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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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(Mark One)

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



For the quarterly period ended March 31, 2004



OR



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



For the transition period from
 to



Commission file number 000-33455



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ALLIANCE BANCSHARES CALIFORNIA

(Exact name of Registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|California                                                     |  | 91-2124567                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|100 Corporate Pointe Culver City, California                   |  | 90230                                  
|(Address of principal executive offices)                       |  | (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)



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Check whether the issuer (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  x     NO ̈



APPLICABLE ONLY TO CORPORATE ISSUERS:



State the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.



4,597,679
shares of Common Stock as of April 30, 2004



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##### Table of Contents

ALLIANCE BANCSHARES CALIFORNIA



QUARTERLY REPORT ON FORM 10-QSB

FOR

THE QUARTER ENDED MARCH 31, 2004



TABLE OF CONTENTS



|           |  |                       |  |                                                                                        |  |         
|---------- |  | --------------------- |  | -------------------------------------------------------------------------------------- |  | --------
|           |  |                       |  |                                                                                        |  | Page No.
|Part I.    |  | Financial Information |  |                                                                                       
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                   |  |         
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Financial Condition at March 31, 2004 and December 31, 2003 |  | 3       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations Three months ended March 31, 2004 and 2003       |  | 4       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows Three months ended March 31, 2004 and 2003       |  | 5       
|           |  |                       | 
|           |  |                       |  | Notes to Consolidated Financial Statements                                             |  | 6       
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis or Plan of Operation                              |  | 10      
|           |  |                       | 
|           |  | Item 3.               |  | Controls and Procedures                                                                |  | 23      
|           |  |                      
|Part II.   |  | Other Information     |  |                                                                                       
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                       |  | 24      
|           | 
|Signatures |  | 25                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                               |  |                |             |                   |   |            
|-------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                                                                                               |  | March 31, 2004 |             | December 31, 2003
|                                                                                                               |  | (Unaudited)    |             |                  
|Assets                                                                                                         |  |                |             |                   |   |            
|                                                                                                               |  |               
|Cash and due from banks                                                                                        |  | $              | 20,036,500  |                   | $ | 10,674,000 
|Federal funds sold                                                                                             |  |                | 19,155,000  |                   |   | 25,165,000 
|                                                                                                               |  |                |             |                   |   |            
|Total cash and cash equivalents                                                                                |  |                | 39,191,500  |                   |   | 35,839,000 
|                                                                                                               |  |                |             |                   |   |            
|Time deposits with other financial institutions                                                                |  |                | 4,446,700   |                   |   | 4,008,700  
|Securities held to maturity, fair market value $38,364,300 at March 31, 2004; $36,547,000 at December 31, 2003 |  |                | 37,923,300  |                   |   | 36,314,400 
|Loans held for sale                                                                                            |  |                | 4,503,000   |                   |   | 6,097,000  
|Loans, net of the allowance for loan losses of $3,063,800 at March 31, 2004; $3,030,700 at December 31, 2003   |  |                | 204,841,000 |                   |   | 194,447,800
|Equipment and leasehold improvements, net                                                                      |  |                | 1,213,000   |                   |   | 1,149,100  
|Accrued interest receivable and other assets                                                                   |  |                | 5,657,300   |                   |   | 5,095,200  
|                                                                                                               |  |                |             |                   |   |            
|Total assets                                                                                                   |  | $              | 297,775,800 |                   | $ | 282,951,200
|                                                                                                               |  |                |             |                   |   |            
|Liabilities and Shareholders Equity                                                                           |  |                |             |                   |   |            
|                                                                                                               |  |               
|Deposits:                                                                                                      |  |                |             |                   |   |            
|Noninterest bearing demand                                                                                     |  | $              | 65,000,300  |                   | $ | 64,138,600 
|Interest bearing:                                                                                              |  |                |             |                   |   |            
|Demand                                                                                                         |  |                | 5,150,700   |                   |   | 4,397,400  
|Savings and money market                                                                                       |  |                | 105,270,900 |                   |   | 89,463,300 
|Certificates of deposit                                                                                        |  |                | 56,149,800  |                   |   | 66,714,000 
|                                                                                                               |  |                |             |                   |   |            
|Total deposits                                                                                                 |  |                | 231,571,700 |                   |   | 224,713,300
|                                                                                                               |  |                |             |                   |   |            
|Accrued interest payable and other liabilities                                                                 |  |                | 1,585,300   |                   |   | 1,921,500  
|FHLB advances                                                                                                  |  |                | 32,000,000  |                   |   | 32,000,000 
|Subordinated debentures                                                                                        |  |                | 2,500,000   |                   |   | 2,500,000  
|Guaranteed preferred beneficial interest in the Companys subordinated debentures                              |  |                | 7,217,000   |                   |   | 7,217,000  
|                                                                                                               |  |                |             |                   |   |            
|Total liabilities                                                                                              |  |                | 274,873,000 |                   |   | 268,351,800
|                                                                                                               |  |                |             |                   |   |            
|Commitments and contingencies                                                                                  |  |                |            |                   |   |           
|Shareholders equity:                                                                                          |  |                |             |                   |   |            
|Serial preferred stock, no par value:                                                                          |  |                |             |                   |   |            
|Authorized  20,000,000 shares 7% Series A Non-Cumulative Convertible Non-Voting:                              |  |                |             |                   |   |            
|Authorized and outstanding  733,050 shares at March 31, 2004; None at December 31, 2003                       |  |                | 7,697,000   |                   |   |           
|Common stock, no par value:                                                                                    |  |                |             |                   |   |            
|Authorized - 20,000,000 shares Outstanding  4,567,679 at March 31, 2004 and December 31, 2003                 |  |                | 3,525,800   |                   |   | 3,525,800  
|Undivided profits                                                                                              |  |                | 11,679,000  |                   |   | 11,073,600 
|                                                                                                               |  |                |             |                   |   |            
|Total shareholders equity                                                                                     |  |                | 22,901,800  |                   |   | 14,599,400 
|                                                                                                               |  |                |             |                   |   |            
|Total liabilities and shareholders equity                                                                     |  | $              | 297,775,800 |                   | $ | 282,951,200
|                                                                                                               |  |                |             |                   |   |            



The
accompanying notes are an integral part of these statements.



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##### Table of Contents

Part I. Item 1. (continued)



CONSOLIDATED STATEMENTS OF OPERATIONS



(Unaudited)



|                                                                                  |  |                              |           |      |   |          
|--------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | ---------
|                                                                                  |  | Three Months Ended March 31,
|                                                                                  |  | 2004                         |           | 2003
|Interest Income:                                                                  |  |                              |           |      |   |          
|Interest and fees on loans                                                        |  | $                            | 3,553,000 |      | $ | 2,991,600
|Interest on time deposits with other financial institutions                       |  |                              | 18,900    |      |   | 35,500   
|Interest on securities held to maturity                                           |  |                              | 332,900   |      |   | 331,200  
|Interest on federal funds sold                                                    |  |                              | 77,700    |      |   | 59,900   
|                                                                                  |  |                              |           |      |   |          
|Total interest income                                                             |  |                              | 3,982,500 |      |   | 3,418,200
|                                                                                  |  |                              |           |      |   |          
|Interest Expense:                                                                 |  |                              |           |      |   |          
|Interest on deposits                                                              |  |                              | 732,300   |      |   | 890,000  
|Interest on FHLB advances                                                         |  |                              | 224,500   |      |   | 160,000  
|Interest on subordinated debentures                                               |  |                              | 51,000    |      |   | 50,500   
|Guaranteed preferred beneficial interest in the Companys subordinated debentures |  |                              | 82,500    |      |   | 87,300   
|                                                                                  |  |                              |           |      |   |          
|Total interest expense                                                            |  |                              | 1,090,600 |      |   | 1,187,800
|                                                                                  |  |                              |           |      |   |          
|Net interest income before provision for loan losses                              |  |                              | 2,891,900 |      |   | 2,230,400
|Provision for Loan Losses                                                         |  |                              | 450,000   |      |   | 425,000  
|                                                                                  |  |                              |           |      |   |          
|Net interest income                                                               |  |                              | 2,441,900 |      |   | 1,805,400
|Non-Interest Income                                                               |  |                              | 932,400   |      |   | 730,400  
|Non-Interest Expense:                                                             |  |                              |           |      |   |          
|Salaries and related benefits                                                     |  |                              | 1,252,500 |      |   | 698,500  
|Occupancy and equipment expenses                                                  |  |                              | 313,100   |      |   | 202,500  
|Other operating expense                                                           |  |                              | 798,300   |      |   | 725,300  
|                                                                                  |  |                              |           |      |   |          
|Total non-interest expense                                                        |  |                              | 2,363,900 |      |   | 1,626,300
|                                                                                  |  |                              |           |      |   |          
|Earnings Before Income Tax Expense                                                |  |                              | 1,010,400 |      |   | 909,500  
|Income tax expense                                                                |  |                              | 405,000   |      |   | 370,100  
|                                                                                  |  |                              |           |      |   |          
|Net Earnings                                                                      |  | $                            | 605,400   |      | $ | 539,400  
|                                                                                  |  |                              |           |      |   |          
|Earnings per Common Share:                                                        |  |                              |           |      |   |          
|Basic earnings per share                                                          |  | $                            | 0.13      |      | $ | 0.12     
|Diluted earnings per share                                                        |  | $                            | 0.10      |      | $ | 0.09     



The
accompanying notes are an integral part of these statements.



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##### Table of Contents

Part I. Item 1. (continued)



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



|                                                                                    |  |                              |             |   |      |   |             |  
|----------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                    |  | Three Months Ended March 31, |            
|                                                                                    |  | 2004                         |             |   | 2003 |  
|Cash Flows from Operating Activities:                                               |  |                              |             |   |      |   |             |  
|Net earnings                                                                        |  | $                            | 605,400     |   |      | $ | 539,400     |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                              |             |   |      |   |             |  
|Net amortization of discounts and premiums on securities held to maturity           |  |                              | 71,100      |   |      |   | 55,100      |  
|Depreciation and amortization                                                       |  |                              | 88,800      |   |      |   | 79,700      |  
|Provision for loan losses                                                           |  |                              | 450,000     |   |      |   | 425,000     |  
|Net gains on sales of loans held for sale                                           |  |                              | (152,000    | ) |      |   | (265,300    | )
|Proceeds from sales of loans held for sale                                          |  |                              | 4,224,500   |   |      |   | 6,993,200   |  
|Originations of loans held for sale                                                 |  |                              | (2,478,500  | ) |      |   | (6,343,100  | )
|(Increase) decrease in accrued interest receivable and other assets                 |  |                              | (528,900    | ) |      |   | 309,300     |  
|(Decrease) in accrued interest payable and other liabilities                        |  |                              | (336,200    | ) |      |   | (188,900    | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash provided by operating activities                                           |  |                              | 1,944,200   |   |      |   | 1,604,400   |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash Flows from Investing Activities:                                               |  |                              |             |   |      |   |             |  
|Net (increase) in:                                                                  |  |                              |             |   |      |   |             |  
|Time deposits with other financial institutions                                     |  |                              | (438,000    | ) |      |   | (573,600    | )
|Loans                                                                               |  |                              | (10,393,200 | ) |      |   | (5,725,200  | )
|Purchase of equipment and leasehold improvements                                    |  |                              | (152,700    | ) |      |   | (78,200     | )
|Purchase of FHLB stock                                                              |  |                              | (33,200     | ) |      |   | (750,000    | )
|Purchase of securities held to maturity                                             |  |                              | (6,205,100  | ) |      |   | (8,071,900  | )
|Proceeds from maturities of securities held to maturity                             |  |                              | 4,525,100   |   |      |   | 5,136,800   |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash used in investing activities                                               |  |                              | (13,147,100 | ) |      |   | (10,062,100 | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash Flows from Financing Activities:                                               |  |                              |             |   |      |   |             |  
|Net increase (decrease) in:                                                         |  |                              |             |   |      |   |             |  
|Demand deposits                                                                     |  |                              | 861,700     |   |      |   | 424,100     |  
|Interest bearing demand deposits                                                    |  |                              | 753,300     |   |      |   | 1,557,800   |  
|Savings and money market deposits                                                   |  |                              | 15,807,600  |   |      |   | 23,466,500  |  
|Certificates of deposits                                                            |  |                              | (10,564,200 | ) |      |   | (6,941,800  | )
|Proceeds from issuance of preferred stock                                           |  |                              | 7,697,000   |   |      |   |            |  
|Proceeds from stock options exercised                                               |  |                              |            |   |      |   | 8,000       |  
|FHLB advances                                                                       |  |                              |            |   |      |   | 10,000,000  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash provided by financing activities                                           |  |                              | 14,555,400  |   |      |   | 28,514,600  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Net increase in cash and cash equivalents                                           |  |                              | 3,352,500   |   |      |   | 20,056,900  |  
|Cash and cash equivalents, beginning of period                                      |  |                              | 35,839,000  |   |      |   | 15,577,200  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash and cash equivalents, end of period                                            |  | $                            | 39,191,500  |   |      | $ | 35,634,100  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Supplemental disclosure of cash flow information                                    |  |                              |             |   |      |   |             |  
|Cash paid during the period for:                                                    |  |                              |             |   |      |   |             |  
|Interest                                                                            |  | $                            | 946,900     |   |      | $ | 1,162,200   |  
|Income taxes                                                                        |  |                              | 560,000     |   |      |   | 481,800     |  



The
accompanying notes are an integral part of these statements.



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##### Table of Contents

Part I. Item 1. (continued)



ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)



1. Nature of Business and Significant Accounting Policies



Organization



The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not
include all footnotes as would be necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with accounting principles generally accepted in the United States of America. However, these
interim financial statements reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of the management, are necessary for a fair presentation of the results for the interim periods presented. These
unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a basis consistent with, and should be read in conjunction with, the Companys audited
financial statements as of and for the year ended December 31, 2003 and the notes thereto included in the Companys Form 10-KSB filed under the Securities Exchange Act of 1934.



The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results of
operations that may be expected for any other interim period or for the year ending December 31, 2004.



The consolidated financial statements include the accounts of Alliance Bancshares California (Bancshares), its wholly owned subsidiary
Alliance Bank (the Bank) and Lexib Realcorp, an inactive wholly owned subsidiary of the Bank. Bancshares is a bank holding company which was incorporated in February 2000 in the State of California. The Bank is a California-chartered
bank that commenced operations in 1980. The Banks deposit accounts are insured by the Federal Deposit Insurance Corporation up to the maximum amount and under the terms allowed by federal regulations. References in these Notes to the
Company refer to Bancshares and its consolidated subsidiaries. Bancshares has another wholly owned subsidiary, Alliance Bancshares California Capital Trust I (the Trust), which it formed in 2002 to issue trust preferred
securities. This subsidiary has been deconsolidated retroactively to January 1, 2003 as a result of the implementation of FIN 46 and FASB interpretation No. 46R. As a result, the accompanying consolidated statements of financial condition include
the investment in the Trust of $217,000 in other assets. The impact of this change on the consolidated statements of operations was not significant.



Use of Estimates



The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.



Reclassifications



Certain amounts for 2003
have been reclassified to conform to the 2004 presentation. These reclassifications had no change to net earnings or shareholders equity previously reported.



Earnings Per Share



Basic earnings per share for each of the periods presented was computed by dividing the net income by the weighted average number of shares of common
stock outstanding during each such period. The weighted average numbers of shares used in the basic earnings per share computations for the quarter ended March 31, 2004 were 4,567,679 and for the quarter ended March 31, 2003 were 4,541,301. The
weighted average numbers of shares used in the diluted earnings per share computations for the quarter ended March 31, 2004 were 6,130,816 and for the quarter ended March 31, 2003 were 6,014,514.



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##### Table of Contents

Basic and diluted earnings per share for the quarters ended March 31, 2004 and 2003 are computed as
follows:



|                                                |  |              |         |        |           |                 |   |     
|----------------------------------------------- |  | ------------ | ------- | ------ | --------- | --------------- | - | ----
|March 31, 2004                                  |  | Net Earnings |         | Shares |           | Per ShareAmount
|Net earnings                                    |  | $            | 605,400 |        |           |                 |   |     
|                                                |  |              |         |        |           |                 |   |     
|Basic earnings per share:                       |  |              |         |        |           |                 |   |     
|Net earnings available to common shareholders   |  | $            | 605,400 |        | 4,567,679 |                 | $ | 0.13
|Effect of conversion of subordinated debentures |  |              | 28,900  |        | 1,250,000 |                 |   |     
|Effect of conversion of options and warrants    |  |              |        |        | 305,082   |                 |   |     
|Effect of conversion of preferred stock         |  |              |        |        | 8,055     |                 |   |     
|                                                |  |              |         |        |           |                 |   |     
|Diluted earnings per share:                     |  |              |         |        |           |                 |   |     
|Net earnings available to common shareholders   |  | $            | 634,300 |        | 6,130,816 |                 | $ | 0.10
|                                                |  |              |         |        |           |                 |   |     
|                                                |  |              |        
|March 31, 2003                                  |  | Net Earnings |         | Shares |           | PerShareAmount 
|Net earnings                                    |  | $            | 539,400 |        |           |                 |   |     
|                                                |  |              |         |        |           |                 |   |     
|Basic earnings per share:                       |  |              |         |        |           |                 |   |     
|Net earnings available to common shareholders   |  | $            | 539,400 |        | 4,541,301 |                 | $ | 0.12
|Effect of conversion of subordinated debentures |  |              | 29,300  |        | 1,250,000 |                 |   |     
|Effect of conversion of options and warrants    |  |              |        |        | 223,213   |                 |   |     
|                                                |  |              |         |        |           |                 |   |     
|Diluted earnings per share:                     |  |              |         |        |           |                 |   |     
|Net earnings available to common shareholders   |  | $            | 568,700 |        | 6,014,514 |                 | $ | 0.09
|                                                |  |              |         |        |           |                 |   |     



Equity Compensation
Plans



The Company accounts for stock-based awards to
employees and directors using the intrinsic value method, in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized in the consolidated financial statements
for employee and director stock arrangements. However, the required pro forma disclosures of the effects of all options granted on or after January 1, 1995 have been provided in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. SFAS 123 requires pro forma disclosures of net earnings and earnings per share as if the fair value based method of accounting for stock-based awards had been applied.
Under the fair value based method, compensation cost is recorded based on the value of the award at the grant date and is recognized over the service period. Had compensation cost for the Plan been determined based upon the fair value of the options
at the grant dates consistent with the method of SFAS 123, the Companys net earnings per share would have been reduced to the pro forma amounts indicated below:



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|                                                                                                           |  |                              |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                           |  | Three Months Ended March 31, |        
|                                                                                                           |  | 2004                         |         |   | 2003 |  
|Net earnings, as reported                                                                                  |  | $                            | 605,400 |   |      | $ | 539,400 |  
|                                                                                                           |  |                             
|Less - Total stock-based compensation expense determined under fair value method for all qualifying awards |  |                              | (14,100 | ) |      |   | (10,400 | )
|                                                                                                           |  |                              |         |   |      |   |         |  
|Pro forma net earnings                                                                                     |  | $                            | 591,300 |   |      | $ | 529,000 |  
|                                                                                                           |  |                              |         |   |      |   |         |  
|Earnings per share:                                                                                        |  |                              |         |   |      |   |         |  
|Basic:                                                                                                     |  |                              |         |   |      |   |         |  
|As reported                                                                                                |  | $                            | 0.13    |   |      | $ | 0.12    |  
|Pro forma                                                                                                  |  | $                            | 0.13    |   |      | $ | 0.12    |  
|Diluted:                                                                                                   |  |                              |         |   |      |   |         |  
|As reported                                                                                                |  | $                            | 0.10    |   |      | $ | 0.09    |  
|Pro forma                                                                                                  |  | $                            | 0.10    |   |      | $ | 0.09    |  



The Companys
1996 Combined Incentive and Non-Qualified Stock Option Plan (the Plan) provides for the issuance of up to 800,000 shares of the Companys common stock upon exercise of incentive and non-qualified options. The Plan provides that each
option must have an exercise price not less than the fair market value of the stock at the date of grant or have a term not to exceed ten years (five years with respect to options granted to employees holding 10% or more of the voting stock of the
Company). Options vest in various increments of 20% per year to 100% per year.



2. Allowance for Loan Losses



The following
table presents an analysis of changes in the allowance for loan losses during the periods indicated:



CHANGES IN ALLOWANCES FOR LOAN LOSSES



|                               |  |                              |           |   |      |   |           |  
|------------------------------ |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                               |  | Three Months Ended March 31, |          
|                               |  | 2004                         |           |   | 2003 |  
|Balance at beginning of period |  | $                            | 3,030,700 |   |      | $ | 1,982,900 |  
|                               |  |                             
|Charge-offs                    |  |                              | (440,900  | ) |      |   | (9,800    | )
|Recoveries                     |  |                              | 24,000    |   |      |   | 23,300    |  
|                               |  |                              |           |   |      |   |           |  
|Net charge-offs                |  |                              | (416,900  | ) |      |   | 13,500    |  
|                               |  |                             
|Additional provisions          |  |                              | 450,000   |   |      |   | 425,000   |  
|                               |  |                              |           |   |      |   |           |  
|Balance at end of period       |  | $                            | 3,063,800 |   |      | $ | 2,421,400 |  
|                               |  |                              |           |   |      |   |           |  



3. Commitments and Contingencies



Commitments to extend credit are agreements to lend to a
customer as long as there is not a violation of any condition in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we expect some commitments to expire without
being drawn upon, the total commitment amounts do not necessarily represent future loans. At March 31, 2004, we had undisbursed loan commitments of $77.7 million.



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Standby letters of credit and financial guarantees are conditional commitments issued to secure the
financial performance of a customer to a third party. These are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing a letter of credit for a customer is essentially the same as that involved in
extending a loan to that customer. We hold certificates of deposit and other collateral of at least 100% of the notional amount as support for letters of credit for which we deem collateral to be necessary. At March 31, 2004, we had outstanding
standby letters of credit with a potential $1.8 million of obligations. These standby letters of credit will mature at various dates through 2005.



The Company is subject from time to time to various claims and lawsuits which arise primarily in the ordinary course of business. No material losses are
anticipated with respect to any existing matters.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Background



The
following discussion presents information about our consolidated results of operations, financial condition, liquidity and capital resources. Substantially all of our operations are conducted by the Bank and the Bank accounts for substantially all
of our revenues and expenses. This information should be read in conjunction with our unaudited consolidated financial statements, and the notes thereto, contained elsewhere in this Report.



References in this Form 10-QSB to the Company, we or
us refer to Alliance California Bancshares (Bancshares) and its consolidated subsidiaries, including Alliance Bank (Bank).



Forward-Looking Information



The statements contained herein that are not historical facts are forward-looking statements based on managements current expectations and beliefs
concerning future developments and their potential effects on the Company. These forward-looking statements involve risks and uncertainties, including the risks and uncertainties described herein under the caption Factors Which May Affect
Future Operating Results. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management, and actual results may differ from those projected in the forward-looking statements.
Statements regarding policies and procedures are not intended, and should not be interpreted to mean, that such policies and procedures will not be amended, modified or repealed at any time in the future.



Overview



We recorded consolidated earnings of $0.6 million ($0.13 basic and $0.10 diluted earnings per share) for the first quarter
of 2004 as compared to $0.5 million ($0.12 basic and $0.09 diluted earnings per share) for the first quarter of 2003. This increase in earnings was primarily due to increases in net interest income and other operating income (increases in service
charges and other miscellaneous income). The increase occurred notwithstanding an increase in non-interest expenses from $1.6 million for the three months ended March 31, 2003 to $2.4 million for the same period in 2004.



We continued to grow, with consolidated assets increasing from $283.0 million
at December 31, 2003 to $297.8 million at March 31, 2004. Net loans grew from $200.5 million at December 31, 2003 to $209.3 million at March 31, 2004. We enhanced our shareholders equity through the issuance of 733,050 shares of a newly
created Series A Non-Cumulative Perpetual Preferred Stock (the Series A Preferred) for $7.7 million.



Set forth below are certain key financial performance ratios for the periods indicated:



|                                                 |  |                             |      |   |      |   |      |  
|------------------------------------------------ |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                                 |  | Three months endedMarch 31, |     
|                                                 |  | 2004                        |      |   | 2003 |  
|Return on average assets (1)                     |  |                             | 0.82 | % |      |   | 1.00 | %
|Return on average shareholders equity (1)       |  |                             | 16.4 | % |      |   | 17.3 | %
|Net yield on average interest earning assets (1) |  |                             | 4.18 | % |      |   | 4.28 | %
|Earnings per common share:                       |  |                             |      |   |      |   |      |  
|Basic earnings per share                         |  | $                           | 0.13 |   |      | $ | 0.12 |  
|Diluted earnings per share                       |  | $                           | 0.10 |   |      | $ | 0.09 |  

---

|(1) | Annualized
|--- | ----------



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##### Table of Contents

RESULTS OF OPERATIONS  Three and Three months Ended March 31, 2004 and 2003



Net Interest Income



We recorded interest income of $4.0 million for the quarter ended March 31, 2004 as compared to $3.4 million for the quarter
ended March 31, 2003. Interest expense totaled $1.1 million for the quarter ended March 31, 2004 as compared to $1.2 million for the quarter ended March 31, 2003. The increase in interest income was due to the increase in the amount of interest
earning assets, as the weighted average yields earned decreased due to lower market interest rates. The decrease in interest expense was due to the decrease in the weighted average rates paid on interest bearing liabilities, as the amount of
interest bearing liabilities increased. The weighted average prime rate decreased from 4.25% for the quarter ended March 31, 2003 to 4.00% for the quarter ended March 31, 2004.



Net interest income before provision for loan losses increased to $2.9 million for the quarter ended March 31, 2004, from
$2.2 million for the quarter ended March 31, 2003. This was due primarily to an increase in net average interest earnings assets (average interest earning assets less average interest bearing liabilities) from $35.5 million to $68.3 million due
principally to a $38.2 million increase in average non-interest bearing liabilities (primarily demand deposits) which funded in part a $54.3 million increase in average loans. Net interest income was adversely impacted by a decrease in the interest
rate spread from 3.87% for the quarter ended March 31, 2003 to 3.66% for the quarter ended March 31, 2004 due to a 1.06% decrease in the weighted average yield earned on loans, which constitute the largest part (74% at March 31, 2004) of our
interest earning assets. The decrease in interest rate spread occurred notwithstanding a continued shift in deposits from higher cost certificates of deposit to lower cost savings and money market accounts.



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The following table presents the weighted average yield on each specified category of interest earning
assets, the weighted average rate paid on each specified category of interest bearing liabilities, and the resulting interest rate spread and net interest margin for the periods indicated.



ANALYSIS OF NET INTEREST INCOME



|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ----------- | ------------------ | ---- | ------------------------------- |  | ---- | -------------- |  | ------------------ | ----------- | ------------------------------- | - | --------- |  | ---- | -
|                                                                                  |  | Quarter Ended March 31, |            
|                                                                                  |  | 2004                    |             |                    | 2003 |                                
|                                                                                  |  | AverageBalance          |             | Interest Inc./Exp. |      | WeightedAverageRatesEarned/Paid |  |      | AverageBalance |  | Interest Inc./Exp. |             | WeightedAverageRatesEarned/Paid |  
|Interest earning assets:                                                          |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Federal funds sold                                                                |  | $                       | 31,614,900  |                    | $    | 77,700                          |  | 0.99 | %              |  | $                  | 20,192,700  |                                 | $ | 59,900    |  | 1.20 | %
|Time deposits                                                                     |  |                         | 4,044,200   |                    |      | 18,900                          |  | 1.88 | %              |  |                    | 3,608,100   |                                 |   | 35,500    |  | 3.99 | %
|Securities                                                                        |  |                         | 36,766,600  |                    |      | 332,900                         |  | 3.64 | %              |  |                    | 32,857,400  |                                 |   | 331,200   |  | 4.09 | %
|Loans                                                                             |  |                         | 205,905,600 |                    |      | 3,553,000                       |  | 6.94 | %              |  |                    | 151,618,300 |                                 |   | 3,204,600 |  | 8.00 | %
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Total interest-earning assets                                                     |  |                         | 278,331,300 |                    |      | 3,982,500                       |  | 5.75 | %              |  |                    | 208,276,400 |                                 |   | 3,418,200 |  | 6.66 | %
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Non-interest-earning assets                                                       |  |                         | 17,335,500  |                    |      |                                 |  |      |                |  |                    | 9,841,100   |                                 |   |           |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Total assets                                                                      |  | $                       | 295,666,800 |                    |      |                                 |  |      |                |  | $                  | 218,117,500 |                                 |   |           |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Interest bearing liabilities:                                                     |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Interest-bearing demand deposits                                                  |  | $                       | 4,728,300   |                    |      | 8,400                           |  | 0.71 | %              |  | $                  | 3,107,600   |                                 |   | 7,600     |  | 0.99 | %
|Savings and money market deposits                                                 |  |                         | 105,103,600 |                    |      | 420,400                         |  | 1.61 | %              |  |                    | 59,744,300  |                                 |   | 310,300   |  | 2.11 | %
|Certificates of deposits                                                          |  |                         | 58,676,800  |                    |      | 303,500                         |  | 2.08 | %              |  |                    | 71,474,200  |                                 |   | 572,100   |  | 3.25 | %
|FHLB advances                                                                     |  |                         | 32,000,000  |                    |      | 224,500                         |  | 2.82 | %              |  |                    | 29,000,000  |                                 |   | 160,000   |  | 2.24 | %
|Subordinated debentures                                                           |  |                         | 2,500,000   |                    |      | 51,000                          |  | 8.20 | %              |  |                    | 2,500,000   |                                 |   | 50,500    |  | 8.19 | %
|Guaranteed preferred beneficial interest in the Companys subordinated debentures |  |                         | 7,000,000   |                    |      | 82,800                          |  | 4.76 | %              |  |                    | 7,000,000   |                                 |   | 87,300    |  | 5.06 | %
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Total interest-bearing liabilities                                                |  |                         | 210,008,700 |                    |      | 1,090,600                       |  | 2.09 | %              |  |                    | 172,826,100 |                                 |   | 1,187,800 |  | 2.79 | %
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Non-interest bearing liabilities                                                  |  |                         | 70,829,100  |                    |      |                                 |  |      |                |  |                    | 32,625,200  |                                 |   |           |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Total liabilities                                                                 |  |                         | 280,837,800 |                    |      |                                 |  |      |                |  |                    | 205,451,300 |                                 |   |           |  |      |  
|Shareholders equity                                                              |  |                         | 14,829,000  |                    |      |                                 |  |      |                |  |                    | 12,666,200  |                                 |   |           |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Total liabilities and shareholders equity                                        |  | $                       | 295,666,800 |                    |      |                                 |  |      |                |  | $                  | 218,117,500 |                                 |   |           |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Net interest income                                                               |  |                         |             |                    | $    | 2,891,900                       |  |      |                |  |                    |             |                                 | $ | 2,230,400 |  |      |  
|                                                                                  |  |                         |             |                    |      |                                 |  |      |                |  |                    |             |                                 |   |           |  |      |  
|Interest rate spread                                                              |  |                         |             |                    |      |                                 |  | 3.66 | %              |  |                    |             |                                 |   |           |  | 3.87 | %
|Net interest margin                                                               |  |                         |             |                    |      |                                 |  | 4.18 | %              |  |                    |             |                                 |   |           |  | 4.28 | %



Note:
Interest income on loans includes loan fees.



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Provision for Loan Losses



We charged $0.5 and $0.4 million to the allowance for loan losses (Allowance) for the quarters ended March 31,
2004 and 2003, respectively. We assess the adequacy of the Allowance each calendar quarter. Classified loans (loans assigned point values of 7  10) are assigned specific reserve percentages based on point value. Loans that are not classified
(loans assigned risk point values of less than 7) are subdivided into pools of similar loans by loan type and are assigned reserve percentages based on the loan type. We determine the reserve percentage by first examining actual loss history for
each type of loan, then adjust that percentage by several factors including changes in lending policies; changes in national and local economic conditions; changes in experience, ability and depth of lending management and staff; changes in trend of
past due and classified loans; changes in external factors such as competition and legal and regulatory requirements; and other relevant factors. Reserve estimates are totaled and any shortage is charged to current period operations and credited to
the Allowance.



The credit quality of our loans will be
influenced by underlying trends in the economic cycle, particularly in Southern California, and other factors, which are beyond managements control. Accordingly, no assurance can be given that we will not sustain loan losses that in any
particular period are sizable in relation to the Allowance. Additionally, subsequent evaluation of the loan portfolio by us and by our regulators, in light of factors then prevailing, may require increases in the Allowance through changes to the
provision for loan losses.



Non-Interest Income



Non-interest income includes primarily service charges on deposit accounts,
net gains on sales of SBA loans and loan broker fees for referring loans to other lenders. Non-interest income increased 27.7% from the three months ended March 31, 2003 to the three months ended March 31, 2004, primarily due to an increase in
service charges and other miscellaneous income. The Company also recorded $0.1 million decrease in gains on the sales of SBA loans as sold loans decreased from $7.0 million for the three months ended March 31, 2003 to $4.2 million for the three
months ended March 31, 2004. Our ability to generate gains on sales of SBA loans and loan broker fees depends primarily on our ability to originate loans with favorable interest rates, which depends on a number of factors beyond our control,
including general economic conditions, loan demand, competition and market interest rates. In addition, Congress or the SBA may discontinue or modify SBA loan programs at any time. Accordingly, gains and losses from sales of SBA loans and loan
broker fees may fluctuate significantly from period to period, and results in any period relating to loan sales and broker fees are not necessarily indicative of results that may be obtained in any future period.



Non-Interest Expense



Salary and related expenses increased by 79.3% from the quarter ended March 31, 2003 to the quarter ended March 31, 2004 due
primarily to an increase in the number of employees and related benefit costs for our two new offices in Woodland Hills and Burbank, California. At March 31, 2004, we employed 61 full time employees, compared with 47 employees at March 31, 2003.



Occupancy and equipment expenses increased by 54.6% from the
quarter ended March 31, 2003 to the quarter ended March 31, 2004. Rent expense increased in March 2003 by $20,600 per month from rent under a 60-month lease for our new Orange County Regional Office in Irvine, California and increased in December
2003 by $3,600 per month for additional space we occupied in Culver City at our headquarters office. In addition, we executed a 90-month lease in March 2004 for a new regional office comprised of approximately 3,900 square feet of ground floor space
in Woodland Hills, California, at a monthly initial base rent of $8,400, which is subject to annual increases of approximately 2.75%. Subsequent to March 31, 2004, we executed a 60-month lease for a new regional office comprised of approximately
5,400 square feet of fifth floor space in Burbank, California, at a monthly initial base rent of approximately $14,400 subject to annual increases of approximately 2.00%. We are currently renting temporary office space in Burbank.



Other operating expenses increased 10.1% from the quarter ended March 31,
2003 to the quarter ended March 31, 2004 due in part to increases in employment costs and data processing expenses.



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FINANCIAL CONDITION



Regulatory Capital



At March 31, 2004, Bancshares and the Banks Tier 1 capital, which is comprised of shareholders equity as modified by certain regulatory
adjustments, was $28.6 million and $29.2 million, respectively. Our regulatory capital increased since December 31, 2003 as a result of net earnings as well as proceeds from the sale of $7.7 million from the private placement of Series A Preferred.
At March 31, 2004, Bancshares and the Bank met all applicable regulatory capital requirements and the Bank was well capitalized as defined under applicable regulations.



The Series A Preferred bears non-cumulative preferential semiannual dividends at a rate of 7% per annum ($0.3675 per share
for each semiannual dividend period; $0.735 per share per annum) and has no voting rights except as required by law. Each share of Series A Preferred is convertible into one share of Common Stock, subject to adjustment for stock splits and stock
dividends with respect to the Common Stock, upon the occurrence of one or more of the following: (i) at any time at the option of the holder; (ii) upon the vote or written consent of the holders of a majority of the then outstanding Series A
Preferred; (iii) on the 60thconsecutive trading day after December 31, 2008, if the market price of the common
Stock equals or exceeds $16.00 per share for each trading day in such 60-day period; and/or (iv) at the first date there are fewer than 100,000 shares of Series A Preferred outstanding. Bancshares may redeem the Series A Preferred for $10.50 per
share plus declared and unpaid dividends at any time on or after December 31, 2012.



Trust preferred securities are considered regulatory capital for purposes of determining Bancshares capital ratios. However, in December 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities, which required companies that have issued trust preferred securities to deconsolidate the related entities and restate their balance
sheets. Bancshares believes that the FRB may rule on continued inclusion of trust preferred securities in regulatory capital following the issuance of FIN 46R. If the FRB ruled that Bancshares could not include any of its trust preferred securities
as capital at March 31, 2004, Bancshares would have met all applicable regulatory and capital requirements.



The following table sets forth the regulatory standards for well capitalized and adequately capitalized institutions and the capital ratios for Bancshares
and the Bank as of the date indicated.



REGULATORY CAPITAL

March 31, 2004

(dollars in thousands)



|                                         |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|---------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | --------------------- | ------ |  | ----- | ------ |  | ----- | ------ |  | ------ | -
|                                         |  | Actual |        |       | To Be AdequatelyCapitalized |   |        | To Be WellCapitalized |       
|                                         |  | Amount |        | Ratio |                             |   | Amount |                       | Ratio  |  |       | Amount |  | Ratio |       
|Bancshares                               |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to risk-weighted assets)  |  | $      | 35,466 |       | 14.7                        | % |        | $                     | 19,244 |  | >=8.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to risk-weighted assets) |  | $      | 28,627 |       | 11.9                        | % |        | $                     | 9,622  |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to average assets)       |  | $      | 28,627 |       | 9.7                         | % |        | $                     | 11,783 |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|                                         |  |        |        |       |                             |  
|Bank                                     |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to risk-weighted assets)  |  | $      | 34,792 |       | 14.5                        | % |        | $                     | 19,226 |  | >=8.0 | %      |  | $     | 24,032 |  | >=10.0 | %
|Tier 1 Capital (to risk-weighted assets) |  | $      | 29,229 |       | 12.2                        | % |        | $                     | 9,613  |  | >=4.0 | %      |  | $     | 14,419 |  | >=6.0  | %
|Tier 1 Capital (to average assets)       |  | $      | 29,228 |       | 9.9                         | % |        | $                     | 11,783 |  | >=4.0 | %      |  | $     | 14,729 |  | >=5.0  | %



Liquidity



Our objective in managing our liquidity is to maintain cash flow adequate to
fund our operations and meet obligations and other commitments on a timely and cost effective basis. We manage this objective through the selection of asset and liability maturity mixes. Our liquidity position is enhanced by our ability to raise
additional funds as needed through available borrowings or accessing deposits nationwide through our money desk.



Deposits provide most of our funds. This relatively stable and low-cost source of funds has, along with shareholders equity, provided 80% and 86% of
our funding as a percentage of average total assets during the three months ended March 31, 2004 and 2003, respectively. This reduction was directly attributable to the increased volume of loans receivable, which outpaced the growth in deposits, and
required an increase in borrowed funds and capital.



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Secondary sources of liquidity include borrowing arrangements with the FRB and the FHLB. Borrowings from
the FRB are short-term and must be collateralized by pledged securities or loans. As a member of the FHLB system, the Bank may obtain advances from the FHLB pursuant to various credit programs offered from time to time. Credit limitations are based
on the assessment by the FHLB of the Banks creditworthiness, including an adequate level of net worth, reasonable prospects of future earnings, sources of funds sufficient to meet the scheduled interest payments, lack of financial or
managerial deficiencies and other factors. Such advances may be obtained pursuant to several different credit programs, and each program has its own rate, commitment fees and range of maturities. Funds borrowed from the FHLB must be collateralized
either by pledged securities or by assignment of notes and may be for terms of one day to several years. As of March 31, 2004, we had $32.0 million outstanding FHLB advances and had no outstanding borrowings from the FRB.



We also have liquidity as a net seller of overnight funds at a level that
will cushion any unexpected increase in demand for funds or decrease in funds deposited. During the three months ended March 31, 2004, we had an average balance of $31.6 million in overnight funds sold representing 10.7% of total average assets.



Asset Liability Management



Based on our business, market risk is primarily limited to interest rate
risk which is the impact that changes in interest rates would have on future earnings. Our Investment Committee manages interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities. The
principal objective of our asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure
the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. Changes in interest rates have lesser impact the more that assets and liabilities reprice in
approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest sensitivity gaps, which is the difference between interest sensitive assets and interest
sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate exposures.



An asset sensitive gap means an excess of interest sensitive assets over interest sensitive liabilities, whereas a liability
sensitive gap means an excess of interest sensitive liabilities over interest sensitive assets. In a changing rate environment, a mismatched gap position generally indicates that changes in the income from interest earning assets will not be
completely proportionate to changes in the cost of interest bearing liabilities, resulting in net interest income volatility. This risk can be reduced by various strategies, including the administration of liability costs and the reinvestment of
asset maturities.



The following table sets forth the
distribution of rate-sensitive assets and liabilities at March 31, 2004:



RATE SENSITIVITY

March 31, 2004



|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|--------------------------------------------------- |  | ------------------- | ----------- | - | ----------------------------- | - | ---------- | ------------------------------ |  | - | -------------- | - |  | ----- | ---------- | - |  | - | ----------- | -
|                                                    |  | Three MonthsOr Less |             |   | Over ThreeThroughTwelveMonths |   |            | Over OneYear ThroughFive Years |  |   | Over FiveYears |   |  | Total |           
|Assets:                                             |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Federal funds sold                                  |  | $                   | 19,155,000  |   |                               | $ |           |                                |  | $ |               |   |  | $     |           |   |  | $ | 19,155,000  |  
|Time deposits with other financial institutions     |  |                     | 1,274,700   |   |                               |   | 1,783,000  |                                |  |   | 1,389,000      |   |  |       |           |   |  |   | 4,446,700   |  
|Securities held to maturity                         |  |                     |            |   |                               |   |           |                                |  |   | 23,351,300     |   |  |       | 14,572,000 |   |  |   | 37,923,300  |  
|Loans, gross                                        |  |                     | 109,084,800 |   |                               |   | 54,870,000 |                                |  |   | 34,071,000     |   |  |       | 14,382,000 |   |  |   | 212,407,800 |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Total rate-sensitive assets                         |  | $                   | 129,514,500 |   |                               | $ | 56,653,000 |                                |  | $ | 58,811,300     |   |  | $     | 28,954,000 |   |  | $ | 273,932,800 |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Liabilities:                                        |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Interest bearing demand deposits                    |  | $                   | 5,150,700   |   |                               | $ |           |                                |  | $ |               |   |  | $     |           |   |  | $ | 5,150,700   |  
|Savings and money market                            |  |                     | 105,270,900 |   |                               |   |           |                                |  |   |               |   |  |       |           |   |  |   | 105,270,900 |  
|Certificates of deposit                             |  |                     | 14,834,800  |   |                               |   | 25,277,000 |                                |  |   | 16,038,000     |   |  |       |           |   |  |   | 56,149,800  |  
|FHLB advances                                       |  |                     | 7,000,000   |   |                               |   | 10,000,000 |                                |  |   | 15,000,000     |   |  |       |           |   |  |   | 32,000,000  |  
|Subordinated debentures                             |  |                     |            |   |                               |   |           |                                |  |   | 2,500,000      |   |  |       |           |   |  |   | 2,500,000   |  
|Trust preferred securities                          |  |                     | 7,000,000   |   |                               |   |           |                                |  |   |               |   |  |       |           |   |  |   | 7,000,000   |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Total rate sensitive liabilities                    |  |                     | 139,256,400 |   |                               |   | 35,277,000 |                                |  |   | 33,538,000     |   |  |       |           |   |  |   | 208,071,400 |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Interval Gaps:                                      |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Interest rate sensitivity gap                       |  | $                   | (9,741,900  | ) |                               | $ | 21,376,000 |                                |  | $ | 25,273,300     |   |  | $     | 28,954,000 |   |  | $ | 65,861,400  |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                     | 93.0        | % |                               |   | 160.6      | %                              |  |   | 175.4          | % |  |       | N/A        |   |  |   | 131.7       | %
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Cumulative Gaps:                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Cumulative interest rate sensitivity gap            |  | $                   | (9,741,900  | ) |                               | $ | 11,634,100 |                                |  | $ | 36,907,400     |   |  | $     | 65,861,400 |   |  | $ | 65,861,400  |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                     | 93.0        | % |                               |   | 106.7      | %                              |  |   | 117.7          | % |  |       | 131.7      | % |  |   | 131.7       | %
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  
|% of rate sensitive assets in period                |  |                     | 47.3        | % |                               |   | 68.0       | %                              |  |   | 89.4           | % |  |       | 100.0      | % |  |   | N/A         |  
|                                                    |  |                     |             |   |                               |   |            |                                |  |   |                |   |  |       |            |   |  |   |             |  





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Investments in Time Deposits and Securities



The following table provides certain information regarding our investments in time deposits with other financial
institutions at March 31, 2004:



TIME DEPOSIT INVESTMENTS

March 31, 2004



|                                     |  |            |           |                       |      |  
|------------------------------------ |  | ---------- | --------- | --------------------- | ---- | -
|                                     |  | Book Value |           | WeightedAverage Yield |     
|Time deposits maturing:              |  |            |           |                       |      |  
|One year or less                     |  | $          | 3,057,700 |                       | 0.95 | %
|After one year but within five years |  |            | 1,389,000 |                       | 1.89 | %
|                                     |  |            |           |                       |      |  
|Total time deposits                  |  | $          | 4,446,700 |                       | 2.25 | %
|                                     |  |            |           |                       |      |  



The following table
provides certain information regarding our investment securities at March 31, 2004. Expected maturities will differ from contractual maturities, particularly with respect to collateralized mortgage obligations and mortgage backed securities, because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. We had no tax-exempt securities during the quarters ended March 31, 2003 or 2004.



INVESTMENT SECURITIES

March 31, 2004



|                                                                   |  |            |            |                       |      |  
|------------------------------------------------------------------ |  | ---------- | ---------- | --------------------- | ---- | -
|                                                                   |  | Book Value |            | WeightedAverage Yield |     
|Investment securities maturing:                                    |  |            |            |                       |      |  
|After one year but within five years                               |  |            | 23,351,300 |                       | 3.75 | %
|Collateralized mortgage obligations and mortgage backed securities |  |            | 14,572,000 |                       | 3.85 | %
|                                                                   |  |            |            |                       |      |  
|Total investment securities                                        |  | $          | 37,923,300 |                       | 3.79 | %
|                                                                   |  |            |            |                       |      |  



Our present strategy
is to stagger the maturities of our time deposit investments and investment securities to meet our overall liquidity requirements. At March 31, 2004, we classified all our investment securities as held to maturity as we intend to hold the securities
to maturity.



Loans



Our present lending strategy is to attract small to mid-sized business
borrowers by offering a variety of commercial and real estate loan products and a full range of other banking services coupled with highly personalized service. We offer secured and unsecured commercial term loans and lines of credit, construction
loans for individual



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and tract single family homes and for commercial and multifamily properties, accounts receivable and equipment loans, SBA
loans and home equity lines of credit. We often tailor our loan products to meet the specific needs of our borrowers. Our primary lending area includes seven Southern California counties: Los Angeles, Orange, Riverside, San Diego, San Bernardino,
Ventura and Santa Barbara.



The following table sets forth the
composition of our loan portfolio at March 31, 2004:



LOAN
PORTFOLIO COMPOSITION

March 31, 2004



|                                 |  |                   |             |   |                 |       |  
|-------------------------------- |  | ----------------- | ----------- | - | --------------- | ----- | -
|                                 |  | AmountOutstanding |             |   | Percent ofTotal |      
|Commercial loans                 |  | $                 | 55,839,800  |   |                 | 26.8  | %
|Construction loans               |  |                   | 61,236,600  |   |                 | 29.4  |  
|Real estate loans                |  |                   | 79,805,600  |   |                 | 38.3  |  
|Other loans                      |  |                   | 11,528,700  |   |                 | 5.5   |  
|                                 |  |                   |             |   |                 |       |  
|                                 |  |                   | 208,410,700 |   |                 | 100.0 | %
|                                 |  |                   |             |   |                 |       |  
|Less  Deferred loan fees        |  |                   | (505,900    | ) |                 |       |  
|Less  Allowance for loan losses |  |                   | (3,063,800  | ) |                 |       |  
|                                 |  |                   |             |   |                 |       |  
|Net loans                        |  | $                 | 204,841,000 |   |                 |       |  
|                                 |  |                   |             |   |                 |       |  



Our strategy has been
to diversify the construction loan portfolio and limit our level of these loans, particularly the more speculative types, and as a percentage of total assets and Tier 1 capital. At March 31, 2004, our portfolio remains within the limits established
by the Company. The increases in the construction loan portfolio since December 31, 2003 have occurred primarily in the areas of residential non-owner occupied over $0.8 million and residential subdivision under $0.8 million.



Non-Performing Assets



Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans are (i) loans which
have been placed on non-accrual status; (ii) loans which are contractually past due 90 days or more with respect to principal or interest, and have not been restructured or placed on non-accrual status, and are accruing interest as described below;
and (iii) troubled debt restructurings (TDRs). Other real estate owned consists of real properties securing loans on which we have taken title in partial or complete satisfaction of the loan. The following table sets forth information
about non-performing assets at March 31, 2004:



NON-PERFORMING ASSETS

March 31, 2004



|                                        |  |   |          
|--------------------------------------- |  | - | ---------
|Non-accrual loans                       |  | $ | 887,400  
|Accruing loans past due 90 days or more |  |   |         
|Troubled debt restructurings            |  |   | 750,000  
|Other real estate owned                 |  |   |         
|                                        |  |   |          
|Total                                   |  | $ | 1,637,400
|                                        |  |   |          



Nonperforming assets
decreased from $2.1 million at December 31, 2003 to $1.6 million at March 31, 2004. The troubled debt restructuring represents a commercial line of credit secured by all of the borrowers assets that was classified as a non-accrual loan at
December 31, 2003. Since we have granted concessions to the borrower we would not otherwise consider, this loan has been classified as a troubled debt restructuring effective March 31, 2004. In addition, the loan has been written down by $0.2 which
represents the difference between the principal balance of the loan and the present value of the expected future cash payments. We continue to closely monitor the loan and the collateral, and it is possible that in the future we may further
downgrade the loan, resulting in material additions to the allowance for loan losses.



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The additional interest income that would have been recorded from non-accrual loans, if the loans had not
been on non-accrual status, was $74,100 for the three months ended March 31, 2004. Cash collections on non-performing loans totaled $299,400 during the three months ended March 31, 2004 of which $276,300 was applied to principal and $23,100 was
recorded as interest income. Interest payments received on non-accrual loans are applied to principal unless there is no doubt as to ultimate full repayment of principal, in which case, the interest payment is recognized as interest income. Interest
income not recognized on non-accrual loans reduced the net yield on earning assets less than 0.1% for the three month periods ended March 31, 2004 and 2003.



Impaired Loans



An impaired loan is a loan which management determines is probable that we will be unable to collect all principal and interest amounts due according to
the contractual terms of the loan agreement. Impaired loans can include non-performing loans, although not all impaired loans will be non-performing loans.



We determine impaired loans by a periodic evaluation on an individual loan basis. At March 31, 2004 and December 31, 2003, we had classified $5.4 million
and $4.0 million, respectively, of our loans as impaired for which a $0.1 million reserve and $0.3 million reserve, respectively, were assigned. In the three months ended March 31, 2004, we collected $0.3 million on impaired loans.



Changes in Allowance for Loan Losses



The following table presents an analysis of changes in the allowance for
loan losses during the periods indicated:



CHANGES IN
ALLOWANCES FOR LOAN LOSSES



|                               |  |                              |           |   |      |   |           |  
|------------------------------ |  | ---------------------------- | --------- | - | ---- | - | --------- | -
|                               |  | Three Months Ended March 31, |          
|                               |  | 2004                         |           |   | 2003 |  
|Balance at beginning of period |  | $                            | 3,030,700 |   |      | $ | 1,982,900 |  
|                               |  |                             
|Charge-offs                    |  |                              | (440,900  | ) |      |   | (9,800    | )
|Recoveries                     |  |                              | 24,000    |   |      |   | 23,300    |  
|                               |  |                              |           |   |      |   |           |  
|Net charge-offs                |  |                              | (416,900  | ) |      |   | 13,500    |  
|                               |  |                             
|Additional provisions          |  |                              | 450,000   |   |      |   | 425,000   |  
|                               |  |                              |           |   |      |   |           |  
|Balance at end of period       |  | $                            | 3,063,800 |   |      | $ | 2,421,400 |  
|                               |  |                              |           |   |      |   |           |  



Off-Balance Sheet Credit
Commitments and Contingent Obligations



Commitments to
extend credit are agreements to lend to a customer as long as there is not a violation of any condition in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we
expect some commitments to expire without being drawn upon, the total commitment amounts do not necessarily represent future loans. At March 31, 2004, we had undisbursed loan commitments of $77.7 million.



Standby letters of credit and financial guarantees are conditional
commitments issued to secure the financial performance of a customer to a third party. These are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing a letter of credit for a customer is
essentially the same as that involved in extending a loan to that customer. We hold certificates of deposit and other collateral of at least 100% of the notional amount as support for letters of credit for which we deem collateral to be necessary.
At March 31, 2004, we had outstanding standby letters of credit with a potential $1.8 million of obligations. These standby letters of credit will mature at various dates through 2005.



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##### Table of Contents

Deposits



Total deposits increased from $224.7 million at December 31, 2003 to $231.6 million at March 31, 2004. This increase was primarily due to a $15.8 million
increase in savings and money market deposits primarily generated through our branch offices as a result of a deposit promotion campaign conducted by the Bank, which we used to fund the growth in our loan portfolio and increase our liquidity.



The following table sets forth information concerning the
amount of deposits from various sources at March 31, 2004:



SOURCE OF DEPOSITS

March 31, 2004



|           |  |        |             |                         |       |  
|---------- |  | ------ | ----------- | ----------------------- | ----- | -
|           |  | Amount |             | Percent ofTotalDeposits |      
|Branches   |  | $      | 190,586,100 |                         | 82.3  | %
|Money desk |  |        | 20,365,600  |                         | 8.8   |  
|Brokered   |  |        | 20,620,000  |                         | 8.9   |  
|           |  |        |             |                         |       |  
|Total      |  | $      | 231,571,700 |                         | 100.0 | %
|           |  |        |             |                         |       |  



Our money desk
attracts primarily certificates of deposit from institutional investors nationwide by telephone. We also engage brokers to place certificates of deposit for their customers. During 2004, the certificates of deposits obtained through our money desk
or deposit brokers generally had maturities ranging from six months to four years. We limit the amount of money desk and broker deposits that are scheduled to mature in any one calendar month. In addition, we have historically maintained an
appropriate level of liquidity specifically to counter any concurrent deposit reduction that might occur.



In recent years, the interest rates on certificates of deposit obtained through our money desk or deposit brokers generally have been lower than the
interest rates then offered to local customers for certificates of deposit with comparable maturities. We believe this is due to the highly competitive nature of Southern California market for deposits and, in particular, the difficulty smaller
banks with one or few branch offices have in competing for deposits with larger banks, savings associations and credit unions with multiple offices.



Under the FDIC, banks that are not well capitalized under the prompt corrective action rules may not accept brokered deposits without the
prior approval of the FDIC. In addition, we believe that if we are not well capitalized, we will have greater difficulty obtaining certificates of deposit through our money desk and may have to pay higher interest rates to continue to
attract those deposits. Accordingly, the failure of the Bank to remain well capitalized could have a material adverse affect on us.



Borrowed Funds



At March 31, 2004, the Bank had outstanding $2.5 million of 8% Optional Convertible Subordinated Debentures due June 1, 2009 (the Debentures).
The Debentures bear interest at the rate of 8% payable semiannually and are convertible at the option of the holder at any time up to December 1, 2004 into shares of Bancshares Common Stock at the conversion price $2.00 per share. The Debentures are
treated as Tier 2 regulatory capital for the Bank.



At
March 31, 2004, we had $32.0 million in advances from the FHLB which were collateralized by certain qualifying loans with a carrying value of $37.0 million and investment securities with a carrying value of $24.5 million. The advances mature on
various dates from 2004 through 2006. Advances totaling $25.0 million bear interest at a weighted average fixed rate of 2.74% and a $7.0 million advance bears interest at a rate of the prime lending rate less 2.89% (1.11% at March 31, 2004).
Interest is payable monthly with principal and any accrued interest due at maturity.



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In October 2002, Bancshares newly formed wholly owned subsidiary, Alliance Bancshares California
Capital Trust I, a Delaware trust, issued and sold $7,000,000 of trust preferred securities. These securities mature in 30 years, are redeemable at the Companys option beginning after 5 years, and require quarterly distributions which will
reset quarterly at the three-month LIBOR rate plus 3.4%.



FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS



We face
risk from changes in interest rates.



The success of our
business depends, to a large extent, on our net interest income. Changes in market interest rates can affect our net interest income by affecting the spread between our interest earning assets and interest bearing liabilities. This may be due to the
different maturities of our interest earning assets and interest bearing liabilities, as well as an increase in the general level of interest rates. Changes in market interest rates also affect, among other things:



| |  | Our ability to originate loans;
| | - | -------------------------------



| |  | The ability of our borrowers to make payments on their loans;
| | - | -------------------------------------------------------------



| |  | The value of our interest earning assets and our ability to realize gains from the sale of these assets;
| | - | --------------------------------------------------------------------------------------------------------



| |  | The average life of our interest earning assets;
| | - | ------------------------------------------------



| |  | Our ability to generate deposits instead of other available funding alternatives; and
| | - | -------------------------------------------------------------------------------------



| |  | Our ability to access the wholesale funding market.
| | - | ---------------------------------------------------



Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political
conditions and other factors beyond our control.



We face risk from possible
declines in the quality of our assets.



Our financial
condition depends significantly on the quality of our assets. While we have developed and implemented underwriting policies and procedures to guide us in the making of loans, compliance with these policies and procedures in making loans does not
guarantee repayment of the loans. If the level of our non-performing assets rises, our results of operations and financial condition will be affected. A borrowers ability to pay its loan in accordance with its terms can be adversely affected
by a number of factors, such as a decrease in the borrowers revenues and cash flows due to adverse changes in economic conditions or a decline in the demand for the borrowers products and/or services.



Our allowances for loan losses may be inadequate.



We establish allowances for loan losses against each segment of our loan
portfolio. At March 31, 2004, our allowance for loan losses equaled 1.4% of loans. Although we believed that we had established adequate allowances for loan losses as of March 31, 2004, the credit quality of our assets is affected by many factors
beyond our control, including local and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the
collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the FDIC and California Department of Financial Institutions, as an integral
part of their examination process, periodically review our allowance for loan losses and could require additional provisions for loan losses. Material future additions to the allowance for loan losses may also be necessary due to increases in the
size and changes in the composition of our loan portfolio. Increases in our provisions for loan losses would adversely affect our results of operations.



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A significant portion of our deposits are higher-cost, less stable deposits obtained through our money desk.



We attract primarily certificates of deposits from
institutional investors telephonically nationwide through a money desk. We also engage brokers to place certificates of deposit with their customers. As of March 31, 2004, money desk deposits were $20.4 million representing 9% of total deposits, as
compared to $26.5 million at December 31, 2003 representing 12% of total deposits. Brokered deposits were $20.6 million at March 31, 2004 representing 9% of total deposits as compared to $22.6 million at December 31, 2003 representing 10% of total
deposits. All of our brokered deposits at March 31, 2004 were obtained through one broker. The discontinuation of business between this broker and the Company could have a material adverse effect on the Company. However, the deposits obtained
through this broker as of March 31, 2004 mature throughout August 2007, and thus such discontinuation would not result in the immediate withdrawal of such deposits.In addition, the Company could obtain certificates of deposit through other
brokers. The Company intends to continue its efforts to increase its levels of core deposits in an effort to decrease its reliance on money desk and brokered deposits.



Banks that are not well capitalized under the prompt corrective action rules may not accept brokered deposits
without the prior approval of the FDIC. In addition, we believe that if we are not well capitalized, we will have greater difficulty obtaining certificates of deposit through our money desk and would likely have to pay higher interest
rates to continue to attract those deposits. Accordingly, the failure of the Bank to remain well capitalized could have a material adverse affect on us.



Economic conditions may worsen.



Our business is strongly influenced by economic conditions in our market area (principally Southern California) as well as regional and national economic
conditions including the uncertainties of post war Iraq, large budget deficits and an uncertain economy. Should the economic condition in these areas further deteriorate, the financial condition of our borrowers could weaken, which could lead to
higher levels of loan defaults or a decline in the value of collateral for our loans. In addition, an unfavorable economy could reduce the demand for our loans and other products and services.



At March 31, 2004, a significant number of our loans were collateralized by
real estate located in California. Because of this concentration in California, our financial position and results of operations have been and are expected to continue to be influenced by general trends in the California economy and its real estate
market. Real estate market declines may adversely affect the values of the properties collateralizing loans. If the principal balances of our loans, together with any primary financing on the mortgaged properties, equal or exceed the value of the
mortgaged properties, we could incur higher losses on sales of properties collateralizing foreclosed loans. In addition, California historically has been vulnerable to certain natural disaster risks, such as earthquakes and erosion-caused mudslides,
which are not typically covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may adversely impact our ability to recover losses on properties affected by such disasters and adversely impact our results of
operations.



Our business is very competitive.



There is intense competition in Southern California and elsewhere in the
United States for banking customers. We experience competition for deposits from many sources, including credit unions, insurance companies and money market and other mutual funds, as well as other commercial banks and savings institutions. We
compete for loans and deposits primarily with other commercial banks, mortgage companies, commercial finance companies and savings institutions. In recent years out-of-state financial institutions have entered the California market, which has also
increased competition. Many of our competitors have greater financial strength, marketing capability and name recognition than we do, and operate on a statewide or nationwide basis. In addition, recent developments in technology and mass marketing
have permitted larger companies to market loans more aggressively to our small business customers. Such advantages may give our competitors opportunities to realize greater efficiencies and economies of scale than we can. We can provide no assurance
that we will be able to compete effectively against our competition.



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A significant portion of our loan portfolio consists of construction loans to developers for tract projects and single
homes for sale to unidentified buyers.



At March 31, 2004,
we had outstanding construction loans to developers for tract projects and single homes for sale to unidentified buyers totaling $34.6 million, representing 16.6% of our loan portfolio, and additional commitments for these projects in the amount of
$40.0 million. These types of loans generally have greater risks than loans on completed homes, multifamily and commercial properties. A construction loan generally does not cover the full amount of the construction costs, so the borrower must have
adequate funds to pay for the balance of the project. Price increases, delays and unanticipated difficulties can materially increase these costs. Further, even if completed, there is no assurance that the borrower will be able to sell the project on
a timely or profitable basis, as these are closely related to real estate market conditions, which can fluctuate substantially between the start and completion of the project. If the borrower defaults prior to completion of the project, the value of
the project will likely be less than the outstanding loan, and we could be required to complete construction with our own funds to minimize losses on the project.



Our business is heavily regulated.



Both Bancshares, as a bank holding company, and Bank, as a California-chartered FDIC insured bank, are subject to significant governmental supervision,
regulation and legislation, which is intended primarily to maintain a safe and sound banking system, to protect depositors and the FDIC insurance fund, and to facilitate the conduct of sound monetary policy, and are not intended to protect bank and
bank holding company shareholders. Statutes, regulations and regulatory policies affecting us may be changed at any time, and the interpretation of these statutes and regulations by examining authorities also may change. We cannot assure you that
future changes in applicable statutes, regulations, legislation and policies or in their interpretation will not materially adversely affect our business.



The FRB may determine not to allow trust preferred securities to be included as a part of regulatory capital.



Trust preferred securities are considered regulatory capital for purposes of
determining Bancshares capital ratios. However, in December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest
Entities, which required companies that have issued trust preferred securities to deconsolidate the related entities and restate their balance sheets. Bancshares believes that the FRB may rule on continued inclusion of trust preferred
securities in regulatory capital following the issuance of FIN 46R. If the FRB ruled that Bancshares could not include any of its trust preferred securities as capital at March 31, 2004, Bancshares would have met all applicable regulatory and
capital requirements.



SBA loan programs may be modified or discontinued.



In recent years we have generated significant income from
fees and interest on SBA loans and gains on sales of participation interests in SBA loans. Congress or the SBA may discontinue or modify these programs at any time. Such discontinuation or modification could have a material adverse affect on our
results of operations depending on our level SBA lending at the time.



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##### Table of Contents

ITEM 3. CONTROLS AND PROCEDURES



The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Companys disclosure controls and procedures pursuant to Rule
13a-14 under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that the Companys disclosure
controls and procedures reasonably ensure that information required to be disclosed by the Company in this quarterly report has been made known to them in a timely manner.



There was no change in the Companys internal control over financial reporting during the Companys most recently
completed fiscal quarters that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II OTHER INFORMATION



ITEM 2. CHANGES IN
SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES



In March 2004, Bancshares issued and sold 733,050 shares of its newly created Series A 7% Non-Cumulative Convertible Preferred Stock (the Series A Preferred) for $10.50 per share, or an aggregate gross
proceeds of $7.7 million (the Offering). No underwriters were used in connection with the Offering. The issuance and sale of the Series A Preferred was exempt from registration under the Securities Act of 1933, as amended (the
Securities Act), pursuant to Section 4(2) and Regulation D as a transaction not involving a public offering. This exemption was available in connection with the Offering because; (i) the shares were issued and sold only to persons who
represented that they were accredited investors within the meaning of Regulation D; (ii) no form of general solicitation or general advertising was used in connection with the Offering; and (iii) Bancshares used reasonable care to ensure
the purchasers of the shares were not underwriters within the meaning of Section 2(11) of the Securities Act by following the procedures set forth in Regulation D.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) | Exhibits.
| | --- | ---------



| | 3.1 | Certificate of Determination of Rights, Preferences and Privileges of 7% Series A Non-Cumulative Convertible Preferred Stock
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | 31 | Rule 13a-14(a) Certifications
| | -- | -----------------------------



| | 32 | Section 1350 Certifications
| | -- | ---------------------------



| | (b) | Reports on Form 8-K:
| | --- | --------------------



The Company filed a Current Report on Form 8-K (Item 5) on February 18, 2004 to report that it had issued a press release announcing its results of
operations for the year ended December 31, 2003 and its financial position at December 31, 2003.



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                  |  |                                |  |                             
|----------------- |  | ------------------------------ |  | ----------------------------
|DATE: May 7, 2004 |  | ALLIANCE BANCSHARES CALIFORNIA
|                  |  |                               
|                  |  | By:                            |  | /s/ Daniel L. Erickson      
|                  |  |                                |  | Daniel L. Erickson          
|                  |  |                                |  | Executive Vice President and
|                  |  |                                |  | Chief Financial Officer     



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