##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-33455
 ALLIANCE BANCSHARES CALIFORNIA
 (Exact name of Registrant as specified in its charter)
 California
    
    91-2124567(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)100 Corporate Pointe
    
    90230Culver City, California
    
    (Zip Code)(Address of principal executive offices)
 (310) 410-9281
(Registrants telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed, since last year)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



ALLIANCE BANCSHARES CALIFORNIA
 QUARTERLY REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED MARCH 31, 2008
 TABLE OF CONTENTS
 Page No.Part I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Condition at March
31, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations for the three
months ended March 31, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows for the three
months ended March 31, 2008 and 2007
    
    
    5Consolidated Statements of Shareholders Equity for the
three months ended March 31, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32Part II. Other InformationItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    34Signatures
    
    
    35EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)(Dollars in thousands)AssetsCash and due from banks
    
    $
    23,750
    
    
    $
    17,325Federal funds sold
    
    
    26,240
    
    
    
    26,925Total cash and cash equivalents
    
    
    49,990
    
    
    
    44,250Time deposits with other financial institutions
    
    
    2,296
    
    
    
    1,251Securities held to maturity, fair market value $113,411 at March 31, 2008; $106,282
at December 31, 2007
    
    
    112,407
    
    
    
    105,946Loans held for sale
    
    
    1,381
    
    
    
    Loans, net
of the allowance for loan losses of $15,327 at March 31, 2008; $15,284
at December 31, 2007
    
    
    920,377
    
    
    
    887,652Equipment and leasehold improvements, net
    
    
    4,310
    
    
    
    4,795Accrued interest receivable and other assets
    
    
    21,106
    
    
    
    22,709Total assets
    
    $
    1,111,867
    
    
    $
    1,066,603Liabilities, Redeemable Preferred Stock and Shareholders EquityDeposits:Non-interest bearing demand
    
    $
    145,833
    
    
    $
    147,242Interest bearing:Demand
    
    
    11,731
    
    
    
    9,834Savings and money market
    
    
    223,569
    
    
    
    197,076Certificates of deposit
    
    
    504,294
    
    
    
    506,180Total deposits
    
    
    885,427
    
    
    
    860,332Accrued interest payable and other liabilities
    
    
    5,377
    
    
    
    6,271Securities sold under agreements to repurchase
    
    
    56,042
    
    
    
    35,364FHLB advances
    
    
    80,000
    
    
    
    80,000Junior subordinated debentures
    
    
    27,837
    
    
    
    27,837Total liabilities
    
    
    1,054,683
    
    
    
    1,009,804Commitments and contingencies
    
    
    
    
    
    
    Redeemable Preferred Stock:Serial preferred stock, no par value:Authorized - 20,000,000 shares7% Series A Non-Cumulative Convertible
Non-Voting:Authorized and outstanding - 733,050 shares at March 31, 2008 and
December 31, 2007
    
    
    7,697
    
    
    
    7,6976.82% Series B Non-Cumulative Convertible Non-Voting:Authorized and outstanding - 667,096 shares at March 31, 2008 and
December 31, 2007
    
    
    11,319
    
    
    
    11,319Total redeemable preferred stock
    
    
    19,016
    
    
    
    19,016Shareholders Equity:Common stock, no par value:Authorized - 20,000,000 shares; Outstanding - 6,177,879 shares at
March 31, 2008 and December 31, 2007
    
    
    6,722
    
    
    
    6,722Additional Paid in Capital
    
    
    1,250
    
    
    
    1,110Undivided profits
    
    
    30,196
    
    
    
    29,951Total shareholders equity
    
    
    38,168
    
    
    
    37,783Total liabilities, redeemable preferred stock and shareholders equity
    
    $
    1,111,867
    
    
    $
    1,066,603
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CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Interest Income:Interest and fees on loans
    
    $
    17,192
    
    
    $
    17,505Interest on time deposits with other financial institutions
    
    
    16
    
    
    
    19Interest on securities held to maturity
    
    
    1,445
    
    
    
    1,243Interest on federal funds sold
    
    
    318
    
    
    
    408Total interest income
    
    
    18,971
    
    
    
    19,175Interest Expense:Interest on deposits
    
    
    8,025
    
    
    
    6,987Interest on FHLB advances
    
    
    688
    
    
    
    678Interest on securities sold under repurchase agreements
    
    
    410
    
    
    
    220Interest on junior subordinated debentures
    
    
    453
    
    
    
    508Total interest expense
    
    
    9,576
    
    
    
    8,393Net interest income before provision for loan losses
    
    
    9,395
    
    
    
    10,782Provision for Loan Losses
    
    
    1,810
    
    
    
    1,065Net interest income
    
    
    7,585
    
    
    
    9,717Non-Interest Income
    
    
    620
    
    
    
    621Non-Interest Expense:Salaries and related benefits
    
    
    4,156
    
    
    
    4,173Occupancy and equipment expenses
    
    
    1,081
    
    
    
    945Professional fees
    
    
    371
    
    
    
    288Data processing
    
    
    226
    
    
    
    211Other operating expense
    
    
    1,297
    
    
    
    1,414Total non-interest expense
    
    
    7,131
    
    
    
    7,031Earnings Before Income Tax Expense
    
    
    1,074
    
    
    
    3,307Income tax expense
    
    
    501
    
    
    
    1,438Net Earnings
    
    $
    573
    
    
    $
    1,869Earnings per Common Share:Basic earnings per share
    
    $
    0.04
    
    
    $
    0.25Diluted earnings per share
    
    $
    0.04
    
    
    $
    0.24
  -4-




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months Ended March 31,2008
    
    
    2007(Dollars in thousands)Cash Flows from Operating Activities:Net earnings
    
    $
    573
    
    
    $
    1,869Adjustments to reconcile net earnings to net cash provided by
operating activities:Net amortization of discounts and premiums on securities
held to maturity
    
    
    21
    
    
    
    (14
    )Depreciation and amortization
    
    
    408
    
    
    
    343Provision for loan losses
    
    
    1,810
    
    
    
    1,065Compensation expense on stock options
    
    
    140
    
    
    
    99Excess tax benefit from share based payment arrangements
    
    
    
    
    
    
    (94
    )Net gains on sales of loans held for sale
    
    
    (46
    )
    
    
    (52
    )Proceeds from sales of loans held for sale
    
    
    9,438
    
    
    
    3,244Originations of loans held for sale
    
    
    (10,773
    )
    
    
    (4,303
    )Decrease in accrued interest receivable and other assets
    
    
    1,848
    
    
    
    684Decrease in accrued interest payable and other liabilities
    
    
    (894
    )
    
    
    (2,081
    )Net cash provided by operating activities
    
    
    2,525
    
    
    
    760Cash Flows from Investing Activities:Net (increase) decrease in:Time deposits with other financial institutions
    
    
    (1,045
    )
    
    
    1,414Loans
    
    
    (34,535
    )
    
    
    (57,845
    )Purchase of equipment and leasehold improvements
    
    
    (121
    )
    
    
    (520
    )(Purchase)/redemption of FHLB stock
    
    
    (47
    )
    
    
    55Purchase of securities held to maturity
    
    
    (23,023
    )
    
    
    (14,805
    )Proceeds from maturities of securities held to maturity
    
    
    16,541
    
    
    
    18,961Net cash used in investing activities
    
    
    (42,230
    )
    
    
    (52,740
    )Cash Flows from Financing Activities:Net increase (decrease) in:Demand deposits
    
    
    (1,409
    )
    
    
    10,824Interest bearing demand deposits
    
    
    1,897
    
    
    
    2,583Savings and money market deposits
    
    
    26,493
    
    
    
    10,886Certificates of deposit
    
    
    (1,886
    )
    
    
    49,280Excess tax benefit from share based payment arrangements
    
    
    
    
    
    
    94Increase in securities sold under agreements to repurchase
    
    
    20,678
    
    
    
    1,336Proceeds from stock options exercised
    
    
    
    
    
    
    78Dividends paid on preferred stock
    
    
    (328
    )
    
    
    (328
    )Net cash provided by financing activities
    
    
    45,445
    
    
    
    74,753Net Increase in Cash and Cash Equivalents
    
    
    5,740
    
    
    
    22,773Cash and Cash Equivalents, Beginning of Period
    
    
    44,250
    
    
    
    47,542Cash and Cash Equivalents, End of Period
    
    $
    49,990
    
    
    $
    70,315Supplemental Disclosure of Cash Flow InformationCash paid during the period for:Interest
    
    $
    8,907
    
    
    $
    7,814Income taxes
    
    
    370
    
    
    
    1,920
  -5-




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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Unaudited)
 For the Three Months Ended March 31, 2008 and 2007
 Common Stock
    
    
    AdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    UndividedShares
    
    
    Amount
    
    
    Capital
    
    
    Profits
    
    
    Total(Dollars and shares in thousands)Balance, December 31, 2006
    
    
    6,152
    
    
    $
    6,600
    
    
    $
    502
    
    
    $
    27,165
    
    
    $
    34,267Stock options exercised
    
    
    14
    
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    (328
    )Tax benefit on non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    94Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    
    
    
    
    99Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,869
    
    
    
    1,869Balance, March 31, 2007
    
    
    6,166
    
    
    $
    6,678
    
    
    $
    695
    
    
    $
    28,706
    
    
    $
    36,079
 Common Stock
    
    
    AdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    UndividedShares
    
    
    Amount
    
    
    Capital
    
    
    Profits
    
    
    Total(Dollars and shares in thousands)Balance, December 31, 2007
    
    
    6,178
    
    
    $
    6,722
    
    
    $
    1,110
    
    
    $
    29,951
    
    
    $
    37,783Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    (328
    )Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    140Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573
    
    
    
    573Balance, March 31, 2008
    
    
    6,178
    
    
    $
    6,722
    
    
    $
    1,250
    
    
    $
    30,196
    
    
    $
    38,168
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ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 March 31, 2008
 (Unaudited)
 1. Nature of Business and Significant Accounting Policies
 Organization
     Use of Estimates
  Income Taxes
  Accounting for Uncertainty in Income Taxes
 -7-




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##### Table of Contents



Other Real Estate Owned
  Equity Compensation Plans
  Weighted AverageWeighted Average
    
    Remaining
    
    Aggregate IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value2008Outstanding at March 31, 2008
    
    
    490,600
    
    
    $
    11.32
    
    
    
    6.37
    
    
    $
    312,550Vested or expected to vest
at March 31, 2008
    
    
    471,876
    
    
    $
    11.21
    
    
    
    6.33
    
    
    $
    312,485Options exercisable at March
31, 2008
    
    
    205,300
    
    
    $
    7.60
    
    
    
    4.77
    
    
    $
    311,560
  -8-




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2. Allowance for Loan Losses
  CHANGES IN ALLOWANCES FOR LOAN LOSSES
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Balance at beginning of period
    
    $
    15,284
    
    
    $
    9,195Charge-offs
    
    
    (2,342
    )
    
    
    (94
    )Recoveries
    
    
    800
    
    
    
    8Net charge-offs
    
    
    (1,543
    )
    
    
    (86
    )Additional provisions
    
    
    1,810
    
    
    
    1,065Other adjustments
    
    
    (225
    )
    
    
    34Balance at end of period
    
    $
    15,327
    
    
    $
    10,208
 3. Earnings per Share
  Per ShareThree Months Ended March 31, 2008
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    573Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    245
    
    
    
    6,177,879
    
    
    $
    0.04Effect of exercise of options
    
    
    
    
    
    
    18,838Diluted earnings per share:Net earnings available to common shareholders
    
    $
    573
    
    
    
    6,196,717
    
    
    $
    0.04
   Per ShareThree Months Ended March 31, 2007
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    1,869Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,541
    
    
    
    6,154,723
    
    
    $
    0.25Preferred stock dividend
    
    
    328Effect of exercise of options
    
    
    
    
    
    
    93,930Effect of conversion of Series A preferred stock
    
    
    
    
    
    
    733,050Effect of conversion of Series B preferred stock
    
    
    
    
    
    
    667,096Diluted earnings per share:Net earnings available to common shareholders
    
    $
    1,869
    
    
    
    7,648,799
    
    
    $
    0.24
  -9-




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##### Table of Contents



4. Stock Options
      Stock OptionCompensationExpense(Dollars in thousands)Remainder of 2008
    
    $
    3812009
    
    
    4662010
    
    
    3452011
    
    
    1872012
    
    
    51Total
    
    $
    1,430
  5.
Operating Segments
 Disclosures about Segments of an Enterprise and Related Information,
 -10-




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Regional
    
    
    Real EstateBanking
    
    
    IndustriesCenters
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    TotalThree Months Ended March 31
    
    (Dollars in thousands)2008Interest income
    
    $
    8,781
    
    
    $
    6,987
    
    
    $
    843
    
    
    $
    2,360
    
    
    $
    18,971Credit for funds provided
    
    
    7,101
    
    
    
    371
    
    
    
    33
    
    
    
    (7,505
    )
    
    
    Total interest income
    
    
    15,882
    
    
    
    7,358
    
    
    
    876
    
    
    
    (5,145
    )
    
    
    18,971Interest expense
    
    
    3,648
    
    
    
    
    
    
    
    
    
    
    
    5,928
    
    
    
    9,576Charge for funds used
    
    
    6,090
    
    
    
    4,232
    
    
    
    374
    
    
    
    (10,696
    )
    
    
    Total interest expense
    
    
    9,738
    
    
    
    4,232
    
    
    
    374
    
    
    
    (4,768
    )
    
    
    9,576Net interest income
    
    
    6,144
    
    
    
    3,126
    
    
    
    502
    
    
    
    (377
    )
    
    
    9,395Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,810
    
    
    
    1,810Net interest income after provision for loan losses
    
    
    6,144
    
    
    
    3,126
    
    
    
    502
    
    
    
    (2,187
    )
    
    
    7,585Non-interest income
    
    
    293
    
    
    
    68
    
    
    
    64
    
    
    
    195
    
    
    
    620Non-interest expense
    
    
    2,664
    
    
    
    756
    
    
    
    345
    
    
    
    3,366
    
    
    
    7,131Net contribution to earnings before tax expense
    
    $
    3,773
    
    
    $
    2,438
    
    
    $
    221
    
    
    $
    (5,358
    )
    
    $
    1,074
 Regional
    
    
    Real EstateBanking
    
    
    IndustriesCenters
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    TotalThree Months Ended March 31
    
    (Dollars in thousands)2007Interest income
    
    $
    6,960
    
    
    $
    9,226
    
    
    $
    1,008
    
    
    $
    1,981
    
    
    $
    19,175Credit for funds provided
    
    
    6,208
    
    
    
    428
    
    
    
    40
    
    
    
    (6,676
    )
    
    
    Total interest income
    
    
    13,168
    
    
    
    9,654
    
    
    
    1,048
    
    
    
    (4,695
    )
    
    
    19,175Interest expense
    
    
    3,524
    
    
    
    
    
    
    
    
    
    
    
    4,869
    
    
    
    8,393Charge for funds used
    
    
    4,302
    
    
    
    4,425
    
    
    
    409
    
    
    
    (9,136
    )
    
    
    Total interest expense
    
    
    7,826
    
    
    
    4,425
    
    
    
    409
    
    
    
    (4,267
    )
    
    
    8,393Net interest income
    
    
    5,342
    
    
    
    5,229
    
    
    
    639
    
    
    
    (428
    )
    
    
    10,782Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,065
    
    
    
    1,065Net interest income after provision for loan losses
    
    
    5,342
    
    
    
    5,229
    
    
    
    639
    
    
    
    (1,493
    )
    
    
    9,717Non-interest income
    
    
    284
    
    
    
    44
    
    
    
    124
    
    
    
    169
    
    
    
    621Non-interest expense
    
    
    2,398
    
    
    
    588
    
    
    
    402
    
    
    
    3,643
    
    
    
    7,031Net contribution to earnings before tax expense
    
    $
    3,228
    
    
    $
    4,685
    
    
    $
    361
    
    
    $
    (4,967
    )
    
    $
    3,307Segment assets as of:March 31, 2008
    
    $
    526,251
    
    
    $
    356,954
    
    
    $
    30,295
    
    
    $
    198,367
    
    
    $
    1,111,867December 31, 2007
    
    $
    489,666
    
    
    $
    357,087
    
    
    $
    32,575
    
    
    $
    187,275
    
    
    $
    1,066,603
  -11-




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##### Table of Contents



6. Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS 115 Accounting for Certain Investments in Debt
and Equity Securities
 Fair Value Measurements
 7. Fair Value Measurements
  Fair Value Measurements
 
    
    Level 1
    
    inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
    
    Level 2
    
    inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of
the financial instrument.
    
    Level 3
    
    inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
    -12-




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##### Table of Contents



Assets
 Fair Value on a Recurring Basis
  Fair Value Measurements UsingQuoted Prices
    
    SignificantIn Active
    
    Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Securities held to maturity
    
    $
    113,411
    
    
    
    
    
    
    $
    113,411
    
    
    
    
  Fair Value on a Nonrecurring Basis.
  Fair Value Measurements UsingQuoted Prices
    
    SignificantIn Active
    
    Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans with
specific allowance
under SFAS 114
    
    $
    34,130
    
    
    
    
    
    
    
    
    
    
    $
    34,130
  Loans held for sale
  -13-




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Forward-Looking Information
  Overview
      -14-




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##### Table of Contents



-15-




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##### Table of Contents



Three Months Ended March 31,2008
    
    2007Return on average assets (1)
    
    
    0.21
    %
    
    
    0.84
    %Return on average shareholders equity (1)
    
    
    5.93
    %
    
    
    21.3
    %Average equity to average assets
    
    
    3.5
    %
    
    
    3.9
    %
 
 (1)
    
    Annualized RESULTS OF OPERATIONS  Three months ended March 31, 2008 and 2007
 Net Interest Income
  Three Months Ended March 31,Percent2008
    
    2007
    
    Change(Unaudited)(Dollars in thousands)Interest income
    
    $
    18,971
    
    
    $
    19,175
    
    
    
    (1.1
    )%Interest expense
    
    
    9,576
    
    
    
    8,393
    
    
    
    14.1
    %Net interest income before provision for loan losses
    
    
    9,395
    
    
    
    10,782
    
    
    
    (12.9
    )%Net interest margin
    
    
    3.56
    %
    
    
    5.00
    %
    
    
    (28.8
    )%
     -16-




---



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-17-




---



##### Table of Contents



ANALYSIS OF NET INTEREST INCOME
 Three months ended March 31,2008
    
    
    2007Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    Interest
    
    
    Rates
    
    
    Average
    
    
    Interest
    
    
    RatesBalance
    
    
    Inc./Exp.(1)
    
    
    Earned/Paid(3)
    
    
    Balance
    
    
    Inc./Exp.(1)
    
    
    Earned/Paid(3)(Dollars in thousands)Interest earning assets:Federal funds sold
    
    $
    39,426
    
    
    $
    318
    
    
    
    3.24
    %
    
    $
    32,885
    
    
    $
    408
    
    
    
    5.03
    %Time deposits
    
    
    1,887
    
    
    
    16
    
    
    
    3.41
    %
    
    
    2,066
    
    
    
    19
    
    
    
    3.73
    %Securities
    
    
    109,579
    
    
    
    1,445
    
    
    
    5.30
    %
    
    
    96,687
    
    
    
    1,243
    
    
    
    5.21
    %Loans (2)
    
    
    909,310
    
    
    
    17,192
    
    
    
    7.60
    %
    
    
    743,285
    
    
    
    17,505
    
    
    
    9.55
    %Total interest earning assets
    
    
    1,060,202
    
    
    
    18,971
    
    
    
    7.20
    %
    
    
    874,923
    
    
    
    19,175
    
    
    
    8.89
    %Non-interest earning assets
    
    
    34,611
    
    
    
    
    
    
    
    
    
    
    
    30,448Total assets
    
    $
    1,094,813
    
    
    
    
    
    
    
    
    
    
    $
    905,371Interest bearing liabilities:Interest bearing demand deposits
    
    $
    10,779
    
    
    
    44
    
    
    
    1.64
    %
    
    $
    14,100
    
    
    
    54
    
    
    
    1.55
    %Savings and money market
deposits
    
    
    216,959
    
    
    
    1,591
    
    
    
    2.95
    %
    
    
    195,994
    
    
    
    2,051
    
    
    
    4.24
    %Certificates of deposit
    
    
    514,394
    
    
    
    6,390
    
    
    
    5.00
    %
    
    
    387,539
    
    
    
    4,882
    
    
    
    5.11
    %FHLB advances:Short-term
    
    
    40,554
    
    
    
    417
    
    
    
    4.14
    %
    
    
    
    
    
    
    
    
    
    
    Long-term
    
    
    30,000
    
    
    
    271
    
    
    
    3.63
    %
    
    
    50,000
    
    
    
    678
    
    
    
    5.50
    %Securities sold under
repurchase agreements
    
    
    45,560
    
    
    
    410
    
    
    
    3.62
    %
    
    
    20,254
    
    
    
    220
    
    
    
    4.41
    %Junior subordinated debentures
    
    
    27,837
    
    
    
    453
    
    
    
    6.55
    %
    
    
    27,837
    
    
    
    508
    
    
    
    7.40
    %Total interest bearing liabilities
    
    
    886,083
    
    
    
    9,576
    
    
    
    4.35
    %
    
    
    695,724
    
    
    
    8,393
    
    
    
    4.89
    %Non-interest bearing liabilities
    
    
    150,891
    
    
    
    
    
    
    
    
    
    
    
    155,024Total liabilities
    
    
    1,036,974
    
    
    
    
    
    
    
    
    
    
    
    850,748Redeemable preferred stock and
shareholders equity
    
    
    57,839
    
    
    
    
    
    
    
    
    
    
    
    54,623Total liabilities and
shareholders equity
    
    $
    1,094,813
    
    
    
    
    
    
    
    
    
    
    $
    905,371Net interest income
    
    
    
    
    
    $
    9,395
    
    
    
    
    
    
    
    
    
    
    $
    10,782Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    4.00
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    5.00
    %
 
 (1)
    
    Interest income on loans includes loan fees of $0.6 million in 2008 and $1.3 million
in 2007.(2)
    
    Loans include nonaccrual loans with an average balance of
$84.0 million in 2008 and $12.5 million in 2007.(3)
    
    Annualized. -18-




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##### Table of Contents



ANALYSIS OF CHANGE IN NET INTEREST INCOME
 Three Months Ended March 31, 2008Increase (Decrease)Due To Change InVolume
    
    
    Rate
    
    
    Net Change(Dollars in thousands)Interest income:Federal funds sold
    
    $
    71
    
    
    $
    (161
    )
    
    $
    (90
    )Time deposits
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )Securities
    
    
    169
    
    
    
    33
    
    
    
    202Loans
    
    
    3,501
    
    
    
    (3,814
    )
    
    
    (313
    )Total interest earning assets
    
    
    3,739
    
    
    
    (3,943
    )
    
    
    (204
    )Interest expense:Interest bearing demand
    
    
    (13
    )
    
    
    3
    
    
    
    (10
    )Savings and money market
    
    
    202
    
    
    
    (662
    )
    
    
    (460
    )Certificates of deposit
    
    
    1,577
    
    
    
    (69
    )
    
    
    1,508FHLB advances:Short-term
    
    
    417
    
    
    
    
    
    
    
    417Long-term
    
    
    (222
    )
    
    
    (185
    )
    
    
    (407
    )Securities sold under agreements to repurchase
    
    
    233
    
    
    
    (43
    )
    
    
    190Junior subordinated debentures
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Total interest bearing liabilities
    
    
    2,194
    
    
    
    (1,011
    )
    
    
    1,183Net interest income
    
    $
    1,545
    
    
    $
    (2,932
    )
    
    $
    (1,387
    )
 Provision for Loan Losses
   -19-




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##### Table of Contents



Non-Interest Income
  NON-INTEREST INCOME
 Three Months Ended March 31,Percent2008
    
    
    2007
    
    
    Change(Dollars in thousands)Service charges
    
    $
    299
    
    
    $
    285
    
    
    
    4.9
    %Gain on sale of loans, net
    
    
    46
    
    
    
    52
    
    
    
    (11.5
    )%Loan broker fee income
    
    
    33
    
    
    
    82
    
    
    
    (59.8
    )%Other
    
    
    242
    
    
    
    202
    
    
    
    19.8
    %Total
    
    $
    620
    
    
    $
    621
    
    
    
    0.2
    %
   Non-Interest Expense
  Three Months Ended March 31,Percent2008
    
    
    2007
    
    
    Change(Dollars in thousands)Salaries and related benefits
    
    $
    4,156
    
    
    $
    4,173
    
    
    
    (0.4
    )%Occupancy and equipment
    
    
    1,081
    
    
    
    945
    
    
    
    14.4
    %Professional fees
    
    
    371
    
    
    
    288
    
    
    
    28.8
    %Data processing
    
    
    226
    
    
    
    211
    
    
    
    7.1
    %Other operating expense
    
    
    1,297
    
    
    
    1,414
    
    
    
    (8.3
    )%Total
    
    $
    7,131
    
    
    $
    7,031
    
    
    
    1.4
    %
     -20-




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##### Table of Contents



FINANCIAL CONDITION
 Regulatory Capital
  REGULATORY CAPITAL
March 31, 2008
 To Be Adequately
    
    To Be WellActual
    
    Capitalized
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)BancsharesTotal Capital (to
risk-weighted
assets)
    
    $
    95,988
    
    
    
    10.08
    %
    
    $
    76,184
    
    
    
    >=8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to
risk-weighted
assets)
    
    $
    75,908
    
    
    
    7.97
    %
    
    $
    38,092
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to
average assets)
    
    $
    75,908
    
    
    
    6.94
    %
    
    $
    43,739
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ABankTotal Capital (to
risk-weighted
assets)
    
    $
    95,179
    
    
    
    10.00
    %
    
    $
    76,127
    
    
    
    >=8.0
    %
    
    $
    95,158
    
    
    
    >=10.0
    %Tier 1 Capital (to
risk-weighted
assets)
    
    $
    83,238
    
    
    
    8.75
    %
    
    $
    38,063
    
    
    
    >=4.0
    %
    
    $
    57,095
    
    
    
    >=6.0
    %Tier 1 Capital (to
average assets)
    
    $
    83,238
    
    
    
    7.61
    %
    
    $
    43,739
    
    
    
    >=4.0
    %
    
    $
    54,674
    
    
    
    >=5.0
    %
   Liquidity and Cash Flow
    -21-




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##### Table of Contents



Cash Flow from Operating Activities
  Cash Flow from Investing Activities
  Cash Flows from Financing Activities
  Rate Sensitivity
   -22-




---



##### Table of Contents



RATE SENSITIVITY
March 31, 2008
(Dollars in thousands)
 Over Three
    
    
    Over OneThree
    
    
    Through
    
    
    Year
    
    
    OverMonths
    
    
    Twelve
    
    
    Through
    
    
    FiveOr Less
    
    
    Months
    
    
    Five Years
    
    
    Years
    
    
    TotalAssetsFederal funds sold
    
    $
    26,240
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,240Time deposits with other financial
institutions
    
    
    998
    
    
    
    1,100
    
    
    
    198
    
    
    
    
    
    
    
    2,296Securities held to maturity
    
    
    1,000
    
    
    
    4,007
    
    
    
    994
    
    
    
    106,406
    
    
    
    112,407Loans, gross
    
    
    418,941
    
    
    
    108,630
    
    
    
    277,027
    
    
    
    133,270
    
    
    
    937,868Total rate-sensitive assets
    
    $
    447,179
    
    
    $
    113,737
    
    
    $
    278,219
    
    
    $
    239,676
    
    
    $
    1,078,811Liabilities:Interest bearing demand deposits
    
    $
    11,731
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,731Savings and money market
    
    
    223,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223,569Certificates of deposit
    
    
    70,616
    
    
    
    252,126
    
    
    
    181,552
    
    
    
    
    
    
    
    504,294FHLB advances
    
    
    50,000
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    80,000Restructured repurchase agreement
    
    
    56,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,042Junior subordinated debentures
    
    
    27,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,837Total rate sensitive liabilities
    
    $
    439,795
    
    
    $
    272,126
    
    
    $
    191,552
    
    
    $
    
    
    
    $
    903,473Interval Gaps:Interest rate sensitivity gap
    
    $
    7,384
    
    
    
    ($158,389
    )
    
    $
    86,667
    
    
    $
    239,676
    
    
    $
    175,338Rate sensitive assets to rate sensitive
liabilities
    
    
    101.7
    %
    
    
    41.8
    %
    
    
    145.2
    %
    
    
    N/A
    
    
    
    119.4
    %Cumulative Gaps:Cumulative interest rate sensitivity gap
    
    $
    7,384
    
    
    
    ($151,005
    )
    
    $
    (64,338
    )
    
    $
    175,338
    
    
    $
    175,338Rate sensitive assets to rate sensitive
liabilities
    
    
    101.7
    %
    
    
    78.8
    %
    
    
    92.9
    %
    
    
    119.4
    %
    
    
    119.4
    %% of rate sensitive assets in period
    
    
    41.5
    %
    
    
    52.0
    %
    
    
    77.8
    %
    
    
    100.0
    %
    
    
    N/A
 Investments in Time Deposits and Securities
  TIME DEPOSIT INVESTMENTS
 March 31, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Time deposits maturing:Within one year
    
    
    2,098
    
    
    
    2.68
    %
    
    
    1,053
    
    
    
    3.78
    %After one year but within five years
    
    
    198
    
    
    
    4.00
    %
    
    
    198
    
    
    
    4.00
    %Total time deposits
    
    $
    2,296
    
    
    
    2.80
    %
    
    $
    1,251
    
    
    
    3.82
    %
  -23-




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##### Table of Contents



INVESTMENT SECURITIES
 March 31, 2008
    
    
    December 31, 2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Investment securities maturing:Within one year
    
    $
    5,007
    
    
    
    5.06
    %
    
    $
    7,994
    
    
    
    5.20
    %After one year but within five years
    
    
    994
    
    
    
    4.38
    %
    
    
    8,492
    
    
    
    5.02
    %Collateralized mortgage obligations
and mortgage-backed securities
    
    
    106,406
    
    
    
    5.38
    %
    
    
    89,460
    
    
    
    5.44
    %Total investment securities
    
    $
    112,407
    
    
    
    5.36
    %
    
    $
    105,946
    
    
    
    5.38
    %
    FAIR VALUE OF INVESTMENT SECURITIES
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)March 31, 2008U.S. Agency securities
    
    $
    994
    
    
    $
    13
    
    
    $
    
    
    
    $
    1,007Corporate bonds
    
    
    5,007
    
    
    
    3
    
    
    
    122
    
    
    
    4,888Collateralized
mortgage obligations
and mortgage-backed
securities:
    
    
    106,406
    
    
    
    1,859
    
    
    
    749
    
    
    
    107,516$
    112,407
    
    
    $
    1,875
    
    
    $
    871
    
    
    $
    113,411
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)December 31, 2007U.S. Agency securities
    
    $
    10,477
    
    
    $
    26
    
    
    $
    
    
    
    $
    10,503Corporate bonds
    
    
    6,009
    
    
    
    
    
    
    
    143
    
    
    
    5,866Collateralized
mortgage obligations
and mortgage-backed
securities
    
    
    89,460
    
    
    
    834
    
    
    
    381
    
    
    
    89,913$
    105,946
    
    
    $
    860
    
    
    $
    524
    
    
    $
    106,282
 -24-




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##### Table of Contents



UNREALIZED LOSSES ON INVESTMENT SECURITIES
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair value
    
    
    Unrealized loss
    
    
    Fair value
    
    
    Unrealized loss
    
    
    Fair value
    
    
    Unrealized loss(Dollars in thousands)Corporate bonds
    
    $
    
    
    
    $
    
    
    
    $
    3,883
    
    
    $
    122
    
    
    $
    3,883
    
    
    $
    122Collateralized
mortgage
obligations and
mortgage-backed
securities
    
    
    15,569
    
    
    
    574
    
    
    
    13,471
    
    
    
    175
    
    
    
    29,040
    
    
    
    749$
    15,569
    
    
    $
    574
    
    
    $
    17,354
    
    
    $
    297
    
    
    $
    32,923
    
    
    $
    871
    Loans
   LOAN PORTFOLIO COMPOSITION
 March 31, 2008
    
    
    December 31, 2007Amount
    
    
    Percent of
    
    
    Amount
    
    
    Percent ofOutstanding
    
    
    Total
    
    
    Outstanding
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    252,137
    
    
    
    26.9
    %
    
    $
    262,374
    
    
    
    29.0
    %Construction loans
    
    
    263,836
    
    
    
    28.2
    
    
    
    272,279
    
    
    
    30.1Real estate loans
    
    
    406,144
    
    
    
    43.3
    
    
    
    358,907
    
    
    
    39.7Other loans
    
    
    15,429
    
    
    
    1.6
    
    
    
    11,075
    
    
    
    1.2937,546
    
    
    
    100.0
    %
    
    
    904,635
    
    
    
    100.0
    %Less  Deferred loan fees, net
    
    
    (1,842
    )
    
    
    
    
    
    
    (1,699
    )Less  Allowance for loan losses
    
    
    (15,327
    )
    
    
    
    
    
    
    (15,284
    )Net loans
    
    $
    920,377
    
    
    
    
    
    
    $
    887,652
 -25-




---



##### Table of Contents



LOAN MATURITIES
 March 31, 2008After One YearOne Year or
    
    
    Through FiveLess
    
    
    Years
    
    
    After Five Years
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    126,012
    
    
    $
    104,795
    
    
    $
    21,329
    
    
    $
    252,137Construction loans
    
    
    232,550
    
    
    
    30,655
    
    
    
    631
    
    
    
    263,836Real estate loans
    
    
    46,885
    
    
    
    155,197
    
    
    
    204,062
    
    
    
    406,144Other loans
    
    
    1,308
    
    
    
    8,499
    
    
    
    5,622
    
    
    
    15,429$
    406,755
    
    
    $
    299,146
    
    
    $
    231,645
    
    
    $
    937,546
   NON-PERFORMING ASSETS
 March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Non-accrual loans
    
    $
    66,355
    
    
    $
    28,774Accruing loans past due 90 days or more
    
    
    11,128
    
    
    
    Troubled debt restructuring
    
    
    
    
    
    
    Other real estate owned
    
    
    885
    
    
    
    1,100Balance at end of period
    
    $
    78,368
    
    
    $
    29,874
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IMPAIRED LOANS
 As of and
    
    
    As of and forfor the three
    
    
    the twelvemonths
    
    
    monthsended
    
    
    endedMarch 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Impaired loans with a valuation allowance
    
    $
    40,236
    
    
    $
    16,863Impaired loans without a valuation allowance
    
    
    36,727
    
    
    
    28,124Total Impaired loans
    
    $
    76,963
    
    
    $
    44,987Valuation allowance related to impaired loans
    
    $
    6,106
    
    
    $
    2,700Average recorded investment in impaired loans
    
    $
    83,974
    
    
    $
    54,238Cash collections applied to reduce principal balance
    
    $
    2,980
    
    
    $
    12,137Interest income recognized on cash collections
    
    $
    93
    
    
    $
    3,485
 Changes in Allowance for Loan Losses
  Off-Balance Sheet Credit Commitments and Contingent Obligations
   Deposits
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SOURCE OF DEPOSITS
 March 31, 2008
    
    
    December 31, 2007Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in thousands)Regional Bank Centers
    
    $
    521,825
    
    
    
    58.9
    %
    
    $
    494,184
    
    
    
    57.4
    %Money desk
    
    
    110,334
    
    
    
    12.5
    
    
    
    101,060
    
    
    
    11.7Brokered
    
    
    190,907
    
    
    
    21.6
    
    
    
    197,159
    
    
    
    22.9Internet
    
    
    62,361
    
    
    
    7.0
    
    
    
    67,929
    
    
    
    8.0Total
    
    $
    885,427
    
    
    
    100.0
    %
    
    $
    860,332
    
    
    
    100.0
    %
      -29-




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CERTIFICATES OF DEPOSIT
 Certificate of Deposit Maturing:
    
    Amount(1)(Dollars in thousands)Three months or less
    
    $
    69,340Over three and through twelve months
    
    
    240,320Over twelve months
    
    
    161,137Total
    
    $
    470,797
 
 (1)
    
    Excludes time deposits included in IRA accounts. Borrowed Funds
 FHLB Advances
  FHLB ADVANCES
 Principal Amount
    
    Interest rate
    
    Maturity date(Dollars in thousands)$
    10,000
    
    
    Fixed at 2.48%
    
    April 200810,000
    
    
    Fixed at 5.31%
    
    August 200810,000
    
    
    Fixed at 4.54%
    
    October 200810,000
    
    
    Prime minus 2.87%
    
    December 200810,000
    
   
    Prime minus 2.83%
    
    January 200910,000
    
    
    Prime minus 2.80%
    
    December 200910,000
    
    
    Fixed at 3.86%
    
    December 200910,000
    
    
    Prime minus 2.74%
    
    January 2010$
    80,000
 Junior Subordinated Debentures
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Securities Sold Under Agreements to Repurchase.
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  -31-




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ITEM 4. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  -33-




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##### Table of Contents



ITEM 6. EXHIBITS
 10.1
    
    Amendment No. 2 Office Building Lease between Alliance Bank and
Piedmont Operating Partnership, L.P.31.1
    
    Section 302 CEO Certification31.2
    
    Section 302 CFO Certification32.1
    
    Certificate by Curtis S. Reis, Chairman and Chief Executive Officer
of the Company dated May 20, 2008 pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President and Chief
Financial Officer of the Company dated May 20, 2008 pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002.
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##### Table of Contents



SIGNATURES
  DATE: May 20, 2008
    ALLIANCE BANCSHARES CALIFORNIABy:
    /s/ Daniel L. EricksonDaniel L. EricksonExecutive Vice President and Chief
Financial Officer -35-




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Amendment No. 2 Office Building Lease between Alliance Bank and
Piedmont Operating Partnership, L.P.31.1
    
    Section 302 CEO Certification31.2
    
    Section 302 CFO Certification32.1
    
    Certificate by Curtis S. Reis, Chairman and Chief Executive Officer
of the Company dated May 16, 2008 pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President and Chief
Financial Officer of the Company dated May 16, 2008 pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002.
 -36-