##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2006

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

ALLIANCE BANCSHARES CALIFORNIA

(Exact name of Registrant as specified in its charter)



|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|California                                                    |  | 91-2124567                            
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 ̈

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

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ̈No x

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.

6,078,179 shares of Common Stock as of July 31, 2006



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##### Table of Contents

ALLIANCE BANCSHARES CALIFORNIA

QUARTERLY REPORT ON FORM 10-Q

FOR

THE QUARTER ENDED JUNE 30, 2006

TABLE OF CONTENTS



|           |  |                       |  |                                                                                                 |  |         
|---------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------- |  | --------
|           |  |                       |  |                                                                                                 |  | Page No.
|Part I.    |  | Financial Information |  |                                                                                                
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                            |  |         
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Financial Condition at June 30, 2006 and December 31, 2005           |  | 3       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 |  | 4       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005           |  | 5       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Shareholders Equity for the six months ended June 30, 2006 and 2005 |  | 6       
|           |  |                       | 
|           |  |                       |  | Notes to Consolidated Financial Statements                                                      |  | 7       
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 14      
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  | 28      
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                         |  | 29      
|           |  |                      
|Part II.   |  | Other Information     |  |                                                                                                
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors                                                                                    |  | 29      
|           |  |                       | 
|           |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                             |  | 32      
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                        |  | 32      
|           | 
|Signatures |  | 33                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                              |  |               |             |                   |   |            
|------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ----------------- | - | -----------
|                                                                                                              |  | June 30, 2006 |             | December 31, 2005
|                                                                                                              |  | (Unaudited)   |             |                  
|Assets                                                                                                        |  |               |             |                   |   |            
|Cash and due from banks                                                                                       |  | $             | 15,304,000  |                   | $ | 15,574,200 
|Federal funds sold                                                                                            |  |               | 60,220,000  |                   |   | 14,575,000 
|                                                                                                              |  |               |             |                   |   |            
|Total cash and cash equivalents                                                                               |  |               | 75,524,000  |                   |   | 30,149,200 
|                                                                                                              |  |               |             |                   |   |            
|Time deposits with other financial institutions                                                               |  |               | 3,987,300   |                   |   | 8,244,900  
|Securities held to maturity, fair market value $96,433,500 at June 30, 2006; $73,733,600 at December 31, 2005 |  |               | 98,233,400  |                   |   | 75,479,000 
|Loans held for sale                                                                                           |  |               | 562,500     |                   |   | 607,500    
|Loans, net of the allowance for loan losses of $6,925,300 at June 30, 2006; $6,051,000 at December 31, 2005   |  |               | 620,320,000 |                   |   | 544,819,400
|Equipment and leasehold improvements, net                                                                     |  |               | 4,060,700   |                   |   | 3,994,700  
|Accrued interest receivable and other assets                                                                  |  |               | 14,158,200  |                   |   | 11,678,500 
|                                                                                                              |  |               |             |                   |   |            
|Total assets                                                                                                  |  | $             | 816,846,100 |                   | $ | 674,973,200
|                                                                                                              |  |               |             |                   |   |            
|Liabilities, Redeemable Preferred Stock and Shareholders Equity                                              |  |               |             |                   |   |            
|Deposits:                                                                                                     |  |               |             |                   |   |            
|Noninterest bearing demand                                                                                    |  | $             | 121,499,800 |                   | $ | 106,405,100
|Interest bearing:                                                                                             |  |               |             |                   |   |            
|Demand                                                                                                        |  |               | 10,857,900  |                   |   | 9,042,700  
|Savings and money market                                                                                      |  |               | 195,732,000 |                   |   | 165,363,300
|Certificates of deposit                                                                                       |  |               | 319,192,700 |                   |   | 250,498,000
|                                                                                                              |  |               |             |                   |   |            
|Total deposits                                                                                                |  |               | 647,282,400 |                   |   | 531,309,100
|                                                                                                              |  |               |             |                   |   |            
|Accrued interest payable and other liabilities                                                                |  |               | 6,591,100   |                   |   | 4,111,200  
|Securities sold under agreements to repurchase                                                                |  |               | 50,992,000  |                   |   | 41,133,600 
|FHLB advances                                                                                                 |  |               | 35,000,000  |                   |   | 35,000,000 
|Junior subordinated debentures                                                                                |  |               | 27,837,000  |                   |   | 17,527,000 
|                                                                                                              |  |               |             |                   |   |            
|Total liabilities                                                                                             |  |               | 767,702,500 |                   |   | 629,080,900
|                                                                                                              |  |               |             |                   |   |            
|Commitments and contingencies                                                                                 |  |               |            |                   |   |           
|Redeemable Preferred Stock:                                                                                   |  |               |             |                   |   |            
|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 June 30, 2006 and December 31, 2005                            |  |               | 7,697,000   |                   |   | 7,697,000  
|6.82% Series B Non-Cumulative Convertible Non-Voting:                                                         |  |               |             |                   |   |            
|Authorized and outstanding  667,096 shares at June 30, 2006 and December 31, 2005                            |  |               | 11,318,600  |                   |   | 11,318,600 
|                                                                                                              |  |               |             |                   |   |            
|Total redeemable preferred stock                                                                              |  |               | 19,015,600  |                   |   | 19,015,600 
|                                                                                                              |  |               |             |                   |   |            
|Shareholders Equity:                                                                                         |  |               |             |                   |   |            
|Common stock, no par value:                                                                                   |  |               |             |                   |   |            
|Authorized - 20,000,000 shares                                                                                |  |               |             |                   |   |            
|Outstanding  6,068,179 shares at June 30, 2006 and 6,065,579 shares at December 31, 2005                     |  |               | 6,415,000   |                   |   | 6,406,600  
|Undivided profits                                                                                             |  |               | 23,713,000  |                   |   | 20,470,100 
|                                                                                                              |  |               |             |                   |   |            
|Total shareholders equity                                                                                    |  |               | 30,128,000  |                   |   | 26,876,700 
|                                                                                                              |  |               |             |                   |   |            
|Total liabilities, redeemable preferred stock and shareholders equity                                        |  | $             | 816,846,100 |                   | $ | 674,973,200
|                                                                                                              |  |               |             |                   |   |            

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 June 30, |            | Six Months Ended June 30,
|                                                            |  | 2006                        |            | 2005                      |   | 2006      |  | 2005
|Interest income:                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Interest and fees on loans                                  |  | $                           | 14,192,100 |                           | $ | 7,558,100 |  | $    | 27,019,900 |  | $ | 13,681,900
|Interest on time deposits with other financial institutions |  |                             | 57,100     |                           |   | 31,300    |  |      | 131,200    |  |   | 59,200    
|Interest on securities held to maturity                     |  |                             | 1,081,200  |                           |   | 682,500   |  |      | 1,904,700  |  |   | 1,379,700 
|Interest on federal funds sold                              |  |                             | 406,100    |                           |   | 52,400    |  |      | 642,600    |  |   | 108,200   
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Total interest income                                       |  |                             | 15,736,500 |                           |   | 8,324,300 |  |      | 29,698,400 |  |   | 15,229,000
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Interest expense:                                           |  |                             |            |                           |   |           |  |      |            |  |   |           
|Interest on deposits                                        |  |                             | 5,381,600  |                           |   | 1,993,200 |  |      | 9,824,500  |  |   | 3,530,800 
|Interest on FHLB advances                                   |  |                             | 453,500    |                           |   | 404,400   |  |      | 815,000    |  |   | 719,300   
|Interest on federal funds purchased                         |  |                             |           |                           |   | 1,800     |  |      |           |  |   | 1,800     
|Interest on securities sold under repurchase agreements     |  |                             | 344,500    |                           |   |          |  |      | 626,100    |  |   |          
|Interest on junior subordinated debentures                  |  |                             | 377,600    |                           |   | 241,300   |  |      | 678,300    |  |   | 409,500   
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Total interest expense                                      |  |                             | 6,557,200  |                           |   | 2,640,700 |  |      | 11,943,900 |  |   | 4,661,400 
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Net interest income before provision for loan loss          |  |                             | 9,179,300  |                           |   | 5,683,600 |  |      | 17,754,500 |  |   | 10,567,600
|Provision for loan losses                                   |  |                             | 973,000    |                           |   | 602,000   |  |      | 1,723,000  |  |   | 977,000   
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Net interest income                                         |  |                             | 8,206,300  |                           |   | 5,081,600 |  |      | 16,031,500 |  |   | 9,590,600 
|Non-interest income                                         |  |                             | 701,900    |                           |   | 580,500   |  |      | 1,339,800  |  |   | 1,378,900 
|Non-interest expenses:                                      |  |                             |            |                           |   |           |  |      |            |  |   |           
|Salaries and related benefits                               |  |                             | 3,045,700  |                           |   | 1,801,700 |  |      | 6,044,400  |  |   | 3,483,900 
|Occupancy and equipment expenses                            |  |                             | 696,400    |                           |   | 556,900   |  |      | 1,405,200  |  |   | 1,049,700 
|Professional fees                                           |  |                             | 443,000    |                           |   | 261,200   |  |      | 720,400    |  |   | 460,300   
|Data processing                                             |  |                             | 238,500    |                           |   | 194,400   |  |      | 450,300    |  |   | 360,800   
|Other operating expenses                                    |  |                             | 1,271,900  |                           |   | 610,000   |  |      | 2,526,900  |  |   | 1,309,700 
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Total non-interest expense                                  |  |                             | 5,695,500  |                           |   | 3,424,200 |  |      | 11,147,200 |  |   | 6,664,400 
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Earnings before income tax expense                          |  |                             | 3,212,700  |                           |   | 2,237,900 |  |      | 6,224,100  |  |   | 4,305,100 
|Income tax expense                                          |  |                             | 1,270,100  |                           |   | 836,300   |  |      | 2,489,300  |  |   | 1,674,000 
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Net earnings                                                |  | $                           | 1,942,600  |                           | $ | 1,401,600 |  | $    | 3,734,800  |  | $ | 2,631,100 
|                                                            |  |                             |            |                           |   |           |  |      |            |  |   |           
|Earnings per common share:                                  |  |                             |            |                           |   |           |  |      |            |  |   |           
|Basic earnings per share                                    |  | $                           | 0.27       |                           | $ | 0.19      |  | $    | 0.51       |  | $ | 0.38      
|Diluted earnings per share                                  |  | $                           | 0.25       |                           | $ | 0.19      |  | $    | 0.49       |  | $ | 0.38      

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)



|                                                                                    |  |                           |             |   |      |   |              |  
|----------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---- | - | ------------ | -
|                                                                                    |  | Six months ended June 30, |            
|                                                                                    |  | 2006                      |             |   | 2005 |  
|Cash Flows from Operating Activities:                                               |  |                           |             |   |      |   |              |  
|Net earnings                                                                        |  | $                         | 3,734,800   |   |      | $ | 2,631,100    |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                           |             |   |      |   |              |  
|Net amortization of discounts and premiums on securities held to maturity           |  |                           | 131,000     |   |      |   | 396,600      |  
|Depreciation and amortization                                                       |  |                           | 551,400     |   |      |   | 363,600      |  
|Provision for loan losses                                                           |  |                           | 1,723,000   |   |      |   | 977,000      |  
|Compensation expense on stock options                                               |  |                           | 164,100     |   |      |   |             |  
|Net gains on sales of loans held for sale                                           |  |                           | (187,400    | ) |      |   | (298,000     | )
|Proceeds from sales of loans held for sale                                          |  |                           | 13,431,900  |   |      |   | 7,943,600    |  
|Originations of loans held for sale                                                 |  |                           | (13,199,500 | ) |      |   | (7,468,700   | )
|Increase in accrued interest receivable and other assets                            |  |                           | (2,776,000  | ) |      |   | (1,128,500   | )
|Increase in accrued interest payable and other liabilities                          |  |                           | 2,479,900   |   |      |   | 767,100      |  
|                                                                                    |  |                           |             |   |      |   |              |  
|Net cash provided by operating activities                                           |  |                           | 6,053,200   |   |      |   | 4,183,800    |  
|                                                                                    |  |                           |             |   |      |   |              |  
|Cash Flows from Investing Activities:                                               |  |                           |             |   |      |   |              |  
|Net (increase) decrease in:                                                         |  |                           |             |   |      |   |              |  
|Time deposits with other financial institutions                                     |  |                           | 4,257,600   |   |      |   | (62,400      | )
|Loans                                                                               |  |                           | (77,223,600 | ) |      |   | (132,348,700 | )
|Purchase of equipment and leasehold improvements                                    |  |                           | (617,400    | ) |      |   | (1,175,900   | )
|(Purchase) redemption of FHLB stock                                                 |  |                           | 642,700     |   |      |   | (235,000     | )
|Purchase of securities held to maturity                                             |  |                           | (31,797,900 | ) |      |   |             |  
|Proceeds from maturities of securities held to maturity                             |  |                           | 8,912,500   |   |      |   | 4,558,700    |  
|Investment in statutory trust                                                       |  |                           | (310,000    | ) |      |   | (310,000     | )
|                                                                                    |  |                           |             |   |      |   |              |  
|Net cash used in investing activities                                               |  |                           | (96,136,100 | ) |      |   | (129,573,300 | )
|                                                                                    |  |                           |             |   |      |   |              |  
|Cash Flows from Financing Activities:                                               |  |                           |             |   |      |   |              |  
|Net increase in:                                                                    |  |                           |             |   |      |   |              |  
|Demand deposits                                                                     |  |                           | 15,094,700  |   |      |   | 26,985,200   |  
|Interest bearing demand deposits                                                    |  |                           | 1,815,200   |   |      |   | 433,400      |  
|Savings and money market deposits                                                   |  |                           | 30,368,700  |   |      |   | 18,178,600   |  
|Certificates of deposit                                                             |  |                           | 68,694,700  |   |      |   | 79,369,900   |  
|Increase in federal funds purchased                                                 |  |                           |            |   |      |   | 5,000,000    |  
|Proceeds from issuance of junior subordinated debentures                            |  |                           | 10,310,000  |   |      |   | 10,310,000   |  
|Payments on FHLB advances                                                           |  |                           |            |   |      |   | (15,000,000  | )
|Increase in securities sold under agreements to repurchase                          |  |                           | 9,858,400   |   |      |   |             |  
|Proceeds from stock options exercised                                               |  |                           | 8,400       |   |      |   | 204,700      |  
|Increase in deferred tax assets related to stock options                            |  |                           | (36,400     | ) |      |   |             |  
|Dividends paid or declared on preferred stock                                       |  |                           | (656,000    | ) |      |   | (404,100     | )
|                                                                                    |  |                           |             |   |      |   |              |  
|Net cash provided by financing activities                                           |  |                           | 135,457,700 |   |      |   | 125,077,700  |  
|                                                                                    |  |                           |             |   |      |   |              |  
|Net increase (decrease) in cash and cash equivalents                                |  |                           | 45,374,800  |   |      |   | (311,800     | )
|Cash and cash equivalents, beginning of period                                      |  |                           | 30,149,200  |   |      |   | 19,587,600   |  
|                                                                                    |  |                           |             |   |      |   |              |  
|Cash and cash equivalents, end of period                                            |  | $                         | 75,524,000  |   |      | $ | 19,275,800   |  
|                                                                                    |  |                           |             |   |      |   |              |  
|Supplemental disclosure of cash flow information                                    |  |                           |             |   |      |   |              |  
|Cash paid during the period for:                                                    |  |                           |             |   |      |   |              |  
|Interest                                                                            |  | $                         | 11,515,300  |   |      | $ | 4,240,000    |  
|Income taxes                                                                        |  |                           | 2,140,900   |   |      |   | 1,875,000    |  

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 SHAREHOLDERS EQUITY

(Unaudited)

For the Six Months Ended June 30, 2006 and 2005



|                                      |  |                 |  |                  |           |  |       |            |   |  |   |            |  
|------------------------------------- |  | --------------- |  | ---------------- | --------- |  | ----- | ---------- | - |  | - | ---------- | -
|                                      |  | Common Stock    |  | UndividedProfits |           |  | Total |           
|                                      |  | Number ofShares |  | Amount           |           | 
|Balance, December 31, 2004            |  | 5,867,679       |  | $                | 6,090,800 |  | $     | 14,739,600 |   |  | $ | 20,830,400 |  
|Stock options exercised               |  | 161,000         |  |                  | 204,700   |  |       |           |   |  |   | 204,700    |  
|Dividends paid on preferred stock     |  |                |  |                  |          |  |       | (404,100   | ) |  |   | (404,100   | )
|Net earnings                          |  |                |  |                  |          |  |       | 2,631,100  |   |  |   | 2,631,100  |  
|                                      |  |                 |  |                  |           |  |       |            |   |  |   |            |  
|Balance, June 30, 2005                |  | 6,028,679       |  | $                | 6,295,500 |  | $     | 16,966,600 |   |  | $ | 23,262,100 |  
|                                      |  |                 |  |                  |           |  |       |            |   |  |   |            |  
|                                      |  |                 | 
|                                      |  | Common Stock    |  | UndividedProfits |           |  | Total |           
|                                      |  | Number ofShares |  | Amount           |           | 
|Balance, December 31, 2005            |  | 6,065,579       |  | $                | 6,406,600 |  | $     | 20,470,100 |   |  | $ | 26,876,700 |  
|Stock options exercised               |  | 2,600           |  |                  | 8,400     |  |       |           |   |  |   | 8,400      |  
|Dividends paid on preferred stock     |  |                |  |                  |          |  |       | (656,000   | ) |  |   | (656,000   | )
|Compensation expense on stock options |  |                |  |                  |          |  |       | 164,100    |   |  |   | 164,100    |  
|Net earnings                          |  |                |  |                  |          |  |       | 3,734,800  |   |  |   | 3,734,800  |  
|                                      |  |                 |  |                  |           |  |       |            |   |  |   |            |  
|Balance, June 30, 2006                |  | 6,068,179       |  | $                | 6,415,000 |  | $     | 23,713,000 |   |  | $ | 30,128,000 |  
|                                      |  |                 |  |                  |           |  |       |            |   |  |   |            |  

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

June 30, 2006

(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-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations, shareholders equity 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, 2005 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 six months ended June 30, 2006 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, 2006.

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 three other wholly owned subsidiaries, Alliance
Bancshares California Capital Trust I, Alliance Bancshares California Capital Trust II, and Bancshares California Capital Trust III (the Trusts), which it formed in 2002, 2005 and 2006, respectively, to issue trust preferred securities.
FIN 46 and FASB interpretation No. 46R do not allow the consolidation of the Trusts into the Companys consolidated financial statements. As a result, the accompanying consolidated statements of financial condition include the investment
in the common interests of the Trusts of $837,000 in other assets.

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.

Earnings Per Share

Basic earnings per share for each of the periods presented was computed by dividing net earnings 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 three and six months ended June 30, 2006 were 6,066,781 and 6,066,264, respectively, and for the three and six
months ended June 30, 2005 were 5,915,272 and 5,900,867, respectively. The weighted average numbers of shares used in the diluted earnings per share computations for the three and six months ended June 30, 2006 were 7,629,496 and
7,640,258, respectively, and for the three and six months ended June 30, 2005 were 6,851,903 and 6,869,810, respectively. The diluted EPS computation does not include the anti-dilutive effect of 58,500 options for the period ended June 30,
2006. There were no anti-dilutive options for the period ended June 30, 2005.



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##### Table of Contents

Basic and diluted earnings per share for the three months ended June 30, 2006 and 2005 are computed
as follows:



|                                                   |  |              |           |   |        |           |                 |   |     
|-------------------------------------------------- |  | ------------ | --------- | - | ------ | --------- | --------------- | - | ----
|Three Months Ended June 30, 2006                   |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                          |  |              |           |   |        |           |                 |   |     
|Net earnings                                       |  | $            | 1,942,600 |   |        |           |                 |   |     
|Cash dividends paid on convertible preferred stock |  |              | (328,000  | ) |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  |              | 1,614,600 |   |        | 6,066,781 |                 | $ | 0.27
|Preferred stock dividend                           |  |              | 328,000   |   |        |          |                 |   |     
|Effect of exercise of options                      |  |              |          |   |        | 162,569   |                 |   |     
|Effect of conversion of Series A preferred stock   |  |              |          |   |        | 733,050   |                 |   |     
|Effect of conversion of Series B preferred stock   |  |              |          |   |        | 667,096   |                 |   |     
|Diluted earnings per share:                        |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  | $            | 1,942,600 |   |        | 7,629,496 |                 | $ | 0.25
|                                                   |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |          
|Three Months Ended June 30, 2005                   |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                          |  |              |           |   |        |           |                 |   |     
|Net earnings                                       |  | $            | 1,401,600 |   |        |           |                 |   |     
|Cash dividends paid on convertible preferred stock |  |              | (269,400  | ) |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  |              | 1,132,200 |   |        | 5,915,272 |                 | $ | 0.19
|Preferred stock dividend                           |  |              | 269,400   |   |        |          |                 |   |     
|Effect of exercise of options                      |  |              |          |   |        | 203,581   |                 |   |     
|Effect of conversion of Series A preferred stock   |  |              |          |   |        | 733,050   |                 |   |     
|Diluted earnings per share:                        |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  | $            | 1,401,600 |   |        | 6,851,903 |                 | $ | 0.19
|                                                   |  |              |           |   |        |           |                 |   |     

Since the diluted earnings per share calculation is antidilutive, the basic earnings per share
amount is used for diluted earnings per share.

Basic and diluted earnings per share for the six months ended June 30, 2006 and 2005
are computed as follows:



|                                                   |  |              |           |   |        |           |                 |   |     
|-------------------------------------------------- |  | ------------ | --------- | - | ------ | --------- | --------------- | - | ----
|Six Months Ended June 30, 2006                     |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                          |  |              |           |   |        |           |                 |   |     
|Net earnings                                       |  | $            | 3,734,800 |   |        |           |                 |   |     
|Cash dividends paid on convertible preferred stock |  |              | (656,000  | ) |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  |              | 3,078,800 |   |        | 6,066,264 |                 | $ | 0.51
|Preferred stock dividend                           |  |              | 656,000   |   |        |          |                 |   |     
|Effect of exercise of options and warrants         |  |              |          |   |        | 173,848   |                 |   |     
|Effect of conversion of Series A preferred stock   |  |              |          |   |        | 733,050   |                 |   |     
|Effect of conversion of Series B preferred stock   |  |              |          |   |        | 667,096   |                 |   |     
|Diluted earnings per share:                        |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  | $            | 3,734,800 |   |        | 7,640,258 |                 | $ | 0.49
|                                                   |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |          
|Six Months Ended June 30, 2005                     |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                          |  |              |           |   |        |           |                 |   |     
|Net earnings                                       |  | $            | 2,631,100 |   |        |           |                 |   |     
|Cash dividends paid on convertible preferred stock |  |              | (404,100  | ) |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  |              | 2,227,000 |   |        | 5,900,867 |                 | $ | 0.38
|Preferred stock dividend                           |  |              | 404,100   |   |        |          |                 |   |     
|Effect of exercise of options and warrants         |  |              |          |   |        | 235,893   |                 |   |     
|Effect of conversion of Series A preferred stock   |  |              |          |   |        | 733,050   |                 |   |     
|Diluted earnings per share:                        |  |              |           |   |        |           |                 |   |     
|                                                   |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders      |  | $            | 2,631,100 |   |        | 6,869,810 |                 | $ | 0.38
|                                                   |  |              |           |   |        |           |                 |   |     



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Equity Compensation Plans

The Companys 1996 Combined Incentive and Non-Qualified Stock Option Plan (1996 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 2005 Equity Incentive Plan (the 2005 Plan, and with the 1996 Plan, the Plans) provides for the issuance of up to 450,000 shares of
the Companys common stock. The Plans provide that each option must have an exercise price not less than the fair market value of the stock at the date of grant and 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 not less frequently than 20% per year. The 1996 Plan expired in February 2006, although options remain outstanding under that Plan.

Prior to January 1, 2006, the Company accounted 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 (APB 25). Accordingly, no compensation expense was recognized in the consolidated financial statements for employee and director stock
options for the year ended December 31, 2005 as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the
fair value recognition provisions of SFAS No. 123-R, Share-Based Payment (SFAS 123-R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized for the six months
ended June 30, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of June 30, 2006. Results for prior periods have not been restated.

As a result of adopting SFAS 123-R on January 1, 2006, the net income for the six months ended June 30, 2006, was $127,700 lower and our basic
and diluted net income per share for the six months ended June 30, 2006 were $0.02 lower, than if the Company continued to account for stock-based compensation under APB Opinion No. 25. Prior to the adoption of SFAS 123-R, the Company
presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123-R requires the cash flows related to the tax benefits resulting from tax deductions
in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Company did not have excess tax benefits resulting from exercise of non-qualified stock options or from disqualifying
dispositions of shares acquired upon exercise of incentive stock options for the six months ended June 30, 2006. At June 30, 2006, compensation expense related to non-vested stock option grants aggregated to $1.5 million and is expected to
be recognized as follows:



|                  |  |                                 |          
|----------------- |  | ------------------------------- | ---------
|                  |  | Stock OptionCompensationExpense
|Remainder of 2006 |  | $                               | 191,200  
|2007              |  |                                 | 381,900  
|2008              |  |                                 | 363,500  
|2009              |  |                                 | 314,600  
|2010              |  |                                 | 185,900  
|2011              |  |                                 | 30,000   
|                  |  |                                 |          
|Total             |  | $                               | 1,467,100
|                  |  |                                 |          

The following table illustrates the impact of adopting SFAS 123-R and the impact of applying the
original provisions of SFAS 123 as if the Company were to account for share-based compensation under APB 25:



|                                    |  |                                |             |        |   |            
|----------------------------------- |  | ------------------------------ | ----------- | ------ | - | -----------
|                                    |  | Six Months Ended June 30, 2006
|                                    |  | SFAS 123-R                     |             | APB 25
|Income before income taxes          |  | $                              | 6,224,100   |        | $ | 6,388,200  
|Net income                          |  |                                | 3,734,800   |        |   | 3,862,500  
|Basic net income per share          |  |                                | 0.51        |        |   | 0.53       
|Diluted net income per share        |  |                                | 0.49        |        |   | 0.51       
|Cash flow from operations           |  |                                | 6,053,200   |        |   | 6,016,800  
|Cash flow from financing activities |  |                                | 135,457,700 |        |   | 135,494,100



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##### Table of Contents

The following table illustrates the effect on net income and earnings per share had the Company accounted
for stock-based compensation in accordance with SFAS 123-R for the six months ended June 30, 2005:



|                                                                                                                       |  |        |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------ | --------- | -
|                                                                                                                       |  | Amount |          
|Net earnings, as reported                                                                                              |  | $      | 2,631,100 |  
|Less  Cash dividend on non-cumulative preferred stock                                                                 |  |        | (404,100  | )
|Less  Total stock-based compensation expense determined under fair value method for all qualifying awards, net of tax |  |        | (90,800   | )
|                                                                                                                       |  |        |           |  
|Pro forma net earnings                                                                                                 |  | $      | 2,136,200 |  
|                                                                                                                       |  |        |           |  
|Earnings per share:                                                                                                    |  |        |           |  
|Basic:                                                                                                                 |  |        |           |  
|As reported                                                                                                            |  | $      | 0.38      |  
|Pro forma                                                                                                              |  | $      | 0.36      |  
|Diluted:                                                                                                               |  |        |           |  
|As reported                                                                                                            |  | $      | 0.38      |  
|Pro forma                                                                                                              |  | $      | 0.36      |  

The Company uses the Black-Scholes option valuation model to determine the weighted average fair
value of options. The Company utilizes assumptions on expected life, risk-free rate, expected volatility, and dividend yield to determine such values. If grants were to occur, the expected life of options would be derived from historical data on
employee exercise and post-vesting termination behavior. The risk-free rate would be based on treasury instruments in effect at the time of grant whose terms are consistent with the expected life of the Companys stock options. Expected
volatility would be based on historical volatility of the Companys stock. The dividend yield would be based on historical experience and expected future changes. The Company has not historically paid dividends on its common stock.

The following table summarizes the assumptions used for stock options granted for the periods presented:



|                    |  |                      |   |  |                      |  
|------------------- |  | -------------------- | - |  | -------------------- | -
|                    |  | Six MonthsEnded 2006 |   |  | Six MonthsEnded 2005 |  
|Risk-free rate      |  | 5.0                  | % |  | 4.1                  | %
|Expected lives      |  | 5 to 10 years        |   |  | 5 to 10 years        |  
|Expected volatility |  | 42.5                 | % |  | 37.0                 | %



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##### Table of Contents

The following table summarizes the share option activity under the plans for the periods indicated:



|                                 |  |                           |   |  |                                 |       |                           |   |          
|-------------------------------- |  | ------------------------- | - |  | ------------------------------- | ----- | ------------------------- | - | ---------
|                                 |  | Shares Underlying Options |   |  | Weighted Average Exercise Price |       | Aggregate Intrinsic Value
|Six months ended 2006            |  |                           |   |  |                                 |       |                           |   |          
|Outstanding at December 31, 2005 |  | 441,500                   |   |  | $                               | 7.13  |                           |   |          
|Granted                          |  | 63,500                    |   |  |                                 | 16.25 |                           |   |          
|Exercised                        |  | (2,600                    | ) |  |                                 | 3.23  |                           |   |          
|Forfeited                        |  | (6,800                    | ) |  |                                 | 13.89 |                           |   |          
|                                 |  |                           |   |  |                                 |       |                           |   |          
|Outstanding at June 30, 2006     |  | 495,600                   |   |  |                                 | 8.23  |                           | $ | 3,764,100
|                                 |  |                           |   |  |                                 |       |                           |   |          
|Exercisable at June 30, 2006     |  | 206,700                   |   |  |                                 | 3.47  |                           | $ | 2,538,400
|                                 |  |                           |   |  |                                 |       |                           |   |          
|                                 |  |                           |  
|                                 |  | Shares Underlying Options |   |  | Weighted Average Exercise Price |       | Aggregate Intrinsic Value
|Six months ended 2005            |  |                           |   |  |                                 |       |                           |   |          
|Outstanding at December 31, 2004 |  | 418,500                   |   |  | $                               | 4.19  |                           |   |          
|Granted                          |  | 79,000                    |   |  |                                 | 11.00 |                           |   |          
|Exercised                        |  | (61,000                   | ) |  |                                 | 1.63  |                           |   |          
|Forfeited                        |  | (4,000                    | ) |  |                                 | 6.10  |                           |   |          
|                                 |  |                           |   |  |                                 |       |                           |   |          
|Outstanding at June 30, 2005     |  | 432,500                   |   |  |                                 | 5.78  |                           | $ | 3,577,700
|                                 |  |                           |   |  |                                 |       |                           |   |          
|Exercisable at June 30, 2005     |  | 191,700                   |   |  |                                 | 2.01  |                           | $ | 2,308,300
|                                 |  |                           |   |  |                                 |       |                           |   |          

The following information applies to options outstanding at June 30, 2006:



|                                                       |  |                |         |              |   |              |  |               |        |                |   |         |  |   |        
|------------------------------------------------------ |  | -------------- | ------- | ------------ | - | ------------ |  | ------------- | ------ | -------------- | - | ------- |  | - | -------
|                                                       |  | Exercise price
|                                                       |  | $1.00 -$2.00   |         | $2.01 -$2.75 |   | $6.10 -$6.71 |  | $8.50 -$11.00 |        | $15.00 $17.77
|Number of options outstanding                          |  |                | 129,000 |              |   | 23,600       |  |               | 61,000 |                |   | 172,500 |  |   | 109,500
|Weighted-average exercise price                        |  | $              | 1.31    |              | $ | 2.73         |  | $             | 6.25   |                | $ | 9.89    |  | $ | 16.04  
|Weighted-average remaining contractual life (years)    |  |                | 1.60    |              |   | 4.99         |  |               | 5.80   |                |   | 8.16    |  |   | 9.32   
|Number of shares underlying options exercisable        |  |                | 129,000 |              |   | 20,200       |  |               | 18,400 |                |   | 39,100  |  |   |       
|Weighted average exercise price of options exercisable |  | $              | 1.31    |              | $ | 2.73         |  | $             | 6.10   |                | $ | 9.73    |  |   |       

A summary of the status of the Companys unvested options and the activity during the six
months ended June 30, 2006, is presented below:



|                                      |  |         |   |  |                                        |     
|------------------------------------- |  | ------- | - |  | -------------------------------------- | ----
|                                      |  | Shares  |   |  | Weighted Average Grant-date Fair Value
|Unvested options at December 31, 2005 |  | 256,400 |   |  | $                                      | 5.56
|Granted                               |  | 63,500  |   |  |                                        | 7.89
|Vested                                |  | (24,200 | ) |  |                                        | 5.39
|Forfeited                             |  | (6,800  | ) |  |                                        | 7.96
|                                      |  |         |   |  |                                        |     
|Unvested options at June 30, 2006     |  | 288,900 |   |  |                                        | 6.03
|                                      |  |         |   |  |                                        |     

A summary of the status of the Companys unvested options and the activity during the six
months ended June 30, 2005, is presented below:



|                                      |  |         |   |  |                                        |     
|------------------------------------- |  | ------- | - |  | -------------------------------------- | ----
|                                      |  | Shares  |   |  | Weighted Average Grant-date Fair Value
|Unvested options at December 31, 2004 |  | 178,500 |   |  | $                                      | 3.68
|Granted                               |  | 79,000  |   |  |                                        | 6.08
|Vested                                |  | (12,700 | ) |  |                                        | 3.37
|Forfeited                             |  | (4,000  | ) |  |                                        | 3.44
|                                      |  |         |   |  |                                        |     
|Unvested options at June 30, 2005     |  | 240,800 |   |  |                                        | 4.49
|                                      |  |         |   |  |                                        |     



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##### Table of Contents

|2. | Allowance for Loan Losses
|-- | -------------------------

See Changes in
Allowance for Loan Losses in Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations, for discussion regarding changes in the Allowance for Loan Losses.



|3. | Recent Accounting Pronouncements
|-- | --------------------------------

In March 2006,
the Financial Accounting Standards Board issued SFAS 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities (SFAS 156). SFAS 156 requires all separately recognized servicing assets and liabilities to be initially measured at fair value. In addition, entities are permitted to choose to either subsequently measure servicing
rights at fair value and report changes in fair value in earnings, or amortize servicing rights in proportion to and over the estimated net servicing income or loss and assess the rights for impairment. Beginning with the fiscal year in which an
entity adopts SFAS 156, it may elect to subsequently measure a class of servicing assets and liabilities at fair value. Post adoption, an entity may make this election as of the beginning of any fiscal year. An entity that elects to subsequently
measure a class of servicing assets and liabilities at fair value should apply that election to all new and existing recognized servicing assets and liabilities within that class. The effect of remeasuring an existing class of servicing assets and
liabilities at fair value is to be reported as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. SFAS 156 is effective as of the beginning of an entitys first fiscal year that begins after
September 15, 2006. SFAS 156 also requires additional disclosures. The Company does not expect the adoption of SFAS 156 to have a material effect on the Companys consolidated financial statements.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN48),
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal
years beginning after December 15, 2006. The Company is currently assessing the impact of the Interpretation on its financial statements.



|4. | Segment Reporting
|-- | -----------------

SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public businesses report information about operating segments in annual and interim financial statements and establishes
standards for related disclosures about an enterprises products and services, geographic areas, and major customers.

In accordance
with the provisions of SFAS No. 131, reportable segments have been determined based upon the Companys internal management and profitability reporting system, which is organized based on lines of business. Certain business units have been
aggregated for segment reporting purposes where the products and services are similar and are sold to similar types of customers, have similar production and distribution processes, and have similar economic characteristics. The reportable segments
for the Company are Regional Offices, Real Estate Industries Division, Small Business Administration (SBA), and Other. The Regional Offices segment is comprised of the Banks four regional offices which provide a wide range of credit products
and banking services primarily to small to medium sized businesses, executives, and professionals. The Real Estate Industries Division is comprised of real estate lending, including primarily construction loans for commercial buildings, condominium
and apartment projects, multifamily properties, and single-family subdivisions as well as commercial real estate loans. The SBA segment provides credit products that are in part guaranteed by the U.S. government and are made to qualified small
business owners for the purpose of accessing capital for operations, acquisitions, and inventory or debt management. The segment entitled Other incorporates all remaining business units such as the Companys corporate office,
administrative and treasury functions, as well as other types of products and services such as asset-based lending, money desk certificates of deposit and brokered deposits.

The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial
accounting, are not based on authoritative guidance similar to generally accepted accounting principles. As a result, reported segment results are not necessarily comparable with similar information reported by other financial institutions.

The Company does not allocate provisions for loan losses, general and administrative expenses, or income taxes to the business segments.
In addition, the Company allocates internal funds transfer pricing to the segments using a methodology that charges users of funds interest expense and credits providers of funds interest income with the net effect of this allocation being recorded
in administration. Since the Company derives substantially all of its revenues from interest and noninterest



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##### Table of Contents

income, and interest expense is our most significant expense, the Company reports the net interest income (interest income less interest expense) which
includes the effect of internal funds transfer pricing and noninterest income for each of these segments as shown in the following table for the three and six months ended June 30, 2006 and 2005. The following table also shows the assets
allocated to each of these segments as of June 30, 2006 and December 31, 2005.



|                                                                                       |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|-------------------------------------------------------------------------------------- |  | --------------- | ----------- | ------------------------------- | - | ----------- |  | ----- | ---------- |  | ----- | ----------- | - |  | - | -----------
|                                                                                       |  | RegionalOffices |             | Real Estate Industries Division |   | SBA         |  | Other |            |  | Total
|Net interest income before provision for loan loss for the six months ended June 30:   |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|2006                                                                                   |  | $               | 7,678,400   |                                 | $ | 8,165,500   |  | $     | 1,316,500  |  | $     | 594,100     |   |  | $ | 17,754,500 
|2005                                                                                   |  |                 | 5,388,700   |                                 |   | 4,200,100   |  |       | 793,300    |  |       | 185,500     |   |  |   | 10,567,600 
|Noninterest income for the six months ended June 30:                                   |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|2006                                                                                   |  |                 | 616,500     |                                 |   | 100,200     |  |       | 350,400    |  |       | 272,700     |   |  |   | 1,339,800  
|2005                                                                                   |  |                 | 469,700     |                                 |   | 13,200      |  |       | 736,700    |  |       | 159,300     |   |  |   | 1,378,900  
|Net interest income before provision for loan loss for the three months ended June 30: |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|2006                                                                                   |  |                 | 3,908,000   |                                 |   | 4,359,900   |  |       | 698,300    |  |       | 213,100     |   |  |   | 9,179,300  
|2005                                                                                   |  |                 | 3,026,500   |                                 |   | 2,262,000   |  |       | 400,200    |  |       | (5,100      | ) |  |   | 5,683,600  
|Noninterest income for the three months ended June 30:                                 |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|2006                                                                                   |  |                 | 299,500     |                                 |   | 29,600      |  |       | 197,600    |  |       | 175,200     |   |  |   | 701,900    
|2005                                                                                   |  |                 | 233,300     |                                 |   | 11,900      |  |       | 265,600    |  |       | 69,700      |   |  |   | 580,500    
|Segment assets as of:                                                                  |  |                 |             |                                 |   |             |  |       |            |  |       |             |   |  |   |            
|June 30, 2006                                                                          |  |                 | 267,648,800 |                                 |   | 314,236,900 |  |       | 32,787,800 |  |       | 202,172,600 |   |  |   | 816,846,100
|December 31, 2005                                                                      |  |                 | 196,386,100 |                                 |   | 203,982,900 |  |       | 26,895,300 |  |       | 247,708,900 |   |  |   | 674,973,200



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

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 report to the Company, we or us
refer to Alliance Bancshares California (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 net
earnings of $1.9 million ($0.27 basic and $0.25 diluted earnings per share) for the second quarter of 2006 as compared to $1.4 million ($0.19 basic and diluted earnings per share) for the second quarter of 2005. The increase in net earnings was
primarily due to a $3.5 million increase in net interest income before provision for loan losses offset by a $2.3 million increase in non-interest expenses.

For the six months ended June 30, 2006, we generated net earnings of $3.7 million ($0.51 basic and $0.49 diluted earnings per share) as compared to $2.6 million ($0.38 basic and diluted earnings per share) for
the same period of 2005. The improvement in earnings in 2006 was due primarily to a $7.2 million increase in net interest income before provision for loan loss offset by a $4.5 million increase non-interest expenses and a $0.7 million increase in
the provision for loan losses.

We continued to grow, with total assets increasing from $675.0 million at December 31, 2005 to $816.8
million at June 30, 2006. Net loans, including loans held for sale, grew from $545.4 million at December 31, 2005 to $620.9 million at June 30, 2006. Deposits grew from $531.3 million at December 31, 2005 to $647.3 million at
June 30, 2006.

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



|                                                 |  |                            |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------ |  | -------------------------- | ----- | - | ------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                 |  | Three Months EndedJune 30, |       |   | Six Months Ended June 30, |  
|                                                 |  | 2006                       |       |   | 2005                      |   |       | 2006 |  |   | 2005  |  
|Return on average assets (1)                     |  |                            | 1.01  | % |                           |   | 1.13  | %    |  |   | 1.03  | % |  |   | 1.13  | %
|Return on average shareholders equity (1)       |  |                            | 26.59 | % |                           |   | 23.65 | %    |  |   | 26.42 | % |  |   | 23.56 | %
|Net yield on average interest earning assets (1) |  |                            | 4.96  | % |                           |   | 4.82  | %    |  |   | 5.10  | % |  |   | 4.81  | %
|Earnings per common share:                       |  |                            |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Basic earnings per share                         |  | $                          | 0.27  |   |                           | $ | 0.19  |      |  | $ | 0.51  |   |  | $ | 0.38  |  
|Diluted earnings per share                       |  | $                          | 0.25  |   |                           | $ | 0.19  |      |  | $ | 0.49  |   |  | $ | 0.38  |  

---

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



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The following table sets forth information regarding the net interest income before provision for loan
losses, the provision for loan losses, non-interest expense, net income and net income per share  diluted for the periods indicated:



|                                                     |  |                             |           |      |                           |               |  |      |      |  |      |            |               |   |            |  |      |  
|---------------------------------------------------- |  | --------------------------- | --------- | ---- | ------------------------- | ------------- |  | ---- | ---- |  | ---- | ---------- | ------------- | - | ---------- |  | ---- | -
|                                                     |  | Three Months Ended June 30, |           |      | Six Months Ended June 30, |              
|                                                     |  | 2006                        |           | 2005 |                           | PercentChange |  |      | 2006 |  | 2005 |            | PercentChange |  
|Net interest income before provision for loan losses |  | $                           | 9,179,300 |      | $                         | 5,683,600     |  | 61.5 | %    |  | $    | 17,754,500 |               | $ | 10,567,600 |  | 68.0 | %
|Provision for loan losses                            |  |                             | 973,000   |      |                           | 602,000       |  | 61.6 | %    |  |      | 1,723,000  |               |   | 977,000    |  | 76.4 | %
|Non-interest expense                                 |  |                             | 5,695,500 |      |                           | 3,424,200     |  | 66.3 | %    |  |      | 11,147,200 |               |   | 6,664,400  |  | 67.3 | %
|Net income                                           |  |                             | 1,942,600 |      |                           | 1,401,600     |  | 38.6 | %    |  |      | 3,734,800  |               |   | 2,631,100  |  | 41.9 | %
|Net income per share  diluted                       |  |                             | 0.25      |      |                           | 0.19          |  | 31.6 | %    |  |      | 0.49       |               |   | 0.38       |  | 28.9 | %
|Weighted average number of shares - diluted          |  |                             | 7,629,496 |      |                           | 6,851,903     |  | 11.3 | %    |  |      | 7,640,258  |               |   | 6,869,810  |  | 11.2 | %

The increase in net interest income in the three months and six months ended June 30, 2006,
as compared to the corresponding period of 2005, was primarily the result of growth in the volume of loans and investment securities. Average loans grew by $221.9 million, or 61.8%, to $581.1 million at June 30, 2006 from $359.2 million at
June 30, 2005. Average investment securities grew by $17.2 million or 24.4% to $87.7 million at June 30, 2006 from $70.5 million at June 30, 2005.

The provision for loan losses increased by $0.7 million or 76.4% to $1.7 million in the first six months of 2006 as compared to the corresponding period of 2005. This increase was primarily attributable to a 43.4%
increase in net loans which includes loans held for sale.

Non-interest expense increased by $2.3 million, or 66.3%, to $5.7 million and
$4.5 million, or 67.3%, to $11.1 million, respectively, for the three months and six months ended June 30, 2006 primarily due to an increase in salaries and related benefits expense due to the growth of the Company.

RESULTS OF OPERATIONS  Three and six months ended June 30, 2006 and 2005

Net Interest Income

The following table sets forth interest income, interest expense, net interest
income before provision for loan losses and net interest margin for the periods presented:



|                                                     |  |                             |            |   |                           |   |           |               |  |       |      |  |   |            |   |  |               |            |   |  |       |  
|---------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | --------- | ------------- |  | ----- | ---- |  | - | ---------- | - |  | ------------- | ---------- | - |  | ----- | -
|                                                     |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                     |  | 2006                        |            |   | 2005                      |   |           | PercentChange |  |       | 2006 |  |   | 2005       |   |  | PercentChange |           
|Interest income                                      |  | $                           | 15,736,500 |   |                           | $ | 8,324,300 |               |  | 89.0  | %    |  | $ | 29,698,400 |   |  | $             | 15,229,000 |   |  | 95.0  | %
|Interest expense                                     |  |                             | 6,557,200  |   |                           |   | 2,640,700 |               |  | 148.3 | %    |  |   | 11,943,900 |   |  |               | 4,661,400  |   |  | 156.2 | %
|Net interest income before provision for loan losses |  |                             | 9,179,300  |   |                           |   | 5,683,600 |               |  | 61.5  | %    |  |   | 17,754,500 |   |  |               | 10,567,600 |   |  | 68.0  | %
|Net interest margin                                  |  |                             | 4.96       | % |                           |   | 4.82      | %             |  | 2.9   | %    |  |   | 5.10       | % |  |               | 4.81       | % |  | 6.0   | %

Our earnings depend largely upon our net interest income, which is the difference between the
income we earn on loans and other interest earning assets and the interest we pay on deposits and borrowed funds. Net interest income is related to the rates earned and paid on and the relative amounts of interest earning assets and interest bearing
liabilities. Our inability to maintain strong asset quality, capital or liquidity may adversely affect (i) our ability to accommodate desirable borrowing customers, thereby impacting growth in quality, higher-yielding earning assets;
(ii) our ability to attract comparatively stable, lower-cost deposits; and (iii) the costs of wholesale funding sources.

Net
interest income is related to our interest rate spread and net interest margin. The interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average rate paid on interest bearing
liabilities. Net interest margin (also called the net yield on interest earning assets) is net interest income expressed as



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a percentage of average total interest earning assets. Our net interest margin is affected by changes in the yields earned on assets and rates paid on
liabilities, referred to as rate changes, and changes in the relative amounts of interest earning assets and interest bearing liabilities. Interest rates earned and paid are affected principally by our competition, general economic conditions and
other factors beyond our control such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and actions of the FRB.

We recorded interest income of $15.7 million and $29.7 million, respectively, for the three and six months ended June 30, 2006 as compared to $8.3
million and $15.2 million, respectively, for the three and six months ended June 30, 2005. Interest expense totaled $6.6 million and $11.9 million, respectively, for the three and six months ended June 30, 2006 as compared to $2.6 million
and $4.7 million, respectively, for the three and six months ended June 30, 2005. The increase in interest income was due to $269.5 million and $258.7 million increases in average interest earning assets in conjunction with a 1.44% and 1.60%
increases in the weighted average yield earned on those assets for the three and six months ended June 30, 2006. The increase in interest expense was due to a $263.2 million and $246.4 million increase in average interest bearing liabilities in
addition to 1.27% and 1.33% increases in the weighted average rates paid on interest bearing liabilities. The prime rate increased from 5.25% at December 31, 2004 to 8.25% at June 30, 2006 causing an overall increase in our interest rates.

The increase in average interest earning assets and average interest bearing liabilities is a result of the Companys continued
efforts to expand the Orange County Regional Office, the San Fernando Valley Regional Office and the Media District Regional Office, the continued growth of all categories of loans and investments and to favorable economic conditions. Average loans
increased 55.5% and 61.8%, respectively to $607.7 million and $581.1 million for the three and six months ended June 30, 2006 from $390.9 million and $359.2 million, respectively, for the three and six months ended June 30, 2005, with the
increase occurring in all major loan categories. Average investment securities increased 40.3% and 24.4%, respectively, to $97.2 million and $87.7 million from $69.3 million and $70.5 million, respectively, during the three and six months ended
June 30, 2006, as the Company invested in U.S. Government agency securities. Average interest bearing deposits increased 79.3% and 78.8%, respectively, to $507.8 million and $475.1 million, respectively, for the three and six months ended
June 30, 2006 compared to $283.3 million and $265.8 million, respectively, during the three and six months ended June 30, 2005.

Our interest rate spread increased from 4.06% during the second quarter of 2005 to 4.23% during the second quarter of 2006, and our net interest margin increased from 4.82% during the second quarter of 2005 to 4.96% during the second
quarter of 2006. The increase in interest rate spread was due principally to our higher yield on loans which increased from 7.76% for the quarter ended June 30, 2005 to 9.37% for the quarter ended June 30, 2006. These increases were due
principally to: i) an increase in the weighted average yield on our loans, which constitute our largest category of interest-earning assets, from 7.76% for the quarter ended June 30, 2005 to 9.37% for the quarter ended June 30, 2006 due to
an increase in overall interest rates; and ii) loans constituting a greater portion of our average interest-earning assets (81.0% for the six months ended June 30, 2005 compared to 82.8% for the six months ended June 30, 2006). The
increase in our cost of funds was due to increasing market interest rates, resulting in increases in all categories of interest-bearing liabilities, and to certificate of deposits (our highest costing deposits) constituting a greater percentage of
our total average interest-bearing liabilities (29.3% for the six months ended June 30, 2005 compared to 49.8% for the six months ended June 30, 2006). The increase in certificates of deposit was due to an increase in brokered deposits.
Brokered deposits increased from $64.4 million as of June 30, 2005 to $143.6 million as of June 30, 2006. Our weighted average cost of funds was positively affected by our ability to borrow through securities sold under repurchase
agreements in 2006, which had a lower cost than all categories of deposits other than demand deposits. Our net interest margin remains high in comparison with our interest rate spread because a significant portion of our interest earning assets is
funded by non-interest bearing demand deposits, preferred stock, and stockholders equity.

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.



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ANALYSIS OF NET INTEREST INCOME



|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|--------------------------------------------------- |  | ---------------------- | ----------- | --------------------- | ---- | ----------------------------------- |  | ---- | -------------- |  | --------------------- | ----------- | ----------------------------------- | - | --------- |  | ---- | -
|                                                    |  | Quarter Ended June 30, |            
|                                                    |  | 2006                   |             |                       | 2005 |                                    
|                                                    |  | AverageBalance         |             | Interest Inc./Exp.(1) |      | WeightedAverageRatesEarned/Paid (3) |  |      | AverageBalance |  | Interest Inc./Exp.(1) |             | WeightedAverageRatesEarned/Paid (3) |  
|Interest earning assets:                            |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Federal funds sold                                  |  | $                      | 32,096,100  |                       | $    | 406,100                             |  | 5.07 | %              |  | $                     | 7,187,300   |                                     | $ | 52,400    |  | 2.92 | %
|Time deposits                                       |  |                        | 5,273,200   |                       |      | 57,100                              |  | 4.34 | %              |  |                       | 5,432,200   |                                     |   | 31,300    |  | 2.31 | %
|Securities                                          |  |                        | 97,231,300  |                       |      | 1,081,200                           |  | 4.46 | %              |  |                       | 69,300,200  |                                     |   | 682,500   |  | 3.95 | %
|Loans(2)                                            |  |                        | 607,681,400 |                       |      | 14,192,100                          |  | 9.37 | %              |  |                       | 390,863,200 |                                     |   | 7,558,100 |  | 7.76 | %
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Total interest-earning assets                       |  |                        | 742,282,000 |                       |      | 15,736,500                          |  | 8.50 | %              |  |                       | 472,782,900 |                                     |   | 8,324,300 |  | 7.06 | %
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Non-interest-earning assets                         |  |                        | 30,395,700  |                       |      |                                     |  |      |                |  |                       | 24,137,900  |                                     |   |           |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Total assets                                        |  | $                      | 772,677,700 |                       |      |                                     |  |      |                |  | $                     | 496,920,800 |                                     |   |           |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Interest bearing liabilities:                       |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Interest-bearing demand deposits                    |  | $                      | 10,699,800  |                       |      | 44,800                              |  | 1.68 | %              |  | $                     | 5,904,300   |                                     |   | 17,600    |  | 1.20 | %
|Savings and money market deposits                   |  |                        | 184,591,500 |                       |      | 1,755,200                           |  | 3.81 | %              |  |                       | 166,532,400 |                                     |   | 1,021,000 |  | 2.46 | %
|Certificates of deposit                             |  |                        | 312,492,200 |                       |      | 3,581,600                           |  | 4.60 | %              |  |                       | 110,814,200 |                                     |   | 954,600   |  | 3.46 | %
|Federal funds purchased                             |  |                        |            |                       |      |                                    |  |     |                |  |                       | 233,300     |                                     |   | 1,800     |  | 3.09 | %
|FHLB advances:                                      |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Short-term                                          |  |                        | 5,000,000   |                       |      | 62,400                              |  | 5.01 | %              |  |                       | 22,000,000  |                                     |   | 148,600   |  | 2.71 | %
|Long-term                                           |  |                        | 30,000,000  |                       |      | 391,100                             |  | 5.23 | %              |  |                       | 29,495,500  |                                     |   | 255,800   |  | 3.48 | %
|Securities sold under agreements to repurchase      |  |                        | 50,227,500  |                       |      | 344,500                             |  | 2.75 | %              |  |                       |            |                                     |   |          |  |     |  
|Junior subordinated debentures                      |  |                        | 22,682,000  |                       |      | 377,600                             |  | 6.68 | %              |  |                       | 17,527,000  |                                     |   | 241,300   |  | 5.52 | %
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Total interest-bearing liabilities                  |  |                        | 615,693,000 |                       |      | 6,557,200                           |  | 4.27 | %              |  |                       | 352,506,700 |                                     |   | 2,640,700 |  | 3.00 | %
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Non-interest bearing liabilities                    |  |                        | 108,665,200 |                       |      |                                     |  |      |                |  |                       | 112,948,100 |                                     |   |           |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Total liabilities                                   |  |                        | 724,358,200 |                       |      |                                     |  |      |                |  |                       | 465,454,800 |                                     |   |           |  |      |  
|Redeemable preferred stock and shareholders equity |  |                        | 48,319,500  |                       |      |                                     |  |      |                |  |                       | 31,466,000  |                                     |   |           |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Total liabilities and shareholders equity          |  | $                      | 772,677,700 |                       |      |                                     |  |      |                |  | $                     | 496,920,800 |                                     |   |           |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Net interest income                                 |  |                        |             |                       | $    | 9,179,300                           |  |      |                |  |                       |             |                                     | $ | 5,683,600 |  |      |  
|                                                    |  |                        |             |                       |      |                                     |  |      |                |  |                       |             |                                     |   |           |  |      |  
|Interest rate spread                                |  |                        |             |                       |      |                                     |  | 4.23 | %              |  |                       |             |                                     |   |           |  | 4.06 | %
|Net interest margin                                 |  |                        |             |                       |      |                                     |  | 4.96 | %              |  |                       |             |                                     |   |           |  | 4.82 | %

---

|(1) | Interest income on loans includes loan fees of $0.9 million in 2006 and $0.7 million in 2005.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Loans include nonaccrual loans.
|--- | -------------------------------



|(3) | Annualized.
|--- | -----------



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##### Table of Contents

ANALYSIS OF NET INTEREST INCOME



|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|--------------------------------------------------- |  | ------------------------- | ----------- | ---------------------- | ---- | ----------------------------------- |  | ---- | -------------- |  | ---------------------- | ----------- | ----------------------------------- | - | ---------- |  | ---- | -
|                                                    |  | Six Months Ended June 30, |            
|                                                    |  | 2006                      |             |                        | 2005 |                                    
|                                                    |  | AverageBalance            |             | Interest Inc./Exp. (1) |      | WeightedAverageRatesEarned/Paid (3) |  |      | AverageBalance |  | Interest Inc./Exp. (1) |             | WeightedAverageRatesEarned/Paid (3) |  
|Interest earning assets:                            |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Federal funds sold                                  |  | $                         | 26,730,700  |                        | $    | 642,600                             |  | 4.85 | %              |  | $                      | 7,997,700   |                                     | $ | 108,200    |  | 2.73 | %
|Time deposits                                       |  |                           | 6,549,100   |                        |      | 131,200                             |  | 4.04 | %              |  |                        | 5,613,500   |                                     |   | 59,200     |  | 2.13 | %
|Securities                                          |  |                           | 87,718,600  |                        |      | 1,904,700                           |  | 4.38 | %              |  |                        | 70,539,200  |                                     |   | 1,379,700  |  | 3.94 | %
|Loans(2)                                            |  |                           | 581,078,100 |                        |      | 27,019,900                          |  | 9.38 | %              |  |                        | 359,182,300 |                                     |   | 13,681,900 |  | 7.68 | %
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Total interest-earning assets                       |  |                           | 702,076,500 |                        |      | 29,698,400                          |  | 8.53 | %              |  |                        | 443,332,700 |                                     |   | 15,229,000 |  | 6.93 | %
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Non-interest-earning assets                         |  |                           | 29,700,200  |                        |      |                                     |  |      |                |  |                        | 26,334,500  |                                     |   |            |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Total assets                                        |  | $                         | 731,776,700 |                        |      |                                     |  |      |                |  | $                      | 469,667,200 |                                     |   |            |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Interest bearing liabilities:                       |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Interest-bearing demand deposits                    |  | $                         | 9,907,800   |                        |      | 82,500                              |  | 1.68 | %              |  | $                      | 5,615,500   |                                     |   | 33,300     |  | 1.20 | %
|Savings and money market deposits                   |  |                           | 176,925,800 |                        |      | 3,296,400                           |  | 3.76 | %              |  |                        | 162,836,000 |                                     |   | 1,897,100  |  | 2.35 | %
|Certificates of deposit                             |  |                           | 288,298,300 |                        |      | 6,445,600                           |  | 4.51 | %              |  |                        | 97,312,200  |                                     |   | 1,600,400  |  | 3.32 | %
|Federal funds purchased                             |  |                           |            |                        |      |                                    |  |     |                |  |                        | 138,200     |                                     |   | 1,800      |  | 2.63 | %
|FHLB advances                                       |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Short-term                                          |  |                           | 5,000,000   |                        |      | 117,700                             |  | 4.75 | %              |  |                        | 22,000,000  |                                     |   | 281,400    |  | 2.58 | %
|Long-term                                           |  |                           | 29,880,600  |                        |      | 697,300                             |  | 4.71 | %              |  |                        | 28,695,700  |                                     |   | 437,900    |  | 3.08 | %
|Securities sold under agreements to repurchase      |  |                           | 48,728,000  |                        |      | 626,100                             |  | 2.59 | %              |  |                        |            |                                     |   |           |  |     |  
|Junior subordinated debentures                      |  |                           | 20,104,500  |                        |      | 678,300                             |  | 6.80 | %              |  |                        | 15,808,700  |                                     |   | 409,500    |  | 5.22 | %
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Total interest-bearing liabilities                  |  |                           | 578,845,000 |                        |      | 11,943,900                          |  | 4.16 | %              |  |                        | 332,406,300 |                                     |   | 4,661,400  |  | 2.83 | %
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Non-interest bearing liabilities                    |  |                           | 105,407,800 |                        |      |                                     |  |      |                |  |                        | 107,039,600 |                                     |   |            |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Total liabilities                                   |  |                           | 684,252,800 |                        |      |                                     |  |      |                |  |                        | 439,445,900 |                                     |   |            |  |      |  
|Redeemable preferred stock and shareholders equity |  |                           | 47,523,900  |                        |      |                                     |  |      |                |  |                        | 30,221,300  |                                     |   |            |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Total liabilities and shareholders equity          |  | $                         | 731,776,700 |                        |      |                                     |  |      |                |  | $                      | 469,667,200 |                                     |   |            |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Net interest income                                 |  |                           |             |                        | $    | 17,754,500                          |  |      |                |  |                        |             |                                     | $ | 10,567,600 |  |      |  
|                                                    |  |                           |             |                        |      |                                     |  |      |                |  |                        |             |                                     |   |            |  |      |  
|Interest rate spread                                |  |                           |             |                        |      |                                     |  | 4.37 | %              |  |                        |             |                                     |   |            |  | 4.10 | %
|Net interest margin                                 |  |                           |             |                        |      |                                     |  | 5.10 | %              |  |                        |             |                                     |   |            |  | 4.81 | %

---

|(1) | Interest income on loans includes loan fees of $2.1 million in 2006 and $1.2 million in 2005.
|--- | ---------------------------------------------------------------------------------------------



|(2) | Loans include nonaccrual loans.
|--- | -------------------------------



|(3) | Annualized.
|--- | -----------



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##### Table of Contents

The following tables present information concerning the change in interest income and interest expense
attributable to changes in average volume and average rate during the periods indicated.

ANALYSIS OF CHANGE IN INTEREST INCOME



|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|---------------------------------------------- |  | ---------------------------- | --------- | - | -------------------------- | - | ---------- |  | - | --------- | - |  | ---- | ---------- | ---------- |  | - | --------- |  | - | ---------- | -
|                                               |  | Three Months Ended June 2006 |           |   | Six Months Ended June 2006 |  
|                                               |  | Increase (Decrease) Due To   |           |   | Increase (Decrease) Due To |  
|                                               |  | Volume                       |           |   | Rate                       |   | Net Change |  |   | Volume    |   |  | Rate |            | Net Change | 
|Interest income:                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Federal funds sold                             |  | $                            | 291,800   |   |                            | $ | 61,900     |  | $ | 353,700   |   |  | $    | 401,300    |            |  | $ | 133,100   |  | $ | 534,400    |  
|Time deposits                                  |  |                              | (900      | ) |                            |   | 26,700     |  |   | 25,800    |   |  |      | 11,300     |            |  |   | 60,700    |  |   | 72,000     |  
|Securities                                     |  |                              | 302,000   |   |                            |   | 96,700     |  |   | 398,700   |   |  |      | 361,500    |            |  |   | 163,500   |  |   | 525,000    |  
|Loans                                          |  |                              | 4,826,200 |   |                            |   | 1,807,800  |  |   | 6,634,000 |   |  |      | 9,827,000  |            |  |   | 3,511,000 |  |   | 13,338,000 |  
|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Total interest-earning assets                  |  |                              | 5,419,100 |   |                            |   | 1,993,100  |  |   | 7,412,200 |   |  |      | 10,601,100 |            |  |   | 3,868,300 |  |   | 14,469,400 |  
|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Interest expense:                              |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Interest-bearing demand deposits               |  |                              | 18,200    |   |                            |   | 9,000      |  |   | 27,200    |   |  |      | 32,200     |            |  |   | 17,000    |  |   | 49,200     |  
|Savings and money market deposits              |  |                              | 120,800   |   |                            |   | 613,400    |  |   | 734,200   |   |  |      | 176,600    |            |  |   | 1,222,700 |  |   | 1,399,300  |  
|Certificates of deposit                        |  |                              | 2,223,300 |   |                            |   | 403,700    |  |   | 2,627,000 |   |  |      | 4,095,200  |            |  |   | 750,000   |  |   | 4,845,200  |  
|Federal funds purchased                        |  |                              | (1,800    | ) |                            |   |           |  |   | (1,800    | ) |  |      | (1,800     | )          |  |   |          |  |   | (1,800     | )
|FHLB advances:                                 |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Short-term                                     |  |                              | (161,200  | ) |                            |   | 75,000     |  |   | (86,200   | ) |  |      | (305,000   | )          |  |   | 141,300   |  |   | (163,700   | )
|Long-term                                      |  |                              | 4,400     |   |                            |   | 130,900    |  |   | 135,300   |   |  |      | 18,800     |            |  |   | 240,600   |  |   | 259,400    |  
|Securities sold under agreements to repurchase |  |                              | 344,500   |   |                            |   |           |  |   | 344,500   |   |  |      | 626,100    |            |  |   |          |  |   | 626,100    |  
|Junior subordinated debentures                 |  |                              | 79,600    |   |                            |   | 56,700     |  |   | 136,300   |   |  |      | 127,200    |            |  |   | 141,600   |  |   | 268,800    |  
|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Total interest-bearing liabilities             |  |                              | 2,627,800 |   |                            |   | 1,288,700  |  |   | 3,916,500 |   |  |      | 4,769,300  |            |  |   | 2,513,200 |  |   | 7,282,500  |  
|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  
|Net interest income                            |  | $                            | 2,791,300 |   |                            | $ | 704,400    |  | $ | 3,495,700 |   |  | $    | 5,831,800  |            |  | $ | 1,355,100 |  | $ | 7,186,900  |  
|                                               |  |                              |           |   |                            |   |            |  |   |           |   |  |      |            |            |  |   |           |  |   |            |  

Provision for Loan Losses

We made provisions for loan losses of $1.0 million and $1.7 million, respectively, for the three and six months ended June 30, 2006 as compared to provisions of $0.6 million and $1.0 million for the comparable
periods of 2005.

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 will be 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.



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##### Table of Contents

Non-Interest Income

Non-interest income primarily includes service charges on deposit accounts, net gains on sales of loans and loan broker fees for referring loans to other lenders. Non-interest income increased by 21% for the quarter
ended June 30, 2006 as compared to the same period in 2005 primarily due to increase loan broker fees. Non-interest income remained relatively unchanged for the six months ended June 30, 2006. The amount of gains from sales of loans and
loan broker fees in any period is dependent upon the number of loans we can originate, which in turn depends upon market conditions, interest rates, borrower and investor demand, and the availability SBA loan programs. Thus, these gains and fees can
vary substantially from period to period, and gains and fees in any period are not indicative of gains and fees to be expected in any subsequent period.

The following table identifies the components of and the percentage changes for the periods indicated:

NON-INTEREST INCOME



|                           |  |                             |         |      |                           |               |  |       |      |  |      |           |               |   |           |  |       |   
|-------------------------- |  | --------------------------- | ------- | ---- | ------------------------- | ------------- |  | ----- | ---- |  | ---- | --------- | ------------- | - | --------- |  | ----- | --
|                           |  | Three Months Ended June 30, |         |      | Six Months Ended June 30, |              
|                           |  | 2006                        |         | 2005 |                           | PercentChange |  |       | 2006 |  | 2005 |           | PercentChange |  
|Service charges            |  | $                           | 266,800 |      | $                         | 214,200       |  | 24.6  | %    |  | $    | 548,300   |               | $ | 435,700   |  | 25.8  | % 
|Gain on sale of loans, net |  |                             | 100,700 |      |                           | 127,000       |  | (20.7 | %)   |  |      | 187,400   |               |   | 298,000   |  | (37.1 | %)
|Loan broker fee income     |  |                             | 122,600 |      |                           | 71,900        |  | 70.5  | %    |  |      | 200,000   |               |   | 370,900   |  | (46.1 | %)
|Other                      |  |                             | 211,800 |      |                           | 167,400       |  | 26.5  | %    |  |      | 404,100   |               |   | 274,300   |  | 47.3  | % 
|                           |  |                             |         |      |                           |               |  |       |      |  |      |           |               |   |           |  |       |   
|Total                      |  | $                           | 701,900 |      | $                         | 580,500       |  | 20.9  | %    |  | $    | 1,339,800 |               | $ | 1,378,900 |  | (2.8  | %)
|                           |  |                             |         |      |                           |               |  |       |      |  |      |           |               |   |           |  |       |   

Non-Interest Expense

Salary and related benefits increased by 69% and 73%, respectively, from the three and six months ended June 30, 2005 to the three and six months ended June 30, 2006. This increase was due primarily to an
increase in the number of employees in all locations and departments due to the growth of the Company. The increase in the size and profitability of the Company also resulted in an increase in incentive and bonus accruals for 2006. At June 30,
2006, the Company employed 115 full-time employees, compared with 84 full-time employees at June 30, 2005.

Occupancy and equipment
expenses increased by 25% and 34%, respectively, from the three and six months ended June 30, 2005 to the three and six months ended June 30, 2006. This increase was due to increased rent expense, the amortization of leasehold improvements
and the depreciation of office furniture and equipment at the new Real Estate Industries Division office as well as amortization of leasehold improvements and the depreciation of office furniture and equipment related to the remodel of our executive
offices.

Professional fees increased 70% and 57%, respectively, from the three and six months ended June 30, 2005 to the three and
six months ended June 30, 2006 due to the increase in consulting fees related to the Note Department and to personnel development.

Data processing expenses increased 23% and 25%, respectively, from the three and six months ended June 30, 2005 to the three and six months ended June 30, 2006 consistent with our growth in assets and the number of customers.

Other operating expenses increased 109% and 93%, respectively, from the three and six months ended June 30, 2005 to the three and six
months ended June 30, 2006 due to increases in advertising expense, training and recruiting expense, and amortization of servicing assets.

FINANCIAL CONDITION

Regulatory Capital

At June 30, 2006, Bancshares and the Banks Tier 1 capital, which is comprised of shareholders equity as modified by certain regulatory adjustments, was $64.9 million and $75.6 million,
respectively. Our regulatory capital increased since December 31, 2005 as a result of net earnings as well as proceeds from the issuance of $10.3 million of junior subordinated debentures of which $10.0 million was contributed as capital to the
Bank. At June 30, 2006, Bancshares and the Bank met all applicable regulatory capital requirements and the Bank was well capitalized as defined under applicable regulations.



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##### Table of Contents

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

June 30, 2006

(dollars in
thousands)



|                                         |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|---------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | --------------------- | ------ |  | ----- | ------ |  | ----- | ------ |  | ------ | -
|                                         |  | Actual |        |       | To Be AdequatelyCapitalized |   |        | To Be WellCapitalized |       
|                                         |  | Amount |        | Ratio |                             |   | Amount |                       | Ratio  |  |       | Amount |  | Ratio |       
|Bancshares                               |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to risk-weighted assets)  |  | $      | 82,571 |       | 12.6                        | % |        | $                     | 52,639 |  | >=8.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to risk-weighted assets) |  | $      | 64,863 |       | 9.9                         | % |        | $                     | 26,319 |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to average assets)       |  | $      | 64,863 |       | 8.4                         | % |        | $                     | 30,776 |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|Bank                                     |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to risk-weighted assets)  |  | $      | 82,506 |       | 12.6                        | % |        | $                     | 52,596 |  | >=8.0 | %      |  | $     | 65,746 |  | >=10.0 | %
|Tier 1 Capital (to risk-weighted assets) |  | $      | 75,581 |       | 11.5                        | % |        | $                     | 26,298 |  | >=4.0 | %      |  | $     | 39,447 |  | >=6.0  | %
|Tier 1 Capital (to average assets)       |  | $      | 75,581 |       | 9.8                         | % |        | $                     | 30,776 |  | >=4.0 | %      |  | $     | 38,470 |  | >=5.0  | %

Liquidity and Cash Flow

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 preferred stock and shareholders equity,
provided 86% of our funding as a percentage of average total assets during both the six months ended June 30, 2006 and 2005.

Secondary sources of liquidity include borrowing arrangements with the Federal Reserve Board (FRB) and the Federal Home Loan Bank (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 June 30, 2006, we had $35 million outstanding FHLB advances and had no outstanding borrowings from the FRB.

We also have liquidity as a net seller of overnight funds. During the six months ended June 30, 2006, we had an average balance of $26.7 million in overnight funds sold representing 3.8% of total average assets.

Commencing in December 2005, we entered into repurchase agreements with a number of entities controlled by one individual that had
previously maintained a large amount of deposits with us in money market and non-interest bearing demand accounts that exceeded FDIC insurance limits. Under our new arrangement, funds in excess of a certain threshold in these accounts are swept into
securities sold under agreements to repurchase (repurchase agreements). These are in essence overnight loans collateralized by certain of our investment securities that bear interest. At June 30, 2006, these entities held repurchase
agreements in the amount of $51.0 million collateralized by investment securities with an amortized cost of $70.6 million.

Cash Flow
from Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2006 increased by $1.9
million as compared to the same period in 2005 primarily due to an increase in net earnings.



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##### Table of Contents

Cash Flow from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2006 decreased by $33.4 million as compared to the same period in 2005
primarily due to a lesser amount of loan growth which was offset by the purchase of additional securities.

Cash Flows from Financing
Activities

Net cash provided by financing activities for the six months ended June 30, 2006 increased by $10.4 million as compared
to the same period in 2005 primarily due to an increase in securities sold under agreements to repurchase and a decrease in payments on FHLB advances offset by a net decrease in deposit growth and fed funds purchased.

Investments in Time Deposits and Securities

The
following table provides certain information regarding our investments in time deposits with other financial institutions at the dates indicated:

TIME DEPOSIT INVESTMENTS



|                                     |  |               |           |                      |                   |   |            |   |                      |  |      |  
|------------------------------------ |  | ------------- | --------- | -------------------- | ----------------- | - | ---------- | - | -------------------- |  | ---- | -
|                                     |  | June 30, 2006 |           |                      | December 31, 2005 |  
|                                     |  | Book Value    |           | WeightedAverageYield |                   |   | Book Value |   | WeightedAverageYield | 
|Time deposits maturing:              |  |               |           |                      |                   |   |            |   |                      |  |      |  
|Within one year                      |  | $             | 3,693,000 |                      | 3.51              | % |            |   | 7,956,500            |  | 3.20 | %
|After one year but within five years |  |               | 294,300   |                      | 4.41              | % |            |   | 288,400              |  | 4.61 | %
|                                     |  |               |           |                      |                   |   |            |   |                      |  |      |  
|Total time deposits                  |  | $             | 3,987,300 |                      | 3.58              | % |            | $ | 8,244,900            |  | 3.25 | %
|                                     |  |               |           |                      |                   |   |            |   |                      |  |      |  

The following table provides certain information regarding our investment securities at the dates
indicated. 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 June 30, 2006 or 2005.

INVESTMENT
SECURITIES



|                                                                   |  |               |            |                      |                   |   |            |   |                      |  |      |  
|------------------------------------------------------------------ |  | ------------- | ---------- | -------------------- | ----------------- | - | ---------- | - | -------------------- |  | ---- | -
|                                                                   |  | June 30, 2006 |            |                      | December 31, 2005 |  
|                                                                   |  | Book Value    |            | WeightedAverageYield |                   |   | Book Value |   | WeightedAverageYield | 
|Investment securities maturing:                                    |  |               |            |                      |                   |   |            |   |                      |  |      |  
|Within one year                                                    |  | $             | 25,964,700 |                      | 3.76              | % |            | $ | 11,003,800           |  | 3.45 | %
|After one year but within five years                               |  |               | 34,032,200 |                      | 5.09              | % |            |   | 27,613,400           |  | 4.43 | %
|After five years                                                   |  |               | 5,003,000  |                      | 5.87              | % |            |   |                     |  |     |  
|Collateralized mortgage obligations and mortgage-backed securities |  |               | 33,233,500 |                      | 4.23              | % |            |   | 36,861,800           |  | 4.27 | %
|                                                                   |  |               |            |                      |                   |   |            |   |                      |  |      |  
|Total investment securities                                        |  | $             | 98,233,400 |                      | 4.48              | % |            | $ | 75,479,000           |  | 4.21 | %
|                                                                   |  |               |            |                      |                   |   |            |   |                      |  |      |  

Our present strategy is to stagger the maturities of our time deposit investments and investment
securities to meet our overall liquidity requirements. At June 30, 2006, we classified all our investment securities as held to maturity as we intend to hold the securities to maturity.



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##### Table of Contents

The amortized cost and estimated fair values of securities held to maturity at the dated indicated are as
follows:

FAIR VALUE OF INVESTMENT SECURITIES



|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|------------------------------------------------------------------- |  | -------------- | ---------- | -------------------- | - | --------------------- |  | ------------------- | --------- |  | - | ----------
|                                                                    |  | Amortized Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|June 30, 2006                                                       |  |                |            |                      |   |                       |  |                     |           |  |   |           
|U.S. Agency securities                                              |  | $              | 54,877,900 |                      | $ |                      |  | $                   | 585,200   |  | $ | 54,292,700
|Corporate bonds                                                     |  |                | 10,121,900 |                      |   |                      |  |                     | 446,900   |  |   | 9,675,000 
|Collateralized mortgage obligations and mortgage-backed securities: |  |                |            |                      |   |                       |  |                     |           |  |   |           
|Ginnie Mae mortgage-backed security                                 |  |                | 5,016,500  |                      |   |                      |  |                     | 113,800   |  |   | 4,902,700 
|Fannie Mae mortgage-backed security                                 |  |                | 3,737,800  |                      |   |                      |  |                     | 73,800    |  |   | 3,664,000 
|Other                                                               |  |                | 24,479,300 |                      |   |                      |  |                     | 580,200   |  |   | 23,899,100
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|                                                                    |  | $              | 98,233,400 |                      | $ |                      |  | $                   | 1,799,900 |  | $ | 96,433,500
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|                                                                    |  |                |            |                     
|                                                                    |  | Amortized Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|December 31, 2005                                                   |  |                |            |                      |   |                       |  |                     |           |  |   |           
|U.S. Agency securities                                              |  | $              | 26,946,200 |                      | $ | 4,300                 |  | $                   | 353,200   |  | $ | 26,597,300
|Corporate bonds                                                     |  |                | 11,671,100 |                      |   |                      |  |                     | 922,300   |  |   | 10,748,800
|Collateralized mortgage obligations and mortgage-backed securities: |  |                |            |                      |   |                       |  |                     |           |  |   |           
|Ginnie Mae mortgage-backed security                                 |  |                | 5,016,500  |                      |   |                      |  |                     | 69,700    |  |   | 4,946,800 
|Fannie Mae mortgage-backed security                                 |  |                | 4,745,900  |                      |   |                      |  |                     | 1,500     |  |   | 4,744,400 
|Other                                                               |  |                | 27,099,300 |                      |   |                      |  |                     | 403,000   |  |   | 26,696,300
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|                                                                    |  | $              | 75,479,000 |                      | $ | 4,300                 |  | $                   | 1,749,700 |  | $ | 73,733,600
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           

Unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at June 30, 2006 are summarized as follows:

UNREALIZED
LOSSES ON INVESTMENT SECURITIES



|                                                                   |  |                     |            |                   |   |            |  |                 |            |            |   |                 |  |   |            |  |   |          
|------------------------------------------------------------------ |  | ------------------- | ---------- | ----------------- | - | ---------- |  | --------------- | ---------- | ---------- | - | --------------- |  | - | ---------- |  | - | ---------
|                                                                   |  | Less than 12 Months |            | 12 Months or More |   | Total     
|                                                                   |  | Fair value          |            | Unrealized loss   |   | Fair value |  | Unrealized loss |            | Fair value |   | Unrealized loss
|U.S. Agency securities                                             |  | $                   | 35,554,800 |                   | $ | 334,700    |  | $               | 18,737,900 |            | $ | 250,500         |  | $ | 54,292,700 |  | $ | 585,200  
|Corporate bonds                                                    |  |                     |           |                   |   |           |  |                 | 9,675,000  |            |   | 446,900         |  |   | 9,675,000  |  |   | 446,900  
|Collateralized mortgage obligations and mortgage-backed securities |  |                     | 12,194,500 |                   |   | 214,700    |  |                 | 20,271,300 |            |   | 553,100         |  |   | 32,465,800 |  |   | 767,800  
|                                                                   |  |                     |            |                   |   |            |  |                 |            |            |   |                 |  |   |            |  |   |          
|                                                                   |  | $                   | 47,749,300 |                   | $ | 549,400    |  | $               | 48,684,200 |            | $ | 1,250,500       |  | $ | 96,433,500 |  | $ | 1,799,900
|                                                                   |  |                     |            |                   |   |            |  |                 |            |            |   |                 |  |   |            |  |   |          

Our analysis of these securities and the unrealized losses was based on the following factors:
(i) the length of the time and the extent to which the market value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; (iii) the intent and ability of the Company to retain its investment in a
security for a period of time sufficient to allow for any anticipated recovery in market value; and (iv) general market conditions which reflect prospects for the economy as a whole, including interest rates and sector credit spreads.

The corporate bonds consist primarily of securities issued by General Motors Acceptance Corporation and Ford Motor Credit Company. These
securities are rated as less than investment grade at June 30, 2006. Because these securities mature within the next two and one-half years, the Company believes that it will fully recover its principal investment and does not consider these
investments to be other than temporarily impaired at June 30, 2006.

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 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 six Southern California
counties: Los Angeles, Orange, Riverside, San Diego, San Bernardino, and Ventura.



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The following table sets forth the composition of our loan portfolio at the dates indicated (excluding
loans held for sale):

LOAN PORTFOLIO COMPOSITION



|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|-------------------------------- |  | ----------------- | ----------- | - | ----------------- | ----- | - | ----------------- | - | ----------- | --------------- |  | ----- | -
|                                 |  | June 30, 2006     |             |   | December 31, 2005 |      
|                                 |  | AmountOutstanding |             |   | Percent ofTotal   |       |   | AmountOutstanding |   |             | Percent ofTotal | 
|Commercial loans                 |  | $                 | 178,572,200 |   |                   | 28.3  | % |                   | $ | 151,881,600 |                 |  | 27.4  | %
|Construction loans               |  |                   | 224,786,000 |   |                   | 35.6  |   |                   |   | 195,761,200 |                 |  | 35.3  |  
|Real estate loans                |  |                   | 203,012,600 |   |                   | 32.2  |   |                   |   | 182,937,000 |                 |  | 33.0  |  
|Other loans                      |  |                   | 24,399,900  |   |                   | 3.9   |   |                   |   | 23,550,700  |                 |  | 4.3   |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|Gross loans                      |  |                   | 630,770,700 |   |                   | 100.0 | % |                   |   | 554,130,500 |                 |  | 100.0 | %
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|Less  Deferred loan fees        |  |                   | (3,525,400  | ) |                   |       |   |                   |   | (3,260,100  | )               |  |       |  
|Less  Allowance for loan losses |  |                   | (6,925,300  | ) |                   |       |   |                   |   | (6,051,000  | )               |  |       |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|Net loans                        |  | $                 | 620,320,000 |   |                   |       |   |                   | $ | 544,819,400 |                 |  |       |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  

At June 30, 2006, we had outstanding construction loans to developers for tract projects and
single homes for sale to unidentified buyers totaling $122.2 million, representing 19.7% of our loan portfolio, and additional commitments for these projects in the amount of $103.7 million. These types of loans generally have greater risks than
loans on completed homes, multifamily and commercial properties.

Our strategy has been to diversify the construction loan portfolio and
limit our level of these loans, particularly the more speculative types, as a percentage of total assets and Tier 1 capital. During 2005, we had significantly increased the amount of construction loans, both in dollar amounts and as a percentage of
our total loans. This increase in loans was partially due to projects which were delayed due to the near record rainfall in Southern California during the first part of the year as well a continued demand for construction loan financing. The amount
of outstanding construction loans exceeded the limits established by the Company at June 30, 2006 and at December 31, 2005. However, the Company plans to meet the concentration limits by December 31, 2006 through loan participations,
loan sales and anticipated payoffs on completed projects.

At June 30, 2006 and December 31, 2005, qualifying loans with an
outstanding balance of $185.4 and $119.1 million, respectively, were pledged to secure FHLB advances.

The following table sets forth the
maturity distribution of our loan portfolio at June 30, 2006:

LOAN MATURITIES



|                   |  |                  |             |                                 |   |                  |  |       |             |  |   |            
|------------------ |  | ---------------- | ----------- | ------------------------------- | - | ---------------- |  | ----- | ----------- |  | - | -----------
|                   |  | At June 30, 2006
|                   |  | One Year orLess  |             | After One YearThrough FiveYears |   | After Five Years |  | Total
|Commercial loans   |  | $                | 118,751,700 |                                 | $ | 50,840,400       |  | $     | 8,980,200   |  | $ | 178,572,300
|Construction loans |  |                  | 195,251,300 |                                 |   | 26,284,700       |  |       | 3,250,000   |  |   | 224,786,000
|Real estate loans  |  |                  | 46,222,800  |                                 |   | 45,878,500       |  |       | 111,473,800 |  |   | 203,575,100
|Other loans        |  |                  | 3,051,500   |                                 |   | 7,535,800        |  |       | 13,812,500  |  |   | 24,399,800 
|                   |  |                  |             |                                 |   |                  |  |       |             |  |   |            
|                   |  | $                | 363,277,300 |                                 | $ | 130,539,400      |  | $     | 137,516,500 |  | $ | 631,333,200
|                   |  |                  |             |                                 |   |                  |  |       |             |  |   |            

Note: Loan maturities include loans held for sale.



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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 the dates indicated:

NON-PERFORMING ASSETS



|                                        |  |              |         |                  |   |          
|--------------------------------------- |  | ------------ | ------- | ---------------- | - | ---------
|                                        |  | June 30,2006 |         | December 31,2005
|Non-accrual loans                       |  | $            | 722,500 |                  | $ | 694,600  
|Accruing loans past due 90 days or more |  |              |        |                  |   |         
|Troubled debt restructuring             |  |              |        |                  |   | 570,900  
|Other real estate owned                 |  |              |        |                  |   |         
|                                        |  |              |         |                  |   |          
|Balance at end of period                |  | $            | 722,500 |                  | $ | 1,265,500
|                                        |  |              |         |                  |   |          

Nonperforming assets decreased from $1.3 million at December 31, 2005 to $0.7 million at
June 30, 2006. The troubled debt restructuring loan at December 31, 2005 was charged off during the second quarter of 2006 due to financial difficulties of the borrower.

Cash collections on non-performing loans totaled $766,200 during the six months ended June 30, 2006 of which $719,100 was applied to principal and
$47,100 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. The additional interest income that would have been recorded from non-accrual loans, if the loans had not been on non-accrual status, was $76,700 and $201,100, respectively, for the six months ended June 30, 2006 and 2005.

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 June 30, 2006 and
December 31, 2005, we had classified $0.7 million and $2.0 million, respectively, of our loans as impaired for which a $0.1 million reserve and $0.2 million reserve, respectively, were assigned.

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



|                               |  |                           |            |   |      |   |          
|------------------------------ |  | ------------------------- | ---------- | - | ---- | - | ---------
|                               |  | Six months ended June 30,
|                               |  | 2006                      |            |   | 2005
|Balance at beginning of period |  | $                         | 6,051,000  |   |      | $ | 3,477,900
|Charge-offs                    |  |                           | (1,228,900 | ) |      |   |         
|Recoveries                     |  |                           | 356,600    |   |      |   | 24,900   
|                               |  |                           |            |   |      |   |          
|Net charge-offs                |  |                           | (872,300   | ) |      |   | 24,900   
|Additional provisions          |  |                           | 1,723,000  |   |      |   | 977,000  
|Other adjustments              |  |                           | 23,600     |   |      |   | 38,100   
|                               |  |                           |            |   |      |   |          
|Balance at end of period       |  | $                         | 6,925,300  |   |      | $ | 4,517,900
|                               |  |                           |            |   |      |   |          



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Charge-offs for the six months ended June 30, 2006 include $0.6 million of troubled debt
restructuring noted above and $0.5 million related to a business which failed during the second quarter of 2006.

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 June 30, 2006, we had undisbursed loan commitments of $268.4 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 June 30, 2006, we had outstanding standby letters of credit with a potential $1.4 million of obligations maturing at various dates through 2008.

Deposits

Total deposits increased from $531.3
million at December 31, 2005 to $647.3 million at June 30, 2006. This increase was primarily due to a $30.4 million increase in savings and money market deposits and a $68.7 million increase in certificates of deposit. These increases in
deposits resulted from additional emphasis on core deposits as well as a Company-wide incentive compensation program for deposit growth, which we used to fund the increase in our loan and investment portfolios and to increase our liquidity.

The following table sets forth information concerning the amount of deposits from various sources at the dates indicated:

SOURCE OF DEPOSITS



|           |  |               |             |                 |                   |   |            |   |                 |  |       |  
|---------- |  | ------------- | ----------- | --------------- | ----------------- | - | ---------- | - | --------------- |  | ----- | -
|           |  | June 30, 2006 |             |                 | December 31, 2005 |  
|           |  | Book Value    |             | Percent ofTotal |                   |   | Book Value |   | Percent ofTotal | 
|Branches   |  | $             | 418,068,400 |                 | 64.6              | % |            | $ | 330,079,600     |  | 62.1  | %
|Money desk |  |               | 85,612,800  |                 | 13.2              |   |            |   | 75,382,800      |  | 14.2  |  
|Brokered   |  |               | 143,601,200 |                 | 22.2              |   |            |   | 125,846,700     |  | 23.7  |  
|           |  |               |             |                 |                   |   |            |   |                 |  |       |  
|Total      |  | $             | 647,282,400 |                 | 100.0             | % |            | $ | 531,309,100     |  | 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 2006, the certificates of deposit obtained through our money desk or deposit brokers generally had maturities ranging from one to five 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 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.

Banks that are not well capitalized under the FDIC prompt corrective action rules may not accept brokered deposits without the prior approval of the FDIC. In addition, we believe that if the Bank is 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.

The aggregate amount of the certificates of deposit in
denominations of $100,000 or more at June 30, 2006 was approximately $222.7 million. Interest expense on such deposits was approximately $4.5 million for the six months ended June 30, 2006.



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The approximate scheduled maturities of certificates of deposit at June 30, 2006 was as follows:

MATURITIES OF CERTIFICATES OF DEPOSIT



|                                     |  |           |            
|------------------------------------ |  | --------- | -----------
|Maturities                           |  | Amount(1)
|Three months or less                 |  | $         | 36,871,300 
|Over three and through twelve months |  |           | 114,741,100
|Over twelve months                   |  |           | 159,164,600
|                                     |  |           |            
|Total                                |  | $         | 310,777,000
|                                     |  |           |            

---

|(1) | Excludes time deposits included in IRA accounts.
|--- | ------------------------------------------------

Borrowed Funds

FHLB Advances. At June 30, 2006, we had $30.0 million of long-term debt and $5.0 million of short-term advances from the FHLB which were
collateralized by certain qualifying loans with a carrying value of $185.4 million. These advances bear interest at a rate of the prime lending rate (8.25% at June 30, 2006) less an average of 2.80%. Interest is payable quarterly or
semi-annually with principal and any accrued interest due at maturity.

The table below sets forth the amounts, interest rates, and the
maturity dates of FHLB Advances at June 30, 2006:

FHLB ADVANCES



|                 |  |                  |   |  |              
|---------------- |  | ---------------- | - |  | -------------
|Principal Amount |  | Interest rate    |   |  | Maturity date
|$5,000,000       |  | Prime minus 2.83 | % |  | December 2006
|10,000,000       |  | Prime minus 2.83 | % |  | January 2009 
|10,000,000       |  | Prime minus 2.80 | % |  | December 2009
|10,000,000       |  | Prime minus 2.74 | % |  | January 2010 
|                 |  |                  |   |  |              
|$35,000,000      |  |                  |   |  |              
|                 |  |                  |   |  |              

Junior Subordinated Debentures. In October 2002, Bancshares issued $7,217,000 of junior
subordinated debentures to Alliance Bancshares California Capital Trust I, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities to provide additional regulatory capital. This capital has a
relatively low cost as interest payments on the debentures are deductible for income tax purposes. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $217,000 and trust preferred
securities in a private placement for $7,000,000. The debentures and trust preferred securities have generally identical terms, including that they mature in 2032, are redeemable at Bancshares option commencing October 2007 at par, and require
quarterly distributions/interest payments at a rate which adjusts quarterly at the three-month LIBOR rate plus 3.45% (the rate was 8.62% at June 30, 2006).

In February 2005, Bancshares issued $10,310,000 of junior subordinated debentures to Alliance Bancshares California Capital Trust II, a Delaware business trust that was formed for the exclusive purpose of issuing
trust preferred securities to provide additional regulatory capital. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $310,000 and trust preferred securities in a private placement for
$10,000,000. The debentures and trust preferred securities have generally identical terms, including that they mature in 2034, are redeemable at Bancshares option commencing December 2009 at par, and require quarterly distributions/interest
payments at a rate which adjusts quarterly at the three-month LIBOR rate plus 1.90% (the rate was 7.13% at June 30, 2006).

In May
2006, Bancshares issued $10,310,000 of junior subordinated debentures to Alliance Bancshares California Capital Trust III, a Delaware business trust that was formed for the exclusive purpose of issuing trust preferred securities to provide
additional regulatory capital. The Trust purchased the debentures with the proceeds of the sale of its common trust securities to Bancshares for $310,000 and trust preferred securities in a private placement for $10,000,000. The debentures and trust
preferred securities have generally identical terms, including that they mature in 2036, are redeemable at Bancshares option commencing June 2011 at par, and require quarterly distributions/interest payments at a rate which adjusts quarterly
at the three-month LIBOR rate plus 1.50% (the rate was 6.95% at June 30, 2006).

Bancshares has unconditionally guaranteed
distributions on, and payments on liquidation and redemption of, all issues of the trust preferred securities.



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Securities Sold under Agreements to Repurchase.One customer represents a number of entities that
provide us funds through repurchase agreements. Under our arrangements with these entities, funds in the deposit accounts that exceed the FDIC insurance limit are swept into overnight repurchase agreements. The repurchase agreements are in essence
overnight borrowings collateralized by certain of our investment securities that are held by an independent third party financial institution that can cause the securities to be liquidated upon default. Most of these funds can be withdrawn upon
demand without penalty. In 2006, the maximum month-end amount of repurchase agreements provided by entities controlled by this individual at any date was $62.0 million. We monitor this relationship closely, and while we have no reason to believe the
customer presently intends to significantly reduce or terminate the relationship, we have adequate liquidity to fund any consequential withdrawals. We might have to replace these borrowings with higher cost borrowings (which would adversely affect
our net interest income). If we did not have adequate liquidity at the time of his demand, it is possible that some or all the securities collateralizing the repurchase agreements would be liquidated, and we would incur losses if the proceeds from
the liquidation were less than the book value of the securities.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

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 Asset Liability Management Committee (ALCO) manages interest rate risk,
including interest rate sensitivity and the repricing characteristics of assets and liabilities. The principal objective of ALCO 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 the date indicated:

RATE SENSITIVITY

June 30, 2006



|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|--------------------------------------------------- |  | ------------------- | ----------- | - | ------------------------------ | - | ----------- | ------------------------------- |  | - | --------------- | - |  | ----- | ----------- | - |  | - | ----------- | -
|                                                    |  | Three MonthsOr Less |             |   | Over ThreeThrough TwelveMonths |   |             | Over One YearThrough Five Years |  |   | Over Five Years |   |  | Total |            
|Assets                                              |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Federal funds sold                                  |  | $                   | 60,220,000  |   |                                | $ |            |                                 |  | $ |                |   |  | $     |            |   |  | $ | 60,220,000  |  
|Time deposits with other financial institutions     |  |                     | 3,108,500   |   |                                |   | 584,500     |                                 |  |   | 294,300         |   |  |       |            |   |  |   | 3,987,300   |  
|Securities held to maturity                         |  |                     | 2,257,100   |   |                                |   | 30,963,600  |                                 |  |   | 65,012,700      |   |  |       |            |   |  |   | 98,233,400  |  
|Loans, gross                                        |  |                     | 494,842,000 |   |                                |   | 13,762,300  |                                 |  |   | 94,412,800      |   |  |       | 28,316,100  |   |  |   | 631,333,200 |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Total ratesensitive assets                         |  |                     | 560,427,600 |   |                                |   | 45,310,400  |                                 |  |   | 159,719,800     |   |  |       | 28,316,100  |   |  |   | 793,773,900 |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Liabilities:                                        |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Interest bearing demand deposits                    |  |                     | 10,857,900  |   |                                |   |            |                                 |  |   |                |   |  |       |            |   |  |   | 10,857,900  |  
|Savings and money market                            |  |                     | 195,732,000 |   |                                |   |            |                                 |  |   |                |   |  |       |            |   |  |   | 195,732,000 |  
|Certificates of deposit                             |  |                     | 45,485,700  |   |                                |   | 114,642,000 |                                 |  |   | 159,065,000     |   |  |       |             |   |  |   | 319,192,700 |  
|Securities sold under agreements to repurchase      |  |                     | 50,992,000  |   |                                |   |            |                                 |  |   |                |   |  |       |            |   |  |   | 50,992,000  |  
|FHLB advances                                       |  |                     | 35,000,000  |   |                                |   |            |                                 |  |   |                |   |  |       |            |   |  |   | 35,000,000  |  
|Junior subordinated debentures                      |  |                     | 27,837,000  |   |                                |   |            |                                 |  |   |                |   |  |       |            |   |  |   | 27,837,000  |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Total rate sensitive liabilities                    |  |                     | 365,904,600 |   |                                |   | 114,642,000 |                                 |  |   | 159,065,000     |   |  |       |            |   |  |   | 639,611,600 |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Interval Gaps:                                      |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Interest rate sensitivity gap                       |  | $                   | 194,523,000 |   |                                | $ | (69,331,600 | )                               |  | $ | 654,800         |   |  | $     | 28,316,100  |   |  | $ | 154,162,300 |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                     | 153.2       | % |                                |   | 39.5        | %                               |  |   | 100.4           | % |  |       | N/A         |   |  |   | 124.1       | %
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Cumulative Gaps:                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Cumulative interest rate sensitivity gap            |  | $                   | 194,523,000 |   |                                | $ | 125,191,400 |                                 |  | $ | 125,846,200     |   |  | $     | 154,162,300 |   |  | $ | 154,162,300 |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                     | 153.2       | % |                                |   | 126.1       | %                               |  |   | 119.7           | % |  |       | 124.1       | % |  |   | 124.1       | %
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  
|% of rate sensitive assets in period                |  |                     | 70.6        | % |                                |   | 76.3        | %                               |  |   | 96.4            | % |  |       | 100.0       | % |  |   | N/A         |  
|                                                    |  |                     |             |   |                                |   |             |                                 |  |   |                 |   |  |       |             |   |  |   |             |  



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|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

The Company maintains
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighting the costs and
benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report the Company, under the supervision and with
the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures were effective as of that date.

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.

PART II  OTHER INFORMATION



|ITEM 1A. | RISK FACTORS
|-------- | ------------

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.



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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 June 30, 2006, our allowance for loan losses equaled 1.10% of
loans. Although we believe that we have established adequate allowances for loan losses as of June 30, 2006, 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.

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, large budget deficits and an uncertain economy. Should the economic condition in these areas 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
June 30, 2006, 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.

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

At June 30, 2006, we had outstanding construction loans to developers for tract projects and single homes for sale to
unidentified buyers totaling $122.2 million, representing 19.7% of our loan portfolio, and additional commitments for these projects in the amount of $103.7 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



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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.

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 of SBA lending at the time.

One customer represents a large amount of deposits and borrowings that can be withdrawn
immediately, and the sudden withdrawal or material reduction of these deposits or borrowings could have a material adverse affect on us.

One customer represents a number of entities that provide us funds through repurchase agreements. Under our arrangements with these entities, funds in the deposit accounts that exceed the FDIC insurance limit are swept into overnight
repurchase agreements. The repurchase agreements are in essence overnight borrowings collateralized by certain of our investment securities that are held by an independent third party financial institution that can cause the securities to be
liquidated upon default. Most of these funds can be withdrawn upon demand without penalty. In 2006, the maximum month-end amount of repurchase agreements provided by entities controlled by this individual at any date was $62.0 million. We monitor
this relationship closely, and while we have no reason to believe the customer presently intends to significantly reduce or terminate the relationship we have adequate liquidity to fund any consequential withdrawals. We might have to replace these
borrowings with higher cost borrowings (which would adversely affect our net interest income). If we did not have adequate liquidity at the time of his demand, it is possible that some or all the securities collateralizing the repurchase agreements
would be liquidated, and we would incur losses if the proceeds from the liquidation were less than the book value of the securities.

During 2006, a
significant portion of our deposits were obtained through brokers, and almost all of these deposits were obtained through one broker.

We attract a significant amount of deposits from brokers who place certificates of deposit with their customers. As of June 30, 2006, brokered deposits were $143.6 million representing 22.2% of total deposits as compared to $125.8
million at December 31, 2005 representing 23.7% of total deposits. All except $10 million of our brokered deposits at June 30, 2006 were obtained through one broker. We believe that should our business discontinue with this broker, we
could continue to obtain the certificates of deposit we desire through other brokers. However, we could be adversely affected because the certificates of deposit through other brokers may bear slightly higher interest rates. Further, the deposits
obtained through this broker as of June 30, 2006 mature at various times through June 2011, and thus such discontinuation would not result in the immediate withdrawal of such deposits.We intend to continue our efforts to increase our
levels of core deposits in an effort to decrease our reliance on money desk and brokered deposits.

If the Bank becomes less than well
capitalized under the prompt corrective action rules, we may not accept brokered deposits without FDIC approval and may have to pay higher rates to attract deposits through our money desk.

Under FDIC regulations, 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 may 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.



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|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Our Annual Meeting of Shareholders was held on May 26, 2006. Set forth below are the matters voted on by shareholders at the Annual Meeting and the results of the voting.

(1) Election of Directors. Set forth below is the name of each Director that was nominated and elected at the Annual Meeting and the respective
numbers of votes cast for their election and the respective number of votes withheld. As the election was uncontested, there were no broker non-votes.



|                   |  |           |  |         
|------------------ |  | --------- |  | --------
|Name               |  | Votes For |  | Withheld
|Michael L. Abrams  |  | 5,570,615 |  | 23,273  
|Robert H. Bothner  |  | 5,573,115 |  | 20,773  
|Lyn S. Caron       |  | 5,573,115 |  | 20,773  
|Willie D. Davis    |  | 5,573,115 |  | 20,773  
|Curtis S. Reis     |  | 5,573,115 |  | 20,773  
|D. Gregory Scott   |  | 5,573,115 |  | 20,773  
|Andrew A. Talley   |  | 5,573,115 |  | 20,773  
|Robert H. Thompson |  | 5,573,115 |  | 20,773  

(1) Ratification of Independent Public Accountants. The shareholders ratified the selection
of McGladrey & Pullen, LLP as the Companys independent public accountants for fiscal 2006 by the following vote:



|          |  |               |  |        
|--------- |  | ------------- |  | -------
|Votes For |  | Votes Against |  | Abstain
|5,581,973 |  | 1,033         |  | 10,882 



|ITEM 6. | EXHIBITS
|------- | --------



|      |  |                                                                                                                                                                                                                           
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.12 |  | Indenture dated May 31, 2006; Guarantee Agreement dated May 31, 2006; Amended and Restated Declaration of Trust dated May 31, 2006                                                                                        
|      | 
|31.1  |  | Section 302 CEO Certification                                                                                                                                                                                             
|      | 
|31.2  |  | Section 302 CFO Certification                                                                                                                                                                                             
|      | 
|32.1  |  | Certificate by Curtis S. Reis, Chairman and Chief Executive Officer of the Company dated August 14, 2006 pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.                    
|      | 
|32.2  |  | Certificate by Daniel L. Erickson, Executive Vice President and Chief Financial Officer of the Company dated August 14, 2006 pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES

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



|                      |  |  |  |                                |  |     |  |                                                     
|--------------------- |  |  |  | ------------------------------ |  | --- |  | ----------------------------------------------------
|DATE: August 14, 2006 |  |  |  | ALLIANCE BANCSHARES CALIFORNIA
|                      |  |  |  |                               
|                      |  |  |  |                                |  | By: |  | /s/ Daniel L. Erickson                              
|                      |  |  |  |                                |  |     |  | Daniel L. Erickson                                  
|                      |  |  |  |                                |  |     |  | Executive Vice President and Chief Financial Officer



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