##### Table of Contents



U.S. 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, 2007
 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
(State or other jurisdiction 
of incorporation or organization)
    
    91-2124567
(I.R.S. Employer
Identification Number)100 Corporate PointeCulver City, California
(Address of principal executive offices)
    
    90230
(Zip Code)
 (310) 410-9281
(Registrants telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed, since last year)
 þ o
  o o þ
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##### 



ALLIANCE BANCSHARES CALIFORNIA
 QUARTERLY REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED MARCH 31, 2007
 TABLE OF CONTENTS
 Page No.Part I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Statements of Financial Condition at March 31, 2007 and December
31, 2006
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2007
and 2006
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2007
and 2006
    
    
    5Consolidated Statements of Shareholders Equity for the three months ended
March 31, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    27Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    28Signatures
    
    
    29EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)(Dollars in thousands)AssetsCash and due from banks
    
    $
    17,920
    
    
    $
    18,732Federal funds sold
    
    
    52,395
    
    
    
    28,810Total cash and cash equivalents
    
    
    70,315
    
    
    
    47,542Time deposits with other financial institutions
    
    
    1,142
    
    
    
    2,556Securities held to maturity, fair market value $100,253 at March 31, 2007; $104,153
at December 31, 2006
    
    
    100,485
    
    
    
    104,627Loans held for sale
    
    
    1,416
    
    
    
    305Loans, net of the allowance for loan losses of $10,208 at March 31, 2007; $9,195 at December 31,
2006
    
    
    756,969
    
    
    
    700,189Equipment and leasehold improvements, net
    
    
    4,463
    
    
    
    4,286Accrued interest receivable and other assets
    
    
    15,612
    
    
    
    16,257Total assets
    
    $
    950,402
    
    
    $
    875,762Liabilities, Redeemable Preferred Stock and Shareholders EquityDeposits:Non-interest bearing demand
    
    $
    168,089
    
    
    $
    157,265Interest bearing:Demand
    
    
    15,400
    
    
    
    12,817Savings and money market
    
    
    194,578
    
    
    
    183,692Certificates of deposit
    
    
    412,374
    
    
    
    363,094Total deposits
    
    
    790,441
    
    
    
    716,868Accrued interest payable and other liabilities
    
    
    5,693
    
    
    
    7,774Securities sold under agreements to repurchase
    
    
    21,336
    
    
    
    20,000FHLB advances
    
    
    50,000
    
    
    
    50,000Junior subordinated debentures
    
    
    27,837
    
    
    
    27,837Total liabilities
    
    
    895,307
    
    
    
    822,479Commitments 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,
2007 and December 31, 2006
    
    
    7,697
    
    
    
    7,6976.82% Series B Non-Cumulative Convertible Non-Voting:Authorized and outstanding  667,096 shares at March 31,
2007 and December 31, 2006
    
    
    11,319
    
    
    
    11,319Total redeemable preferred stock
    
    
    19,016
    
    
    
    19,016Shareholders Equity:Common stock, no par value:Authorized - 20,000,000 sharesOutstanding  6,165,879 shares at March 31, 2007 and 6,151,679
shares at December 31, 2006
    
    
    6,678
    
    
    
    6,600Additional Capital
    
    
    695
    
    
    
    502Undivided profits
    
    
    28,706
    
    
    
    27,165Total shareholders equity
    
    
    36,079
    
    
    
    34,267Total liabilities, redeemable preferred stock and shareholders equity
    
    $
    950,402
    
    
    $
    875,762
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CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Interest Income:Interest and fees on loans
    
    $
    17,505
    
    
    $
    12,828Interest on time deposits with other financial institutions
    
    
    19
    
    
    
    74Interest on securities held to maturity
    
    
    1,243
    
    
    
    824Interest on federal funds sold
    
    
    408
    
    
    
    236Total interest income
    
    
    19,175
    
    
    
    13,962Interest Expense:Interest on deposits
    
    
    6,987
    
    
    
    4,443Interest on FHLB advances
    
    
    678
    
    
    
    361Interest on securities sold under repurchase agreements
    
    
    220
    
    
    
    282Interest on junior subordinated debentures
    
    
    508
    
    
    
    301Total interest expense
    
    
    8,393
    
    
    
    5,387Net interest income before provision for loan losses
    
    
    10,782
    
    
    
    8,575Provision for Loan Losses
    
    
    1,065
    
    
    
    750Net interest income
    
    
    9,717
    
    
    
    7,825Non-Interest Income
    
    
    621
    
    
    
    638Non-Interest Expense:Salaries and related benefits
    
    
    4,173
    
    
    
    2,999Occupancy and equipment expenses
    
    
    945
    
    
    
    709Professional fees
    
    
    288
    
    
    
    277Data processing
    
    
    211
    
    
    
    212Other operating expense
    
    
    1,414
    
    
    
    1,255Total non-interest expense
    
    
    7,031
    
    
    
    5,452Earnings Before Income Tax Expense
    
    
    3,307
    
    
    
    3,011Income tax expense
    
    
    1,438
    
    
    
    1,219Net Earnings
    
    $
    1,869
    
    
    $
    1,792Earnings per Common Share:Basic earnings per share
    
    $
    0.25
    
    
    $
    0.24Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.23
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CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months Ended March 31,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating Activities:Net earnings
    
    $
    1,869
    
    
    $
    1,792Adjustments to reconcile net earnings to net cash provided by operating activities:Net amortization of discounts and premiums on securities held to maturity
    
    
    (14
    )
    
    
    93Depreciation and amortization
    
    
    343
    
    
    
    269Provision for loan losses
    
    
    1,065
    
    
    
    750Compensation expense on stock options
    
    
    99
    
    
    
    75Excess tax benefit from share based payment arrangements
    
    
    (94
    )
    
    
    Net gains on sales of loans held for sale
    
    
    (52
    )
    
    
    (87
    )Proceeds from sales of loans held for sale
    
    
    3,244
    
    
    
    5,407Originations of loans held for sale
    
    
    (4,303
    )
    
    
    (8,562
    )(Increase) decrease in accrued interest receivable and other assets
    
    
    684
    
    
    
    (1,168
    )(Increase) decrease in accrued interest payable and other liabilities
    
    
    (2,081
    )
    
    
    1,757Net cash provided by operating activities
    
    
    760
    
    
    
    326Cash Flows from Investing Activities:Net (increase) decrease in:Time deposits with other financial institutions
    
    
    1,414
    
    
    
    2,303Loans
    
    
    (57,845
    )
    
    
    (41,298
    )Purchase of equipment and leasehold improvements
    
    
    (520
    )
    
    
    (126
    )Redemption of FHLB stock
    
    
    55
    
    
    
    837Purchase of securities held to maturity
    
    
    (14,805
    )
    
    
    (23,798
    )Proceeds from maturities of securities held to maturity
    
    
    18,961
    
    
    
    6,626Net cash used in investing activities
    
    
    (52,740
    )
    
    
    (55,456
    )Cash Flows from Financing Activities:Net increase (decrease) in:Demand deposits
    
    
    10,824
    
    
    
    (8,264
    )Interest bearing demand deposits
    
    
    2,583
    
    
    
    670Savings and money market deposits
    
    
    10,886
    
    
    
    9,100Certificates of deposit
    
    
    49,280
    
    
    
    41,829Excess tax benefit from share based payment arrangements
    
    
    94
    
    
    
    Increase in securities sold under agreements to repurchase
    
    
    1,336
    
    
    
    21,166Proceeds from stock options exercised
    
    
    78
    
    
    
    2Dividends paid on preferred stock
    
    
    (328
    )
    
    
    (328
    )Net cash provided by financing activities
    
    
    74,753
    
    
    
    64,175Net Increase in Cash and Cash Equivalents
    
    
    22,773
    
    
    
    9,046Cash and Cash Equivalents, Beginning of Period
    
    
    47,542
    
    
    
    30,149Cash and Cash Equivalents, End of Period
    
    $
    70,315
    
    
    $
    39,195Supplemental Disclosure of Cash Flow InformationCash paid during the period for:Interest
    
    $
    7,814
    
    
    $
    4,309Income taxes
    
    
    1,920
    
    
    
    1,095
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Unaudited)
 For the Three Months Ended March 31, 2007 and 2006
 Common StockAdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    UndividedShares
    
    
    Amount
    
    
    Capital
    
    
    Profits
    
    
    Total(Dollars and shares in thousands)Balance, December 31, 2005
    
    
    6,066
    
    
    $
    6,407
    
    
    
    
    
    
    $
    20,470
    
    
    $
    26,877Stock options exercised
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (328
    )
    
    
    (328
    )Compensation expense on stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,792
    
    
    
    1,792Balance, March 31, 2006
    
    
    6,066
    
    
    $
    6,409
    
    
    
    
    
    
    $
    22,009
    
    
    $
    28,418
 Common StockAdditionalNumber 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
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ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 March 31, 2007
 (Unaudited)
 1. Nature of Business and Significant Accounting Policies
 Organization
    Use of Estimates
  Income Taxes
  Accounting for Uncertainty in Income Taxes
 Equity Compensation Plans
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Share-Based Payment ( )
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Weighted AverageWeighted Average
    
    Remaining
    
    Aggregate IntrinsicShares
    
    Exercise Price
    
    Contractual Life
    
    Value(Dollars in thousands
except per share amounts)2007Outstanding at December 31, 2006
    
    
    425,000
    
    
    $
    9.72Granted
    
    
    
    
    
    
    Exercised
    
    
    14,200
    
    
    
    5.54Forfeited
    
    
    8,200
    
    
    
    9.69Outstanding at March 31, 2007
    
    
    402,600
    
    
    
    9.87
    
    
    
    6.62
    
    
    $
    2,956Vested or expected to vest at March 31, 2007
    
    
    385,406
    
    
    
    9.75
    
    
    
    6.57
    
    
    $
    2,873Options exercisable at March 31, 2007
    
    
    148,300
    
    
    
    5.49
    
    
    
    4.72
    
    
    $
    1,736
 2. Allowance for Loan Losses
  CHANGES IN ALLOWANCES FOR LOAN LOSSES
 Three months ended March 31,2007
    
    
    2006(Dollars in thousands)Balance at beginning of period
    
    $
    9,195
    
    
    $
    6,051Chargeoffs
    
    
    (94
    )
    
    
    (190
    )Recoveries
    
    
    8
    
    
    
    1Net chargeoffs
    
    
    (86
    )
    
    
    (189
    )Additional provisions
    
    
    1,065
    
    
    
    750Other adjustments
    
    
    34
    
    
    
    Balance at end of period
    
    $
    10,208
    
    
    $
    6,612
 3. Earnings per Share
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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 and warrants
    
    
    
    
    
    
    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
 Per ShareThree Months Ended March 31, 2006
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    1,792Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,464
    
    
    
    6,065,741
    
    
    $
    0.24Preferred stock dividend
    
    
    328Effect of exercise of options and warrants
    
    
    
    
    
    
    191,540Effect 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
    
    $
    1,792
    
    
    
    7,657,427
    
    
    $
    0.23
  4. Stock Options
    Stock OptionCompensationExpense(Dollars in thousands)Remainder of 2007
    
    $
    2852008
    
    
    3662009
    
    
    3232010
    
    
    2042011
    
    
    57Total
    
    $
    1,235
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5. Operation Segments
 Disclosures about Segments of an Enterprise and Related Information
     Regional
    
    
    Real EstateBanking
    
    
    IndustriesCenters
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(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
    )
    
    $
    3,307
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Regional
    
    
    Real EstateBanking
    
    
    IndustriesCenters
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2006Interest income
    
    $
    4,725
    
    
    $
    6,605
    
    
    $
    932
    
    
    $
    1,700
    
    
    $
    13,962Credit for funds provided
    
    
    4,216
    
    
    
    308
    
    
    
    41
    
    
    
    (4,565
    )
    
    
    Total interest income
    
    
    8,941
    
    
    
    6,913
    
    
    
    973
    
    
    
    (2,865
    )
    
    
    13,962Interest expense
    
    
    2,440
    
    
    
    2
    
    
    
    1
    
    
    
    2,944
    
    
    
    5,387Charge for funds used
    
    
    2,731
    
    
    
    3,105
    
    
    
    354
    
    
    
    (6,190
    )
    
    
    Total interest expense
    
    
    5,171
    
    
    
    3,107
    
    
    
    355
    
    
    
    (3,246
    )
    
    
    5,387Net interest income
    
    
    3,770
    
    
    
    3,806
    
    
    
    618
    
    
    
    381
    
    
    
    8,575Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    750Net interest income
after provision for loan
losses
    
    
    3,770
    
    
    
    3,806
    
    
    
    618
    
    
    
    (369
    )
    
    
    7,825Non-interest income
    
    
    320
    
    
    
    71
    
    
    
    153
    
    
    
    94
    
    
    
    638Non-interest expense
    
    
    1,678
    
    
    
    500
    
    
    
    397
    
    
    
    2,877
    
    
    
    5,452Net contribution to
earnings before tax
expense
    
    $
    2,412
    
    
    $
    3,377
    
    
    $
    374
    
    
    $
    (3,152
    )
    
    $
    3,011Segment assets as of:March 31, 2007
    
    
    360,203
    
    
    
    362,106
    
    
    
    30,804
    
    
    
    197,289
    
    
    
    950,402December 31, 2006
    
    
    322,610
    
    
    
    337,548
    
    
    
    34,345
    
    
    
    181,259
    
    
    
    875,762
  6. Recent Accounting Pronouncements
 Fair Value Measurements
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
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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
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Forward-Looking Information
  Overview
    Three months endedMarch 31,2007
    
    2006Return on average assets (1)
    
    
    0.84
    %
    
    
    1.02
    %Return on average shareholders equity (1)
    
    
    21.3
    %
    
    
    25.6
    %Net yield on average interest earning assets (1)
    
    
    5.00
    %
    
    
    5.15
    %
 
 (1)
    
    Annualized  - 13 -




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##### Table of Contents



Three Months Ended March 31,Percent2007
    
    2006
    
    Change(Unaudited)(Dollars in thousands except per share amountsand percentages)Net interest income before provision for loan losses
    
    $
    10,782
    
    
    $
    8,575
    
    
    
    25.7
    %Provision for loan losses
    
    
    1,065
    
    
    
    750
    
    
    
    42.0
    %Non-interest expense
    
    
    7,031
    
    
    
    5,452
    
    
    
    29.0
    %Net Earnings
    
    
    1,869
    
    
    
    1,792
    
    
    
    4.3
    %Earnings per common share:Basic earnings per share
    
    $
    0.25
    
    
    $
    0.24
    
    
    
    4.2
    %Diluted earnings per share
    
    $
    0.24
    
    
    $
    0.23
    
    
    
    4.3
    %
    - 14 -




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##### Table of Contents



RESULTS OF OPERATIONS  Three months ended March 31, 2007 and 2006
 Net Interest Income
  Three Months Ended March 31,Percent2007
    
    2006
    
    Change(Dollars in thousands)Interest income
    
    $
    19,175
    
    
    $
    13,962
    
    
    
    37.3
    %Interest expense
    
    
    8,393
    
    
    
    5,387
    
    
    
    55.8
    %Net interest income before provision for loan losses
    
    
    10,782
    
    
    
    8,575
    
    
    
    25.7
    %Net interest margin
    
    
    4.00
    %
    
    
    4.47
    %
    
    
    (10.5
    %)
      - 15 -




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##### Table of Contents



ANALYSIS OF NET INTEREST INCOME
 Three months ended March 31,2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    32,885
    
    
    $
    408
    
    
    
    5.03
    %
    
    $
    19,247
    
    
    $
    236
    
    
    
    4.97
    %Time deposits
    
    
    2,066
    
    
    
    19
    
    
    
    3.73
    %
    
    
    6,943
    
    
    
    74
    
    
    
    4.32
    %Securities
    
    
    96,687
    
    
    
    1,243
    
    
    
    5.21
    %
    
    
    83,408
    
    
    
    824
    
    
    
    4.01
    %Loans (2)
    
    
    743,285
    
    
    
    17,505
    
    
    
    9.55
    %
    
    
    565,390
    
    
    
    12,828
    
    
    
    9.20
    %Total interest earning assets
    
    
    874,923
    
    
    
    19,175
    
    
    
    8.89
    %
    
    
    674,988
    
    
    
    13,962
    
    
    
    8.39
    %Non-interest earning assets
    
    
    30,448
    
    
    
    
    
    
    
    
    
    
    
    27,837Total assets
    
    $
    905,371
    
    
    
    
    
    
    
    
    
    
    $
    702,825Interest bearing liabilities:Interest bearing demand
deposits
    
    $
    14,100
    
    
    
    54
    
    
    
    1.55
    %
    
    $
    8,902
    
    
    
    38
    
    
    
    1.72
    %Savings and money market
deposits
    
    
    195,994
    
    
    
    2,051
    
    
    
    4.24
    %
    
    
    172,937
    
    
    
    1,541
    
    
    
    3.61
    %Certificates of deposit
    
    
    387,539
    
    
    
    4,882
    
    
    
    5.11
    %
    
    
    269,534
    
    
    
    2,864
    
    
    
    4.31
    %FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    55
    
    
    
    4.74
    %Long-term
    
    
    50,000
    
    
    
    678
    
    
    
    5.50
    %
    
    
    30,000
    
    
    
    306
    
    
    
    4.10
    %Securities sold under
repurchase agreements
    
    
    20,254
    
    
    
    220
    
    
    
    4.41
    %
    
    
    53,651
    
    
    
    282
    
    
    
    2.13
    %Junior subordinated
debentures
    
    
    27,837
    
    
    
    508
    
    
    
    7.40
    %
    
    
    17,527
    
    
    
    301
    
    
    
    6.96
    %Total interest bearing liabilities
    
    
    695,724
    
    
    
    8,393
    
    
    
    4.89
    %
    
    
    557,551
    
    
    
    5,387
    
    
    
    3.92
    %Non-interest bearing liabilities
    
    
    155,024
    
    
    
    
    
    
    
    
    
    
    
    98,295Total liabilities
    
    
    850,748
    
    
    
    
    
    
    
    
    
    
    
    655,846Redeemable preferred stock
and shareholders equity
    
    
    54,623
    
    
    
    
    
    
    
    
    
    
    
    46,979Total liabilities and
shareholders equity
    
    $
    905,371
    
    
    
    
    
    
    
    
    
    
    $
    702,825Net interest income
    
    
    
    
    
    $
    10,782
    
    
    
    
    
    
    
    
    
    
    $
    8,575Interest rate spread
    
    
    
    
    
    
    
    
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    4.47
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.00
    %
    
    
    
    
    
    
    
    
    
    
    5.15
    %
 
 (1)
    
    Interest income on loans includes loan fees of $1.3 million in 2007 and
$1.2 million in 2006.(2)
    
    Loans include nonaccrual loans.(3)
    
    Annualized - 16 -




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##### Table of Contents



ANALYSIS OF CHANGE IN INTEREST INCOME
 Three Months Ended March 31, 2007Increase (Decrease)Due To Change InVolume
    
    
    Rate
    
    
    Net Change(Dollars in thousands)Interest income:Federal funds sold
    
    $
    169
    
    
    $
    3
    
    
    $
    172Time deposits
    
    
    (44
    )
    
    
    (11
    )
    
    
    (55
    )Securities
    
    
    144
    
    
    
    275
    
    
    
    419Loans
    
    
    4,173
    
    
    
    504
    
    
    
    4,677Total interest earning assets
    
    
    4,442
    
    
    
    771
    
    
    
    5,213Interest expense:Interest bearing demand
    
    
    20
    
    
    
    (4
    )
    
    
    16Savings and money market
    
    
    221
    
    
    
    289
    
    
    
    510Certificates of deposit
    
    
    1,417
    
    
    
    601
    
    
    
    2,018FHLB advances:Short-term
    
    
    (28
    )
    
    
    (27
    )
    
    
    (55
    )Long-term
    
    
    249
    
    
    
    123
    
    
    
    372Securities sold under agreements to repurchase
    
    
    (244
    )
    
    
    182
    
    
    
    (62
    )Junior subordinated debentures
    
    
    187
    
    
    
    20
    
    
    
    207Total interest bearing liabilities
    
    
    1,822
    
    
    
    1,184
    
    
    
    3,006Net interest income
    
    $
    2,620
    
    
    $
    (413
    )
    
    $
    2,207
 Provision for Loan Losses
    Non-Interest Income
  - 17 -




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##### Table of Contents



NON-INTEREST INCOME
 Three Months Ended March 31,Percent2007
    
    
    2006
    
    
    Change(Dollars in thousands)Service charges
    
    $
    285
    
    
    $
    281
    
    
    
    1.4
    %Gain on sale of loans, net
    
    
    52
    
    
    
    87
    
    
    
    (40.2
    )%Loan broker fee income
    
    
    82
    
    
    
    77
    
    
    
    6.5
    %Other
    
    
    202
    
    
    
    193
    
    
    
    4.7
    %Total
    
    $
    621
    
    
    $
    638
    
    
    
    (2.7
    )%
 Non-Interest Expense
  Three Months Ended March 31,Percent2007
    
    
    2006
    
    
    Change(Dollars in thousands)Salaries and related benefits
    
    $
    4,173
    
    
    $
    2,999
    
    
    
    39.1
    %Occupancy and equipment
    
    
    945
    
    
    
    709
    
    
    
    33.3
    %Professional fees
    
    
    288
    
    
    
    277
    
    
    
    4.0
    %Data processing
    
    
    211
    
    
    
    212
    
    
    
    (0.5
    %)Other
    
    
    1,414
    
    
    
    1,255
    
    
    
    12.7
    %Total
    
    $
    7,031
    
    
    $
    5,452
    
    
    
    29.0
    %
    FINANCIAL CONDITION
 Regulatory Capital
   - 18 -




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##### Table of Contents



REGULATORY CAPITAL
March 31, 2007
 To Be Adequately
    
    To Be WellActual
    
    Capitalized
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)BancsharesTotal Capital (to riskweighted assets)
    
    $
    91,998
    
    
    
    11.15
    %
    
    $
    66,018
    
    
    
    >=8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to riskweighted assets)
    
    $
    72,971
    
    
    
    8.84
    %
    
    $
    33,009
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to average assets)
    
    $
    72,971
    
    
    
    8.07
    %
    
    $
    36,162
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ABankTotal Capital (to riskweighted assets)
    
    $
    91,198
    
    
    
    11.07
    %
    
    $
    65,926
    
    
    
    >=8.0
    %
    
    $
    82,407
    
    
    
    >=10.0
    %Tier 1 Capital (to riskweighted assets)
    
    $
    81,022
    
    
    
    9.83
    %
    
    $
    32,963
    
    
    
    >=4.0
    %
    
    $
    49,444
    
    
    
    >=6.0
    %Tier 1 Capital (to average assets)
    
    $
    81,022
    
    
    
    8.96
    %
    
    $
    36,162
    
    
    
    >=4.0
    %
    
    $
    45,202
    
    
    
    >=5.0
    %
 Liquidity and Cash Flow
      Cash Flow from Operating Activities
  Cash Flow from Investing Activities
  Cash Flows from Financing Activities
  - 19 -




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##### Table of Contents



Investments in Time Deposits and Securities
  TIME DEPOSIT INVESTMENTS
 March 31, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Time deposits maturing:Within one year
    
    
    844
    
    
    
    3.63
    %
    
    
    2,262
    
    
    
    4.35
    %After one year but within five years
    
    
    298
    
    
    
    5.73
    %
    
    
    294
    
    
    
    4.41
    %Total time deposits
    
    $
    1,142
    
    
    
    4.18
    %
    
    $
    2,556
    
    
    
    4.36
    %
  INVESTMENT SECURITIES
 March 31, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Investment securities maturing:Within one year
    
    $
    21,495
    
    
    
    4.83
    %
    
    $
    16,018
    
    
    
    3.99
    %After one year but within five years
    
    
    25,473
    
    
    
    5.43
    %
    
    
    31,484
    
    
    
    5.37
    %After five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations
and mortgage-backed securities
    
    
    53,517
    
    
    
    4.94
    %
    
    
    57,125
    
    
    
    4.94
    %Total investment securities
    
    $
    100,485
    
    
    
    5.04
    %
    
    $
    104,627
    
    
    
    4.92
    %
   - 20 -




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##### Table of Contents



FAIR VALUE OF INVESTMENT SECURITIES
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)March 31, 2007U.S. Agency securities
    
    $
    38,414
    
    
    $
    16
    
    
    $
    18
    
    
    $
    38,412Corporate bonds
    
    
    8,554
    
    
    
    
    
    
    
    124
    
    
    
    8,430Collateralized mortgage
obligations and
mortgage-backed
securities:
    
    
    53,517
    
    
    
    206
    
    
    
    312
    
    
    
    53,411$
    100,485
    
    
    $
    222
    
    
    $
    454
    
    
    $
    100,253
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)December 31, 2006U.S. Agency securities
    
    $
    37,927
    
    
    $
    16
    
    
    $
    88
    
    
    $
    37,855Corporate bonds
    
    
    9,575
    
    
    
    
    
    
    
    186
    
    
    
    9,389Collateralized mortgage
obligations and
mortgage-backed securities
    
    
    57,125
    
    
    
    206
    
    
    
    422
    
    
    
    56,909$
    104,627
    
    
    $
    222
    
    
    $
    696
    
    
    $
    104,153
  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)U.S. Agency securities
    
    $
    9,971
    
    
    $
    1
    
    
    $
    10,966
    
    
    $
    17
    
    
    $
    20,937
    
    
    $
    18Corporate bonds
    
    
    
    
    
    
    
    
    
    
    8,430
    
    
    
    124
    
    
    
    8,430
    
    
    
    124Collateralized mortgage
obligations and
mortgage-backed
securities
    
    
    4,290
    
    
    
    36
    
    
    
    16,916
    
    
    
    276
    
    
    
    21,206
    
    
    
    312$
    14,261
    
    
    $
    37
    
    
    $
    36,312
    
    
    $
    417
    
    
    $
    50,573
    
    
    $
    454
    Loans
  - 21 -




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##### Table of Contents



LOAN PORTFOLIO COMPOSITION
 March 31, 2007
    
    
    December 31, 2006Amount
    
    
    Percent of
    
    
    Amount
    
    
    Percent ofOutstanding
    
    
    Total
    
    
    Outstanding
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    202,854
    
    
    
    26.3
    %
    
    $
    203,984
    
    
    
    28.6
    %Construction loans
    
    
    282,017
    
    
    
    36.6
    
    
    
    260,805
    
    
    
    36.6Real estate loans
    
    
    274,037
    
    
    
    35.7
    
    
    
    241,734
    
    
    
    33.9Other loans
    
    
    11,099
    
    
    
    1.4
    
    
    
    6,062
    
    
    
    0.9770,007
    
    
    
    100.0
    %
    
    
    712,585
    
    
    
    100.0
    %Less  Deferred loan fees
    
    
    (2,830
    )
    
    
    
    
    
    
    (3,201
    )Less  Allowance for loan losses
    
    
    (10,208
    )
    
    
    
    
    
    
    (9,195
    )Net loans
    
    $
    756,969
    
    
    
    
    
    
    $
    700,189
     LOAN MATURITIES
 At March 31, 2007After One YearOne Year or
    
    
    Through FiveLess
    
    
    Years
    
    
    After Five Years
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    128,849
    
    
    $
    59,367
    
    
    $
    14,638
    
    
    $
    202,854Construction loans
    
    
    247,080
    
    
    
    34,937
    
    
    
    
    
    
    
    282,017Real estate loans
    
    
    37,177
    
    
    
    85,078
    
    
    
    151,782
    
    
    
    274,037Other loans
    
    
    5,311
    
    
    
    5,746
    
    
    
    42
    
    
    
    11,099$
    418,417
    
    
    $
    185,128
    
    
    $
    166,462
    
    
    $
    770,007
 
 Note:
    
    Loan maturities - 22 -




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##### Table of Contents



Non-Performing Assets
   NON-PERFORMING ASSETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Non-accrual loans
    
    $
    13,117
    
    
    $
    5,864Accruing loans past due 90 days or more
    
    
    
    
    
    
    241Troubled debt restructuring
    
    
    
    
    
    
    Other real estate owned
    
    
    
    
    
    
    Balance at end of period
    
    $
    13,117
    
    
    $
    6,105
   Impaired Loans
   Changes in Allowance for Loan Losses
  Off-Balance Sheet Credit Commitments and Contingent Obligations
   - 23 -




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##### Table of Contents



Deposits
   SOURCE OF DEPOSITS
 March 31, 2007
    
    
    December 31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in thousands)Branches
    
    $
    526,507
    
    
    
    66.6
    %
    
    $
    479,617
    
    
    
    66.9
    %Money desk
    
    
    92,441
    
    
    
    11.7
    
    
    
    74,802
    
    
    
    10.4Brokered
    
    
    171,493
    
    
    
    21.7
    
    
    
    162,449
    
    
    
    22.7Total
    
    $
    790,441
    
    
    
    100.0
    %
    
    $
    716,868
    
    
    
    100.0
    %
      - 24 -




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##### Table of Contents



MATURITIES OF CERTIFICATES OF DEPOSIT
 Maturities
    
    Amount(1)(Dollars in thousands)Three months or less
    
    $
    46,883Over three and through twelve months
    
    
    114,876Over twelve months
    
    
    231,643Total
    
    $
    393,402
 
 (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 5.31%
    
    August 200810,000
    
    
    Prime minus 2.87%
    
    December 200810,000
    
    
    Prime minus 2.83%
    
    January 200910,000
    
    
    Prime minus 2.80%
    
    December 200910,000
    
    
    Prime minus 2.74%
    
    January 2010$
    50,000
 Junior Subordinated Debentures
   - 25 -




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##### Table of Contents



Securities Sold Under Agreements to Repurchase.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    RATE SENSITIVITY
March 31, 2007
 Over Three
    
    
    Over OneThree
    
    
    Through
    
    
    Year
    
    
    OverMonths
    
    
    Twelve
    
    
    Through
    
    
    FiveOr Less
    
    
    Months
    
    
    Five Years
    
    
    Years
    
    
    Total(Dollars in thousands)AssetsFederal funds sold
    
    $
    52,395
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    52,395Time deposits with other financial
institutions
    
    
    741
    
    
    
    103
    
    
    
    298
    
    
    
    
    
    
    
    1,142Securities held to maturity
    
    
    13,472
    
    
    
    8,023
    
    
    
    25,473
    
    
    
    53,517
    
    
    
    100,485Loans, gross
    
    
    479,444
    
    
    
    76,809
    
    
    
    177,088
    
    
    
    38,082
    
    
    
    771,423Total ratesensitive assets
    
    $
    546,052
    
    
    $
    84,935
    
    
    $
    202,859
    
    
    $
    91,599
    
    
    $
    925,445Liabilities:Interest bearing demand deposits
    
    $
    15,400
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,400Savings and money market
    
    
    194,578
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194,578Certificates of deposit
    
    
    47,379
    
    
    
    116,158
    
    
    
    248,738
    
    
    
    99
    
    
    
    412,374Securities sold under agreements to
repurchase
    
    
    21,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,336FHLB advances
    
    
    40,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    50,000Junior subordinated debentures
    
    
    27,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,837Total rate sensitive liabilities
    
    $
    346,530
    
    
    $
    116,158
    
    
    $
    258,738
    
    
    $
    99
    
    
    $
    721,526Interval Gaps:Interest rate sensitivity gap
    
    $
    199,522
    
    
    $
    (31,223
    )
    
    $
    (55,879
    )
    
    $
    91,500
    
    
    $
    203,920Rate sensitive assets to
rate sensitive liabilities
    
    
    157.6
    %
    
    
    73.1
    %
    
    
    78.4
    %
    
    
    92,524.2
    %
    
    
    128.3
    %Cumulative Gaps:Cumulative interest rate
sensitivity gap
    
    $
    199,522
    
    
    $
    168,299
    
    
    $
    112,420
    
    
    $
    203,920
    
    
    $
    203,920Rate sensitive assets to
rate sensitive liabilities
    
    
    157.6
    %
    
    
    136.1
    %
    
    
    115.6
    %
    
    
    128.3
    %
    
    
    128.3
    %% of rate sensitive assets in period
    
    
    59.0
    %
    
    
    68.2
    %
    
    
    90.1
    %
    
    
    100.0
    %
    
    
    N/A
 - 26 -




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
     
 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
  - 27 -




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##### Table of Contents



ITEM 6. EXHIBITS
 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 15, 2007 pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President
and Chief Financial Officer of the Company dated May 15,
2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002.
 - 28 -




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##### Table of Contents



SIGNATURES
  DATE: May 15, 2007
    ALLIANCE BANCSHARES CALIFORNIABy:
    /s/ Daniel L. EricksonDaniel L. EricksonExecutive Vice President and
Chief Financial Officer - 29 -




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##### Table of Contents



EXHIBIT INDEX
 EXHIBITS
    
    DESCRIPTION31.1
    
    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 15, 2007 pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certificate by Daniel L. Erickson, Executive Vice President
and Chief Financial Officer of the Company dated May 15,
2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002.
 - 30 -