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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





(Mark One)





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




For the quarterly period ended June 30, 2002





OR





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




For the transition period from
 to





Commission file number 000-33455





ALLIANCE
BANCSHARES CALIFORNIA


(Exact name of Registrant as specified in its charter)





California

91-2124567(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification
Number)100 Corporate Pointe Culver City,
California

90230(Address of principal executive offices)

(Zip Code)





(310) 410-9281


(Registrants telephone number, including area code)








---

(Former name, former address and former fiscal


year, if
changed, since last year)





Check whether the issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90
days.    YES  ý    NO  ̈





APPLICABLE ONLY TO CORPORATE ISSUERS:





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





4,538,679 shares of Common Stock as of July 31, 2002





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ALLIANCE BANCSHARES CALIFORNIA





QUARTERLY REPORT ON FORM 10-QSB


FOR


THE QUARTER ENDED JUNE 30, 2002





TABLE OF CONTENTS





Page No.Part I.

Financial InformationItem 1.

Financial StatementsConsolidated Statements of Financial Condition June 30, 2002 and December 31, 2001

3Consolidated Statements of Operations Three and six months ended June 30, 2002 and 2001

4Consolidated Statements of Cash Flows Six months ended June 30, 2002 and 2001

5Notes to Consolidated Financial Statements

6Item 2.

Managements Discussion and Analysis or Plan of Operation

10Part II.

Other InformationItem 6.

Exhibits and Reports on Form 8-K

24Signatures



S-1Exhibit Index






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##### Table of Contents




PART I.





ITEM 1.    FINANCIAL STATEMENTS





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION





June 30, 2002

December 31, 2001(Unaudited)AssetsCash and due from banks

$
4,842,400

$
4,672,900Federal funds sold


14,205,000


9,420,000Total cash and cash equivalents


19,047,400


14,092,900Time deposits with other financial institutions


3,379,600


5,423,700Securities held to maturity


15,023,300


5,982,700Loans, net of the allowance for loan losses of $1,681,300 at June 30, 2002 and $2,426,500 at December 31,
2001


135,404,500


112,158,300Equipment and leasehold improvements, net


649,200


499,300Accrued interest receivable and other assets


2,699,500


2,329,500Total assets

$
176,203,500

$
140,486,400Liabilities and Shareholders EquityDeposits:Demand

$
27,732,900

$
28,593,100Savings and money market


32,823,100


33,485,200Time


92,700,200


58,606,500Total deposits


153,256,200


120,684,800Accrued interest payable and other liabilities


1,113,000


850,500FHLB advances


5,000,000


5,000,000Subordinated debentures


2,500,000


2,500,000Capital note


3,000,000


1,000,000Total liabilities


164,869,200


130,035,300Commitments and contingencies


-


-Shareholders equity:Serial preferred stock, no par value:Authorized20,000,000 sharesOutstandingnone


-


-Common stock, no par value:Authorized20,000,000 sharesOutstanding4,538,679 shares at June 30, 2002; 4,505,079 shares at December 31, 2001


3,480,300


3,439,100Undivided profits


7,854,000


7,012,000Total shareholders equity


11,334,300


10,451,100Total liabilities and shareholders equity

$
176,203,500

$
140,486,400





The accompanying notes are an integral part of these statements.




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PART I. ITEM 1. (continued)





CONSOLIDATED STATEMENTS OF OPERATIONS





(Unaudited)





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002

2001Interest income:Interest and fees on loans

$
3,104,800

$
2,845,300

$
5,702,900

$
5,641,500Interest on time deposits with other financial institutions


43,400


71,600


102,100


126,500Interest on securities held to maturity


114,400


126,200


193,700


262,000Interest on federal funds sold


66,000


97,000


118,200


249,400Total interest income


3,328,600


3,140,100


6,116,900


6,279,400Interest expense:Interest on deposits


978,200


1,251,400


1,845,700


2,503,900Interest on FHLB advances


52,100





103,600


Interest on subordinated optional convertible debentures


51,100


51,000


101,500


101,500Interest on capital note


31,400





49,300


Total interest expense


1,112,800


1,302,400


2,100,100


2,605,400Net interest income before provision for loan losses


2,215,800


1,837,700


4,016,800


3,674,000Provision for loan losses


150,000


75,000


250,000


150,000Net interest income


2,065,800


1,762,700


3,766,800


3,524,000Non-interest income


717,700


333,500


1,056,900


609,900Non-interest expenses:Salaries and related benefits


897,300


729,300


1,759,600


1,456,800Occupancy and equipment expenses


199,500


183,300


402,200


361,200Other operating expenses


647,900


552,800


1,234,900


1,033,600Total non-interest expense


1,744,700


1,465,400


3,396,700


2,851,600Earnings before income tax expense


1,038,800


630,800


1,427,000


1,282,300Income tax expense


404,700


295,300


585,000


526,300Net earnings

$
634,100

$
335,500

$
842,000

$
756,000Earnings per common share:Basic earnings per share

$
0.14

$
0.07

$
0.19

$
0.17Diluted earnings per share

$
0.11

$
0.06

$
0.15

$
0.14





The accompanying notes are an integral part of these statements.




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PART I. ITEM 1. (continued)





CONSOLIDATED STATEMENTS OF CASH FLOWS





(Unaudited)





Six Months Ended June 30,2002


2001Cash Flows from Operating Activities:Net earnings

$
842,000


$
756,000Adjustments to reconcile net earnings to net cash provided by operating activities:Net amortization (accretion) of discounts and premiums on securities held to maturity


500



(17,900
)Depreciation and amortization


111,200



93,100Provision for loan losses


250,000



150,000(Increase) decrease in accrued interest receivable and other assets


(370,000
)


27,000Increase (decrease) in accrued interest payable and other liabilities


262,500



1,800Net cash provided by operating activities


1,096,200



1,010,000Cash Flows from Investing Activities:Net (increase) decrease in:Time deposits with other financial institutions


2,044,100



(1,916,000
)Loans


(23,496,200
)


(10,352,100
)Purchase of equipment and leasehold improvements


(261,100
)


(87,300
)Purchase of securities held to maturity


(12,041,100
)


(46,800
)Proceeds from maturities of securities held to maturity


3,000,000



1,995,700Net cash used by investing activities


(30,754,300
)


(10,406,500
)Cash Flows from Financing Activities:Net increase (decrease) in:Demand deposits


(860,200
)


1,684,100Savings and money market deposits


(662,100
)


8,636,200Time deposits


34,093,700



4,159,600Proceeds from stock options exercised


41,200



1,500Proceeds from issuance of capital note


2,000,000



Net cash provided by financing activities


34,612,600



14,481,400Net increase in cash and cash equivalents


4,954,500



5,084,900Cash and cash equivalents, beginning of year


14,092,900



16,139,600Cash and cash equivalents, end of year

$
19,047,400


$
21,224,500Supplemental disclosure of cash flow informationCash paid during the year for:Interest

$
1,940,700


$
2,638,400Income taxes


330,000



533,400





The accompanying notes are an integral part of these statements.




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Part I. Item 1. (continued)





ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARY


Notes to Consolidated Financial Statements


(Unaudited)





1.  Nature of Business and Significant Accounting Policies





Organization





The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with
generally accepted accounting principles. However, these interim financial statements reflect all adjustments (consisting of normal recurring adjustments and accruals) which, in the opinion of the management, are necessary for a fair presentation of
the results for the interim periods presented. These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles on a basis consistent with, and should be read in conjunction
with the Companys audited financial statements as of and for the year ended December 31, 2001 and the notes thereto included in the Companys Form 10-KSB filed under the Securities Exchange Act of 1934.





The results of operations for the six month period ended June 30, 2002, are not necessarily indicative of the results of operations that
may be expected for any other interim period or for the year ending December 31, 2002.





The consolidated financial
statements include the accounts of Alliance Bancshares California (Bancshares), its wholly owned subsidiary Alliance Bank (the Bank) and Lexib Realcorp, a wholly owned subsidiary of the Bank. Bancshares is a bank holding
company which was incorporated in February 2000 in the State of California. The Bank is a California-chartered bank that commenced operations in 1980. The Banks deposit accounts are insured by the Federal Deposit Insurance Corporation up to
the maximum amount and under the terms allowed by federal regulations. References in these Notes to the Company refer to Bancshares and its consolidated subsidiaries.





On November 30, 2001, the Company acquired the Bank by means of a merger which resulted in the Bank becoming a wholly owned subsidiary of the Company and the Banks
shareholders became shareholders of the Company, owning the same number and percentage of Company shares as they had owned in the Bank. Prior to the acquisition, the Company only had nominal assets and had not conducted any business.





Use of Estimates





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





Reclassifications





Certain amounts for 2001 have been reclassified to conform to the 2002 presentation.





Income Per Share





Basic income per share for each of the periods presented was computed by
dividing the net income by the weighted average number of shares of common stock outstanding during each such period. The weighted average numbers of shares used in the basic earnings per share computations for the quarter and six months ended June
30, 2002 were 4,535,866 and 4,521,050, respectively, and for the quarter and six months ended June 30, 2001 were 4,505,079 and 4,504,681, respectively. The weighted average numbers of shares used in the diluted earnings per share computations for
the quarter and six months ended June 30, 2002 were 5,997,885 and 5,948,150, respectively, and for the quarter and six months ended June 30, 2001 were 5,996,381 and 5,988,453, respectively.




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##### Table of Contents







Basic and diluted earnings per share for
the quarter ended June 30, 2002 and 2001 are computed as follows:





2002

Net Earnings

Shares

Per Share AmtNet Earnings

$
634,100Basic earnings per share:Net earnings available to common shareholders

$
634,100

4,535,866

$
0.14Effect of conversion of subordinated debentures


28,300

1,250,000Effect of conversion of options and warrants




212,019Diluted earnings per share:Net earnings available to common shareholders

$
662,400

5,997,885

$
0.11





2001

Net Earnings

Shares

Per Share AmtNet Earnings

$
335,500Basic earnings per share:Net earnings available to common shareholders

$
335,500

4,505,079

$
0.07Effect of conversion of subordinated debentures


28,300

1,250,000Effect of conversion of options and warrants




241,302Diluted earnings per share:Net earnings available to common shareholders

$
363,800

5,996,381

$
0.06




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Basic and diluted earnings per share for the six months ended June 30, 2002 and
2001 are computed as follows:





2002

Net Earnings

Shares

Per Share AmtNet Earnings

$
842,000Basic earnings per share:Net earnings available to common shareholders

$
842,000

4,521,050

$
0.19Effect of conversion of subordinated debentures


57,500

1,250,000Effect of conversion of options and warrants




177,100Diluted earnings per share:Net earnings available to common shareholders

$
899,500

5,948,150

$
0.15





2001

Net Earnings

Shares

Per Share AmtNet Earnings

$
756,000Basic earnings per share:Net earnings available to common shareholders

$
756,000

4,504,681

$
0.17Effect of conversion of subordinated debentures


57,500

1,250,000Effect of conversion of options and warrants




233,772Diluted earnings per share:Net earnings available to common shareholders

$
813,500

5,988,453

$
0.14





Recent Accounting Pronouncements





SFAS 143





In June
2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses the recognition and measurement of obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 applies to
legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development or the normal operation of a long-lived asset. SFAS No. 143 required that the fair value of an asset retirement
obligation be recognized as a liability in the period in which it is incurred. The asset retirement obligation is to be capitalized as part of the carrying amount of the long-lived asset and the expense is to be recognized over the useful life of
the long-lived asset. SFAS No. 143 is effective January 1, 2003, with early adoption permitted. The Company plans to adopt SFAS No. 143 effective January 1, 2003, and does not expect the adoption of the statement to have a material effect on the
financial statements.





2.  Commitments and Contingencies





The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.
The Companys exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees written is represented by the contractual
notional amount of




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those instruments. The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.





Financial instruments whose contract amounts represent credit risk:

Contractual or notional amountCommitments to extend credit

$
45,401,000Standby letters of credit and financial guarantees written


452,000





Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Company upon extension of credit, is based on managements credit evaluation of the counterparty. Collateral held varies, but may include assignment of deposits and assignment of real estate interests. Standby letters of credit and
financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a customer to a first party. Those guarantees are primarily issued to support public and private borrowing arrangements. All standby
letters of credit will mature at various dates through 2003. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds certificates of deposit and
other collateral of at least 100% of the notional amount as support for letters of credit for which collateral is deemed necessary.





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







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





Background





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





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





Forward-Looking Information





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





Overview





We recorded net earnings of $634,100 ($0.14 basic and $0.11 diluted earnings per
share) for the second quarter of 2002 as compared to net earnings of $335,500 ($0.07 basic and $0.06 diluted earnings per share) for the second quarter of 2001. For the six months ended June 30, 2002, we generated net earnings of $842,000 ($0.19
basis and $0.15 diluted earnings per share) as compared to net earnings of $756,000 ($0.17 basic and $0.14 diluted earnings per share) for the same period of 2001. The improvements in net earnings in 2002 were due primarily to an increase in the net
gains on the sales of loans.





We continued to grow during the year, with assets increasing from $140.5 million at
December 31, 2001 to $176.2 million at June 30, 2002. Net loans continue to constitute the largest portion (approximately 81%) of our interest earning assets, and grew from $112.2 million at December 31, 2001 to $135.4 million at June 30, 2002. The
growth of the loan portfolio is significant because not only does it represent the greatest concentration of our assets, it is also the highest yielding of our assets. Our growth was funded principally by time deposits obtained primarily through our
money desk.





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





Six months ended June 30,2002


2001Return on average assets (1)


1.04
%


1.17
%Return on average shareholders equity (1)


15.67
%


16.07
%Net yield on average interest earning assets


5.16
%


6.10
%Earnings per common share:Basic earnings per share

$
0.19


$
0.17Diluted earnings per share

$
0.15


$
0.14


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



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RESULTS OF OPERATIONS  Three and Six Months Ended June 30, 2002 and 2001





Net Interest Income





We recorded interest income of $3,328,600 and $6,116,900, respectively, for the quarter and six months ended June 30, 2002 as compared to $3,140,100 and $6,279,400, respectively, for the quarter and
six months ended June 30, 2001. Interest expense totaled $1,112,800 and $2,100,100, respectively, for the quarter and six months ended June 30, 2002 as compared to $1,302,400 and $2,605,400, respectively, for the quarter and six months ended June
30, 2001. These decreases were due to declines in the weighted average yield earned and rates paid on these assets and liabilities, as the average amounts of interest earning assets and interest bearing liabilities increased from 2001 to 2002. The
decrease in weighted average yield and rates was due to declining market interest rates.





Net interest income
before provision for loan losses increased to $2,215,800 and $4,016,800 for the quarter and six months ended June 30, 2002, respectively, from $1,837,700 and $3,674,000 for the quarter and six months ended June 30, 2001, respectively. This was due
primarily to an increase in average interest earning assets from $128,637,000 and $123,852,000 for the quarter and six months ended 2001 to $169,320,000 and $155,602,300 for the quarter and six months ended 2002, respectively. However, net interest
income was also impacted by a decrease in the net yield on interest earning assets, or net interest margin, from 5.71% and 6.10% for the quarter and six months ended June 30, 2001, respectively, to 5.23% and 5.16% for the quarter and six months
ended June 30, 2002, respectively. This decrease reflected declining market interest rates initiated by the FRB, resulting in the weighted average prime rate decreasing from 8.63% and 7.98% for the quarter and six months ended June 30, 2001,
respectively, to 4.75% for the quarter and six months ended June 30, 2002. Because loans represented in excess of 80% of our interest earning assets, and because a substantial portion of our loans bear interest at rates tied to the prime rate, the
weighted average yield on our interest earning assets decreased 1.90% and 2.36%, respectively, from 9.76% and 10.14% for the quarter and six months ended June 30, 2001, respectively, to 7.86% and 7.78% for the quarter and six months ended June 30,
2002, respectively. By comparison, the weighted average rate paid on our interest bearing liabilities decreased only 1.86% for the quarter and six months ended June 30, 2001, as our time deposits, which have terms ranging from one day to six years,
adjust rates only upon maturity.




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





ANALYSIS OF NET INTEREST INCOME





Quarter Ended June 30,2002


2001Average Balance

Interest Inc./Exp.

Weighted Average Rates Earned/ Paid


Average Balance

Interest Inc./Exp.

Weighted Average Rates Earned/ PaidInterest earnings assets:Federal funds sold

$
16,554,000

$
66,000

1.60
%

$
9,119,400

$
97,000

4.26
%Time deposits


3,821,000


43,400

4.54
%


4,634,900


71,600

6.18
%Securities


10,492,000


114,400

4.36
%


8,090,300


126,200

6.24
%Loans


138,453,000


3,104,800

8.97
%


106,792,400


2,845,300

10.66
%Total interest-earnings assets


169,320,000


3,328,600

7.86
%


128,637,000


3,140,100

9.76
%Non-interest-earning assets


5,350,000








4,819,000Total assets

$
174,670,000







$
133,456,000Interest bearing liabilities:Interest-bearing demand deposits

$
2,800,000


3,300

0.47
%

$
2,520,200


9,600

1.52
%Savings and money market deposits


33,401,000


147,700

1.77
%


39,584,600


361,400

3.65
%Time deposits


94,705,000


827,200

3.49
%


58,988,900


880,400

5.97
%FHLB advances


5,000,000


52,100

4.17
%







Subordinated debentures


2,500,000


51,100

8.18
%


2,500,000


51,000

8.16
%Capital note


2,111,000


31,400

5.95
%







Total interest-bearing liabilities


140,517,000


1,112,800

3.17
%


103,593,700


1,302,400

5.03
%Non-interest bearing liabilities


23,154,700








20,233,300Total liabilities


163,671,700








123,827,000Shareholders equity


10,998,300








9,629,000Total liabilities and shareholders equity

$
174,670,000







$
133,456,000Net Interest income




$
2,215,800







$
1,837,700Interest rate spread







4.69
%







4.73
%Net interest margin







5.23
%







5.71
%




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##### Table of Contents




ANALYSIS OF NET INTEREST INCOMESix Months Ended June 30,2002


2001Average Balance

Interest Inc./Exp.

Weighted Average Rates Earned/Paid


Average Balance

Interest Inc./Exp.

Weighted Average Rates Earned/PaidInterest earning assets:Federal funds sold

$
14,265,400

$
118,200

1.64
%

$
9,951,300

$
249,400

5.01
%Time Deposits


4,538,100


102,100

4.45
%


4,216,500


126,500

6.00
%Securities


7,835,800


193,700

4.89
%


8,352,700


262,000

6.27
%Loans


128,963,000


5,702,900

8.84
%


101,331,500


5,641,500

11.13
%Total interest-earning assets


155,602,300


6,116,900

7.78
%


123,852,000


6,279,400

10.14
%Non-interest-earning assets


5,742,500








5,446,500Total assets

$
161,344,800







$
129,298,500Interest bearing liabilities:Interest-bearing demand deposits

$
2,757,400


6,600

0.48
%

$
2,712,400


23,300

1.72
%Savings and money market deposits


37,967,800


356,900

1.88
%


36,973,600


732,100

3.96
%Time deposits


73,889,900


1,482,200

4.01
%


57,091,300


1,748,500

6.13
%FHLB advances


5,000,000


103,600

4.14
%







Subordinated debentures


2,500,000


101,500

8.12
%


2,500,000


101,500

8.12
%Capital note


1,657,500


49,300

5.95
%







Total interest-bearing liabilities


123,772,600


2,100,100

3.39
%


99,277,300


2,605,400

5.25
%Non-interest bearing liabilities


26,828,700








20,613,300Total liabilities


150,601,300








119,890,600Shareholders equity


10,743,500








9,407,900Total liabilities and shareholders equity

$
161,344,800







$
129,298,500Net interest income




$
4,016,800







$
3,674,00Interest rate spread







4.39
%







4.89
%Net interest margin







5.16
%







5.90
%





As described below under the section Asset Liability
Management, our balance sheet was in a positive gap position at June 30, 2002. This implies that our earnings would increase in the short-term if interest rates rise and would decline in the short-term if interest rates were to fall.





Provision for Loan Losses





We charged $150,000 and $250,000 to the allowance for loan and lease losses (ALLL) for the quarter and six months ended June 30, 2002, respectively, as compared to $75,000 and $150,000 for
the quarter and six months ended June 30, 2001, respectively. These provisions were based on our policies and procedures established for the ALLL. See Changes in the Allowance for Loan Losses below.





The credit quality of our loans will be influenced by underlying trends in the economic cycle, particularly in Southern California, and
other factors, which are beyond managements control. Accordingly, no assurance can be given that we will not sustain loan losses that in any particular period are sizable in relation to the ALLL.




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Additionally, subsequent evaluation of the loan portfolio, in light of factors then prevailing, by us
and our regulators may require increases in the ALLL through changes to the provision for loan losses.





Non-Interest Income





Non-interest income includes primarily service charges on deposit accounts and net gains on sales of loans.
Non-interest income increased 115.2% and 73.3% from the quarter and six months ended June 30, 2001 to the quarter and six months ended June 30, 2002, respectively, primarily due to an increase in net gains on sales of loans (primarily the guaranteed
portion of SBA loans) of $437,600 and $410,500, respectively. Our ability to generate gains on sales of loans depends primarily on our ability to originate loans with favorable interest rates, which depends on a number of factors beyond our control,
including general economic conditions, loan demand, competition and market interest rates. Accordingly, gains and losses from sales of loans may fluctuate significantly from period to period, and results in any period relating to loan sales are not
necessarily indicative of results that may be obtained in any future period.





Non-Interest Expense





Salary and related expenses increased by 23.0% and 20.8% from the quarter and six months ended June 30, 2001 to the quarter and six months
ended June 30, 2002, respectively, due primarily to an increase in the number of employees, particularly in the lending departments. At June 30, 2002, we employed 43 full time employees, compared with 37 employees at June 30, 2001.





Occupancy and equipment expenses increased by 8.8% and 11.4% from the quarter and six months ended June 30, 2001 to the quarter
and six months ended June 30, 2002, respectively, due to increased rent expense and the depreciation cost of computer equipment. Rent expense increased further in August 2002 by $12,100 and is scheduled to increase again in December 2002 by $4,600
(or the date we take possession, whichever is later) from rent under a 60-month lease entered into in December 2001 for our new Orange County Regional Office in Irvine, California.





Other operating expenses increased 17.2% and 19.5% from the quarter and six months ended June 30, 2001 to the quarter and six months ended June 30, 2002, respectively, due
in part to increases in advertising and marketing expenses, legal costs, and data processing fees. Additional advertising and marketing expenses were incurred for customer appreciation functions and marketing brochures. The increase in legal costs
is related to the increase in loan charge-offs as discussed below in the section Changes in the Allowance for Loan Losses below. In general, data processing fees can be expected to increase as we grow because they are largely transaction
driven.





FINANCIAL CONDITION





Regulatory Capital





At June 30, 2002, Bancshares and
Banks Tier 1 capital, which is comprised of shareholders equity as modified by certain regulatory adjustments, were $11.3 million and $14.3 million, respectively. Our regulatory capital increased during the second quarter of 2002 as a
result of net earnings and, in the case of the Bank, from a $2.0 million capital contribution by Bancshares using the proceeds from its credit facility. At June 30, 2002, Bancshares and the Bank were each well capitalized as defined
under applicable regulations. The following table sets forth the regulatory standards for well capitalized and adequately capitalized institutions and the capital ratios for Bancshares and the Bank as of the date indicated.




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REGULATORY CAPITAL


At June 30, 2002


(dollars in thousands)





Actual


To Be Adequately Capitalized


To Be Well CapitalizedAmount

Ratio


Amount

Ratio


Amount

RatioBancsharesTotal Capital (to risk-weighted assets)

$
15,516

10.7
%

$
11,603

3
8.0
%

$
14,504

3
10.0
%Tier 1 Capital (to risk-weighted assets)

$
11,334

7.8
%

$
5,802

3
4.0
%

$
8,702


36.0
%Tier 1 Capital (to average assets)

$
11,334

7.2
%

$
6,296

3
4.0
%

$
7,870


35.0
%BankTotal Capital (to risk-weighted assets)

$
18,442

12.7
%

$
11,603

3
8.0
%

$
14,504

3
10.0
%Tier 1 Capital (to risk-weighted assets)

$
14,261

9.8
%

$
5,802

3
4.0
%

$
8,702


36.0
%Tier 1 Capital (to average assets)

$
14,261

9.1
%

$
6,296

3
4.0
%

$
7,870


35.0
%





Liquidity





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





Deposits provide most of our funds. This relatively stable and low-cost source of funds has,
along with shareholders equity, provided 94% and 98% of our funding as a percentage of average total assets during the six months ended June 30, 2002 and the year ended December 31, 2001, respectively. This reduction was directly attributable
to the increased volume of loans receivable, which outpaced the growth in deposits, and required an increase in borrowed funds.





Secondary sources of liquidity include borrowing arrangements with the FRB and the FHLB. Borrowings from the FRB are short-term and must be collateralized by pledged securities. As a member of the FHLB system, the Bank may obtain
advances from the FHLB pursuant to various credit programs offered from time to time. Credit limitations are based on the assessment by the FHLB of the Banks creditworthiness, including an adequate level of net worth, reasonable prospects of
future earnings, sources of funds sufficient to meet the scheduled interest payments, lack of financial or managerial deficiencies and other factors. Such advances may be obtained pursuant to several different credit programs, and each program has
its own rate, commitment fees and range of maturities. Funds borrowed from the FHLB must be collateralized either by pledged securities or by assignment of notes and may be for terms of a few days to several years. As of June 30, 2002, we had
$5,000,000 outstanding FHLB advances and had no outstanding borrowings from the FRB.





We also have liquidity as a
net seller of overnight funds at a level that will cushion any unexpected increase in demand for funds or decrease in funds deposited. During the six months ended June 30, 2002, we had an average balance of $14.3 million in overnight funds sold
representing 8.8% of total average assets.





Asset Liability Management





Based on our business, market risk is primarily limited to interest rate risk which is the impact that changes in interest rates would have on future earnings. Our
Investment Committee manages interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities. The principal objective of our




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asset/liability management is to maximize net interest income within acceptable levels of risk
established by policy. Interest rate risk is measured using financial modeling techniques, including stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is
affected by interest rate movements. Changes in interest rates have lesser impact the more that assets and liabilities reprice in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at
any point in time constitute interest sensitivity gaps, which is the difference between interest sensitive assets and interest sensitive liabilities. These static measurements do not reflect the results of any projected activity and are best used as
early indicators of potential interest rate exposures.





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





The following table
sets forth the distribution of our rate-sensitive assets and liabilities at June 30, 2002:





Three Months
Or Less


Over Three Through Twelve Months


Over One Year
Through Five Years



Over Five
Years


Non- Interest
Bearing


TotalAssetsFederal funds sold

$
14,205,000


$



$



$



$



$
14,205,000Time deposits with other financial institutions


537,300



671,000



2,171,300











3,379,600Securities held to maturity


1,000,000







14,023,300











15,023,300Loans, gross


74,884,800



27,657,000



24,564,000



9,980,000







137,085,800Non-interest earning assets


















6,509,800



6,509,800Total assets

$
90,627,100


$
28,328,000


$
40,758,600


$
9,980,000


$
6,509,800


$
176,203,500Liabilities and Shareholders Equity:Demand deposits

$



$



$



$



$
25,097,600


$
25,097,600Savings and money market accounts


35,458,400



















35,458,400Time deposits


24,255,200



45,666,000



22,779,000











92,700,200FHLB advances










5,000,000











5,000,000Subordinated optional convertible debentures










2,500,000











2,500,000Capital note










1,417,000



1,583,000







3,000,000Accrued interest payable and other liabilities


















1,113,000



1,113,000Shareholders equity


















11,334,300



11,334,300Total liabilities and shareholders equity

$
59,713,600


$
45,666,000


$
31,696,000


$
1,583,000


$
37,544,900


$
176,203,500Interest rate sensitivity gap

$
30,913,500


$
(17,338,000
)

$
9,062,600


$
8,397,000


$
(31,035,100
)

$
Cumulative interest rate sensitivity gap

$
30,913,500


$
13,575,500


$
22,638,100


$
31,035,100


$



$
Cumulative % of rate sensitive assets in maturity period


51.4
%


67.5
%


90.6
%


96.3
%


100.00
%Rate sensitive assets to rate sensitive liabilities


1.5



0.6



1.3



6.3



0.2Cumulative ratio


1.5



1.1



1.2



1.2



1.0





At June 30, 2002, our rate sensitive
balance sheet was in a positive gap position. This implies that our net interest margin would increase in the short-term if interest rates were to rise and would decline in the short-term if interest rates were to fall. Our net interest margin was
lower during the six months ended June 30, 2002 than in the same period of 2001 due to a decline in prevailing market rates of interest that had a greater effect on our assets than our liabilities. However, as noted above, the extent to which our
net interest margin will be impacted by changes in prevailing interests rates will depend on a number of factors, including how quickly rate sensitive assets and liabilities react to interest rate changes.




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Investments in Time Deposits and Securities





The following table provides certain information regarding our investments in time deposits and investment securities at the dates indicated.





TIME DEPOSITS AND INVESTMENT SECURITIES





At June 30, 2002


At December 31, 2001Book Value

Weighted Average Yield


Book Value

Weighted Average YieldTime deposits maturing:One year or less

$
1,208,300

3.46
%

$
4,334,700

4.61
%After one year but within five years


2,171,300

5.29
%


1,089,000

6.67
%Total time deposits

$
3,379,600




$
5,423,700Investment securities maturing:One year or less

$
1,000,000

6.26
%

$
2,996,300

6.45
%After one year but within five years


14,023,300

5.23
%


2,986,400

5.81
%Total investment securities

$
15,023,300




$
5,982,700





Our present strategy is to stagger the maturities of our time
deposit investments and investment securities to meet our overall liquidity requirements. At June 30, 2002, we classified all our investment securities as held to maturity as we intend to hold the securities to maturity.





Loans





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




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The following table sets forth the composition of our loan portfolio at the dates
indicated:





LOAN PORTFOLIO COMPOSITION





At June 30, 002


At December 31, 2001Amount Outstanding


Percent of Total


Amount Outstanding


Percent of TotalCommercial loans

$
44,052,000


32.1
%

$
35,793,600


31.1
%Construction loans


36,100,000


26.3



33,386,200


29.0Real estate loans


51,270,400


37.3



38,597,600


33.6Other loans


5,989,000


4.3



7,232,000


6.3137,411,400


100.0
%


115,009,400


100.0
%LessDeferred loan fees


(325,600
)





(424,600
)LessAllowance for loan losses


(1,681,300
)





(2,426,500
)Net loans

$
135,404,500





$
112,158,300





Our strategy has been to reduce our level of construction loans,
particularly the more speculative types, as a percentage of total assets and Tier 1 capital. Loan growth has occurred in our commercial and industrial loan portfolio, which has generated greater diversification, and in real estate loans.





Non-Performing Assets





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





NON-PERFORMING ASSETS





June 30, 2002

December 31, 2001Non-accrual loans


1,098,000

$
848,000Accruing loans past due 90 days or more





55,700Troubled debt restructurings





Other real estate owned





Total

$
1,098,000

$
903,700





Non-accrual loans at June 30, 2002 increased to $1,098,000 from
$848,000 at December 31, 2001. The largest nonaccrual loan consists of an $848,000 real estate construction loan for twenty-eight condominium units in Carson, California. The additional interest income that would have been recorded from non-accrual
loans, if the loans had not been on non-accrual status, was $54,900 for the six months ended June 30, 2002. Interest payments received on non-accrual loans are applied to principal unless there is no doubt as to ultimate full repayment of principal,
in which case, the interest payment is recognized as interest income. Interest income not recognized on




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non-accrual loans reduced the net yield on earning assets less than 0.1% for the six month periods ended
June 30, 2002 and 2001.





Impaired Loans





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





We
determine impaired loans by a periodic evaluation on an individual loan basis. At June 30, 2002 and December 31, 2001, we had classified $1,412,100 and $899,000, respectively, of our loans as impaired for which specific reserves of $287,000 and
none, respectively, were provided. In the six months ended June 30, 2002, we collected $27,300 on impaired loans. The majority of the impaired loan balance is concentrated in the $848,000 aforementioned condominium loan in Carson, California. The
borrower filed for bankruptcy on August 5, 2002. We have reserved $280,000 for this project which represents our best estimate of probable loss considering current market conditions.





Subsequent to June 30, 2002, we collected a $250,000 principal payment on a loan included above in impaired loans.





Changes in Allowance for Loan Losses





The
following table presents an analysis of changes in the allowance for loan losses during the periods indicated:





CHANGES
IN ALLOWANCE FOR LOAN LOSSES





Six Months Ended June 30,2002

2001Balance at begining of period

$
2,426,500

$
2,023,400Charge-offs


(1,022,400)


Recoveries


27,200


12,200Net charge-offs


(995,200)


12,200Additional provisions


250,000


150,000Balance at end of period

$
1,681,300

$
2,185,600





Charge-offs in the second quarter of 2002 included $841,000 related
to a business which failed during the quarter.





Off-Balance Sheet Credit Commitments and Contingent Obligations





Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition in the
loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since we expect some commitments to expire without being drawn upon, the total commitment amounts do not necessarily
represent future loans. At June 30, 2002, we had undisbursed loan commitments of $45.4 million.





Standby letters
of credit and financial guarantees are conditional commitments issued to secure the financial performance of a customer to a third party. These are issued primarily to support public and private borrowing arrangements. The credit risk involved in
issuing a letter of credit for a customer is essentially the same as that




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involved in extending a loan to that customer. We hold certificates of deposit and other collateral of
at least 100% of the notional amount as support for letters of credit for which we deem collateral to be necessary. At June 30, 2002, we had outstanding standby letters of credit with a potential $0.5 million of obligations. These standby letters of
credit will mature in 2003.





Deposits





Total deposits increased from $120.7 million at December 31, 2001 to $153.3 million at June 30, 2002. This increase was primarily due to a $34.1 million increase in time deposits primarily generated by
our money desk, which we used to fund the growth in our loan portfolio.





We telephonically solicit deposits
through a money desk, which attracts primarily time deposits nationwide. These deposits typically are placed with institutional investors and bear interest at the high end of national rates for time deposits with comparable maturities. We sometimes
deal with a broker or other intermediary which places the deposits with a number of institutions. We limit the amount of money desk deposits that are scheduled to mature in any one calendar month and limit the amount of funds purchased from one
intermediary to manage the risk of excessive dependence on any single deposit or depositor. In addition, we have historically maintained an appropriate level of liquidity specifically to counter any concurrent deposit reduction that might occur. As
of June 30, 2002, money desk deposits were $75.5 million representing 49% of total deposits, as compared to $39.9 million at December 31, 2001 representing 33% of total deposits.





Under Federal Deposit Insurance Corporation rules, banks that are not well capitalized may not be able to accept deposit funds obtained directly or indirectly by or through
any deposit broker without a waiver. The failure of the Bank to remain well capitalized could result in it not being able to accept deposits through deposit brokers, which might have a material adverse affect on us. At June 30, 2002,
approximately 23% of our money desk deposits (approximately $36 million) were from deposit brokers.





Borrowed Funds





Borrowed funds increased $2,000,000 during the six months ended June 30, 2002 due to additional advances
obtained by Bancshares under its $3,000,000 credit facility through Pacific Coast Bankers Bank. This facility bears interest at a rate of prime plus 1% (5.75% at June 30, 2002). As of June 30, 2002, $3,000,000 was outstanding under this credit
facility. Bancshares has contributed advances under this credit facility to the Bank as Tier 1 Capital.




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FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS





We face risk from changes in interest rates.





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





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




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




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




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




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




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




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





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





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





Our allowances for loan losses may be inadequate.





We establish allowances for loan losses against each segment of our loan portfolio. At June 30, 2002, our allowance for loan
losses equaled 1.2% of loans. Although we believed that we had established adequate allowances for loan losses as of June 30, 2002, the credit quality or our assets is affected by many factors beyond our control, including local and national
economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly, we can give
no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the FDIC and California Department of Financial Institutions, as an integral part of their examination process, periodically review
our allowance for loan losses and could require additional provisions for loan losses. Material future additions to the allowance for loan losses may also be necessary due to increases in the size and changes in the composition of our loan
portfolio. Increases in our provisions for loan losses would adversely affect our results of operations.




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





Deposits obtained through deposit brokers or a money desk are typically more interest
rate-sensitive than branch deposits. Accordingly, they typically are higher cost and less stable to the insured institution than deposits through branches.





We attract deposits telephonically nationwide through a money desk. As of June 30, 2002, money desk deposits were $75.5 million representing 49% of total deposits, as compared to $39.9 million at
December 31, 2001 representing 33% of total deposits.





Under the Federal Deposit Insurance Act, banks that are not
well-capitalized may not accept deposit funds obtained directly or indirectly by or through any deposit broker. The failure of the Bank to remain well capitalized would prevent us from accepting deposits from deposit brokers without a
waiver from the FDIC, which might have a material adverse affect on the Bank and its financial condition. At June 30, 2002, approximately 23%of our money desk deposits (approximately $36 million) were from deposit brokers.





Economic conditions may worsen.





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





At June 30, 2002, approximately 64% of our loans outstanding were collateralized by real estate located in California. Because of this concentration in California, our financial position and results of operations have been and are
expected to continue to be influenced by general trends in the California economy and its real estate market. Real estate market declines may adversely affect the values of the properties collateralizing loans. If the principal balances of our
loans, together with any primary financing on the mortgaged properties, equal or exceed the value of the mortgaged properties, we could incur higher losses on sales of properties collateralizing foreclosed loans. In addition, California historically
has been vulnerable to certain natural disaster risks, such as earthquakes and erosion-caused mudslides, which are not typically covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may adversely impact our
ability to recover losses on properties affected by such disasters and adversely impact our results of operations.





Our business is
very competitive.





There is intense competition in Southern California and elsewhere in the United States for
banking customers. We experience competition for deposits from many sources, including credit unions, insurance companies and money market and other mutual funds, as well as other commercial banks and savings institutions. We compete for loans and
deposits primarily with other commercial banks, mortgage companies, commercial finance companies and savings institutions. In recent years out-of-state financial institutions have entered the California market, which has also increased competition.
Many of our competitors have greater financial strength, marketing capability and name recognition than we do, and operate on a statewide or nationwide basis. In addition, recent developments in technology and mass marketing have permitted larger
companies to market loans more aggressively to our small business customers. Such advantages may give our competitors opportunities to realize greater efficiencies and economies of scale than we can. We can provide no assurance that we will be able
to compete effectively against our competition.




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





At June 30, 2002, we had outstanding
construction loans to developers for tract projects and single homes for sale to unidentified buyers totaling $19.7 million, representing 14.3% of our loan portfolio, and additional commitments for these projects in the amount of $28.0 million.
These types of loans generally have greater risks than loans on completed homes, multifamily and commercial properties. A construction loan generally does not cover the full amount of the construction costs, so the borrower must have adequate funds
to pay for the balance of the project. Price increases, delays and unanticipated difficulties can materially increase these costs. Further, even if completed, there is no assurance that the borrower will be able to sell the project on a timely or
profitable basis, as these are closely related to real estate market conditions, which can fluctuate substantially between the start and completion of the project. If the borrower defaults prior to completion of the project, the value of the project
will likely be less than the outstanding loan, and we could be required to complete construction with our own funds to minimize losses on the project.





Our business is heavily regulated.





Both Bancshares, as a bank holding company, and Bank,
as a California-chartered FDIC-insured bank, are subject to significant governmental supervision and regulation, which is intended primarily for the protection of depositors. Statutes and regulations affecting us may be changed at any time, and the
interpretation of these statutes and regulations by examining authorities also may change. We cannot assure you that future changes in applicable statutes and regulations or in their interpretation will not adversely affect our business.




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PART II





OTHER INFORMATION





ITEM 2.    CHANGES
IN SECURITIES AND USE OF PROCEEDS





In April 2002, Bancshares issued to a former officer 20,000 shares of
Common Stock for $1.00 per share and 12,000 shares for $1.50 per share upon exercise of options under the Bancshares 1996 Combined Incentive and Non-Qualified Stock Option Plan. No underwriters or brokers were involved in the transaction. Bancshares
issued these shares without registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act as a transaction not involving a public offering.





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





The Annual Meeting of Shareholders of the Company was held on May 31, 2002. In addition to the election of Directors to serve for a term of one year ending at the next Annual Meeting of Shareholders to be held in 2003, set
forth below are the matters voted on by Shareholders at the Annual Meeting and the results of the voting.





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





Votes CastNominee Director

For

WithheldMichael L. Abrams

3,801,681

1,700David B. Blenko

3,801,681

1,700Robert H. Bothner

3,801,081

2,300Lyn S. Caron

3,801,586

1,795Willie D. Davis

3,800,986

2,395Curtis S. Reis

3,800,913

2,468D. Gregory Scott

3,801,681

1,700Robert H. Thompson

3,801,081

2,300





(2)  Approval of Indemnification
Agreement.    The Shareholders approved a form of indemnification agreement to be entered into by and between the Company and all present and future directors and, at the discretion of the Board of Directors, certain present
and future officers as follows:





Votes Cast

Shares AbstainingFor

Against3,742,168

50,663

10,550





(3)  Ratification of Independent Public
Accountants.    The Shareholders ratified the Board of Directors selection of Grant Thornton LLP as the Companys independent public accountants for fiscal 2002 by the following vote:





Votes Cast

Shares AbstainingFor

Against3,795,120

1,811

6,450





ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K





(a)  Exhibits.





99.1 Certification of Chief Executive Officer


99.2 Certification of Chief Financial Officer





(b)  Reports on Form 8-K:





None







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SIGNATURES





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





DATE: August 13, 2002



ALLIANCE BANCSHARES CALIFORNIABy:

/s/    DANIEL L.
ERICKSONDaniel L. EricksonExecutive Vice President andChief Financial Officer







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