##### 



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 June 30, 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
    
    91-2124567(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)100 Corporate PointeCulver City, California
    
    90230(Address of principal executive offices)
    
    (Zip Code)
 (310) 410-9281
(Registrants telephone number, including area code)
 
 (Former name, former address and former fiscal year, if changed, since last year)
 þ o
  o o þ
 o þ




---



##### 



ALLIANCE BANCSHARES CALIFORNIA
 QUARTERLY REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED JUNE 30, 2007
 TABLE OF CONTENTS
 Page No.Part I. Financial InformationItem 1.
    
    Financial StatementsConsolidated Statements of Financial Condition at June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the three and six months ended June 30, 2007 and 2006
    
    
    5Consolidated Statements of Shareholders Equity for the three and six months ended June 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    32Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    33Item 1A.
    
    Risk Factors
    
    
    33Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3.
    
    Defaults Upon Senior Securities
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits
    
    
    34Signatures
    
    
    35
  - 2 -




---



##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)(Dollars in thousands)AssetsCash and due from banks
    
    $
    18,697
    
    
    $
    18,732Federal funds sold
    
    
    17,155
    
    
    
    28,810Total cash and cash equivalents
    
    
    35,852
    
    
    
    47,542Time deposits with other financial institutions
    
    
    1,207
    
    
    
    2,556Securities held to maturity, fair market value $100,190 at June 30, 2007;
$104,153 at December 31, 2006
    
    
    100,617
    
    
    
    104,627Loans held for sale
    
    
    51,589
    
    
    
    305Loans, net of the allowance for loan losses of $11,242 at June 30, 2007; $9,195
at December 31, 2006
    
    
    775,069
    
    
    
    700,189Equipment and leasehold improvements, net
    
    
    4,635
    
    
    
    4,286Accrued interest receivable and other assets
    
    
    16,314
    
    
    
    16,257Total assets
    
    $
    985,283
    
    
    $
    875,762Liabilities, Redeemable Preferred Stock and Shareholders EquityDeposits:Non-interest bearing demand
    
    $
    153,878
    
    
    $
    157,265Interest bearing:Demand
    
    
    17,803
    
    
    
    12,817Savings and money market
    
    
    205,503
    
    
    
    183,692Certificates of deposit
    
    
    425,484
    
    
    
    363,094Total deposits
    
    
    802,668
    
    
    
    716,868Accrued interest payable and other liabilities
    
    
    5,623
    
    
    
    7,774Securities sold under agreements to repurchase
    
    
    22,099
    
    
    
    20,000FHLB advances
    
    
    70,000
    
    
    
    50,000Junior subordinated debentures
    
    
    27,837
    
    
    
    27,837Total liabilities
    
    
    928,227
    
    
    
    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 June 30, 2007 and
December 31, 2006
    
    
    7,697
    
    
    
    7,6976.82% Series B Non-Cumulative Convertible Non-Voting:Authorized and outstanding  667,096 shares at June 30, 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 shares
Outstanding  6,166,879 shares at June 30, 2007 and 6,151,679 shares
at December 31, 2006
    
    
    6,679
    
    
    
    6,600Additional Paid in Capital
    
    
    818
    
    
    
    502Undivided profits
    
    
    30,543
    
    
    
    27,165Total shareholders equity
    
    
    38,040
    
    
    
    34,267Total liabilities, redeemable preferred stock and shareholders equity
    
    $
    985,283
    
    
    $
    875,762
  - 3 -




---



##### 



CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands except earnings per share)Interest Income:Interest and fees on loans
    
    $
    18,240
    
    
    $
    14,192
    
    
    $
    35,745
    
    
    $
    27,020Interest on time deposits with other financial institutions
    
    
    20
    
    
    
    57
    
    
    
    39
    
    
    
    131Interest on securities held to maturity
    
    
    1,246
    
    
    
    1,081
    
    
    
    2,489
    
    
    
    1,905Interest on federal funds sold
    
    
    759
    
    
    
    406
    
    
    
    1,167
    
    
    
    642Total interest income
    
    
    20,265
    
    
    
    15,736
    
    
    
    39,440
    
    
    
    29,698Interest Expense:Interest on deposits
    
    
    7,642
    
    
    
    5,382
    
    
    
    14,629
    
    
    
    9,825Interest on FHLB advances
    
    
    679
    
    
    
    453
    
    
    
    1,357
    
    
    
    815Interest on securities sold under repurchase agreements
    
    
    253
    
    
    
    344
    
    
    
    473
    
    
    
    626Interest on junior subordinated debentures
    
    
    512
    
    
    
    378
    
    
    
    1,020
    
    
    
    678Total interest expense
    
    
    9,086
    
    
    
    6,557
    
    
    
    17,479
    
    
    
    11,944Net interest income
    
    
    11,179
    
    
    
    9,179
    
    
    
    21,961
    
    
    
    17,754Provision for Loan Losses
    
    
    1,074
    
    
    
    973
    
    
    
    2,139
    
    
    
    1,723Net interest income after provision for loan losses
    
    
    10,105
    
    
    
    8,206
    
    
    
    19,822
    
    
    
    16,031Non-Interest Income
    
    
    774
    
    
    
    702
    
    
    
    1,395
    
    
    
    1,340Non-Interest Expense:Salaries and related benefits
    
    
    4,239
    
    
    
    3,046
    
    
    
    8,412
    
    
    
    6,045Occupancy and equipment expenses
    
    
    935
    
    
    
    696
    
    
    
    1,880
    
    
    
    1,405Professional fees
    
    
    419
    
    
    
    443
    
    
    
    707
    
    
    
    720Data processing
    
    
    220
    
    
    
    238
    
    
    
    431
    
    
    
    450Other operating expense
    
    
    1,473
    
    
    
    1,272
    
    
    
    2,886
    
    
    
    2,527Total non-interest expense
    
    
    7,286
    
    
    
    5,695
    
    
    
    14,316
    
    
    
    11,147Earnings Before Income Tax Expense
    
    
    3,593
    
    
    
    3,213
    
    
    
    6,901
    
    
    
    6,224Income tax expense
    
    
    1,428
    
    
    
    1,270
    
    
    
    2,867
    
    
    
    2,489Net Earnings
    
    $
    2,165
    
    
    $
    1,943
    
    
    $
    4,034
    
    
    $
    3,735Earnings per Common Share:Basic earnings per share
    
    $
    0.30
    
    
    $
    0.27
    
    
    $
    0.55
    
    
    $
    0.51Diluted earnings per share
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.53
    
    
    $
    0.49
  - 4 -




---



##### 



CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating Activities:Net earnings
    
    $
    4,034
    
    
    $
    3,735Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:Net amortization of discounts and premiums on securities held to
maturity
    
    
    60
    
    
    
    131Depreciation and amortization
    
    
    692
    
    
    
    551Provision for loan losses
    
    
    2,139
    
    
    
    1,723Compensation expense on stock options
    
    
    207
    
    
    
    164Excess tax benefit from share based payment arrangements
    
    
    (109
    )
    
    
    (36
    )Net gains on sales of loans held for sale
    
    
    (236
    )
    
    
    (188
    )Proceeds from sales of loans held for sale
    
    
    8,168
    
    
    
    13,433Originations of loans held for sale
    
    
    (6,504
    )
    
    
    (13,200
    )(Increase) decrease in accrued interest receivable and other assets
    
    
    443
    
    
    
    (2,812
    )(Increase) decrease in accrued interest payable and other liabilities
    
    
    (2,151
    )
    
    
    2,480Net cash provided by (used in) operating activities
    
    
    6,743
    
    
    
    5,981Cash Flows from Investing Activities:Net (increase) decrease in:Time deposits with other financial institutions
    
    
    1,349
    
    
    
    4,258Loans
    
    
    (129,731
    )
    
    
    (77,224
    )Purchase of equipment and leasehold improvements
    
    
    (1,041
    )
    
    
    (617
    )Redemption of FHLB stock
    
    
    237
    
    
    
    643Purchase of FHLB stock
    
    
    (628
    )
    
    
    Purchase of securities held to maturity
    
    
    (33,208
    )
    
    
    (31,798
    )Proceeds from maturities of securities held to maturity
    
    
    37,158
    
    
    
    8,912Investment in statutory trust
    
    
    
    
    
    
    (310
    )Net cash used in investing activities
    
    
    (125,864
    )
    
    
    (96,136
    )Cash Flows from Financing Activities:Net increase (decrease) in:Demand deposits
    
    
    (3,387
    )
    
    
    15,095Interest bearing demand deposits
    
    
    4,986
    
    
    
    1,815Savings and money market deposits
    
    
    21,811
    
    
    
    30,369Certificates of deposit
    
    
    62,390
    
    
    
    68,695Excess tax benefit from share based payment arrangements
    
    
    109
    
    
    
    36Proceeds from issuance of junior subordinated debentures
    
    
    
    
    
    
    10,310Increase in FHLB Advances
    
    
    20,000
    
    
    
    Increase in securities sold under agreements to repurchase
    
    
    2,099
    
    
    
    9,858Proceeds from stock options exercised
    
    
    79
    
    
    
    8Dividends paid on preferred stock
    
    
    (656
    )
    
    
    (656
    )Net cash provided by financing activities
    
    
    107,431
    
    
    
    135,530Net Increase (decrease) in Cash and Cash Equivalents
    
    
    (11,690
    )
    
    
    45,375Cash and Cash Equivalents, Beginning of Period
    
    
    47,542
    
    
    
    30,149Cash and Cash Equivalents, End of Period
    
    $
    35,852
    
    
    $
    75,524Supplemental Schedule of Noncash Investing and Financing ActivitiesTransfer from loans to loans held for sale
    
    $
    45,150
    
    
    
    Supplemental Disclosure of Cash Flow InformationCash paid during the period for:Interest
    
    $
    17,103
    
    
    $
    11,515Income taxes
    
    
    3,117
    
    
    
    2,141
  - 5 -




---



##### 



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Unaudited)
 For the Six months Ended June 30, 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
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (656
    )
    
    
    (656
    )Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164
    
    
    
    164Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,735
    
    
    
    3,735Balance, June 30, 2006
    
    
    6,068
    
    
    $
    6,415
    
    
    
    
    
    
    $
    23,713
    
    
    $
    30,128
 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
    
    
    15
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (656
    )
    
    
    (656
    )Tax benefit on non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    109Compensation expense on stock options
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    207Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,034
    
    
    
    4,034Balance, June 30, 2007
    
    
    6,167
    
    
    $
    6,679
    
    
    $
    818
    
    
    $
    30,543
    
    
    $
    38,040
 - 6 -




---



##### 



ALLIANCE BANCSHARES CALIFORNIA AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
June 30, 2007
(Unaudited)
 1. Nature of Business and Significant Accounting Policies
 Organization
    Use of Estimates
  Income Taxes
  Accounting for Uncertainty in Income Taxes
 - 7 -




---



##### 



Equity Compensation Plans
  Share-Based Payment ( )
   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
    
    
    97,000
    
    
    
    16.67Exercised
    
    
    15,200
    
    
    
    5.24Forfeited
    
    
    8,200
    
    
    
    9.69Outstanding at June 30, 2007
    
    
    498,600
    
    
    
    11.21
    
    
    
    6.97
    
    
    $
    2,640Vested or expected to vest at June
30, 2007
    
    
    479,000
    
    
    
    9.69
    
    
    
    6.28
    
    
    
    2,585Options exercisable at June 30, 2007
    
    
    180,400
    
    
    $
    6.79
    
    
    
    5.10
    
    
    $
    1,743
  - 8 -




---



##### 



2. Allowance for Loan Losses
  CHANGES IN ALLOWANCES FOR LOAN LOSSES
 Six Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Balance at beginning of period
    
    $
    9,195
    
    
    $
    6,051Charge-offs
    
    
    (282
    )
    
    
    (1,229
    )Recoveries
    
    
    128
    
    
    
    357Net charge-offs
    
    
    (154
    )
    
    
    (872
    )Additional provisions
    
    
    2,139
    
    
    
    1,723Other adjustments
    
    
    62
    
    
    
    23Balance at end of period
    
    $
    11,242
    
    
    $
    6,925
 3. Earnings per Share
  Per ShareThree Months Ended June 30, 2007
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    2,165Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,837
    
    
    
    6,166,538
    
    
    $
    0.30Preferred stock dividend
    
    
    328Effect of exercise of options and warrants
    
    
    
    
    
    
    68,923Effect 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
    
    $
    2,165
    
    
    
    7,635,607
    
    
    $
    0.28
 Per ShareThree Months Ended June 30, 2006
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    1,943Cash dividends on preferred stock
    
    
    (328
    )Net earnings available to common shareholders
    
    
    1,615
    
    
    
    6,066,781
    
    
    $
    0.27Preferred stock dividend
    
    
    328Effect of exercise of options and warrants
    
    
    
    
    
    
    162,569Effect 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
    
    $
    1,943
    
    
    
    7,629,496
    
    
    $
    0.25
  - 9 -




---



##### 



Per ShareSix Months Ended June 30, 2007
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    4,034Cash dividends on preferred stock
    
    
    (656
    )Net earnings available to common shareholders
    
    
    3,378
    
    
    
    6,160,664
    
    
    $
    0.55Preferred stock dividend
    
    
    656Effect of exercise of options and warrants
    
    
    
    
    
    
    70,080Effect 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
    
    $
    4,034
    
    
    
    7,630,890
    
    
    $
    0.53
 Per ShareSix Months Ended June 30, 2006
    
    Net Earnings
    
    
    Shares
    
    
    Amount(Dollars in thousands)Basic earnings per share:Net earnings
    
    $
    3,735Cash dividends on preferred stock
    
    
    (656
    )Net earnings available to common shareholders
    
    
    3,079
    
    
    
    6,066,264
    
    
    $
    0.51Preferred stock dividend
    
    
    656Effect of exercise of options and warrants
    
    
    
    
    
    
    173,848Effect 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
    
    $
    3,735
    
    
    
    7,640,258
    
    
    $
    0.49
 4. Stock Options
    Stock OptionCompensationExpense(Dollars in thousands)Remainder of 2007
    
    $
    2602008
    
    
    5062009
    
    
    4622010
    
    
    3412011
    
    
    1912012
    
    
    56Total
    
    $
    1,816
 - 10 -




---



##### 



Six Months Ended June 30,2007
    
    2006Risk-free rate
    
    4.8%
    
    5.0%Expected term
    
    4 to 7 years
    
    5 to 10 yearsExpected volatility
    
    36.04%
    
    42.5%
 5. Operation Segments
 Disclosures about Segments of an Enterprise and Related Information
     - 11 -




---



##### 



Regional
    
    
    Real EstateBanking
    
    
    IndustriesThree Months Ended June 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2007Interest income
    
    $
    7,828
    
    
    $
    8,486
    
    
    $
    1,047
    
    
    $
    2,904
    
    
    $
    20,265Credit for funds provided
    
    
    6,746
    
    
    
    412
    
    
    
    41
    
    
    
    (7,199
    )
    
    
    Total interest income
    
    
    14,574
    
    
    
    8,898
    
    
    
    1,088
    
    
    
    (4,295
    )
    
    
    20,265Interest expense
    
    
    3,739
    
    
    
    
    
    
    
    1
    
    
    
    5,346
    
    
    
    9,086Charge for funds used
    
    
    4,781
    
    
    
    4,479
    
    
    
    426
    
    
    
    (9,686
    )
    
    
    Total interest expense
    
    
    8,520
    
    
    
    4,479
    
    
    
    427
    
    
    
    (4,340
    )
    
    
    9,086Net interest income
    
    
    6,054
    
    
    
    4,419
    
    
    
    661
    
    
    
    45
    
    
    
    11,179Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,074
    
    
    
    1,074Net interest income after provision for loan losses
    
    
    6,054
    
    
    
    4,419
    
    
    
    661
    
    
    
    (1,029
    )
    
    
    10,105Non-interest income
    
    
    239
    
    
    
    113
    
    
    
    236
    
    
    
    186
    
    
    
    774Non-interest expense
    
    
    2,373
    
    
    
    652
    
    
    
    378
    
    
    
    3,883
    
    
    
    7,286Net contribution to earnings before tax expense
    
    $
    3,920
    
    
    $
    3,880
    
    
    $
    519
    
    
    $
    (4,726
    )
    
    $
    3,593
 Regional
    
    
    Real EstateBanking
    
    
    IndustriesThree Months Ended June 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2006Interest income
    
    $
    5,119
    
    
    $
    7,565
    
    
    $
    1,044
    
    
    $
    2,008
    
    
    $
    15,736Credit for funds provided
    
    
    4,802
    
    
    
    351
    
    
    
    45
    
    
    
    (5,198
    )
    
    
    Total interest income
    
    
    9,921
    
    
    
    7,916
    
    
    
    1,089
    
    
    
    (3,190
    )
    
    
    15,736Interest expense
    
    
    2,851
    
    
    
    1
    
    
    
    1
    
    
    
    3,704
    
    
    
    6,557Charge for funds used
    
    
    3,162
    
    
    
    3,555
    
    
    
    390
    
    
    
    (7,107
    )
    
    
    Total interest expense
    
    
    6,013
    
    
    
    3,556
    
    
    
    391
    
    
    
    (3,403
    )
    
    
    6,557Net interest income
    
    
    3,908
    
    
    
    4,360
    
    
    
    698
    
    
    
    213
    
    
    
    9,179Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    973
    
    
    
    973Net interest income after provision for loan losses
    
    
    3,908
    
    
    
    4,360
    
    
    
    698
    
    
    
    (760
    )
    
    
    8,206Non-interest income
    
    
    299
    
    
    
    30
    
    
    
    198
    
    
    
    175
    
    
    
    702Non-interest expense
    
    
    1,708
    
    
    
    468
    
    
    
    414
    
    
    
    3,105
    
    
    
    5,695Net contribution to earnings before tax expense
    
    $
    2,499
    
    
    $
    3,922
    
    
    $
    482
    
    
    $
    (3,690
    )
    
    $
    3,213
 - 12 -




---



##### 



Regional
    
    
    Real EstateBanking
    
    
    IndustriesSix Months Ended June 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2007Interest income
    
    $
    14,788
    
    
    $
    17,712
    
    
    $
    2,055
    
    
    $
    4,885
    
    
    $
    39,440Credit for funds provided
    
    
    12,954
    
    
    
    840
    
    
    
    81
    
    
    
    (13,875
    )
    
    
    Total interest income
    
    
    27,742
    
    
    
    18,552
    
    
    
    2,136
    
    
    
    (8,990
    )
    
    
    39,440Interest expense
    
    
    7,263
    
    
    
    
    
    
    
    1
    
    
    
    10,215
    
    
    
    17,479Charge for funds used
    
    
    9,083
    
    
    
    8,904
    
    
    
    835
    
    
    
    (18,822
    )
    
    
    Total interest expense
    
    
    16,346
    
    
    
    8,904
    
    
    
    836
    
    
    
    (8,607
    )
    
    
    17,479Net interest income
    
    
    11,396
    
    
    
    9,648
    
    
    
    1,300
    
    
    
    (383
    )
    
    
    21,961Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,139
    
    
    
    2,139Net interest income after provision for loan losses
    
    
    11,396
    
    
    
    9,648
    
    
    
    1,300
    
    
    
    (2,522
    )
    
    
    19,822Non-interest income
    
    
    523
    
    
    
    157
    
    
    
    360
    
    
    
    355
    
    
    
    1,395Non-interest expense
    
    
    4,771
    
    
    
    1,240
    
    
    
    780
    
    
    
    7,525
    
    
    
    14,316Net contribution to earnings before tax expense
    
    $
    7,148
    
    
    $
    8,565
    
    
    $
    880
    
    
    $
    (9,692
    )
    
    $
    6,901
 Regional
    
    
    Real EstateBanking
    
    
    IndustriesSix Months Ended June 30
    
    Centers
    
    
    Division
    
    
    SBA
    
    
    Other
    
    
    Total(Dollars in thousands)2006Interest income
    
    $
    9,844
    
    
    $
    14,170
    
    
    $
    1,976
    
    
    $
    3,708
    
    
    $
    29,698Credit for funds provided
    
    
    9,018
    
    
    
    659
    
    
    
    86
    
    
    
    (9,763
    )
    
    
    Total interest income
    
    
    18,862
    
    
    
    14,829
    
    
    
    2,062
    
    
    
    (6,055
    )
    
    
    29,698Interest expense
    
    
    5,291
    
    
    
    3
    
    
    
    2
    
    
    
    6,648
    
    
    
    11,944Charge for funds used
    
    
    5,893
    
    
    
    6,660
    
    
    
    743
    
    
    
    (13,296
    )
    
    
    Total interest expense
    
    
    11,184
    
    
    
    6,663
    
    
    
    745
    
    
    
    (6,648
    )
    
    
    11,944Net interest income
    
    
    7,678
    
    
    
    8,166
    
    
    
    1,317
    
    
    
    593
    
    
    
    17,754Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,723
    
    
    
    1,723Net interest income after provision for loan losses
    
    
    7,678
    
    
    
    8,166
    
    
    
    1,317
    
    
    
    (1,130
    )
    
    
    16,031Non-interest income
    
    
    617
    
    
    
    100
    
    
    
    350
    
    
    
    273
    
    
    
    1,340Non-interest expense
    
    
    3,386
    
    
    
    968
    
    
    
    811
    
    
    
    5,982
    
    
    
    11,147Net contribution to earnings before tax expense
    
    $
    4,909
    
    
    $
    7,298
    
    
    $
    856
    
    
    $
    (6,839
    )
    
    $
    6,224Segment assets as of:June 30, 2007
    
    
    421,855
    
    
    
    363,536
    
    
    
    33,898
    
    
    
    165,994
    
    
    
    985,283December 31, 2006
    
    
    322,610
    
    
    
    337,548
    
    
    
    34,345
    
    
    
    181,259
    
    
    
    875,762
  - 13 -




---



##### 



6. Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS 115 Accounting for Certain Investments in Debt
and Equity Securities
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Forward-Looking Information
  Overview
    - 14 -




---



##### 



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Return on average assets (1)
    
    
    0.89
    %
    
    
    1.01
    %
    
    
    0.87
    %
    
    
    1.03
    %Return on average shareholders equity (1)
    
    
    23.6
    %
    
    
    26.6
    %
    
    
    22.5
    %
    
    
    26.4
    %Net yield on average interest earning assets (1).
    
    
    4.74
    %
    
    
    4.96
    %
    
    
    4.86
    %
    
    
    5.10
    %
 
 (1)
    
    Annualized  Three Months Ended June 30,
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(Unaudited)(Dollars in thousands except per share amounts and percentagesNet interest income
before provision for loan
losses
    
    $
    11,179
    
    
    $
    9,179
    
    
    
    21.8
    %
    
    $
    21,961
    
    
    $
    17,754
    
    
    
    23.7
    %Provision for loan losses
    
    
    1,074
    
    
    
    973
    
    
    
    10.4
    %
    
    
    2,139
    
    
    
    1,723
    
    
    
    24.1
    %Non-interest expense
    
    
    7,286
    
    
    
    5,695
    
    
    
    27.9
    %
    
    
    14,316
    
    
    
    11,147
    
    
    
    28.4
    %Net earnings
    
    
    2,165
    
    
    
    1,943
    
    
    
    11.4
    %
    
    
    4,034
    
    
    
    3,735
    
    
    
    8.0
    %Earnings per common share:Basic earnings per share
    
    $
    0.30
    
    
    $
    0.27
    
    
    
    11.1
    %
    
    $
    0.55
    
    
    $
    0.51
    
    
    
    7.8
    %Diluted earnings per share
    
    $
    0.28
    
    
    $
    0.25
    
    
    
    12.0
    %
    
    $
    0.53
    
    
    $
    0.49
    
    
    
    8.2
    %
    - 15 -




---



##### 



RESULTS OF OPERATIONS  Three months and six months ended June 30, 2007 and 2006
 Net Interest Income
  Three Months Ended June 30,
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2007
    
    2006
    
    Change
    
    2007
    
    2006
    
    Change(Unaudited)(Dollars in thousands except per share amounts and percentagesInterest income
    
    $
    20,265
    
    
    $
    15,736
    
    
    
    28.8
    %
    
    $
    39,440
    
    
    $
    29,698
    
    
    
    32.8
    %Interest expense
    
    
    9,086
    
    
    
    6,557
    
    
    
    38.6
    %
    
    
    17,479
    
    
    
    11,944
    
    
    
    46.3
    %Net interest income
before provision
for loan losses
    
    
    11,179
    
    
    
    9,179
    
    
    
    21.8
    %
    
    
    21,961
    
    
    
    17,754
    
    
    
    23.7
    %Net interest margin
    
    
    4.74
    %
    
    
    4.96
    %
    
    
    (4.4
    )%
    
    
    4.86
    %
    
    
    5.10
    %
    
    
    (4.7
    )%
      - 16 -




---



##### 



- 17 -




---



##### 



ANALYSIS OF NET INTEREST INCOME
 Quarter ended June 30,2007
    
    
    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
    
    $
    57,510
    
    
    $
    759
    
    
    
    5.29
    %
    
    $
    32,096
    
    
    $
    406
    
    
    
    5.07
    %Time deposits
    
    
    1,972
    
    
    
    20
    
    
    
    4.07
    %
    
    
    5,273
    
    
    
    57
    
    
    
    4.34
    %Securities
    
    
    93,083
    
    
    
    1,246
    
    
    
    5.37
    %
    
    
    97,231
    
    
    
    1,081
    
    
    
    4.46
    %Loans (2)
    
    
    793,548
    
    
    
    18,240
    
    
    
    9.22
    %
    
    
    607,682
    
    
    
    14,192
    
    
    
    9.37
    %Total interest earning
assets
    
    
    946,113
    
    
    
    20,265
    
    
    
    8.59
    %
    
    
    742,282
    
    
    
    15,736
    
    
    
    8.50
    %Non-interest earning
assets
    
    
    29,210
    
    
    
    
    
    
    
    
    
    
    
    30,396Total assets
    
    $
    975,323
    
    
    
    
    
    
    
    
    
    
    $
    772,678Interest bearing liabilities:Interest bearing demand
deposits
    
    $
    16,452
    
    
    
    63
    
    
    
    1.54
    %
    
    $
    10,700
    
    
    
    45
    
    
    
    1.68
    %Savings and money market
deposits
    
    
    200,330
    
    
    
    2,090
    
    
    
    4.18
    %
    
    
    184,592
    
    
    
    1,755
    
    
    
    3.81
    %Certificates of deposit
    
    
    424,501
    
    
    
    5,489
    
    
    
    5.19
    %
    
    
    312,492
    
    
    
    3,582
    
    
    
    4.60
    %FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    62
    
    
    
    5.01
    %Long-term
    
    
    50,566
    
    
    
    679
    
    
    
    5.39
    %
    
    
    30,000
    
    
    
    391
    
    
    
    5.23
    %Securities sold under
repurchase agreements
    
    
    22,386
    
    
    
    253
    
    
    
    4.53
    %
    
    
    50,227
    
    
    
    344
    
    
    
    2.75
    %Junior subordinated
debentures
    
    
    27,837
    
    
    
    512
    
    
    
    7.38
    %
    
    
    22,682
    
    
    
    378
    
    
    
    6.68
    %Total interest bearing
liabilities
    
    
    742,072
    
    
    
    9,086
    
    
    
    4.91
    %
    
    
    615,693
    
    
    
    6,557
    
    
    
    4.27
    %Non-interest bearing
liabilities
    
    
    177,379
    
    
    
    
    
    
    
    
    
    
    
    108,665Total liabilities
    
    
    919,451
    
    
    
    
    
    
    
    
    
    
    
    724,358Redeemable preferred stock
and shareholders equity
    
    
    55,872
    
    
    
    
    
    
    
    
    
    
    
    48,320Total liabilities and
shareholders equity
    
    $
    975,323
    
    
    
    
    
    
    
    
    
    
    $
    772,678Net interest income
    
    
    
    
    
    $
    11,179
    
    
    
    
    
    
    
    
    
    
    $
    9,179Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.68
    %
    
    
    
    
    
    
    
    
    
    
    4.23
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.74
    %
    
    
    
    
    
    
    
    
    
    
    4.96
    %
 
 (1)
    
    Interest income on loans includes loan fees of $1.2 million in 2007 and $0.9 million
in 2006.(2)
    
    Loans include nonaccrual loans.(3)
    
    Annualized - 18 -




---



##### 



Six Months Ended June 30,2007
    
    
    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
    
    $
    45,198
    
    
    $
    1,167
    
    
    
    5.21
    %
    
    $
    26,731
    
    
    $
    642
    
    
    
    4.85
    %Time deposits
    
    
    2,019
    
    
    
    39
    
    
    
    3.90
    %
    
    
    6,549
    
    
    
    131
    
    
    
    4.04
    %Securities
    
    
    94,886
    
    
    
    2,489
    
    
    
    5.29
    %
    
    
    87,719
    
    
    
    1,905
    
    
    
    4.38
    %Loans (2)
    
    
    768,416
    
    
    
    35,745
    
    
    
    9.38
    %
    
    
    581,078
    
    
    
    27,020
    
    
    
    9.38
    %Total interest earning
assets
    
    
    910,519
    
    
    
    39,440
    
    
    
    8.73
    %
    
    
    702,077
    
    
    
    29,698
    
    
    
    8.53
    %Non-interest earning
assets
    
    
    29,828
    
    
    
    
    
    
    
    
    
    
    
    29,700Total assets
    
    $
    940,347
    
    
    
    
    
    
    
    
    
    
    $
    731,777Interest bearing liabilities:Interest bearing demand
deposits
    
    $
    15,276
    
    
    
    117
    
    
    
    1.54
    %
    
    $
    9,908
    
    
    
    83
    
    
    
    1.68
    %Savings and money market
deposits
    
    
    198,162
    
    
    
    4,141
    
    
    
    4.21
    %
    
    
    176,926
    
    
    
    3,296
    
    
    
    3.76
    %Certificates of deposit
    
    
    406,020
    
    
    
    10,371
    
    
    
    5.15
    %
    
    
    288,298
    
    
    
    6,446
    
    
    
    4.51
    %FHLB advances:Short-term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    118
    
    
    
    4.75
    %Long-term
    
    
    50,292
    
    
    
    1,357
    
    
    
    5.44
    %
    
    
    29,881
    
    
    
    697
    
    
    
    4.71
    %Securities sold under
repurchase agreements
    
    
    21,320
    
    
    
    473
    
    
    
    4.47
    %
    
    
    48,728
    
    
    
    626
    
    
    
    2.59
    %Junior subordinated
debentures
    
    
    27,837
    
    
    
    1,020
    
    
    
    7.39
    %
    
    
    20,104
    
    
    
    678
    
    
    
    6.80
    %Total interest bearing
liabilities
    
    
    718,907
    
    
    
    17,479
    
    
    
    4.90
    %
    
    
    578,845
    
    
    
    11,944
    
    
    
    4.16
    %Non-interest bearing
liabilities
    
    
    166,192
    
    
    
    
    
    
    
    
    
    
    
    105,408Total liabilities
    
    
    885,099
    
    
    
    
    
    
    
    
    
    
    
    684,253Redeemable preferred stock
and shareholders equity
    
    
    55,248
    
    
    
    
    
    
    
    
    
    
    
    47,524Total liabilities and
shareholders equity
    
    $
    940,347
    
    
    
    
    
    
    
    
    
    
    $
    731,777Net interest income
    
    
    
    
    
    $
    21,961
    
    
    
    
    
    
    
    
    
    
    $
    17,754Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.83
    %
    
    
    
    
    
    
    
    
    
    
    4.37
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.86
    %
    
    
    
    
    
    
    
    
    
    
    5.10
    %
 
 (1)
    
    Interest income on loans includes loan fees of $2.5 million in 2007 and $2.1 million
in 2006.(2)
    
    Loans include nonaccrual loans.(3)
    
    Annualized - 19 -




---



##### 



ANALYSIS OF CHANGE IN INTEREST INCOME
 Three Months Ended June 30, 2007
    
    
    Six Months Ended June 30, 2007Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Due To Change In
    
    
    
    
    
    
    Due To Change InVolume
    
    
    Rate
    
    
    Net Change
    
    
    Volume
    
    
    Rate
    
    
    Net Change(Dollars in thousands)Interest income:Federal funds sold
    
    $
    335
    
    
    $
    18
    
    
    $
    353
    
    
    $
    474
    
    
    $
    51
    
    
    $
    525Time deposits
    
    
    (34
    )
    
    
    (3
    )
    
    
    (37
    )
    
    
    (89
    )
    
    
    (3
    )
    
    
    (92
    )Securities
    
    
    (48
    )
    
    
    213
    
    
    
    165
    
    
    
    165
    
    
    
    419
    
    
    
    584Loans
    
    
    4,276
    
    
    
    (228
    )
    
    
    4,048
    
    
    
    8,715
    
    
    
    10
    
    
    
    8,725Total interest earning assets
    
    
    4,529
    
    
    
    
    
    
    
    4,529
    
    
    
    9,265
    
    
    
    477
    
    
    
    9,742Interest expense:Interest bearing demand
    
    
    22
    
    
    
    (4
    )
    
    
    18
    
    
    
    42
    
    
    
    (8
    )
    
    
    34Savings and money market
    
    
    156
    
    
    
    178
    
    
    
    334
    
    
    
    420
    
    
    
    425
    
    
    
    845Certificates of deposit
    
    
    1,405
    
    
    
    503
    
    
    
    1,908
    
    
    
    2,910
    
    
    
    1,015
    
    
    
    3,925FHLB advances:Short-term
    
    
    (62
    )
    
    
    
    
    
    
    (62
    )
    
    
    (118
    )
    
    
    
    
    
    
    (118
    )Long-term
    
    
    276
    
    
    
    12
    
    
    
    288
    
    
    
    537
    
    
    
    123
    
    
    
    660Securities sold under agreements to repurchase
    
    
    (247
    )
    
    
    156
    
    
    
    (91
    )
    
    
    (464
    )
    
    
    311
    
    
    
    (153
    )Junior subordinated debentures
    
    
    91
    
    
    
    43
    
    
    
    134
    
    
    
    279
    
    
    
    63
    
    
    
    342Total interest bearing liabilities
    
    
    1,641
    
    
    
    888
    
    
    
    2,529
    
    
    
    3,606
    
    
    
    1,929
    
    
    
    5,535Net interest income
    
    $
    2,888
    
    
    $
    (888
    )
    
    $
    2,000
    
    
    $
    5,659
    
    
    $
    (1,452
    )
    
    $
    4,207
 Provision for Loan Losses
    - 20 -




---



##### 



Non-Interest Income
   NON-INTEREST INCOME
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(Dollars in thousands except per share amounts and percentagesService charges
    
    $
    281
    
    
    $
    267
    
    
    
    5.2
    %
    
    $
    567
    
    
    $
    548
    
    
    
    3.5
    %Gain on sale of loans, net
    
    
    184
    
    
    
    101
    
    
    
    82.2
    %
    
    
    236
    
    
    
    188
    
    
    
    25.5
    %Loan broker fee income
    
    
    47
    
    
    
    122
    
    
    
    (61.5
    )%
    
    
    129
    
    
    
    200
    
    
    
    (35.5
    )%Other
    
    
    262
    
    
    
    212
    
    
    
    23.6
    %
    
    
    463
    
    
    
    404
    
    
    
    14.6
    %Total
    
    $
    774
    
    
    $
    702
    
    
    
    10.3
    %
    
    $
    1,395
    
    
    $
    1,340
    
    
    
    4.1
    %
 Non-Interest Expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(Dollars in thousands except per share amounts and percentagesSalaries and related benefits
    
    $
    4,239
    
    
    $
    3,046
    
    
    
    39.2
    %
    
    $
    8,412
    
    
    $
    6,045
    
    
    
    39.2
    %Occupancy and equipment
    
    
    935
    
    
    
    696
    
    
    
    34.3
    %
    
    
    1,880
    
    
    
    1,405
    
    
    
    33.8
    %Professional fees
    
    
    419
    
    
    
    443
    
    
    
    (5.4
    )%
    
    
    707
    
    
    
    720
    
    
    
    (1.8
    )%Data processing
    
    
    220
    
    
    
    238
    
    
    
    (7.6
    )%
    
    
    431
    
    
    
    450
    
    
    
    (4.2
    )%Other
    
    
    1,473
    
    
    
    1,272
    
    
    
    15.8
    %
    
    
    2,886
    
    
    
    2,527
    
    
    
    14.2
    %Total
    
    $
    7,286
    
    
    $
    5,695
    
    
    
    27.9
    %
    
    $
    14,316
    
    
    $
    11,147
    
    
    
    28.4
    %
    - 21 -




---



##### 



FINANCIAL CONDITION
 Regulatory Capital
   REGULATORY CAPITAL
June 30, 2007
 To Be Adequately
    
    To Be WellActual
    
    Capitalized
    
    CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)BancsharesTotal Capital (to
risk-weighted
assets)
    
    $
    95,736
    
    
    
    10.78
    %
    
    $
    71,080
    
    
    
    >=8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to
risk-weighted
assets)
    
    $
    84,645
    
    
    
    9.53
    %
    
    $
    35,540
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 Capital (to
average assets)
    
    $
    84,645
    
    
    
    8.69
    %
    
    $
    38,973
    
    
    
    >=4.0
    %
    
    
    N/A
    
    
    
    N/ABankTotal Capital (to
risk-weighted
assets)
    
    $
    94,762
    
    
    
    10.68
    %
    
    $
    70,971
    
    
    
    >=8.0
    %
    
    $
    88,714
    
    
    
    >=10.0
    %Tier 1 Capital (to
risk-weighted
assets)
    
    $
    83,671
    
    
    
    9.43
    %
    
    $
    35,486
    
    
    
    >=4.0
    %
    
    $
    53,229
    
    
    
    >=6.0
    %Tier 1 Capital (to
average assets)
    
    $
    83,671
    
    
    
    8.59
    %
    
    $
    38,973
    
    
    
    >=4.0
    %
    
    $
    48,716
    
    
    
    >=5.0
    %
 Liquidity and Cash Flow
    - 22 -




---



##### 



Cash Flow from Operating Activities
  Cash Flow from Investing Activities
  Cash Flows from Financing Activities
  Investments in Time Deposits and Securities
  TIME DEPOSIT INVESTMENTS
 June 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Time deposits maturing:Within one year
    
    
    909
    
    
    
    3.77
    %
    
    
    2,262
    
    
    
    4.35
    %After one year but within five years
    
    
    298
    
    
    
    5.73
    %
    
    
    294
    
    
    
    4.41
    %Total time deposits
    
    $
    1,207
    
    
    
    4.26
    %
    
    $
    2,556
    
    
    
    4.36
    %
  - 24 -




---



##### 



INVESTMENT SECURITIES
 June 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageBook Value
    
    
    Yield
    
    
    Book Value
    
    
    Yield(Dollars in thousands)Investment securities maturing:Within one year
    
    $
    4,020
    
    
    
    4.20
    %
    
    $
    16,018
    
    
    
    3.99
    %After one year but within five years
    
    
    29,464
    
    
    
    5.46
    %
    
    
    31,484
    
    
    
    5.37
    %After five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Collateralized mortgage obligations
and mortgage-backed securities
    
    
    67,133
    
    
    
    5.26
    %
    
    
    57,125
    
    
    
    4.94
    %Total investment securities
    
    $
    100,617
    
    
    
    5.27
    %
    
    $
    104,627
    
    
    
    4.92
    %
    FAIR VALUE OF INVESTMENT SECURITIES
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairAmortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)June 30, 2007U.S. Agency securities
    
    $
    25,449
    
    
    $
    
    
    
    $
    (65
    )
    
    $
    25,384Corporate bonds
    
    
    8,035
    
    
    
    
    
    
    
    (108
    )
    
    
    7,927Collateralized
mortgage obligations
and mortgage-backed
securities:
    
    
    67,133
    
    
    
    268
    
    
    
    (522
    )
    
    
    66,879$
    100,617
    
    
    $
    268
    
    
    $
    (695
    )
    
    $
    100,190
 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
  - 25 -




---



##### 



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
    
    $
    18,407
    
    
    $
    46
    
    
    $
    1,977
    
    
    $
    19
    
    
    $
    20,384
    
    
    $
    65Corporate bonds
    
    
    
    
    
    
    
    
    
    
    7,927
    
    
    
    108
    
    
    
    7,927
    
    
    
    108Collateralized mortgage
obligations and
mortgage-backed securities
    
    
    31,911
    
    
    
    196
    
    
    
    15,359
    
    
    
    326
    
    
    
    47,270
    
    
    
    522$
    50,318
    
    
    $
    242
    
    
    $
    25,263
    
    
    $
    453
    
    
    $
    75,581
    
    
    $
    695
    Loans
   LOAN PORTFOLIO COMPOSITION
 June 30, 2007
    
    
    December 31, 2006Amount
    
    
    Percent of
    
    
    Amount
    
    
    Percent ofOutstanding
    
    
    Total
    
    
    Outstanding
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    226,440
    
    
    
    28.7
    %
    
    $
    203,984
    
    
    
    28.6
    %Construction loans
    
    
    283,656
    
    
    
    36.0
    
    
    
    260,805
    
    
    
    36.6Real estate loans
    
    
    268,472
    
    
    
    34.0
    
    
    
    241,734
    
    
    
    33.9Other loans
    
    
    10,029
    
    
    
    1.3
    
    
    
    6,062
    
    
    
    0.9788,597
    
    
    
    100.0
    %
    
    
    712,585
    
    
    
    100.0
    %Less  Deferred loan fees, net
    
    
    (2,286
    )
    
    
    
    
    
    
    (3,201
    )Less  Allowance for loan losses
    
    
    (11,242
    )
    
    
    
    
    
    
    (9,195
    )Net loans
    
    $
    775,069
    
    
    
    
    
    
    $
    700,189
 - 26 -




---



##### 



LOAN MATURITIES
 At June 30, 2007After One YearOne Year or
    
    
    Through FiveLess
    
    
    Years
    
    
    After Five Years
    
    
    Total(Dollars in thousands)Commercial loans
    
    $
    128,998
    
    
    $
    79,163
    
    
    $
    18,279
    
    
    $
    226,440Construction loans
    
    
    251,672
    
    
    
    31,984
    
    
    
    
    
    
    
    283,656Real estate loans
    
    
    38,236
    
    
    
    101,278
    
    
    
    128,958
    
    
    
    268,472Other loans
    
    
    3,894
    
    
    
    6,093
    
    
    
    42
    
    
    
    10,029$
    422,800
    
    
    $
    218,518
    
    
    $
    147,279
    
    
    $
    788,597
 Non-Performing Assets
   NON-PERFORMING ASSETS
 June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Non-accrual loans
    
    $
    22,930
    
    
    $
    5,864Accruing loans past due 90 days or more
    
    
    3,037
    
    
    
    241Troubled debt restructuring
    
    
    
    
    
    
    Other real estate owned
    
    
    
    
    
    
    Balance at end of period
    
    $
    25,967
    
    
    $
    6,105
  - 27 -




---



##### 



Impaired Loans
   Changes in Allowance for Loan Losses
  Off-Balance Sheet Credit Commitments and Contingent Obligations
   Deposits
  - 28 -




---



##### 



SOURCE OF DEPOSITS
 June 30, 2007
    
    
    December 31, 2006Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in thousands)Regional Bank Centers
    
    $
    499,809
    
    
    
    62.3
    %
    
    $
    443,725
    
    
    
    61.9
    %Money desk
    
    
    98,343
    
    
    
    12.3
    
    
    
    74,802
    
    
    
    10.4Brokered
    
    
    163,047
    
    
    
    20.3
    
    
    
    162,449
    
    
    
    22.7Internet
    
    
    41,469
    
    
    
    5.1
    
    
    
    35,892
    
    
    
    5.0Total
    
    $
    802,668
    
    
    
    100.0
    %
    
    $
    716,868
    
    
    
    100.0
    %
      - 29 -




---



##### 



MATURITIES OF CERTIFICATES OF DEPOSIT
 Maturities
    
    Amount(1)(Dollars in thousands)Six months or less
    
    $
    35,414Over three and through twelve months
    
    
    139,573Over twelve months
    
    
    226,559Total
    
    $
    401,546
 
 (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 5.48%
    
    July 200710,000
    
    
    Fixed at 5.35%
    
    July 200710,000
    
    
    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$
    70,000
 Junior Subordinated Debentures
  - 30 -




---



##### 



Securities Sold Under Agreements to Repurchase.
 Subsequent event
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   - 31 -




---



##### 



RATE SENSITIVITY
June 30, 2007
 Over Three
    
    
    Over OneThree
    
    
    Through
    
    
    Year
    
    
    OverMonths
    
    
    Twelve
    
    
    Through
    
    
    FiveOr Less
    
    
    Months
    
    
    Five Years
    
    
    Years
    
    
    Total(Dollars in thousands)AssetsFederal funds sold
    
    $
    17,155
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,155Time deposits with other financial institutions
    
    
    806
    
    
    
    103
    
    
    
    298
    
    
    
    
    
    
    
    1,207Securities held to maturity
    
    
    2,006
    
    
    
    7,002
    
    
    
    24,476
    
    
    
    67,133
    
    
    
    100,617Loans, gross
    
    
    489,050
    
    
    
    70,265
    
    
    
    215,734
    
    
    
    62,851
    
    
    
    837,900Total rate-sensitive assets
    
    $
    509,017
    
    
    $
    77,370
    
    
    $
    240,508
    
    
    $
    129,984
    
    
    $
    956,879Liabilities:Interest bearing demand deposits
    
    $
    17,803
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,803Savings and money market
    
    
    205,503
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,503Certificates of deposit
    
    
    60,762
    
    
    
    139,573
    
    
    
    225,149
    
    
    
    
    
    
    
    425,484FHLB advances
    
    
    60,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    70,000Restructured repurchase agreement
    
    
    22,099
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,099Junior subordinated debentures
    
    
    27,837
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,837Total rate sensitive liabilities
    
    $
    394,004
    
    
    $
    139,573
    
    
    $
    235,149
    
    
    $
    
    
    
    $
    768,726Interval Gaps:Interest rate sensitivity gap
    
    $
    115,013
    
    
    $
    (62,203
    )
    
    $
    5,359
    
    
    $
    129,984
    
    
    $
    188,153Rate sensitive assets to rate sensitive liabilities
    
    
    129.2
    %
    
    
    55.4
    %
    
    
    102.3
    %
    
    
    N/A
    
    
    
    124.5
    %Cumulative Gaps:Cumulative interest rate sensitivity gap
    
    $
    115,013
    
    
    $
    52,810
    
    
    $
    58,169
    
    
    $
    188,153
    
    
    $
    188,153Rate sensitive assets to rate sensitive liabilities
    
    
    129.2
    %
    
    
    109.9
    %
    
    
    107.6
    %
    
    
    124.5
    %
    
    
    124.5
    %% of rate sensitive assets in period
    
    
    53.2
    %
    
    
    61.3
    %
    
    
    86.4
    %
    
    
    100.0
    %
    
    
    N/A
 
 ITEM 4. CONTROLS AND PROCEDURES
     - 32 -




---



##### 



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
  (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.
 Name
    
    Votes For
    
    WithheldMichael L. Abrams
    
    
    5,744,119
    
    
    
    26,504Robert H. Bothner
    
    
    5,732,719
    
    
    
    37,904Lyn S. Caron
    
    
    5,744,119
    
    
    
    26,504Blair A. Contratto
    
    
    5,744,119
    
    
    
    26,504Willie D. Davis
    
    
    5,744,119
    
    
    
    26,504Daniel T. Jackson
    
    
    5,744,119
    
    
    
    26,504Curtis S. Reis
    
    
    5,744,119
    
    
    
    26,504D. Gregory Scott
    
    
    5,744,119
    
    
    
    26,504Andrew A. Talley
    
    
    5,744,119
    
    
    
    26,504Robert H. Thompson
    
    
    5,744,119
    
    
    
    26,504
 (2)
    
    Ratification of Independent Public Accountants. The shareholders
ratified the selection of McGladrey & Pullen, LLP as the Companys independent public
accountants for fiscal 2007 by the following vote
 Votes For
    
    Votes Against
    
    Abstain5,659,372
    
    
    368
    
    
    
    110,883
 
 ITEM 5. OTHER INFORMATION
  - 33 -




---



##### 



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 August 10, 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 August 10, 2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002.
 - 34 -




---



##### 



SIGNATURES
  DATE: August 10, 2007
    ALLIANCE BANCSHARES CALIFORNIABy:
    /s/ Daniel L. EricksonDaniel L. EricksonExecutive Vice President and Chief
Financial Officer - 35 -




---



##### 



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 August 10, 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 August 10,
2007 pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002.
 - 36 -