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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



(Mark One)



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



For the quarterly period ended September 30, 2003



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

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(Exact name of Registrant as specified in its charter)



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



(310) 410-9281

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(Registrants telephone number, including area code)





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(Former name, former address and former fiscal year, if changed, since last year)



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



YES x NO ̈



APPLICABLE
ONLY TO CORPORATE ISSUERS:



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



4,567,679 shares of Common Stock as of October 31, 2003



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##### Table of Contents

ALLIANCE BANCSHARES CALIFORNIA



QUARTERLY REPORT ON FORM 10-QSB

FOR

THE QUARTER ENDED SEPTEMBER 30, 2003



TABLE OF CONTENTS



|           |  |                       | 
|---------- |  | --------------------- | 
|           |  |                       | 
|           |  |                      
|Part I.    |  | Financial Information | 
|           |  |                       | 
|           |  | Item 1.               | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  |                       | 
|           |  | Item 2.               | 
|           |  |                       | 
|           |  | Item 3.               | 
|           |  |                      
|Part II.   |  | Other Information     | 
|           |  |                       | 
|           |  | Item 6.               | 
|           | 
|Signatures |  | 27                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CONSOLIDATED STATEMENT OF FINANCIAL CONDITION



September 30, 2003



(Unaudited)



|Assets                                                     |  |   |            
|---------------------------------------------------------- |  | - | -----------
|Cash and due from banks                                    |  | $ | 11,940,400 
|Federal funds sold                                         |  |   | 22,370,000 
|                                                           |  |   |            
|Total cash and cash equivalents                            |  |   | 34,310,400 
|Time deposits with other financial institutions            |  |   | 3,804,000  
|Securities held to maturity, fair market value $32,489,800 |  |   | 32,115,200 
|Loans held for sale                                        |  |   | 5,900,600  
|Loans, net of the allowance for loan losses of $2,661,600  |  |   | 178,850,900
|Equipment and leasehold improvements, net                  |  |   | 1,078,600  
|Accrued interest receivable and other assets               |  |   | 4,470,300  
|                                                           |  |   |            
|Total assets                                               |  | $ | 260,530,000
|                                                           |  |   |            
|Liabilities and Shareholders Equity                       |  |   |            
|Deposits:                                                  |  |   |            
|Demand  noninterest bearing                               |  | $ | 44,322,700 
|Interest bearing:                                          |  |   |            
|Demand                                                     |  |   | 3,956,600  
|Savings and money market                                   |  |   | 86,899,000 
|Time                                                       |  |   | 68,080,700 
|                                                           |  |   |            
|Total deposits                                             |  |   | 203,259,000
|Accrued interest payable and other liabilities             |  |   | 1,580,900  
|FHLB advances                                              |  |   | 32,000,000 
|Subordinated debentures                                    |  |   | 2,500,000  
|Trust preferred securities                                 |  |   | 7,000,000  
|                                                           |  |   |            
|Total liabilities                                          |  |   | 246,339,900
|                                                           |  |   |            
|Commitments and contingencies                              |  |   |           
|Shareholders equity:                                      |  |   |            
|Serial preferred stock, no par value:                      |  |   |            
|Authorized  20,000,000 shares,                            |  |   |            
|Outstanding  none                                         |  |   |           
|Common stock, no par value:                                |  |   |            
|Authorized-20,000,000 shares                               |  |   |            
|Outstanding  4,567,679 shares                             |  |   | 3,525,800  
|Undivided profits                                          |  |   | 10,664,300 
|                                                           |  |   |            
|Total shareholders equity                                 |  |   | 14,190,100 
|                                                           |  |   |            
|Total liabilities and shareholders equity                 |  | $ | 260,530,000
|                                                           |  |   |            



The
accompanying notes are an integral part of these statements.



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##### Table of Contents

Part I. Item 1. (continued)



CONSOLIDATED STATEMENTS OF OPERATIONS



(Unaudited)



|                                                            |  | Three Months Ended September 30, |           | Nine Months Ended September 30,
|----------------------------------------------------------- |  | -------------------------------- | --------- | -------------------------------
|                                                            |  | 2003                             |           | 2002                           
|Interest income:                                            |  |                                  |           |                                
|Interest and fees on loans                                  |  | $                                | 3,761,600 |                                
|Interest on time deposits with other financial institutions |  |                                  | 32,200    |                                
|Interest on securities held to maturity                     |  |                                  | 198,200   |                                
|Interest on federal funds sold                              |  |                                  | 54,100    |                                
|                                                            |  |                                  |           |                                
|Total interest income                                       |  |                                  | 4,046,100 |                                
|                                                            |  |                                  |           |                                
|Interest expense:                                           |  |                                  |           |                                
|Interest on deposits                                        |  |                                  | 820,000   |                                
|Interest on FHLB advances                                   |  |                                  | 224,500   |                                
|Interest on subordinated debentures                         |  |                                  | 52,600    |                                
|Interest on capital note                                    |  |                                  |          |                                
|Interest on trust preferred securities                      |  |                                  | 83,100    |                                
|                                                            |  |                                  |           |                                
|Total interest expense                                      |  |                                  | 1,180,200 |                                
|                                                            |  |                                  |           |                                
|Net interest income                                         |  |                                  | 2,865,900 |                                
|Provision for loan losses                                   |  |                                  | 350,000   |                                
|                                                            |  |                                  |           |                                
|Net interest income after provision for loan losses         |  |                                  | 2,515,900 |                                
|Non-interest income                                         |  |                                  | 1,035,800 |                                
|Non-interest expenses:                                      |  |                                  |           |                                
|Salaries and related benefits                               |  |                                  | 1,280,300 |                                
|Occupancy and equipment expenses                            |  |                                  | 282,100   |                                
|Other operating expenses                                    |  |                                  | 769,300   |                                
|                                                            |  |                                  |           |                                
|Total non-interest expense                                  |  |                                  | 2,331,700 |                                
|                                                            |  |                                  |           |                                
|Earnings before income tax expense                          |  |                                  | 1,220,000 |                                
|Income tax expense                                          |  |                                  | 495,700   |                                
|                                                            |  |                                  |           |                                
|Net earnings                                                |  | $                                | 724,300   |                                
|                                                            |  |                                  |           |                                
|Earnings per common share:                                  |  |                                  |           |                                
|Basic earnings per share                                    |  | $                                | 0.16      |                                
|Diluted earnings per share                                  |  | $                                | 0.12      |                                



The
accompanying notes are an integral part of these statements.



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##### Table of Contents

Part I. Item 1. (continued)



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



|                                                                                              |  | Nine Months Ended September 30, |            
|--------------------------------------------------------------------------------------------- |  | ------------------------------- | -----------
|                                                                                              |  | 2003                            |            
|Cash Flows from Operating Activities:                                                         |  |                                 |            
|Net earnings                                                                                  |  | $                               | 1,793,200  
|Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |  |                                 |            
|Net amortization of discounts and premiums on securities held to maturity                     |  |                                 | 525,000    
|Depreciation and amortization                                                                 |  |                                 | 244,600    
|Provision for loan losses                                                                     |  |                                 | 1,125,000  
|Net gains on sales of loans held for sale                                                     |  |                                 | (768,700   
|Proceeds from sales of loans held for sale                                                    |  |                                 | 16,728,600 
|Originations of loans held for sale                                                           |  |                                 | (14,645,700
|(Increase) decrease in accrued interest receivable and other assets                           |  |                                 | 114,600    
|Increase in accrued interest payable and other liabilities                                    |  |                                 | 291,700    
|                                                                                              |  |                                 |            
|Net cash provided by (used in) operating activities                                           |  |                                 | 5,408,300  
|                                                                                              |  |                                 |            
|Cash Flows from Investing Activities:                                                         |  |                                 |            
|Net (increase) decrease in:                                                                   |  |                                 |            
|Time deposits with other financial institutions                                               |  |                                 | (450,800   
|Loans                                                                                         |  |                                 | (38,649,600
|Purchase of equipment and leasehold improvements                                              |  |                                 | (197,500   
|Purchase of FHLB stock                                                                        |  |                                 | (791,300   
|Purchase of securities held to maturity                                                       |  |                                 | (23,491,400
|Proceeds from maturities of securities held to maturity                                       |  |                                 | 20,326,000 
|                                                                                              |  |                                 |            
|Net cash used in investing activities                                                         |  |                                 | (43,254,600
|                                                                                              |  |                                 |            
|Cash Flows from Financing Activities:                                                         |  |                                 |            
|Net increase (decrease) in:                                                                   |  |                                 |            
|Demand deposits                                                                               |  |                                 | 10,026,000 
|Interest bearing demand deposits                                                              |  |                                 | 1,589,200  
|Savings and money market deposits                                                             |  |                                 | 40,537,600 
|Time deposits                                                                                 |  |                                 | (5,618,800 
|Proceeds from stock options exercised                                                         |  |                                 | 45,500     
|FHLB advances                                                                                 |  |                                 | 10,000,000 
|Proceeds from issuance of capital note                                                        |  |                                 |           
|                                                                                              |  |                                 |            
|Net cash provided by financing activities                                                     |  |                                 | 56,579,500 
|                                                                                              |  |                                 |            
|Net increase in cash and cash equivalents                                                     |  |                                 | 18,733,200 
|Cash and cash equivalents, beginning of period                                                |  |                                 | 15,577,200 
|                                                                                              |  |                                 |            
|Cash and cash equivalents, end of period                                                      |  | $                               | 34,310,400 
|                                                                                              |  |                                 |            
|Supplemental disclosure of cash flow information                                              |  |                                 |            
|Cash paid during the period for:                                                              |  |                                 |            
|Interest                                                                                      |  | $                               | 3,508,200  
|Income taxes                                                                                  |  |                                 | 1,286,800  



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

(Unaudited)



1. Nature of Business and Significant Accounting Policies



Organization



The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with
accounting principles generally accepted in the United States of America. However, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of the management, are
necessary for a fair presentation of the results for the interim periods presented. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a
basis consistent with, and should be read in conjunction with, the Companys audited financial statements as of and for the year ended December 31, 2002 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
and nine months periods ended September 30, 2003, 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, 2003.



The consolidated financial statements include the accounts of Alliance
Bancshares California (Bancshares), its wholly owned subsidiaries Alliance Bank (the Bank) and Alliance Bancshares California Capital Trust I (the Trust), and Lexib Realcorp, a 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.



Use of Estimates



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



Reclassifications



Certain amounts for 2002 have been reclassified to conform to the 2003 presentation. These reclassifications had no change to net earnings or
shareholders equity previously reported.



Earnings Per
Share



Basic earnings per share for each of the periods
presented was computed by dividing the net income by the weighted average number of shares of common stock outstanding during each such period. The weighted average numbers of shares used in the basic earnings per share computations for the quarter
and nine months ended September 30, 2003 were 4,542,951 and 4,542,316, respectively, and for the quarter and nine months ended September 30, 2002 were 4,538,678 and 4,526,991, respectively. The weighted average numbers of shares used in the diluted
earnings per share computations for the quarter and nine months ended September 30, 2003 were 6,063,849 and 6,042,145, respectively, and for the quarter ended September 30, 2002 were 5,961,263 and 5,948,907 respectively.





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Basic and diluted earnings per share for the quarters ended September 30, 2003 and 2002 are computed as
follows:



|September 30, 2003                                                                                                  |  | Net Earnings |           | Shares |           | PerShareAmount
|------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------ | --------- | --------------
|Net Earnings                                                                                                        |  | $            | 724,300   |        |           |               
|                                                                                                                    |  |              |           |        |           |               
|Basic earnings per share:                                                                                           |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 724,300   |        | 4,542,951 |               
|Effect of conversion of subordinated debentures                                                                     |  |              | 29,800    |        | 1,250,000 |               
|Effect of conversion of options and warrants                                                                        |  |              |           |        | 270,898   |               
|                                                                                                                    |  |              |           |        |           |               
|Diluted earnings per share:                                                                                         |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 754,100   |        | 6,063,849 |               
|                                                                                                                    |  |              |           |        |           |               
|                                                                                                                    |  |              |          
|September 30, 2002                                                                                                  |  | Net Earnings |           | Shares |           | PerShareAmount
|Net Earnings                                                                                                        |  | $            | 434,100   |        |           |               
|                                                                                                                    |  |              |           |        |           |               
|Basic earnings per share:                                                                                           |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 434,100   |        | 4,538,678 |               
|Effect of conversion of subordinated debentures                                                                     |  |              | 29,300    |        | 1,250,000 |               
|Effect of conversion of options and warrants                                                                        |  |              |           |        | 172,585   |               
|                                                                                                                    |  |              |           |        |           |               
|Diluted earnings per share:                                                                                         |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 463,400   |        | 5,961,263 |               
|                                                                                                                    |  |              |           |        |           |               
|                                                                                                                   
|Basic and diluted earnings per share for the nine months ended September 30, 2003 and 2002 are computed as follows:
|                                                                                                                    |  |              |          
|September 30, 2003                                                                                                  |  | Net Earnings |           | Shares |           | PerShareAmount
|Net Earnings                                                                                                        |  | $            | 1,793,200 |        |           |               
|                                                                                                                    |  |              |           |        |           |               
|Basic earnings per share:                                                                                           |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 1,793,200 |        | 4,542,316 |               
|Effect of conversion of subordinated debentures                                                                     |  |              | 87,400    |        | 1,250,000 |               
|Effect of conversion of options and warrants                                                                        |  |              |           |        | 249,829   |               
|                                                                                                                    |  |              |           |        |           |               
|Diluted earnings per share:                                                                                         |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 1,880,600 |        | 6,042,145 |               
|                                                                                                                    |  |              |           |        |           |               
|                                                                                                                    |  |              |          
|September 30, 2002                                                                                                  |  | Net Earnings |           | Shares |           | PerShareAmount
|Net Earnings                                                                                                        |  | $            | 1,276,100 |        |           |               
|                                                                                                                    |  |              |           |        |           |               
|Basic earnings per share:                                                                                           |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 1,276,100 |        | 4,526,991 |               
|Effect of conversion of subordinated debentures                                                                     |  |              | 86,800    |        | 1,250,000 |               
|Effect of conversion of options and warrants                                                                        |  |              |           |        | 171,916   |               
|                                                                                                                    |  |              |           |        |           |               
|Diluted earnings per share:                                                                                         |  |              |           |        |           |               
|Net earnings available to common shareholders                                                                       |  | $            | 1,362,900 |        | 5,948,907 |               
|                                                                                                                    |  |              |           |        |           |               





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Equity Compensation Plans



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



|                                                                                                           |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -
|                                                                                                           |  | 2003                            |         |   | 2002                           |  
|Net earnings, as reported                                                                                  |  | $                               | 724,300 |   |                                | $
|Less - Total stock-based compensation expense determined under fair value method for all qualifying awards |  |                                 | (7,300  | ) |                                |  
|                                                                                                           |  |                                 |         |   |                                |  
|Pro forma net earnings                                                                                     |  | $                               | 717,000 |   |                                | $
|                                                                                                           |  |                                 |         |   |                                |  
|Earnings per share:                                                                                        |  |                                 |         |   |                                |  
|Basic:                                                                                                     |  |                                 |         |   |                                |  
|As reported                                                                                                |  | $                               | 0.16    |   |                                | $
|Pro forma                                                                                                  |  | $                               | 0.16    |   |                                | $
|Diluted:                                                                                                   |  |                                 |         |   |                                |  
|As reported                                                                                                |  | $                               | 0.12    |   |                                | $
|Pro forma                                                                                                  |  | $                               | 0.12    |   |                                | $



The Companys
1996 Combined Incentive and Non-Qualified Stock Option Plan (the Plan) provides for the issuance of up to 800,000 shares of the Companys common stock upon exercise of incentive and non-qualified options. The Plan provides that each
option must have an exercise price not less than the fair market value of the stock at the date of grant or have a term not to exceed ten years (five years with respect to options granted to employees holding 10% or more of the voting stock of the
Company). Options vest in various increments of 20% per year to 100% per year. During the quarter ended September 30, 2003, the company granted options to purchase 84,000 shares under the Plan at a weighted average exercise price of $6.28.



The fair value of each option grant is estimated on the grant
date by using the Black-Scholes option-pricing model with the following assumptions used for stock options granted: risk-free interest rate of 3.25% to 4.75%; expected lives ranging from 5 to 10 years; and the estimated volatility of Companys
stock of 34%. The average fair value per share of options granted during 2003 was $2.55. In addition, 25,000 shares were exercised at $1.50 during the quarter ended September 30, 2003.



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2. Securities Held to Maturity



The amortized cost and estimated fair values of securities held to maturity at September 30, 2003 are as follows:



INVESTMENT SECURITIES

September 30, 2003



|                                                                   |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|------------------------------------------------------------------ |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | -------------------
|U.S. Government agency securities                                  |  | $             | 6,997,100  |                      | $ | 113,700               |  | $ |                   
|Corporate bonds                                                    |  |               | 6,191,000  |                      |   | 154,800               |  |   |                   
|Collateralized mortgage obligations and mortgage backed securities |  |               | 18,927,100 |                      |   | 194,200               |  |   | (88,100            
|                                                                   |  |               |            |                      |   |                       |  |   |                    
|                                                                   |  | $             | 32,115,200 |                      | $ | 462,700               |  | $ | (88,100            
|                                                                   |  |               |            |                      |   |                       |  |   |                    



3. 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



|                               |  | Nine Months Ended September 30, |          
|------------------------------ |  | ------------------------------- | ---------
|                               |  | 2003                            |          
|Balance at beginning of period |  | $                               | 1,982,900
|Charge-offs                    |  |                                 | (509,800 
|Recoveries                     |  |                                 | 63,500   
|                               |  |                                 |          
|Net charge-offs                |  |                                 | (446,300 
|Additional provisions          |  |                                 | 1,125,000
|                               |  |                                 |          
|Balance at end of period       |  | $                               | 2,661,600
|                               |  |                                 |          



4. Commitments and Contingencies



Commitments to extend credit are agreements to lend to a
customer as long as there is not a violation of any condition in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we expect some commitments to expire without
being drawn upon, the total commitment amounts do not necessarily represent future loans. At September 30, 2003, we had undisbursed loan commitments of $83.6 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 September 30, 2003, we had outstanding standby letters of credit
with a potential $0.9 million of obligations. These standby letters of credit will mature within one year.



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



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



Background



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



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



Forward-Looking Information



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



Overview



We recorded consolidated earnings of $0.7 million ($0.16 basic and $0.12
diluted earnings per share) for the second quarter of 2003 as compared to $0.4 million ($0.10 basic and $0.08 diluted earnings per share) for the second quarter of 2002. This increase in earnings was primarily due to increases in net interest
income, gains on the sales of loans and broker fees on loans referred to other lenders. The increase occurred notwithstanding an increase in non-interest expenses from $1.9 million for the three months ended September 30, 2002 to $2.3 million for
the same period in 2003.



For the nine months ended September
30, 2003, we generated consolidated earnings of $1.8 million ($0.39 basic and $0.31 diluted earnings per share) as compared to $1.3 million ($0.28 basic and $0.23 diluted earnings per share) for the same period of 2002. The improvement in earnings
in 2003 was due primarily to increases in net interest income, gains on the sales of loans and broker fees on loans referred to other lenders. The increase occurred notwithstanding an increase in the provision for loan losses from $0.5 million for
the nine months ended September 30, 2002 to $1.1 million for the same period in 2003 and an increase in non-interest expenses from $5.3 million for the nine months ended September 30, 2002 to $6.1 million for the same period in 2003.



We continued to grow, with consolidated assets increasing from $201.9 million
at December 31, 2002 to $260.5 million at September 30, 2003. Net loans continue to constitute the largest portion (approximately 76%) of our interest earning assets, and grew from $148.5 million at December 31, 2002 to $184.8 million at September
30, 2003.



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



|                                                 |  | Nine months endedSeptember 30, |     
|------------------------------------------------ |  | ------------------------------ | ----
|                                                 |  | 2003                           |     
|Return on average assets (1)                     |  |                                | 1.02
|Return on average shareholders equity (1)       |  |                                | 18.2
|Net yield on average interest earning assets (1) |  |                                | 4.64
|Earnings per common share:                       |  |                                |     
|Basic earnings per share                         |  | $                              | 0.39
|Diluted earnings per share                       |  | $                              | 0.31

---

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



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RESULTS OF OPERATIONS  Three and Nine Months Ended September 30, 2003 and 2002



Net Interest Income



We recorded interest income of $4.0 million and $11.4 million, respectively, for the quarter and nine months ended September
30, 2003 as compared to $3.5 million and $9.6 million, respectively, for the quarter and nine months ended September 30, 2002. Interest expense totaled $1.2 million and $3.6 million, respectively, for the quarter and nine months ended September 30,
2003 as compared to $1.2 million and $3.3 million, respectively, for the quarter and nine months ended September 30, 2002. The increases in interest income and interest expense were due to increases in the amount of interest earning assets and
interest bearing liabilities, as the weighted average yields earned and rates paid decreased due to lower market interest rates, as the weighted average prime rate decreased from 4.75% for the quarter and nine months ended September 30, 2002 to
4.16% and 4.0%, respectively, for the quarter and nine months ended September 30, 2003.



Net interest income before provision for loan losses increased to $2.9 million and $7.8 million, respectively, for the quarter and nine months ended September 30, 2003, from $2.3 million and $6.3 million,
respectively, for the quarter and nine months ended September 30, 2002. This was due primarily to an increase in average interest earning assets from $174.4 million and $162.0 million, respectively, for the quarter and nine months ended September
30, 2002 to $246.0 million and $224.8 million, respectively, for the quarter and nine months ended September 30, 2003 and, to a lesser extent, to an increase in net average interest earnings assets (average interest earning assets less average
interest bearing liabilities) from $31.9 million and $32.0 million, respectively, to $45.6 million and $40.8 million, respectively. The increase in net average interest earning assets was due principally to a $17.8 million and $11.7 million,
respectively, increase in average non-interest bearing liabilities (primarily demand deposits). Net interest income was adversely impacted by a decrease in the net yield on interest earning assets, or net interest margin, from 5.34% and 5.22%,
respectively, for the quarter and nine months ended September 30, 2002 to 4.72% and 4.64%, respectively, for the quarter and nine months ended September 30, 2003. The decrease in the net interest margin was due to: (i) declining market interest
rates, as our assets reprice more frequently than our liabilities; (ii) securities, which generally have lower yields than loans, constituting a higher percentage of our interest-earning assets, as we deployed available funds in these assets pending
utilization for loan originations; and (iii) interest on our $7.0 million of trust preferred securities at a weighted average rate of 4.86% for the nine months ended September 30, 2003, significantly higher than the weighted average rates we pay on
deposits.



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



ANALYSIS OF NET INTEREST INCOME



|                                           |  | Quarter Ended September 30, |            
|------------------------------------------ |  | --------------------------- | -----------
|                                           |  | 2003                        |            
|                                           |  | AverageBalance              |            
|Interest earning assets:                   |  |                             |            
|Federal funds sold                         |  | $                           | 22,003,800 
|Time deposits                              |  |                             | 4,222,800  
|Securities                                 |  |                             | 34,266,500 
|Loans                                      |  |                             | 185,532,200
|                                           |  |                             |            
|Total interest-earning assets              |  |                             | 246,025,300
|                                           |  |                             |            
|Non-interest-earning assets                |  |                             | 13,856,300 
|                                           |  |                             |            
|Total assets                               |  | $                           | 259,881,600
|                                           |  |                             |            
|                                           |  |                             |            
|Interest bearing liabilities:              |  |                             |            
|Interest-bearing demand deposits           |  | $                           | 3,955,200  
|Savings and money market deposits          |  |                             | 82,212,100 
|Time deposits                              |  |                             | 72,789,100 
|FHLB advances                              |  |                             | 32,000,000 
|Subordinated debentures                    |  |                             | 2,500,000  
|Trust preferred securities                 |  |                             | 7,000,000  
|Capital note                               |  |                             |           
|                                           |  |                             |            
|Total interest-bearing liabilities         |  |                             | 200,456,400
|                                           |  |                             |            
|Non-interest bearing liabilities           |  |                             | 45,665,200 
|                                           |  |                             |            
|Total liabilities                          |  |                             | 246,121,600
|Shareholders equity                       |  |                             | 13,760,000 
|                                           |  |                             |            
|Total liabilities and shareholders equity |  | $                           | 259,881,600
|                                           |  |                             |            
|                                           |  |                             |            
|Net interest income                        |  |                             |            
|                                           |  |                             |            
|Interest rate spread                       |  |                             |            
|Net interest margin                        |  |                             |            



|Note: | Interest income on loans includes loan fees.
|----- | --------------------------------------------



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ANALYSIS OF NET INTEREST INCOME



|                                                   |  | Nine Months Ended September 30, |            
|-------------------------------------------------- |  | ------------------------------- | -----------
|                                                   |  | 2003                            |            
|                                                   |  | AverageBalance                  |            
|Interest earning assets:                           |  |                                 |            
|Federal funds sold                                 |  | $                               | 19,984,300 
|Time deposits                                      |  |                                 | 4,017,600  
|Securities                                         |  |                                 | 33,479,500 
|Loans                                              |  |                                 | 167,340,600
|                                                   |  |                                 |            
|Total interest-earning assets                      |  |                                 | 224,822,000
|                                                   |  |                                 |            
|Non-interest-earning assets                        |  |                                 | 11,289,600 
|                                                   |  |                                 |            
|Total assets                                       |  | $                               | 236,111,600
|                                                   |  |                                 |            
|                                                   |  |                                 |            
|Interest bearing liabilities:                      |  |                                 |            
|Interest-bearing demand deposits                   |  | $                               | 3,851,200  
|Savings and money market deposits                  |  |                                 | 69,929,700 
|Time deposits                                      |  |                                 | 69,698,200 
|FHLB advances                                      |  |                                 | 31,032,300 
|Subordinated debentures                            |  |                                 | 2,500,000  
|Trust preferred securities                         |  |                                 | 7,000,000  
|Capital note                                       |  |                                 |           
|                                                   |  |                                 |            
|Total interest-bearing liabilities                 |  |                                 | 184,011,400
|                                                   |  |                                 |            
|Non-interest bearing liabilities                   |  |                                 | 38,902,900 
|                                                   |  |                                 |            
|Total liabilities                                  |  |                                 | 222,914,300
|Shareholders equity                               |  |                                 | 13,197,300 
|                                                   |  |                                 |            
|Total liabilities and shareholders equity         |  |                                 | 236,111,600
|                                                   |  |                                 |            
|                                                   |  |                                 |            
|Net interest income                                |  |                                 |            
|                                                   |  |                                 |            
|Net interest spread                                |  |                                 |            
|Net interest margin                                |  |                                 |            
|Note: Interest income on loans includes loan fees. |  |                                 |            



Provision for Loan Losses



We charged $0.4 million and $1.1 million, respectively, to
the allowance for loan losses (Allowance) for the quarter and nine months ended September 30, 2003 as compared to $0.2 million and $0.5 million, respectively, for the quarter and nine months ended September 30, 2002. These provisions
were based on our policies and procedures established for the Allowance. See Financial ConditionChanges in the Allowance for Loan Losses below.



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



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Non-Interest Income



Non-interest income includes primarily service charges on deposit accounts, net gains on sales of loans and loan broker fees for referring loans to other
lenders. Non-interest income increased 51% from the nine months ended September 30, 2002 to the nine months ended September 30, 2003, primarily due to an increase of $0.8 million in loan broker fees as brokered loans increased from $5.0 million for
the nine months ended September 30, 2002 to $19.0 million for the nine months ended September 30, 2003. In addition, the Company recorded $0.3 million in gains on the sales of loans as sold loans increased from $13.5 million for the nine months
ended September 30, 2002 to $16.7 million for the nine months ended September 30, 2003. Our ability to generate gains on sales of loans and loan broker fees depends primarily on our ability to originate loans with favorable interest rates, which
depends on a number of factors beyond our control, including general economic conditions, loan demand, competition and market interest rates. Accordingly, gains and losses from sales of loans and loan broker fees may fluctuate significantly from
period to period, and results in any period relating to loan sales and broker fees are not necessarily indicative of results that may be obtained in any future period.



Non-Interest Expense



Salary and related expenses increased by 31.8% and 14.5%, respectively, from the quarter and nine months ended September 30, 2002 to the quarter ended
September 30, 2003 due primarily to an increase in the number of employees and an increase in incentive pay pertaining to our deposit promotion campaign net of an increase in deferred loan costs. At September 30, 2003, we employed 50 full time
employees, compared with 45 employees at September 30, 2002.



Occupancy and equipment expenses increased by 15.3% and 18.0%, respectively, from the quarter and nine months ended September 30, 2002 to the quarter and nine months ended September 30, 2003. Rent expense increased in April 2003 by $20,600
per month from rent under a 60-month lease entered into in December 2001 for our new Orange County Regional Office in Irvine, California.



Other operating expenses increased 6.9% and 14.7%, respectively, from the quarter ended September 30, 2002 to the quarter ended September 30, 2003 due in
part to increases in business development and marketing expenses. These additional expenses were incurred for customer appreciation functions, marketing brochures and a deposit promotion program.



FINANCIAL CONDITION



Regulatory Capital



At September 30, 2003, Bancshares and the Banks Tier 1 capital, which is comprised of shareholders equity
as modified by certain regulatory adjustments, was $16.8 million and $19.9 million, respectively. Our regulatory capital increased since December 31, 2002 as a result of net earnings. At September 30, 2003, 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.



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REGULATORY CAPITAL

September 30, 2003

(dollars in thousands)



|                                         |  | Actual |        |       | To Be AdequatelyCapitalized |   |        | To Be WellCapitalized |       
|---------------------------------------- |  | ------ | ------ | ----- | --------------------------- | - | ------ | --------------------- | ------
|                                         |  | Amount |        | Ratio |                             |   | Amount |                       | Ratio 
|Bancshares                               |  |        |        |       |                             |   |        |                       |       
|Total Capital (to risk-weighted assets)  |  | $      | 26,352 |       | 12.7                        | % |        | $                     | 16,556
|Tier 1 Capital (to risk-weighted assets) |  | $      | 17,738 |       | 8.6                         | % |        | $                     | 8,278 
|Tier 1 Capital (to average assets)       |  | $      | 17,738 |       | 6.8                         | % |        | $                     | 10,395
|Bank                                     |  |        |        |       |                             |   |        |                       |       
|Total Capital (to risk-weighted assets)  |  | $      | 25,688 |       | 12.4                        | % |        | $                     | 16,532
|Tier 1 Capital (to risk-weighted assets) |  | $      | 20,604 |       | 10.0                        | % |        | $                     | 8,266 
|Tier 1 Capital (to average assets)       |  | $      | 20,604 |       | 7.9                         | % |        | $                     | 10,376



Liquidity



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



Deposits provide most of our funds. This relatively stable and low-cost source of funds has, along with shareholders equity, provided 82% and 93% of
our funding as a percentage of average total assets during the nine months ended September 30, 2003 and 2002, respectively. This reduction was directly attributable to the increased volume of loans receivable, which outpaced the growth in deposits,
and required an increase in borrowed funds.



Secondary sources
of liquidity include borrowing arrangements with the FRB and the FHLB. Borrowings from the FRB are short-term and must be collateralized by pledged securities or loans. As a member of the FHLB system, the Bank may obtain advances from the FHLB
pursuant to various credit programs offered from time to time. Credit limitations are based on the assessment by the FHLB of the Banks creditworthiness, including an adequate level of net worth, reasonable prospects of future earnings, sources
of funds sufficient to meet the scheduled interest payments, lack of financial or managerial deficiencies and other factors. Such advances may be obtained pursuant to several different credit programs, and each program has its own rate, commitment
fees and range of maturities. Funds borrowed from the FHLB must be collateralized either by pledged securities or by assignment of notes and may be for terms of one day to several years. During the nine months ended September 30, 2003, we obtained
an additional $10.0 million of FHLB advances. As of September 30, 2003, we had $32.0 million outstanding FHLB advances and had no outstanding borrowings from the FRB.



We also have liquidity as a net seller of overnight funds at a level that will cushion any unexpected increase in demand for
funds or decrease in funds deposited. During the nine months ended September 30, 2003, we had an average balance of $20.0 million in overnight funds sold representing 8.5% of total average assets.



Asset Liability Management



Based on our business, market risk is primarily limited to interest rate risk
which is the impact that changes in interest rates would have on future earnings. Our Investment Committee manages interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities. The principal
objective of our asset/liability management is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact
of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. Changes in interest rates have lesser impact the more that assets and liabilities reprice in



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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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##### Table of Contents

The following table sets forth the distribution of rate-sensitive assets and liabilities at September 30,
2003:



INTEREST RATE SENSITIVITY GAP

September 30, 2003



|                                                    |  | Three Months Or Less |             |   | Over Three Through Twelve Months |   |            | Over One Year Through Five Years |  |    | Over Five Years |   |  | Total
|--------------------------------------------------- |  | -------------------- | ----------- | - | -------------------------------- | - | ---------- | -------------------------------- |  | -- | --------------- | - |  | -----
|Assets                                              |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Federal funds sold                                  |  | $                    | 22,370,000  |   |                                  | $ |           |                                  |  | $  |                |   |  | $    
|Interest-bearing deposits with other                |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|financial institutions                              |  |                      | 1,234,700   |   |                                  |   | 2,073,300  |                                  |  |    | 496,000         |   |  |      
|Securities held to maturity                         |  |                      |            |   |                                  |   | 1,007,200  |                                  |  |    | 12,181,000      |   |  |      
|Loans, gross                                        |  |                      | 91,315,100  |   |                                  |   | 45,305,000 |                                  |  |    | 36,264,000      |   |  |      
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Total rate-sensitive assets                         |  | $                    | 114,919,800 |   |                                  | $ | 48,385,500 |                                  |  | $  | 48,941,000      |   |  | $    
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Liabilities:                                        |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Demand deposits                                     |  | $                    | 3,956,600   |   |                                  | $ |           |                                  |  | $  |                |   |  | $    
|Savings and money market accounts                   |  |                      | 86,899,000  |   |                                  |   |           |                                  |  |    |                |   |  |      
|Time deposits                                       |  |                      | 7,937,700   |   |                                  |   | 38,488,000 |                                  |  |    | 21,655,000      |   |  |      
|FHLB advances                                       |  |                      | 7,000,000   |   |                                  |   |           |                                  |  |    | 25,000,000      |   |  |      
|Subordinated debentures                             |  |                      |            |   |                                  |   |           |                                  |  |    | 2,500,000       |   |  |      
|Trust preferred securities                          |  |                      | 7,000,000   |   |                                  |   |           |                                  |  |    |                |   |  |      
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Total rate sensitive liabilities                    |  | $                    | 112,793,300 |   |                                  | $ | 38,488,000 |                                  |  | $  | 49,155,000      |   |  | $    
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|                                                    |  |                      |             |   |                                 
|Interval Gaps:                                      |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Interest rate sensitivity gap                       |  | $                    | 2,126,500   |   |                                  | $ | 9,897,500  |                                  |  | ($ | 214,000         | ) |  | $    
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Rate sensitive assets to rate sensitive liabilities |  |                      | 101.9       | % |                                  |   | 125.7      | %                                |  |    | 99.6            | % |  |      
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|                                                    |  |                      |             |   |                                 
|Cumulative Gaps:                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Cumulative interest rate sensitivity gap            |  | $                    | 2,126,500   |   |                                  | $ | 12,024,000 |                                  |  | $  | 11,810,000      |   |  | $    
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      
|Rate sensitive assets to rate sensitive liabilities |  |                      | 101.9       | % |                                  |   | 107.9      | %                                |  |    | 105.9           | % |  |      
|                                                    |  |                      |             |   |                                  |   |            |                                  |  |    |                 |   |  |      



Investments in Time Deposits and
Securities



The following table provides certain
information regarding our investments in time deposits with other financial institutions at September 30, 2003:



TIME DEPOSIT INVESTMENTS



September 30, 2003



|                                     |  | Book Value |           | WeightedAverageYield |     
|------------------------------------ |  | ---------- | --------- | -------------------- | ----
|Time deposits maturing:              |  |            |           |                      |     
|One year or less                     |  | $          | 3,308,000 |                      | 2.25
|After one year but within five years |  |            | 496,000   |                      | 2.46
|                                     |  |            |           |                      |     
|Total time deposits                  |  | $          | 3,804,000 |                      | 2.28
|                                     |  |            |           |                      |     



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The following table provides certain information regarding our investment securities at September 30,
2003. 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 September 30, 2002 or 2003.



INVESTMENT SECURITIES



September 30, 2003



|                                                                   |  | Book Value |            | WeightedAverageYield |     
|------------------------------------------------------------------ |  | ---------- | ---------- | -------------------- | ----
|Investment securities maturing:                                    |  |            |            |                      |     
|Within one year                                                    |  | $          | 1,007,200  |                      | 3.20
|After one year but within five years                               |  |            | 12,181,000 |                      | 4.50
|Collateralized mortgage obligations and mortgage backed securities |  |            | 18,927,000 |                      | 3.83
|                                                                   |  |            |            |                      |     
|Total investment securities                                        |  | $          | 32,115,200 |                      | 4.07
|                                                                   |  |            |            |                      |     



Our present strategy
is to stagger the maturities of our time deposit investments and investment securities to meet our overall liquidity requirements. At September 30, 2003, we classified all our investment securities as held to maturity as we intend to hold the
securities to maturity.



Loans



Our present lending strategy is to attract small to mid-sized business
borrowers by offering a variety of commercial and real estate loan products and a full range of other banking services coupled with highly personalized service. We offer secured and unsecured commercial term loans and lines of credit, construction
loans for individual and tract single family homes and for commercial and multifamily properties, accounts receivable and equipment loans, SBA loans and home equity lines of credit. We often tailor our loan products to meet the specific needs of our
borrowers. Our primary lending area includes seven Southern California counties: Los Angeles, Orange, Riverside, San Diego, San Bernardino, Ventura and Santa Barbara.



The following table sets forth the composition of our loan portfolio at September 30, 2003:



LOAN PORTFOLIO COMPOSITION



September 30, 2003



|                                 |  | AmountOutstanding |             |   | Percent ofTotal |      
|-------------------------------- |  | ----------------- | ----------- | - | --------------- | -----
|Commercial loans                 |  | $                 | 43,671,900  |   |                 | 24.0 
|Construction loans               |  |                   | 49,791,400  |   |                 | 27.4 
|Real estate loans                |  |                   | 80,697,300  |   |                 | 44.3 
|Other loans                      |  |                   | 7,903,700   |   |                 | 4.3  
|                                 |  |                   |             |   |                 |      
|                                 |  |                   | 182,064,300 |   |                 | 100.0
|                                 |  |                   |             |   |                 |      
|Less  Deferred loan fees        |  |                   | (551,800    | ) |                 |      
|Less  Allowance for loan losses |  |                   | (2,661,600  | ) |                 |      
|                                 |  |                   |             |   |                 |      
|Net loans                        |  | $                 | 178,850,900 |   |                 |      
|                                 |  |                   |             |   |                 |      



Our strategy has been
to diversify the construction loan portfolio and limit our level of these loans, particularly the more speculative types, and as a percentage of total assets and Tier 1 capital. At September 30, 2003, our portfolio remains within the limits
established by the Company. The increases in the construction loan



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portfolio since December 31, 2002 have occurred primarily in the areas of residential non-owner occupied over $0.8 million and residential subdivision under
$0.8 million.



Non-Performing Assets



Non-performing assets consist of non-performing loans and other real estate
owned. Non-performing loans are (i) loans which have been placed on non-accrual status; (ii) loans which are contractually past due 90 days or more with respect to principal or interest, and have not been restructured or placed on non-accrual
status, and are accruing interest as described below; and (iii) troubled debt restructurings (TDRs). Other real estate owned consists of real properties securing loans on which we have taken title in partial or complete satisfaction of
the loan. The following table sets forth information about non-performing assets at September 30, 2003:



NON-PERFORMING ASSETS



September 30, 2003



|Non-accrual loans                       |  | $ | 1,153,900
|--------------------------------------- |  | - | ---------
|Accruing loans past due 90 days or more |  |   | 83,500   
|Troubled debt restructurings            |  |   |         
|Other real estate owned                 |  |   |         
|                                        |  |   |          
|Total                                   |  | $ | 1,237,400
|                                        |  |   |          



Nonperforming assets
increased from $0.1 million at December 31, 2002 to $1.2 million at September 30, 2003. The principal component of this increase is a commercial line of credit secured by all of the borrowers assets with an outstanding balance of approximately
$1.1 million at September 30, 2003. Although this loan is not in default, we classified the loan as substandard effective March 31, 2003, assigned $0.2 million of specific allowance for loan losses and charged-off $0.5 million in the
second quarter of 2003. Since then, the specific reserve has been increased by an additional $0.2 million. We continue to closely monitor the loan and the collateral, and it is possible that in the future we may further downgrade the loan, resulting
in material additions to the allowance for loan losses.



The
additional interest income that would have been recorded from non-accrual loans, if the loans had not been on non-accrual status, was $58,100 for the nine months ended September 30, 2003. Cash collections on non-performing loans totaled $437,900
during the nine months ended September 30, 2003 of which $387,900 was applied to principal and $50,000 was recorded as interest income. Interest payments received on non-accrual loans are applied to principal unless there is no doubt as to ultimate
full repayment of principal, in which case, the interest payment is recognized as interest income. Interest income not recognized on non-accrual loans reduced the net yield on earning assets less than 0.1% for the nine month periods ended September
30, 2003 and 2002.



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 September 30, 2003 and December 31, 2002, we had classified $4.4 million and $1.2 million, respectively, of our loans as impaired for which a $0.8 million reserve and $0.3 million reserve, respectively, were assigned. In the nine months
ended September 30, 2003, we collected $50,200 on impaired loans.



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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



|                               |  | Nine Months Ended September 30, |          
|------------------------------ |  | ------------------------------- | ---------
|                               |  | 2003                            |          
|Balance at beginning of period |  | $                               | 1,982,900
|                               |  |                                
|Charge-offs                    |  |                                 | (509,800 
|Recoveries                     |  |                                 | 63,500   
|                               |  |                                 |          
|Net charge-offs                |  |                                 | (446,300 
|                               |  |                                
|Additional provisions          |  |                                 | 1,125,000
|                               |  |                                 |          
|Balance at end of period       |  | $                               | 2,661,600
|                               |  |                                 |          



The provision for loan
losses was increased for the nine months ended September 30, 2003 primarily due to the increased level of classified loans, non-accrual loans and loan growth.



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
September 30, 2003, we had undisbursed loan commitments of $83.6 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 September 30, 2003, we had outstanding standby letters of credit with a potential $0.9 million of obligations. These standby letters of credit will
mature within one year.



Deposits



Total deposits increased from $156.7 million at December 31, 2002 to $203.3
million at September 30, 2003. This increase was primarily due to a $40.5 million increase in savings and money market deposits primarily generated through our branch offices as a result of a deposit promotion campaign conducted by the Bank, which
we used to fund the growth in our loan portfolio and increase our liquidity.



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The following table sets forth information concerning the amount of deposits from various sources at
September 30, 2003:



SOURCE OF DEPOSITS

September 30, 2003



|           |  | Amount |             | Percent ofTotalDeposits |      
|---------- |  | ------ | ----------- | ----------------------- | -----
|Branches   |  | $      | 153,509,400 |                         | 75.5 
|Money desk |  |        | 27,115,600  |                         | 13.4 
|Brokered   |  |        | 22,634,000  |                         | 11.1 
|           |  |        |             |                         |      
|Total      |  | $      | 203,259,000 |                         | 100.0
|           |  |        |             |                         |      



We telephonically
solicit deposits through our money desk, which attracts primarily time deposits nationwide. We also engage brokers or other intermediaries to place certificates of deposit with their customers. The certificates of deposits obtained through our money
desk and deposit brokers generally had maturities ranging from nine months to thirty-nine months. We limit the amount of money desk deposits that are scheduled to mature in any one calendar month and limit the amount of funds purchased from one
intermediary to manage the risk of excessive dependence on any single deposit or depositor. In addition, we have historically maintained a level of liquidity intended specifically to counter any concurrent deposit reduction that might occur.



In recent years, the interest rates on certificates of deposit
obtained through our money desk or deposit brokers generally have been lower than the interest rates then offered to local customers for certificates of deposit with comparable maturities. We believe this is due to the highly competitive nature of
the Southern California market for deposits and, in particular, the difficulty smaller banks with fewer 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 prompt corrective
action rules may not accept brokered deposits without the prior approval of the FDIC. In addition, we believe that if we are not well capitalized, we will have greater difficulty obtaining certificates of deposit through our money desk
and would likely have to pay higher interest rates to continue to attract those deposits. Accordingly, the failure of the Bank to remain well capitalized could have a material adverse affect on us.



Borrowed Funds



At September 30, 2003, we had $32.0 million in advances from the FHLB which were collateralized by certain qualifying loans
with a carrying value of $27.6 million and investment securities with a carrying value of $23.7 million. The advances mature on various dates from 2004 through 2006. Advances totaling $25.0 million bear interest at a weighted average fixed rate of
2.74% and a $7.0 million advance bears interest at a rate of the prime lending rate less 2.89% (1.11% at September 30, 2003). Interest is payable monthly with principal and any accrued interest due at maturity.



In October 2002, Bancshares newly formed wholly owned subsidiary,
Alliance Bancshares California Capital Trust I, a Delaware trust, issued and sold $7,000,000 of trust preferred securities. These securities mature in 30 years, are redeemable at the Companys option beginning after 5 years, and require
quarterly distributions which will reset quarterly at the three-month LIBOR rate plus 3.45.



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FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS



We face risk from changes in interest rates.



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



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



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



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



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



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



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



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



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



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



Our allowances for loan losses may be inadequate.



We establish allowances for loan losses against each segment of our loan
portfolio. At September 30, 2003, our allowance for loan losses equaled 1.4% of loans. Although we believed that we had established adequate allowances for loan losses as of September 30, 2003, 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. As discussed under Financial Condition  Non-Performing Assets, we
continue to closely monitor a $1.1 million loan and the collateral, and it is possible that in the future we may further downgrade the loan, resulting in a material addition in the allowance for loan losses.



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



We attract primarily certificates of deposit from
institutional investors telephonically nationwide through a money desk. We also engage brokers or other intermediaries to place certificates of deposit for their customers. As of September 30, 2003, money desk deposits were $27.1 million
representing 13% of total deposits, as compared to $23.8 million at December 31, 2002 representing 15% of total deposits. Brokered deposits were $22.6 million at September 30, 2003 representing 11% of total deposits as compared to $32.8 million at
December 31, 2002 representing 21% of total deposits. During 2003, the Company continued its efforts to increase its levels of core deposits in an effort to decrease its reliance on money desk and brokered deposits.



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



Economic conditions may worsen.



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



At September 30, 2003, 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 sale to unidentified buyers.



At September 30, 2003, we had outstanding construction loans to developers
for tract projects and single homes for sale to unidentified buyers totaling $35.2 million, representing 19.3% of our loan portfolio, and additional commitments for these projects in the amount of $23.7 million. These types of loans generally have
greater risks than loans on completed homes, multifamily and commercial properties. A construction loan generally does not



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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 and regulation, which is intended primarily for the protection of depositors. Statutes and regulations
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 and regulations or in their interpretation
will not adversely affect our business.



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|ITEM  3. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------



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



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



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PART II OTHER INFORMATION



|ITEM  6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|-------- |  | --------------------------------



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



| | 31.1 | Section 302 Certification of CEO
| | ---- | --------------------------------



| | 31.2 | Section 302 Certification of CFO
| | ---- | --------------------------------



| | 32.1 | Section 906 Certification of CEO
| | ---- | --------------------------------



| | 32.2 | Section 906 Certification of CFO
| | ---- | --------------------------------



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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: November 12, 2003 |  | ALLIANCE BANCSHARES CALIFORNIA
|----------------------- |  | ------------------------------
|                        |  |                               
|                        |  | By:                           
|                        |  |                               
|                        |  |