##### 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 March 31, 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 jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification Number)



|                                            |  |           
|------------------------------------------- |  | ----------
|100 Corporate PointeCulver 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.

6,065,779 shares of Common
Stock as of April 30, 2006



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##### Table of Contents

ALLIANCE BANCSHARES CALIFORNIA

QUARTERLY REPORT ON FORM 10-Q

FOR

THE QUARTER ENDED MARCH 31, 2006

TABLE OF CONTENTS



|           |  |                       |  |                                                                                                    |  |         
|---------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|           |  |                       |  |                                                                                                    |  | Page No.
|Part I.    |  | Financial Information |  |                                                                                                   
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements                                                                               |  |         
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Financial Condition at March 31, 2006 and December 31, 2005             |  | 3       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005           |  | 4       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005           |  | 5       
|           |  |                       | 
|           |  |                       |  | Consolidated Statements of Shareholders Equity for the three months ended March 31, 2006 and 2005 |  | 6       
|           |  |                       | 
|           |  |                       |  | Notes to Consolidated Financial Statements                                                         |  | 7       
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 11      
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 25      
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures                                                                            |  | 26      
|           |  |                      
|Part II.   |  | Other Information     |  |                                                                                                   
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors                                                                                       |  | 27      
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits                                                                                           |  | 29      
|           | 
|Signatures |  | 30                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                              |  |                |             |                   |   |            
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | -----------
|                                                                                                              |  | March 31, 2006 |             | December 31, 2005
|                                                                                                              |  | (Unaudited)    |             |                  
|Assets                                                                                                        |  |                |             |                   |   |            
|Cash and due from banks                                                                                       |  | $              | 18,444,900  |                   | $ | 15,574,200 
|Federal funds sold                                                                                            |  |                | 20,750,000  |                   |   | 14,575,000 
|                                                                                                              |  |                |             |                   |   |            
|Total cash and cash equivalents                                                                               |  |                | 39,194,900  |                   |   | 30,149,200 
|                                                                                                              |  |                |             |                   |   |            
|Time deposits with other financial institutions                                                               |  |                | 5,941,600   |                   |   | 8,244,900  
|Securities held to maturity, fair market value $90,865,600 at March 31, 2006;$73,733,600 at December 31, 2005 |  |                | 92,558,600  |                   |   | 75,479,000 
|Loans held for sale                                                                                           |  |                | 3,849,600   |                   |   | 607,500    
|Loans, net of the allowance for loan losses of $6,612,300 at March 31, 2006; $6,051,000 at December 31, 2005  |  |                | 585,367,300 |                   |   | 544,819,400
|Equipment and leasehold improvements, net                                                                     |  |                | 3,851,500   |                   |   | 3,994,700  
|Accrued interest receivable and other assets                                                                  |  |                | 12,009,100  |                   |   | 11,678,500 
|                                                                                                              |  |                |             |                   |   |            
|Total assets                                                                                                  |  | $              | 742,772,600 |                   | $ | 674,973,200
|                                                                                                              |  |                |             |                   |   |            
|Liabilities, Redeemable Preferred Stock and Shareholders Equity                                              |  |                |             |                   |   |            
|Deposits:                                                                                                     |  |                |             |                   |   |            
|Noninterest bearing demand                                                                                    |  | $              | 98,141,400  |                   | $ | 106,405,100
|Interest bearing:                                                                                             |  |                |             |                   |   |            
|Demand                                                                                                        |  |                | 9,712,600   |                   |   | 9,042,700  
|Savings and money market                                                                                      |  |                | 174,463,900 |                   |   | 165,363,600
|Certificates of deposit                                                                                       |  |                | 292,326,700 |                   |   | 250,498,000
|                                                                                                              |  |                |             |                   |   |            
|Total deposits                                                                                                |  |                | 574,644,600 |                   |   | 531,309,100
|                                                                                                              |  |                |             |                   |   |            
|Accrued interest payable and other liabilities                                                                |  |                | 5,868,000   |                   |   | 4,111,200  
|Securities sold under agreements to repurchase                                                                |  |                | 62,299,500  |                   |   | 41,133,600 
|FHLB advances                                                                                                 |  |                | 35,000,000  |                   |   | 35,000,000 
|Junior subordinated debentures                                                                                |  |                | 17,527,000  |                   |   | 17,527,000 
|                                                                                                              |  |                |             |                   |   |            
|Total liabilities                                                                                             |  |                | 695,339,100 |                   |   | 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 March 31, 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 March 31, 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  6,065,779 shares at March 31, 2006 and 6,065,579 shares at December 31, 2005                    |  |                | 6,408,400   |                   |   | 6,406,600  
|Undivided profits                                                                                             |  |                | 22,009,500  |                   |   | 20,470,100 
|                                                                                                              |  |                |             |                   |   |            
|Total shareholders equity                                                                                    |  |                | 28,417,900  |                   |   | 26,876,700 
|                                                                                                              |  |                |             |                   |   |            
|Total liabilities, redeemable preferred stock and shareholders equity                                        |  | $              | 742,772,600 |                   | $ | 674,973,200
|                                                                                                              |  |                |             |                   |   |            

The accompanying notes are an integral part of these statements.



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Part I. Item 1. (continued)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                            |  |                              |            |      |   |          
|----------------------------------------------------------- |  | ---------------------------- | ---------- | ---- | - | ---------
|                                                            |  | Three Months Ended March 31,
|                                                            |  | 2006                         |            | 2005
|Interest Income:                                            |  |                              |            |      |   |          
|Interest and fees on loans                                  |  | $                            | 12,827,800 |      | $ | 6,123,800
|Interest on time deposits with other financial institutions |  |                              | 74,100     |      |   | 27,900   
|Interest on securities held to maturity                     |  |                              | 823,500    |      |   | 697,200  
|Interest on federal funds sold                              |  |                              | 236,500    |      |   | 55,800   
|                                                            |  |                              |            |      |   |          
|Total interest income                                       |  |                              | 13,961,900 |      |   | 6,904,700
|                                                            |  |                              |            |      |   |          
|Interest Expense:                                           |  |                              |            |      |   |          
|Interest on deposits                                        |  |                              | 4,442,900  |      |   | 1,537,600
|Interest on FHLB advances                                   |  |                              | 361,500    |      |   | 314,900  
|Interest on securities sold under repurchase agreements     |  |                              | 281,600    |      |   |         
|Interest on junior subordinated debentures                  |  |                              | 300,700    |      |   | 168,200  
|                                                            |  |                              |            |      |   |          
|Total interest expense                                      |  |                              | 5,386,700  |      |   | 2,020,700
|                                                            |  |                              |            |      |   |          
|Net interest income before provision for loan losses        |  |                              | 8,575,200  |      |   | 4,884,000
|Provision for Loan Losses                                   |  |                              | 750,000    |      |   | 375,000  
|                                                            |  |                              |            |      |   |          
|Net interest income                                         |  |                              | 7,825,200  |      |   | 4,509,000
|NonInterest Income                                         |  |                              | 637,900    |      |   | 798,400  
|NonInterest Expense:                                       |  |                              |            |      |   |          
|Salaries and related benefits                               |  |                              | 2,998,700  |      |   | 1,682,200
|Occupancy and equipment expenses                            |  |                              | 708,800    |      |   | 492,800  
|Professional fees                                           |  |                              | 277,400    |      |   | 199,100  
|Data processing                                             |  |                              | 211,800    |      |   | 166,400  
|Other operating expense                                     |  |                              | 1,255,000  |      |   | 699,700  
|                                                            |  |                              |            |      |   |          
|Total noninterest expense                                  |  |                              | 5,451,700  |      |   | 3,240,200
|                                                            |  |                              |            |      |   |          
|Earnings Before Income Tax Expense                          |  |                              | 3,011,400  |      |   | 2,067,200
|Income tax expense                                          |  |                              | 1,219,200  |      |   | 837,700  
|                                                            |  |                              |            |      |   |          
|Net Earnings                                                |  | $                            | 1,792,200  |      | $ | 1,229,500
|                                                            |  |                              |            |      |   |          
|Earnings per Common Share:                                  |  |                              |            |      |   |          
|Basic earnings per share                                    |  | $                            | 0.24       |      | $ | 0.19     
|Diluted earnings per share                                  |  | $                            | 0.23       |      | $ | 0.18     

The accompanying notes are an integral part of these statements.



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Part I. Item 1. (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                    |  |                              |             |   |      |   |             |  
|----------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                    |  | Three months ended March 31, |            
|                                                                                    |  | 2006                         |             |   | 2005 |  
|Cash Flows from Operating Activities:                                               |  |                              |             |   |      |   |             |  
|Net earnings                                                                        |  | $                            | 1,792,200   |   |      | $ | 1,229,500   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities: |  |                              |             |   |      |   |             |  
|Net amortization of discounts and premiums on securities held to maturity           |  |                              | 92,900      |   |      |   | 199,900     |  
|Depreciation and amortization                                                       |  |                              | 269,000     |   |      |   | 174,100     |  
|Provision for loan losses                                                           |  |                              | 750,000     |   |      |   | 375,000     |  
|Net gains on sales of loans held for sale                                           |  |                              | (86,700     | ) |      |   | (171,000    | )
|Compensation expense on stock options                                               |  |                              | 75,200      |   |      |   |            |  
|Proceeds from sales of loans held for sale                                          |  |                              | 5,406,500   |   |      |   | 5,839,500   |  
|Originations of loans held for sale                                                 |  |                              | (8,561,900  | ) |      |   | (3,652,300  | )
|(Increase) in accrued interest receivable and other assets                          |  |                              | (1,167,600  | ) |      |   | (879,600    | )
|(Increase) decrease in accrued interest payable and other liabilities               |  |                              | 1,756,800   |   |      |   | (186,100    | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash provided by operating activities                                           |  |                              | 326,400     |   |      |   | 2,929,000   |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash Flows from Investing Activities:                                               |  |                              |             |   |      |   |             |  
|Net (increase) decrease in:                                                         |  |                              |             |   |      |   |             |  
|Time deposits with other financial institutions                                     |  |                              | 2,303,300   |   |      |   | (193,800    | )
|Loans                                                                               |  |                              | (41,297,900 | ) |      |   | (62,634,500 | )
|Purchase of equipment and leasehold improvements                                    |  |                              | (125,800    | ) |      |   | (623,200    | )
|Purchase of FHLB stock                                                              |  |                              | 837,000     |   |      |   |            |  
|Purchase of securities held to maturity                                             |  |                              | (23,797,800 | ) |      |   |            |  
|Proceeds from maturities of securities held to maturity                             |  |                              | 6,625,300   |   |      |   | 1,877,100   |  
|Investment in statutory trust                                                       |  |                              |            |   |      |   | (310,000    | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash used in investing activities                                               |  |                              | (55,455,900 | ) |      |   | (61,884,400 | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash Flows from Financing Activities:                                               |  |                              |             |   |      |   |             |  
|Net increase (decrease) in:                                                         |  |                              |             |   |      |   |             |  
|Demand deposits                                                                     |  |                              | (8,263,700  | ) |      |   | 21,284,700  |  
|Interest bearing demand deposits                                                    |  |                              | 669,900     |   |      |   | 761,500     |  
|Savings and money market deposits                                                   |  |                              | 9,100,600   |   |      |   | 23,825,700  |  
|Certificates of deposit                                                             |  |                              | 41,828,700  |   |      |   | 29,992,600  |  
|Increase in federal funds purchased                                                 |  |                              |            |   |      |   | 4,000,000   |  
|Proceeds from issuance of junior subordinated debentures                            |  |                              |            |   |      |   | 10,310,000  |  
|Payments on FHLB advances                                                           |  |                              |            |   |      |   | (30,000,000 | )
|Increase in securities sold under agreements to repurchase                          |  |                              | 21,165,900  |   |      |   |            |  
|Proceeds from stock options exercised                                               |  |                              | 1,800       |   |      |   | 64,600      |  
|Dividends paid on preferred stock                                                   |  |                              | (328,000    | ) |      |   | (134,700    | )
|                                                                                    |  |                              |             |   |      |   |             |  
|Net cash provided by financing activities                                           |  |                              | 64,175,200  |   |      |   | 60,104,400  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Net increase in cash and cash equivalents                                           |  |                              | 9,045,700   |   |      |   | 1,149,000   |  
|Cash and cash equivalents, beginning of period                                      |  |                              | 30,149,200  |   |      |   | 19,587,600  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Cash and cash equivalents, end of period                                            |  | $                            | 39,194,900  |   |      | $ | 20,736,600  |  
|                                                                                    |  |                              |             |   |      |   |             |  
|Supplemental disclosure of cash flow information                                    |  |                              |             |   |      |   |             |  
|Cash paid during the period for:                                                    |  |                              |             |   |      |   |             |  
|Interest                                                                            |  | $                            | 4,308,800   |   |      | $ | 1,883,500   |  
|Income taxes                                                                        |  |                              | 1,095,000   |   |      |   | 765,000     |  

The accompanying notes are an integral part of these statements.



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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited)

For the Three Months Ended March 31, 2006 and 2005



|                                  |  |                 |  |        |           |                  |   |            |       |  |   |            |  
|--------------------------------- |  | --------------- |  | ------ | --------- | ---------------- | - | ---------- | ----- |  | - | ---------- | -
|                                  |  | Common Stock    |  |        |           |                  |   |           
|                                  |  | Number ofShares |  | Amount |           | UndividedProfits |   |            | Total | 
|Balance, December 31, 2004        |  | 5,867,679       |  | $      | 6,090,800 |                  | $ | 14,736,600 |       |  | $ | 28,527,400 |  
|Stock options exercised           |  | 31,000          |  |        | 64,600    |                  |   |           |       |  |   | 64,600     |  
|Dividends paid on preferred stock |  |                |  |        |          |                  |   | (134,700   | )     |  |   | (134,700   | )
|Net earnings                      |  |                |  |        |          |                  |   | 1,229,500  |       |  |   | 1,229,500  |  
|                                  |  |                 |  |        |           |                  |   |            |       |  |   |            |  
|Balance, March 31, 2005           |  | 5,898,679       |  | $      | 6,155,400 |                  | $ | 15,834,400 |       |  | $ | 29,686,800 |  
|                                  |  |                 |  |        |           |                  |   |            |       |  |   |            |  



|                                      |  |                 |  |        |           |                  |   |            |       |  |   |            |  
|------------------------------------- |  | --------------- |  | ------ | --------- | ---------------- | - | ---------- | ----- |  | - | ---------- | -
|                                      |  | Common Stock    |  |        |           |                  |   |           
|                                      |  | Number ofShares |  | Amount |           | UndividedProfits |   |            | Total | 
|Balance, December 31, 2005            |  | 6,065,579       |  | $      | 6,406,600 |                  | $ | 20,470,100 |       |  | $ | 26,876,700 |  
|Stock options exercised               |  | 200             |  |        | 1,800     |                  |   |           |       |  |   | 1,800      |  
|Dividends paid on preferred stock     |  |                |  |        |          |                  |   | (328,000   | )     |  |   | (328,000   | )
|Compensation expense on stock options |  |                 |  |        |           |                  |   | 75,200     |       |  |   | 75,200     |  
|Net earnings                          |  |                |  |        |          |                  |   | 1,792,200  |       |  |   | 1,792,200  |  
|                                      |  |                 |  |        |           |                  |   |            |       |  |   |            |  
|Balance, March 31, 2006               |  | 6,065,779       |  | $      | 6,408,400 |                  | $ | 22,009,500 |       |  | $ | 28,417,900 |  
|                                      |  |                 |  |        |           |                  |   |            |       |  |   |            |  

The accompanying notes are an integral part of these statements.



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Part I. Item 1. (continued)

ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 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 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 three months ended March 31, 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 two other wholly owned subsidiaries, Alliance Bancshares California
Capital Trust I and Alliance Bancshares California Capital Trust II (the Trusts), which it formed in 2002 and 2005, 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 Trusts of $527,000 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 quarter ended March 31, 2006 were 6,065,741 and for the quarter ended March 31, 2005 were 5,886,301. The weighted average numbers of shares used in the diluted earnings per share computations for the quarter
ended March 31, 2006 were 7,657,427 and for the quarter ended March 31, 2005 were 6,887,915. The diluted EPS computation does not include the anti-dilutive effect of 51,000 and 15,000 options for the quarter ended March 31, 2006 and
2005.



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Basic and diluted earnings per share for the periods indicated are computed as follows:



|                                                 |  |              |           |   |        |           |                 |   |     
|------------------------------------------------ |  | ------------ | --------- | - | ------ | --------- | --------------- | - | ----
|Three Months Ended March 31, 2006                |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                        |  |              |           |   |        |           |                 |   |     
|Net earnings                                     |  | $            | 1,792,200 |   |        |           |                 |   |     
|Cash dividends on preferred stock                |  |              | (328,000  | ) |        |           |                 |   |     
|                                                 |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders    |  |              | 1,464,200 |   |        | 6,065,741 |                 | $ | 0.24
|Preferred stock dividend                         |  |              | 328,000   |   |        |           |                 |   |     
|Effect of exercise of options and warrants       |  |              |          |   |        | 249,460   |                 |   |     
|Effect of conversion of Series A preferred stock |  |              |          |   |        | 733,050   |                 |   |     
|Effect of conversion of Series B preferred stock |  |              |          |   |        | 677,096   |                 |   |     
|                                                 |  |              |           |   |        |           |                 |   |     
|Diluted earnings per share:                      |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders    |  | $            | 1,792,200 |   |        | 7,657,427 |                 | $ | 0.23
|                                                 |  |              |           |   |        |           |                 |   |     
|                                                 |  |              |          
|Three Months Ended March 31, 2005                |  | Net Earnings |           |   | Shares |           | Per ShareAmount
|Basic earnings per share:                        |  |              |           |   |        |           |                 |   |     
|Net earnings                                     |  | $            | 1,229,500 |   |        |           |                 |   |     
|Cash dividends on preferred stock                |  |              | (134,700  | ) |        |           |                 |   |     
|                                                 |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders    |  |              | 1,094,800 |   |        | 5,886,301 |                 | $ | 0.19
|Preferred stock dividend                         |  |              | 134,700   |   |        |           |                 |   |     
|Effect of exercise of options and warrants       |  |              |          |   |        | 268,564   |                 |   |     
|Effect of conversion of Series A preferred stock |  |              |          |   |        | 733,050   |                 |   |     
|                                                 |  |              |           |   |        |           |                 |   |     
|Diluted earnings per share:                      |  |              |           |   |        |           |                 |   |     
|Net earnings available to common shareholders    |  | $            | 1,229,500 |   |        | 6,887,915 |                 | $ | 0.18
|                                                 |  |              |           |   |        |           |                 |   |     

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
three months ended March 31, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 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 three months ended March 31, 2006, was $75,200 lower, and our
basic and diluted net income per share for the three months ended March 31, 2006 were $0.01 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 Statement 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 disqualified
dispositions of shares acquired upon exercise of incentive stock options for the three months ended March 31, 2006. At March 31, 2006, compensation expense related to non-vested stock option grants aggregated to $1.1 million and is expected to
be recognized as follows:



|                  |  |                                 |          
|----------------- |  | ------------------------------- | ---------
|                  |  | Stock OptionCompensationExpense
|Remainder of 2006 |  | $                               | 221,500  
|2007              |  |                                 | 295,200  
|2008              |  |                                 | 277,000  
|2009              |  |                                 | 228,100  
|2010              |  |                                 | 96,900   
|                  |  |                                 |          
|Total             |  |                                 | 1,118,700



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##### Table of Contents

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:



|                                    |  |                                  |            |        |   |           
|----------------------------------- |  | -------------------------------- | ---------- | ------ | - | ----------
|                                    |  | Three Months endedMarch 31, 2006
|                                    |  | SFAS 123-R                       |            | APB 25
|Income before income taxes          |  | $                                | 3,011,400  |        | $ | 3,086,600 
|Net income                          |  | $                                | 1,792,200  |        | $ | 1,867,400 
|Basic net income per share          |  | $                                | 0.24       |        | $ | 0.25      
|Diluted net income per share        |  | $                                | 0.23       |        | $ | 0.24      
|Cash flow from operations           |  |                                  | 326,400    |        |   | 251,200   
|Cash flow from financing activities |  |                                  | 64,175,200 |        |   | 64,175,200

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 three months ended March 31, 2005:



|                                                                                                                       |  |                                  |           |  
|---------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | --------- | -
|                                                                                                                       |  | Three Months endedMarch 31, 2005 |          
|Net earnings, as reported                                                                                              |  | $                                | 1,229,500 |  
|Less  Cash dividend on non-cumulative preferred stock                                                                 |  |                                  | (134,700  | )
|Less  Total stock-based compensation expense determined under fair value method for all qualifying awards, net of tax |  |                                  | (55,600   | )
|                                                                                                                       |  |                                  |           |  
|Pro forma net earnings                                                                                                 |  | $                                | 1,039,200 |  
|                                                                                                                       |  |                                  |           |  
|Earnings per share:                                                                                                    |  |                                  |           |  
|Basic:                                                                                                                 |  |                                  |           |  
|As reported                                                                                                            |  | $                                | 0.19      |  
|Pro forma                                                                                                              |  | $                                | 0.18      |  
|Diluted:                                                                                                               |  |                                  |           |  
|As reported                                                                                                            |  | $                                | 0.18      |  
|Pro forma                                                                                                              |  | $                                | 0.17      |  

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. The Company did not disclose assumptions because there were no grants in the three months ended
March 31, 2006. 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. Assumptions used for stock options granted in 2005 were as follows: risk-free rate of 4.07% to 4.58%; expected lives ranging from 5 to 10 years; and
the estimated volatility of Companys common stock of 37% to 39%.

The following table summarizes the share option activity under the
plans for the three months ended March 31, 2006 and 2005:



|                                      |  |         |  |                                |      |                          |   |          
|------------------------------------- |  | ------- |  | ------------------------------ | ---- | ------------------------ | - | ---------
|                                      |  | Shares  |  | Weighted AverageExercise Price |      | Aggregate IntrinsicValue
|2006                                  |  |         |  |                                |      |                          |   |          
|Outstanding at December 31, 2005      |  | 441,500 |  | $                              | 7.13 |                          |   |          
|Granted                               |  |        |  |                                |     |                          |   |          
|Exercised                             |  | 200     |  |                                | 9.00 |                          |   |          
|Forfeited                             |  | 800     |  |                                | 9.00 |                          |   |          
|                                      |  |         |  |                                |      |                          |   |          
|Outstanding at March 31, 2006         |  | 440,500 |  |                                | 7.13 |                          | $ | 3,864,900
|                                      |  |         |  |                                |      |                          |   |          
|Options exercisable at March 31, 2006 |  | 184,900 |  |                                | 2.62 |                          | $ | 2,455,670
|                                      |  |         |  |                                |      |                          |   |          
|                                      |  |         | 
|                                      |  | Shares  |  | Weighted AverageExercise Price |      | Aggregate IntrinsicValue
|2005                                  |  |         |  |                                |      |                          |   |          
|Outstanding at December 31, 2004      |  | 418,500 |  | $                              | 4.19 |                          |   |          
|Granted                               |  |        |  |                                |     |                          |   |          
|Exercised                             |  | 31,000  |  |                                | 2.09 |                          |   |          
|Forfeited                             |  | 4,000   |  |                                | 6.10 |                          |   |          
|                                      |  |         |  |                                |      |                          |   |          
|Outstanding at March 31, 2005         |  | 383,500 |  |                                | 4.34 |                          | $ | 2,323,500
|                                      |  |         |  |                                |      |                          |   |          
|Options exercisable at March 31, 2005 |  | 209,400 |  |                                | 1.63 |                          | $ | 1,837,420
|                                      |  |         |  |                                |      |                          |   |          



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The following information applies to options outstanding at March 31, 2006:



|                                                       |  |                |         |              |   |              |  |               |        |        |   |         |  |   |       
|------------------------------------------------------ |  | -------------- | ------- | ------------ | - | ------------ |  | ------------- | ------ | ------ | - | ------- |  | - | ------
|                                                       |  | Exercise price
|                                                       |  | $1.00 -$2.00   |         | $2.01 -$2.75 |   | $6.10 -$6.71 |  | $8.50 -$11.00 |        | $15.75
|Number of options outstanding                          |  |                | 129,000 |              |   | 26,000       |  |               | 61,000 |        |   | 173,500 |  |   | 51,000
|Weighted-average exercise price                        |  | $              | 1.31    |              | $ | 2.73         |  | $             | 6.25   |        | $ | 9.87    |  | $ | 15.75 
|Weighted-average remaining contractual life (years)    |  |                | 1.85    |              |   | 5.27         |  |               | 6.1    |        |   | 8.4     |  |   | 9.6   
|Number of options exercisable                          |  |                | 129,000 |              |   | 21,000       |  |               | 18,400 |        |   | 16,500  |  |   |      
|Weighted average exercise price of options exercisable |  | $              | 1.31    |              | $ | 2.73         |  | $             | 6.10   |        | $ | 8.81    |  |   | N/A   

A summary of the status of the Companys unvested options as of December 31, 2005 and
the changes during the quarter ended March 31, 2006, is presented below:



|                              |  |         |  |                                |     
|----------------------------- |  | ------- |  | ------------------------------ | ----
|                              |  | Shares  |  | Weighted AverageExercise Price
|Unvested at December 31, 2005 |  | 256,400 |  | $                              | 5.56
|Granted                       |  |        |  |                                |    
|Vested                        |  |        |  |                                |    
|Forfeited                     |  | 800     |  |                                | 4.75
|                              |  |         |  |                                |     
|Unvested at March 31, 2006    |  | 255,600 |  |                                | 5.57
|                              |  |         |  |                                |     

A summary of the status of the Companys unvested options as of December 31, 2004 and
the changes during the quarter ended March 31, 2005, is presented below:



|                              |  |         |  |                                |     
|----------------------------- |  | ------- |  | ------------------------------ | ----
|                              |  | Shares  |  | Weighted AverageExercise Price
|Unvested at December 31, 2004 |  | 178,100 |  | $                              | 3.68
|Granted                       |  |        |  |                                |    
|Vested                        |  |        |  |                                |    
|Forfeited                     |  | 4,000   |  |                                | 3.44
|                              |  |         |  |                                |     
|Unvested at March 31, 2005    |  | 174,100 |  |                                | 3.68
|                              |  |         |  |                                |     



|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,



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##### Table of Contents

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.



|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 $1.8 million ($0.24 basic and $0.23 diluted earnings per share) for the first quarter of 2006 as compared to $1.2 million ($0.19 basic and $0.18 diluted earnings per share) for the first quarter of 2005. The increase in net
earnings was primarily due to a $3.7 million increase in net interest income before provision for loan losses offset by a $2.2 million increase in non-interest expenses.

We continued to grow, with total assets increasing from $675.0 million at December 31, 2005 to $742.8 million at March 31, 2006. Net loans, including loans held for sale, grew from $545.4 million at
December 31, 2005 to $589.2 million at March 31, 2006. Deposits grew from $531.3 million at December 31, 2005 to $574.6 million at March 31, 2006.

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



|                                                 |  |                             |      |   |      |   |      |  
|------------------------------------------------ |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                                 |  | Three months endedMarch 31, |     
|                                                 |  | 2006                        |      |   | 2005 |  
|Return on average assets (1)                     |  |                             | 1.02 | % |      |   | 1.12 | %
|Return on average shareholders equity (1)       |  |                             | 25.6 | % |      |   | 22.9 | %
|Net yield on average interest earning assets (1) |  |                             | 5.15 | % |      |   | 4.80 | %
|Earnings per common share:                       |  |                             |      |   |      |   |      |  
|Basic earnings per share                         |  | $                           | 0.24 |   |      | $ | 0.19 |  
|Diluted earnings per share                       |  | $                           | 0.23 |   |      | $ | 0.18 |  

---

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



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##### Table of Contents

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 for the periods indicated:



|                                                     |  |                              |           |      |   |               |  |       |  
|---------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | ------------- |  | ----- | -
|                                                     |  | Three Months Ended March 31, |          
|                                                     |  | 2006                         |           | 2005 |   | PercentChange | 
|                                                     |  | (Unaudited)                  |           |      |  
|Net interest income before provision for loan losses |  | $                            | 8,575,200 |      | $ | 4,884,000     |  | 75.6  | %
|Provision for loan losses                            |  |                              | 750,000   |      |   | 375,000       |  | 100.0 | %
|Non-interest expense                                 |  |                              | 5,451,700 |      |   | 3,240,200     |  | 68.3  | %
|Net income                                           |  |                              | 1,792,200 |      |   | 1,229,500     |  | 45.8  | %
|Net income per share  diluted                       |  |                              | 0.23      |      |   | 0.18          |  | 27.8  | %
|Weighted average number of shares - diluted          |  |                              | 7,657,427 |      |   | 6,887,915     |  | 11.2  | %

The increase in net interest income in the three months ended March 31, 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 $237.9 million, or 72.6%, to $565.4 million at March 31, 2006 from $327.5 million at March 31,
2005. Average investment securities grew by $12.1 million or 17.0% to $83.4 million at March 31, 2006 from $71.8 million at March 31, 2005.

The provision for loan losses increased by $0.4 million or 100% to $0.8 million in the first quarter of 2006 as compared to the corresponding period of 2005. This increase was attributable to: (i) a 62.2%
increase in net loans; and (ii) a $0.5 million increase in impaired loans.

Non interest expense increased by $2.2 million, or 68.3%,
to $5.5 million primarily due to an increase in salaries and related benefits expense due to the growth of the Company.



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##### Table of Contents

RESULTS OF OPERATIONS  Three months ended March 31, 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 March 31, |           
|                                                     |  | 2006                         |            |   | 2005 |   |           | PercentChange | 
|                                                     |  | (Unaudited)                  |            |   |      |  
|Interest income                                      |  | $                            | 13,961,900 |   |      | $ | 6,904,700 |               |  | 102.2 | %
|Interest expense                                     |  |                              | 5,386,700  |   |      |   | 2,020,700 |               |  | 166.6 | %
|Net interest income before provision for loan losses |  |                              | 8,575,200  |   |      |   | 4,884,000 |               |  | 75.6  | %
|Net interest margin                                  |  |                              | 5.15       | % |      |   | 4.79      | %             |  | 7.3   | %

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 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.

Net interest income before provision for loan losses increased to $8.6 million for the quarter ended March 31, 2006 from $4.9 million for the
quarter ended March 31, 2005. This was due to an increase in interest income of $7.1 million while interest expense increased by $3.4 million. The increase in interest income was due to $261.1 million increase in average interest earning assets
in conjunction with a 1.62% increase in the weighted average yield on interest earning assets from 6.77% for the quarter ended March 31, 2005 to 8.39% for the quarter ended March 31, 2006. The increase in interest expense was due to a
$245.3 million increase in average interest bearing liabilities in addition to a 1.30% increase in the weighted average rates paid on interest bearing liabilities from 2.62% for the quarter ended March 31, 2005 to 3.92% for the quarter ended
March 31, 2006. The prime rate increased ten times during 2005 and the first quarter of 2006 causing the yield in the loan portfolio to increase to 9.20% from 7.58% in 2005.

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 72.6% to
$565.4 million for the quarter ended March 31, 2006 from $327.5 million for the quarter ended March 31, 2005, with the increase occurring in all major loan categories. Average investment securities increased 16.2% to $83.4 million from
$71.8 million as the Company invested in collateralized mortgage obligations, mortgage backed securities, and U.S. Government agency securities. Average interest bearing deposits increased 78.6% to $557.6 million for the quarter ended March 31,
2006 compared to $312.2 million for the quarter ended March 31, 2005.

Our interest rate spread increased from 4.14% during the first
quarter of 2005 to 4.47% during the first quarter of 2006, and our net interest margin increased from 4.79% during the first quarter of 2005 to 5.15% during the first quarter of 2006. The increase in interest rate spread was due principally to
loans, our highest yielding interest-earning asset, constituting a greater percentage of our average interest-earning assets for the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005 (83.8% compared to 79.1%) as
well as the higher yield on loans. This increase occurred notwithstanding the fact that the weighted average cost of our deposits increased slightly more than the weighted average yield on our loans and securities. Our net interest margin remains
high in comparison with our interest rate spread because a significant portion of our interest earning assets are funded by non-interest bearing liabilities, preferred stock and stockholders equity.



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

ANALYSIS OF NET INTEREST INCOME



|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|--------------------------------------------------- |  | ---------------------------- | ----------- | -------------------- | ---- | ---------------------------------- |  | ---- | -------------- |  | -------------------- | ----------- | ----------------------------------- | - | --------- |  | ---- | -
|                                                    |  | Three months ended March 31, |            
|                                                    |  | 2006                         |             |                      | 2005 |                                   
|                                                    |  | AverageBalance               |             | InterestInc./Exp.(1) |      | WeightedAverageRatesEarned/Paid(3) |  |      | AverageBalance |  | InterestInc./Exp.(1) |             | WeightedAverage RatesEarned/Paid(3) |  
|Interest earning assets:                            |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Federal funds sold                                  |  | $                            | 19,246,700  |                      | $    | 236,500                            |  | 4.98 | %              |  | $                    | 8,808,100   |                                     | $ | 55,800    |  | 2.57 | %
|Time deposits                                       |  |                              | 6,943,000   |                      |      | 74,100                             |  | 4.33 | %              |  |                      | 5,794,900   |                                     |   | 27,900    |  | 1.95 | %
|Securities                                          |  |                              | 83,407,600  |                      |      | 823,500                            |  | 4.00 | %              |  |                      | 71,778,100  |                                     |   | 697,200   |  | 3.94 | %
|Loans(2)                                            |  |                              | 565,390,200 |                      |      | 12,827,800                         |  | 9.20 | %              |  |                      | 327,501,500 |                                     |   | 6,123,800 |  | 7.58 | %
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Total interest earning assets                       |  |                              | 674,987,500 |                      |      | 13,961,900                         |  | 8.39 | %              |  |                      | 413,882,600 |                                     |   | 6,904,700 |  | 6.77 | %
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Non-interest earning assets                         |  |                              | 27,837,000  |                      |      |                                    |  |      |                |  |                      | 31,433,100  |                                     |   |           |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Total assets                                        |  | $                            | 702,824,500 |                      |      |                                    |  |      |                |  | $                    | 445,315,700 |                                     |   |           |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Interest bearing liabilities:                       |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Interest bearing demand deposits                    |  | $                            | 8,902,200   |                      |      | 37,700                             |  | 1.72 | %              |  | $                    | 5,326,800   |                                     |   | 15,700    |  | 1.20 | %
|Savings and money market deposits                   |  |                              | 172,936,800 |                      |      | 1,541,200                          |  | 3.61 | %              |  |                      | 159,139,700 |                                     |   | 876,100   |  | 2.23 | %
|Certificates of deposit                             |  |                              | 269,533,900 |                      |      | 2,864,000                          |  | 4.31 | %              |  |                      | 83,810,300  |                                     |   | 645,800   |  | 3.13 | %
|FHLB advances:                                      |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Short-term                                          |  |                              | 5,000,000   |                      |      | 55,300                             |  | 4.74 | %              |  |                      | 12,000,000  |                                     |   | 90,600    |  | 3.06 | %
|Long-term                                           |  |                              | 30,000,000  |                      |      | 306,200                            |  | 4.10 | %              |  |                      | 37,938,800  |                                     |   | 224,300   |  | 2.40 | %
|Securities sold under repurchase agreements         |  |                              | 53,651,400  |                      |      | 281,600                            |  | 2.13 | %              |  |                      |            |                                     |   |          |  |     |  
|Junior subordinated debentures                      |  |                              | 17,527,000  |                      |      | 300,700                            |  | 6.96 | %              |  |                      | 14,018,000  |                                     |   | 168,200   |  | 4.87 | %
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Total interest bearing liabilities                  |  |                              | 557,551,300 |                      |      | 5,386,700                          |  | 3.92 | %              |  |                      | 312,233,600 |                                     |   | 2,020,700 |  | 2.62 | %
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Non-interest bearing liabilities                    |  |                              | 98,294,400  |                      |      |                                    |  |      |                |  |                      | 101,131,100 |                                     |   |           |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Total liabilities                                   |  |                              | 655,845,700 |                      |      |                                    |  |      |                |  |                      | 413,364,700 |                                     |   |           |  |      |  
|Redeemable preferred stock and shareholders equity |  |                              | 46,978,800  |                      |      |                                    |  |      |                |  |                      | 31,951,000  |                                     |   |           |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Total liabilities and shareholders equity          |  | $                            | 702,824,500 |                      |      |                                    |  |      |                |  | $                    | 445,315,700 |                                     |   |           |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Net interest income                                 |  |                              |             |                      | $    | 8,575,200                          |  |      |                |  |                      |             |                                     | $ | 4,884,000 |  |      |  
|                                                    |  |                              |             |                      |      |                                    |  |      |                |  |                      |             |                                     |   |           |  |      |  
|Interest rate spread                                |  |                              |             |                      |      |                                    |  | 4.47 | %              |  |                      |             |                                     |   |           |  | 4.14 | %
|Net interest margin                                 |  |                              |             |                      |      |                                    |  | 5.15 | %              |  |                      |             |                                     |   |           |  | 4.79 | %

---

|(1) | Interest income on loans includes loan fees of $1.2 million in 2006 and $0.6 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



|                                               |  |                                      |           |            |      |   |           |  |   |           |  
|---------------------------------------------- |  | ------------------------------------ | --------- | ---------- | ---- | - | --------- |  | - | --------- | -
|                                               |  | 2006                                 |          
|                                               |  | Increase (Decrease) Due To Change In |           | Net Change |     
|                                               |  | Volume                               |           |            | Rate |  
|Interest income:                               |  |                                      |           |            |      |   |           |  |   |           |  
|Federal funds sold                             |  | $                                    | 100,800   |            |      | $ | 79,900    |  | $ | 180,700   |  
|Time deposits                                  |  |                                      | 6,500     |            |      |   | 39,700    |  |   | 46,200    |  
|Securities                                     |  |                                      | 114,600   |            |      |   | 11,700    |  |   | 126,300   |  
|Loans                                          |  |                                      | 5,181,800 |            |      |   | 1,522,200 |  |   | 6,704,000 |  
|                                               |  |                                      |           |            |      |   |           |  |   |           |  
|Total interest earning assets                  |  |                                      | 5,403,700 |            |      |   | 1,653,500 |  |   | 7,057,200 |  
|                                               |  |                                      |           |            |      |   |           |  |   |           |  
|Interest expense:                              |  |                                      |           |            |      |   |           |  |   |           |  
|Interest bearing demand                        |  |                                      | 13,300    |            |      |   | 8,700     |  |   | 22,000    |  
|Savings and money market                       |  |                                      | 81,700    |            |      |   | 583,400   |  |   | 665,100   |  
|Certificates of deposit                        |  |                                      | 1,894,200 |            |      |   | 324,000   |  |   | 2,218,200 |  
|FHLB advances:                                 |  |                                      |           |            |      |   |           |  |   |           |  
|Short-term                                     |  |                                      | (67,800   | )          |      |   | 35,600    |  |   | (32,200   | )
|Long-term                                      |  |                                      | (54,500   | )          |      |   | 133,300   |  |   | 78,800    |  
|Securities sold under agreements to repurchase |  |                                      |          |            |      |   | 281,600   |  |   | 281,600   |  
|Junior subordinated debentures                 |  |                                      | 48,900    |            |      |   | 83,700    |  |   | 132,500   |  
|                                               |  |                                      |           |            |      |   |           |  |   |           |  
|Total interest bearing liabilities             |  |                                      | 1,915,800 |            |      |   | 1,450,300 |  |   | 3,366,100 |  
|                                               |  |                                      |           |            |      |   |           |  |   |           |  
|Net interest income                            |  | $                                    | 3,487,900 |            |      | $ | 203,200   |  | $ | 3,691,100 |  
|                                               |  |                                      |           |            |      |   |           |  |   |           |  



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##### Table of Contents

Provision for Loan Losses

We made a $750,000 provision for the allowance for loan losses (Allowance) for the quarter ended March 31, 2006 as compared to a provision of $0.4 million for the comparable period of 2005. This
increase was attributable to: (i) a 62.2% increase in net loans and a $0.5 million increase in impaired loans.

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.

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 decreased by 20.1% for the quarter ended March 31, 2006 as compared to the same period in 2005 primarily due to decreases in gains from sales
of loans and loan broker fees. 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 March 31, |        
|                           |  | 2006                         |         | 2005 |   | PercentChange | 
|                           |  | (Unaudited)                  |         |      |  
|Service charges            |  | $                            | 281,800 |      | $ | 219,400       |  | 28.4  | % 
|Gain on sale of loans, net |  |                              | 86,700  |      |   | 171,000       |  | (49.3 | %)
|Loan broker fee income     |  |                              | 77,400  |      |   | 299,000       |  | (74.1 | %)
|Other                      |  |                              | 239,200 |      |   | 106,900       |  | 123.8 | % 
|                           |  |                              |         |      |   |               |  |       |   
|Total                      |  | $                            | 637,900 |      | $ | 798,400       |  | (20.1 | %)
|                           |  |                              |         |      |   |               |  |       |   

Non-Interest Expense

Salaries and related benefits expense increased from $1.7 million for the quarter ended March 31, 2005 to $3.0 million for the quarter ended March 31, 2006 or 78.3%. This increase was due primarily to an
increase in the number of employees in 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 March 31, 2006, the Company employed
108 fulltime employees, compared with 81 fulltime employees at March 31, 2005.

Occupancy and equipment expenses increased
by 43.8% from the quarter ended March 31, 2005 to the quarter ended March 31, 2006. This increase was due to increased rent expense, the amortization of leasehold improvements and the depreciation of office furniture and equipment at all
locations including the new Real Estate Industries Division office.



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##### Table of Contents

Other professional fees increased 39.3%, from the quarter ended March 31, 2005 to the quarter ended
March 31, 2006 due to the increase in personnel-related consulting fees.

Data processing expenses increased 27.2%, from the quarter
ended March 31, 2005 to the quarter ended March 31, 2006 consistent with our growth in assets and number of customers.



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##### Table of Contents

FINANCIAL CONDITION

Regulatory Capital

At March 31, 2006, Bancshares and the Banks Tier 1 capital, which is comprised of
shareholders equity as modified by certain regulatory adjustments, was $62.5 million and $63.3 million, respectively. Our regulatory capital increased since December 31, 2005 as a result of net earnings. At March 31, 2006, Bancshares
and the Bank met all applicable regulatory capital requirements and the Bank was well capitalized as defined under applicable regulations.

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

REGULATORY CAPITAL

March 31,
2006

(dollars in thousands)



|                                         |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|---------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | --------------------- | ------ |  | ----- | ------ |  | ----- | ------ |  | ------ | -
|                                         |  | Actual |        |       | To Be AdequatelyCapitalized |   |        | To Be WellCapitalized |       
|                                         |  | Amount |        | Ratio |                             |   | Amount |                       | Ratio  |  |       | Amount |  | Ratio |       
|Bancshares                               |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to riskweighted assets)  |  | $      | 70,486 |       | 11.5                        | % |        | $                     | 49,093 |  | >=8.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to riskweighted assets) |  | $      | 62,526 |       | 10.2                        | % |        | $                     | 24,546 |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|Tier 1 Capital (to average assets)       |  | $      | 62,526 |       | 9.1                         | % |        | $                     | 27,593 |  | >=4.0 | %      |  |       | N/A    |  | N/A    |  
|                                         |  |        |        |       |                             |  
|Bank                                     |  |        |        |       |                             |   |        |                       |        |  |       |        |  |       |        |  |        |  
|Total Capital (to riskweighted assets)  |  | $      | 69,903 |       | 11.4                        | % |        | $                     | 49,082 |  | >=8.0 | %      |  | $     | 61,353 |  | >=10.0 | %
|Tier 1 Capital (to riskweighted assets) |  | $      | 63,291 |       | 10.3                        | % |        | $                     | 24,541 |  | >=4.0 | %      |  | $     | 36,812 |  | >=6.0  | %
|Tier 1 Capital (to average assets)       |  | $      | 63,291 |       | 9.2                         | % |        | $                     | 27,593 |  | >=4.0 | %      |  | $     | 34,491 |  | >=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 84% and 85%, respectively, of our funding as a percentage of average total assets during the three months ended March 31, 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 March 31, 2006, we had $35.0 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 three months ended March 31, 2006, we had an average balance of $19.2 million
in overnight funds sold representing 3% of total average assets.



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##### Table of Contents

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 March 31, 2006,
these entities held repurchase agreements in the amount of $62.3 million bearing interest at 2.50% per annum collateralized by investment securities with a carrying value of $62.1 million.

Cash Flow from Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2006 decreased by $2.6 million as compared to the same period in 2005 primarily due to an increase in the origination of SBA loans held for sale in the
period.

Cash Flow from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2006 decreased by $6.4 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 three months ended March 31, 2006 increased by $4.1 million as compared to the same period in 2005
primarily due to an increase in securities sold under agreements to repurchase offset by a net decrease in deposit growth, fed funds purchased and junior subordinated debentures net of FHLB payments on advances.

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



|                                       |  |                |           |                      |                   |   |            |   |                      |  |      |  
|-------------------------------------- |  | -------------- | --------- | -------------------- | ----------------- | - | ---------- | - | -------------------- |  | ---- | -
|                                       |  | March 31, 2006 |           |                      | December 31, 2005 |  
|                                       |  | Book Value     |           | WeightedAverageYield |                   |   | Book Value |   | WeightedAverageYield | 
|Time deposits maturing:                |  |                |           |                      |                   |   |            |   |                      |  |      |  
|Three months or less                   |  | $              | 2,687,800 |                      | 3.13              | % |            | $ |                     |  |     |  
|After three months but within one year |  |                | 2,866,400 |                      | 3.45              | % |            |   | 7,956,500            |  | 3.20 | %
|After one year but within five years   |  |                | 387,400   |                      | 4.46              | % |            |   | 288,400              |  | 4.61 | %
|                                       |  |                |           |                      |                   |   |            |   |                      |  |      |  
|Total time deposits                    |  | $              | 5,941,600 |                      | 3.37              | % |            | $ | 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 March 31, 2006 or 2005.

INVESTMENT
SECURITIES



|                                                                   |  |                |            |                      |                   |   |            |   |                      |  |      |  
|------------------------------------------------------------------ |  | -------------- | ---------- | -------------------- | ----------------- | - | ---------- | - | -------------------- |  | ---- | -
|                                                                   |  | March 31, 2006 |            |                      | December 31, 2005 |  
|                                                                   |  | Book Value     |            | WeightedAverageYield |                   |   | Book Value |   | WeightedAverageYield | 
|Investment securities maturing:                                    |  |                |            |                      |                   |   |            |   |                      |  |      |  
|Within one year                                                    |  | $              | 17,503,900 |                      | 3.01              | % |            | $ | 11,003,800           |  | 3.45 | %
|After one year but within five years                               |  |                | 34,540,700 |                      | 4.87              | % |            |   | 27,613,400           |  | 4.43 | %
|After five years                                                   |  |                | 5,003,100  |                      | 5.87              | % |            |   |                     |  |     |  
|Collateralized mortgage obligations and mortgage-backed securities |  |                | 35,510,900 |                      | 4.14              | % |            |   | 36,861,800           |  | 4.27 | %
|                                                                   |  |                |            |                      |                   |   |            |   |                      |  |      |  
|Total investment securities                                        |  | $              | 92,558,600 |                      | 4.29              | % |            | $ | 75,479,000           |  | 4.21 | %
|                                                                   |  |                |            |                      |                   |   |            |   |                      |  |      |  



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##### Table of Contents

Our present strategy is to stagger the maturities of our time deposit investments and investment
securities to meet our overall liquidity requirements. At March 31, 2006, we classified all our investment securities as held to maturity as we intend to hold the securities to maturity.

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
|March 31, 2006                                                      |  |                |            |                      |   |                       |  |                     |           |  |   |           
|U.S. Agency securities                                              |  | $              | 46,901,700 |                      | $ |                      |  | $                   | 446,200   |  | $ | 46,455,500
|Corporate bonds                                                     |  |                | 10,146,000 |                      |   |                      |  |                     | 576,500   |  |   | 9,569,500 
|Collateralized mortgage obligations and mortgage-backed securities: |  |                |            |                      |   |                       |  |                     |           |  |   |           
|Ginnie Mae mortgage-backed security                                 |  |                | 5,016,700  |                      |   |                      |  |                     | 100,000   |  |   | 4,916,700 
|Fannie Mae mortgage-backed security                                 |  |                | 4,315,100  |                      |   |                      |  |                     | 52,200    |  |   | 4,262,900 
|Other                                                               |  |                | 26,179,100 |                      |   |                      |  |                     | 518,100   |  |   | 25,661,000
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|                                                                    |  | $              | 92,558,600 |                      | $ |                      |  | $                   | 1,693,000 |  | $ | 90,865,600
|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           



|                                                                    |  |                |            |                      |   |                       |  |                     |           |  |   |           
|------------------------------------------------------------------- |  | -------------- | ---------- | -------------------- | - | --------------------- |  | ------------------- | --------- |  | - | ----------
|                                                                    |  | 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 March 31, 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                                             |  | $                   | 27,783,000 |                   | $ | 135,200    |  | $               | 18,672,500 |            | $ | 311,000         |  | $ | 46,455,500 |  | $ | 446,200  
|Corporate bonds                                                    |  |                     |           |                   |   |           |  |                 | 9,569,500  |            |   | 576,500         |  |   | 9,569,500  |  |   | 576,500  
|Collateralized mortgage obligations and mortgage-backed securities |  |                     | 10,137,500 |                   |   | 108,200    |  |                 | 24,703,100 |            |   | 562,100         |  |   | 34,840,600 |  |   | 670,300  
|                                                                   |  |                     |            |                   |   |            |  |                 |            |            |   |                 |  |   |            |  |   |          
|                                                                   |  | $                   | 37,920,500 |                   | $ | 243,400    |  | $               | 52,945,100 |            | $ | 1,449,600       |  | $ | 90,865,600 |  | $ | 1,693,000
|                                                                   |  |                     |            |                   |   |            |  |                 |            |            |   |                 |  |   |            |  |   |          



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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 March 31, 2006. The unrealized loss greater than 12 months at March 31, 2006 included $103,500 related to one Ford Motor Credit Company issue. Because these securities mature
within the next two 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 March 31, 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.

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

LOAN PORTFOLIO COMPOSITION



|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|-------------------------------- |  | ----------------- | ----------- | - | ----------------- | ----- | - | ----------------- | - | ----------- | --------------- |  | ----- | -
|                                 |  | March 31, 2006    |             |   | December 31, 2005 |      
|                                 |  | AmountOutstanding |             |   | Percent ofTotal   |       |   | AmountOutstanding |   |             | Percent ofTotal | 
|Commercial loans                 |  | $                 | 176,401,800 |   |                   | 29.6  | % |                   | $ | 151,881,600 |                 |  | 27.4  | %
|Construction loans               |  |                   | 209,035,500 |   |                   | 35.1  |   |                   |   | 195,761,200 |                 |  | 35.3  |  
|Real estate loans                |  |                   | 189,700,000 |   |                   | 31.9  |   |                   |   | 182,937,000 |                 |  | 33.1  |  
|Other loans                      |  |                   | 20,226,200  |   |                   | 3.4   |   |                   |   | 23,550,700  |                 |  | 4.2   |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|                                 |  |                   | 595,363,500 |   |                   | 100.0 | % |                   |   | 554,130,500 |                 |  | 100.0 | %
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|Less  Deferred loan fees        |  |                   | (3,383,900  | ) |                   |       |   |                   |   | (3,260,100  | )               |  |       |  
|Less  Allowance for loan losses |  |                   | (6,612,300  | ) |                   |       |   |                   |   | (6,051,000  | )               |  |       |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  
|Net loans                        |  | $                 | 585,367,300 |   |                   |       |   |                   | $ | 544,819,400 |                 |  |       |  
|                                 |  |                   |             |   |                   |       |   |                   |   |             |                 |  |       |  

At March 31, 2006, we had outstanding construction loans to developers for tract projects and
single homes for sale to unidentified buyers totaling $92.5 million, representing 15.7% of our loan portfolio, and additional commitments for these projects in the amount of $60.1 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 the
Banks 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 March 31, 2006 and at December 31, 2005. However, the Company plans to meet



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the concentration limits by December 31, 2006 through loan participations, loan sales and anticipated payoffs on completed projects.

At March 31, 2006 and December 31, 2005, qualifying loans with an outstanding balance of $143.5 and $119.1 million, respectively, were pledged
to secure FHLB advances.

The following table sets forth the maturity distribution of our loan portfolio at March 31, 2006:

LOAN MATURITIES



|                   |  |                   |             |                                 |   |                  |  |       |             |  |   |            
|------------------ |  | ----------------- | ----------- | ------------------------------- | - | ---------------- |  | ----- | ----------- |  | - | -----------
|                   |  | At March 31, 2006
|                   |  | One Year orLess   |             | After One YearThrough FiveYears |   | After Five Years |  | Total
|Commercial loans   |  | $                 | 114,510,500 |                                 | $ | 55,162,500       |  | $     | 6,728,800   |  | $ | 176,401,800
|Construction loans |  |                   | 179,262,500 |                                 |   | 26,523,000       |  |       | 3,250,000   |  |   | 209,035,500
|Real estate loans  |  |                   | 40,032,000  |                                 |   | 42,273,500       |  |       | 111,244,100 |  |   | 193,549,600
|Other loans        |  |                   | 1,854,300   |                                 |   | 7,214,700        |  |       | 11,157,200  |  |   | 20,226,200 
|                   |  |                   |             |                                 |   |                  |  |       |             |  |   |            
|                   |  | $                 | 335,659,300 |                                 | $ | 131,173,700      |  | $     | 132,380,100 |  | $ | 599,213,100
|                   |  |                   |             |                                 |   |                  |  |       |             |  |   |            

Note:  Loan maturities include loans held for sale

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



|                                        |  |               |         |                  |   |          
|--------------------------------------- |  | ------------- | ------- | ---------------- | - | ---------
|                                        |  | March 31,2006 |         | December 31,2005
|Non-accrual loans                       |  | $             | 270,300 |                  | $ | 694,600  
|Accruing loans past due 90 days or more |  |               |        |                  |   |         
|Troubled debt restructuring             |  |               | 560,700 |                  |   | 570,900  
|Other real estate owned                 |  |               |        |                  |   |         
|                                        |  |               |         |                  |   |          
|Balance at end of period                |  | $             | 831,000 |                  | $ | 1,265,500
|                                        |  |               |         |                  |   |          

Nonperforming assets decreased from $1.3 million at December 31, 2005 to $0.8 million at
March 31, 2006. The troubled debt restructuring loan at March 31, 2006 represents a commercial line of credit secured by all of the borrowers assets. Since we have granted concessions to the borrower that we would not otherwise
consider, this loan has been classified as a troubled debt restructuring effective March 31, 2004. We continue to closely monitor the loan and the collateral, and it is possible that in the future we may further downgrade the loan, resulting in
material charges to the allowance for loan losses.

Cash collections on non-performing loans totaled $144,100 during the three months ended
March 31, 2006 of which $93,900 was applied to principal and $50,200 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 $4,900 for the three months ended
March 31, 2006. There were no non-accrual loans during the quarter ended March 31, 2005.



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Impaired Loans

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

We determine impaired loans by a periodic
evaluation on an individual loan basis. At March 31, 2006 and December 31, 2005, we had classified $2.5 million and $2.0 million, respectively, of our loans as impaired for which a $0.5 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



|                               |  |                              |           |   |      |   |          
|------------------------------ |  | ---------------------------- | --------- | - | ---- | - | ---------
|                               |  | Three months ended March 31,
|                               |  | 2006                         |           |   | 2005
|Balance at beginning of period |  | $                            | 6,051,000 |   |      | $ | 3,477,900
|Chargeoffs                    |  |                              | (190,100  | ) |      |   |         
|Recoveries                     |  |                              | 1,200     |   |      |   | 24,900   
|                               |  |                              |           |   |      |   |          
|Net chargeoffs                |  |                              | (188,900  | ) |      |   | 24,900   
|Additional provisions          |  |                              | 750,000   |   |      |   | 375,000  
|Other adjustments              |  |                              | 200       |   |      |   |         
|                               |  |                              |           |   |      |   |          
|Balance at end of period       |  | $                            | 6,612,300 |   |      | $ | 3,877,800
|                               |  |                              |           |   |      |   |          

OffBalance Sheet Credit Commitments and Contingent Obligations

Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition in the loan contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we expect some commitments to expire without being drawn upon, the total commitment amounts do not necessarily represent future loans. At
March 31, 2006, we had undisbursed loan commitments of $223.8 million.

Standby letters of credit and financial guarantees are
conditional commitments issued to secure the financial performance of a customer to a third party. These are issued primarily to support public and private borrowing arrangements. The credit risk involved in issuing a letter of credit for a customer
is essentially the same as that involved in extending a loan to that customer. We hold certificates of deposit and other collateral of at least 100% of the notional amount as support for letters of credit for which we deem collateral to be
necessary. At March 31, 2006, we had outstanding standby letters of credit with a potential $2.7 million of obligations maturing at various dates through 2008.

Deposits

Total deposits increased from $531.3 million at December 31, 2005 to $574.6 million at
March 31, 2006. This increase was primarily due to a $9.1.million increase in savings and money market deposits and a $41.8 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.



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

SOURCE OF DEPOSITS



|           |  |                |             |                 |                   |   |            |   |                 |  |       |  
|---------- |  | -------------- | ----------- | --------------- | ----------------- | - | ---------- | - | --------------- |  | ----- | -
|           |  | March 31, 2006 |             |                 | December 31, 2005 |  
|           |  | Book Value     |             | Percent ofTotal |                   |   | Book Value |   | Percent ofTotal | 
|Branches   |  | $              | 355,108,200 |                 | 61.8              | % |            | $ | 330,079,600     |  | 59.5  | %
|Money desk |  |                | 80,147,700  |                 | 13.9              |   |            |   | 75,382,800      |  | 14.2  |  
|Brokered   |  |                | 139,388,700 |                 | 24.3              |   |            |   | 125,846,700     |  | 23.7  |  
|           |  |                |             |                 |                   |   |            |   |                 |  |       |  
|Total      |  | $              | 574,644,600 |                 | 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 March 31, 2006 was approximately $208.2 million. Interest expense on such deposits was approximately $2.1 million for the quarter ended March 31, 2006.

The approximate scheduled maturities of certificates of deposit at March 31, 2006 was as follows:

MATURITIES OF CERTIFICATES OF DEPOSIT



|                                     |  |           |            
|------------------------------------ |  | --------- | -----------
|Maturities                           |  | Amount(1)
|Three months or less                 |  | $         | 28,437,000 
|Over three and through twelve months |  |           | 105,164,600
|Over twelve months                   |  |           | 152,167,600
|                                     |  |           |            
|Total                                |  | $         | 285,769,200
|                                     |  |           |            

| | 
| | 

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

Borrowed Funds

FHLB Advances. At March 31, 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 $143.5 million. These advances bear interest at a rate of the prime lending rate less an average of 2.80%. Interest is payable quarterly
or semiannually with principal and any accrued interest due at maturity.



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

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 8.20% at March 31, 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 6.72% at March 31, 2006).

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

Securities Sold under Agreements to Repurchase.One customer represents a number of entities that provide us funds through deposits and 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 deposits can be withdrawn upon demand without penalty. In 2006, the maximum month-end amount of funds provided by entities
controlled by this individual at any date was $63.9 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 Committee manages interest rate risk, including interest
rate sensitivity and the repricing characteristics of assets and liabilities. The principal objective of our asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is
measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. Changes in
interest rates have lesser impact the more that assets and liabilities reprice in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest sensitivity
gaps, which is the difference between interest sensitive assets and interest sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as early indicators of potential interest rate
exposures.

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



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The following table sets forth the distribution of ratesensitive assets and liabilities at the date
indicated:

RATE SENSITIVITY

March 31, 2006



|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|--------------------------------------------------- |  | ------------------ | ----------- | - | ----------------------------- | -- | ----------- | ------------------------------ |  | -- | ------------- | - |  | ----- | ----------- | - |  | - | ----------- | -
|                                                    |  | ThreeMonthsOr Less |             |   | Over ThreeThroughTwelveMonths |    |             | Over OneYearThrough Five Years |  |    | OverFiveYears |   |  | Total |            
|Assets                                              |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Federal funds sold                                  |  | $                  | 20,750,000  |   |                               | $  |            |                                |  | $  |              |   |  | $     |            |   |  | $ | 20,750,000  |  
|Time deposits with other financial institutions     |  |                    | 2,687,800   |   |                               |    | 2,866,400   |                                |  |    | 387,400       |   |  |       |            |   |  |   | 5,941,600   |  
|Securities held to maturity                         |  |                    |            |   |                               |    | 17,503,900  |                                |  |    | 42,756,100    |   |  |       | 32,298,600  |   |  |   | 92,558,600  |  
|Loans, gross                                        |  |                    | 468,547,200 |   |                               |    | 17,452,000  |                                |  |    | 85,156,000    |   |  |       | 24,674,000  |   |  |   | 595,829,200 |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Total ratesensitive assets                         |  | $                  | 491,985,000 |   |                               | $  | 37,822,300  |                                |  | $  | 128,299,500   |   |  | $     | 56,972,600  |   |  | $ | 715,079,400 |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Liabilities:                                        |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Interest bearing demand deposits                    |  | $                  | 9,712,600   |   |                               | $  |            |                                |  | $  |              |   |  | $     |            |   |  | $ | 9,712,600   |  
|Savings and money market                            |  |                    | 174,463,900 |   |                               |    |            |                                |  |    |              |   |  |       |            |   |  |   | 174,463,900 |  
|Certificates of deposit                             |  |                    | 37,376,700  |   |                               |    | 105,066,000 |                                |  |    | 149,884,000   |   |  |       |            |   |  |   | 292,326,700 |  
|Securities sold under agreements to repurchase      |  |                    | 62,299,500  |   |                               |    |            |                                |  |    |              |   |  |       |            |   |  |   | 62,299,500  |  
|FHLB advances                                       |  |                    | 35,000,000  |   |                               |    |            |                                |  |    |              |   |  |       |            |   |  |   | 35,000,000  |  
|Junior subordinated debentures                      |  |                    | 17,527,000  |   |                               |    |            |                                |  |    |              |   |  |       |            |   |  |   | 17,527,000  |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Total rate sensitive liabilities                    |  | $                  | 336,379,700 |   |                               | $  | 105,066,000 |                                |  | $  | 149,884,000   |   |  | $     |            |   |  | $ | 591,329,700 |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Interval Gaps:                                      |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Interest rate sensitivity gap                       |  | $                  | 155,605,300 |   |                               | ($ | 67,243,700  | )                              |  | ($ | 21,584,500    | ) |  | $     | 56,972,600  |   |  | $ | 123,749,700 |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                    | 146.3       | % |                               |    | 36.0        | %                              |  |    | 85.6          | % |  |       | N/A         |   |  |   | 120.9       | %
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Cumulative Gaps:                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Cumulative interest rate sensitivity gap            |  | $                  | 155,605,300 |   |                               | $  | 88,361,600  |                                |  | $  | 66,777,100    |   |  | $     | 123,749,700 |   |  | $ | 123,749,700 |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|Rate sensitive assets to rate sensitive liabilities |  |                    | 146.3       | % |                               |    | 120.0       | %                              |  |    | 111.3         | % |  |       | 120.9       | % |  |   | 120.9       | %
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  
|% of rate sensitive assets in period                |  |                    | 68.8        | % |                               |    | 74.1        | %                              |  |    | 92.0          | % |  |       | 100.0       | % |  |   | N/A         |  
|                                                    |  |                    |             |   |                               |    |             |                                |  |    |               |   |  |       |             |   |  |   |             |  



|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.



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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.

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

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

Our allowances for loan losses may be inadequate.

We establish allowances for loan losses against each segment of our loan portfolio. At March 31, 2006, our allowance for loan losses equaled 1.1% of loans. Although we believed that we had established adequate
allowances for loan losses as of March 31, 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.



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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 March 31, 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 March 31, 2006, we had outstanding construction loans to developers for tract projects and single homes for sale to
unidentified buyers totaling $92.5 million, representing 15.7% of our loan portfolio, and additional commitments for these projects in the amount of $60.1 million. These types of loans generally have greater risks than loans on completed homes,
multifamily and commercial properties. A construction loan generally does not cover the full amount of the construction costs, so the borrower must have adequate funds to pay for the balance of the project. Price increases, delays and unanticipated
difficulties can materially increase these costs. Further, even if completed, there is no assurance that the borrower will be able to sell the project on a timely or profitable basis, as these are closely related to real estate market conditions,
which can fluctuate substantially between the start and completion of the project. If the borrower defaults prior to completion of the project, the value of the project will likely be less than the outstanding loan, and we could be required to
complete construction with our own funds to minimize losses on the project.

Our business is heavily regulated.

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



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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
deposits and 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 deposits can be withdrawn upon demand
without penalty. In 2006, the maximum month-end amount of funds provided by entities controlled by this individual at any date was $67.8 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 March 31, 2006, brokered deposits were $139.4 million representing 24.3% 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 March 31, 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 March 31, 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.



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



|     |  |                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 May 15, 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 May 15, 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: May 15, 2006 |  |  |  | ALLIANCE BANCSHARES CALIFORNIA
|                   |  |  |  |                               
|                   |  |  |  |                                |  | By: |  | /s/ Daniel L. Erickson                                                 
|                   |  |  |  |                                |  |     |  | Daniel L. Erickson Executive Vice President and Chief Financial Officer



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