##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file number 000-33455
 ALLIANCE BANCSHARES CALIFORNIA
 (Exact name of Registrant as specified in its charter)
 California
(State or other jurisdiction 
of incorporation or organization)
    
    91-2124567
(I.R.S. Employer
Identification Number)100 Corporate Pointe 
Culver City, California
(Address of principal executive offices)
    
    90230
(Zip Code)
 (310) 410-9281
(Registrants telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed, since last year)
 þ o
  o o þ
 o þ




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##### 



ALLIANCE BANCSHARES CALIFORNIA
 QUARTERLY REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED SEPTEMBER 30, 2007
 TABLE OF CONTENTS
 Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Condition at
September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three and
nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the three and
nine months ended September 30, 2007 and 2006
    
    
    5Consolidated Statements of Shareholders Equity for the
three and nine months ended September 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    30Part II. Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    31Signatures
    
    
    32EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)(Dollars in thousands)AssetsCash and due from banks
    
    $
    21,049
    
    
    $
    18,732Federal funds sold
    
    
    45,645
    
    
    
    28,810Total cash and cash equivalents
    
    
    66,694
    
    
    
    47,542Time deposits with other financial institutions
    
    
    1,471
    
    
    
    2,556Securities held to maturity, fair market value $104,062 at September 30, 2007;
$104,153 at December 31, 2006
    
    
    104,367
    
    
    
    104,627Loans held for sale
    
    
    
    
    
    
    305Loans, net of the allowance for loan losses of $11,062 at September 30, 2007; $9,195
at December 31, 2006
    
    
    830,332
    
    
    
    700,189Equipment and leasehold improvements, net
    
    
    4,925
    
    
    
    4,286Accrued interest receivable and other assets
    
    
    17,001
    
    
    
    16,257Total assets
    
    $
    1,024,790
    
    
    $
    875,762Liabilities, Redeemable Preferred Stock and Shareholders EquityDeposits:Non-interest bearing demand
    
    $
    148,531
    
    
    $
    157,265Interest bearing:Demand
    
    
    20,554
    
    
    
    12,817Savings and money market
    
    
    212,137
    
    
    
    183,692Certificates of deposit
    
    
    460,624
    
    
    
    363,094Total deposits
    
    
    841,846
    
    
    
    716,868Accrued interest payable and other liabilities
    
    
    5,121
    
    
    
    7,774Securities sold under agreements to repurchase
    
    
    31,096
    
    
    
    20,000FHLB advances
    
    
    60,000
    
    
    
    50,000Junior subordinated debentures
    
    
    27,837
    
    
    
    27,837Total liabilities
    
    
    965,900
    
    
    
    822,479Commitments and contingencies
    
    
    
    
    
    
    Redeemable Preferred Stock:Serial preferred stock, no par value:Authorized - 20,000,000 shares7% Series A Non-Cumulative Convertible Non-Voting:Authorized and outstanding - 733,050 shares at September 30, 2007
and December 31, 2006
    
    
    7,697
    
    
    
    7,6976.82% Series B Non-Cumulative Convertible Non-Voting:Authorized and outstanding - 667,096 shares at September 30, 2007
and December 31, 2006
    
    
    11,319
    
    
    
    11,319Total redeemable preferred stock
    
    
    19,016
    
    
    
    19,016Shareholders Equity:Common stock, no par value:Authorized - 20,000,000 shares; Outstanding - 6,171,879 shares at
September 30, 2007 and 6,151,679 shares at December 31, 2006
    
    
    6,712
    
    
    
    6,600Additional Paid in Capital
    
    
    957
    
    
    
    502Undivided profits
    
    
    32,205
    
    
    
    27,165Total shareholders equity
    
    
    39,874
    
    
    
    34,267Total liabilities, redeemable preferred stock and shareholders equity
    
    $
    1,024,790
    
    
    $
    875,762
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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands except earnings per share)Interest Income:Interest and fees on loans
    
    $
    18,398
    
    
    $
    15,925
    
    
    $
    54,143
    
    
    $
    42,945Interest on time deposits with other financial
institutions
    
    
    14
    
    
    
    26
    
    
    
    53
    
    
    
    157Interest on securities held to maturity
    
    
    1,383
    
    
    
    1,168
    
    
    
    3,872
    
    
    
    3,073Interest on federal funds sold
    
    
    489
    
    
    
    382
    
    
    
    1,656
    
    
    
    1,024Total interest income
    
    
    20,284
    
    
    
    17,501
    
    
    
    59,724
    
    
    
    47,199Interest Expense:Interest on deposits
    
    
    8,042
    
    
    
    5,938
    
    
    
    22,671
    
    
    
    15,763Interest on FHLB advances
    
    
    762
    
    
    
    576
    
    
    
    2,119
    
    
    
    1,391Interest on securities sold under repurchase
agreements
    
    
    271
    
    
    
    370
    
    
    
    744
    
    
    
    996Interest on junior subordinated debentures
    
    
    522
    
    
    
    518
    
    
    
    1,542
    
    
    
    1,196Total interest expense
    
    
    9,597
    
    
    
    7,402
    
    
    
    27,076
    
    
    
    19,346Net interest income
    
    
    10,687
    
    
    
    10,099
    
    
    
    32,648
    
    
    
    27,853Provision for Loan Losses
    
    
    1,060
    
    
    
    1,090
    
    
    
    3,199
    
    
    
    2,813Net interest income after provision for loan losses
    
    
    9,627
    
    
    
    9,009
    
    
    
    29,449
    
    
    
    25,040Non-Interest Income
    
    
    1,462
    
    
    
    716
    
    
    
    2,857
    
    
    
    2,056Non-Interest Expense:Salaries and related benefits
    
    
    4,588
    
    
    
    3,426
    
    
    
    13,000
    
    
    
    9,471Occupancy and equipment expenses
    
    
    932
    
    
    
    781
    
    
    
    2,812
    
    
    
    2,186Professional fees
    
    
    415
    
    
    
    475
    
    
    
    1,122
    
    
    
    1,195Data processing
    
    
    186
    
    
    
    203
    
    
    
    617
    
    
    
    653Other operating expense
    
    
    1,379
    
    
    
    1,300
    
    
    
    4,265
    
    
    
    3,827Total non-interest expense
    
    
    7,500
    
    
    
    6,185
    
    
    
    21,816
    
    
    
    17,332Earnings Before Income Tax Expense
    
    
    3,589
    
    
    
    3,540
    
    
    
    10,490
    
    
    
    9,764Income tax expense
    
    
    1,599
    
    
    
    1,470
    
    
    
    4,466
    
    
    
    3,959Net Earnings
    
    $
    1,990
    
    
    $
    2,070
    
    
    $
    6,024
    
    
    $
    5,805Earnings per Common Share:Basic earnings per share
    
    $
    0.27
    
    
    $
    0.29
    
    
    $
    0.82
    
    
    $
    0.79Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.79
    
    
    $
    0.76
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CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating Activities:Net earnings
    
    $
    6,024
    
    
    $
    5,805Adjustments to reconcile net earnings to net cash provided by operating
activities:Net amortization of discounts and premiums on securities held to
maturity
    
    
    36
    
    
    
    207Depreciation and amortization
    
    
    1,039
    
    
    
    857Provision for loan losses
    
    
    3,199
    
    
    
    2,813Compensation expense on stock options
    
    
    337
    
    
    
    260Excess tax benefit from share based payment arrangements
    
    
    (118
    )
    
    
    Net gains on sales of loans held for sale
    
    
    (1,008
    )
    
    
    (357
    )Proceeds from sales of loans held for sale
    
    
    65,015
    
    
    
    22,259Originations of loans held for sale
    
    
    (63,702
    )
    
    
    (24,057
    )(Increase) decrease in accrued interest receivable and other assets
    
    
    901
    
    
    
    (1,367
    )Increase (decrease) in accrued interest payable and other liabilities
    
    
    (2,653
    )
    
    
    1,810Net cash provided by operating activities
    
    
    9,070
    
    
    
    8,230Cash Flows from Investing Activities:Net (increase) decrease in:Time deposits with other financial institutions
    
    
    1,085
    
    
    
    5,869Loans
    
    
    (134,442
    )
    
    
    (112,919
    )Purchase of equipment and leasehold improvements
    
    
    (1,678
    )
    
    
    (780
    )Purchase of FHLB stock
    
    
    (427
    )
    
    
    (29
    )Purchase of securities held to maturity
    
    
    (47,877
    )
    
    
    (41,798
    )Proceeds from maturities of securities held to maturity
    
    
    48,101
    
    
    
    11,540Investment in statutory trust
    
    
    
    
    
    
    (310
    )Net cash used in investing activities
    
    
    (135,238
    )
    
    
    (138,427
    )Cash Flows from Financing Activities:Net increase (decrease) in:Demand deposits
    
    
    (8,734
    )
    
    
    51,400Interest bearing demand deposits
    
    
    7,737
    
    
    
    (434
    )Savings and money market deposits
    
    
    28,445
    
    
    
    51,582Certificates of deposit
    
    
    97,530
    
    
    
    73,240Excess tax benefit from share based payment arrangements
    
    
    118
    
    
    
    (36
    )Proceeds from issuance of junior subordinated debentures
    
    
    
    
    
    
    10,310Increase in FHLB Advances
    
    
    10,000
    
    
    
    10,000Increase (decrease) in securities sold under agreements to repurchase
    
    
    11,096
    
    
    
    (41,134
    )Proceeds from stock options exercised
    
    
    112
    
    
    
    76Dividends paid on preferred stock
    
    
    (984
    )
    
    
    (984
    )Net cash provided by financing activities
    
    
    145,320
    
    
    
    154,020Net Increase (decrease) in Cash and Cash Equivalents
    
    
    (19,152
    )
    
    
    23,823Cash and Cash Equivalents, Beginning of Period
    
    
    47,542
    
    
    
    30,149Cash and Cash Equivalents, End of Period
    
    $
    66,694
    
    
    $
    53,972Supplemental Schedule of Noncash Investing and Financing ActivitiesTransfer from loans to Other Real Estate Owned
    
    $
    1,100
    
    
    
    Supplemental
Disclosure of Cash Flow InformationCash paid during the period for:Interest
    
    $
    25,775
    
    
    $
    18,230Income taxes
    
    
    5,922
    
    
    
    4,616
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Unaudited)
 For the Nine Months Ended September 30, 2007 and 2006
 Common Stock
    
    
    AdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    UndividedShares
    
    
    Amount
    
    
    Capital
    
    
    Profits
    
    
    Total(Dollars and shares in thousands)Balance, December 31, 2005
    
    
    6,066
    
    
    $
    6,406
    
    
    
    
    
    
    $
    20,470
    
    
    $
    26,876Stock options exercised
    
    
    32
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    76Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (984
    )
    
    
    (984
    )Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    260Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,805
    
    
    
    5,805Balance, September 30, 2006
    
    
    6,098
    
    
    $
    6,482
    
    
    
    
    
    
    $
    25,551
    
    
    $
    32,033
 Common Stock
    
    
    AdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    UndividedShares
    
    
    Amount
    
    
    Capital
    
    
    Profits
    
    
    Total(Dollars and shares in thousands)Balance, December 31, 2006
    
    
    6,152
    
    
    $
    6,600
    
    
    $
    502
    
    
    $
    27,165
    
    
    $
    34,267Stock options exercised
    
    
    20
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    112Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (984
    )
    
    
    (984
    )Tax benefit on non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    118Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    337Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,024
    
    
    
    6,024Balance, September 30, 2007
    
    
    6,172
    
    
    $
    6,712
    
    
    $
    957
    
    
    $
    32,205
    
    
    $
    39,874
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##### Table of Contents



ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 September 30, 2007
(Unaudited)
 1. Nature of Business and Significant Accounting Policies
 Organization
    Use of Estimates
  Income Taxes
  Accounting for Uncertainty in Income Taxes
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##### Table of Contents



Other Real Estate Owned
  Equity Compensation Plans
  Share-Based Payment ( )
   Weighted AverageWeighted Average
    
    Remaining
    
    Aggregate IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value(Dollars in thousands except per share amounts)2007Outstanding at December 31, 2006
    
    
    425,000
    
    
    $
    9.72Granted
    
    
    97,000
    
    
    
    16.67Exercised
    
    
    20,200
    
    
    
    5.61Forfeited
    
    
    8,200
    
    
    
    9.69Outstanding at September 30, 2007
    
    
    493,600
    
    
    
    11.26
    
    
    
    6.78
    
    
    $
    1,142Vested or expected to vest at September 30, 2007
    
    
    474,728
    
    
    
    9.75
    
    
    
    6.05
    
    
    
    1,130Options exercisable at September 30, 2007
    
    
    187,000
    
    
    
    6.77
    
    
    
    4.88
    
    
    
    958
  2. Allowance for Loan Losses
  CHANGES IN ALLOWANCES FOR LOAN LOSSES
 Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Balance at beginning of period
    
    $
    9,195
    
    
    $
    6,051Charge-offs
    
    
    (1,643
    )
    
    
    (1,229
    )Recoveries
    
    
    166
    
    
    
    369Net charge-offs
    
    
    (1,477
    )
    
    
    (860
    )Additional provisions
    
    
    3,199
    
    
    
    2,813Other adjustments
    
    
    145
    
    
    
    138Balance at end of period
    
    $
    11,062
    
    
    $
    8,142
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3. Earnings per Share
  Per ShareThree Months Ended September 30, 2007
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    1,990Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,662
    
    
    
    6,169,488
    
    
    $
    0.27Preferred stock dividend
    
    
    328Effect of exercise of options and warrants
    
    
    
    
    
    
    87,774Effect of conversion of Series A preferred stock
    
    
    
    
    
    
    733,050Effect of conversion of Series B preferred stock
    
    
    
    
    
    
    667,096Diluted earnings per share:Net earnings available to common shareholders
    
    $
    1,990
    
    
    
    7,657,408
    
    
    $
    0.26
 Per ShareThree Months Ended September 30, 2006
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    2,070Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,742
    
    
    
    6,082,853
    
    
    $
    0.29Preferred stock dividend
    
    
    328Effect of exercise of options and warrants
    
    
    
    
    
    
    226,096Effect of conversion of Series A preferred stock
    
    
    
    
    
    
    733,050Effect of conversion of Series B preferred stock
    
    
    
    
    
    
    667,096Diluted earnings per share:Net earnings available to common shareholders
    
    $
    2,070
    
    
    
    7,709,095
    
    
    $
    0.27
  Per ShareNine Months Ended September 30, 2007
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    6,024Cash dividends on preferred stock
    
    
    (984
    )Net earnings available to common shareholders
    
    
    5,040
    
    
    
    6,163,637
    
    
    $
    0.82Preferred stock dividend
    
    
    984Effect of exercise of options and warrants
    
    
    
    
    
    
    83,542Effect of conversion of Series A preferred stock
    
    
    
    
    
    
    733,050Effect of conversion of Series B preferred stock
    
    
    
    
    
    
    667,096Diluted earnings per share:Net earnings available to common shareholders
    
    $
    6,024
    
    
    
    7,647,326
    
    
    $
    0.79
 Per ShareNine Months Ended September 30, 2006
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    5,805Cash dividends on preferred stock
    
    
    (984
    )Net earnings available to common shareholders
    
    
    4,821
    
    
    
    6,071,854
    
    
    $
    0.79Preferred stock dividend
    
    
    984Effect of exercise of options and warrants
    
    
    
    
    
    
    208,073Effect of conversion of Series A preferred stock
    
    
    
    
    
    
    733,050Effect of conversion of Series B preferred stock
    
    
    
    
    
    
    667,096Diluted earnings per share:Net earnings available to common shareholders
    
    $
    5,805
    
    
    
    7,680,073
    
    
    $
    0.76
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##### Table of Contents



4. Stock Options
    Stock OptionCompensationExpense(Dollars in thousands)Remainder of 2007
    
    $
    1322008
    
    
    5122009
    
    
    4672010
    
    
    3462011
    
    
    1952012
    
    
    34Total
    
    $
    1,686
   Nine Months Ended September 30,2007
    
    2006Risk-free rate
    
    
    4.8
    %
    
    
    5.0
    %Expected term
    
    6.25 years
    
    6.21 yearsExpected volatility
    
    
    36.0
    %
    
    
    42.5
    %
 5. Operation Segments
 Disclosures about Segments of an Enterprise and Related Information
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##### Table of Contents



Regional
    
    
    Real EstateBanking
    
    
    IndustriesThree Months Ended September 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2007Interest income
    
    $
    8,181
    
    
    $
    8,478
    
    
    $
    1,061
    
    
    $
    2,564
    
    
    $
    20,284Credit for funds provided
    
    
    7,056
    
    
    
    425
    
    
    
    45
    
    
    
    (7,526
    )
    
    
    Total interest income
    
    
    15,237
    
    
    
    8,903
    
    
    
    1,106
    
    
    
    (4,962
    )
    
    
    20,284Interest expense
    
    
    4,155
    
    
    
    
    
    
    
    6
    
    
    
    5,436
    
    
    
    9,597Charge for funds used
    
    
    5,258
    
    
    
    4,471
    
    
    
    455
    
    
    
    (10,184
    )
    
    
    Total interest expense
    
    
    9,413
    
    
    
    4,471
    
    
    
    461
    
    
    
    (4,748
    )
    
    
    9,597Net interest income
    
    
    5,824
    
    
    
    4,432
    
    
    
    645
    
    
    
    (214
    )
    
    
    10,687Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,060
    
    
    
    1,060Net interest income after provision for loan losses
    
    
    5,824
    
    
    
    4,432
    
    
    
    645
    
    
    
    (1,274
    )
    
    
    9,627Non-interest income
    
    
    194
    
    
    
    205
    
    
    
    135
    
    
    
    928
    
    
    
    1,462Non-interest expense
    
    
    2,756
    
    
    
    704
    
    
    
    344
    
    
    
    3,696
    
    
    
    7,500Net contribution to earnings before tax expense
    
    $
    3,262
    
    
    $
    3,933
    
    
    $
    436
    
    
    $
    (4,042
    )
    
    $
    3,589
 Regional
    
    
    Real EstateBanking
    
    
    IndustriesThree Months Ended September 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2006Interest income
    
    $
    6,021
    
    
    $
    8,342
    
    
    $
    1,032
    
    
    $
    2,106
    
    
    $
    17,501Credit for funds provided
    
    
    5,440
    
    
    
    405
    
    
    
    46
    
    
    
    (5,891
    )
    
    
    Total interest income
    
    
    11,461
    
    
    
    8,747
    
    
    
    1,078
    
    
    
    (3,785
    )
    
    
    17,501Interest expense
    
    
    3,266
    
    
    
    1
    
    
    
    
    
    
    
    4,135
    
    
    
    7,402Charge for funds used
    
    
    3,579
    
    
    
    3,912
    
    
    
    398
    
    
    
    (7,889
    )
    
    
    Total interest expense
    
    
    6,845
    
    
    
    3,913
    
    
    
    398
    
    
    
    (3,754
    )
    
    
    7,402Net interest income
    
    
    4,616
    
    
    
    4,834
    
    
    
    680
    
    
    
    (31
    )
    
    
    10,099Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,090
    
    
    
    1,090Net interest income after provision for loan losses
    
    
    4,616
    
    
    
    4,834
    
    
    
    680
    
    
    
    (1,121
    )
    
    
    9,009Non-interest income
    
    
    252
    
    
    
    7
    
    
    
    295
    
    
    
    162
    
    
    
    716Non-interest expense
    
    
    1,968
    
    
    
    505
    
    
    
    327
    
    
    
    3,385
    
    
    
    6,185Net contribution to earnings before tax expense
    
    $
    2,900
    
    
    $
    4,336
    
    
    $
    648
    
    
    $
    (4,344
    )
    
    $
    3,540
 - 11 -




---



##### Table of Contents



Regional
    
    
    Real EstateBanking
    
    
    IndustriesNine Months Ended September 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2007Interest income
    
    $
    22,969
    
    
    $
    26,190
    
    
    $
    3,116
    
    
    $
    7,449
    
    
    $
    59,724Credit for funds provided
    
    
    20,010
    
    
    
    1,265
    
    
    
    126
    
    
    
    (21,401
    )
    
    
    Total interest income
    
    
    42,979
    
    
    
    27,455
    
    
    
    3,242
    
    
    
    (13,952
    )
    
    
    59,724Interest expense
    
    
    11,418
    
    
    
    
    
    
    
    1
    
    
    
    15,657
    
    
    
    27,076Charge for funds used
    
    
    14,341
    
    
    
    13,375
    
    
    
    1,290
    
    
    
    (29,006
    )
    
    
    Total interest expense
    
    
    25,759
    
    
    
    13,375
    
    
    
    1,291
    
    
    
    (13,349
    )
    
    
    27,076Net interest income
    
    
    17,220
    
    
    
    14,080
    
    
    
    1,951
    
    
    
    (603
    )
    
    
    32,648Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,199
    
    
    
    3,199Net interest income after provision for loan losses
    
    
    17,220
    
    
    
    14,080
    
    
    
    1,951
    
    
    
    (3,802
    )
    
    
    29,449Non-interest income
    
    
    717
    
    
    
    362
    
    
    
    495
    
    
    
    1,283
    
    
    
    2,857Non-interest expense
    
    
    7,527
    
    
    
    1,944
    
    
    
    1,124
    
    
    
    11,221
    
    
    
    21,816Net contribution to earnings before tax expense
    
    $
    10,410
    
    
    $
    12,498
    
    
    $
    1,322
    
    
    $
    (13,740
    )
    
    $
    10,490
 Regional
    
    
    Real EstateBanking
    
    
    IndustriesNine Months Ended September 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2006Interest income
    
    $
    15,865
    
    
    $
    22,512
    
    
    $
    3,008
    
    
    $
    5,814
    
    
    $
    47,199Credit for funds provided
    
    
    14,458
    
    
    
    1,064
    
    
    
    132
    
    
    
    (15,654
    )
    
    
    Total interest income
    
    
    30,323
    
    
    
    23,576
    
    
    
    3,140
    
    
    
    (9,840
    )
    
    
    47,199Interest expense
    
    
    8,557
    
    
    
    4
    
    
    
    2
    
    
    
    10,783
    
    
    
    19,346Charge for funds used
    
    
    9,472
    
    
    
    10,572
    
    
    
    1,141
    
    
    
    (21,185
    )
    
    
    Total interest expense
    
    
    18,029
    
    
    
    10,576
    
    
    
    1,143
    
    
    
    (10,402
    )
    
    
    19,346Net interest income
    
    
    12,294
    
    
    
    13,000
    
    
    
    1,997
    
    
    
    562
    
    
    
    27,853Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,813
    
    
    
    2,813Net interest income after provision for loan losses
    
    
    12,294
    
    
    
    13,000
    
    
    
    1,997
    
    
    
    (2,251
    )
    
    
    25,040Non-interest income
    
    
    869
    
    
    
    107
    
    
    
    645
    
    
    
    435
    
    
    
    2,056Non-interest expense
    
    
    5,354
    
    
    
    1,473
    
    
    
    1,138
    
    
    
    9,367
    
    
    
    17,332Net contribution to earnings before tax expense
    
    $
    7,809
    
    
    $
    11,634
    
    
    $
    1,504
    
    
    $
    (11,183
    )
    
    $
    9,764Segment assets as of:September 30, 2007
    
    
    436,398
    
    
    
    349,437
    
    
    
    32,705
    
    
    
    206,250
    
    
    
    1,024,790December 31, 2006
    
    
    322,610
    
    
    
    337,548
    
    
    
    34,345
    
    
    
    181,259
    
    
    
    875,762
  6. Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS 115 Accounting for Certain Investments in Debt
and Equity Securities
 - 12 -




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Forward-Looking Information
  Overview
      Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Return on average assets (1)
    
    
    0.80
    %
    
    
    1.01
    %
    
    
    0.84
    %
    
    
    1.02
    %Return on average shareholders equity (1)
    
    
    20.2
    %
    
    
    26.2
    %
    
    
    21.6
    %
    
    
    26.3
    %Net yield on average interest earning assets (1)
    
    
    4.43
    %
    
    
    5.10
    %
    
    
    4.71
    %
    
    
    5.10
    %
 
 (1)
    
    Annualized - 13 -




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##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(Unaudited)(Dollars in thousands except per share amounts)Net interest income
before provision
for loan losses
    
    $
    10,687
    
    
    $
    10,099
    
    
    
    5.8
    %
    
    $
    32,648
    
    
    $
    27,853
    
    
    
    17.2
    %Provision for loan
losses
    
    
    1,060
    
    
    
    1,090
    
    
    
    (2.8
    )%
    
    
    3,199
    
    
    
    2,813
    
    
    
    13.7
    %Non-interest expense
    
    
    7,500
    
    
    
    6,185
    
    
    
    21.3
    %
    
    
    21,816
    
    
    
    17,332
    
    
    
    25.9
    %Net earnings
    
    
    1,990
    
    
    
    2,070
    
    
    
    (3.9
    )%
    
    
    6,024
    
    
    
    5,805
    
    
    
    3.8
    %Earnings per common
share:Basic earnings
per share
    
    $
    0.27
    
    
    $
    0.29
    
    
    
    (6.9
    )%
    
    $
    0.82
    
    
    $
    0.79
    
    
    
    3.8
    %Diluted earnings
per share
    
    $
    0.26
    
    
    $
    0.27
    
    
    
    (3.7
    )%
    
    $
    0.79
    
    
    $
    0.76
    
    
    
    3.9
    %
    - 14 -




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##### Table of Contents



RESULTS OF OPERATIONS  Three months and nine months ended September 30, 2007 and 2006
 Net Interest Income
  Three Months Ended September 30,
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(Unaudited)(Dollars in thousands)Interest income
    
    $
    20,284
    
    
    $
    17,501
    
    
    
    15.9
    %
    
    $
    59,724
    
    
    $
    47,199
    
    
    
    26.5
    %Interest expense
    
    
    9,597
    
    
    
    7,402
    
    
    
    29.7
    %
    
    
    27,076
    
    
    
    19,346
    
    
    
    40.0
    %Net interest income
before provision
for loan losses
    
    
    10,687
    
    
    
    10,099
    
    
    
    5.8
    %
    
    
    32,648
    
    
    
    27,853
    
    
    
    17.2
    %Net interest margin
    
    
    4.43
    %
    
    
    5.10
    %
    
    
    (13.1
    )%
    
    
    4.71
    %
    
    
    5.10
    %
    
    
    (7.7
    )%
     - 15 -




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##### Table of Contents



ANALYSIS OF NET INTEREST INCOME
 Quarter ended September 30,2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    Interest
    
    
    
    Rates
    
    
    Average
    
    
    Interest
    
    
    
    RatesBalance
    
    

Inc./Exp. (1)
    
    
        
Earned/Paid (3)
    
    
    Balance
    
    

Inc./Exp. (1)
    
    
        
Earned/Paid (3)(Dollars in thousands)Interest earning assets:Federal funds sold
    
    $
    39,326
    
    
    $
    489
    
    
    
    4.93%
    
    
    $
    29,101
    
    
    $
    382
    
    
    
    5.20%Time deposits
    
    
    1,606
    
    
    
    14
    
    
    
    3.46%
    
    
    
    3,560
    
    
    
    26
    
    
    
    2.89%Securities
    
    
    100,001
    
    
    
    1,383
    
    
    
    5.49%
    
    
    
    104,890
    
    
    
    1,168
    
    
    
    4.42%Loans (2)
    
    
    815,389
    
    
    
    18,398
    
    
    
    8.95%
    
    
    
    648,738
    
    
    
    15,925
    
    
    
    9.74%Total interest earning assets
    
    
    956,322
    
    
    
    20,284
    
    
    
    8.42%
    
    
    
    786,289
    
    
    
    17,501
    
    
    
    8.83%Non-interest earning assets
    
    
    31,560
    
    
    
    
    
    
    
    
    
    
    
    29,929Total assets
    
    $
    987,882
    
    
    
    
    
    
    
    
    
    
    $
    816,218Interest bearing liabilities:Interest bearing demand deposits
    
    $
    18,505
    
    
    
    72
    
    
    
    1.54%
    
    
    $
    9,781
    
    
    
    47
    
    
    
    1.91%Savings and money market deposits
    
    
    212,414
    
    
    
    2,217
    
    
    
    4.14%
    
    
    
    193,333
    
    
    
    2,050
    
    
    
    4.21%Certificates of deposit
    
    
    438,747
    
    
    
    5,753
    
    
    
    5.20%
    
    
    
    319,803
    
    
    
    3,841
    
    
    
    4.77%FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    68
    
    
    
    5.38%Long-term
    
    
    55,406
    
    
    
    762
    
    
    
    5.46%
    
    
    
    36,460
    
    
    
    508
    
    
    
    5.54%Securities sold under repurchase
agreements
    
    
    24,600
    
    
    
    271
    
    
    
    4.37%
    
    
    
    45,053
    
    
    
    370
    
    
    
    3.26%Junior subordinated debentures
    
    
    27,837
    
    
    
    522
    
    
    
    7.44%
    
    
    
    27,837
    
    
    
    518
    
    
    
    7.37%Total interest bearing liabilities
    
    
    777,509
    
    
    
    9,597
    
    
    
    4.90%
    
    
    
    637,267
    
    
    
    7,402
    
    
    
    4.61%Non-interest bearing liabilities
    
    
    152,176
    
    
    
    
    
    
    
    
    
    
    
    128,537Total liabilities
    
    
    929,685
    
    
    
    
    
    
    
    
    
    
    
    765,804Redeemable preferred stock and
shareholders equity
    
    
    58,197
    
    
    
    
    
    
    
    
    
    
    
    50,414Total liabilities and
shareholders equity
    
    $
    987,882
    
    
    
    
    
    
    
    
    
    
    $
    816,218Net interest income
    
    
    
    
    
    $
    10,687
    
    
    
    
    
    
    
    
    
    
    $
    10,099Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.52%
    
    
    
    
    
    
    
    
    
    
    
    4.22%Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.43%
    
    
    
    
    
    
    
    
    
    
    
    5.10%
 
 (1)
    
    Interest income on loans includes loan fees of $0.9 million in 2007 and $1.2 million
in 2006.(2)
    
    Loans include nonaccrual loans.(3)
    
    Annualized - 16 -




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##### Table of Contents



Nine Months Ended September 30,2007
    
    

2006Weighted
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    Interest
    
    
    
    Rates
    
    
    Average
    
    
    Interest
    
    
    
    RatesBalance
    
    

Inc./Exp. (1)
    
    
        
Earned/Paid (3)
    
    
    Balance
    
    

Inc./Exp. (1)
    
    
        
Earned/Paid (3)(Dollars in thousands)Interest earning assets:Federal funds sold
    
    $
    43,240
    
    
    $
    1,656
    
    
    
    5.12%
    
    
    $
    27,521
    
    
    $
    1,024
    
    
    
    4.97%Time deposits
    
    
    1,882
    
    
    
    53
    
    
    
    3.77%
    
    
    
    5,553
    
    
    
    157
    
    
    
    3.78%Securities
    
    
    96,591
    
    
    
    3,872
    
    
    
    5.36%
    
    
    
    93,442
    
    
    
    3,073
    
    
    
    4.40%Loans (2)
    
    
    784,074
    
    
    
    54,143
    
    
    
    9.23%
    
    
    
    603,631
    
    
    
    42,945
    
    
    
    9.51%Total interest earning assets
    
    
    925,787
    
    
    
    59,724
    
    
    
    8.62%
    
    
    
    730,147
    
    
    
    47,199
    
    
    
    8.64%Non-interest earning assets
    
    
    30,405
    
    
    
    
    
    
    
    
    
    
    
    29,774Total assets
    
    $
    956,192
    
    
    
    
    
    
    
    
    
    
    $
    759,924Interest bearing liabilities:Interest bearing demand deposits
    
    $
    16,352
    
    
    
    188
    
    
    
    1.54%
    
    
    $
    9,866
    
    
    
    130
    
    
    
    1.75%Savings and money market
deposits
    
    
    202,914
    
    
    
    6,358
    
    
    
    4.19%
    
    
    
    182,395
    
    
    
    5,346
    
    
    
    3.92%Certificates of deposit
    
    
    416,930
    
    
    
    16,125
    
    
    
    5.17%
    
    
    
    298,800
    
    
    
    10,287
    
    
    
    4.60%FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    185
    
    
    
    4.95%Long-term
    
    
    51,997
    
    
    
    2,119
    
    
    
    5.45%
    
    
    
    32,074
    
    
    
    1,206
    
    
    
    5.03%Securities sold under
repurchase agreements
    
    
    22,408
    
    
    
    744
    
    
    
    4.44%
    
    
    
    47,503
    
    
    
    996
    
    
    
    2.80%Junior subordinated debentures
    
    
    27,837
    
    
    
    1,542
    
    
    
    7.41%
    
    
    
    22,682
    
    
    
    1,196
    
    
    
    7.05%Total interest bearing liabilities
    
    
    738,438
    
    
    
    27,076
    
    
    
    4.90%
    
    
    
    598,319
    
    
    
    19,346
    
    
    
    4.32%Non-interest bearing liabilities
    
    
    161,523
    
    
    
    
    
    
    
    
    
    
    
    113,118Total liabilities
    
    
    899,961
    
    
    
    
    
    
    
    
    
    
    
    711,437Redeemable preferred stock and
shareholders equity
    
    
    56,231
    
    
    
    
    
    
    
    
    
    
    
    48,487Total liabilities and
shareholders equity
    
    $
    956,192
    
    
    
    
    
    
    
    
    
    
    $
    759,924Net interest income
    
    
    
    
    
    $
    32,648
    
    
    
    
    
    
    
    
    
    
    $
    27,853Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.72%
    
    
    
    
    
    
    
    
    
    
    
    4.32%Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.71%
    
    
    
    
    
    
    
    
    
    
    
    5.10%
 
 (1)
    
    Interest income on loans includes loan fees of $3.4 million in 2007 and $3.3 million
in 2006.(2)
    
    Loans include nonaccrual loans.(3)
    
    Annualized - 17 -




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##### Table of Contents



The following tables present information concerning the change in interest income and interest
expense attributable to changes in average volume and average rate during the periods indicated.
 ANALYSIS OF CHANGE IN NET INTEREST INCOME
 Three Months Ended September 30, 2007
    
    
    Nine Months Ended September 30, 2007Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Due To Change In
    
    
    
    
    
    
    Due To Change InVolume
    
    
    Rate
    
    
    Net Change
    
    
    Volume
    
    
    Rate
    
    
    Net Change(Dollars in thousands)Interest income:Federal funds sold
    
    $
    128
    
    
    $
    (21
    )
    
    $
    107
    
    
    $
    601
    
    
    $
    30
    
    
    $
    631Time deposits
    
    
    (16
    )
    
    
    4
    
    
    
    (12
    )
    
    
    (103
    )
    
    
    (1
    )
    
    
    (104
    )Securities
    
    
    (57
    )
    
    
    272
    
    
    
    215
    
    
    
    107
    
    
    
    692
    
    
    
    799Loans
    
    
    3,839
    
    
    
    (1,366
    )
    
    
    2,473
    
    
    
    12,494
    
    
    
    (1,295
    )
    
    
    11,199Total interest
earning assets
    
    
    3,895
    
    
    
    (1,112
    )
    
    
    2,783
    
    
    
    13,098
    
    
    
    (573
    )
    
    
    12,525Interest expense:Interest bearing demand
    
    
    35
    
    
    
    (10
    )
    
    
    25
    
    
    
    76
    
    
    
    (17
    )
    
    
    59Savings and money
market
    
    
    200
    
    
    
    (33
    )
    
    
    167
    
    
    
    627
    
    
    
    383
    
    
    
    1,010Certificates of deposit
    
    
    1,534
    
    
    
    379
    
    
    
    1,913
    
    
    
    4,449
    
    
    
    1,390
    
    
    
    5,839FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term
    
    
    192
    
    
    
    (7
    )
    
    
    185
    
    
    
    600
    
    
    
    128
    
    
    
    728Securities sold under
agreements to
repurchase
    
    
    (201
    )
    
    
    102
    
    
    
    (99
    )
    
    
    (672
    )
    
    
    420
    
    
    
    (252
    )Junior subordinated
debentures
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    283
    
    
    
    63
    
    
    
    346Total interest
bearing liabilities
    
    
    1,760
    
    
    
    435
    
    
    
    2,195
    
    
    
    5,363
    
    
    
    2,367
    
    
    
    7,730Net interest income
    
    $
    2,135
    
    
    $
    (1,547
    )
    
    $
    588
    
    
    $
    7,735
    
    
    $
    (2,940
    )
    
    $
    4,795
 Provision for Loan Losses
   - 18 -




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##### Table of Contents



Non-Interest Income
  NON-INTEREST INCOME
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(Dollars in thousands)Service charges
    
    $
    294
    
    
    $
    329
    
    
    
    (10.6
    )%
    
    $
    861
    
    
    $
    877
    
    
    
    (1.8
    )%Gain on sale of loans, net
    
    
    772
    
    
    
    221
    
    
    
    249.3
    %
    
    
    1,008
    
    
    
    408
    
    
    
    147.1
    %Loan broker fee income
    
    
    45
    
    
    
    81
    
    
    
    (44.4
    )%
    
    
    174
    
    
    
    281
    
    
    
    (38.1
    )%Other
    
    
    351
    
    
    
    85
    
    
    
    312.9
    %
    
    
    814
    
    
    
    490
    
    
    
    66.1
    %Total
    
    $
    1,462
    
    
    $
    716
    
    
    
    104.2
    %
    
    $
    2,857
    
    
    $
    2,056
    
    
    
    39.0
    %
   Non-Interest Expense
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(Dollars in thousands)Salaries and related benefits
    
    $
    4,588
    
    
    $
    3,426
    
    
    
    33.9
    %
    
    $
    13,000
    
    
    $
    9,471
    
    
    
    37.3
    %Occupancy and equipment
    
    
    932
    
    
    
    781
    
    
    
    19.3
    %
    
    
    2,812
    
    
    
    2,186
    
    
    
    28.6
    %Professional fees
    
    
    415
    
    
    
    475
    
    
    
    (12.6
    )%
    
    
    1,122
    
    
    
    1,195
    
    
    
    (6.1
    )%Data processing
    
    
    186
    
    
    
    203
    
    
    
    (8.4
    )%
    
    
    617
    
    
    
    653
    
    
    
    (5.5
    )%Other
    
    
    1,379
    
    
    
    1,300
    
    
    
    6.1
    %
    
    
    4,265
    
    
    
    3,827
    
    
    
    11.4
    %Total
    
    $
    7,500
    
    
    $
    6,185
    
    
    
    17.8
    %
    
    $
    21,816
    
    
    $
    17,332
    
    
    
    25.9
    %
   - 19 -




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##### Table of Contents



FINANCIAL CONDITION
 Regulatory Capital
   REGULATORY CAPITAL
September 30, 2007
 To Be Adequately
    
    To Be WellActual
    
    Capitalized
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)BancsharesTotal Capital (to risk-weighted
assets)
    
    $
    96,749
    
    
    
    10.71
    %
    
    $
    72,295
    
    
    
    >=8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to risk-weighted
assets)
    
    $
    78,121
    
    
    
    8.64
    %
    
    $
    36,148
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)
    
    $
    78,121
    
    
    
    7.92
    %
    
    $
    39,469
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ABankTotal Capital (to risk-weighted
assets)
    
    $
    96,410
    
    
    
    10.69
    %
    
    $
    72,169
    
    
    
    >=8.0
    %
    
    $
    90,212
    
    
    
    >=10.0
    %Tier 1 Capital (to risk-weighted
assets)
    
    $
    85,348
    
    
    
    9.46
    %
    
    $
    36,085
    
    
    
    >=4.0
    %
    
    $
    54,127
    
    
    
    >=6.0
    %Tier 1 Capital (to average assets)
    
    $
    85,348
    
    
    
    8.65
    %
    
    $
    39,469
    
    
    
    >=4.0
    %
    
    $
    49,336
    
    
    
    >=5.0
    %
 Liquidity and Cash Flow
    - 20 -




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##### Table of Contents



Cash Flow from Operating Activities
  Cash Flow from Investing Activities
  Cash Flows from Financing Activities
  Investments in Time Deposits and Securities
  TIME DEPOSIT INVESTMENTS
 September 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Time deposits maturing:Within one year
    
    
    1,173
    
    
    
    4.02
    %
    
    
    2,262
    
    
    
    4.35
    %After one year but within five years
    
    
    298
    
    
    
    5.73
    %
    
    
    294
    
    
    
    4.41
    %Total time deposits
    
    $
    1,471
    
    
    
    4.36
    %
    
    $
    2,556
    
    
    
    4.36
    %
 - 21 -




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##### Table of Contents



INVESTMENT SECURITIES
 September 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Investment securities maturing:Within one year
    
    $
    6,997
    
    
    
    5.16
    %
    
    $
    16,018
    
    
    
    3.99
    %After one year but within five years
    
    
    19,478
    
    
    
    5.29
    %
    
    
    31,484
    
    
    
    5.37
    %After five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations
and mortgage-backed securities
    
    
    77,892
    
    
    
    5.41
    %
    
    
    57,125
    
    
    
    4.94
    %Total investment securities
    
    $
    104,367
    
    
    
    5.37
    %
    
    $
    104,627
    
    
    
    4.92
    %
    FAIR VALUE OF INVESTMENT SECURITIES
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)September 30, 2007U.S. Agency securities
    
    $
    20,456
    
    
    $
    35
    
    
    $
    (1
    )
    
    $
    20,490Corporate bonds
    
    
    6,019
    
    
    
    
    
    
    
    (108
    )
    
    
    5,911Collateralized
mortgage obligations
and mortgage-backed
securities:
    
    
    77,892
    
    
    
    287
    
    
    
    (518
    )
    
    
    77,661$
    104,367
    
    
    $
    322
    
    
    $
    (627
    )
    
    $
    104,062
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)December 31, 2006U.S. Agency securities
    
    $
    37,927
    
    
    $
    16
    
    
    $
    (88
    )
    
    $
    37,855Corporate bonds
    
    
    9,575
    
    
    
    
    
    
    
    (186
    )
    
    
    9,389Collateralized
mortgage obligations
and mortgage-backed
securities
    
    
    57,125
    
    
    
    206
    
    
    
    (422
    )
    
    
    56,909$
    104,627
    
    
    $
    222
    
    
    $
    (696
    )
    
    $
    104,153
 - 22 -




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##### Table of Contents



UNREALIZED LOSSES ON INVESTMENT SECURITIES
 Less than 12 Months
    
    

12
Months or More
    
    

TotalFair value
    
    
    Unrealized loss
    
    
    Fair value
    
    
    Unrealized loss
    
    
    Fair value
    
    
    Unrealized loss(Dollars in thousands)U.S. Agency securities
    
    $
    
    
    
    $
    
    
    
    $
    2,996
    
    
    $
    1
    
    
    $
    2,996
    
    
    $
    1Corporate bonds
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    108
    
    
    
    5,911
    
    
    
    108Collateralized
mortgage obligations
and mortgage-backed
securities
    
    
    11,699
    
    
    
    311
    
    
    
    15,432
    
    
    
    207
    
    
    
    27,131
    
    
    
    518$
    11,699
    
    
    $
    311
    
    
    $
    24,339
    
    
    $
    316
    
    
    $
    36,038
    
    
    $
    627
    Loans
   LOAN PORTFOLIO COMPOSITION
 September 30, 2007
    
    
    December 31, 2006Amount
    
    
    Percent of
    
    
    Amount
    
    
    Percent ofOutstanding
    
    
    Total
    
    
    Outstanding
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    242,713
    
    
    
    28.8
    %
    
    $
    203,984
    
    
    
    28.6
    %Construction loans
    
    
    288,203
    
    
    
    34.1
    
    
    
    260,805
    
    
    
    36.6Real estate loans
    
    
    301,477
    
    
    
    35.8
    
    
    
    241,734
    
    
    
    33.9Other loans
    
    
    11,271
    
    
    
    1.3
    
    
    
    6,062
    
    
    
    0.9843,664
    
    
    
    100.0
    %
    
    
    712,585
    
    
    
    100.0
    %Less  Deferred loan fees, net
    
    
    (2,270
    )
    
    
    
    
    
    
    (3,201
    )Less  Allowance for loan losses
    
    
    (11,062
    )
    
    
    
    
    
    
    (9,195
    )Net loans
    
    $
    830,332
    
    
    
    
    
    
    $
    700,189
 - 23 -




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##### Table of Contents



LOAN MATURITIES
 At September 30, 2007After One YearOne Year or
    
    
    Through FiveLess
    
    
    Years
    
    
    After Five Years
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    124,801
    
    
    $
    96,699
    
    
    $
    21,213
    
    
    $
    242,713Construction loans
    
    
    255,460
    
    
    
    32,743
    
    
    
    
    
    
    
    288,203Real estate loans
    
    
    40,305
    
    
    
    110,669
    
    
    
    150,503
    
    
    
    301,477Other loans
    
    
    4,942
    
    
    
    6,288
    
    
    
    41
    
    
    
    11,271$
    425,508
    
    
    $
    246,399
    
    
    $
    171,757
    
    
    $
    843,664
   NON-PERFORMING ASSETS
 September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Non-accrual loans
    
    $
    17,687
    
    
    $
    5,864Accruing loans past due 90 days or more
    
    
    83
    
    
    
    241Troubled debt restructuring
    
    
    
    
    
    
    Other real estate owned
    
    
    1,100
    
    
    
    Balance at end of period
    
    $
    18,870
    
    
    $
    6,105
   - 24 -




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##### Table of Contents



Changes in Allowance for Loan Losses
  Off-Balance Sheet Credit Commitments and Contingent Obligations
   Deposits
  - 25 -




---



##### Table of Contents



SOURCE OF DEPOSITS
 September 30, 2007
    
    

December
31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in thousands)Regional Bank Centers
    
    $
    535,565
    
    
    
    63.7
    %
    
    $
    443,725
    
    
    
    61.9
    %Money desk
    
    
    94,049
    
    
    
    11.1
    
    
    
    74,802
    
    
    
    10.4Brokered
    
    
    170,145
    
    
    
    20.2
    
    
    
    162,449
    
    
    
    22.7Internet
    
    
    42,087
    
    
    
    5.0
    
    
    
    35,892
    
    
    
    5.0Total
    
    $
    841,846
    
    
    
    100.0
    %
    
    $
    716,868
    
    
    
    100.0
    %
       - 26 -




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##### Table of Contents



CERTIFICATES OF DEPOSIT
 Certificate
of Deposit Maturing:
    
    Amount(1)(Dollars in thousands)Three months or less
    
    $
    43,685Over three and through twelve months
    
    
    189,244Over twelve months
    
    
    202,229Total
    
    $
    435,158
 
 (1)
    
    Excludes time deposits included in IRA accounts. Borrowed Funds
 FHLB Advances
  FHLB ADVANCES
 Principal Amount
    
    
    Interest rate
    
    Maturity date(Dollars in thousands)$    10,000
    
    
    Fixed at 4.70%
    
    October 200710,000
    
    
    Fixed at 5.31%
    
    August 200810,000
    
    
    Prime minus 2.87%
    
    December 200810,000
    
    
    Prime minus 2.83%
    
    January 200910,000
    
    
    Prime minus 2.80%
    
    December 200910,000
    
    
    Prime minus 2.74%
    
    January 2010$    60,000
 Junior Subordinated Debentures
   - 27 -




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##### Table of Contents



Securities Sold Under Agreements to Repurchase.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   - 28 -




---



##### Table of Contents



RATE SENSITIVITY
September 30, 2007
(Dollars in thousands)
 Over Three
    
    
    Over OneThree
    
    
    Through
    
    
    Year
    
    
    OverMonths
    
    
    Twelve
    
    
    Through
    
    
    FiveOr Less
    
    
    Months
    
    
    Five Years
    
    
    Years
    
    
    TotalAssetsFederal funds sold
    
    $
    45,645
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    45,645Time deposits with other financial institutions
    
    
    1,173
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    1,471Securities held to maturity
    
    
    
    
    
    
    6,997
    
    
    
    19,478
    
    
    
    77,892
    
    
    
    104,367Loans, gross
    
    
    461,625
    
    
    
    98,320
    
    
    
    201,597
    
    
    
    79,852
    
    
    
    841,394Total rate-sensitive assets
    
    $
    508,443
    
    
    $
    105,317
    
    
    $
    221,373
    
    
    $
    157,744
    
    
    $
    992,877Liabilities:Interest bearing demand deposits
    
    $
    20,554
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,554Savings and money market
    
    
    212,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,137Certificates of deposit
    
    
    70,562
    
    
    
    189,244
    
    
    
    200,818
    
    
    
    
    
    
    
    460,624FHLB advances
    
    
    50,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    60,000Restructured repurchase agreement
    
    
    31,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,096Junior subordinated debentures
    
    
    27,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,837Total rate sensitive liabilities
    
    $
    412,186
    
    
    $
    189,244
    
    
    $
    210,818
    
    
    $
    
    
    
    $
    812,248Interval Gaps:Interest rate sensitivity gap
    
    $
    96,257
    
    
    ($
    83,927
    )
    
    $
    10,555
    
    
    $
    157,744
    
    
    $
    180,629Rate sensitive assets to rate sensitive liabilities
    
    
    123.4
    %
    
    
    55.7
    %
    
    
    105.0
    %
    
    
    N/A
    
    
    
    122.2
    %Cumulative Gaps:Cumulative interest rate sensitivity gap
    
    $
    96.257
    
    
    $
    12,330
    
    
    $
    22,885
    
    
    $
    180,629
    
    
    $
    180,629Rate sensitive assets to rate sensitive liabilities
    
    
    123.4
    %
    
    
    102.1
    %
    
    
    102.8
    %
    
    
    122.2
    %
    
    
    122.2
    %% of rate sensitive assets in period
    
    
    51.2
    %
    
    
    61.8
    %
    
    
    84.1
    %
    
    
    100.0
    %
    
    
    N/A
 
 ITEM 4. CONTROLS AND PROCEDURES
    - 29 -




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  - 30 -




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##### Table of Contents



ITEM 6. EXHIBITS
 31.1
    
    Section 302 CEO Certification31.2
    
    Section 302 CFO Certification32.1
    
    Certificate by Curtis S. Reis, Chairman and Chief Executive Officer of the Company
dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President and Chief Financial Officer
of the Company dated November 14, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002.
 - 31 -




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##### Table of Contents



SIGNATURES
  DATE: November 14, 2007
    ALLIANCE BANCSHARES CALIFORNIABy:
    /s/ Daniel L. EricksonDaniel L. EricksonExecutive Vice President and Chief
Financial Officer - 32 -




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##### Table of Contents



EXHIBIT INDEX
 EXHIBITS
    
    DESCRIPTION31.1
    
    Section 302 CEO Certification31.2
    
    Section 302 CFO Certification32.1
    
    Certificate by Curtis S. Reis, Chairman and Chief Executive
Officer of the Company dated November 14, 2007 pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President and
Chief Financial Officer of the Company dated November 14, 2007
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.
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