various pricing indices, primarily the six-month constant
maturity treasury index, six month LIBOR, and Prime Rate.

40



---



##### 

|                                                   |  | At December 31, 2006         |       
|-------------------------------------------------- |  | ---------------------------- | ------
|                                                   |  |                              |       
|                                                   |  | Maturing   Within   One Year |       
|                                                   |  |                              |       
|                                                   |  | (Dollars in Thousands)       |       
|One-to-four   family residential                   |  | $                            |      
|Multifamily   residential                          |  |                              | 2,304 
|Commercial   real estate                           |  |                              | 870   
|Land                                               |  |                              | 1,895 
|Construction   real estate                         |  |                              | 29,598
|Consumer   loans                                   |  |                              | 2,325 
|Commercial,   non real estate                      |  |                              | 15,896
|                                                   |  |                              |       
|Total                                              |  | $                            | 52,888
|                                                   |  |                              |       
|Loans with   predetermined interest rates          |  | $                            | 945   
|Loans with   floating or adjustable interest rates |  |                              | 51,943
|                                                   |  |                              |       
|                                                   |  | $                            | 52,888
|                                                   |  |                              |       

Allowance and Provisions for Loan Losses

The Bank maintains an allowance for loan losses to provide for potential losses
in the loan portfolio. Additions to the allowance are made by charges to
operating expenses in the form of a provision for loan losses. All loans that
are judged to be uncollectible are charged against the allowance while any
recoveries are credited to the allowance.  Management has instituted loan
policies, designed primarily for internal use, to adequately evaluate and assess
the analysis of risk factors associated with its loan portfolio and to enable
management to assess such risk factors prior to granting new loans and to assess
the sufficiency of the allowance. Management conducts a critical evaluation of
the loan portfolio monthly. This evaluation includes an assessment of the
following factors: the results of the internal loan review, any external loan
review and any regulatory examination, loan loss experience, estimated potential
loss exposure on each credit, concentrations of credit, value of collateral, and
any known impairment in the borrowers ability to repay and present
economic conditions.

Each month the Bank also reviews the allowance and makes additional transfers to
the allowance as needed.  As of December 31, 2006, the provision for loan
losses was $439,000 as compared to $632,000 for the same period in 2005,
representing a decrease of $192,000, or 30.4%.  During 2006 and 2005, there
were no charge-offs of loans nor were there any recoveries on previously
charged-off loans.  The decrease in the provision for loan losses for the
twelve months ended December 31, 2006 compared to the same period a year ago
primarily relates to managements calculation of the adequacy of the allowance
for loan losses and slower growth in the Banks loan portfolio.

At December 31, 2006 and December 31, 2005 the allowance for loan
losses was 1.10% and 1.09%, respectively of loans outstanding.  There were
no nonperforming loans as of December 31, 2006, and the ratio of the allowance
for loan losses to nonperforming loans was 916% as of December 31, 2005. 
Although the Company deems these levels adequate, no assurance can be given that
further economic difficulties or other circumstances which would adversely
affect the borrowers and their ability to repay outstanding loans will not
occur.  These losses would be reflected in increased losses in the loan
portfolio, which losses could possibly exceed the amount then reserved for loan
losses.

41



---



##### 

The following table summarizes our loan loss experience, transactions in the
allowance for loan losses and certain pertinent ratios for the periods
indicated:

|                                                                                                       |  | For the year ended December 31, |        
|------------------------------------------------------------------------------------------------------ |  | ------------------------------- | -------
|                                                                                                       |  |                                 |        
|                                                                                                       |  | 2006                            |        
|                                                                                                       |  |                                 |        
|                                                                                                       |  | (Dollars In Thousands)          |        
|Gross   Loans Outstanding, Period End                                                                  |  | $                               | 426,007
|Average Amount of Loans   Outstanding                                                                  |  |                                 | 415,368
|Period end non-performing   loans outstanding                                                          |  |                                 |       
|Loans Loss   Reserve Balance, Beginning of Period                                                      |  | $                               | 4,232  
|Charge-offs                                                                                            |  |                                 |       
|Recoveries                                                                                             |  |                                 |       
|Additions/(Reductions)   charged to operations                                                         |  |                                 | 439    
|                                                                                                       |  |                                 |        
|Allowance   for Loan and Lease Loss, End of Period                                                     |  | $                               | 4,671  
|                                                                                                       |  |                                 |        
|Ratio of Net Charge-offs/(Recoveries) During the Period to Average Loans
Outstanding During the Period |  |                                 | 0.00   
|                                                                                                       |  |                                 |        
|Ratio of   Allowance for Loan Losses to Loans at Period End                                            |  |                                 | 1.10   
|                                                                                                       |  |                                 |        

Nonperforming Assets

The Companys policy is to place loans on non-accrual status when, for any
reason, principal or interest is past due for ninety days or more unless they
are both well secured and in the process of collection.  Any interest
accrued, but unpaid, is reversed against current income.  Interest received
on non-accrual loans is credited to income only upon receipt and in certain
circumstances may be applied to principal until the loan has been repaid in
full, at which time the interest received is credited to income.  When
appropriate or necessary to protect the Companys interests, real estate
taken as collateral on a loan may be taken by the Company through foreclosure or
a deed in lieu of foreclosure. Real property acquired in this manner is known as
other real estate owned, or OREO. OREO would be carried on the books as an
asset, at the lesser of the recorded investment or the fair value less estimated
costs to sell. OREO represents an additional category of nonperforming
assets. For the period commencing January 1, 1998 through
December 31, 2006, the Company has not had any OREO.

The following table provides information with respect to the components of our
nonperforming assets at the dates indicated.

|                                                            |  | Balances as of December 31, |      
|----------------------------------------------------------- |  | --------------------------- | -----
|                                                            |  |                             |      
|                                                            |  | 2006                        |      
|                                                            |  |                             |      
|                                                            |  | (Dollars in Thousands)      |      
|Non-accrual   loans                                         |  |                             |      
|One-to-four family residential                              |  | $                           |     
|Multifamily residential                                     |  |                             |     
|Consumer                                                    |  |                             |     
|Commercial real estate                                      |  |                             |     
|                                                            |  |                             |      
|                                                            |  | $                           |     
|                                                            |  |                             |      
|Restructured   Loans                                        |  |                             |     
|Nonperforming   assets as a percent of total loans          |  |                             | 0.00 
|Nonperforming   assets as a percent of total assets         |  |                             | 0.00 
|Allowance   for Loan Losses                                 |  | $                           | 4,671
|Allowance   for Loan Losses/loans outstanding at period end |  |                             | 1.10 

42



---



##### 

As of December 31, 2006, there were no loans on non-accrual status but there
were 2 loans totaling $693,000 that have a higher than normal risk of loss and
have been classified as substandard.  Substandard loans that are still
performing include a $531,000 land loan and a $162,000 commercial real estate
loan both located in the Banks primary market areas.  In addition,
approximately $3,280,000 in loans have been placed on the internal watch
list for special mention and loss potential and are closely
monitored.  These loans have been categorized as Special Mention.  As
of December 31, 2006, approximately $2,572,000 of Special Mention loans were
multifamily loans, $706,000 were commercial real estate loans and $3,000 were
commercial loans.  These loans are in various stages of collection;
however, no assurance can be given that the Company will be successful in
collecting all of these loans or that we  have adequate loan loss

reserves established for these loans.  As of December 31, 2005, there was
one loan classified as non-accrual which paid off in March 2006 with full
collection of principal and interest.

The following table provides information with respect to delinquent but still
accruing loans at the dates indicated.

|                                                |  | Balances as of December 31, |      
|----------------------------------------------- |  | --------------------------- | -----
|                                                |  |                             |      
|                                                |  | 2006                        |      
|                                                |  |                             |      
|                                                |  | (Dollars in Thousands)      |      
|Loans   delinquent 60-89 days and accruing      |  |                             |      
|Commercial real estate                          |  | $                           | 1,137
|Consumer loans                                  |  |                             |     
|Multifamily                                     |  |                             | 268  
|Land and Construction                           |  |                             | 531  
|Commercial, non real estate                     |  |                             |     
|                                                |  |                             |      
|                                                |  | $                           | 1,936
|                                                |  |                             |      
|Loans   delinquent 90 days or more and accruing |  |                             |      
|Commercial real estate                          |  | $                           |     
|Land and Construction                           |  |                             |     
|                                                |  |                             |      
|                                                |  | $                           |     
|                                                |  |                             |      

These loans are in various stages of collection; however, no assurance can be
given that the Company will be successful in collecting all of these loans or
that adequate loan loss reserves are established for these loans.

Management believes the overall credit quality of the loan portfolio continues
to be strong; however, total nonperforming assets could fluctuate in the
future.  The performance of any individual loan can be impacted by external
factors such as the economy and interest rate environment, or factors particular
to the borrower.   The loans that are delinquent but still accruing
are in various stages of collection; however, no assurance can be given that the
Company will be successful in collecting all of these loans or that adequate
loan loss reserves are established for these loans.

43



---



##### 

Criticized and Classified Assets

The following table presents the Companys criticized and classified assets
as of the dates indicated:

|                                                       |  | As of December 31, |      
|------------------------------------------------------ |  | ------------------ | -----
|                                                       |  |                    |      
|                                                       |  | 2006               |      
|                                                       |  |                    |      
|Criticized Assets                                      |  |                    |      
|One-to-four   family residential                       |  | $                  |     
|Multifamily   residential                              |  |                    | 2,572
|Commercial   real estate                               |  |                    | 706  
|Land                                                   |  |                    |     
|Construction   real estate                             |  |                    |     
|Consumer,   non real estate                            |  |                    |     
|Commercial,   non real estate                          |  |                    | 3    
|                                                       |  |                    |      
|Special mention                                        |  | $                  | 3,281
|                                                       |  |                    |      
|Classified Assets                                      |  |                    |      
|One-to-four   family residential                       |  | $                  |     
|Multifamily   residential                              |  |                    |     
|Commercial   real estate                               |  |                    | 162  
|Consumer,   non real estate                            |  |                    |     
|Construction   real estate                             |  |                    |     
|Land                                                   |  |                    | 531  
|                                                       |  |                    |      
|Substandard loans                                      |  | $                  | 693  
|                                                       |  |                    |      
|Total classified assets                                |  | $                  | 693  
|                                                       |  |                    |      
|Classified   assets to total assets                    |  |                    | 0.14 
|Classified   assets to stockholders equity            |  |                    | 2.24 
|Allowance   for loan losses to total classified assets |  |                    | 674  

As of December 31, 2006, the Company has identified 2 loans totaling
$693,000 and representing .2% of net loans that has a higher than normal risk of
loss and has been classified as substandard. The land loan for $531,000 is a
performing loan which was previously in foreclosure and is located in the
Banks primary market area.  The commercial real estate loan for
$162,000 is a performing loan and is located in the Banks primary market
area.   As of December 31, 2005, the Company has identified five loans
totaling $4,487,000 and representing 1.2% of net loans that have a higher than
normal risk of loss and have been classified as substandard.  The land loan
for $534,000 is a performing loan which was previously in foreclosure and is
located in the Banks primary market area.  The construction real
estate loans for $3,755,000 are performing loans and are located in the
Banks primary market area.  The consumer loan for $35,000 is on
non-accrual status as of December 31, 2005 and is in the Banks primary
market area.  The commercial real estate for $163,000 is a performing loan
located in the Banks primary market area.

With the exception of these loans, management is not aware of any loans as of
December 31, 2006 where the known credit problems of the borrower would
cause it to have serious doubts as to the ability of such borrowers to comply
with their present loan repayment terms. Management cannot predict the extent to
which the current economic environment may persist or worsen or the full impact
such environment may have on the Companys loan portfolio. Furthermore,
management cannot predict the results of any subsequent examinations of the
Companys loan portfolio by the banking regulatory agencies. Accordingly,
there can be no assurance that other loans will be classified as discussed
above.

44



---



##### 

Refer to Note 3 to the Consolidated Financial Statements and the Business
section of this Annual Report for additional information concerning
loans.

Deposits

Deposits are the Banks primary source of funding.  The deposits are
obtained primarily from the retail branch network in Marin County.  As of
December 31, 2006, the Bank had a deposit mix of 41% of money market and savings
deposits, 17% in time deposits less than $100,000, 35% in time deposits greater
than $100,000, 5% in noninterest-bearing checking deposits, and 2% in
interest-bearing deposits.  As of December 31, 2005, the Bank had a deposit
mix of 47% of money market and savings deposits, 26% in time deposits less than
$100,000, 19% in time deposits greater than $100,000, 6% in noninterest-bearing
checking deposits, and 2% in interest-bearing deposits.  Included in our
deposit totals were $13.1 million (3.5% of deposits) and $15.5 million (4.9% of
deposits) of brokered deposits and $28.4 million (7.7% of deposits) and $7.9
million (3% of deposits) in non-brokered wholesale certificates of deposits as
of December 31, 2006 and December, 31, 2005, respectively.

The Company obtained wholesale deposits through deposit brokers and through
non-brokered wholesale sources. These deposits, some of which were certificates
of deposit of $100,000 or more, were obtained for generally longer terms than
can be acquired through retail sources as a means to control interest rate risk
or were acquired to fund all short term differences between loan and deposit
growth rates. However, based on the amount of wholesale funds maturing in each
month, the Company may not be able to replace all wholesale deposits with retail
deposits upon maturity. To the extent that the Company needs to renew maturing
wholesale deposits at then current interest rates, the Company incurs the risk
of paying higher interest rates for these potentially volatile sources of
funds

In 2004, the Bank established a relationship with Reserve Funds, an
institutional money manager that offers a money market savings based sweep
product to community banks. Under this program, end investors use the Reserve
Funds as a conduit to invest money market savings deposits in a consortium of
community banks. The end investors receive a rate of interest that is generally
higher than alternative money market funds, the community banks receive large
money market savings balances, and the Reserve Funds receives a fee by acting as
the conduit. The Bank began accepting deposits from this program in
November 2004. As of December 31, 2006, Reserve Fund deposits were $15.4
million as compared to deposit balance of $11.7 million as of
December 2005. The Bank pays an interest rate equivalent to the Federal
Funds rate plus 40 basis points. As of December 31, 2006 the rate was 5.64%
as compared to a rate of 4.45% as of December 31, 2005.

On October 31, 2006, the Bank renewed a $15.0 million time deposit from the
State of California through the State Treasurer.   The time deposit
bears interest at the rate of 5.13% and matures on February 1, 2007.  On
November 29, 2006, the Bank renewed a $5.0 million time deposit from the State
of California through the State Treasurer.  The time deposit bears interest
at the rate of 5.09% and matures on February 28, 2007.  Assets pledged as
collateral to the State consists of $22.1 million of the investment securities
portfolio as of December 31, 2006.

In an effort to expand the Companys market share, the Company is
continuing a business plan to develop the retail presence in Marin County
through an expanding network of full service branches. The Company operated
three branches during the first quarter of 2004, opened two new branches in the
second quarter of 2004, one new branch in 2005, and one new branch in the third
quarter 2006.

45



---



##### 

The following table summarizes the distribution of deposits and the period
ending rates paid for the periods indicated:

|                                           |  | December 31, 2006      |         | December 31, 2005         |  | December 31, 2004 |  
|------------------------------------------ |  | ---------------------- | ------- | ------------------------- |  | ----------------- | -
|                                           |  |                        |         |                           |  |                   |  
|                                           |  | Balance                |         | Weighted   Average   Rate |  | Balance           |  
|                                           |  |                        |         |                           |  |                   |  
|                                           |  | (Dollars in Thousands) |         |                           |  |                   |  
|Noninterest-bearing   deposits             |  | $                      | 18,135  |                           |  | 0.00              | %
|Interest-bearing   checking deposits       |  |                        | 8,433   |                           |  | 0.61              | %
|Money Market   and savings deposits        |  |                        | 150,012 |                           |  | 4.48              | %
|Certificates   of deposit $100,000 or more |  |                        | 129,011 |                           |  | 5.14              | %
|Certificates   of deposit < $100,000       |  |                        | 64,214  |                           |  | 4.97              | %
|                                           |  |                        |         |                           |  |                   |  
|Total   deposits                           |  | $                      | 369,805 |                           |  | 4.49              | %
|                                           |  |                        |         |                           |  |                   |  

The following table summarizes the distribution and original source of
certificates of deposit for the periods indicated:

|                                                 |  | December 31, 2006      |         | December 31, 2005         | 
|------------------------------------------------ |  | ---------------------- | ------- | ------------------------- | 
|                                                 |  |                        |         |                           | 
|                                                 |  | Balance                |         | Weighted   Average   Rate | 
|                                                 |  |                        |         |                           | 
|                                                 |  | (Dollars in Thousands) |        
|Retail   certificates of deposit                 |  | $                      | 151,692 |                           | 
|Brokered   certificates of deposit               |  |                        | 13,124  |                           | 
|Non-brokered   wholesale certificates of deposit |  |                        | 28,409  |                           | 
|                                                 |  |                        |         |                           | 
|Total time   deposits                            |  | $                      | 193,225 |                           | 
|                                                 |  |                        |         |                           | 

46



---



##### 

The following schedule shows the maturity of our time deposits as of
December 31, 2006:

|                                 |  |                        | $ 100,000 or more |                           | Less than $100,000 |       
|-------------------------------- |  | ---------------------- | ----------------- | ------------------------- | ------------------ | ------
|                                 |  |                        |                   |                           |                    |       
|                                 |  | Amount                 |                   | Weighted   Average   Rate |                    | Amount
|                                 |  |                        |                   |                           |                    |       
|                                 |  | (Dollars in thousands) |                  
|Three months   or less           |  | $                      | 53,770            |                           |                    | 5.12  
|Over 3   through 6 months        |  |                        | 62,055            |                           |                    | 5.14  
|Over 6   through 12 months       |  |                        | 10,351            |                           |                    | 5.20  
|Over 12   months through 2 years |  |                        | 1,519             |                           |                    | 5.44  
|Over 2   through 3 years         |  |                        | 316               |                           |                    | 5.04  
|Over 3   through 4 years         |  |                        | 200               |                           |                    | 4.78  
|Over 4   through 5 years         |  |                        | 800               |                           |                    | 4.59  
|                                 |  |                        |                   |                           |                    |       
|Total                            |  | $                      | 129,011           |                           |                    | 5.14  
|                                 |  |                        |                   |                           |                    |       

Commitments

The Company has entered into non-cancelable contracts for leased premises and
other service agreements.  The Company has no capital leases.  The
following table summarizes our significant contractual obligation and
commitments as of December 31, 2006.

|Contractual Obligations at December 31 |  | < 1 year |         | 1-3 years |  | 4-5 years |  | > 5 years |           | Total | 
|-------------------------------------- |  | -------- | ------- | --------- |  | --------- |  | --------- | --------- | ----- | 
|                                       |  |          |         |           |  |           |  |           |           |       | 
|Operating   leases                     |  |          | 988,000 |           |  | 1,673,000 |  |           | 1,684,000 |       | 

Borrowed Funds

The Company has secured advances from the Federal Home Loan Bank at
December 31, 2006 and December 31, 2005 amounting to $86.3 million and
$107.8 million, respectively, a 20.0% decrease.  FHLB borrowings initially
increased in January of 2005 in part to fund the acquisition of the pool of
construction loans and gradually decreased on a monthly basis thereafter as
funds generated from retail deposits were used to pay down FHLB
borrowings.  As of December 31, 2006, unused borrowing capacity at the FHLB
was $127.0 million.  Assets pledged as collateral to the FHLB consisted of
$188.3 million of the loan portfolio and $25.0 million of the investment
securities portfolio as of December 31, 2006.  Assets pledged as collateral
to the FHLB consisted of $209.1 million of our loan portfolio and $62.9 million
of our investment securities portfolio as of December 31, 2005.   The
advances have been outstanding at varying levels as of December 31, 2006. 
Total interest expense on FHLB borrowings as of December 31, 2006 and 2005 was
$3,636,000 and $3,266,000, respectively.

The Company will utilize FHLB borrowings to accommodate temporary differences in
the rate of growth of the loan and deposit portfolios.  Over time the
Company expects that funds provided by retail deposits obtained through the
increasing branch network will be utilized to decrease FHLB borrowings during
periods when the growth in deposits exceeds the growth in loans.

In 2006, the Company obtained borrowings of $23,995,000 with FHLB Advances for
Community Enterprise (ACE) program.  ACE provides funds for
projects and activities that result in the creation or retention of jobs or
provides services or other benefits for low and moderate-income people and
communities.  ACE funds may be used to support community lending and
economic development, including small business, community facilities, and public
works projects.  An advantage to using this program is that interest rates
and fees are generally lower than rates and fees on regular FHLB advances. 
The maximum amount of advances that a bank may borrow under the ACE program
depends on a banks total assets as of the previous year end.  For the
Bank, the maximum amount of advances that can be borrowed is 5% of total assets
as of previous year end.

In 2006, the Company has used both short term and long term FHLB borrowings to
fund growth and as a means of reducing interest rate risk.

47



---



##### 

The following table sets forth certain information regarding our FHLB advances
at or for the dates indicated:

|                                 |  | At December 31, 2006   |        | At December 31, 2005      | 
|-------------------------------- |  | ---------------------- | ------ | ------------------------- | 
|                                 |  |                        |        |                           | 
|                                 |  | Amount                 |        | Weighted   Average   Rate | 
|                                 |  |                        |        |                           | 
|                                 |  | (Dollars in Thousands) |       
|Three months   or less           |  | $                      | 14,000 |                           | 
|Over 3   through 6 months        |  |                        | 9,000  |                           | 
|Over 6   through 12 months       |  |                        | 19,256 |                           | 
|Over 12   months through 2 years |  |                        | 16,000 |                           | 
|Over 2   through 3 years         |  |                        | 10,000 |                           | 
|Over 3   through 4 years         |  |                        | 17,995 |                           | 
|                                 |  |                        |        |                           | 
|Total                            |  | $                      | 86,251 |                           | 
|                                 |  |                        |        |                           | 

|                                                              |  | At or For the Year Ended December 31, |        
|------------------------------------------------------------- |  | ------------------------------------- | -------
|                                                              |  |                                       |        
|                                                              |  | 2006                                  |        
|                                                              |  |                                       |        
|                                                              |  | (Dollars in thousands)                |        
|FHLB   advances:                                              |  |                                       |        
|Average balance outstanding                                   |  | $                                     | 101,051
|Maximum amount outstanding at any month-end during the period |  |                                       | 126,088
|Balance outstanding at end of period                          |  |                                       | 86,251 
|Average interest rate during the period                       |  |                                       | 3.60   
|Average interest rate at end of period                        |  |                                       | 3.95   

During 2002, the Bank issued a 30-year, $10,310,000 variable rate junior
subordinated debentures.  The securities mature on June 30, 2032 but
are callable after June 30, 2007. The interest rate on the debentures is
paid quarterly at the three-month LIBOR plus 3.65%.  The debenture is
subordinated to the claims of depositors and other creditors of the Bank.

During the second quarter of 2006, the Bank issued a 30-year, $3,093,000
variable rate junior subordinated debentures.  The securities mature on
September 1, 2036 but are callable after September 1, 2011.  The interest
rate on the debentures is paid quarterly at the three-month LIBOR plus 175
bps.  The debenture is subordinated to the claims of depositors and other
creditors of the Bank.  Interest expense for both debentures totaled
$1,041,000 and $743,000 as of December 31, 2006 and 2005, respectively

Capital Resources

Stockholders equity increased by $4,036,000 to $30,881,000 as of
December 31, 2006 as compared to $26,845,000 as of December 31, 2005
due to net income of $3,928,000, stock options exercised of $177,000,
share-based compensation expense of $382,000, unrealized security holding gains
of $139,000 and reclassification adjustment for realized holding losses of
$1,000 partially offset by dividends declared during the year of
$592,000.

Under regulatory capital adequacy guidelines, capital adequacy is measured as a
percentage of risk-adjusted assets in which risk percentages are applied to
assets on the balance sheet as well as off-balance sheet, such as unused loan
commitments and standby letters of credit.  The guidelines require that a
portion of total capital be core, or Tier 1, capital consisting of common
stockholders equity and perpetual preferred stock, less goodwill and
certain other deductions. Tier 2 capital consists of other elements, primarily
non-perpetual preferred stock, subordinated debt and mandatory convertible debt,
plus the allowance for loan losses, subject to certain limitations.  The
guidelines also evaluate the leverage ratio, which is Tier 1 capital divided by
average assets.

48



---



##### 

As of December 31, 2006 and 2005, the Banks capital exceeded all minimum
regulatory requirements and were considered to be well capitalized
as defined in the regulations issued by the FDIC.  The Banks capital
ratios have been computed in accordance with regulatory accounting
guidelines.

|                                         |  | Actual Capital         |        | For Capital   Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action
Provisions |  
|---------------------------------------- |  | ---------------------- | ------ | ------------------------------- |  | ---------------------------------------------------------------- | -
|                                         |  |                        |        |                                 |  |                                                                  |  
|                                         |  | Amount                 |        | Ratio                           |  | Amount                                                           |  
|                                         |  |                        |        |                                 |  |                                                                  |  
|                                         |  | (Dollars In Thousands) |       
|As of December 31, 2006:                 |  |                        |        |                                 |  |                                                                  |  
|Total   capital to risk-weighted assets  |  | $                      | 47,676 |                                 |  | 10.8                                                             | %
|Tier 1   capital to risk-weighted assets |  |                        | 43,004 |                                 |  | 9.7                                                              | %
|Tier 1   capital to average assets       |  |                        | 43,004 |                                 |  | 8.6                                                              | %
|As of December 31, 2005:                 |  |                        |        |                                 |  |                                                                  |  
|Total   capital to risk-weighted assets  |  | $                      | 40,414 |                                 |  | 10.1                                                             | %
|Tier 1   capital to risk-weighted assets |  |                        | 36,182 |                                 |  | 9.1                                                              | %
|Tier 1   capital to average assets       |  |                        | 36,182 |                                 |  | 7.9                                                              | %

Liquidity and Liability Management

Liquidity management for banks requires that funds always be available to pay
anticipated deposit withdrawals and maturing financial obligations such as
certificates of deposit promptly and fully in accordance with their terms. 
The major source of the funds required is generally provided by payments on
loans, sale of loans, liquidation of assets, and the acquisition of additional
deposit liabilities.  One method that banks utilize for acquiring
additional liabilities is through the acceptance of brokered
deposits (defined to include not only deposits received through deposit
brokers, but also deposits bearing interest in excess of 75 basis points over
market rates), typically attracting large certificates of deposit at high
interest rates.

Dividends from the Bank constitute the principal source of funds to the Company.
The FDIC and the California Department of Financial Institutions
(DFI) have authority to prohibit the Bank from engaging in
activities that, in their opinion, constitute unsafe or unsound practices in
conducting its business. It is possible, depending upon the financial condition
of the bank in question and other factors, that the FDIC and the DFI could
assert that the payment of dividends or other payments might, under some
circumstances, be an unsafe or unsound practice. Furthermore, the FDIC has
established guidelines with respect to the maintenance of appropriate levels of
capital by banks under its jurisdiction.  As of December 31, 2006 and
December 31, 2005, there were $592,000 and $441,000 in dividends paid by the
Bank to the Company, respectively.

To meet liquidity needs, the Bank maintains a portion of the funds in cash
deposits in other banks, Federal funds sold, and investment securities.  As
of December 31, 2006, liquid assets were comprised of $8,526,000 in Federal
funds sold, $987,000 in interest-bearing deposits in other financial
institutions, $3,750,000 in cash and due from banks, and $26,516,000 in
available-for-sale securities. As of December 31, 2005, liquid assets were
comprised of $5,536,000 in Federal funds sold, $943,000 in interest-bearing
deposits in other financial institutions,  $10,566,000 in cash and due from
banks, and $15,118,000 in available-for-sale securities.

49



---



##### 

Liquidity can be enhanced, if necessary, through short or long term
borrowings.  As of December 31, 2006, the Bank had available borrowing
capacity totaling $130.0 million which consisted of borrowing capacity of $3.0
million with two correspondent banks and approximately $127.0 million in
available borrowing capacity through pledged loans and securities with the
Federal Home Loan Bank of San Francisco.  In addition, there is available
borrowing capacity with the Federal Reserve Bank of San Francisco, although
currently no loans or securities have been pledged.

Net cash provided by operating activities totaled $4.3 million as of December
31, 2005, compared to $5.5 million for the same period in 2005.  The
decrease was primarily the result of a decrease in accrued interest payable and
other liabilities and a decrease in net income partially offset by an increase
in the growth of accrued interest receivable and other assets adjusted for the
effect of the amortizations of premiums on investment securities.

Net cash used in investing activities totaled $45.6 million as of December 31,
2006, compared to $41.5 million used by investing activities for the same period
in 2005.  The increase was primarily the result of the $18.2 million purchase
of investment securities in 2006 with no purchases in investment securities in
2005 and a decrease in the growth of the loan portfolio partially offset by
proceeds from maturities of investment securities available for sale of $2.0
million.

Funds provided by financing activities totaled $37.5 million as of December 31,
2006, compared to funds provided by financing activities of $30.4 million for
the same period in 2005.  The increase in net cash provided by financing
activities was primarily the result of a $56.4 million increase in the rate of
growth of deposits and a $3.1 million junior subordinated debentures issuance
partially offset by a decrease in the growth of FHLB borrowings.

The careful planning of asset and liability maturities and the matching of
interest rates to correspond with this maturity matching is an integral part of
the active management of an institutions net yield.  To the extent
maturities of assets and liabilities do not match in a changing interest rate
environment, net yields may be affected.  Even with perfectly matched
re-pricing of assets and liabilities, risks remain in the form of prepayment of
assets, timing lags in adjusting certain assets and liabilities that have
varying sensitivities to market interest rates and basis risk.  In an
overall attempt to match assets and liabilities, the Company takes into account
rates and maturities to be offered in connection with the certificates of
deposit and variable rate loans.  Because of the ratio of rate sensitive
assets to rate sensitive liabilities, the Company is liability sensitive and has
been negatively affected by the increasing interest rates.  Conversely, the
Company would be positively affected in a decreasing rate
environment.

The Company has generally been able to control the exposure to changing interest
rates by maintaining a large percentage of adjustable interest rate loans and
the majority of the time certificates in relatively short maturities.  The
majority of the loans have periodic and lifetime interest rate caps and
floors.  The Company has also controlled the interest rate risk exposure by
locking in longer term fixed rate liabilities, including FHLB borrowing,
brokered certificates of deposit, and non-brokered wholesale certificates of
deposit.

Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate our interest rate sensitivity position.  To supplement
traditional gap analysis, the Company performs simulation modeling to estimate
the potential effects of changing interest rates.  The process allows the
Company to explore the complex relationships within the gap over time and
various interest rate environments.

50



---



##### 

The following table shows the Banks cumulative gap analysis as of December
31, 2006:

|                                                                                     |  | At December 31, 2006    |        
|------------------------------------------------------------------------------------ |  | ----------------------- | -------
|                                                                                     |  |                         |        
|                                                                                     |  | Within   Three   Months |        
|                                                                                     |  |                         |        
|                                                                                     |  | (Dollars in Thousands)  |        
|Interest   Earning Assets                                                            |  |                         |        
|Securities                                                                           |  | $                       | 8,089  
|Federal   Funds                                                                      |  |                         | 8,526  
|Interest-bearing   deposits in other financial institutions                          |  |                         |       
|Loans                                                                                |  |                         | 205,399
|FHLB and   PCBB Stock                                                                |  |                         |       
|                                                                                     |  |                         |        
|Total                                                                                |  | $                       | 222,014
|                                                                                     |  |                         |        
|Interest-Bearing   Liabilities                                                       |  |                         |        
|Noninterest-bearing   checking                                                       |  | $                       | 18,135 
|Interest-bearing   checking                                                          |  |                         | 8,433  
|Money market   and savings                                                           |  |                         | 150,012
|Time   deposits                                                                      |  |                         | 84,220 
|FHLB   advances                                                                      |  |                         | 14,000 
|Junior   Subordinated Debentures                                                     |  |                         | 13,403 
|                                                                                     |  |                         |        
|Total                                                                                |  | $                       | 288,203
|                                                                                     |  |                         |        
|Interest   rate sensitivity gap                                                      |  | $                       | (66,189
|                                                                                     |  |                         |        
|Cummulative interest rate sensitivity gap as a percentage of interest-earning
assets |  |                         | -13.3  
|                                                                                     |  |                         |        

The target cumulative one-year gap ratio is -15% to 15%.  The policy limit
for net earnings at risk for a +/- 200 basis points change in rates is
25%, indicating a worst case 25% decrease in earnings given a 200 basis
point change in interest rates. The policy limit for a +/- 200 basis points
change in rates is 15%, indicating a 15% decrease in net interest
income.  Management will strive to maintain rate sensitive assets on its
books.

Management will also evaluate the uses of FHLB products including longer-term
bullet advances, amortizing advances, and interest rate swaps as tools to
control interest rate risk. If one of the interest rate risk measures exceeds
the policy limits management will adjust product offerings and will reposition
assets and liabilities to bring the interest rate risk measure back within
policy limits within a reasonable timeframe.  The current one year gap
ratio is -4.6%.  A negative gap indicates that in an increasing interest
rate environment, it is expected that net interest margin would decrease, and in
a decreasing interest rate environment, net interest margin would
increase.

The Company believes that there are some inherent weaknesses in utilizing the
cumulative gap analysis as a means of monitoring and controlling interest rate
risk.  Specifically, the cumulative gap analysis does not address periodic
lifetime rate caps on loans and does not incorporate varying prepayment speeds
as interest rates change.  The Company, therefore, relies more heavily on
the dynamic simulation model to monitor and control interest rate
risk.

51



---



##### 

Interest Rate Sensitivity

The careful planning of asset and liability maturities and the matching of
interest rates to correspond with this maturity matching is an integral part of
the active management of an institutions net interest margin. To the
extent maturities of assets and liabilities do not match in a changing interest
rate environment, net yields may be affected. Even with perfectly matched
re-pricing of assets and liabilities, risks remain in the form of prepayment of
assets, timing lags in adjusting certain assets and liabilities that have
varying sensitivities to market interest rates and basis risk. In an overall
attempt to match assets and liabilities, the Company takes into account rates
and maturities to be offered in connection with certificates of deposit and
variable rate loans. Because of the current ratio of rate sensitive assets to
rate sensitive liabilities, the Company is liability sensitive and would be
positively affected by the decreasing interest rate market. Conversely, the
Company would be negatively affected in an increasing rate environment.

The Company has generally been able to control exposure to changing interest
rates by maintaining a large percentage of adjustable interest rate loans and
the majority of the time certificates in relatively short maturities. The
majority of the loans have periodic and lifetime interest rate caps and floors.
The Company has also controlled the interest rate risk exposure by locking in
longer term fixed rate liabilities, including FHLB borrowing, brokered
certificates of deposit, and non-brokered wholesale certificates of
deposit.

Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate our interest rate sensitivity position. To supplement
traditional gap analysis, the Company performs simulation modeling to estimate
the potential effects of changing interest rates.  This process allows the
Company to explore the complex relationships within the gap over time and
various interest rate environments.

The Company uses a dynamic simulation model to forecast the anticipated impact
of changes in market interest rates on its net interest income and economic
value of equity. The model is used to assist management in evaluating and in
determining and adjusting strategies designed to reduce its exposure to these
market risks, which may include, for example, changing the mix of earning assets
or interest-bearing deposits. The current net interest earnings at risk given a
+/ 200 basis point rate shock is -12.19% and the current estimated change
in the economic value of equity given a +/ 200 basis point rate shock is
-7.46%.

|Simulated Rate Changes |  | Estimated Net Interest Income Sensitivity |        | Estimated Change in Economic Value of Equity | 
|---------------------- |  | ----------------------------------------- | ------ | -------------------------------------------- | 
|                       |  |                                           |        |                                              | 
|+ 200 basis points     |  |                                           | -12.19 | %                                            | 
|- 200 basis   points   |  |                                           | 10.38  | %                                            | 

As illustrated in the above table, the Company is currently liability
sensitive.  The implication of this is that the Companys earnings
will increase in a falling rate environment, as there are more rate-sensitive
liabilities subject to reprice downward than rate-sensitive assets; conversely,
earnings would decrease in a rising rate environment.  Therefore, an
increase in market rates could adversely affect net interest income.  In
contrast, a decrease in market rates may improve net interest income.

Management believes that all of the assumptions used in the analysis to evaluate
the vulnerability of its projected net interest income and economic value of
equity to changes in interest rates approximate actual experiences and considers
them to be reasonable. However, the interest rate sensitivity of the Banks
assets and liabilities and the estimated effects of changes in interest rates on
the Banks projected net interest income and economic value of equity may
vary substantially if different assumptions were used or if actual experience
differs from the projections on which they are based.

The Asset Liability Committee meets quarterly to monitor the investments,
liquidity needs and oversee the asset-liability management. In between meetings
of the Committee, management oversees the liquidity management.

52



---



##### 

Return on equity and assets

The following table sets forth key ratios for the periods ending
December 31, 2006, 2005, and 2004.

|                                                                       |  | As of December 31, |      
|---------------------------------------------------------------------- |  | ------------------ | -----
|                                                                       |  |                    |      
|                                                                       |  | 2006               |      
|                                                                       |  |                    |      
|Net income   as a percentage of average assets                         |  |                    | 0.81 
|Net income   as a percentage of average equity                         |  |                    | 13.81
|Average   equity as a percentage of average assets                     |  |                    | 5.85 
|Dividends   declared per share as a percentage of net income per share |  |                    | 3.77 

In 2006, the Company has grown its earning asset base and produced additional
fee income through investment advisory services fee income and the gain on sale
of loans.  Also, in 2006 the Company incurred significant increases in
expenses associated with the increased retail branch network, increased
administrative expenses, and ongoing costs related to EWM.

Inflation

The impact of inflation on a financial institution can differ significantly from
that exerted on other companies. Banks, as financial intermediaries, have many
assets and liabilities that may move in concert with inflation both as to
interest rates and value. However, financial institutions are affected by
inflations impact on noninterest expenses, such as salaries, benefits and
occupancy expenses.

Because of the Banks ratio of rate sensitive assets to rate sensitive
liabilities, the Bank tends to benefit slightly in the short-term from a
decreasing interest rate market and, conversely, suffer in an increasing
interest rate market. As such, the management of the Federal Funds rate by the
Federal Reserve has an impact on the Companys  earnings. The changes
in interest rates may have a corresponding impact on the ability of borrowers to
repay loans with the Bank.

Off-Balance Sheet Arrangements

In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments include
commitments to extend credit and letters of credit. To varying degrees, these
instruments involve elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial position. The Companys
exposure to credit loss in the event of non-performance by the other party to
the financial instruments for undisbursed loan funds and letters of credit is
represented by the contractual amount of those instruments. At December 31, 2006
and December 31, 2005, the amounts of the Companys undisbursed loan and
line of credit funds were $21.9 million and $23.8 million, respectively, and
there were no obligations under standby and commercial letters of credit in
either period.

Refer to the Consolidated Financial Statements for more qualitative and
quantitative disclosures about financial instruments with off-balance sheet
risk.

53



---



##### 

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURE AOBUT MARKET RISK

Quantitative and Qualitative Disclosure About Market Risk

Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. Although
the Company manages other risks, for example, credit quality and liquidity risk
in the normal course of business, management considers interest rate risk to be
a principal market risk. Other types of market risks, such as foreign currency
exchange rate risk, do not arise in the normal course of the Companys
business activities. The majority of the Companys interest rate risk
arises from instruments, positions and transactions entered into for purposes
other than trading. They include loans, securities available-for-sale, deposit
liabilities, short-term borrowings and long-term debt. Interest rate risk occurs
when assets and liabilities reprice at different times as interest rates
change.

The Company manages interest rate risk through its Asset Liability Committee
(ALCO). The ALCO monitors exposure to interest rate risk on a quarterly basis
using both a traditional gap analysis and simulation analysis. Traditional gap
analysis identifies short and long-term interest rate positions or exposure.
Simulation analysis uses an income simulation approach to measure the change in
interest income and expense under rate shock conditions. The model considers the
three major factors of (a) volume differences, (b) repricing differences and (c)
timing in its income simulation. The model begins by disseminating data into
appropriate repricing buckets based on internally supplied algorithms (or
overridden by calibration). Next, each major asset and liability type is
assigned a multiplier or beta to simulate how much that particular
balance sheet category type will reprice when interest rates change. The model
uses numerous asset and liability multipliers consisting of bank-specific or
default multipliers. The remaining step is to simulate the timing effect of
assets and liabilities by modeling a month-by-month simulation to estimate the
change in interest income and expense over the next 12-month period. The results
are then expressed as the change in pre-tax net interest income over a 12-month
period for +1%, +2% and +3% shocks.

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Contents

|Report of Independent Registered Public Accounting
Firm                                                        | 55
|-------------------------------------------------------------------------------------------------------------- | --
|                                                                                                               |   
|Financial Statements                                                                                           |   
|                                                                                                               |   
|Consolidated Balance Sheets December 31,   2006 and 2005                                                       | 56
|                                                                                                               |   
|Consolidated Statements of Income For the Years Ended December
31, 2006, 2005 and 2004                         | 57
|                                                                                                               |   
|Consolidated Statement of Changes in Stockholders Equity
For the Years Ended December 31, 2006, 2005 and 2004 | 58
|                                                                                                               |   
|Consolidated Statements of Cash Flows For the Years Ended
December 31, 2006, 2005 and 2004                     | 59
|                                                                                                               |   
|Notes to Consolidated Financial
Statements                                                                     | 60

54



---



##### 

Report of Independent Registered Public Accounting Firm

Board of Directors Epic Bancorp San Rafael, California

We have audited the accompanying consolidated balance sheets of Epic Bancorp and
Subsidiaries (the Company) as of December 31, 2006 and 2005, and the
related consolidated statements of income, changes in stockholders equity
and cash flows for each of the three years in the period ended December 31,
2006.  These consolidated financial statements are the responsibility of
the Companys management.  Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Epic Bancorp and
Subsidiaries as of December 31, 2006 and 2005, and the results of its
operations, changes in its stockholders equity, and its cash flows for
each of the three years in the period ended December 31, 2006, in conformity
with U.S. generally accepted accounting principles.

As discussed in Note 1 to the Consolidated Financial Statements, effective
January 1, 2006, the Company changed its method of accounting for share-based
payments.

|/s/   Vavrinek, Trine, Day & Co., LLP | 
|------------------------------------- | 
|Rancho   Cucamonga, California        | 
|March 29,   2007                      | 

55



---



##### 

EPIC BANCORP AND SUBSIDIARIESCONSOLIDATED BALANCE
SHEETS DECEMBER 31, 2006 AND 2005

|                                                                                                                                                            |  | 2006 |             | 2005 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|                                                                                                                                                            |  |      |             |      |  
|Assets                                                                                                                                                      |  |      |             |      |  
|Cash and cash equivalents:                                                                                                                                  |  |      |             |      |  
|Cash   and due from banks                                                                                                                                   |  | $    | 3,750,262   |      | $
|Federal   funds sold                                                                                                                                        |  |      | 8,525,772   |      |  
|Investment   in money market funds                                                                                                                          |  |      |            |      |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Cash and Cash Equivalents                                                                                                                           |  |      | 12,276,034  |      |  
|Interest-bearing time   deposits in other financial institutions                                                                                            |  |      | 987,305     |      |  
|Investment securities:                                                                                                                                      |  |      |             |      |  
|Available-for-sale                                                                                                                                          |  |      | 26,515,887  |      |  
|Held-to-maturity,   at cost                                                                                                                                 |  |      | 21,823,305  |      |  
|Federal Home Loan Bank   restricted stock, at cost                                                                                                          |  |      | 5,891,900   |      |  
|Pacific Coast Bankers   Bank stock, at cost                                                                                                                |  |      | 50,000      |      |  
|Loans receivable                                                                                                                                            |  |      | 426,006,504 |      |  
|Less:   Allowance for loan losses                                                                                                                           |  |      | (4,671,596  | )    |  
|                                                                                                                                                            |  |      |             |      |  
|                                                                                                                                                            |  |      | 421,334,908 |      |  
|Bank premises and equipment,   net                                                                                                                          |  |      | 5,274,915   |      |  
|Accrued interest   receivable                                                                                                                               |  |      | 3,297,170   |      |  
|Other assets                                                                                                                                                |  |      | 6,062,952   |      |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Assets                                                                                                                                              |  | $    | 503,514,376 |      | $
|                                                                                                                                                            |  |      |             |      |  
|Liabilities and Stockholders Equity                                                                                                                        |  |      |             |      |  
|Liabilities                                                                                                                                                 |  |      |             |      |  
|Deposits:                                                                                                                                                   |  |      |             |      |  
|Noninterest-bearing   deposits                                                                                                                              |  | $    | 18,134,565  |      | $
|Interest-bearing   checking deposits                                                                                                                        |  |      | 8,432,730   |      |  
|Money   market and saving deposits                                                                                                                          |  |      | 150,011,698 |      |  
|Certificates   of deposit greater than or equal to $100,000                                                                                                 |  |      | 129,011,093 |      |  
|Certificates of deposit less than $100,000                                                                                                                  |  |      | 64,214,598  |      |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Deposits                                                                                                                                            |  |      | 369,804,684 |      |  
|Federal Home Loan Bank   Advances                                                                                                                           |  |      | 86,250,777  |      |  
|Junior Subordinated Debentures                                                                                                                              |  |      | 13,403,000  |      |  
|Accrued interest payable   and other liabilities                                                                                                            |  |      | 3,175,055   |      |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Liabilities                                                                                                                                         |  |      | 472,633,516 |      |  
|                                                                                                                                                            |  |      |             |      |  
|Commitment   and Contingencies(Note   13)                                                                                                                   |  |      |            |      |  
|Stockholders   Equity                                                                                                                                      |  |      |             |      |  
|Common stock, no par value; 10,000,000 shares authorized; 3,960,852 and
3,679,663 shares issued and outstanding at December 31, 2006 and 2005,
respectively |  |      | 10,384,816  |      |  
|Paid-In-Capital                                                                                                                                             |  |      | 381,993     |      |  
|Retained   earnings                                                                                                                                         |  |      | 20,236,571  |      |  
|Accumulated   other comprehensive loss                                                                                                                      |  |      | (122,520    | )    |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Stockholders Equity                                                                                                                                |  |      | 30,880,860  |      |  
|                                                                                                                                                            |  |      |             |      |  
|Total   Liabilities and Stockholders Equity                                                                                                                |  | $    | 503,514,376 |      | $
|                                                                                                                                                            |  |      |             |      |  

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

56



---



##### 

EPIC BANCORP AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
2004

|                                                       |  | 2006 |            | 2005 |   | 2004       | 
|------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | 
|                                                       |  |      |            |      |   |            | 
|Interest   Income                                      |  |      |            |      |   |            | 
|Interest   and fees on loans                           |  | $    | 33,228,862 |      | $ | 26,497,787 | 
|Interest   on investment securities                    |  |      | 1,902,396  |      |   | 1,811,067  | 
|Interest   on Federal funds sold                       |  |      | 314,126    |      |   | 86,104     | 
|Interest   on other investments                        |  |      | 324,485    |      |   | 285,759    | 
|Interest   on deposits in other financial institutions |  |      | 44,342     |      |   | 43,096     | 
|                                                       |  |      |            |      |   |            | 
|Total   Interest Income                                |  |      | 35,814,211 |      |   | 28,723,813 | 
|                                                       |  |      |            |      |   |            | 
|Interest   Expense                                     |  |      |            |      |   |            | 
|Interest   expense on deposits                         |  |      | 13,507,085 |      |   | 7,718,981  | 
|Interest   expense on borrowed funds                   |  |      | 3,636,467  |      |   | 3,266,083  | 
|Interest   expense on Junior Subordinated Debentures   |  |      | 1,040,962  |      |   | 743,214    | 
|                                                       |  |      |            |      |   |            | 
|Total   Interest Expense                               |  |      | 18,184,514 |      |   | 11,728,278 | 
|                                                       |  |      |            |      |   |            | 
|Net   Interest Income Before Provision For Loan Losses |  |      | 17,629,697 |      |   | 16,995,535 | 
|Provision   for Loan Losses                            |  |      | 439,472    |      |   | 631,691    | 
|                                                       |  |      |            |      |   |            | 
|Net   Interest Income After Provision for Loan Losses  |  |      | 17,190,225 |      |   | 16,363,844 | 
|                                                       |  |      |            |      |   |            | 
|Noninterest   Income                                   |  |      |            |      |   |            | 
|Gain   on sale or brokerage of loans                   |  |      | 791,966    |      |   | 581,397    | 
|Net   loss on sale of securities, net                  |  |      | (1,820     | )    |   |           | 
|Loan   servicing                                       |  |      | 161,142    |      |   | 65,403     | 
|Loan   fees and other income                           |  |      | 1,225,169  |      |   | 986,831    | 
|                                                       |  |      |            |      |   |            | 
|Total   Noninterest Income                             |  |      | 2,176,457  |      |   | 1,633,631  | 
|                                                       |  |      |            |      |   |            | 
|Noninterest   Expenses                                 |  |      |            |      |   |            | 
|Salaries   and benefits                                |  |      | 7,934,800  |      |   | 6,449,886  | 
|Occupancy                                              |  |      | 1,409,557  |      |   | 1,164,053  | 
|Advertising                                            |  |      | 367,768    |      |   | 357,213    | 
|Professional                                           |  |      | 337,172    |      |   | 487,682    | 
|Data   processing                                      |  |      | 364,223    |      |   | 698,329    | 
|Equipment   and depreciation                           |  |      | 850,820    |      |   | 571,324    | 
|Other   administrative                                 |  |      | 1,771,318  |      |   | 1,533,519  | 
|                                                       |  |      |            |      |   |            | 
|Total   Noninterest Expense                            |  |      | 13,035,658 |      |   | 11,262,006 | 
|                                                       |  |      |            |      |   |            | 
|Income   Before Income Taxes                           |  |      | 6,331,024  |      |   | 6,735,469  | 
|Provision   for Income Taxes                           |  |      | 2,402,575  |      |   | 2,639,300  | 
|                                                       |  |      |            |      |   |            | 
|Net   Income                                           |  | $    | 3,928,449  |      | $ | 4,096,169  | 
|                                                       |  |      |            |      |   |            | 
|Earnings   Per Share                                   |  |      |            |      |   |            | 
|Basic                                                  |  | $    | 0.99       |      | $ | 1.04       | 
|                                                       |  |      |            |      |   |            | 
|Diluted                                                |  | $    | 0.99       |      | $ | 1.01       | 
|                                                       |  |      |            |      |   |            | 

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

57



---



##### 

EPIC BANCORP AND SUBSIDIARIESCONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31,
2006, 2005 AND 2004

|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   | Accumulated   Other   Comprehensive   Income/(Loss) |          |   |   |           
|--------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------------------ | ---------------------- | ---------- | ------------------- | - | ------- |  | - | --------- | ------------------------------ | - | ---------- | - | --------------------------------------------------- | -------- | - | - | ----------
|                                                                                              |  | Common   Stock |           | Additional   Paid in   Capital |                        |            |                     |   |         |  |   |           | Total   Stockholders   Equity |  
|                                                                                              |  |                |           |                                | Comprehensive   Income |            | Retained   Earnings |   |         | 
|                                                                                              |  | Shares         |           | Amount                         |                        |            |                     |   |         | 
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |           
|Balance,
January 1, 2004                                                                      |  |                | 3,136,957 |                                |                        | 3,712,516  |                     |   |        |  |   |          |                                |   | 10,161,583 |   |                                                     |         |   |   | 13,874,099
|Stock   options exercised                                                                     |  |                | 18,146    |                                |                        | 71,505     |                     |   |        |  |   |          |                                |   |           |   |                                                     |         |   |   | 71,505    
|Sale   of stock, net of $262,569 in issuance costs                                            |  |                | 510,599   |                                |                        | 6,375,218  |                     |   |        |  |   |          |                                |   |           |   |                                                     |         |   |   | 6,375,218 
|Cash   Dividends                                                                              |  |                |          |                                |                        |           |                     |   |        |  |   |          |                                |   | (365,280   | ) |                                                     |         |   |   | (365,280  
|Comprehensive income                                                                          |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Net   Income for the period                                                                   |  |                |          |                                |                        |           |                     |   |        |  | $ | 3,448,413 |                                |   | 3,448,413  |   |                                                     |         |   |   | 3,448,413 
|Unrealized   security holding losses (net of $169,516 tax benefit)                            |  |                |          |                                |                        |           |                     |   |        |  |   | (254,273  | )                              |   |           |   |                                                     | (254,273 | ) |   | (254,273  
|Less:   reclassification adjustment for realized losses (net of $16,664 tax benefit)          |  |                |          |                                |                        |           |                     |   |        |  |   | 24,996    |                                |   |           |   |                                                     | 24,996   |   |   | 24,996    
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Total Comprehensive Income                                                                    |  |                |           |                                |                        |            |                     |   |         |  | $ | 3,219,136 |                                |   |            |   |                                                     |          |   |   |           
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Balance,
December 31,   2004                                                                  |  |                | 3,665,702 |                                |                        | 10,159,239 |                     |   |        |  |   |          |                                |   | 13,244,716 |   |                                                     | (229,277 | ) |   | 23,174,678
|Stock   options exercised                                                                     |  |                | 13,961    |                                |                        | 48,449     |                     |   |        |  |   |          |                                |   |           |   |                                                     |         |   |   | 48,449    
|Cash   Dividends                                                                              |  |                |          |                                |                        |           |                     |   |        |  |   |          |                                |   | (441,050   | ) |                                                     |         |   |   | (441,050  
|Comprehensive income                                                                          |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Net   Income for the period                                                                   |  |                |          |                                |                        |           |                     |   |        |  | $ | 4,096,169 |                                |   | 4,096,169  |   |                                                     |         |   |   | 4,096,169 
|Unrealized   security holding losses (net of $22,112 tax benefit)                             |  |                |          |                                |                        |           |                     |   |        |  |   | (33,168   | )                              |   |           |   |                                                     | (33,168  | ) |   | (33,168   
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Total Comprehensive Income                                                                    |  |                |           |                                |                        |            |                     |   |         |  | $ | 4,063,001 |                                |   |            |   |                                                     |          |   |   |           
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Balance,
December 31,   2005                                                                  |  |                | 3,679,663 |                                | $                      | 10,207,688 |                     | $ |        |  |   |           |                                | $ | 16,899,835 |   | $                                                   | (262,445 | ) | $ | 26,845,078
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Stock   options exercised                                                                     |  |                | 22,068    |                                |                        | 177,128    |                     |   |        |  |   |          |                                |   |           |   |                                                     |         |   |   | 177,128   
|Cash   Dividends                                                                              |  |                |          |                                |                        |           |                     |   |        |  |   |          |                                |   | (591,713   | ) |                                                     |         |   |   | (591,713  
|Share-based   compensation expense                                                            |  |                |          |                                |                        |           |                     |   | 381,993 |  |   |          |                                |   |           |   |                                                     |         |   |   | 381,993   
|Comprehensive income                                                                          |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Net   Income for the period                                                                   |  |                |          |                                |                        |           |                     |   |        |  | $ | 3,928,449 |                                |   | 3,928,449  |   |                                                     |         |   |   | 3,928,449 
|Unrealized   security holding gains (net of $92,556 tax)                                      |  |                |          |                                |                        |           |                     |   |        |  |   | 138,833   |                                |   |           |   |                                                     | 138,833  |   |   | 138,833   
|Stock   issued on 7% stock dividend declared on January 31, 2007                              |  |                | 259,121   |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Less   reclassification adjustment for realized holding losses (net of tax benefit   of $728) |  |                |          |                                |                        |           |                     |   |        |  |   | 1,092     |                                |   |           |   |                                                     | 1,092    |   |   | 1,092     
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Total Comprehensive Income                                                                    |  |                |           |                                |                        |            |                     |   |         |  | $ | 4,068,374 |                                |   |            |   |                                                     |          |   |   |           
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           
|Balance,
December 31,   2006                                                                  |  |                | 3,960,852 |                                | $                      | 10,384,816 |                     | $ | 381,993 |  |   |           |                                | $ | 20,236,571 |   | $                                                   | (122,520 | ) | $ | 30,880,860
|                                                                                              |  |                |           |                                |                        |            |                     |   |         |  |   |           |                                |   |            |   |                                                     |          |   |   |           

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

58



---



##### 

EPIC BANCORP AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
2004

|                                                                                      |  | 2006 |             | 2005 |   | 2004        |  
|------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                      |  |      |             |      |   |             |  
|Cash   Flows From Operating Activities                                                |  |      |             |      |   |             |  
|Net   Income                                                                          |  | $    | 3,928,449   |      | $ | 4,096,169   |  
|Adjustments   to Reconcile Net Income to Net Cash   Provided by Operating Activities: |  |      |             |      |   |             |  
|Depreciation   and amortization of premises and equipment                             |  |      | 825,128     |      |   | 538,495     |  
|Provision   for loan losses                                                           |  |      | 439,472     |      |   | 631,691     |  
|Change in deferred income taxes                                                       |  |      | 173,000     |      |   | (212,000    | )
|Change   in deferred costs, net of amortization                                       |  |      | 995,356     |      |   | 800,664     |  
|Change   in loan servicing asset, net of amortization                                 |  |      | (94,845     | )    |   | (73,775     | )
|Net   amortization of investment securities                                           |  |      | 215,688     |      |   | 532,471     |  
|Share-Based Compensation                                                              |  |      | 381,993     |      |   |            |  
|FHLB   stock dividends                                                                |  |      | (313,000    | )    |   | (282,300    | )
|Gain   on Sale of Loans                                                               |  |      | (791,966    | )    |   | (581,397    | )
|Loans   Originated for Sale                                                           |  |      | (9,883,375  | )    |   | (7,238,504  | )
|Proceeds   from Loan Sales                                                            |  |      | 10,675,341  |      |   | 8,033,651   |  
|Loss   on sale of investment securities                                               |  |      | 1,820       |      |   |            |  
|Net   change in accrued interest receivable and other assets                          |  |      | (2,077,510  | )    |   | (2,497,328  | )
|Net   change in accrued interest payable and other liabilities                        |  |      | (297,264    | )    |   | 1,747,936   |  
|                                                                                      |  |      |             |      |   |             |  
|Net   Cash Provided By Operating Activities                                           |  |      | 4,178,287   |      |   | 5,495,773   |  
|                                                                                      |  |      |             |      |   |             |  
|Cash   Flows From Investing Activities                                                |  |      |             |      |   |             |  
|Loans   originated or purchased, net of repayments                                    |  |      | (40,345,292 | )    |   | (58,419,952 | )
|Principal   reduction in mortgage-backed securities                                   |  |      | 11,794,080  |      |   | 18,341,689  |  
|Purchase   of investment securities available for sale                                |  |      | (18,191,843 | )    |   |            |  
|Purchase   of investment securities held to maturity                                  |  |      |            |      |   |            |  
|Net   change in interest earning deposits                                             |  |      | (44,341     | )    |   | 56,682      |  
|Purchase   of Federal Home Loan Bank stock                                            |  |      | (117,500    | )    |   | 1,018,200   |  
|Redemption   of Federal Home Loan Bank stock                                          |  |      | 736,200     |      |   |            |  
|Proceeds   from sale of investment securities                                         |  |      |            |      |   |            |  
|Proceeds   from maturities of investment securities available for sale                |  |      | 2,036,120   |      |   |            |  
|Purchase   of property and equipment                                                  |  |      | (1,393,945  | )    |   | (2,539,341  | )
|                                                                                      |  |      |             |      |   |             |  
|Net   Cash Used By Investing Activities                                               |  |      | (45,526,521 | )    |   | (41,542,722 | )
|                                                                                      |  |      |             |      |   |             |  
|Cash   Flows From Financing Activities                                                |  |      |             |      |   |             |  
|Net   increase in deposits                                                            |  |      | 56,405,265  |      |   | 38,779,445  |  
|Net   change in FHLB advances                                                         |  |      | (21,561,275 | )    |   | (7,968,584  | )
|Proceeds   from stock subscription                                                    |  |      |            |      |   |            |  
|Issuance   of junior subordinated debentures                                          |  |      | 3,093,000   |      |   |            |  
|Dividends   paid                                                                      |  |      | (591,713    | )    |   | (441,050    | )
|Stock   option exercise proceeds                                                      |  |      | 177,128     |      |   | 48,449      |  
|                                                                                      |  |      |             |      |   |             |  
|Net   Cash Provided By Financing Activities                                           |  |      | 37,522,405  |      |   | 30,418,260  |  
|                                                                                      |  |      |             |      |   |             |  
|Net   Increase (Decrease) in Cash and Cash Equivalents                                |  | $    | (3,825,829  | )    | $ | (5,628,689  | )
|Cash and   Cash Equivalents,   Beginning of Year                                      |  |      | 16,101,863  |      |   | 21,730,552  |  
|                                                                                      |  |      |             |      |   |             |  
|Cash and   Cash Equivalents,   End of Year                                            |  | $    | 12,276,034  |      | $ | 16,101,863  |  
|                                                                                      |  |      |             |      |   |             |  
|Supplemental   Disclosure of Cash Flow Information                                    |  |      |             |      |   |             |  
|Cash   paid during the year for:                                                      |  |      |             |      |   |             |  
|Interest   paid                                                                       |  | $    | 18,145,932  |      | $ | 11,617,757  |  
|                                                                                      |  |      |             |      |   |             |  
|Income   taxes paid                                                                   |  | $    | 3,247,700   |      | $ | 3,035,000   |  
|                                                                                      |  |      |             |      |   |             |  
|Non-Cash   Investing Activities                                                       |  |      |             |      |   |             |  
|Net   change in accumulated other comprehensive income                                |  | $    | 138,934     |      | $ | (33,168     | )
|                                                                                      |  |      |             |      |   |             |  

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

59



---



##### 

EPIC BANCORP AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  DECEMBER 31, 2006 AND 2005

Note 1: Summary of Significant Accounting Policies

Nature of Operations

Epic Bancorp (Bancorp) was incorporated on December 20, 1988
and is headquartered in San Rafael, California and has two wholly owned
subsidiaries, Tamalpais Bank (the Bank) and Epic Wealth Management
(EWM).  The Bank conducts business as an industrial bank under
the California State Banking Law and operates seven branches in Marin County,
California. The Bank provides a variety of financial services to small-to-medium
sized businesses and individuals and offers a full range of commercial banking
services.  EWM offers investment advisory services and financial planning
to the general community and to clients of the Bank.

The consolidated financial statements of the Bancorp and subsidiaries are
prepared in conformity with accounting principles and reporting policies
generally accepted in the United States of America and prevailing practices
within the banking industry. The more significant accounting and reporting
policies are discussed below.

Principles of Consolidation

The consolidated financial statements include the accounts of Bancorp and its
wholly owned subsidiaries.  All material intercompany transactions and
accounts have been eliminated in consolidation.

Investment in Nonconsolidated Subsidiary

Bancorp accounts for its investments in its wholly owned special purpose
entities, San Rafael Capital Trust I and II, using the equity method under which
the subsidiaries net earnings are recognized in the Bancorps
statement of income.

Accounting Estimates

Certain accounting policies underlying the preparation of these financial
statements require management to make estimates and judgments.  These
estimates and judgments may affect reported amounts of assets and liabilities,
revenues and expenses, and disclosures of contingent assets and
liabilities.  The most significant of these involve the Allowance for Loan
Losses, as discussed below under Allowance for Loan
Losses.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, Federal funds sold, money market mutual funds, and
other investments with original maturities of less than 90 days, presenting
insignificant risk of changes in value due to interest rate changes.

Investment Securities

Investments in debt and equity securities are classified as either
held-to-maturity, trading, or available-for-sale.  Investments classified
as held-to-maturity are those that the Company has the ability and intent to
hold until maturity and are reported at their remaining unpaid principal
balance, net of unamortized premiums or nonaccreted discounts.  Investments
that are bought and held principally for the purposes of selling them in the
near term are classified as trading securities and reported at market value,
with unrealized gains and losses included in earnings.  Investments that
will be held for indefinite periods of time, including securities that may be
sold in response to changes in market interest or prepayment rates, needs for
liquidity, and changes in the availability of and the yield of alternative
investments, are classified as available-for-sale. These investments are carried
at market value which is determined using published quotes as of the close of
business. Unrealized gains and losses are excluded from earnings and reported
net of related tax and recorded as other comprehensive income and included in
shareholders equity until realized.

60



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The amortized cost of investment securities are adjusted for amortization of
premiums and accretion of discounts to maturity or, in the case of
mortgage-backed securities, over the estimated life of the security, using a
method that approximates the effective interest method. Such amortization and
accreted interest are included in interest income.  Gains and losses on
sales of investments are recognized based on specific identification and are
included in noninterest income.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value.  The related write-downs
are included in earnings as realized losses.  In estimating
other-than-temporary impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent
and ability of the Bancorp to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery of fair value.

Loans

Loans are reported at their outstanding principal balances net of any unearned
income, charge-offs, unamortized deferred fees and costs on originated loans and
premiums and discounts on purchases loans.  The Banks decision to
hold these loans for investment is based on the Banks intent and ability
to hold the portfolio for the foreseeable future or until maturity or payoff.

The Banks loans are reported at the principal amount outstanding net of
deferred fees and the allowance for loan losses.  Interest income is
accrued daily on the outstanding loan balances using the simple interest
method.  Loans are placed on nonaccrual status when management believes
that there is serious doubt as to the collection of principal or interest, or
when they become contractually past due by 90 days or more with respect to
principal or interest, except for loans that are well secured and in the process
of collection.  When loans are placed on nonaccrual status, any accrued but
uncollected interest is reversed from current period interest income, and
additional income is recorded only as payments are received.  Loans are
generally charged off at such time as the loan is classified as a
loss.   Loan origination fees, net of direct underwriting costs, are
deferred and amortized to income by use of a method that approximates a level
yield over the contractual lives of the related loans. If a loan is paid off
prior to maturity, then the remaining unamortized deferred fee is immediately
recognized to interest income.

The Bank defines a loan
as impaired when it is probable the Bank will be unable to collect all amounts
due according to the contractual terms of the loan agreement.  Impaired
loans are measured based on the present value of expected future cash flows
discounted at the loans original effective interest rate or based on the
loans observable market price or the fair value of the collateral if the
loan is collateral dependent.  Since most of the Banks loans are
collateral dependent, the calculation of the impaired loans is generally based
on the fair value of the collateral. Income recognition on impaired loans
conforms to the method the Bank uses for income recognition on nonaccrual
loans.  When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.   Nonaccrual loans are reinstated to accrual status when
improvements in the credit quality eliminate doubt as to the full collectability of both interest and principal.

61



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Loans Held for Sale

Loans held for sale are reported at the lower of cost or estimated market
value.  Gains or losses on loan sales are recognized at the time of the
sale and are determined by the difference between net sale proceeds and the net
book value of the loans less the estimated fair value of any retained mortgage
servicing rights.

Allowance for Loan Losses

The allowance for loan losses are maintained at a level deemed appropriate by
management to provide for known losses as well as unidentified losses in the
loan portfolio. The allowance is based upon managements assessment of
various factors affecting the collectibility of the loans, including current and
projected economic conditions, past credit experience, delinquency status, the
value of the underlying collateral, if any, and review of  the portfolio of
loans and commitments.

The allowance for loan losses is based on estimates, and ultimate losses may
vary from the current estimates. These estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the periods in
which they become known. The allowance is increased by provisions charged to
expense and is reduced by net charge-offs.

Other Real Estate Owned

Other real estate owned represents real estate acquired through foreclosure and
is carried at the lower of cost or fair value less estimated selling
costs.  There were no other real estate held by the Company at December 31,
2006 and 2005.

Investment in Affordable Housing

The Company is a limited partner in a limited partnership that invests in
low-income housing projects that qualify for Federal and/or State income tax
credits.  The investment is recorded in other assets on the balance sheet
and is accounted for using the equity method of accounting.

Loan Sales and Servicing of SBA Loans

Gains or losses on sales of loans are recognized at the time of sale and are
determined by the difference between the net sales proceeds and the allocated
basis of the loans sold (or carrying value). The Bank capitalizes servicing
rights when loans are sold. The fair value of servicing assets are included as a
component of gain on sale of loans. The servicing assets are amortized in
proportion to and over the estimated period of net servicing income. Such
amortization is reflected as a component of loan servicing income.

Servicing assets are periodically evaluated for impairment and carried at the
lower of amortized cost or fair value through the use of valuation
allowances.  The fair value of the servicing assets is measured using a
discounted cash flow analysis based on available market quotes, market-adjusted
discount rates and anticipated prepayment speeds.  The amount of impairment
recognized is the amount by which the capitalized servicing assets for a stratum
exceed their fair value.  Market sources, adjusted for historical
performance, are used to determine prepayment speeds, the net cost of servicing
per loan, inflation rates and interest rates for mortgages. Rights to future
interest income from serviced loans that exceeds contractually specified
servicing fees are classified as interest-only strips and accounted for as debt
securities that are available-for-sale.

Premises and Equipment

Furniture, equipment, and leasehold improvements are recorded at cost and
depreciated by the straight-line method over the shorter of the estimated useful
lives of the assets or lease terms.  Furniture and fixtures are depreciated
over 5 to 8 years, and equipment is generally depreciated over 3 to 10
years.  Leasehold improvements are amortized over the terms of the leases
or their estimated useful lives, whichever is shorter.

62



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

When assets are sold or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the accounts, and any resulting
gain or loss is recognized in income for the period.  The cost of
maintenance and repairs is charged to expense as incurred.

Income Taxes

The Company files its income taxes on a consolidated basis with its
subsidiaries.  The allocation of income tax expense (benefit) represents
each entitys proportionate share of the consolidated provision for income
taxes.  The Company accounts for income taxes using the balance sheet
method, under which deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences between the reported amounts of assets
and liabilities and their tax bases.  Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.  On the consolidated balance sheet, net deferred tax assets are
included in other assets.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses,
gains, and losses be included in net income.  Although certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.

Off-Balance Sheet Financial Instruments

Derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities are required to be recognized as
either assets or liabilities in the statements of financial position and
measures those instruments at fair value.  The Company does not currently
utilize derivative instruments in its operations and does not engage in hedging
activities.  However, in the ordinary course of business, the Bank enters
into off-balance sheet financial instruments consisting of commitments to extend
credit. These financial instruments are recorded in the financial statements
when they are funded or related fees are incurred or received.

Earnings Per Share (EPS)

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.

Supplemental Employee Retirement Plan

The Company has entered into supplemental employee retirement agreements with
certain executive officers.  The liability under these agreements are
measured in accordance with Statement of Financial Accounting Standards
(SFAS) No. 87.  The liability is based on estimates involving
life expectancy, length of time before retirement, appropriate discount rate,
forfeiture rates and expected benefit levels.  Should these estimates prove
materially different from actual results, the Company could incur additional or
reduced future expense.

63



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Share-Based Compensation

On January 1, 2006, the Company adopted the provisions of SFAS No. 123R,
Share-Based Payment, or SFAS No. 123R, using the modified
prospective method which requires that compensation cost be recognized for all
share-based payment awards, (i.e., unvested stock options), based on the
grant-date fair value.  Prior to January 1, 2006, the Company accounted for
share-based payments, under the recognition and measurement provisions of
Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock
Issued to Employees, or Opinion 25, as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation, or SFAS No. 123. 
Under the provisions of Opinion 25, compensation cost for stock options was not
recognized for periods prior to January 1, 2006, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant.

Reclassifications

Certain amounts in prior years financial statements have been reclassified
to conform with the current presentation.  These reclassifications have no
effect on previously reported net income.

Change in Accounting Principle

Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R), using the
modified prospective transition method and, therefore, have not restated results
for prior periods.  Under this transition method, share-based compensation
expense for the first quarter of 2006 included compensation expense for all
share-based compensation awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123).  Share-based compensation expense for
all share-based compensation awards granted after January 1, 2006 is based on
the grant-date fair value estimated in accordance with the provisions of SFAS
No. 123R.  The Company recognizes these compensation costs on a
straight-line basis over the requisite service period of the award.  Prior
to the January 1, 2006 adoption of SFAS No. 123R, the Company recognized
share-based compensation expense in accordance with Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to
Employees.  In March 2005, the SEC issued Staff Accounting Bulletin
No. 107 (SAB No. 107) regarding the SECs interpretation of SFAS No. 123R
and the valuation of share-based payments for public companies.  The
Company has applied the provisions of SAB No. 107 in its adoption of SFAS No.
123R.

SFAS No. 123R requires that an estimate of future forfeitures be made and that
compensation cost be recognized only for shares that are expected to vest. 
The Company estimates forfeitures and only recognizes expense for those shares
expected to vest.

For the year ended December 31, 2006, the Companys net income would have
been $4,252,000 and diluted earnings per share would have been $1.07 if it had
continued to account for share-based payments under Opinion 25.  The impact
on net income for the year is primarily attributed to the prospective
application of accounting for share-based payment awards with terms that
accelerate vesting on expense recognition of previously unvested stock
options.

64



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Certain of the Companys share-based award grants contain terms that
provide for a graded vesting schedule whereby portions of the award vest in
increments over the requisite service period.  As provided for under SFAS
No. 123R, the Company has elected to recognize compensation expense for awards
with graded vesting schedules on a straight-line basis over the requisite
service period for the entire award.  Additionally, SFAS No. 123R requires
companies to recognize compensation expense based on the estimated number of
stock options and awards for which service is expected to be rendered.

SFAS No. 123R requires that cash flows resulting from the realization of tax
deductions in excess of the compensation cost recognized (excess tax benefits)
are to be classified as financing cash flows.  Before the adoption of SFAS
No. 123R, the Company presented all tax benefits realized from the exercise of
stock options as operating cash flows in the Consolidated Statement of Cash
Flows.  For the year ended December 31, 2006, $177,128 is included as the proceeds from
exercise of stock options and $381,993 is included as the compensation expense and shown as
financing cash inflows and operating cash inflows, respectively, in the
Consolidated Statement of Cash Flows.

The Company determines fair value at grant date using the Black-Scholes pricing
model that takes into account the stock price at the grant date, exercise price,
expected life of the option, volatility of the underlying stock, expected
dividend yield and risk-free interest rate over the expected life of the
option.

The weighted average assumptions used in the pricing model are noted in the
following table.  The expected term of options granted is derived from
historical data on employee exercise and post-vesting employment termination
behavior.  The risk free rate for periods within the contractual life of
the option is based on the U.S. Treasury yield curve in effect at the time of
the grant.  Expected volatility is based on the historical volatility of
the Companys stock.  The Company recognized option forfeitures as
they occurred.

|                            |  | 2006 |       | 2005 |  | 2004  |  
|--------------------------- |  | ---- | ----- | ---- |  | ----- | -
|                            |  |      |       |      |  |       |  
|Risk-free   interest rate   |  |      | 4.89  | %    |  | 4.10  | %
|Expected   dividend yield   |  |      | 0.82  | %    |  | 0.82  | %
|Expected   life in years    |  |      | 7     |      |  | 7     |  
|Expected   price volatility |  |      | 27.18 | %    |  | 27.25 | %

The weighted average grant date fair value of options granted for 2006, 2005 and
2004 was $4.41, $4.61 and $4.05, respectively.

The Black-Scholes option valuation model requires the input of highly subjective
assumptions, including the expected life of the stock based award and stock
price volatility.  The assumptions listed above represent managements
best estimates, but these estimates involve inherent uncertainties and the
application of management judgment.  As a result, if other assumptions had
been used, the Companys recorded share-based compensation expense could
have been materially different from that depicted above and below.  In
addition, the Company is required to estimate the expected forfeitures rate and
only recognize expense for those shares expected to vest.  If the
Companys actual forfeiture rate is materially different from the estimate,
the share-based compensation expense could be materially different.

Pro forma information regarding net income and earnings per share for the year
ended December 31, 2005 and 2004 is presented below as if the Company had
accounted for all stock-based compensation under the fair value method of SFAS
No. 123.  The following table illustrates the effect on net income and
income per share had compensation costs for the stock-based compensation plan
been determined based on grant date fair values of awards under the provisions
of SFAS No. 123, for the period indicated.

65



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

|                                                             |  |                                  |           |                                  |  
|------------------------------------------------------------ |  | -------------------------------- | --------- | -------------------------------- | -
|                                                             |  | Year Ended   December 31,   2005 |           | Year Ended   December 31,   2004 |  
|                                                             |  |                                  |           |                                  |  
|Net income:                                                  |  |                                  |           |                                  |  
|As reported                                                  |  | $                                | 4,096,168 |                                  | $
|Share-based compensation expense, net of related tax effects |  |                                  | (286,392  | )                                |  
|                                                             |  |                                  |           |                                  |  
|Pro forma   net income                                       |  | $                                | 3,809,776 |                                  | $
|                                                             |  |                                  |           |                                  |  
|Weighted Average Shares Outstanding - Basic                  |  |                                  | 3,930,565 |                                  |  
|Weighted Average Shares Outstanding - Diluted                |  |                                  | 4,059,200 |                                  |  
|Basic   Earnings per share                                   |  |                                  |           |                                  |  
|As reported                                                  |  | $                                | 1.04      |                                  | $
|Pro forma                                                    |  | $                                | 1.01      |                                  | $
|Earnings per   share - assuming dilution                     |  |                                  |           |                                  |  
|As reported                                                  |  | $                                | 1.01      |                                  | $
|Pro forma                                                    |  | $                                | 0.94      |                                  | $

Current Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and
140.  SFAS No. 155 simplifies accounting for certain hybrid
instruments currently governed by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, by allowing fair value remeasurement
of hybrid instruments that contain an embedded derivative that otherwise would
require bifurcation.  SFAS No. 155 also eliminates the guidance in SFAS No.
133 Implementation Issue No. D1, Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets, which provides such
beneficial interests are not subject to SFAS No. 133.  SFAS No. 155 amends
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities  a Replacement of FASB Statement No.
125, by eliminating the restriction on passive derivative instruments that
qualify special-purpose entity may hold.  This statement is effective for
financial instruments acquired or issued after the beginning of the fiscal year
2007.  The Company does not expect the adoption of this statement to have a
material impact on the financial condition, results of operations or cash
flows.

In March 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 156, Accounting for Servicing
of Financial Assets (SFAS No. 156), which amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.  SFAS No. 156 requires an entity to
separately recognize servicing assets and servicing liabilities and to report
these balances at fair value upon inception.  Future methods of assessing
values can be performed using either the amortization or fair value measurement
techniques.  Adoption of SFAS No. 156 is required for transactions
occurring in fiscal years beginning after September 15, 2006.  The adoption
of this standard is not expected to have a material impact on the Companys
consolidated financial position or results of operations.

66



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109.  FIN 48 prescribes a comprehensive model for
recognizing, measuring, presenting and disclosing in the financial statements
tax positions taken or expected to be taken on a tax return, including a
decision whether to file or not to file in a particular jurisdiction.  FIN
48 is effective for fiscal years beginning after December 15, 2006.  If
there are changes in net assets as a result of application of FIN 48 these will
be accounted for as an adjustment to retained earnings.  The Company is
currently assessing the impact of FIN 48 on its consolidated financial position
and results of operations.

In September 2006, the FASB issued FASB Statement of Financial Accounting
Standards No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements.  SFAS 157 is effective for the Company on January 1, 2008 and
is not expected to have a significant impact on the Companys financial
statements.

In September 2006, the FASB issued FASB Statement of Financial Accounting
Standards No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88 106, and
132 (R) (SFAS 158).  SFAS 158 requires an employer to recognize the
overfunded or underfunded status of defined benefit postretirement plans as an
asset or a liability in its statement of financial position.  The funded
status is measured as the difference between plan assets at fair value and the
benefit obligation (the projected benefit obligation for pension plans or the
accumulated benefit obligation for other postretirement benefit plans).  An
employer is also required to measure the funded status of a plan as of the date
of its year-end statement of financial position with changes in the funded
status recognized through comprehensive income.  SFAS 158 also requires
certain disclosures regarding the effects on net periodic benefit cost for the
next fiscal year that arise from delayed recognition of gains or losses, prior
service costs or credits, and the transition asset or obligation.  The
Company was be required to recognize the funded status of its defined benefit
postretirement benefit plans in its financial statements for the year ended
December 31, 2006.  The requirement to measure plan assets and benefit
obligations as of the date of the year-end statement of financial position is
effective for the Companys financial statements beginning with the year
ended after December 31, 2008.  SFAS 158 is not expected to have a
significant impact on the Companys financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108,
Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements.  SAB 108 provides
guidance on quantifying and evaluating the materiality of unrecorded
misstatements.  It requires the use of both the iron curtain
and rollover approaches in quantifying and evaluating the
materiality of a misstatement.  Under the iron curtain approach the error
is quantified as the cumulative amount by which the current year balance sheet
is misstated.  The rollover approach quantifies the error as the amount by
which the current year income statement is misstated.  If either approach
results in a material misstatement, financial statement adjustments are
required.  SAB 108 was effective for the year ended December 31,
2006.  At adoption, there was no impact on the Companys financial
position or results of operations.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities  Including an Amendment of
FASB Statement No. 115 (FAS 159).  This standard permits
entities to choose to measure  many financial assets and liabilities and
certain other items at fair value.

67



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

An enterprise will report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date.  The fair value option may be applied on an instrument-by-instrument
basis, with several exceptions, such as those investments accounted for by the
equity method, and once elected, the option is irrevocable unless a new election
date occurs.  The fair value option can be applied only to entire
instruments and not to portions thereof.  FAS 159 is effective as of the
beginning of an entitys fiscal year beginning after November 15,
2007.  Early adoption is permitted as of the beginning of the previous
fiscal year provided that the entity makes that choice in the first 120 days of
that fiscal year and also elects to apply the provisions of FASB Statement No.
157, Fair Value Measurements.  Management is currently evaluating the
effects of adopting FAS No. 159 on its consolidated financial statements.

Note 2: Investment Securities

At December 31, 2006 and 2005 the investment securities portfolio was
comprised of securities classified as available-for-sale and
heldto-maturity, in accordance with SFAS No. 115, resulting in
investment securities available-for-sale being carried at fair value and
investment securities held-to-maturity being carried at cost, adjusted for
amortization of premiums and accretions of discounts.

The amortized cost, unrealized gains and losses, and estimated fair value of the
available-for-sale investment  securities as of  December 31,
2006, follows:

|                                     |  | Amortized   Cost       |            | Gross   Unrealized   Gains |   | Gross   Unrealized   Losses |  | Estimated   Fair   Value |         
|------------------------------------ |  | ---------------------- | ---------- | -------------------------- | - | --------------------------- |  | ------------------------ | --------
|                                     |  |                        |            |                            |   |                             |  |                          |         
|                                     |  | (Dollars in Thousands) |           
|Mortgage backed securities           |  | $                      | 13,201,781 |                            | $ | 26,842                      |  | $                        | (239,121
|U.S. Agency Securities               |  |                        | 5,858,456  |                            |   | 5,698                       |  |                          |        
|Collateralized Mortgage   Obligation |  |                        | 7,659,852  |                            |   | 10,345                      |  |                          | (7,966  
|                                     |  |                        |            |                            |   |                             |  |                          |         
|Total   Available-for-sale           |  | $                      | 26,720,089 |                            | $ | 42,885                      |  | $                        | (247,087
|                                     |  |                        |            |                            |   |                             |  |                          |         

The amortized cost, unrealized gains and losses, and estimated fair value of the
held-to-maturity investment  securities as of  December 31, 2006,
follows:

|                           |  | Amortized   Cost       |            | Gross   Unrealized   Gains |   | Gross   Unrealized   Losses |  | Estimated   Fair   Value |         
|-------------------------- |  | ---------------------- | ---------- | -------------------------- | - | --------------------------- |  | ------------------------ | --------
|                           |  |                        |            |                            |   |                             |  |                          |         
|                           |  | (Dollars in Thousands) |           
|Mortgage backed securities |  | $                      | 21,823,305 |                            | $ |                            |  | $                        | (388,828
|                           |  |                        |            |                            |   |                             |  |                          |         

68



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The amortized cost, unrealized gains and losses, and estimated fair value of the
available-for-sale investment  securities as of  December 31,
2005, follows:

|                           |  | Amortized   Cost       |            | Gross   Unrealized   Gains |   | Gross   Unrealized   Losses |  | Estimated   Fair   Value |         
|-------------------------- |  | ---------------------- | ---------- | -------------------------- | - | --------------------------- |  | ------------------------ | --------
|                           |  |                        |            |                            |   |                             |  |                          |         
|                           |  | (Dollars in Thousands) |           
|Mortgage backed securities |  | $                      | 15,554,916 |                            | $ |                            |  | $                        | (437,409
|                           |  |                        |            |                            |   |                             |  |                          |         

The amortized cost, unrealized gains and losses, and estimated fair value of the
held-to-maturity investment securities as of December 31, 2005, follows:

|                           |  | Amortized   Cost       |            | Gross   Unrealized   Gains |   | Gross   Unrealized   Losses |  | Estimated   Fair   Value |         
|-------------------------- |  | ---------------------- | ---------- | -------------------------- | - | --------------------------- |  | ------------------------ | --------
|                           |  |                        |            |                            |   |                             |  |                          |         
|                           |  | (Dollars in Thousands) |           
|Mortgage backed securities |  | $                      | 28,844,341 |                            | $ | 23,900                      |  | $                        | (695,469
|                           |  |                        |            |                            |   |                             |  |                          |         

The amortized cost and fair values of investment securities
availablefor-sale and held-to-maturity at December 31, 2006, by
expected maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.  In addition,
such factors as prepayments and interest rates may affect the yield on the
carrying value of mortgage-backed secu rities.  At December 31, 2006 and
2005, the Company had no high-risk collateralized mortgage obligations as
defined by regulatory guidelines.

|                            |  |          |                |                  | Securities |           
|--------------------------- |  | -------- | -------------- | ---------------- | ---------- | ----------
|                            |  |          |                |                  |            |           
|                            |  | Maturity |                | Amortized   Cost |            | Fair Value
|                            |  |          |                |                  |            |           
|Available-for-Sale          |  |          |                |                  |            |           
|                            |  |          | 1 year or less |                  | $          |          
|                            |  |          | 1 to 5 years   |                  |            | 21,492,606
|                            |  |          | 5 to 10 years  |                  |            | 4,110,916 
|                            |  |          | Over 10 years  |                  |            | 1,116,567 
|                            |  |          |                |                  |            |           
|                            |  |          |                |                  | $          | 26,720,089
|                            |  |          |                |                  |            |           
|Held-to-maturity,   at cost |  |          |                |                  |            |           
|                            |  |          | 1 year or less |                  | $          |          
|                            |  |          | 1 to 5 years   |                  |            | 9,709,753 
|                            |  |          | 5 to 10 years  |                  |            | 1,776,107 
|                            |  |          | Over 10 years  |                  |            | 10,337,445
|                            |  |          |                |                  |            |           
|                            |  |          |                |                  | $          | 21,823,305
|                            |  |          |                |                  |            |           

69



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The Company held twenty one and seventeen investment securities that were in a
loss position and are summarized and classified according to the duration of the
loss period for 2006 and 2005, respectively, as outlined below.

|                                     |  | December 31, 2006      |  
|------------------------------------ |  | ---------------------- | -
|                                     |  |                        |  
|                                     |  | < 12 continuous months |  
|                                     |  |                        |  
|                                     |  | Fair Value             |  
|                                     |  |                        |  
|Available-for-Sale                   |  |                        |  
|U.S.   Agency Securities             |  | $                      | 
|Mortgage   backed securities         |  |                        | 
|Collateralized   Mortgage Obligation |  |                        | 
|                                     |  |                        |  
|                                     |  | $                      | 
|                                     |  |                        |  

|                             |  | December 31, 2006      |  
|---------------------------- |  | ---------------------- | -
|                             |  |                        |  
|                             |  | < 12 continuous months |  
|                             |  |                        |  
|                             |  | Fair Value             |  
|                             |  |                        |  
|Held-to-Maturity             |  |                        |  
|Mortgage-Backed   Securities |  | $                      | 
|                             |  |                        |  

|                             |  | December 31, 2005      |  
|---------------------------- |  | ---------------------- | -
|                             |  |                        |  
|                             |  | < 12 continuous months |  
|                             |  |                        |  
|                             |  | Fair Value             |  
|                             |  |                        |  
|Available-for-Sale           |  |                        |  
|Mortgage   backed securities |  |                        | 
|                             |  |                        |  
|                             |  | $                      | 
|                             |  |                        |  

|                             |  | December 31, 2005      |  
|---------------------------- |  | ---------------------- | -
|                             |  |                        |  
|                             |  | < 12 continuous months |  
|                             |  |                        |  
|                             |  | Fair Value             |  
|                             |  |                        |  
|Held-to-Maturity             |  |                        |  
|Mortgage-Backed   Securities |  | $                      | 
|                             |  |                        |  

Management periodically evaluates each investment security in an unrealized loss
position to determine if the impairment is temporary or other than
temporary.  Management has determined that no investment security is other
than temporally impaired.  This temporary impairment is attributable to
general changes in short-term interest rates as measured by the U.S. Treasury
yield curve.  The duration of this impairment was for a period of less than
twelve months.

70



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Proceeds from sales of investment securities available-for-sale during 2006,
2005 and 2004 were $2,085,633, $0, and $17,492,845, respectively.  In 2006,
2005 and 2004, gross gains on those sales were $0, $0 and $957, respectively and
gross losses on those sales were $1,820, $0 and $41,660, respectively. 
Proceeds from principal reductions of mortgage-backed securities in 2006, 2005
and 2004 were $13,709,714, $18,341,690 and $17,140,249, 
respectively.  Included in stockholders equity at December 31,
2006 and 2005 were $122,520 and $262,445 of net unrealized losses (net of
$66,391 and  $81,680 estimated tax benefit), respectively.

Note 3: Loans and Allowance for Loan Losses

The majority of the Banks loan activity is with customers located in
California, primarily in the Northern California region.  Although the Bank
has a diversified loan portfolio, primarily all mortgage loans are
collateralized by real estate located in Northern California. Approximately
93.6% of the loans are secured by real estate.

Outstanding loans at December 31 consisted of the following:

|                                 |  | 2006 |             | 2005 |  
|-------------------------------- |  | ---- | ----------- | ---- | -
|                                 |  |      |             |      |  
|One-to-four family   residential |  | $    | 16,742,085  |      | $
|Multifamily residential          |  |      | 120,286,485 |      |  
|Commercial real estate           |  |      | 220,048,837 |      |  
|Land                             |  |      | 8,316,330   |      |  
|Construction real estate         |  |      | 33,188,054  |      |  
|Consumer loans                   |  |      | 2,544,672   |      |  
|Commercial, non real   estate    |  |      | 23,553,356  |      |  
|                                 |  |      |             |      |  
|                                 |  |      | 424,679,819 |      |  
|Net   deferred loan costs        |  |      | 1,326,685   |      |  
|                                 |  |      |             |      |  
|                                 |  | $    | 426,006,504 |      | $
|                                 |  |      |             |      |  

At December 31, 2006 the Bank had three loans with fixed rates of interest
as compared to two loans with fixed rates of interest for the same period the
prior year.  There were no loans held for sale at December 31, 2006 and
2005.

Net unamortized premiums on purchased loans amounted to $340,450 and $126,524
for 2006 and 2005, respectively.

The Bank also originates Small Business Administration (SBA)
loans.  Depending on its current asset/liability strategy, the Bank may
sell the guaranteed portion of the SBA loans to governmental agencies and
institutional investors. The Bank generally receives a premium in excess of the
adjusted carrying value of the loan at the time of sale.  At
December 31, 2006 and 2005 the unpaid balance of SBA loans not sold totaled
$35,395,000 and $17,324,000, respectively and are included in commercial real
estate loans.

Nonaccruing loans totaled $0 and $35,000 at December 31, 2006 and 2005,
respectively. As of December 31, 2005, the one loan on nonaccrual was
classified as impaired.  If interest on nonaccrual loans had been
recognized at the original interest rates, interest income would have increased
$0, $0 and $14,123 for the years ended 2006, 2005 and 2004, respectively. 
No additional funds are committed to be advanced in connection with impaired
loans.

71



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The following is a summary of information pertaining to impaired
loans:

|                                                    |  | 2006 |   | 2005 |   | 2004   | 
|--------------------------------------------------- |  | ---- | - | ---- | - | ------ | 
|                                                    |  |      |   |      |   |        | 
|Impaired loans with a   valuation allowance         |  | $    |  |      | $ |       | 
|Impaired loans without a   valuation allowance      |  |      |  |      |   | 35,096 | 
|                                                    |  |      |   |      |   |        | 
|Total   impaired loans                              |  | $    |  |      | $ | 35,096 | 
|                                                    |  |      |   |      |   |        | 
|Valuation allowance   related to impaired loans     |  | $    |  |      | $ |       | 
|                                                    |  |      |   |      |   |        | 
|Average recorded   investment in impaired loans     |  | $    |  |      | $ | 91,500 | 
|                                                    |  |      |   |      |   |        | 
|Cash receipts applied to   reduce principal balance |  | $    |  |      | $ |       | 
|                                                    |  |      |   |      |   |        | 
|Interest income recognized   for cash payments      |  | $    |  |      | $ |       | 
|                                                    |  |      |   |      |   |        | 

At December 31, 2006 and 2005, the Bank had no loans past due 90 days or more in
principal or interest and still accruing interest.  The Bank had no loans
classified as troubled debt restructuring for December 31, 2006 and 2005.

A summary of activity in the allowance for loan losses is as follows:

|                           |  | 2006 |           | 2005 |   | 2004      | 
|-------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                           |  |      |           |      |   |           | 
|Balance, Beginning of Year |  | $    | 4,232,124 |      | $ | 3,600,433 | 
|Provision for loan losses  |  |      | 439,472   |      |   | 631,691   | 
|                           |  |      |           |      |   |           | 
|Balance, End of Year       |  | $    | 4,671,596 |      | $ | 4,232,124 | 
|                           |  |      |           |      |   |           | 

Note 4: Loan Servicing

Loans serviced for others are not included in the accompanying balance sheets.
The unpaid principal balances of  loans serviced for others were
$28,982,541 and $20,707,618 at December 31, 2006 and 2005, respectively.
 Included in these amounts are Small Business Administration
(SBA) Loans sold to governmental agencies and institutional
investors.  At December 31, 2006 and 2005, the unpaid principal
balance of SBA Loans serviced for others totaled $19,446,201 and $9,856,123,
respectively.

The Bank began to originate SBA loans in 2004.  On an ongoing basis,
depending on its current asset/liability strategy, the Bank may sell the
guaranteed portion of the SBA loans.  The gain on sale of SBA loans was
$791,966, $581,397 and $342,705 for the year ended December 31, 2006,
2005  and 2004, respectively.

The balance of servicing assets included in Other Assets in the
Consolidated Statement of Financial Condition as of December 31, 2006 and
2005, was $250,031 and $155,186.  The fair value of these assets as of
December 31, 2006 and 2005 was $392,344 and $228,434, respectively. 
There was no impairment recorded as of December 31, 2006 or
2005.

72



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The following summarized servicing assets capitalized and amortized:

|                               |  | For the year ended December 31, |        
|------------------------------ |  | ------------------------------- | -------
|                               |  |                                 |        
|                               |  | 2006                            |        
|                               |  |                                 |        
|Servicing rights   capitalized |  | $                               | 116,664
|Servicing rights amortized     |  |                                 | 21,820 
|Valuations                     |  |                                 |       

Note 5: Premises and Equipment

Premises and equipment at December 31, 2006 and 2005 consisted of the following:

|                                                 |  | 2006 |           | 2005 |  
|------------------------------------------------ |  | ---- | --------- | ---- | -
|                                                 |  |      |           |      |  
|Furniture and equipment                          |  | $    | 2,615,044 |      | $
|Leasehold improvements                           |  |      | 5,248,527 |      |  
|Construction-in-progress                         |  |      |          |      |  
|                                                 |  |      |           |      |  
|                                                 |  |      | 7,863,571 |      |  
|Less accumulated   depreciation and amortization |  |      | 2,588,656 |      |  
|                                                 |  |      |           |      |  
|Total                                            |  | $    | 5,274,915 |      | $
|                                                 |  |      |           |      |  

Depreciation and amortization expense included in noninterest expense amounted
to $822,827, $538,495 and $370,086 in 2006, 2005 and 2004, respectively.

Note 6: Investment in Affordable Housing

In 2006 the Company invested in a limited liability partnership operating
qualified affordable housing projects to receive tax benefits.  These
low-income housing credit (LIHC) investments provide tax benefits to
investors in the form of tax deductions from operating losses and tax
credits.  The Company will contribute $2,000,000 for a 3.84% percentage
interest in this investment.  As of December 31, 2006, $561,088 has been
funded with a commitment to fund an additional $1,438,912 for the purposes of
obtaining tax credits and for Community Reinvestment Act purposes.  The
investment is recorded in other assets on the balance sheet and is accounted for
using the equity method of accounting.  Under the equity method of
accounting, the Company recognizes its ownership share of the profits and losses
of the fund.  This investment is regularly evaluated for impairment by
comparing the carrying value to the remaining tax credits expected to be
received.  Tax credits received from the fund are accounted for in the
period earned (the flow-through method) and are included in income as a
reduction of income tax expense.

The partnership must meet regulatory requirements for affordable housing for a
minimum 15-year compliance period to fully utilize the tax credits.  If the
partnership ceases to qualify during the compliance period, the credits may be
denied for any period in which the projects are not in compliance and a portion
of the credits previously taken is subject to recapture with
interest.

73



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Note 7: Deposits

Following is a summary of deposits at December 31, 2006 and 2005:

|                                        |  | 2006    |             | 2005                  | 
|--------------------------------------- |  | ------- | ----------- | --------------------- | 
|                                        |  |         |             |                       | 
|                                        |  | Balance |             | Weighted Average Rate | 
|                                        |  |         |             |                       | 
|Noninterest-bearing   deposits          |  | $       | 18,134,565  |                       | 
|Interest-bearing   checking deposits    |  |         | 8,432,730   |                       | 
|Money Market   and savings deposits     |  |         | 150,011,698 |                       | 
|Certificates   of deposit over $100,000 |  |         | 129,011,093 |                       | 
|Certificates   of deposit < $100,000    |  |         | 64,214,598  |                       | 
|                                        |  |         |             |                       | 
|Total   deposits                        |  | $       | 369,804,684 |                       | 
|                                        |  |         |             |                       | 

Interest expense on time certificates of deposits greater than $100,000 was
$4,711,278, $1,319,296 and $693,597 for 2006, 2005 and 2004,
respectively.

At December 31, 2006, the scheduled maturities of total time deposits are as
follows:

|Year   Ending December 31, |  | Total |            
|-------------------------- |  | ----- | -----------
|                           |  |       |            
|2007                       |  | $     | 183,134,757
|2008                       |  |       | 7,730,515  
|2009                       |  |       | 1,245,655  
|2010                       |  |       | 314,764    
|2011                       |  |       | 800,000    
|                           |  |       |            
|                           |  | $     | 193,225,691
|                           |  |       |            

Brokered deposits totaled $13,123,962 and $15,492,404 at December 31, 2006
and 2005, respectively, and are included as a component of certificates of
deposit.

74



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Note 8: Borrowings

Total FHLB borrowings were $86,250,777 at December 31, 2006.  The following
table summarizes the borrowings:

|                           |  |       |            | 
|-------------------------- |  | ----- | ---------- | 
|Year   Ending December 31, |  | Total |           
|                           |  |       |            | 
|2007                       |  | $     | 42,255,777 | 
|2008                       |  |       | 16,000,000 | 
|2009                       |  |       | 10,000,000 | 
|2010                       |  |       | 13,000,000 | 
|2011                       |  |       | 4,995,000  | 
|                           |  |       |            | 
|                           |  | $     | 86,250,777 | 
|                           |  |       |            | 

The maximum amount outstanding at any month end for FHLB borrowings was
$126,088,059 and $130,068,000, during 2006 and 2005, respectively.

Short-term borrowings consist of Federal Funds purchased and borrowings from the
Federal Home Loan Bank of San Francisco (FHLB).  The Company maintains
collateralized lines of credit with the FHLB.  The Company pledges both
loans and investment securities to FHLB as needed to secure borrowings. 
Loans with a  borrowing capacity of $188,310,880 have been pledged to
secure advances of $76,250,779, and investment securities with a borrowing
capacity of $24,989,226 have been pledged to secure advances of
$10,000,000.  Advances have a fixed rate of interest and bear interest at a
weighted-average rate of 3.94% percent and range in maturity from within one
month to five years.  At December 31, 2006 and 2005, the Bank had unused
capacity with the FHLB of $127,049,327 and $122,478,732,
respectively.   The Company also has available unused unsecured lines
of credit totaling $3 million for Federal Funds transactions at December 31,
2006.

On June 27, 2002,
the Bancorp issued 30-year, $10,310,000 junior subordinated debentures. The
variable rate debentures (dividends issued at a quarterly LIBOR rate plus 3.65%,
not to exceed 12% prior to June 30, 2007) mature June 30, 2032. The
debentures were issued in concurrence with the Cumulative Trust Preferred
Securities (the Trust Preferred Securities) of the San Rafael
Capital Trust I, a wholly owned non-consolidated subsidiary of the Bancorp.
Proceeds of the Trust Preferred Securities were invested in the junior
subordinated debentures issued by the Bancorp. The Bancorp has the right,
assuming no default has occurred, to defer payments of interest on the junior
subordinated debentures at any time for a period not to exceed ten consecutive
semi-annual periods. As of December 31, 2006, the interest rate on the
junior subordinated debenture was 9.02%. The debenture is subordinated to the
claims of depositors and other creditors of the Bank.

The junior subordinated debentures issued by the Trust is redeemable in whole or
in part on or after June 27, 2007, or at any time in whole, but not in part,
upon the occurrence of certain events.  The Securities are included in Tier
1 capital for regulatory capital adequacy determination purposes, subject to
certain limitations.  The Company fully and unconditionally guarantees the
obligations of the Trust with respect to the issuance of the
Securities.

During the second quarter of 2006, the Bank issued 30-year, $3,093,000 variable
rate junior subordinated debentures.  The securities mature on September 1,
2036 but are callable after September 1, 2011. The interest rate on the
debentures is paid quarterly at the three-month LIBOR plus 175 bps.  The
debenture is subordinated to the claims of depositors and other creditors of the
Bank.  As of December 31, 2006, the interest rate on the junior
subordinated debenture was 7.12%. The debenture is subordinated to the claims of
depositors and other creditors of the Bank.

75



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Note 9: Benefit Plans

Salary Continuation Plan

The Salary Continuation Plan was established in 2002 for a key employee to
provide incentive for the employee to continue the employees current
capacity. The Plan is intended to be an unfunded deferred compensation plan for
a select group of management or highly compensated employees. In 2003, an
additional employee was added to the Plan. The benefit under this plan for the
two key employees would be equal to payments of $100,000 each per year
commencing on January 1, 2005 and January 1, 2015, respectively, for a
period of 15 years. The Bank has determined the net present value of both
obligations to be $1,142,224 and $1,103,721 for 2006 and 2005, respectively,
assuming a discount rate of seven percent, and has a current year expense of
$75,900, $75,900 and $379,500, for 2006, 2005 and 2004, respectively.

401(k) Savings Plan

The Bank has a 401(k) tax deferred savings plan which commenced on January
1996 and is available to all employees.  Under the plan, all eligible
employees may elect to defer a percentage of their annual salary, subject to
limitations imposed by federal tax law. The Bank matches the employee deferrals
at a rate set by the Board of Directors. Matching contributions vest after three
years of employment. The Bank contributed $193,695, $131,104 and $115,572 to the
plan in 2006, 2005 and 2004, respectively.

Note 10: Fair Value of Financial Instruments

SFAS No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of financial condition.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Bancorp.  The following table presents the carrying amounts and fair values
of financial instruments at December 31, 2006 and 2005. SFAS No. 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.

76



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The estimated fair values of the Companys financial instruments were as
follows:

|                                                          |  | 2006              |             | 2005       |  
|--------------------------------------------------------- |  | ----------------- | ----------- | ---------- | -
|                                                          |  |                   |             |            |  
|                                                          |  | Carrying   Amount |             | Fair Value |  
|                                                          |  |                   |             |            |  
|Financial   assets:                                       |  |                   |             |            |  
|Cash and cash equivalents                                 |  | $                 | 12,276,034  |            | $
|Investment securities                                     |  |                   | 48,339,192  |            |  
|Interest-bearing deposits in other financial institutions |  |                   | 987,305     |            |  
|Federal Home Loan Bank restricted stock                   |  |                   | 5,891,900   |            |  
|Pacific Coast Bankers Bank stock                         |  |                   | 50,000      |            |  
|Loans receivable, net                                     |  |                   | 421,334,908 |            |  
|Accrued interest receivable                               |  |                   | 3,297,170   |            |  
|Financial   liabilities:                                  |  |                   |             |            |  
|Deposits                                                  |  |                   | 369,804,684 |            |  
|Federal Home Loan Advances                                |  |                   | 86,250,777  |            |  
|Junior subordinated debentures                            |  |                   | 13,403,000  |            |  
|Accrued interest payable                                  |  |                   | 317,709     |            |  



|                                |  | Notional   Amount |            | Cost to Cede   or Assume |   | Notional   Amount |  | Cost to Cede   or Assume |           
|------------------------------- |  | ----------------- | ---------- | ------------------------ | - | ----------------- |  | ------------------------ | ----------
|                                |  |                   |            |                          |   |                   |  |                          |           
|Off-Balance   Sheet Instruments |  |                   |            |                          |   |                   |  |                          |           
|Commitments to extend credit    |  | $                 | 29,729,000 |                          | $ | 29,729            |  | $                        | 39,984,000

The following methods and assumptions were used by the Bancorp in estimating fair value disclosures:

| | Cash and Cash Equivalents:Cash and cash equivalents are valued at their
carrying amounts because of the short-term nature of these
investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Investment Securities:Investment securities are valued at the
quoted market prices, where available.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Interest-bearing Deposits with Other Financial Institutions:The carrying
amounts of interest-bearing deposits maturing within ninety days approximate
their fair values. Fair values of other interest-bearing deposits are estimated
using discounted cash flow analyses based on current rates for similar types of
deposits.                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Restricted Stock:The carrying values of restricted equity
securities approximate fair values due to redemption provisions of the
stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Loans:For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real estate
loans, variable rate loans with initial fixed rate periods, and variable rate
loans at their contractual cap or floor rates) are estimated using discounted
cash flow analysis, based on interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss experience and risk
characteristics. The carrying amount of accrued interest receivable approximates
its fair value.

77



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

| |  | Deposits:The fair values disclosed for transaction accounts; for
example, interest-bearing checking deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). The fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities on
such time deposits. The carrying amount of accrued interest payable approximates
fair value.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Borrowings:The fair values of the Bancorps long-term borrowings
are estimated using discounted cash flow analyses based on the Bancorps
current incremental borrowing rates for similar types of borrowing
arrangements.                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | Off-balance Sheet Instruments: Fair values of loan commitments and
financial guarantees are based upon fees currently charged to enter similar
agreements, taking into account the remaining terms of the agreement and the
counterparties credit standing.                                                                                                                                                                                                                                                                                             

Note 11: Income Taxes

The current and deferred components of the income tax provision for each of the
three years ended December 31 are as follows:

|                           |  | 2006 |           | 2005 |   | 2004      |  
|-------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                           |  |      |           |      |   |           |  
|Provision for income taxes |  |      |           |      |   |           |  
|Federal                    |  |      |           |      |   |           |  
|Current                    |  | $    | 1,926,892 |      | $ | 2,457,286 |  
|Deferred                   |  |      | 170,000   |      |   | (198,000  | )
|                           |  |      |           |      |   |           |  
|                           |  |      | 2,096,892 |      |   | 2,259,286 |  
|                           |  |      |           |      |   |           |  
|State                      |  |      |           |      |   |           |  
|Current                    |  |      | 302,683   |      |   | 394,014   |  
|Deferred                   |  |      | 3,000     |      |   | (14,000   | )
|                           |  |      |           |      |   |           |  
|                           |  |      | 305,683   |      |   | 380,014   |  
|                           |  |      |           |      |   |           |  
|Total                      |  | $    | 2,402,575 |      | $ | 2,639,300 |  
|                           |  |      |           |      |   |           |  

The effective tax rate of the Company for 2006, 2005, and 2004 differs from the
current Federal statutory income tax rate as follows:

|                                                           |  | 2006   |           | 2005    |  | 2004   | 
|---------------------------------------------------------- |  | ------ | --------- | ------- |  | ------ | 
|                                                           |  |        |           |         |  |        | 
|                                                           |  | Amount |           | Percent |  | Amount | 
|                                                           |  |        |           |         |  |        | 
|Federal income tax at   statutory rate                     |  | $      | 2,153,000 |         |  | 34.0   | 
|State franchise taxes, net   of Federal income tax benefit |  |        | 227,000   |         |  | 3.6    | 
|Other, net                                                 |  |        | 22,575    |         |  | 0.3    | 
|                                                           |  |        |           |         |  |        | 
|                                                           |  | $      | 2,402,575 |         |  | 37.9   | 
|                                                           |  |        |           |         |  |        | 

78



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The following table shows the tax effect of the Companys cumulative
temporary differences as of December 31:

|                                  |  | 2006           |       | 2005 |  
|--------------------------------- |  | -------------- | ----- | ---- | -
|                                  |  |                |       |      |  
|                                  |  | (In Thousands) |      
|Deferred Tax Assets               |  |                |      
|Reserve   for loan losses         |  | $              | 1,923 |      | $
|Accruals                          |  |                | 537   |      |  
|Investment   securities valuation |  |                | 82    |      |  
|Other                             |  |                | 263   |      |  
|                                  |  |                |       |      |  
|Total   Deferred Tax Assets       |  |                | 2,805 |      |  
|Deferred Tax Liabilities          |  |                |       |      |  
|Fixed   assets                    |  |                | 297   |      |  
|Deferred   loan costs             |  |                | 248   |      |  
|Loan   fees                       |  |                | 686   |      |  
|FHLB   Stock Dividends            |  |                | 440   |      |  
|Prepaid   Expenses                |  |                | 207   |      |  
|                                  |  |                |       |      |  
|Total   Deferred Tax Liabilities  |  |                | 1,878 |      |  
|                                  |  |                |       |      |  
|Net   Deferred Tax Assets         |  | $              | 927   |      | $
|                                  |  |                |       |      |  

Based upon the level of history taxable income and projections for future
taxable income over the periods during which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of the deferred tax asset.

Note 12: Regulatory Capital Requirements

Banks are subject to various regulatory capital requirements administered by
Federal banking agencies, specifically, the Federal Deposit Insurance
Corporation (FDIC). Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on a Banks
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, a Bank must meet specific capital
requirements that involve quantitative measures of a Banks assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. A Banks capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.

79



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Quantitative measures established by regulation to ensure capital adequacy
requires the Bank maintain certain minimum amounts and ratios of total and Tier
I capital to risk-weighted assets (as defined), and of Tier 1 capital to average
assets (as defined). As the Company is not subject to Federal Reserve Board
(FRB) supervision, management believes the capital requirements are not
applicable, on a consolidated basis, to the Company. Management believes, as of
December 31, 2006, the Bank meets all capital adequacy requirements to
which it is subject.

The Bank is well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes have changed the Banks category. To be
categorized as well capitalized, the Bank must maintain minimum capital ratios
as set forth in the table below.

The following table sets forth the Banks actual regulatory capital amounts
and ratios (dollars amounts in thousands):

|                                         |  | Actual Capital         |        | For Capital   Adequacy Purposes |  | To Be Well   Capitalized Under   Prompt Corrective   Action Provisions |  
|---------------------------------------- |  | ---------------------- | ------ | ------------------------------- |  | ---------------------------------------------------------------------- | -
|                                         |  |                        |        |                                 |  |                                                                        |  
|                                         |  | Amount                 |        | Ratio                           |  | Amount                                                                 |  
|                                         |  |                        |        |                                 |  |                                                                        |  
|                                         |  | (Dollars in Thousands) |       
|As of   December 31, 2006:               |  |                        |        |                                 |  |                                                                        |  
|Total   capital to risk-weighted assets  |  | $                      | 47,676 |                                 |  | 10.8                                                                   | %
|Tier 1   capital to risk-weighted assets |  |                        | 43,004 |                                 |  | 9.7                                                                    | %
|Tier 1   capital to average assets       |  |                        | 43,004 |                                 |  | 8.6                                                                    | %
|As of   December 31, 2005:               |  |                        |        |                                 |  |                                                                        |  
|Total   capital to risk-weighted assets  |  | $                      | 40,414 |                                 |  | 10.1                                                                   | %
|Tier 1   capital to risk-weighted assets |  |                        | 36,182 |                                 |  | 9.1                                                                    | %
|Tier 1   capital to average assets       |  |                        | 36,182 |                                 |  | 7.9                                                                    | %

California State Banking Law restricts the payment of dividends. 
Generally, payment of dividends by the Bank is also limited under FDIC
regulations.  The amount that can be paid in any calendar year without
prior approval of the Department of Financial Institutions cannot exceed the
lesser of net profits (as defined) for the last three fiscal years less the
amount of any distributions made during that three year period, or retained
earnings. Under these restrictions, the Bank was able to declare dividends for
the years ended December 31, 2006 and 2005.  As of December 31,
2006 and 2005 the Bank had declared and paid cash dividends to the Bancorp of
$3,933,034 and $2,348,034, respectively.

Note 13: Commitments and Contingencies

The Bank has entered into 12 operating leases with nonaffiliates for office and
branch space which expire through the year 2017. Monthly payments under these 12
leases total $82,360 with some leases having scheduled annual adjustments and
other leases having annual adjustments based on the Consumer Price
Index.

80



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Future minimum rent payments under the non-cancelable operating leases are as
follows:

|Year   Ending December 31, |  |   |           | 
|-------------------------- |  | - | --------- | 
|                           |  |   |           | 
|2007                       |  | $ | 988,000   | 
|2008                       |  |   | 873,000   | 
|2009                       |  |   | 800,000   | 
|2010                       |  |   | 828,000   | 
|2011                       |  |   | 857,000   | 
|Thereafter                 |  |   | 2,475,000 | 
|                           |  |   |           | 
|                           |  | $ | 6,821,000 | 
|                           |  |   |           | 

The above information is given for existing lease commitments and is not a
forecast of future rental expense. Rental expenses included in occupancy expense
for the years ended December 31, 2006, 2005 and 2004 were $875,569,
$789,806 and $671,762, respectively.

The Bank entered into sublease arrangements for portions of the leased
space.  Rental payments for the years ended December 31, 2006, 2005
and 2004 were $43,608, $56,405 and $7,599, respectively.

The Company is not subject to legal proceedings and claims which have arisen in
the ordinary course of business.

Note 14: Concentration of Credit Risk

The majority of the Banks loan activity is with customers located in
California, primarily in the county of Marin, San Francisco and Alameda. 
Although the Bank has a diversified loan portfolio, a large portion of its
loans are for commercial property, and many of the Banks loans are secured
by real estate in San Francisco, Alameda and Marin County.  Approximately
93.6% of the loans are secured by real estate.

The Banks loan portfolio presents significant geographic concentration as
follows: San Francisco County 25%, Alameda County 17%, Marin County 16%, Contra
Costa County 8%, San Mateo County 6%, Sonoma County 5%, Santa Clara County 5%,
and other 18%, of loan portfolio.

Note 15: Share-Based Compensation Plans

The Company maintains an employee stock option and stock appreciation right plan
(the Plan) in which options to purchase shares of the Companys
common stock, or rights to be paid based on the appreciation of the options in
lieu of exercising the options, may be granted at the Board of Directors
discretion to certain employees. The Plan was originally established in 1997 and
was replaced by a new Plan in 2006.  The 2006 Plan terminates in 2016 and
provides for a maximum of 28,890 options to purchase shares (561,668 after stock
splits and a revision to the original plan) of the Companys common stock.
Options are issued at the fair market value of the stock at the date of
grant.  Options expire ten years from the grant date.  Options
generally vest 20% on each anniversary of the grant for five years or may be
subject to vesting over a specific period of time, as determined by the Board of
Directors.  Options have a contractual term of ten years unless a shorter
period is determined by the Board of Directors.

81



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

The Company also maintains a Non-Employee Directors Stock Option Plan (the
Directors Plan). The Directors Plan was established in
2003 and terminates in 2013.  The Directors Plan provides for the
grant of options for up to 71,690 shares of Company common stock, subject to
adjustment upon certain events, such as stock splits.  However, at no time
shall the total number of shares issuable upon exercise of all outstanding
options under the Directors Plan or any other stock option plan of the
Company and the total number of shares provided for a stock bonus or similar
plan of the Company exceed thirty percent (30%) of its then outstanding shares
of common stock. Options are issued at the fair market value of the stock at the
date of grant.  The options may vest immediately or may be subject to
vesting over a specific period of time, as determined by the Board of Directors.
Each option will expire 10 years after the date of grant, or if sooner, upon a
specified period after termination of service as of a director.

A summary of activity for the Companys options as of December 31, 2006,
2005, and 2004 is presented below.

|                                           |  | 2006               |        
|------------------------------------------ |  | ------------------ | -------
|                                           |  |                    |        
|                                           |  | Number of   Shares |        
|                                           |  |                    |        
|Options   outstanding, beginning of period |  |                    | 541,320
|Granted                                    |  |                    | 39,590 
|Cancelled/forfeited                        |  |                    | (46,564
|Exercised                                  |  |                    | (23,613
|                                           |  |                    |        
|Options   outstanding, end of year         |  |                    | 510,733
|                                           |  |                    |        
|Exercisable   (vested), end of period      |  |                    | 259,873
|                                           |  |                    |        

82



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

|                                           |  | 2005               |        
|------------------------------------------ |  | ------------------ | -------
|                                           |  |                    |        
|                                           |  | Number of   Shares |        
|                                           |  |                    |        
|Options   outstanding, beginning of period |  |                    | 422,206
|Granted                                    |  |                    | 161,570
|Cancelled/forfeited                        |  |                    | (26,983
|Exercised                                  |  |                    | (15,472
|                                           |  |                    |        
|Options   outstanding, end of year         |  |                    | 541,321
|                                           |  |                    |        
|Exercisable   (vested), end of period      |  |                    | 190,644
|                                           |  |                    |        

|                                           |  | 2004               |        
|------------------------------------------ |  | ------------------ | -------
|                                           |  |                    |        
|                                           |  | Number of   Shares |        
|                                           |  |                    |        
|Options   outstanding, beginning of period |  |                    | 187,363
|Granted                                    |  |                    | 298,958
|Cancelled/forfeited                        |  |                    | (6,179 
|Exercised                                  |  |                    | (57,936
|                                           |  |                    |        
|Options   outstanding, end of year         |  |                    | 422,206
|                                           |  |                    |        
|Exercisable   (vested), end of period      |  |                    | 122,692
|                                           |  |                    |        

As of December 31, 2006 there was $1,022,625 of total unrecognized compensation
cost related to non-vested share-based compensation arrangements and the
weighted average period over which the cost is expected to be recognized is 3.16
years.

83



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Note 16: Earnings Per Share (EPS)

Earnings per share of common stock is calculated on both a basic and diluted
basis based on the weighted average number of common shares outstanding. 
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period.  Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted from the
issuance of common stock that then shared in earnings.

The following table reconciles the numerator and denominator of the Basic and
Diluted earnings per share computations:

|                                                        |  | 2006   |           | 2005   |  | 2004      |  
|------------------------------------------------------- |  | ------ | --------- | ------ |  | --------- | -
|                                                        |  |        |           |        |  |           |  
|                                                        |  | Income |           | Shares |  | Income    |  
|                                                        |  |        |           |        |  |           |  
|Net Income as Reported                                  |  | $      | 3,928,449 |        |  |           |  
|Shares Outstanding at Year   End                        |  |        |           |        |  | 3,960,852 |  
|Impact of Weighting   Shares  Purchased During the Year |  |        |           |        |  | (9,058    | )
|                                                        |  |        |           |        |  |           |  
|Used   in Basic EPS                                     |  |        | 3,928,449 |        |  | 3,951,794 |  
|Dilutive Effect of   Outstanding  Stock Options         |  |        |           |        |  | 4,298     |  
|                                                        |  |        |           |        |  |           |  
|Used   in Dilutive EPS                                  |  | $      | 3,928,449 |        |  | 3,956,092 |  
|                                                        |  |        |           |        |  |           |  

Note 17: Transactions with Related Parties

In the ordinary course of business, the Bank has granted loans to, and accepted
deposits from, certain directors, officers, principal shareholders and the
companies with which they are associated. All such loans and deposits were made
under terms which are consistent with the Banks normal lending and deposit
policies.

An analysis of the activity with respect to related party loans during 2006 are
as follows.

|                                             |  | 2006 |         | 2005 |  
|-------------------------------------------- |  | ---- | ------- | ---- | -
|                                             |  |      |         |      |  
|Outstanding Balance,   beginning of the year |  | $    | 520,000 |      | $
|Credit granted, including   renewals         |  |      |        |      |  
|Repayments                                   |  |      |        |      |  
|                                             |  |      |         |      |  
|Outstanding Balance, end of   year           |  | $    | 520,000 |      | $
|                                             |  |      |         |      |  

The Bank accepts deposits from shareholders, directors and employees in the
normal course of business, and the terms are comparable to those with
non-affiliated parties.  At December 31, 2006 and 2005, the Bank held
deposits from related parties of $1,488,036 and $1,392,003,
respectively.

84



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2006 AND 2005

Additionally, on July 19, 2005 EWM entered into an agreement to pay Kit M. Cole,
Executive Chairman of the Company, $250,000 on August 1, 2005 for recognition of
services provided to EWM and to assist in making contacts with prospective
clients and in organizing its business.  EWM will also pay Ms. Cole $10,000
on the first day of each month for a period of fifty months beginning August 1,
2005.  The cost of the agreement is being allocated over a period of
approximately ten years.

Note 18: Financial Instruments with Off-Balance Sheet Risk

The Bank makes commitments to extend credit in the normal course of business to
meet the financing needs of its customers.  These financial instruments
include commitments to extend credit in the form of loans or through standby
letters of credit.  Standby letters of credit written are confidential
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. The Bank
anticipates no losses as a result of such transactions.   Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements.

The Bank is exposed to credit losses in the event of non performance by the
borrower, in the contract amount of the commitment.  The Bank uses the same
credit policies in making commitments as it does for on-balance sheet
instruments and evaluates each customers creditworthiness on a case by
case basis.  The amount of collateral obtained if deemed necessary by the
Bank is based on managements credit evaluation of the borrower. 
Collateral held varies but primarily consists of residential and commercial
property.

The Company has no outstanding standby Letters of Credit, approximately
$8,565,000 in commitments to fund commercial real estate, construction, and land
development loans, $15,911,000 in commitments to fund revolving, open ended
lines secured by 1-4 family residential properties, and $5,253,000 in other
unused commitments as of December 31, 2006.  The Company has no outstanding
standby Letters of Credit, approximately $18,522,000 in commitments to fund
commercial real estate, construction, and land development loans, $16,710,000 in
commitments to fund revolving, open ended lines secured by 1-4 family
residential properties, and $4,752,000 in other unused commitments as of
December 31, 2005.

At December 31, 2006 and 2005, the Bank had no contingent liabilities for
letters of credit accommodations to its customers.

Note 19: Subsequent Events

On January 26, 2007, the Company announced a 7% stock dividend to be paid on
February 14, 2007 to shareholders of record on January 31, 2007.  All share
and per share data has been retroactivity adjusted to reflect this
dividend.

85



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2006 AND 2005

Note 20: Condensed Financial Information of Epic Bancorp (Parent
Company)

Balance Sheets

|                                                 |  | 2006 |            | 2005 |   | 2004       |  
|------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|                                                 |  |      |            |      |   |            |  
|Assets                                           |  |      |            |      |   |            |  
|Cash   and cash equivalents                      |  | $    | 123,420    |      | $ | 224,931    |  
|Investment   in subsidiary                       |  |      | 43,443,282 |      |   | 36,392,045 |  
|Investment   in nonconsolidated subsidiary       |  |      | 403,552    |      |   | 310,000    |  
|Prepaids   and other assets                      |  |      | 536,759    |      |   | 442,783    |  
|                                                 |  |      |            |      |   |            |  
|Total   Assets                                   |  | $    | 44,507,013 |      | $ | 37,369,759 |  
|                                                 |  |      |            |      |   |            |  
|Liabilities                                      |  |      |            |      |   |            |  
|Junior   subordinated debentures                 |  |      | 13,403,000 |      |   | 10,310,000 |  
|Accrued   interest payable and other liabilities |  |      | 223,153    |      |   | 214,681    |  
|                                                 |  |      |            |      |   |            |  
|Total   Liabilities                              |  |      | 13,626,153 |      |   | 10,524,681 |  
|                                                 |  |      |            |      |   |            |  
|Stockholders   Equity                           |  |      |            |      |   |            |  
|Common   stock                                   |  |      | 10,766,809 |      |   | 10,207,688 |  
|Retained   earnings                              |  |      | 20,236,571 |      |   | 16,899,835 |  
|Accumulated   other comprehensive (loss)         |  |      | (122,520   | )    |   | (262,445   | )
|                                                 |  |      |            |      |   |            |  
|Total   Stockholders Equity                     |  |      | 30,880,860 |      |   | 26,845,078 |  
|                                                 |  |      |            |      |   |            |  
|Total   Liabilities and Stockholders Equity     |  | $    | 44,507,013 |      | $ | 37,369,759 |  
|                                                 |  |      |            |      |   |            |  

Statements of Income

|Equity in undistributed   income of subsidiaries     |  | $ | 5,118,465  |   | $ | 5,100,704 |   | $ | 4,245,651 |  
|---------------------------------------------------- |  | - | ---------- | - | - | --------- | - | - | --------- | -
|Other income                                         |  |   | 31,057     |   |   | 22,126    |   |   | 16,174    |  
|Interest expense on junior   subordinated debentures |  |   | (1,040,962 | ) |   | (743,214  | ) |   | (547,964  | )
|Other expenses                                       |  |   | (1,078,037 | ) |   | (983,447  | ) |   | (635,648  | )
|                                                     |  |   |            |   |   |           |   |   |           |  
|Income   Before Income Taxes                         |  |   | 3,030,523  |   |   | 3,396,169 |   |   | 3,078,213 |  
|Income   Tax Benefit                                 |  |   | 897,926    |   |   | 700,000   |   |   | 370,200   |  
|                                                     |  |   |            |   |   |           |   |   |           |  
|Net   Income                                         |  | $ | 3,928,449  |   | $ | 4,096,169 |   | $ | 3,448,413 |  
|                                                     |  |   |            |   |   |           |   |   |           |  

86



---



##### 

EPIC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS DECEMBER 31, 2006 AND 2005

Statements of Cash Flows

|                                                                                         |  | 2006 |            | 2005 |   | 2004       |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                         |  |      |            |      |   |            |  
|Cash   Flows from Operating Activities                                                   |  |      |            |      |   |            |  
|Net   income                                                                             |  | $    | 3,928,449  |      | $ | 4,096,169  |  
|Adjustments to reconcile net income to net cash provided/(used) by operating
activities: |  |      |            |      |   |            |  
|Equity   in undistributed income of Subsidiaries                                         |  |      | (5,118,465 | )    |   | (5,100,704 | )
|Share-based compensation                                                                 |  |      | 90,146     |      |   |           |  
|Net change in assets and liabilities                                                     |  |      | (179,056   | )    |   | (86,402    | )
|                                                                                         |  |      |            |      |   |            |  
|Net   cash provided/(used) by operating activities                                       |  |      | (1,278,926 | )    |   | (1,090,937 | )
|                                                                                         |  |      |            |      |   |            |  
|Cash   Flows from Investing Activities                                                   |  |      |            |      |   |            |  
|Capital   contributions to Subsidiaries                                                  |  |      | (3,086,000 | )    |   | (794,000   | )
|                                                                                         |  |      |            |      |   |            |  
|Net   cash used by investing activities                                                  |  |      | (3,086,000 | )    |   | (794,000   | )
|                                                                                         |  |      |            |      |   |            |  
|Cash   Flows from Financing Activities                                                   |  |      |            |      |   |            |  
|Stock   offering proceeds                                                                |  |      |           |      |   |           |  
|Dividends   received from Bank                                                           |  |      | 1,585,000  |      |   | 2,348,034  |  
|Issuance of Junior Subordinated debentures                                               |  |      | 3,093,000  |      |   |           |  
|Cash   dividends paid to shareholders                                                    |  |      | (591,713   | )    |   | (441,050   | )
|Stock   options exercised                                                                |  |      | 177,128    |      |   | 48,449     |  
|                                                                                         |  |      |            |      |   |            |  
|Net   cash provided by financing activities                                              |  |      | 4,263,415  |      |   | 1,955,433  |  
|                                                                                         |  |      |            |      |   |            |  
|Net   (Decrease)/Increase in Cash and Cash Equivalents                                   |  |      | (101,511   | )    |   | 70,496     |  
|Cash and   Cash Equivalents, Beginning of Year                                           |  |      | 224,931    |      |   | 154,435    |  
|                                                                                         |  |      |            |      |   |            |  
|Cash and   Cash Equivalents, End of Year                                                 |  | $    | 123,420    |      | $ | 224,931    |  
|                                                                                         |  |      |            |      |   |            |  
|Supplemental   Cash Flow Information                                                     |  |      |            |      |   |            |  
|Cash   paid during the year for:                                                         |  |      |            |      |   |            |  
|Interest                                                                                 |  | $    | 1,022,612  |      | $ | 743,214    |  
|                                                                                         |  |      |            |      |   |            |  
|Non-Cash   Investing Activities                                                          |  |      |            |      |   |            |  
|Net   change in accumulated other comprehensive income/(loss)                            |  | $    | 139,925    |      | $ | (33,168    | )
|                                                                                         |  |      |            |      |   |            |  

87



---



##### 

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A  CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

The Companys management carried out an evaluation, under the supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2006, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as of December 31, 2006 are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic filings under the Exchange Act.

The Companys management, including the CEO and CFO, does not expect that the Companys Disclosure Controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policiees or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

(b)  Changes in Disclosure Controls and Procedures

For the year ended December 31, 2006, no changes in the Companys disclosure controls and procedures have come to managements attention that have materially affected, or are reasonably likely to materially affect, the Companys disclosure controls.

ITEM 9B  OTHER INFORMATION

There were no events in the fourth quarter which were required on Form 8-K and were not so reported.

PART III

ITEM 10  DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required in response to this item is incorporated by reference from the information contained in the sections captioned Nominees for Director, Executive Officers Who Are Not Directors and Executive Compensation  Compliance with Section 16(a) of the Securities Exchange Act of 1934, in the Registrants Proxy Statement for the 2007 Annual Meeting of Shareholders (the Proxy Statement) which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.

88



---



##### 

ITEM 11  EXECUTIVE COMPENSATION

The information in response to this item is incorporated by reference from the information contained in the section captioned Executive Compensation in the Registrants Proxy Statement for the 2007 Annual Meeting which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required in response to this item is incorporated by reference from the information contained in the section captioned Beneficial Ownership of the Common Stock in the Registrants Proxy Statement for the 2007 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.

ITEM 13  CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required in response to this item is incorporated by reference from the information contained in the section captioned Certain Transactions in the Registrants Proxy Statement for the 2007 Annual Meeting which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.

ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required in response to this item is incorporated by reference from the information contained in the section captioned Ratification of the Selection of Independent Auditors in the Registrants Proxy Statement for the 2007 Annual Meeting of Shareholders which will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934.

PART IV

ITEM 15  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  Exhibits

See Index to Exhibits of this Annual Report on Form 10-K.

INDEX TO EXHIBITS

|Exhibit   Number |  | Description of Exhibit                                                               
|---------------- |  | -------------------------------------------------------------------------------------
|                 |  |                                                                                      
|3.1              |  | Articles of   Incorporation of Bancorp (1)                                           
|                 |  |                                                                                      
|3.2              |  | Bylaws of   the Bancorp (6)                                                          
|                 |  |                                                                                      
|4.1              |  | Amended and   Restated Trust Agreement (1)                                           
|                 |  |                                                                                      
|4.2              |  | Trust   Preferred Securities Guarantee Agreement (1)                                 
|                 |  |                                                                                      
|4.3              |  | Floating   Rate Junior Subordinated Deferrable Interest Debenture of Epic Bancorp (1)
|                 |  |                                                                                      
|4.4              |  | Form of   Certificate Evidencing Capital Securities of San Rafael Trust II (1)       
|                 |  |                                                                                      
|4.5              |  | Form of   Common Security Certificate of San Rafael Trust II (2)                     
|                 |  |                                                                                      
|4.6              |  | Amended and   Restated Trust Agreement (6)                                           

89



---



##### 

|4.7  |  | Trust   Preferred Securities Guarantee Agreement (6)                                                                                                                    
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                         
|4.8  |  | Floating   Rate Junior Subordinated Deferrable Interest Debenture of Epic Bancorp (6)                                                                                   
|     |  |                                                                                                                                                                         
|4.9  |  | Form of   Certificate Evidencing Capital Securities of San Rafael Trust II (6)                                                                                          
|     |  |                                                                                                                                                                         
|4.10 |  | Form of   Common Security Certificate of San Rafael Trust II (6)                                                                                                        
|     |  |                                                                                                                                                                         
|10.1 |  | Epic Bancorp   2006 Employee Stock Option and Stock Appreciation Rights Plan (3)*                                                                                       
|     |  |                                                                                                                                                                         
|10.2 |  | Salary   Continuation Plan for Kit M. Cole (1)                                                                                                                          
|     |  |                                                                                                                                                                         
|10.3 |  | Salary   Continuation Plan for Mark Garwood (1)*                                                                                                                        
|     |  |                                                                                                                                                                         
|10.4 |  | Tamalpais   Bank Defined Contribution Plan; Tamalpais Bank Defined Contribution   Trust;  EGTRRA Amendment for 401(k)   Plans; Defined Contribution Plan Amendment (1) *
|     |  |                                                                                                                                                                         
|10.5 |  | Epic Bancorp   2003 Non-Employee Directors Stock Option Plan and Agreement (2)*                                                                                         
|     |  |                                                                                                                                                                         
|10.6 |  | Agreement   signed on July 19, 2005 between EWM and Kit M. Cole (4)                                                                                                     
|     |  |                                                                                                                                                                         
|10.7 |  | Tiburon   lease agreement between Tamalpais Bank and Main Street Properties (3)                                                                                         
|     |  |                                                                                                                                                                         
|10.8 |  | Las Gallinas   lease agreement between Tamalpais Bank and Citibank (4)                                                                                                  
|     |  |                                                                                                                                                                         
|10.9 |  | Epic Bancorp   2006 Employee Stock Option and Stock Appreciation Plan (5)                                                                                               
|     |  |                                                                                                                                                                         
|11.  |  | Statement re   computation of per share earning. Included in footnote 17 to the Registrants   audited financial statements included in this Annual Report .            
|     |  |                                                                                                                                                                         
|14.  |  | Code of   Ethics                                                                                                                                                        
|     |  |                                                                                                                                                                         
|21.  |  | Subsidiaries   of the Bancorp: Tamalpais Bank; San Rafael Capital Trust I; San Rafael   Capital Trust II; Epic Wealth Management.                                       
|     |  |                                                                                                                                                                         
|23.  |  | Consent of   Independent Registered Public Accounting Firm                                                                                                              
|     |  |                                                                                                                                                                         
|24   |  | Power of   Attorney                                                                                                                                                     
|     |  |                                                                                                                                                                         
|31.1 |  | Certificate   of Principal Executive Officer Pursuant to SEC Release 33-8238.                                                                                           
|     |  |                                                                                                                                                                         
|31.2 |  | Certificate   of Principal Financial Officer Pursuant to SEC Release 33-8238.                                                                                           
|     |  |                                                                                                                                                                         
|32.1 |  | Certificate   of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                        
|     |  |                                                                                                                                                                         
|32.2 |  | Certificate   of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                        

|   
|---
|*  
|   
|(1)

90



---



##### 

|(2) | Attached as   Exhibits 99.1 and 99.2, respectively to Registration Statement No. 333-132197   on Form S-8 filed by Epic Bancorp with the Securities and Exchange   Commission, and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                     
|(3) | Attached as   Exhibit 10.1 to Registration Statement No. 333-135143 filed by Epic Bancorp   with the SEC at Incorporation by reference.                                                                             
|    |                                                                                                                                                                                                                     
|(4) | Attached as   Exhibits 10.1 and 10.2 to the Quarterly Report on Form 10-Q for the quarter   ended June 30, 2005 filed by Epic Bancorp with the Securities and Exchange   Commission                                 
|    |                                                                                                                                                                                                                     
|(5) | Attached as   Exhibit 10.1 to Registration Statement No. 333-135143 filed by Epic Bancorp   with the SEC at Incorporation by reference                                                                              
|    |                                                                                                                                                                                                                     
|(6) | Attached as   Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, respectively to the Quarterly Report on   Form 10-Q for Quarter ended June 30, 2006 filed by Epic Bancop with   Securities and Exchange Commission               

91



---



##### 

SIGNATURES

In accordance with the requirements of Section 13 of the Securities Exchange Act of 1934, Epic Bancorp has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|By: | /s/ MARK   GARWOOD            |  | By: | /s/ MICHAEL   MOULTON        
|--- | ----------------------------- |  | --- | -----------------------------
|    |                               |  |     |                              
|    | Chief Executive Officer       |  |     | Chief Financial Officer      
|    | (Principal Executive Officer) |  |     | (Principal Financial Officer)
|    | March 29,   2007              |  |     | March 29,   2007             

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

|Signature               |  | Title                                                                |  | Date            
|----------------------- |  | -------------------------------------------------------------------- |  | ----------------
|                        |  |                                                                      |  |                 
|/s/ KIT M. COLE         |  | Director and   Executive Chairman of the Board                       |  | March 29,   2007
|                        |  |                                                                      |  |                 
|Kit M. Cole             |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ CAROLYN   HORAN     |  | Director                                                             |  | March 29,   2007
|                        |  |                                                                      |  |                 
|Carolyn   Horan         |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ RICHARD E.   SMITH  |  | Director                                                             |  | March 29,   2007
|                        |  |                                                                      |  |                 
|Richard E.   Smith      |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ W. JEFFREY   TAPPAN |  | Director                                                             |  | March 29,   2007
|                        |  |                                                                      |  |                 
|W. Jeffery   Tappan     |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ ALLAN BORTEL        |  | Director                                                             |  | March 29,   2007
|                        |  |                                                                      |  |                 
|Allan Bortel            |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ PAUL   SCHAEFFER    |  | Director                                                             |  | March 29,   2007
|                        |  |                                                                      |  |                 
|Paul   Schaeffer        |  |                                                                      |  |                 
|                        |  |                                                                      |  |                 
|/s/ MARK GARWOOD        |  | Director and   Chief Executive Officer (Principal Executive Officer) |  | March 29,   2007
|                        |  |                                                                      | 
|Mark Garwood            |  |                                                                      |  |                 

92

---